UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-168915-05

THERMON HOLDING CORP.

(Exact name of registrant as specified in its charter)


Delaware		26-0249310
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 Thermon Drive San Marcos, Texas 78666		(512) 396-5801
(Address of principal executive offices, including zip code)		(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 o No þ

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or 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 (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a 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 o No þ

As of February 14, 2011, there were 100,000 shares of the registrant’s common stock, $0.001 par value per share, outstanding (all of which are privately owned and are not traded on any public market).

THERMON HOLDING CORP.

QUARTERLY REPORT

FOR THE QUARTER ENDED DECEMBER 31, 2010

TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of December 31, 2010 (“Successor”) and March 31, 2010 (“Predecessor”)	1
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the period from May 1, 2010 through December 31, 2010 (“Successor”), the period from April 1 through April 30, 2010 (“Predecessor”), the three months ended December 31, 2010(“Successor”) and for the three and nine month periods ended December 31, 2009 (“Predecessor”)	2
Condensed Consolidated Statements of Cash Flows for the period from May 1, 2010 through December 31, 2010 (“Successor”), the period from April 1 through April 30, 2010 (“Predecessor”) and for the nine months ended December 31, 2009 (“Predecessor”)	3
Notes to Condensed Consolidated Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures About Market Risk	36
Item 4. Controls and Procedures	38

PART II – OTHER INFORMATION
Item 1. Legal Proceedings	39
Item 1A. Risk Factors	39
Item 2. Unregistered Sales of Equity of Equity Securities and Use of Proceeds	39
Item 3. Defaults Upon Senior Securities	39
Item 5. Other Information	39
Item 6. Exhibits	39
SIGNATURE	41
EXHIBIT INDEX	42
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Thermon Holding Corp.

PART I – FINANCIAL INFORMATION

Item 1 — Financial Statements

Condensed Consolidated Balance Sheets

(Dollars in Thousands)

	December 31, 2010 (Successor) (Unaudited)		March 31, 2010 (Predecessor)
Assets
Current assets:
Cash and cash equivalents	$	34,951	$	30,147
Accounts receivable, net of allowance for doubtful accounts of $1,331 and $1,835 as of December 31, 2010 and March 31, 2010, respectively		47,073		41,882
Notes receivable and other		–		3
Inventories, net		27,600		22,835
Costs and estimated earnings in excess of billings on uncompleted contracts		1,245		1,636
Income taxes receivable		1,999		1,368
Prepaid expenses and other current assets		7,883		4,331
Deferred income taxes		1,421		1,428
Total current assets		122,172		103,630
Property, plant and equipment, net		23,404		22,750
Goodwill		116,626		42,013
Intangible assets, net		159,346		50,137
Debt issuance costs, net		12,263		2,586
	$	433,811	$	221,116

Liabilities and shareholder’s/members’ equity
Current liabilities:
Accounts payable	$	16,319	$	9,397
Accrued liabilities		16,789		13,505
Advance payment		10,248		–
Obligations due to settle the CHS Transaction		3,754		–
Billings in excess of costs and estimated earnings on uncompleted contracts		–		1,035
Income taxes payable		129		2,158
Deferred income taxes		–		138
Total current liabilities		47,239		26,233
Long-term debt, net of current maturities		210,000		109,249
Deferred income taxes		53,916		30,005
Other noncurrent liabilities		1,844		555

Shareholder’s/Members’ equity		120,812		55,074
	$	433,811	$	221,116

See accompanying notes.

Thermon Holding Corp.

Condensed Consolidated Statements of Operations and Comprehensive Income/Loss (Unaudited)

(Dollars in Thousands)

	Three Months Ended			Three Months Ended			For the Period From May 1, Through			For the Period From April 1, Through			Nine Months Ended
	December 31, 2010			December 31, 2009			December 31, 2010			April 30, 2010			December 31, 2009
	(Successor)			(Predecessor)			(Successor)			(Predecessor)			(Predecessor)

Sales	$	64,941		$	47,348		$	165,905		$	13,063		$	142,905
Cost of sales		35,333			24,152			98,795			6,447			73,966
Gross profit		29,608			23,196			67,110			6,616			68,939
Operating expenses:
Marketing, general and administrative and engineering		14,705			12,542			37,227			4,263			33,770
Amortization of other intangible assets		3,700			623			15,126			215			1,803
Income from operations		11,203			10,031			14,757			2,138			33,366
Other income/(expenses):
Interest income		7			33			10			7			54
Interest expense		(5,580	)		(1,927	)		(17,111	)		(6,229	)		(5,570	)
Success fees to owners related to the CHS Transaction		-			-			(3,022	)		(4,716	)		-
Miscellaneous expense		(1,029	)		(564	)		(4,667	)		(8,901	)		(881	)
Income (loss) before provision for income taxes		4,601			7,573			(10,033	)		(17,701	)		26,969
Income taxes (expense) benefit		(1,592	)		(3,391	)		(927	)		17,434			(12,241	)
Net income (loss)	$	3,009		$	4,182		$	(10,960	)	$	(267	)	$	14,728
Comprehensive income (loss):
Net income (loss)	$	3,009		$	4,182		$	(10,960	)	$	(267	)	$	14,728
Foreign currency translation adjustment		3,566			281			1,786			(576	)		6,886
Comprehensive income (loss)	$	6,575		$	4,463		$	(9,174	)	$	(843	)	$	21,614

See accompanying notes.

Thermon Holding Corp.

Condensed Consolidated Statement of Cash Flows (Unaudited)

(Dollars in Thousands)

	For the Period From May 1, Through December 31, 2010			For the Period From April 1, Through April 30, 2010			Nine Months Ended December 31, 2009
	(Successor)			(Predecessor)			(Predecessor)
Operating activities
Net income (loss)	$	(10,960	)	$	(267	)	$	14,728
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		24,040			392			3,223
Amortization of debt costs		3,365			2,586			512
Stock compensation expense		734			–			–
Provision (benefit) for deferred income taxes		(2,660	)		(15,122	)		3,080
Changes in operating assets and liabilities:
Accounts receivable		(6,452	)		1,365			240
Inventories		(2,972	)		(1,719	)		2,932
Costs and estimated earnings and billings on construction contracts		(678	)		34			204
Other current and noncurrent assets		(1,241	)		(3,151	)		(1,765	)
Accounts payable		5,672			825			(223	)
Accrued liabilities and noncurrent liabilities		18,161			9,515			(281	)
Change in liability to former shareholders		–			–			(1,437	)
Income taxes payable		(937	)		(860	)		1,974
Net cash provided by (used in) operating activities		26,072			(6,402	)		23,187

Investing activities
Purchases of property, plant and equipment		(1,149	)		(97	)		(976	)
Cash paid for Thermon Holding Corp. (net of cash acquired of $2,852)		(318,048	)		–			–
Other investing activities		–			(1,397	)		–
Net cash used in investing activities		(319,197	)		(1,494	)		(976	)

Financing activities
Proceeds from senior secured notes		210,000			–			–
Proceeds from revolving line of credit		4,599			–			–
Obligation due to settle the CHS Transaction		6,600			–			–
Payments to settle the CHS Transaction		(2,846	)		–			–
Payments on revolving lines of credit and long-term debt		(4,599	)		(19,385	)		–
Capital contributions		129,252			–			–
Dividend paid								(8,600	)
Debt issuance costs		(15,473	)		–			–
Net cash provided by (used in) financing activities		327,533			(19,385	)		(8,600	)

Effect of exchange rate changes on cash and cash equivalents		543			(14	)		(1,128	)

Change in cash and cash equivalents		34,951			(27,295	)		12,483
Cash and cash equivalents at beginning of period		–			30,147			13,402
Cash and cash equivalents at end of period	$	34,951		$	2,852		$	25,885

See accompanying notes.

