THERMON GROUP HOLDINGS, INC.

Transcription

1 THERMON GROUP HOLDINGS, INC. FORM 10-Q (Quarterly Report) Filed 02/06/14 for the Period Ending 12/31/13 Address 100 THERMON DRIVE SAN MARCOS, TX Telephone CIK Symbol THR SIC Code Electrical Industrial Apparatus Industry Electronic Instr. & Controls Sector Technology Fiscal Year 03/31 Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2013 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR Commission File Number: THERMON GROUP HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 100 Thermon Drive, San Marcos, Texas (Address of principal executive offices) (512) (Registrant s telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer Accelerated filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No As of February 3, 2014, the registrant had 31,834,928 shares of common stock, par value $0.001 per share, outstanding.

3 THERMON GROUP HOLDINGS, INC. QUARTERLY REPORT FOR THE QUARTER ENDED December 31, 2013 TABLE OF CONTENTS Page PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Thermon Group Holdings, Inc. and its Consolidated Subsidiaries Condensed Consolidated Balance Sheets as of December 31, 2013 and March 31, Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2013 and Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2013 and Notes to Condensed Consolidated Financial Statements 4 Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 25 Item 4. Controls and Procedures 26 PART II OTHER INFORMATION Item 1. Legal Proceedings 26 Item 1A. Risk Factors 28 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28 Item 3. Defaults Upon Senior Securities 28 Item 4. Mine Safety Disclosures 28 Item 5. Other Information 28 Item 6. Exhibits 28 SIGNATURE 29 EXHIBIT INDEX 30 EX-31.1 EX-31.2 EX-32.1 EX-32.2 i

4 PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets (Dollars in Thousands, except share and per share data) December 31, 2013 March 31, 2013 (unaudited) Assets Current assets: Cash and cash equivalents $ 67,340 $ 43,847 Accounts receivable, net of allowance for doubtful accounts of $1,151 and $1,141 as of December 31, 2013 and March 31, 2013, respectively 48,616 56,123 Inventories, net 40,093 34,391 Costs and estimated earnings in excess of billings on uncompleted contracts 4,040 3,515 Income taxes receivable 3,281 5,287 Prepaid expenses and other current assets 5,204 6,203 Deferred income taxes 3,811 2,211 Total current assets 172, ,577 Property, plant and equipment, net 31,465 31,211 Goodwill 115, ,303 Intangible assets, net 123, ,916 Debt issuance costs, net 1,646 4,373 Other long term assets Total assets $ 444,646 $ 435,523 Liabilities Current liabilities: Accounts payable $ 19,263 $ 20,370 Accrued liabilities 11,120 18,715 Current portion of long term debt 13,500 Billings in excess of costs and estimated earnings on uncompleted contracts 1,582 1,629 Income taxes payable 1,014 1,706 Obligations due to settle the CHS Transactions 567 3,239 Total current liabilities 47,046 45,659 Long-term debt, net of current maturities 111, ,145 Deferred income taxes 39,865 42,599 Other noncurrent liabilities 2,188 3,073 Total liabilities 200, ,476 Shareholders' equity Common stock: $.001 par value; 150,000,000 authorized; 31,830,428 and 31,307,582 shares issued and outstanding at December 31, 2013 and March 31, 2013, respectively Preferred stock: $.001 par value; 10,000,000 authorized; no shares issued and outstanding Additional paid in capital 207, ,027 Accumulated other comprehensive loss (3,495) (1,075) Retained earnings 40,281 24,064 Total shareholders equity 244, ,047 Total liabilities and shareholders' equity $ 444,646 $ 435,523 The accompanying notes are an integral part of these condensed consolidated financial statements 1

5 Thermon Group Holdings, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Dollars in Thousands, except share and per share data) Three Months Ended December 31, 2013 Three Months Ended December 31, 2012 Nine Months Ended December 31, 2013 Nine Months Ended December 31, 2012 Sales $ 71,465 $ 76,830 $ 209,848 $ 212,369 Cost of sales 35,409 41, , ,440 Gross profit 36,056 34, , ,929 Operating expenses: Marketing, general and administrative and engineering 15,516 16,885 49,810 47,394 Amortization of intangible assets 2,782 2,813 8,349 8,405 Income from operations 17,758 15,253 44,266 45,130 Other income/(expenses): Interest income Interest expense (1,369) (3,116) (8,693) (12,176) Loss on retirement of senior secured notes (15,485) Miscellaneous expense (118) (274) (350) (137) Income before provision for income taxes 16,337 11,899 19,879 32,910 Income tax expense 3,754 4,161 3,662 11,585 Net income $ 12,583 $ 7,738 $ 16,217 $ 21,325 Comprehensive income: Net income $ 12,583 $ 7,738 $ 16,217 $ 21,325 Foreign currency translation adjustment (3,023) (180) (2,510) (216) Derivative valuation, net of tax Comprehensive income $ 9,816 $ 7,558 $ 13,765 $ 21,109 Income per common share: Basic $ 0.40 $ 0.25 $ 0.51 $ 0.70 Diluted Weighted-average shares used in computing net income per common share: Basic 31,689,887 30,947,064 31,506,745 30,672,803 Diluted 32,224,559 31,871,097 32,086,570 31,725,724 The accompanying notes are an integral part of these condensed consolidated financial statements 2

