Annual report pursuant to Section 13 and 15(d)

Leases

v3.21.1
Leases
 12 Months Ended
Mar. 31, 2021
Leases [Abstract]  
Leases Leases
    On April 1, 2019, we adopted ASC 842 utilizing the modified retrospective approach. The modified retrospective approach we selected provides a method of transition allowing for the recognition of existing leases as of the beginning of the period of adoption, and which does not require the adjustment of comparative periods. Specifically, our results for reporting periods beginning after April 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 840.
Description of Leases
The significant majority of our lease obligations are for real property. We lease numerous facilities relating to our operations, primarily for office, manufacturing and warehouse facilities, as well as, from time to time, both long-term and short-term employee housing. Leases for real property have terms ranging from month-to-month to ten years. We also lease various types of equipment, including vehicles, office equipment (such as copiers and postage machines), heavy warehouse equipment (such as fork lifts), heavy construction equipment (such as cranes), medium and light construction equipment used for customer project needs (such as pipe threading machines) and mobile offices and other general equipment that is normally associated with an office environment. Equipment leases generally have terms ranging from six months to five years.
Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We do not have any significant leases that have not yet commenced but that create significant rights and obligations for us.

    We lease temporary power products produced by our Thermon Power Solutions Inc. (“TPS”) division to our customers on a short-term basis. Lease contracts associated with such rental of the temporary power products have historically been month-to-month contracts without purchase options. No lease contracts in which the Company was the lessor have had an initial term in excess of one year. As such, lease revenues for temporary power products recognized under ASC 842 in fiscal 2021 did not materially differ from leases that would have been recorded under ASC 840. See Note 12 "Related-Party Transactions" for more information about TPS.
Variable Lease Payments
A majority of our lease agreements include fixed rental payments. A small number of our lease agreements include fixed rental payments that are adjusted periodically for changes in the Consumer Price Index (“CPI”). Payments based on an index or rate such as CPI are included in the lease payments based on the commencement date index or rate. Estimated changes to the index or rate during the lease term are not considered in the determination of the lease payments.
Options to Extend or Terminate Leases
Most of our real property leases include early termination options and/or one or more options to renew, with renewal terms that can extend the lease term for an additional one to five years or longer. The exercise of lease termination and renewal options is at our sole discretion. If it is reasonably certain that we will exercise such renewal options, the periods covered by such renewal options are included in the lease term and are recognized as part of our Right of Use ("ROU") assets and lease liabilities. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Discount Rate
The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. A large concentration of the Company's operating lease liabilities are attributed to our United States and Latin America operations. Our EMEA operations and APAC operations have limited borrowing needs and rely on cash from operations. However, the U.S. operating subsidiary can make intercompany loans if necessary from its available credit capacity given the more preferential rates available to our U.S. operating subsidiary and the ease with which funds can be drawn from the debt facilities already established within the United States. With this in mind, the Company has utilized its U.S. credit facility rate as the worldwide incremental borrowing rate. The Company used incremental borrowing rates as of April 1, 2019 for operating leases that commenced prior to April 1, 2019 to establish the lease liabilities. For operating leases that commenced during the year ended March 31, 2021, rates applicable at or close to the time of the inception of the lease were used to establish the new lease's ROU liabilities.
Lease Term and Discount Rate March 31, 2021 March 31, 2020
Weighted average remaining lease term
Operating 6.0 6.2
Finance 3.1 3.4
Weighted average discount rate
Operating 4.81  % 4.82  %
Finance 6.56  % 6.98  %
    Supplemental balance sheet information related to leases was as follows:
Assets Classification March 31, 2021 March 31, 2020
Operating Operating lease right-of-use assets $ 12,619  $ 16,637 
Finance Property, plant and equipment 426  695 
Total right-of-use assets $ 13,045  $ 17,332 
Liabilities
Current
Operating Lease liabilities $ 3,383  $ 3,352 
Finance Lease liabilities 128  201 
Non-current
Operating Non-current lease liabilities 12,027  15,060 
Finance Non-current lease liabilities 346  511 
Total lease liabilities $ 15,884  $ 19,124 
    Supplemental statement of operations information related to leases was as follows:
Lease expense Classification Twelve Months Ended March 31, 2021 Twelve Months Ended March 31, 2020
Operating lease expense Marketing, general, administrative, and engineering $ 4,697  $ 3,835 
Finance lease expense:
Amortization of ROU assets Marketing, general, administrative, and engineering 266  266
Interest expense on finance lease liabilities Interest expense 21  41
Short-term lease expense Marketing, general, administrative, and engineering 240  1,117 
Net lease expense $ 5,224  $ 5,259 
Supplemental statement of cash flows information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities Twelve Months Ended March 31, 2021 Twelve Months Ended March 31, 2020
Operating cash used for operating leases $ 4,566  $ 3,523 
Operating cash flows used for finance leases 39  41 
Financing cash flows used for finance leases 276  259 
Future lease payments under non-cancellable leases as of March 31, 2021 were as follows:
Future Lease Payments Operating Leases Finance Leases
Twelve months ending March 31,
2022 $ 4,031  $ 288 
2023 3,390 133
2024 2,238 99
2025 1,887 37
2026 1,707 2
Thereafter 4,538 0
Total lease payments $ 17,791  $ 559 
Less imputed interest (2,381) (85)
Total lease liability $ 15,410  $ 474 
Leases Leases
    On April 1, 2019, we adopted ASC 842 utilizing the modified retrospective approach. The modified retrospective approach we selected provides a method of transition allowing for the recognition of existing leases as of the beginning of the period of adoption, and which does not require the adjustment of comparative periods. Specifically, our results for reporting periods beginning after April 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 840.
Description of Leases
The significant majority of our lease obligations are for real property. We lease numerous facilities relating to our operations, primarily for office, manufacturing and warehouse facilities, as well as, from time to time, both long-term and short-term employee housing. Leases for real property have terms ranging from month-to-month to ten years. We also lease various types of equipment, including vehicles, office equipment (such as copiers and postage machines), heavy warehouse equipment (such as fork lifts), heavy construction equipment (such as cranes), medium and light construction equipment used for customer project needs (such as pipe threading machines) and mobile offices and other general equipment that is normally associated with an office environment. Equipment leases generally have terms ranging from six months to five years.
Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We do not have any significant leases that have not yet commenced but that create significant rights and obligations for us.