Thermon Holding Corp.

Notes to Financial Statements

For the Three and Nine Months Ended December 31, 2010

1. Basis of Presentation

On April 30, 2010, a group of investors led by CHS Capital LLC (f/k/a Code Hennessy & Simmons LLC) (“CHS”) and certain management investors acquired (the “Acquisition”) Thermon Holding Corp. and its subsidiaries (“we”, “us,” “the Company” or “Successor”) from Thermon Holdings, LLC (“Predecessor”) for a purchase price of $320.9 million (subject to finalization of a post-closing income tax adjustment) in a transaction that was financed by approximately $129.2 million of equity investments and $210 million of debt raised in an exempt Rule 144A senior secured note offering to qualified institutional investors. The proceeds from the equity investments and debt financing were used both to finance the acquisition and pay related transaction costs. As used in this quarterly report, the CHS Transactions refer collectively to the equity investment in us by CHS, our other sponsors and certain members of our management team, the entry into our revolving credit facility, the repayment of amounts owed under, and the termination of, certain then-existing revolving credit and term loan facilities, the issuance of our senior secured notes and the application of the gross proceeds from the offering of our senior secured notes and the equity investment to complete the Acquisition and to pay related fees and expenses of these transactions.

The Acquisition was accounted for as a purchase combination. The purchase price was allocated to the assets acquired based on their estimated fair values, with the assistance of an independent third party appraisal received by the Company. Liabilities assumed in the Acquisition were recorded based upon their actual value. The Company’s management ultimately takes responsibility for valuations assigned to the assets and liabilities assumed in connection with the purchase combination. Pushdown accounting was employed to reflect the purchase price paid by our new owners.

In this quarterly report, we have included the condensed consolidated financial statements of Thermon Holding Corp. as of December 31, 2010 and for the three and nine month periods ended December 31, 2010. Concurrent with the consummation of the CHS Transactions on April 30, 2010, the Predecessor no longer owned any interest in us, and, beginning with the period from May 1, 2010 through December 31, 2010, we reported the consolidated financial statements of Thermon Holding Corp. The historical financial and other data prior to the closing of the CHS Transactions on April 30, 2010 have been prepared using the historical results of operations and bases of the assets and liabilities of the Predecessor. Our historical financial data prior to May 1, 2010 may not be indicative of our future performance.

The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Thermon Holdings, LLC for the year ended March 31, 2010. 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, 2010 and March 31, 2010, and the results of our operations and the cash flows for the period from May 1 through December 31, 2010, the period from April 1 through April 30, 2010 and the nine month period ended December 31, 2009. Operating results for the period from May 1 through December 31, 2010 and for the period from April 1 through April 30, 2010 are not necessarily indicative of the results that may be expected for the full year ending March 31, 2011. Certain reclassifications have been made to the prior period presentation to conform to the current period presentation. All dollar and share amounts are presented in thousands, unless otherwise noted.

2. New Accounting Pronouncements

In October 2009, the FASB issued an Accounting Standards Update (“ASU”) that amended the accounting rules addressing revenue recognition for multiple-deliverable revenue arrangements by eliminating the criterion for objective and reliable evidence of fair value for the undelivered products or services. Instead, revenue arrangements with multiple deliverables should be divided into separate units of accounting provided the deliverables meet certain criteria. Additionally the ASU provides for elimination of the use of the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables based on their relative selling price. A hierarchy for estimating such selling price is included in the update. This ASU will be

Thermon Holding Corp.

Notes to Financial Statements (continued)

effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating whether this update will have an impact on our consolidated financial statements.

3. Inventories

Inventories consisted of the following:

	December 31, 2010 (Successor)			March 31, 2010 (Predecessor)


Raw materials	$	9,143		$	7,451
Work in process		1,669			1,831
Finished goods		18,244			14,725
		29,056			24,007
Valuation reserves		(1,456	)		(1,172	)
Net inventory	$	27,600		$	22,835

4. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

	December 31, 2010 (Successor)			March 31, 2010 (Predecessor)

Land, buildings and improvements	$	14,070		$	13,437
Machinery and equipment		8,079			11,739
Office furniture and equipment		2,693			2,866
		24,842			28,042
Accumulated depreciation		(1,438	)		(5,292	)
	$	23,404		$	22,750

5. Acquisition, Goodwill and Other Intangible Assets

We were acquired on April 30, 2010 for $320,900 as follows:

Consideration to or on behalf of sellers at close	$	220,600
Payoff existing debt, interest and bank fees at close		93,700
Accrual for obligations in settlement with seller (1)		6,600
	$	320,900

(1)

Consists of estimated amounts owed to sellers in the CHS Transactions for restricted cash and in satisfaction of the post-closing adjustments for working capital and income taxes, of which $2,846 was paid in the period from May 1 through December 31, 2010 and $3,754 was outstanding at December 31, 2010.

Thermon Holding Corp.

Notes to Financial Statements (continued)

The following table summarizes the fair value of the assets and liabilities assumed:

Assets acquired:
Cash and cash equivalents	$	2,852
Accounts receivable, net		40,595
Inventories, net		32,325
Other current assets		10,676
Property, plant and equipment		23,983
Identifiable intangible assets		173,711
Goodwill		115,775
Other noncurrent assets		284
Total assets		400,201

Liabilities assumed:
Current liabilities		21,281
Noncurrent deferred tax liability		56,757
Other noncurrent liabilities		1,263
Total liabilities		79,301

Purchase price		320,900
Less: cash		(2,852	)
Purchase price net of cash	$	318,048

The push-down accounting effects of the CHS Transaction resulted in an increase in shareholder’s equity of approximately $155,421, which we allocated to the historical balance sheet. The following is a summary of the fair value adjustments pushed down to the Company:

	Original Allocation			Adjustments			December 31, 2010 (Successor)
Inventory	$	7,648		$	—		$	7,648
Property, plant and equipment		—			1,354			1,354
Identifiable intangible assets		92,533			29,193			121,726
Goodwill		85,598			(19,142	)		66,456
Noncurrent deferred tax liability		(30,358	)		(11,405	)		(41,763	)
	$	155,421		$	—		$	155,421

Goodwill for the nine months ended December 31, 2010 is as follows:

Balance at May 1, 2010	$	134,917
Adjustment of the allocation of fair values		(19,142	)
Subtotal		115,775
Foreign currency translation impact		851
Balance at December 31, 2010	$	116,626

Thermon Holding Corp.

