Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.21.2
Fair Value Measurements
 3 Months Ended
Jun. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Fair Value
We measure fair value based on authoritative accounting guidance, which defines fair value, establishes a framework for measuring fair value, and expands on required disclosures regarding fair value measurements.
Inputs are referred to as assumptions that market participants would use in pricing the asset or liability. The use of inputs in the valuation process are categorized into a three-level fair value hierarchy.
•Level 1 — uses quoted prices in active markets for identical assets or liabilities we have the ability to access.
•Level 2 — uses observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. 
Financial assets and liabilities with carrying amounts approximating fair value include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities. The carrying amount of these financial assets and liabilities approximates fair value because of their short maturities. At June 30, 2021 and March 31, 2021, no assets or liabilities were valued using Level 3 criteria. 
Information about our long-term debt that is not measured at fair value is as follows:
  June 30, 2021 March 31, 2021  
  Carrying
Value		 Fair Value Carrying
Value		 Fair Value Valuation Technique
Financial Liabilities          
Outstanding principal amount of senior secured credit facility $ 147,875  $ 147,967  $ 148,500  $ 148,871  Level 2 - Market Approach
 
At June 30, 2021 and March 31, 2021, the fair value of our long-term debt is based on market quotes available for issuance of debt with similar terms. As the quoted price is only available for similar financial assets, the Company concluded the pricing is indirectly observable through dealers and has been classified as Level 2.
Cross Currency Swap
    The Company has entered into a long-term cross currency swap to hedge the currency rate fluctuations related to a $31,313 intercompany receivable at June 30, 2021 from our wholly-owned Canadian subsidiary, Thermon Canada Inc., maturing on October 30, 2022. Periodic principal payments are to be settled twice annually with interest payments settled quarterly through the cross currency derivative contract. We do not designate the cross currency swap as a cash flow hedge under ASC 815, Derivatives and Hedging ("ASC 815"). We recorded $410 and $1,942 of unrealized mark-to-market losses on the cross currency swap, which is reported as "Other income and expense" in the condensed consolidated statements of operations and comprehensive income for the three months ended June 30, 2021 and 2020, respectively. Cross currency swap contracts are measured on a recurring basis at fair value and are classified as Level 2 measurements. Hedge liabilities in the amount of $1,344 were included in "Other non-current liabilities" in the condensed consolidated balance sheets as of June 30, 2021, and hedge assets of $1,265 were included in "Other long-term assets" as of March 31, 2021. For the three months ended June 30, 2021, the loss on the long-term cross currency swap derivative contract was offset by unrealized gain on the intercompany note of $461 for a net gain of $51. For the three months ended June 30, 2020, the loss on the long-term cross currency swap derivative contract was offset by unrealized gain on the intercompany note of $2,208 for a net gain of $266.
Deferred Compensation Plan
    The Company provides a non-qualified deferred compensation plan for certain highly compensated employees where payroll contributions are made by the employees on a pre-tax basis. Included in “Other long-term assets” in the condensed consolidated balance sheets at June 30, 2021 and March 31, 2021 were $5,387 and $5,047, respectively, of deferred compensation plan assets held by the Company. Deferred compensation plan assets (mutual funds) are measured at fair value on a recurring basis based on quoted market prices in active markets (Level 1). The Company has a corresponding liability to participants of $4,954 and $4,608 included in “Other long-term liabilities” in the condensed consolidated balance sheets at June 30, 2021 and March 31, 2021, respectively. In fiscal 2022, deferred compensation plan expense is included as such in the condensed consolidated statement of operations, and therefore is excluded from "Selling, general and administrative expenses." All amounts related to deferred compensation plan expense have been reclassified to the appropriate line for the periods reflected in this filing. Deferred compensation expense was $332 and $530 for the three months ended June 30, 2021 and 2020, respectively. Expenses and income from our deferred compensation plan were offset by unrealized gains and losses for the deferred compensation plan included in "Other income and expense" on our condensed consolidated statements of operations and comprehensive income. Our unrealized gains on investments were $326 and $522 for the three months ended June 30, 2021 and 2020, respectively.
    
Trade Related Foreign Currency Forward Contracts
We transact business in various foreign currencies and have established a program that primarily utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency exposures. Under this program, increases or decreases in our foreign currency exposures are offset by gains or losses on the forward contracts to mitigate foreign currency transaction gains or losses. These foreign currency exposures arise from intercompany transactions as well as third party accounts receivable or payable that are denominated in foreign currencies. Our forward contracts generally have terms of 30 days. We do not use forward contracts for trading purposes or designate these forward contracts as hedging instruments pursuant to ASC 815. We adjust the carrying amount of all contracts to their fair value at the end of each reporting period and unrealized gains and losses are included in "Other income and expense" on our condensed consolidated statements of operations and comprehensive income. These gains and losses are designed to offset gains and losses resulting from settlement of receivables or payables by our foreign operations which are settled in currency other than the local transactional currency. The fair value is determined by quoted prices from active foreign currency markets (Level 2). Fair value amounts for such forward contracts on our condensed consolidated balance sheets are either classified as accounts receivable, net or accrued
liabilities depending on whether the forward contract is in a gain (accounts receivable, net) or loss (accrued liabilities) position. Our ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the contracts mature. As of June 30, 2021 and March 31, 2021, the notional amounts of forward contracts were as follows:
Notional amount of foreign currency forward contracts by currency
June 30, 2021 March 31, 2021
Russian Ruble $ 2,650  $ 3,000 
Canadian Dollar 6,500  5,500 
South Korean Won 1,700  5,000 
Mexican Peso 2,000  1,500 
Australian Dollar 1,100  900 
Great Britain Pound 325  500 
Total notional amounts $ 14,275  $ 16,400 

The following table represents the fair value of our foreign currency forward contracts:
June 30, 2021 March 31, 2021
Fair Value Fair Value
Assets Liabilities Assets Liabilities
Foreign currency forward contracts $ 76  $ 18  $ 61  $ 32 
Foreign currency gains or losses related to our forward contracts in the accompanying condensed consolidated statements of operations and comprehensive income were losses of $(294) and gains of $91 for the three months ended June 30, 2021 and 2020, respectively. Gains and losses from our forward contracts were offset by transaction gains or losses incurred with the settlement of transactions denominated in foreign currencies. For the three months ended June 30, 2021 and 2020, our net foreign currency transactions resulted in losses of $(284) and gains of $182, respectively.