    We lease temporary power products produced by our Thermon Power Solutions Inc. (“TPS”) division to our customers on a short-term basis. Lease contracts associated with such rental of the temporary power products have historically been month-to-month contracts without purchase options. No lease contracts in which the Company was the lessor have had an initial term in excess of one year. As such, lease revenues for temporary power products recognized under ASC 842 in fiscal 2021 did not materially differ from leases that would have been recorded under ASC 840. See Note 12 "Related-Party Transactions" for more information about TPS.
Variable Lease Payments
A majority of our lease agreements include fixed rental payments. A small number of our lease agreements include fixed rental payments that are adjusted periodically for changes in the Consumer Price Index (“CPI”). Payments based on an index or rate such as CPI are included in the lease payments based on the commencement date index or rate. Estimated changes to the index or rate during the lease term are not considered in the determination of the lease payments.
Options to Extend or Terminate Leases
Most of our real property leases include early termination options and/or one or more options to renew, with renewal terms that can extend the lease term for an additional one to five years or longer. The exercise of lease termination and renewal options is at our sole discretion. If it is reasonably certain that we will exercise such renewal options, the periods covered by such renewal options are included in the lease term and are recognized as part of our Right of Use ("ROU") assets and lease liabilities. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Discount Rate
The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. A large concentration of the Company's operating lease liabilities are attributed to our United States and Latin America operations. Our EMEA operations and APAC operations have limited borrowing needs and rely on cash from operations. However, the U.S. operating subsidiary can make intercompany loans if necessary from its available credit capacity given the more preferential rates available to our U.S. operating subsidiary and the ease with which funds can be drawn from the debt facilities already established within the United States. With this in mind, the Company has utilized its U.S. credit facility rate as the worldwide incremental borrowing rate. The Company used incremental borrowing rates as of April 1, 2019 for operating leases that commenced prior to April 1, 2019 to establish the lease liabilities. For operating leases that commenced during the year ended March 31, 2021, rates applicable at or close to the time of the inception of the lease were used to establish the new lease's ROU liabilities.
Lease Term and Discount Rate March 31, 2021 March 31, 2020
Weighted average remaining lease term
Operating 6.0 6.2
Finance 3.1 3.4
Weighted average discount rate
Operating 4.81  % 4.82  %
Finance 6.56  % 6.98  %
    Supplemental balance sheet information related to leases was as follows:
Assets Classification March 31, 2021 March 31, 2020
Operating Operating lease right-of-use assets $ 12,619  $ 16,637 
Finance Property, plant and equipment 426  695 
Total right-of-use assets $ 13,045  $ 17,332 
Liabilities
Current
Operating Lease liabilities $ 3,383  $ 3,352 
Finance Lease liabilities 128  201 
Non-current
Operating Non-current lease liabilities 12,027  15,060 
Finance Non-current lease liabilities 346  511 
Total lease liabilities $ 15,884  $ 19,124 
    Supplemental statement of operations information related to leases was as follows:
Lease expense Classification Twelve Months Ended March 31, 2021 Twelve Months Ended March 31, 2020
Operating lease expense Marketing, general, administrative, and engineering $ 4,697  $ 3,835 
Finance lease expense:
Amortization of ROU assets Marketing, general, administrative, and engineering 266  266
Interest expense on finance lease liabilities Interest expense 21  41
Short-term lease expense Marketing, general, administrative, and engineering 240  1,117 
Net lease expense $ 5,224  $ 5,259 
Supplemental statement of cash flows information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities Twelve Months Ended March 31, 2021 Twelve Months Ended March 31, 2020
Operating cash used for operating leases $ 4,566  $ 3,523 
Operating cash flows used for finance leases 39  41 
Financing cash flows used for finance leases 276  259 
Future lease payments under non-cancellable leases as of March 31, 2021 were as follows:
Future Lease Payments Operating Leases Finance Leases
Twelve months ending March 31,
2022 $ 4,031  $ 288 
2023 3,390 133
2024 2,238 99
2025 1,887 37
2026 1,707 2
Thereafter 4,538 0
Total lease payments $ 17,791  $ 559 
Less imputed interest (2,381) (85)
Total lease liability $ 15,410  $ 474