Notes to Financial Statements (continued)

Other intangible assets at December 31, 2010 consist of the following:

	Successor
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trademarks	$	48,280	$	—	$	48,280
Developed technology		11,063		449		10,614
Customer relationships		102,425		4,472		97,953
Backlog		10,289		10,289		—
Certification		504		—		504
Other		2,205		210		1,995
Total	$	174,766	$	15,420	$	159,346

The effect of foreign currency translation on the gross carrying amount at December 31, 2010 was $1,055.

Other intangible assets at March 31, 2010 consist of the following:

	Predecessor
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trademarks	$	27,767	$	—	$	27,767
Developed technology		6,408		828		5,580
Customer relationships		21,632		5,588		16,044
Backlog		9,770		9,770		—
Certification		521		57		464
Noncompete agreements		464		240		224
Other		58		—		58
Total	$	66,620	$	16,483	$	50,137

At December 31, 2010, approximately $11,626 of the purchase price was held in escrow to secure the Predecessor’s indemnification obligations in the event of any breaches of representations and warranties contained in the definitive agreements.

The Company allocates the purchase price in connection with the Acquisition to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the purchase price over these fair values is recorded as goodwill. The Company engaged an independent third-party appraisal firm to assist the Company in determining the fair values of assets acquired and liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. The Company’s management ultimately takes responsibility for valuations assigned to the assets and liabilities assumed in connection with the purchase combination. The significant purchased intangible assets recorded by the Company include trademarks, customer relationships, backlog and developed technology.

Critical estimates in valuing certain intangible assets include, without limitation, future expected cash flows from customer relationships, acquired developed technologies and trademarks and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.

Acquisition-related transaction costs, such as advisory, legal and other professional fees, are not included as a component of consideration transferred, but are accounted for as expenses in the periods in which costs are incurred. Total advisory, legal and other fees incurred by the Company were approximately $37.3 million, of which $7.7 million was expensed in the period from May 1 through December 31, 2010, $13.9 million was incurred and expensed by the Predecessor in the period from April 1, 2010 through April 30, 2010, and the remainder is being capitalized as debt issuance cost.

Thermon Holding Corp.

Notes to Financial Statements (continued)

The Company does not expect goodwill recorded in connection with the Acquisition to be deductible for tax purposes.

6. Accrued Liabilities

Accrued current liabilities consisted of the following:

	December 31, 2010 (Successor)		March 31, 2010 (Predecessor)

Accrued employee compensation and related expenses	$	7,997	$	6,171
Warranty reserve		1,041		699
Professional fees		854		1,097
Interest		3,434		280
Taxes payable		724		567
Compliance costs		55		704
Other		2,684		3,987
Total accrued current liabilities	$	16,789	$	13,505

7. Advance payment

At December 31, 2010, the Company had received a deposit in the amount of $10,289 from a customer in advance of our delivery of products and services. We expect to recognize this revenue upon the delivery of our products and the completion of our services.

8. Related-Party Transactions

We paid management and transaction success fees to, and reimbursed the out of pocket expenses of, our private equity sponsors of $7,696 in the nine months ended December 31, 2010. Of this amount, $736 is included in prepaid expenses, $2,605 was included in deferred debt issuance costs, net, $3,022 is included in success fees to owners related to the CHS Transaction expense, and $1,333 is included in Marketing, general and administrative and engineering expense.

The Predecessor paid management fees and expenses to its private equity sponsor in the one month ended April 30, 2010 of $4,795. Of this amount $79 is included in Marketing, general and administrative and engineering expense and $4,716 is included in Miscellaneous income/expense as it was related to the CHS Transactions.

See Note 5, Acquisition, Goodwill and Other Intangible Assets for further information regarding payments due to the sellers in the CHS Transactions. Estimated amounts due the sellers are shown as a current liability labeled “Obligations due to settle the CHS Transactions.”

9. Short-Term Revolving Lines of Credit

The Company’s subsidiary in the Netherlands has a revolving credit facility in the amount of Euro 4,000 (equivalent to $5,256 USD at December 31, 2010) collateralized by receivables, inventory, equipment, furniture and real estate. No loans were outstanding on this facility at December 31, 2010 or 2009.

The Company’s subsidiary in India has a revolving credit facility in the amount of 80,000 rupees (equivalent to $1,753 USD at December 31, 2010). The facility is collateralized by receivables, inventory, real estate, a letter of credit, and cash. No loans were outstanding under the facility at December 31, 2010 or 2009.

The Company’s subsidiary in Australia has a revolving credit facility in the amount of $325 Australian Dollars (equivalent to $329 USD at December 31, 2010). The facility is collateralized by real estate. The facilities had no loans outstanding as of December 31, 2010 or 2009.

Thermon Holding Corp.

Notes to Financial Statements (continued)

In August 2010, the Company’s subsidiary in Japan established a revolving credit facility in the amount of 45,000 Japanese Yen (equivalent to $548 USD at December 31, 2010). The credit facility is collateralized by a standby letter of credit in the amount of $300 issued as part of the revolving credit facility referred to in Note 9. No loans were outstanding under the Japanese revolving credit facility at December 31, 2010.

10. Long-Term Debt

Long- term debt consisted of the following:

	December 31, 2010 (Successor)		March 31, 2010 (Predecessor)

9.500% Senior Secured Notes, due May 2017	$	210,000	$	–
Notes payable		–		109,249
		210,000		109,249
Less current portion		–		–
	$	210,000	$	109,249

Revolving Credit Facility and Senior Secured Notes

Revolving credit facility. Simultaneously with the closing of the Acquisition and the sale of our senior secured notes, our wholly owned subsidiary, Thermon Industries, Inc., entered into a five-year, $40.0 million senior secured revolving credit facility, which we refer to as our revolving credit facility, of which up to $20.0 million is available to our Canadian subsidiary, subject to borrowing base availability. Availability of funds under our revolving credit facility is determined by a borrowing base equal to the sum of 85% of eligible accounts receivable, plus 60% of eligible inventory, plus 85% of the net orderly liquidation value of eligible equipment, plus 50% of the fair market value of eligible owned real property. In no case shall availability under our revolving credit facility exceed the commitments thereunder. As of December 31, 2010, we had $34.8 million of capacity available under our revolving credit facility after taking into account the borrowing base, outstanding loan advances and letters of credit. In addition to our revolving credit facility, we have various short term revolving lines of credit available to us at our foreign affiliates, and no borrowings were outstanding under any such lines of credit at December 31, 2010.

The revolving credit facility will mature in 2015. Any borrowings on our revolving credit facility will incur interest expense that is variable in relation to the LIBOR rate. Borrowings denominated in Canadian Dollars under the Canadian facility bear interest at a variable rate in relation to the bankers’ acceptance rate, as set forth in the revolving credit facility. In addition to paying interest on outstanding borrowings under our revolving credit facility, we are required to pay a 0.75% per annum commitment fee to the lenders in respect of the unutilized commitments thereunder and letter of credit fees equal to the LIBOR margin or the bankers’ acceptance rate, as applicable, on the undrawn amount of all outstanding letters of credit. At December 31, 2010, we had no outstanding borrowings under our revolving credit facility. Had there been outstanding borrowings, the interest rate on the facility would have been 5.75%.

