Annual report pursuant to Section 13 and 15(d)

Leases

v3.22.1
Leases
 12 Months Ended
Mar. 31, 2022
Leases [Abstract]  
Leases Leases
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. 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, 2022, 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, 2022 March 31, 2021
Weighted average remaining lease term
Operating 5.4 6.0
Finance 2.5 3.1
Weighted average discount rate
Operating 4.72  % 4.81  %
Finance 6.18  % 6.56  %
    Supplemental balance sheet information related to leases was as follows:
Assets Classification March 31, 2022 March 31, 2021
Operating Operating lease right-of-use assets $ 10,534  $ 12,619 
Finance Property, plant and equipment 351  426 
Total right-of-use assets $ 10,885  $ 13,045 
Liabilities
Current
Operating Lease liabilities $ 3,472  $ 3,383 
Finance Lease liabilities 152  128 
Non-current
Operating Non-current lease liabilities 9,476  12,027 
Finance Non-current lease liabilities 183  346 
Total lease liabilities $ 13,283  $ 15,884 
    Supplemental statement of operations information related to leases was as follows:
Lease expense Classification Year Ended March 31, 2022 Year Ended March 31, 2021 Year Ended March 31, 2020
Operating lease expense Selling, general, and administrative expenses $ 4,164  $ 4,697  $ 3,835 
Finance lease expense:
Amortization of ROU assets Selling, general, and administrative expenses 166  266 266
Interest expense on finance lease liabilities Interest expense 27  21 41
Short-term lease expense Selling, general, and administrative expenses 248  240  1,117 
Net lease expense $ 4,605  $ 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 Year Ended March 31, 2022 Year Ended March 31, 2021 Year Ended March 31, 2020
Operating cash used for operating leases $ 4,538  $ 4,566  $ 3,523 
Operating cash flows used for finance leases 27  39  41 
Financing cash flows used for finance leases 154  276  259 
Future lease payments under non-cancellable leases as of March 31, 2022 were as follows:
Future Lease Payments Operating Leases Finance Leases
Twelve months ending March 31,
2023 $ 4,064  $ 170 
2024 2,516 136
2025 2,049 66
2026 1,750 10
2027 1,713 1
Thereafter 2,847 —
Total lease payments $ 14,939  $ 383 
Less imputed interest (1,991) (48)
Total lease liability $ 12,948  $ 335 
Leases Leases
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. 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, 2022, 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, 2022 March 31, 2021
Weighted average remaining lease term
Operating 5.4 6.0
Finance 2.5 3.1
Weighted average discount rate
Operating 4.72  % 4.81  %
Finance 6.18  % 6.56  %
    Supplemental balance sheet information related to leases was as follows:
Assets Classification March 31, 2022 March 31, 2021
Operating Operating lease right-of-use assets $ 10,534  $ 12,619 
Finance Property, plant and equipment 351  426 
Total right-of-use assets $ 10,885  $ 13,045 
Liabilities
Current
Operating Lease liabilities $ 3,472  $ 3,383 
Finance Lease liabilities 152  128 
Non-current
Operating Non-current lease liabilities 9,476  12,027 
Finance Non-current lease liabilities 183  346 
Total lease liabilities $ 13,283  $ 15,884 
    Supplemental statement of operations information related to leases was as follows:
Lease expense Classification Year Ended March 31, 2022 Year Ended March 31, 2021 Year Ended March 31, 2020
Operating lease expense Selling, general, and administrative expenses $ 4,164  $ 4,697  $ 3,835 
Finance lease expense:
Amortization of ROU assets Selling, general, and administrative expenses 166  266 266
Interest expense on finance lease liabilities Interest expense 27  21 41
Short-term lease expense Selling, general, and administrative expenses 248  240  1,117 
Net lease expense $ 4,605  $ 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 Year Ended March 31, 2022 Year Ended March 31, 2021 Year Ended March 31, 2020
Operating cash used for operating leases $ 4,538  $ 4,566  $ 3,523 
Operating cash flows used for finance leases 27  39  41 
Financing cash flows used for finance leases 154  276  259 
Future lease payments under non-cancellable leases as of March 31, 2022 were as follows:
Future Lease Payments Operating Leases Finance Leases
Twelve months ending March 31,
2023 $ 4,064  $ 170 
2024 2,516 136
2025 2,049 66
2026 1,750 10
2027 1,713 1
Thereafter 2,847 —
Total lease payments $ 14,939  $ 383 
Less imputed interest (1,991) (48)
Total lease liability $ 12,948  $ 335