6 Thermon Group Holdings, Inc. Condensed Consolidated Statement of Cash Flows (Unaudited) (Dollars in Thousands) Nine Months Ended December 31, 2013 Nine Months Ended December 31, 2012 Operating activities Net income $ 16,217 $ 21,325 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,633 10,306 Amortization of debt costs 4,454 3,124 Stock compensation expense 1, Deferred income taxes (6,021) (2,975) Loss on retirement of senior secured notes 15,485 Changes in operating assets and liabilities: Accounts receivable 7,390 (5,902) Inventories (5,676) (2,811) Costs and estimated earnings in excess of billings on uncompleted contracts (588) (356) Other current and noncurrent assets Accounts payable (1,099) 8,375 Accrued liabilities and noncurrent liabilities (7,734) (6,928) Income taxes payable and receivable 1, Net cash provided by operating activities 36,564 26,144 Investing activities Purchases of property, plant and equipment (2,438) (5,245) Cash paid to settle the CHS Transactions (2,055) (203) Net cash used in investing activities (4,493) (5,448) Financing activities Payments on senior secured notes (118,145) (21,000) Proceeds from long term debt 135,000 Payments on long term debt (10,125) Issuance costs associated with revolving line of credit and long term debt (1,728) (248) Proceeds from exercise of stock options 2,756 4,571 Benefit from excess tax deduction from option exercises 3,369 Premiums paid on redemptions (15,485) (630) Lease financing, net (17) Net cash used in financing activities (7,744) (13,938) Effect of exchange rate changes on cash and cash equivalents (834) 163 Change in cash and cash equivalents 23,493 6,921 Cash and cash equivalents at beginning of period 43,847 21,468 Cash and cash equivalents at end of period $ 67,340 $ 28,389 The accompanying notes are an integral part of these condensed consolidated financial statements. 3

7 Thermon Group Holdings, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (Dollars in Thousands, Except Share and Per Share Data) 1. Basis of Presentation and Accounting Policy Information On April 30, 2010, a group of investors led by entities affiliated with CHS Capital LLC ( CHS ) and two other private equity firms (together with CHS, our former private equity sponsors ) acquired a controlling interest in Thermon Holding Corp. and its subsidiaries from Thermon Holdings, LLC ( Predecessor ) for approximately $321,500 in a transaction that was financed by approximately $129,252 of equity investments by our former private equity sponsors and certain members of our current and former management team (collectively, the management investors ) and $210,000 of debt raised in an exempt Rule 144A senior secured note offering to qualified institutional investors (collectively, the CHS Transactions ). The proceeds from the equity investments and debt financing were used both to finance the acquisition and pay related transaction costs. As a result of the CHS Transactions, Thermon Group Holdings, Inc. became the ultimate parent of Thermon Holding Corp. Thermon Group Holdings, Inc. and its direct and indirect subsidiaries are referred to collectively as we, our, the Company or Successor herein. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended March 31, In our opinion, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring items) considered necessary to present fairly our financial position at December 31, 2013 and March 31, 2013, and the results of our operations for the three and nine months ended December 31, 2013 and Certain reclassifications have been made to prior period presentation of our geographic operating income to conform to the current period presentation. The reclassifications had no effect on the reported sales or operating income in prior periods. Use of Estimates Generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. While our management has based their assumptions and estimates on the facts and circumstances existing at December 31, 2013, actual results could differ from those estimates and affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the corresponding revenues and expenses as of the date of the financial statements. The operating results for the nine months ended December 31, 2013 are not necessarily indicative of the results that may be achieved for the fiscal year ending March 31, Corrections of classification errors in previously reported Condensed Consolidated Statements of Comprehensive Income During fiscal 2013, we identified a classification error in our condensed consolidated statements of comprehensive income for all previously reported periods. We determined that charges that were invoiced to customers had been recorded as a reduction to cost of sales instead of as additional sales. The result of this error was an understatement of sales and cost of sales of $80 and $1,048 for the three and nine months ended December 31, 2012, respectively. The classification errors had no effect on the reported gross profit, income from operations or net income and also had no effect on the condensed consolidated balance sheet, or the condensed consolidated statement of cash flows. 4

8 Though the correction of the classification errors had no effect on our gross profit, it did result in a slight reduction to our previously reported gross profit as a percentage of revenue as follows below: Three Months Ended December 31, 2012 Nine Months Ended December 31, 2012 As reported: Sales $ 76,750 $ 211,321 Cost of sales 41, ,392 Gross profit 34, ,929 Gross profit as a percentage of revenue 45.5 % 47.8 % Recent Accounting Pronouncements Presentation of Comprehensive Income - In February 2013, the Accounting Standards Codification (ASC) ASC Topic 220, "Comprehensive Income," was amended to require an entity to disclose information about the amounts reclassified out of accumulated other comprehensive income by component. For amounts required to be reclassified out of accumulated other comprehensive income in their entirety in the same reporting period, the guidance requires entities to present significant amounts by their respective line items of net income, either on the face of the income statement or in the notes to the financial statements. For other amounts that are not required to be reclassified to net income in their entirety, a cross-reference is required to other disclosures that provide additional details about those amounts. These provisions are effective for interim and annual reporting periods beginning after December 15, The adoption of this guidance effective April 1, 2013 did not have a material impact on our condensed consolidated financial statements. Fair Value Measurements and Disclosures - The FASB issued an Accounting Standard Update ("ASU") in December 2011, which requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of these arrangements on its financial position. The guidance requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. In January 2013, the FASB amended and clarified the scope of the disclosures to include only derivative instruments, repurchase agreements and securities lending transactions. The provisions for this ASU are effective for annual periods and interim periods within those years beginning on or after January 1, The adoption of this ASU did not have a material impact on our condensed consolidated financial statements. 2. 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 uses of inputs in the valuation process are categorized into a three-level fair value hierarchy. 5 Three Months Ended December 31, 2012 Nine Months Ended December 31, 2012 As corrected: Sales $ 76,830 $ 212,369 Cost of sales 41, ,440 Gross profit 34, ,929 Gross profit as a percentage of revenue 45.5 % 47.5 % Level 1 uses quoted prices in active markets for identical assets or liabilities we have the ability to access.