Senior secured notes. As of December 31, 2010, we had $210.0 million of indebtedness outstanding under our senior secured notes with annual cash interest expense of approximately $20.0 million. Our senior secured notes mature on May 1, 2017 and accrue interest at a fixed rate of 9.500%. We pay interest in cash semi-annually on May and November 1 of each year. Our senior secured notes were issued in a Rule 144A exempt senior secured note offering to qualified institutional investors. The proceeds were used to fund the purchase price for the Acquisition and related transaction costs. In January 2011, we consummated an offer to exchange the old restricted senior secured notes for new, SEC-registered senior secured notes.

Guarantees; security. The obligations under our revolving credit facility and our senior secured notes are guaranteed on a senior secured basis by the Company and each of its existing and future domestic restricted subsidiaries, other than Thermon Industries, Inc., the issuer of the senior secured notes. The obligations under our revolving credit facility are secured by a first priority perfected security interest in substantially all of our and the guarantors’ assets, subject to certain exceptions, permitted liens and encumbrances reasonably acceptable to the

Thermon Holding Corp.

Notes to Financial Statements (continued)

agent under our revolving credit facility. Our senior secured notes and guarantees are also secured by liens on substantially all of our and the guarantors’ assets, subject to certain exceptions; provided, however, that the liens are contractually subordinated to the liens thereon that secure our revolving credit facility.

Restrictive covenants. The revolving credit facility and senior secured notes contain 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. However, all of these covenants are subject to exceptions.

As of December 31, 2010, the aggregate market value of our debt, with a face amount of $210 million, was approximately $224 million. At March 31, 2010, the carrying amounts of long-term debt related to obligations of the former owners approximate their fair values due to their variable rates.

Other Financial Assets and Liabilities

Financial assets and liabilities with the carrying amounts approximating fair value include cash and cash equivalents, accounts receivable, other current assets, current debt, accounts payable and other current liabilities.

11. Commitments and Contingencies

At December 31, 2010, the Company had in place letter of credit guarantees from banks securing performance obligations of the Company. These arrangements totaled approximately $5,505 and related to certain sales contracts and local lines of credit for which $2,449 is secured by cash deposits. Included in prepaid expenses and other current assets at December 31, 2010 and March 31, 2010, was approximately $2,449 and $2,066, respectively, of cash deposits pledged as collateral on performance bonds and letters of credit.

The Company is involved in various legal proceedings that arise from time to time in the ordinary course of doing business and believes that adequate reserves have been established for any probable losses. Expenses related to litigation are included in operating income. We do not believe that the outcome of any of these proceedings 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 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.

Asbestos Litigation—Since 1999, we have been named as one of many defendants in 16 personal injury suits alleging exposure to asbestos from our products. None of the cases alleges premises liability. Six cases are currently pending. Insurers are defending us in three of the six lawsuits, and we expect that an insurer will defend us in the remaining three matters. Of the concluded suits, there were five cost of defense settlements and the remainder were dismissed without payment. There are no claims unrelated to asbestos exposure for which coverage has been sought under the policies that are providing coverage.

Indian Sales Tax and Customs Disputes—Our Indian subsidiary is currently disputing assessments of administrative sales tax and customs duties with Indian tax and customs authorities. In addition, we currently have a customs duty case before the Supreme Court in India, on appeal by custom authorities. As of December 31, 2010, the Company had not recorded any contingent liability in the condensed consolidated financial statements relating to this matter.

We can give no assurances we will prevail in any of these matters.

Thermon Holding Corp.

Notes to Financial Statements (continued)

Warranty Reserve— Changes in the Company’s product liability are as follows:

	For the Period From May 1, Through December 31, 2010 (Successor)			For the Period From April 1, Through April 30, 2010 (Predecessor)		Nine Months Ended December 31, 2009 (Predecessor)

Balance at beginning of period	$	1,057		$	699	$	975
Provision for warranties issued		604			19		539
Reclassification of other liabilities		–			339		–
Changes in estimates		–			–		(807	)
Settlements		(620	)		–		(223	)
Balance at end of period	$	1,041		$	1,057	$	484

12. Shareholder’s Equity/Members’ Equity

We have 100,000 shares of $0.001 par value common stock issued and outstanding. All of our outstanding shares of common stock are held by our parent entity, Thermon Group, Inc.

13. Stock-Based Compensation Expense

On October 20, 2010 and October 27, 2010, our board of directors granted employees options to purchase 13,761 shares of our common stock, each with an exercise price of $1,000 per share, pursuant to the terms of our existing restricted stock and stock option plan. The options are for the purchase of shares of common stock of our ultimate parent entity, Thermon Group Holdings, Inc. All such options become eligible for vesting in five equal tranches, with the portion of each tranche that vests determined by the board of directors based on the attainment of annual performance objectives established by the board of directors. Accordingly, the Company will estimate the likelihood of vesting based on its periodic performance. Any portion of the shares eligible for vesting that do not vest based on the attainment of such performance objectives shall be added to the number of shares eligible to vest on the next scheduled vesting date, subject to the participant’s continuous employment. All shares subject to such options shall vest on the seventh anniversary of the grant date if the participant remains continuously employed by us and our outstanding equity securities attain a specified fair value as of such vesting date. Pursuant to the outstanding stock option agreements, we have the right to repurchase any shares acquired on exercise of the option at fair market value following termination of the optionee’s employment for death, disability or termination without cause. For all other termination events, we have the right to repurchase the shares acquired on exercise of the option at the lower of fair market value or the exercise price. Fair market value is determined by our board of directors in good faith.

The Company determined that vesting in fiscal year 2011 was likely and therefore recorded its initial stock-based compensation expense of $685 during the three months ended December 31, 2010. As of December 31, 2010, the estimated unrecognized stock compensation expense for the remainder of fiscal 2011 will be $622. To arrive at this estimate, the Company used a Black-Scholes option pricing model to estimate the fair value of the options granted. Due to the fact that the common stock underlying the options is not publicly traded, the expected volatility is based on a comparable group of companies. The expected term is based on the simplified method due to the lack of historical exercise data. The risk-free rate for periods within the contractual life of the option is based on the Treasury bill coupon rate for U.S. Treasury securities with a maturity that approximates the expected term. We do not intend to pay dividends on our common stock for the foreseeable future, and accordingly we used a dividend yield of zero. The estimated fair value of the underlying stock at time of grant was $1,000 per share. By using an estimated volatility of 45%, life of option of 6.66 years, risk free rate of 2.02% and no dividend assumption, the weighted-average estimated grant date fair value for employee stock options granted was $476.33 per share during the three and eight months ended December 31, 2010. No stock options were granted in a prior period presented.

As indicated in Note 17. Subsequent Event, our ultimate parent entity, Thermon Group Holdings, Inc., has indicated that it is pursuing an initial public offering. Pursuant to the outstanding stock option agreements, all

Thermon Holding Corp.

