Thermon Group Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Mar. 31, 2015

Income taxes included in the consolidated income statement consisted of the following



		Year Ended March 31, 2015			Year Ended March 31, 2014			Year Ended March 31, 2013
Current provision:
	Federal provision (benefit)	$	8,402		$	(1,594	)	$	3,835
	Foreign provision	13,160			12,451			12,352
	State provision	324			484			422
Deferred provision:
	Federal deferred benefit	(5,063		)	(2,515		)	(376		)
	Foreign deferred benefit	(3,498		)	(1,790		)	(1,646		)
	State deferred benefit	(149		)	(72		)	(11		)
Total provision for income taxes		$	13,176		$	6,964		$	14,576

Deferred income tax assets and liabilities were as follows:



		March 31,
		2015			2014
Deferred tax assets:
Current
	Accrued liabilities and reserves	$	2,877		$	1,655
	Net operating loss carry-forward	195			—
	Unrealized gain on hedge	8			39
	Inventories	519			399
Total current deferred tax assets		3,599			2,093

Non-current
	Foreign tax credit carry forward	57			1,722
	Capitalized transaction costs	601			670
	Net operating loss carry-forward	488			872
	Valuation allowance	(48		)	(872		)
	Stock option compensation	831			796
	Interest rate swap included in Other Comprehensive Loss	261			—
	Foreign deferred benefits	425			279
	Other	91			133
Total non-current deferred tax assets		2,706			3,600

Deferred tax liabilities:
Current
Prepaid expenses		(50		)	(47		)
Total current deferred tax liabilities		(50		)	(47		)
Non-current
Intangible assets		(30,444		)	(35,088		)
Property, plant and equipment		(2,976		)	(2,988		)
Undistributed foreign earnings		(121		)	(3,141		)
Total non-current tax liabilities		(33,541		)	(41,217		)

Net current deferred tax asset		$	3,549		$	2,046
Net non-current deferred tax liability		$	(30,835	)	$	(37,617	)

As of March 31, 2015, the Company had a foreign tax net operating loss carry-forward ("NOL") of $2,142 that does not expire. During the year ended March 31, 2015, the Company made an operational change in the jurisdiction that has the NOL and determined that it could be utilized in future periods. The valuation reserve previously recorded on the associated deferred tax asset was released and the Company recorded a tax benefit of $634.

The U.S. and non-U.S. components of income (loss) from continuing operations before income taxes were as follows:



	Year Ended March 31, 2015		Year Ended March 31, 2014			Year Ended March 31, 2013
U.S.	$	22,493	$	(6,315	)	$	4,951
Non-U.S.	40,069		39,078			36,599
Income from continuing operations	$	62,562	$	32,763		$	41,550

The difference between the provision for income taxes and the amount that would result from applying the U.S. statutory tax rate to income before provision for income taxes is as follows:



		Year Ended March 31, 2015			Year Ended March 31, 2014			Year Ended March 31, 2013
Notional U.S. federal income tax expense at statutory rate		$	21,980		$	11,467		$	14,543
Adjustments to reconcile to the income tax provision:
U.S. state income tax provision, net		66			243			263
	Undistributed foreign earnings	(3,105		)	—			44
	Release of valuation allowance for foreign net operating loss carry forward	(634		)	—			—
	Rate difference-international subsidiaries	(4,113		)	(3,409		)	(270		)

	Effect of permanent tax differences, net	(846		)	179			115
	Charges/(benefits) related to uncertain tax positions	61			(797		)	143
	Release of tax liability from Predecessor owners	—			(575		)	—
	Other	(233		)	(144		)	(262		)
Provision for income taxes		$	13,176		$	6,964		$	14,576

We have adopted a permanent reinvestment position whereby we expect to reinvest our foreign earnings for most of our foreign subsidiaries and do not expect to repatriate future earnings. As a result of this policy, we will not accrue a tax liability in anticipation of future dividends from our significant foreign subsidiaries. The estimated annual effective tax rate for the fiscal year ended March 31, 2015 reflects the estimated taxable earnings of our various foreign subsidiaries and the applicable local tax rates and after accounting for certain permanent differences, such as nondeductible compensation expenses. During the year ended March 31, 2015, the Company released a net deferred tax liability of $3,105 for taxes accrued on previously undistributed foreign earnings that are no longer expected to be repatriated.

Since we have established a permanent reinvestment policy on foreign earnings, we have not established a deferred tax liability for the U.S. tax associated with potential repatriation of foreign earnings. At March 31, 2015, we had not provided for U.S. federal income taxes and foreign withholding taxes on approximately $106,124 of available earnings in our foreign subsidiaries that are expected to be indefinitely invested. Future tax law changes or changes in the needs of our foreign subsidiaries could cause us to reconsider our policy and repatriate such earnings to the U.S. in the form of dividends. Any such dividends would be limited to the actual cash or assets available at our foreign subsidiaries, which are also subject to foreign currency fluctuations. Upon repatriation, the U.S. tax liability would be reduced by any foreign taxes already paid. We estimate that the ultimate tax liability for the repatriation of our foreign earnings would be in the range of $8,000 to $10,000.

The deferred tax liability recorded on the U.S. financial statements that was previously recorded on prior foreign earnings is subject to fluctuations in the U.S. dollar/foreign currency exchange rate each year. The translation effect to our deferred tax liability is included as part of the “Foreign currency translation adjustment” within “Other comprehensive income” and there was no effect in the year ended March 31, 2015 and an increase of $525 and $52 to other comprehensive income for the years ended March 31, 2014 and 2013, respectively.

For the year ended March 31, 2014, the United States entities generated a net operating loss as result of the premiums paid and other costs related to the refinancing of the senior secured notes. The benefit of the net operating loss carry forward was fully utilized by our United States operations during the year ended March 31, 2015. During the year ended March 31, 2015, we received a refund from the United States Internal Revenue Service of $3,220, which relates to net operating losses that were previously carried back to our fiscal 2012 tax year.

As of March 31, 2015, the tax years 2011 through 2014 remain open to examination by the major taxing jurisdictions to which we are subject with the exception of Canada as discussed below. The Company’s U.S. federal income tax return is under exam for the tax year ended March 31, 2011. The Company’s Canadian federal income tax returns are under exam for the Predecessor’s tax years ended March 31, 2008, 2009 and 2010. See Note 12, “Commitments and Contingencies.”

We maintain a liability for uncertain tax positions. During the year ended March 31, 2015, we concluded an income tax matter in Russia. As a result, we released reserves for uncertain tax positions taken on the periods under examination and recorded a related tax benefit of $167. Additionally, $61 of interest and penalties were accrued on previously established reserves. Activity within our reserve for uncertain tax positions as well as the penalties and interest are recorded as a component of the Company's income tax expense. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Year Ended March 31, 2015			Year Ended March 31, 2014
Beginning balance	$	854		$	1,651
Additions based on tax positions related to the current year	—			167
Reductions for tax positions of prior years	—			(944		)
Settlements	(167		)	(80		)
Interest and penalties on prior reserves	61			60
Reserve for uncertain income taxes	$	748		$	854

We expect that most or all of our liability for uncertain tax positions will be released during fiscal 2016 as the periods to which they relate will close.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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