9 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, trade 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 December 31, 2013 and March 31, 2013, 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: Carrying Value December 31, 2013 March 31, 2013 Fair Value Carrying Value Fair Value Valuation Technique Financial Liabilities Long-term debt $ 124,875 $ 124,875 $ 118,145 $ 131,436 Level 2 - Market Approach At December 31, 2013, the fair value of our variable rate term loan approximates its carrying value as we pay interest based on the current market rate. 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. Differences between the fair value and the carrying value for the senior secured notes as of March 31, 2013 are primarily due to the instruments' fixed interest rate. Inherently, such instruments are subject to fluctuations in fair value due to movements in interest rates. 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 typically arise from intercompany transactions. 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 our results of operations for that period. These gains and losses largely offset gains and losses resulting from settlement of payments received from our foreign operations which are settled in U.S. dollars. The fair value is determined by quoted prices from active foreign currency markets (Level 2 fair value). The condensed consolidated balance sheets reflect unrealized gains within accounts receivable, net and unrealized losses within accrued liabilities. 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 December 31, 2013 and March 31, 2013, the notional amounts of forward contracts we held to buy U.S. Dollars in exchange for other major international currencies were as follows: Notional amount of foreign currency forward contracts by currency December 31, 2013 March 31, 2013 Russian Ruble $ 544 $ 4,233 Euro 7,077 2,510 Canadian Dollar 2,034 2,134 South Korean Won 919 Other 329 Total notional amounts $ 9,655 $ 10,125 6

10 The following table represents the fair value of our foreign currency forward contracts: Foreign currency gains or losses related to our forward contracts in the accompanying condensed consolidated statements of comprehensive income were losses of $144 and $350 for the three and nine months ended December 31, 2013, respectively, and losses of $425 and $164 for the three and nine months ended December 31, 2012, 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. Our net foreign currency loss es were $117 and $353 for the three and nine months ended December 31, 2013, respectively, and losses of $242 and $181 for the three and nine months ended December 31, 2012, respectively. Interest Rate Swap December 31, 2013 March 31, 2013 Fair Value Fair Value Assets Liabilities Assets Liabilities Foreign currency forward contracts $ 2 $ 16 $ 87 $ 32 On June 13, 2013, the Company entered into an interest rate swap contract to reduce the exposure to interest rate fluctuations associated with its variable rate term loan. Under the agreement we will pay a fixed amount and receive or make payments based on a variable rate. Effective July 1, 2013, the Company designated the interest rate swap contract as a cash flow hedge pursuant to ASC 815. The Company formally documents all relationships between the hedging instrument and hedged item, its risk management objective and strategy, as well as counter-party creditworthiness. At each reporting period our interest rate swap contract is adjusted to fair value based on dealer quotes, which consider forward curves and volatility levels (Level 2 Fair Value). Unrealized gains, representing derivative assets, are reported within accounts receivable, net and unrealized losses, representing derivative liabilities, are reported within accrued liabilities on the accompanying condensed consolidated balance sheets. As of December 31, 2013, the fair value of the interest rate swap contract was an unrealized gain of $90. The change in fair value of the derivative instruments is recorded in accumulated other comprehensive income to the extent the derivative instruments are deemed effective. Ineffectiveness is measured based on the changes in fair value of the interest rate swap contract and the change in fair value of the hypothetical derivative and is recognized in earnings in the period in which ineffectiveness is realized. Based on the criteria established by ASC 815, the interest rate swap contract is deemed to be highly effective. Any realized gains or losses resulting from the interest rate swap contract are recognized within interest expense. Gains and losses from our interest rate swap contract are offset by changes in the variable interest rate on our term loan. Since the effective date of our interest rate swap contract, interest expense on outstanding principal was 3.62%. We have hedged 100% of the outstanding principal on our variable rate term loan through its maturity date. The following table summarizes the aggregate unrealized gain in accumulated other comprehensive loss, and the losses reclassified into earnings for the three and nine months ended December 31, 2013 (amounts in thousands): Three Months Ended December 31, 2013 Nine Months Ended December 31, 2013 Unrealized gain/(loss) at beginning of the period $ (304) $ Add: gain/(loss) from change in fair value of cash flow hedge 91 (418) Less: Loss reclassified to earnings from effective hedge (303) (508) Unrealized gain at end of the period $ 90 $ 90 We did not have any interest rate swaps during the three and nine months ended December 31, Transfers out of accumulated other comprehensive loss During the three and nine months ended December 31, 2013 and 2012, there were no transfers out of accumulated other comprehensive loss except for realized losses from our interest rate swap contract presented in the preceding table, which were recorded within interest expense. During the three and nine months ended December 31, 2013, there were no reclassifications out of other comprehensive loss due to hedge ineffectiveness. 7