Notes to Financial Statements (continued)

outstanding option awards shall vest and become exercisable immediately prior to an initial public offering. In the event that the offering is completed, we will record stock-based compensation expense for all unvested outstanding option awards in the period in which the offering is completed.

During the three months ended December 31, 2010, Thermon Group Holdings, Inc., issued 50 shares of common stock to an employee of one of our foreign subsidiaries under our restricted stock and stock option plan. The fair value of the stock at the time of the award was $1,000 per share. Accordingly, we recorded stock-based compensation expense of $50,000.

14. Miscellaneous Income (Expense)

Miscellaneous income (expense) is as follows:

	Three Months Ended December 31, 2010			Three Months Ended December 31, 2009			For the Period From May 1, Through December 31, 2010			For the Period From April 1, Through April 30, 2010			Nine Months Ended December 31, 2009
	(Successor)			(Predecessor)			(Successor)			(Predecessor)			(Predecessor)

Professional fees and expenses related to CHS Transactions	$	(818	)	$	(317	)	$	(4,662	)	$	(5,660	)	$	(312	)
Employee bonus payments paid in connection with CHS Transactions		–			–			–			(3,545	)		–
Changes in estimates for compliance fees and costs		–			–			600			–			–
Losses on foreign currency transactions		(242	)		19			(566	)					(303	)
Other		31			(266	)		(39	)		304			(266	)
Total	$	(1,029	)	$	(564	)	$	(4,667	)	$	(8,901	)	$	(881	)

15. Income Taxes

Our anticipated annual effective tax rate of approximately (3.9%) has been applied to our consolidated pre-tax loss for the period from May 1, 2010 through December 31, 2010. This tax rate is less than the U.S. statutory rate primarily due to the amount of buyer’s expenses incurred in connection with the CHS Transactions that is estimated to be nondeductible, valuation reserves taken against our anticipated foreign tax credit and other carryforwards for U. S. taxation purposes, and differences between foreign and U.S. tax rates. For the period from April 1 through April 30, 2010 of the Predecessor, an income tax benefit of approximately $17,434 was recorded as a pre-tax loss. In connection with the CHS Transactions, the Canadian debt facility was repaid releasing a deferred tax liability of $14,945. Without the benefit of the deferred tax reversal related to the Canadian debt facility, the benefit rate amounted to approximately 14.1%. This benefit rate was increased by foreign tax credits and exchange losses associated with repatriated earnings and decreased by the amount of sellers’ expense stemming from the CHS Transactions that is anticipated to be non-deductible.

For the nine months ended December 31, 2009 of the Predecessor, the anticipated annual effective tax rate applied to pre-tax income was approximately 45.6%. The effective tax rate was higher than the U.S. statutory rate due to the borrowings that were outstanding under the Canadian debt facility.

During the three and eight months ended December 31, 2010, we established a long-term liability for

Thermon Holding Corp.

Notes to Financial Statements (continued)

uncertain tax positions in the amount of $1,225 in connection with the CHS Transactions to account for the differences in recognition thresholds and attribute measurement for purposes of financial statement disclosure as compared to tax positions taken or expected to be taken on a tax return. All of our unrecognized tax benefits at December 31, 2010 would affect our effective income tax rate if recognized. The nature of the uncertainty relates to deductions taken or to be taken on tax returns that have not been examined by the applicable tax authority. There was no difference between the beginning and ending amount of unrecognized tax benefit for the period from May 1, 2010 through December 31, 2010.

16. Geographic Information

We have defined our operating segment based on geographic regions. We sell our products in two geographic regions. Our sales in these regions share similar economic characteristics, similar product mix, similar customers and similar distribution methods. Accordingly we have elected to aggregate these two geographic regions into a single operating segment. Revenue from the sale of our products which are similar in nature and revenue from construction and engineering are reflected as sales in our consolidated statement of operations.

Within its operating segment, the Company has provided further detail for those countries or regions that generate significant revenue and operating income. For purposes of this note, revenue is attributed to individual countries on the basis of the physical location and jurisdiction of organization of the subsidiary that invoices the material and services.

Total sales and operating income classified by major geographic area in which the Company operates are as follows:

	Three Months Ended December 31, 2010			Three Months Ended December 31, 2009			For the Period From May 1, Through December 31, 2010			For the Period From April 1, Through April 30, 2010			Nine Months Ended December 31, 2009
	(Successor)			(Predecessor)			(Successor)			(Predecessor)			(Predecessor)
Sales by geographic area:
Western hemisphere
United States	$	19,536		$	15,975		$	46,082		$	4,959		$	45,393
Canada		21,632			12,972			55,369			3,992			41,035
Elsewhere in the western hemisphere		250			160			697			25			696
Intercompany sales		13,744			10,142			34,784			3,850			32,342
		55,162			39,249			136,932			12,826			119,466
Eastern hemisphere:
Europe		15,073			12,876			44,719			2,970			38,521
Asia		8,450			5,365			19,038			1,117			17,260
Intercompany sales		–			–			105			51			-
		23,523			18,241			63,862			4,138			55,781
Eliminations of intercompany sales		(13,744	)		(10,142	)		(34,889	)		(3,901	)		(32,342	)
		64,941			47,348			165,905			13,063			142,905
Operating income
Western hemisphere
United States		687			3,551			(281	)		1,126			12,593
Canada		6,521			4,490			10,400			1,066			11,545
Elsewhere in the western hemisphere		(20	)		(235	)		148			(30	)		(316	)
Eastern hemisphere:
Europe		3,340			1,642			3,108			125			7,214
Asia		1,242			1,076			2,819			18			3,174
Unallocated:
Management fees		(500	)		(205	)		(1,333	)		(79	)		(671	)
Other		(67	)		(288	)		(104	)		(88	)		(173	)
	$	11,203		$	10,031		$	14,757		$	2,138		$	33,366

17. Subsequent Events

Initial Public Offering

On February 2, 2011, Thermon Group Holdings, Inc., our ultimate parent entity, announced that it had filed a registration statement with the Securities and Exchange Commission relating to a proposed initial public offering of its common stock. The number of shares to be offered and the price range for the offering have not yet been determined. The shares of common stock to be sold in the offering are expected to be offered by Thermon Group Holdings, Inc. and certain of its stockholders.

18. Guarantor Consolidation

The senior secured notes issued by Thermon Industries, Inc., our wholly-owned subsidiary, are guaranteed by the Company and our other existing, wholly-owned domestic subsidiaries: Thermon Manufacturing Company, Thermon Heat Tracing Services, Inc., Thermon Heat Tracing Services-I, Inc. and Thermon Heat Tracing Services-II, Inc. (collectively, the “Guarantors”). Our foreign subsidiaries (collectively, the “Non-Guarantors”) are not guarantors of the senior secured notes.

