Thermon Group Holdings, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Goodwill

Goodwill

3 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Acquisition, Goodwill and Other Intangible Assets

Sumac Transaction

On April 1, 2015, Thermon Canada, Inc. ("TCI"), a wholly owned indirect subsidiary of the Company, acquired a 75% controlling interest in the business previously operated by Sumac Fabrication Company Limited ("Sumac") for $10,956, (based on the Canadian Dollar to U.S. Dollar exchange rate on April 1, 2015) in cash, plus a non-interest bearing note ("performance based note") with a principal amount of $5,905 (based on the Canadian Dollar to U.S. Dollar exchange rate on April 1, 2015) that matures on April 1, 2016, with the actual amount payable at maturity ranging from zero up to a maximum of $7,500 Canadian Dollars, subject to the achievement of certain performance metrics during the 12 month period ending April 1, 2016. Since the terms of the performance based note include continued employment by Sumac's principals, the estimated payout will be accrued on a ratable basis as compensation expense until the actual amount becomes determinable on April 1, 2016.

Sumac is located in Fort McMurray, Alberta, Canada. Sumac's line of products and solutions are designed to provide a safe and efficient means of supplying temporary electrical power distribution and lighting at energy infrastructure facilities for new construction and during maintenance and turnaround projects at operating facilities. Sumac products include power distribution panels, master/slave sub-panels, power cords and lighting fixtures. Sumac products are sold to end-users operating in many of the same markets as our core thermal solutions, including heavy industrial settings, oil and gas refining and upgrading, power generation plants, petrochemical production facilities and mining operations. We believe we will be able to leverage our existing global sales force to further expand the reach of Sumac's product offerings. We recognized $9,255 of goodwill in connection with the Sumac acquisition that we expect will be deductible for Canadian taxation purposes.



Consideration to or on behalf of sellers at close	$	10,956
Fair value of total consideration transferred	$	10,956

The following table summarizes the preliminary fair value of the assets and liabilities assumed:



Assets acquired:
Accounts receivable	$	1,693
Inventories	1,299
Other current assets	123
Property, plant and equipment	1,316
Identifiable intangible assets	2,645
Goodwill	9,255
Total assets	16,331
Liabilities assumed:
Current liabilities	1,025
Noncurrent deferred tax liability	714
Total liabilities	1,739
Non-controlling interests	3,636
Total consideration	$	10,956

The fair value of accounts receivable represents Sumac's gross outstanding receivables as of the acquisition that we estimate will be fully collectible.

In total, $134 of transaction costs were incurred related to the Sumac transaction, all of which were incurred prior to the three months ended June 30, 2015.

Our provisional estimate of identifiable intangible assets at June 30, 2015 that were related to the Sumac transaction consisted of the following:



	Amortization period	Gross Carrying Amount at June 30, 2015		Accumulated Amortization		Net Carrying Amount at June 30, 2015

Order backlog	6 months	$	188	$	80	$	108
Customer relationships	3 years	1,890		157		1,733
Other	6.5 years	604		23		581
Total		$	2,682	$	260	$	2,422

The weighted average useful life of acquired finite lived intangible assets related to Sumac transaction is 3.6 years.

At June 30, 2015, approximately $1,141 of the purchase price was held in escrow to secure the sellers' indemnification obligations in the event of any breaches of representations and warranties contained in the definitive agreements.

Unitemp Transaction

On March 2, 2015, Thermon South Africa Pty. Ltd., a wholly owned indirect subsidiary of the Company, acquired substantially all of the operating assets and assumed certain operating liabilities of Unitemp cc (Unitemp or the Unitemp Transaction). The results of Unitemp's operations have been included in the consolidated financial statements since that date. Unitemp offers heating, sensing, portable instruments, monitoring and control solutions to industrial customers throughout Sub-Saharan Africa through its headquarters in Cape Town, South Africa and a branch location in Johannesburg, South Africa. The acquisition is expected to strengthen the Company's presence in the region and leverage the pre-existing sales channels that Unitemp has in the region. The goodwill of $1,630 arising from the acquisition relates to the foregoing expected benefits of the acquisition. The Company paid cash consideration of $3,890.



Consideration to or on behalf of sellers at close	$	3,890
Fair value of total consideration transferred	$	3,890

The following table summarizes the preliminary fair value of the assets and liabilities assumed:



Assets acquired:
Accounts receivable	$	1,346
Inventories	655
Other current assets	21
Property, plant and equipment	77
Identifiable intangible assets	1,294
Goodwill	1,630
Total assets	5,023
Liabilities assumed:
Current liabilities	415
Noncurrent deferred tax liability	718
Total liabilities	1,133
Total consideration	$	3,890

The fair value of accounts receivable represents Unitemp's gross outstanding receivables as of the acquisition that we estimate will be fully collectible.

In total, $34 of transaction costs were incurred related to the Unitemp Transaction.

At June 30, 2015, approximately $339 of the purchase price was held in escrow to secure the sellers' indemnification obligations in the event of any breaches of representations and warranties contained in the definitive agreements.

Our provisional estimate of identifiable intangible assets that were related to the Unitemp Transaction consisted of the following:



	Amortization period	Gross Carrying Amount at June 30, 2015		Accumulated Amortization		Net Carrying Amount at June 30, 2015		Gross Carrying Amount at March 31, 2015		Accumulated Amortization		Net Carrying Amount at March 31, 2015

Trademarks	8 years	$	769	$	31	$	738	$	780	$	8	$	772
Developed Technology	3 years	105		23		82		107		3		104
Customer Relationships	5 years	363		14		349		368		6		362
Total		$	1,237	$	68	$	1,169	$	1,255	$	17	$	1,238

Other intangible assets related to previous transactions consisted of the following:



	Gross Carrying Amount at June 30, 2015		Accumulated Amortization		Net Carrying Amount at June 30, 2015		Gross Carrying Amount at March 31, 2015		Accumulated Amortization		Net Carrying Amount at March 31, 2015
Trademarks	$	43,396	$	—	$	43,396	$	43,034	$	—	$	43,034
Developed technology	9,945		2,613		7,332		9,862		2,469		7,393
Customer relationships	93,221		46,886		46,335		92,581		44,195		48,386
Backlog	9,198		9,198		—		9,129		9,129		—
Certification	454		—		454		449		—		449
Other	1,630		1,381		249		1,630		1,317		313
Total	$	157,844	$	60,078	$	97,766	$	156,685	$	57,110	$	99,575

Goodwill

The carrying amount of goodwill as of June 30, 2015 is as follows:



	Amount
Balance as of March 31, 2015	$	105,232
Goodwill acquired	9,255
Foreign currency translation impact	710
Balance as of June 30, 2015	$	115,197

The excess purchase price over the fair value of assets acquired is recorded as goodwill. Goodwill is tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist. We perform a qualitative analysis to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. In addition to the qualitative analysis, we also perform a quantitative analysis using the income approach. Our annual impairment test will be performed during the fourth quarter of our fiscal year. At June 30, 2015, there were no indicators of a goodwill impairment. The Sumac transaction was structured as an asset purchase and the $9,255 in goodwill associated with that transaction will be deductible for tax purposes in Canada. All remaining goodwill at June 30, 2015 is not deductible for tax purposes.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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