11 3. Earnings and Net Income per Common Share Basic earnings per share ("EPS") per share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted net income per share is computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding (if dilutive) during each period. The number of common share equivalents, which includes options and both restricted and performance stock units, is computed using the treasury stock method. With regard to the performance stock units, we assumed that the target number of shares would be issued within the calculation of diluted net income per common share. The reconciliations of the denominators used to calculate basic EPS and diluted EPS for the three and nine months ended December 31, 2013 and 2012, respectively, are as follows: Basic net income per common share Three Months Ended December 31, 2013 Three Months Ended December 31, 2012 Nine Months Ended December 31, 2013 Nine Months Ended December 31, 2012 Net income $ 12,583 $ 7,738 $ 16,217 $ 21,325 Weighted-average common shares outstanding 31,689,887 30,947,064 31,506,745 30,672,803 Basic net income per common share $ 0.40 $ 0.25 $ 0.51 $ 0.70 Three Months Ended December 31, 2013 Three Months Ended December 31, 2012 Nine Months Ended December 31, 2013 Nine Months Ended December 31, 2012 Diluted net income per common share Net income $ 12,583 $ 7,738 $ 16,217 $ 21,325 Weighted-average common shares outstanding 31,689,887 30,947,064 31,506,745 30,672,803 Common share equivalents: Stock options 473, , ,376 1,028,056 Restricted and performance stock units 61,308 55,923 36,449 24,865 Weighted average shares outstanding dilutive (1) 32,224,559 31,871,097 32,086,570 31,725,724 Diluted net income per common share $ 0.39 $ 0.24 $ 0.51 $ 0.67 (1) 50,307 and 168,211 equity awards were not included in the calculation of diluted net income per common share since they would have had an anti-dilutive effect for the three and nine months ended December 31, 2013, respectively. For the three and nine months ended December 31, ,532, equity awards were not included in the calculation of diluted net income per common share as they were anti-dilutive. 4. Inventories Inventories consisted of the following: December 31, 2013 March 31, 2013 Raw materials $ 12,532 $ 10,232 Work in process 3,383 1,685 Finished goods 25,411 23,550 41,326 35,467 Valuation reserves (1,233) (1,076) Inventories, net $ 40,093 $ 34,391 8

12 5. Goodwill and Other Intangible Assets The carrying amount of goodwill as of December 31, 2013 is as follows: Balance as of March 31, 2013 $ 116,303 Foreign currency translation impact (467) Balance as of December 31, 2013 $ 115,836 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, using a fair-value-based approach based on the market capitalization of the reporting unit. Our annual impairment test will be performed as of January 1, At December 31, 2013, there were no indicators of a goodwill impairment. Goodwill is not deductible for tax purposes. Other intangible assets consisted of the following: Gross Carrying Amount at December 31, 2013 Accumulated Amortization Net Carrying Amount at December 31, 2013 Gross Carrying Amount at March 31, 2013 Accumulated Amortization Amount Net Carrying Amount at March 31, 2013 Trademarks $ 47,646 $ $ 47,646 $ 47,693 $ $ 47,693 Developed technology 10,919 (2,062) 8,857 10,929 (1,659) 9,270 Customer relationships 100,825 (35,281) 65, ,355 (27,723) 73,632 Backlog 10,038 (10,038) 10,167 (10,167) Certification Other 1,630 (998) 632 1,630 (807) 823 Total $ 171,556 $ (48,379 ) $ 123,177 $ 172,272 $ (40,356 ) $ 131, Accrued Liabilities Accrued current liabilities consisted of the following: 9

13 December 31, 2013 March 31, 2013 Accrued employee compensation and related expenses $ 5,772 $ 8,047 Interest 23 4,703 Customer prepayment 1,723 2,197 Warranty reserve Professional fees 1,499 1,436 Sales tax payable Other 712 1,605 Total accrued current liabilities $ 11,120 $ 18, Related-Party Transactions Included in our condensed consolidated balance sheets is Obligations due to settle the CHS Transactions, which totaled $567 and $3,239 at December 31, 2013 and March 31, 2013, respectively. These amounts represent amounts due to the Predecessor owners in final settlement of the acquisition by our former private equity sponsors of a controlling interest in us that was completed on April 30, During the three and nine months ended December 31, 2013, we paid $1,960 and $2,055, respectively, to the Predecessor owners, and in the three and nine months ended December 31, 2012, we paid $67 and $203, respectively, to the Predecessor owners, in each case reflected in "Obligations due to settle the CHS Transactions". During the three months ended December 31, 2013, we received an income tax refund from the United States Internal Revenue Service which we paid to the Predecessor owners because the refund related to tax periods in which they were in control of the Company. During the three months ended December 31, 2013, our "Obligations due to settle the CHS Transactions" was additionally reduced by $617, of which $42 was withheld for professional fees incurred by the Company in connection with a concluded audit by the United States Internal Revenue Service and the remaining $575 was determined not to be payable to the Predecessor owners of the Company. At December 31, 2013, the remaining $567 outstanding represents remaining encumbered cash to be released as letters of credit expire. 8. Short-Term Revolving Credit Facilities The Company s subsidiary in the Netherlands has a revolving credit facility in the amount of Euro 4,000 (equivalent to $5,507 at December 31, 2013 ). The facility is collateralized by receivables, inventory, equipment, furniture and real estate. No amounts were outstanding under this facility at December 31, 2013 or March 31, The Company s subsidiary in India has a revolving credit facility in the amount of 80,000 Rupees (equivalent to $1,292 at December 31, 2013 ). The facility is collateralized by receivables, inventory, real estate, a letter of credit and cash. No amounts were outstanding under this facility at December 31, 2013 or March 31, The Company s subsidiary in Australia has a revolving credit facility in the amount of $325 Australian Dollars (equivalent to $288 at December 31, 2013 ). The facility is collateralized by real estate. No amounts were outstanding under this facility at December 31, 2013 or March 31, The Company s subsidiary in Japan has a revolving credit facility in the amount of 45,000 Japanese Yen (equivalent to $428 at December 31, 2013 ). No amounts were outstanding under this facility at December 31, 2013 or March 31, Under the Company s principal revolving credit facility described below in Note 9, Long-Term Debt, there were no outstanding borrowings at either December 31, 2013 or March 31, 2013, respectively. 10