The following tables set forth financial information of the Guarantors and Non-Guarantors for the condensed consolidated balance sheets as of December 31, 2010 and March 31, 2010 (Predecessor), the condensed consolidated statements of operations for the period from May 1, 2010 through December 31, 2010, the period from April 1 through April 30, 2010 (Predecessor), the three months ended December 31, 2010 and for the three and nine month periods ended December 31, 2009 (Predecessor) and the condensed consolidated statements of cash flows for the period from May 1 through December 31, 2010, the period from April 1 through April 30, 2010 (Predecessor) and the nine month period ended December 31, 2009 (Predecessor). The information is presented on the equity method of accounting together with elimination entries necessary to reconcile to the consolidated financial statements.

Thermon Holding Corp.

Condensed Balance Sheet (Unaudited)

	December 31, 2010
	Thermon Holding, Corp. (Guarantor)		Thermon Industries, Inc. (Issuer)		Thermon Manufacturing Company and US Subsidiaries (Guarantor)			International Subsidiaries (Non-guarantors)		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	–	$	–	$	5,409		$	29,542	$	–		$	34,951
Accounts receivable, net		–		–		17,714			34,510		(5,151	)		47,073
Notes and other		–		–		2,425			2,327		(4,752	)		–
Inventories, net		–		–		13,959			15,310		(1,669	)		27,600
Costs and estimated earnings in excess of billings on uncompleted contracts		–		–		762			483		–			1,245
Income taxes receivable		–		–		1,913			86		–			1,999
Prepaid expenses and other current assets		736		–		840			5,858		449			7,883
Deferred Income taxes		–		–		1,125			296		–			1,421
Total current assets		736		–		44,147			88,412		(11,123	)		122,172
Property, plant and equipment, net		–		–		16,079			7,325		–			23,404
Goodwill		–		–		46,131			70,495		–			116,626
Intangible assets, net		1,997		–		79,314			78,035		–			159,346
Debt Issuance costs, net		–		12,263		–			–		–			12,263
Intercompany loans						130			–		(130	)		–
Investment in subsidiaries		116,206		212,567		105,758			–		(434,530	)		–
	$	118,939	$	224,830	$	291,558		$	244,267	$	(445,783	)	$	433,811
Liabilities and shareholder’s equity
Current liabilities:
Accounts payable	$	–	$	–	$	7,922		$	13,535	$	(5,138	)	$	16,319
Accrued liabilities		–		3,381		6,832			8,113		(1,537	)		16,789
Deferred revenue		–		–		–			10,248		–			10,248
Obligations in settlement of the CHS Transaction		–		–		3,754			–		–			3,754
Billings in excess of costs and estimated
Earnings on uncompleted contracts		–		–		–			–		–			–
Income taxes payable (receivable)		–		–		(4,043	)		4,172		–			129
Foreign revolving credit facilities		–		10,318		(7,137	)		177		(3,358	)		–
Total current liabilities		–		13,699		7,328			36,245		(10,033	)		47,239
Long-term debt, net of current maturities		–		210,000		–			–		–			210,000
Deferred Income taxes		–		–		35,009			19,608		(701	)		53,916
Other noncurrent liabilities		–		–		1,230			614		–			1,844
Shareholder’s equity		118,939		1,131		247,991			187,800		(435,049	)		120,812
	$	118,939	$	224,830	$	291,558		$	244,267	$	(445,783	)	$	433,811

Thermon Holding Corp.

Condensed Balance Sheet (Unaudited)

	March 31, 2010 (Predecessor)
	Thermon Holdings, Corp. LLC		Thermon Holding, Corp. (Guarantor)		Thermon Industries, Inc. (Issuer)		Thermon Manufacturing Company and US Subsidiaries (Guarantor)		International Subsidiaries (Non-guarantors)		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	–	$	–	$	–	$	4,692	$	25,455	$	–		$	30,147
Accounts receivable, net		–		–		–		15,829		30,472		(4,419	)		41,882
Notes and other		–		–		–		3,024		3		(3,024	)		3
Inventories, net		–		–		–		10,666		13,531		(1,362	)		22,835
Costs and estimated earnings in excess of billings on uncompleted contracts		–		–		–		1,209		427		–			1,636
Income taxes receivable		–		–		–		1,098		270		–			1,368
Prepaid expenses and other current assets		–		–		–		1,633		2,291		407			4,331
Deferred Income taxes		–		–		–		1,125		303		–			1,428
Total current assets		–		–		–		39,276		72,752		(8,398	)		103,630
Property, plant and equipment, net		–		–		–		15,366		7,384		–			22,750
Goodwill		–		–		–		15,404		26,609		–			42,013
Intangible assets, net		–		–		–		12,858		37,279		–			50,137
Debt Issuance costs, net		–		–		–		1,545		1,041		–			2,586
Intercompany loans				56,000		56,000		335		–		(112,335	)		–
Investment in subsidiaries		55,074		55,074		28,409		63,467		–		(202,024	)		–
	$	55,074	$	111,074	$	84,409	$	148,251	$	145,065	$	(322,757	)	$	221,116
Liabilities and shareholder’s equity
Current liabilities:
Accounts payable	$	–	$	–	$	–	$	4,232	$	9,001	$	(3,836	)	$	9,397
Accrued liabilities		–		–		–		6,671		9,262		(2,428	)		13,505
Billings in excess of costs and estimated
Earnings on uncompleted contracts		–		–		–		1,035		–		–			1,035
Income taxes payable (receivable)		–		–		–		182		1,976		–			2,158
Foreign revolving credit facilities		–		–		–		1,155		358		(1,513	)		–
Deferred income tax		–		–		–		138				–			138
Total current liabilities		–		–		–		13,413		20,597		(7,777	)		26,233
Long-term debt, net of current maturities		–		56,000		–		–		53,249		–			109,249
Intercompany debt		–		–		56,000		56,000		–		(112,000	)		–
Deferred Income taxes		–		–		–		21,861		8,144		–			30,005
Other noncurrent liabilities		–		–		–		–		555		–			555
Shareholder’s equity		55,074		55,074		28,409		56,977		62,520		(202,980	)		55,074
	$	55,074	$	111,074	$	84,409	$	148,251	$	145,065	$	(322,757	)	$	221,116

Thermon Holding Corp.

Condensed Statement of Operations (Unaudited)

	For the Period From May 1, 2010 Through December 31, 2010
	Thermon Holding, Corp. (Guarantor)			Thermon Industries, Inc. (Issuer)			Thermon Manufacturing Company and U.S. Subsidiaries (Guarantors)			International Subsidiaries (Non-guarantors)			Eliminations			Consolidated

Revenues	$	–		$	–		$	80,866		$	119,928		$	(34,889	)	$	165,905
Cost of sales		–			–			55,855			77,776			(34,836	)		98,795
Gross profit		–			–			25,011			42,152			(53	)		67,110
Operating expenses:
Marketing, general and administrative and engineering		1,044			–			18,701			17,482			–			37,227
Amortization of other intangible assets		210			–			6,721			8,195			–			15,126
Income (loss) from operations		(1,254	)		–			(411	)		16,475			(53	)		14,757
Other income/(expenses):
Equity in earnings of subsidiaries		(6,055	)		6,805			6,994			–			(7,744	)		–
Interest income		–			–			1			9			–			10
Interest expense		–			(16,820	)		(195	)		(96	)		–			(17,111	)
Miscellaneous income/(expense)		(5,524	)		(461	)		3,429			(5,133	)		–			(7,689	)
Income (loss) before provision for income taxes		(12,833	)		(10,476	)		9,818			11,255			(7,797	)		(10,033	)
Income tax benefit (expense)		–			–			3,290			(4,187	)		(30	)		(927	)
Net income (loss)	$	(12,833	)	$	(10,476	)	$	13,108		$	7,068		$	(7,827	)	$	(10,960	)

Thermon Holding Corp.

