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

Annual report pursuant to Section 13 and 15(d)

Segment Information

Segment Information

12 Months Ended

Mar. 31, 2018

In connection with acquisitions made since fiscal 2015, the Company reviewed its determination of segments. Previously, we aggregated geographic markets into one reportable segment. Based on our review, we revised our segment reporting to four reportable segments based on four geographic countries or regions: United States, Canada, Europe and Asia. Within our four reportable segments, our primary products and services are focused on thermal solutions primarily related to the electrical heat tracing industry. Each of our reportable segments serves a similar class of customers including large EPC companies, international and regional oil and gas companies, commercial sub-contractors, electrical component distributors and direct sales to existing plant or industrial applications. Profitability within our segments is measured by operating income. Profitability can vary in each of our reportable segments based on the competitive environment within the region, the level of corporate overhead, such as the salaries of our senior executives, and the level of research and development and marketing activities in the region, as well as the mix of products and services. Since March 2015, we have acquired Unitemp, IPI, Sumac and THS. Both Unitemp and IPI offer thermal solutions and have been included in our Europe and United States reportable segments, respectively. Sumac provides temporary power products that differ from our core thermal solutions business. As our operating results from Sumac comprise less than 10% of our total sales and operating income, Sumac has been aggregated in our Canada segment. THS, recently acquired in October 2017, has similar economic characteristics as the core Thermon process heating operations. Management intends to integrate THS into the existing Thermon operations as soon as practicable. Therefore, THS has been aggregated in our Canada and United States segments. For purposes of this note, revenue is attributed to individual countries on the basis of the physical location and jurisdiction of organization of the subsidiary that invoices the material and services.

Total sales to external customers, inter-segment sales, depreciation expense, amortization expense, income from operations and total assets classified by major geographic area in which the Company operates are as follows:



	Year Ended March 31, 2018			Year Ended March 31, 2017			Year Ended March 31, 2016
Sales to External Customers:
United States	$	114,548		$	119,791		$	126,033
Canada	94,427			41,721			56,925
Europe	68,352			71,133			65,370
Asia	31,282			31,485			33,600
	$	308,609		$	264,130		$	281,928
Inter-segment Sales:
United States	$	50,155		$	45,966		$	50,807
Canada	7,294			3,610			3,886
Europe	1,614			1,580			2,367
Asia	1,668			1,407			435
	$	60,731		$	52,563		$	57,495
Depreciation Expense:
United States	$	4,326		$	3,632		$	3,117
Canada	3,019			1,933			1,071
Europe	476			301			296
Asia	141			194			171
	$	7,962		$	6,060		$	4,655
Amortization of Intangibles:
United States	$	6,018		$	5,860		$	6,080
Canada	7,979			3,538			3,543
Europe	1,398			1,310			1,426
Asia	1,063			1,064			1,063
	$	16,458		$	11,772		$	12,112
Income from Operations:
United States	$	484		$	5,359		$	20,607
Canada (a)	26,198			8,040			7,302
Europe (b)	6,842			9,095			8,586
Asia	4,111			4,512			5,541
Unallocated:
Public company costs	(1,378		)	(1,160		)	(1,526		)
Stock compensation	(3,519		)	(3,402		)	(3,749		)
	$	32,738		$	22,444		$	36,761

	March 31, 2018			March 31, 2017
Fixed Assets:
United States	$	37,112		$	34,563
Canada	33,076			4,674
Europe	3,567			3,532
Asia	730			497
	$	74,485		$	43,266
Total Assets:
United States	$	213,099		$	186,300
Canada	317,635			136,688
Europe	89,379			80,589
Asia	42,364			50,503
	$	662,477		$	454,080

(a) During the year ended March 31, 2016, the Canadian segment's operating income was negatively impacted by $5,706 due to acquisition related contingent consideration accounted for as compensation. As part of the Sumac transaction, we issued the sellers a $5,905 non-interest bearing note that matured on April 1, 2016. The terms of the performance-based note assume the continued employment of Sumac's principals, and as a result, the performance note payment is accounted for as compensation expense. The performance note was settled during the first quarter of fiscal 2017.

(b) During the year ended March 31, 2016, the European segment's operating income was negatively impacted by a $1,713 impairment charge to Unitemp's goodwill and other intangible assets.

At March 31, 2018 and 2017, non-current deferred tax assets of $3,490 and $4,053 respectively, were applicable to the United States.