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15 9. Long-Term Debt Long-term debt consisted of the following: December 31, 2013 March 31, % Senior Secured Notes, due May 2017 $ $ 118,145 Variable Rate Term Loan, due April , , ,145 Less current portion (13,500) $ 111,375 $ 118,145 Revolving Credit Facility and Senior Secured Debt Credit facility. On April 19, 2013, we entered into an amended and restated credit agreement with a group of lenders in the United States and Canada with JP Morgan Chase Bank, N.A. continuing to serve as lead administrative agent, which provided for (i) a five-year $135,000 senior secured term loan facility and (ii) a five-year $60,000 senior secured revolving credit facility, which we refer to collectively as our "credit facility". The term loan borrowings were used to redeem our outstanding senior secured notes, see "senior secured notes and refinancing under a term loan" below. Under our credit facility, in no case shall availability exceed commitments thereunder. The credit facility will mature in April Any credit facility borrowings will bear interest, at our option, at a rate equal to either (i) a base rate determined by reference to the greatest of (a) JPMorgan Chase Bank's prime rate in New York City, (b) the federal funds effective rate in effect on such day plus ½ of 1% and (c) the adjusted LIBOR rate for a one month interest period on such day plus 1%, in each case plus an applicable margin dictated by our leverage ratio, or (ii) the LIBOR rate, plus an applicable margin dictated by our leverage ratio. Borrowings denominated in Canadian Dollars under the Canadian sub-facility bear interest at our option, at a rate equal to either (i) a base rate determined by reference to the greater of (a) JPMorgan Chase Bank, Toronto branch's prime rate and (b) the sum of (x) the yearly interest rate to which the one-month Canadian deposit offered rate is equivalent plus (y) 1.0%, in each case plus an applicable margin dictated by our leverage ratio, or (ii) a Canadian deposit offered rate determined by the sum of (a) the annual rate of interest determined with reference to the arithmetic average of the discount rate quotations of all institutions listed in respect of the relevant period for Canadian dollar-denominated bankers' acceptances plus (b) 0.10% per annum, plus an applicable margin dictated by our leverage ratio. In addition to paying interest on outstanding borrowings under our credit facility, we are currently required to pay a 0.4% per annum commitment fee to the lenders in respect of the unutilized commitments thereunder, which commitment fee could change based on our leverage ratio, and letter of credit fees equal to the LIBOR margin or the Canadian deposit offered rate, as applicable, on the undrawn amount of all outstanding letters of credit, in addition to a 0.125% annual fronting fee. At December 31, 2013, we had no outstanding borrowings under our revolving credit facility. Had there been any outstanding borrowings thereunder, the interest rate would have been 2.69%. As of December 31, 2013, we had $57,287 of capacity available under our revolving credit facility after taking into account the borrowing base, outstanding loan advances and letters of credit. The variable rate term loan bears interest at the LIBOR rate plus an applicable margin dictated by our leverage ratio. As of December 31, 2013, our interest rate was 2.69%. The term loan includes monthly principal payments of $1,125 through March 31, 2016, increasing to $1,688 for the last two years of the loan. The remaining $54,000 is due in April Senior secured notes and refinancing under a term loan. On May 20, 2013, we utilized the proceeds from our new variable rate term loan to redeem the remaining $118,145 of aggregate principal amount outstanding of our 9.5% senior secured notes. In conjunction with the redemption, we paid a total of $15,485 in call premiums and expensed the remaining $4,010 of associated deferred debt issuance costs. Interest rate swap. On June 13, 2013, the Company entered into an interest rate swap to reduce the exposure to interest rate fluctuations associated with its variable rate term loan. Under the agreement we will pay a fixed amount and receive payments based on a variable interest rate. The terms of the interest rate swap are identical to our commitments and obligations under our variable rate term loan. The swap became effective as of July 31, 2013 and fixed the interest rate of the term loan at 3.62%. Guarantees; security. The obligations under our credit facility are guaranteed on a senior secured basis by each of our existing and future domestic restricted subsidiaries, including Thermon Industries, Inc., the U.S. borrower under our credit facility. The obligations under our credit facility are secured by a first priority perfected security interest in substantially all of our assets, subject to certain exceptions, permitted liens and encumbrances reasonably acceptable to the administrative agent under our credit facility. 11