Condensed Statement of Operations (Unaudited)

	For the Period From April 1, 2010 Through April 30, 2010 (Predecessor)
	Thermon Holdings, LLC			Thermon Holding, Corp. (Guarantor)			Thermon Industries, Inc. (Issuer)			Thermon Manufacturing Company and U.S. Subsidiaries (Guarantors)			International Subsidiaries (Non-guarantors)			Eliminations			Consolidated

Revenues	$	–		$	–		$	–		$	8,621		$	8,342		$	(3,900	)	$	13,063
Cost of sales		–			–			–			5,223			5,027			(3,803	)		6,447
Gross profit		–			–			–			3,398			3,315			(97	)		6,616
Operating expenses:
Marketing, general and administrative and engineering		–			–			–			2,304			1,959			–			4,263
Amortization of other intangible assets		–			–			–			38			177			–			215
Income (loss) from operations		–			–			–			1,056			1,179			(97	)		2,138
Other income/(expenses):
Equity in earnings of subsidiaries		(267	)		7,689			11,780			(307	)		–			(18,895	)		–
Interest income		–			–			–			1			6			–			7
Interest expense		–			(1,245	)		–			(3,404	)		(1,580	)		–			(6,229	)
Miscellaneous income/(expense)		–			(6,711	)		(3,080	)		(2,076	)		(1,750	)		–			(13,617	)
		(267	)		(267	)		8,700			(5,786	)		(3,324	)		(18,895	)		(19,839	)
Income (loss) before provision for income taxes		(267	)		(267	)		8,700			(4,730	)		(2,145	)		(18,992	)		(17,701	)
Income tax benefit (expense)		–			–			–			17,063			341			30			17,434
Net income (loss)	$	(267	)	$	(267	)	$	8,700		$	12,333		$	(1,804	)	$	(18,962	)	$	(267	)

Thermon Holding Corp.

Condensed Statement of Operations (Unaudited)

	For the Three Months Ended December 31, 2010
	Thermon Holding, Corp. (Guarantor)			Thermon Industries, Inc. (Issuer)			Thermon Manufacturing Company and U.S. Subsidiaries (Guarantors)			International Subsidiaries (Non-guarantors)			Eliminations			Consolidated

Revenues	$	–		$	–		$	33,280		$	45,404		$	(13,743	)	$	64,941
Cost of sales		–			–			21,789			27,287			(13,743	)		35,333
Gross profit		–			–			11,491			18,117			–			29,608
Operating expenses:
Marketing, general and administrative and engineering		850			–			7,445			6,410			–			14,705
Amortization of other intangible assets		131			–			2,946			623			–			3,700
Income (loss) from operations		(981	)		–			1,100			11,084			–			11,203
Other income/(expenses):
Equity in earnings of subsidiaries		1,729			3,259			4,564			–			(9,552	)		–
Interest income		–			–			1			6			–			7
Interest expense		–			(5,476	)		(45	)		(59	)		–			(5,580	)
Miscellaneous income/(expense)		–			–			744			(1,773	)					(1,029	)
Income (loss) before provision for income taxes		748			(2,217	)		6,364			9,258			(9,552	)		4,601
Income tax benefit (expense)		–			–			902			(2,450	)		(44	)		(1,592	)
Net income (loss)	$	748		$	(2,217	)	$	7,266		$	6,808		$	(9,596	)	$	3,009

Thermon Holding Corp.

Condensed Statement of Operations (Unaudited)

	For the Three Months Ended December 31, 2009 (Predecessor)
	Thermon Holdings, LLC		Thermon Holding, Corp. (Guarantor)			Thermon Industries, Inc. (Issuer)			Thermon Manufacturing Company and U.S. Subsidiaries (Guarantors)			International Subsidiaries (Non-guarantors)			Eliminations			Consolidated

Revenues	$	–	$	–		$	–		$	26,117		$	31,372		$	(10,141	)	$	47,348
Cost of sales		–		–			–			17,214			16,804			(9,866	)		24,152
Gross profit		–		–			–			8,903			14,568			(275	)		23,196
Operating expenses:
Marketing, general and administrative and engineering		–		–			–			5,458			7,086			(2	)		12,542
Amortization of other intangible assets		–		–			–			113			510			–			623
Income (loss) from operations		–		–			–			3,332			6,972			(273	)		10,031
Other income/(expenses):
Equity in earnings of subsidiaries		4,181		4,181			(593	)		(2,458	)		–			(5,311	)		–
Interest income		–		3,094			3,094			28			5			(6,188	)		33
Interest expense		–		(3,094	)		(3,094	)		(1,091	)		(836	)		6,188			(1,927	)
Miscellaneous income/(expense)		–		–			–			1,316			(1,879	)		(1	)		(564	)
Income (loss) before provision for income taxes		4,181		4,181			(593	)		1,127			4,262			(5,585	)		7,573
Income tax benefit (expense)		–		–			–			(1,720	)		(1,765	)		94			(3,391	)
Net income (loss)	$	4,181	$	4,181		$	(593	)	$	(593	)	$	2,497		$	(5,491	)	$	4,182

Thermon Holding Corp.

Condensed Statement of Operations (Unaudited)

	For the Nine Months Ended December 31, 2009 (Predecessor)
	Thermon Holdings, LLC		Thermon Holding, Corp. (Guarantor)			Thermon Industries, Inc. (Issuer)			Thermon Manufacturing Company and U.S. Subsidiaries (Guarantors)			International Subsidiaries (Non-guarantors)			Eliminations			Consolidated

Revenues	$	–	$	–		$	–		$	77,734		$	97,512		$	(32,341	)	$	142,905
Cost of sales		–		–			–			50,063			56,072			(32,169	)		73,966
Gross profit		–		–			–			27,671			41,440			(172	)		68,939
Operating expenses:
Marketing, general and administrative and engineering		–		–			–			15,410			18,360			–			33,770
Amortization of other intangible assets		–		–			–			340			1,463			–			1,803
Income (loss) from operations		–		–			–			11,921			21,617			(172	)		33,366
Other income/(expenses):
Equity in earnings of subsidiaries		14,728		14,728			10,064			5,523			–			(45,043	)		–
Interest income		–		3,094			3,094			38			16			(6,188	)		54
Interest expense		–		(3,094	)		(3,094	)		(3,094	)		(2,476	)		6,188			(5,570	)
Miscellaneous income/(expense)		–		–			–			3,461			(4,341	)		(1	)		(881	)
Income (loss) before provision for income taxes		14,728		14,728			10,064			17,849			14,816			(45,216	)		26,969
Income tax benefit (expense)		–		–			–			(7,785	)		(4,530	)		74			(12,241	)
Net income (loss)	$	14,728	$	14,728		$	10,064		$	10,064		$	10,286		$	(45,142	)	$	14,728

Thermon Holding Corp.