16 Restrictive covenants. The credit facility contains various restrictive covenants that include restrictions or limitations on our ability to: incur additional indebtedness or issue disqualified capital stock unless certain financial tests are satisfied; pay dividends, redeem subordinated debt or make other restricted payments; make certain investments or acquisitions; issue stock of subsidiaries; grant or permit certain liens on our assets; enter into certain transactions with affiliates; merge, consolidate or transfer substantially all of our assets; incur dividend or other payment restrictions affecting certain of our subsidiaries; transfer or sell assets, including capital stock of our subsidiaries; and change the business we conduct. As of December 31, 2013, we were in compliance with all restrictive covenants of the credit facility. 10. Commitments and Contingencies At December 31, 2013, the Company had in place letter of credit guarantees and performance bonds securing performance obligations of the Company. These arrangements totaled approximately $16,127. Of this amount, $1,040 is secured by cash deposits at the Company s financial institutions. The remaining $15,087 represents a reduction of the available amount of the Company s short term and long term revolving lines of credit and performance bonds that the Company has secured. Included in prepaid expenses and other current assets at December 31, 2013 and March 31, 2013, was approximately $1,040 and $1,978, respectively, of cash deposits pledged as collateral on performance bonds and letters of credit. Our Indian subsidiary also has $3,845 in customs bonds outstanding to secure the Company's customs duties obligations in India. The Company is involved in various legal and administrative proceedings that arise from time to time in the ordinary course of doing business. Some of these proceedings may result in fines, penalties or judgments being assessed against us, which may adversely affect our financial results. In addition, from time to time, the Company is involved in various disputes, which may or may not be settled prior to legal proceedings being instituted and which may result in losses in excess of accrued liabilities, if any, relating to such unresolved disputes. As of December 31, 2013, management believes that adequate reserves have been established for any probable losses. Expenses related to litigation reduce operating income. We do not believe that the outcome of any of these proceedings or disputes would have a significant adverse effect on our financial position, long-term results of operations, or cash flows. It is possible, however, that charges related to these matters could be significant to our results of operations or cash flows in any one accounting period. The Company has no outstanding legal matters outside of matters arising in the ordinary course of business, except as described below. We can give no assurances we will prevail in any of these matters. Notice of Tax Dispute with the Canada Revenue Agency. On June 13, 2011, we received notice from the Canada Revenue Agency, which we refer to as the "Agency", advising us that they disagree with the tax treatment we proposed with respect to certain asset transfers that were completed in August 2007 by our Predecessor owners. During fiscal 2013, we were informed by the Agency that their initial audit was concluded but they intended to make an assessment under Canada's General Anti Avoidance Rule. Under this rule, the Agency may assess a withholding tax on dividends deemed to have been made on loans made to our Canadian subsidiary during Such assessment could be $3,000 plus penalties and interest. At December 31, 2013, we have not recorded a tax liability reserve due for this matter with the Agency as we consider it more likely than not that our tax position will be fully sustained. While we intend to vigorously contest any assessment the Agency may make against us in this matter, we expect that any liability will be covered under an indemnity agreement with the Predecessor owners. Russia Tax Audit. As of December 31, 2013, the Russian tax authority has ongoing tax audits related to our Russian tax returns for the three years ended December 31, It is reasonably possible that the Russian tax authority will issue an assessment on these open periods. We believe that our tax liabilities are fairly stated and properly reflected in our financial statements. The Russian tax authority has not issued an assessment of tax liability and we have not recorded a contingent liability for any possible assessment, as no loss is reasonably estimable. 11. Stock-Based Compensation Expense Since the completion of the CHS Transactions on April 30, 2010, the board of directors has adopted and the shareholders have approved two stock option award plans. The 2010 Thermon Group Holdings, Inc. Restricted Stock and Stock Option Plan ( 2010 Plan ) was approved on July 28, The 2010 Plan authorized the issuance of 2,767,171 stock options or restricted shares (on a post-stock split basis). On April 8, 2011, the board of directors approved the Thermon Group Holdings, Inc Long-Term Incentive Plan ( 2011 LTIP ). The 2011 LTIP made available 2,893,341 shares of the Company s common stock that may be awarded to employees, directors or non-employee contractor's compensation in the form of stock options, restricted stock awards or restricted stock units. 12

17 At December 31, 2013, there were 648,903 options outstanding. For the three months ended December 31, 2013 and 2012, stock compensation expense was $663, and $475, respectively, and $1,572 and $869 for the nine months ended December 31, 2013 and 2012, respectively. During the nine months ended December 31, 2013, we issued various stock compensation awards to our directors and employees. During the nine months ended December 31, 2013, 117,904 restricted stock units were granted to certain of our employees. On August 1, 2013, 17,416 restricted stock awards were issued to our directors and a target amount of 43,554 performance stock units were granted to our named executive officers. The closing price on the date of the grants ranged from $19.48 to $ The restricted stock units that were issued to our employees have a total fair value of $2,375 as determined by the closing price of our stock on the date of the grants. The awards will be expensed on a straight-line basis over the service period which ranges from 3 to 5 years. At each anniversary of the restricted stock units' grant date, a proportionate number of restricted stock units will become vested for the employees and the shares will become issued and outstanding. The restricted stock awards issued to our directors have a total fair value of $350 as determined by the closing price of our stock on August 1, 2013 and will be expensed on a straight-line basis over one year. The stock associated with the directors' awards has already been issued and is included in our shares outstanding with voting rights. On the anniversary of the grant date, the restricted stock will fully vest. The performance stock units issued to our four named executive officers have a total fair value at grant date of $480. The performance indicator for these stock awards is based on the market performance of our stock price as compared to a pre-determined peer group of companies with similar business characteristics as ours. Since the performance indicator is market based, we prepared a Monte Carlo valuation model to calculate the probable outcome of the performance measure to arrive at fair value. We will expense the fair value over three years at each of our fiscal year ends during the performance period, whether or not the market condition is met. At the end of each fiscal year, one-third of the performance units will be evaluated. It will then be determined how many shares will be issued. In each year, the possible number of shares that will be issued ranges from zero to 87,108 in aggregate. Shares that are not awarded in a given year will be forfeited. 12. Income Taxes Our anticipated annual effective tax rate before discrete events of approximately 26.1% has been applied to our consolidated pre-tax income for the nine month period ended December 31, After accounting for discrete events including the benefit of $1,047 for the release of a liability for uncertain tax positions and $575 related to the reduction of previously estimated tax benefits that was determined not to be payable to the Predecessor owners, our effective rate was 18.4%. For the nine months ended December 31, 2012, the Company s provision for income taxes reflects an effective rate of approximately 34.8% and an after discrete event effective rate of 35.2%. During the nine months ended December 31, 2013, we have adopted a permanent reinvestment position whereby we expect to reinvest our foreign earnings for most of our foreign subsidiaries and do not expect to repatriate future earnings. As a result of this policy change, we will no longer accrue a tax liability in anticipation of future dividends from our foreign subsidiaries. The estimated annual effective tax rate for the fiscal year ending March 31, 2014 reflects the estimated taxable earnings of our various foreign subsidiaries and the applicable local tax rates and after accounting for certain permanent differences, such as nondeductible compensation expenses. For the three month period ended December 31, 2013 and 2012, the Company recorded tax expense of $3,754 and $4,161 on pre-tax income of $16,337 and $11,899, respectively. For the nine month period ended December 31, 2013 and 2012, the Company recorded tax expense of $3,662 and $11,585 on pre-tax income of $19,879 and $32,910, respectively. As of December 31, 2013, we have established a long-term liability for uncertain tax positions in the amount of $672. During the nine month period ended December 31, 2013, we concluded an income tax audit with the United States Internal Revenue Service. As a result of this, we released reserves for uncertain tax positions taken on the periods under examination and recorded a related tax benefit of $1,047 for the nine months ended December 31, Our remaining unrecognized tax benefits at December 31, 2013 would affect our effective income tax rate if recognized, though the Company does not expect to recognize any tax benefits in the next twelve months. The Company recognizes related accrued interest and penalties as income tax expense and has accrued $45 for the nine months ended December 31, With the conclusion of the audit with the United States Internal Revenue Service, we received a refund of $2,000. This amount related to tax periods associated with our Predecessor owners and was therefore payable as part of "Obligations due to settle the CHS Transactions", see Note 7. Related -Party Transactions. The payment of this refund represented the final 13

18 transaction tax benefit due to the Predecessor owners. Accordingly, we released $575 of additional estimated tax benefits as a reduction of tax expense that we determined would not be realized and are no longer payable. As of December 31, 2013, the tax years 2006 through 2013 remain open to examination by the major taxing jurisdictions to which we are subject, except for the United States federal income tax returns, where the federal income tax return for fiscal 2012 and 2013 remain open. The Company's Canadian federal income tax returns are under exam for the Predecessor's tax years ended March 31, 2008, 2009 and See Note 10. Commitments and Contingencies. 13. Geographic Information We have defined our operating segments based on geographic regions. These regions share similar economic characteristics, product mix, customers and distribution methods. Accordingly, we have elected to aggregate these geographic regions into a single reportable segment. Within our one reportable segment, we present additional detail for those countries or regions that generate significant revenue and operating income. For purposes of this note, revenue is attributed to individual countries or regions on the basis of the physical location and jurisdiction of organization of the subsidiary that invoices the material and services. Total sales and income from operations are classified by major geographic area in which the Company operates are as follows: Three Months Ended December 31, 2013 Three Months Ended December 31, 2012 Nine Months Ended December 31, 2013 Nine Months Ended December 31, 2012 Sales by geographic area: United States $ 22,921 $ 21,922 $ 67,759 $ 61,614 Canada 23,282 27,996 74,450 73,707 Europe 16,824 13,703 44,317 44,586 Asia 8,438 13,209 23,322 32,462 $ 71,465 $ 76,830 $ 209,848 $ 212,369 Operating income: United States $ 5,306 $ 3,427 $ 9,645 $ 12,706 Canada 8,716 10,559 26,616 25,859 Europe 3,453 (343) 7,138 3,234 Asia 1,239 2,471 3,381 5,434 Unallocated: Stock compensation (663) (475) (1,572) (869) Public company costs (293) (386) (942) (1,234) $ 17,758 $ 15,253 $ 44,266 $ 45,130 14

19 Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operations Introduction and Special Note Regarding Forward-Looking Statements Management s discussion and analysis of our financial condition and results of operations is provided as a supplement to the unaudited interim condensed consolidated financial statements and accompanying notes thereto for the three and nine months ended December 31, 2013 and 2012 to help provide an understanding of our financial condition, changes in our financial condition and results of our operations. In this quarterly report, we refer to the three month periods ended December 31, 2013 and 2012 as Interim 2014 and Interim 2013, respectively, and we refer to the nine month periods ended December 31, 2013 and 2012 as YTD 2014 and YTD 2013, respectively. The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited condensed consolidated financial statements and related notes included in Item 1. above. This quarterly report includes forward-looking statements within the meaning of the U.S. federal securities laws in addition to historical information. These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words anticipate, assume, believe, budget, continue, could, estimate, expect, intend, may, plan, potential, predict, project, will, future and similar terms and phrases are intended to identify forward-looking statements in this quarterly report. Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows. These forwardlooking statements include but are not limited to statements regarding: (i) our plans to strategically pursue emerging growth opportunities in diverse regions and across industry sectors; (ii) our plans to secure more new facility, or Greenfield, project bids; (iii) our ability to generate more facility maintenance, repair and operations or upgrades or expansions, or MRO/UE, revenue from our existing and future installed base; (iv) our ability to timely deliver backlog; (v) our ability to respond to new market developments and technological advances; (vi) our expectations regarding energy consumption and demand in the future and its impact on our future results of operations; (vii) our plans to develop strategic alliances with major customers and suppliers; (viii) our expectations that our revenues will continue to increase; and (ix) our belief in the sufficiency of our cash flows to meet our needs for the next year. Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, (i) general economic conditions and cyclicality in the markets we serve; (ii) future growth of energy and chemical processing capital investments; (iii) changes in relevant currency exchange rates; (iv) our ability to comply with the complex and dynamic system of laws and regulations applicable to international operations; (v) a material disruption at any of our manufacturing facilities; (vi) our dependence on subcontractors and suppliers; (vii) our ability to obtain standby letters of credit, bank guarantees or performance bonds required to bid on or secure certain customer contracts; (viii) competition from various other sources providing similar heat tracing products and services, or other alternative technologies, to customers; (ix) our ability to attract and retain qualified management and employees, particularly in our overseas markets; (x) our ability to continue to generate sufficient cash flow to satisfy our liquidity needs; (xi) the extent to which federal, state, local and foreign governmental regulation of energy, chemical processing and power generation products and services limits or prohibits the operation of our business; and (xii) other factors discussed in more detail under the caption Risk Factors in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013 filed with the SEC on June 10, 2013 and in any subsequent Quarterly Reports on Form 10-Q that we may file with the SEC. Any one of these factors or a combination of these factors could materially affect our future results of operations and could influence whether any forward-looking statements contained in this quarterly report ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we are required to do so under applicable securities laws. Overview We are one of the largest providers of highly engineered thermal solutions for process industries. For almost 60 years, we have served a diverse base of thousands of customers around the world in attractive and growing markets including energy, chemical processing and power generation. We are a global leader and one of the few thermal solutions providers with a global footprint and a full suite of products and services required to deliver comprehensive solutions to complex projects. We serve 15