Condensed Statement of Cash Flows (Unaudited)

	For the Period May 1, 2010 Through December 31, 2010
	Thermon Holding, Corp. (Guarantor)			Thermon Industries, Inc. (Issuer)			Thermon Manufacturing Company and U.S. Subsidiaries (Guarantor)			International Subsidiaries (Non-guarantors)			Eliminations			Consolidated

Net cash provided by (used in) operations	$	(6,570	)	$	(217	)	$	6,566		$	26,262		$	31		$	26,072

Investing activities
Purchases of P.P.&E.					–			(884	)		(265	)		–			(1,149	)
Cash paid for Thermon		(172,631	)		(145,417	)		–			–			–			(318,048	)
Net cash provided by (used in) investing activities		(172,631	)		(145,417	)		(884	)		(265	)		–			(319,197	)

Financing activities
Proceeds from Senior Secured Notes		–			210,000			–			–			–			210,000
Proceeds from revolving line of credit					–			2,000			2,599			–			4,599
Obligation on in settlement of the CHS Transaction		–			–			6,600			–			–			6,600
Payments to settle the CHS Transaction		–			–			(2,846	)		–			–			(2,846	)
Payments on revolving lines of credit and long-term debt		–			–			(2,000	)		(2,599	)		–			(4,599	)
Capital contributions		129,252			–			–			–			–			129,252
Debt issuance costs		–			(15,473	)		–			–			–			(15,473	)
Change in affiliate debt		49,949			(48,893	)		(4,027	)		3,002			(31	)		–
Net cash provided by (used in) financing activities		179,201			145,634			(273	)		3,002			(31	)		327,533

Effect of exchange rates on cash and cash equivalents		–			–			–			543			–			543

Change in cash and cash equivalents		–			–			5,409			29,542			–			34,951
Cash at beginning of period		–			–			–			–			–			–
Cash at end of period	$	–		$	–		$	5,409		$	29,542		$	–		$	34,951

Thermon Holding Corp.

Condensed Statement of Cash Flows (Unaudited)

	For the Nine Months Ended December 31, 2009 (Predecessor)
	Thermon Holdings, LLC			Thermon Holding, Corp. (Guarantor)			Thermon Industries, Inc. (Issuer)			Thermon Manufacturing Company and U.S. Subsidiaries (Guarantor)			International Subsidiaries (Non-guarantors)			Eliminations			Consolidated

Net cash provided by (used in) operations	$	8,600		$	8,600		$	8,600		$	9,666		$	16,282		$	(28,561	)	$	23,187

Investing activities
Purchases of P.P.&E.		–			–			–			(671	)		(305	)		–			(976	)
Net cash provided by (used in) investing activities		–			–			–			(671	)		(305	)		–			(976	)

Financing activities
Dividend paid to owners’		(8,600	)		–			–			–			–			–			(8,600	)
Payment of Intercompany Dividends		–			(8,600	)		(8,600	)		(8,600	)		(2,854	)		28,654			–
Change in affiliate debt		–			–			–			(182	)		275			(93	)		–
Net cash provided by (used in) financing activities		(8,600	)		(8,600	)		(8,600	)		(8,782	)		(2,579	)		28,561			(8,600	)

Effect of exchange rates on cash and cash equivalents		–			–			–			–			(1,128	)		–			(1,128	)

Change in cash and cash equivalents		–			–			–			213			12,270			–			12,483
Cash at beginning of period		–			–			–			5,912			7,490			–			13,402
Cash at end of period	$	–		$	–		$	–		$	6,125		$	19,760		$	–		$	25,885

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, 2010 and 2009 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, 2010 and 2009 as Interim 2011 and Interim 2010, respectively, and the nine month periods ended December 31, 2010 and 2009 are referred to as YTD 2011 and YTD 2010, respectively. The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our condensed consolidated financial statements and related notes included above.

The discussion in this section 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.

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 Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the “SEC”) on December 13, 2010. 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 over 50 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 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 EPC companies in the world have enabled us to diversify our revenue streams and opportunistically access high growth markets worldwide. For the nine months ended December 31, 2010, 71% 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 customer in excess of $1 million annually (excluding sales to agents, who typically resell our products to multiple customers), 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 customer of less than $1 million annually, 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.

Cost of sales. Our cost of revenues 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 revenue include contract engineering cost directly associated to projects, direct labor cost, external sales commissions, and other costs associated with our manufacturing/fabrication shops. The other costs associated with our manufacturing/fabrication shops 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 have been generally 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 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.

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 Registration Statement on Form S-4 filed with the SEC on December 13, 2010 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 incorporating various heat tracing solutions throughout the overall project. Our largest Greenfield projects may generate revenue for several quarters. In the early stages of a Greenfield project, our revenues are typically realized from the provision of engineering services. In

the middle stages, or the material requirements phase, we typically experience the greatest demand for our heat tracing cable, at which point our revenues tend to accelerate. Revenues tend to decrease gradually in the final stages of a project and are generally derived from installation services and demand for electrical panels and other miscellaneous electronic components used in the final installation of heat tracing cable, which we frequently outsource from third-party manufacturers. We tend to experience higher margins in the middle stages of a Greenfield project, when the demand for our manufactured products is at its highest. By contrast, we tend to experience lower margins in the beginning and final stages of a Greenfield project, when demand is highest for our lower margin engineering and installation services and outsourced electronic components.

•

Cyclicality of end-users’ markets. Demand for our products and services depends in large part upon the level of capital and maintenance expenditures of our customers and end users, in particular those in the energy, chemical processing and power generation industries, and firms that design and construct facilities for these industries. These customers’ expenditures historically have been cyclical in nature and vulnerable to economic downturns. Greenfield projects, and in particular large Greenfield projects (i.e., new facility construction projects generating in excess of $5 million in annual sales), have been a substantial source of revenue growth in recent years, and Greenfield revenues tend to be more cyclical than MRO/UE revenues. In recent years we have noted particular cyclicality in capital spending for new facilities in Asia, Eastern Europe and the Middle East. A sustained decrease in capital and maintenance spending or in new facility construction by our customers could have a material adverse effect on the demand for our products and services and our business, financial condition and results of operations.

•

Impact of product mix. As a comprehensive provider of heat tracing solutions, we provide both our products and services to both Greenfield and MRO/UE customers. We tend to experience lower margins from our design optimization, engineering, installation and maintenance services than we do from sales of our heating cable, tubing bundle and control system products. We also tend to experience lower margins from our outsourced products, such as electrical switch gears and transformers, than we do from our manufactured products. Accordingly, our results of operations are impacted by our mix of products and services. For MRO/UE orders, the sale of our manufactured products typically represents a higher proportion of the overall revenues associated with such order than the provision of our services. Greenfield projects, on the other hand, require a higher level of our services than MRO/UE orders. Therefore, we typically realize higher margins from MRO/UE revenues than Greenfield revenues.

Thermon Holding Corp. 10-Q