20 our customers locally through a global network of sales and service professionals and distributors in more than 30 countries and through our four manufacturing facilities on three continents. These global capabilities and longstanding relationships with some of the largest multinational energy, chemical processing, power and engineering, procurement and construction companies in the world have enabled us to diversify our revenue streams and opportunistically access high growth markets worldwide. For YTD 2014 and YTD 2013 approximately 67.7% and 71.0%, respectively, of our revenues were generated outside of the United States. Revenue. Our revenues are derived from providing customers with a full suite of innovative and reliable heat tracing solutions, including electric and steam heat tracing, tubing bundles, control systems, design optimization, engineering services and installation services. Our sales are primarily to industrial customers for petroleum and chemical plants, oil and gas production facilities and power generation facilities. Demand for industrial heat tracing solutions falls into two categories: (i) new facility construction, which we refer to as Greenfield projects, and (ii) recurring maintenance, repair and operations and facility upgrades or expansions, which we refer to as MRO/UE. Greenfield construction projects often require comprehensive heat tracing solutions. We believe that Greenfield revenue consists of sales revenues by a customer in excess of $1 million for the preceding twelve month period (excluding sales to resellers), and typically includes most orders for projects related to facilities that are new or that are built independent of existing facilities. We refer to sales revenues by a customer of less than $1 million for the preceding twelve month period, which we believe are typically derived from MRO/UE, as MRO/UE revenue. Based on our experience, we believe that $1 million in annual sales is an appropriate threshold for distinguishing between Greenfield revenue and MRO/UE revenue. However, we often sell our products to intermediaries or subcontract our services; accordingly, we have limited visibility into how our products or services may ultimately be used and can provide no assurance that our categorization may accurately reflect the sources of such revenue. Furthermore, our customers do not typically enter into long-term forward maintenance contracts with us. In any given year, certain of our smaller Greenfield projects may generate less than $1 million in annual sales, and certain of our larger plant expansions or upgrades may generate in excess of $1 million in annual sales, though we believe that such exceptions are few in number and insignificant to our overall results of operations. We believe that our pipeline of planned projects, in addition to our backlog of signed purchase orders, provides us with strong visibility into our future revenue, as historically we have experienced few order cancellations, and the cancellations that have occurred in the past have not been material compared to our total contract volume or total backlog. The small number of order cancellations is attributable in part to the fact that a large portion of our solutions are ordered and installed toward the end of Greenfield project construction. Our backlog at December 31, 2013 was $ 90.5 million. The timing of recognition of revenue out of backlog is not always certain, as it is subject to a variety of factors that may cause delays, many of which are beyond our control (such as customers delivery schedules and levels of capital and maintenance expenditures). When delays occur, the recognition of revenue associated with the delayed project is likewise deferred. Cost of sales. Our cost of sales includes primarily the cost of raw material items used in the manufacture of our products, cost of ancillary products that are sourced from external suppliers and construction labor cost. Additional costs of sales include contract engineering cost directly associated with projects, direct labor cost, external sales commissions, and other costs associated with our manufacturing/fabrication operations. The other costs associated with our manufacturing/fabrication operations are mainly indirect production costs, including depreciation, indirect labor costs, and the costs of manufacturing support functions such as logistics and quality assurance. Key raw material costs include polymers, copper, stainless steel, insulating material, and other miscellaneous parts related to products manufactured or assembled as part of our heat tracing solutions. Historically, the costs of our primary raw materials have been stable and readily available from multiple suppliers, and we generally have been successful with passing along raw material cost increases to our customers. Therefore, increases in the cost of key raw materials of our products have not generally affected our gross margins. We cannot provide any assurance, however, that we may be able to pass along such cost increases to our customers in the future, and if we are unable to do so, our results of operations may be adversely affected. Operating expenses. Our marketing, general and administrative and engineering expenses are primarily comprised of compensation expense and related costs for sales, marketing, pre-sales engineering and administrative personnel, as well as other sales related expenses and other costs related to research and development, insurance, professional fees, the global integrated business information system, provisions for bad debts and warranty expense. Key drivers affecting our results of operations. Our results of operations and financial condition are affected by numerous factors, including those described under the caption Risk Factors in our Annual Report on Form 10-K filed with the SEC on June 10, 2013 and elsewhere in this quarterly report and those described below: Timing of Greenfield projects. Our results of operations in recent years have been impacted by the various construction phases of large Greenfield projects. On very large projects, we are typically designated as the heat tracing provider of choice by the project owner. We then engage with multiple contractors to address 16