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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2020
 
OR
 
       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
 
Commission File Number: 001-35159
 
 
THERMON GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
Delaware27-2228185
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
 
7171 Southwest Parkway, Building 300, Suite 200, Austin, Texas 78735
(Address of principal executive offices) (zip code)
 
(512690-0600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareTHRNew York Stock Exchange


        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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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 November 4, 2020, the registrant had 33,180,452 shares of common stock, par value $0.001 per share, outstanding.
 



THERMON GROUP HOLDINGS, INC.
 
QUARTERLY REPORT
FOR THE QUARTER ENDED September 30, 2020
 
TABLE OF CONTENTS
 Page
PART I — FINANCIAL INFORMATION 
 
Thermon Group Holdings, Inc. and its Consolidated Subsidiaries 
PART II — OTHER INFORMATION 
EX-3.1
EX-31.1 
EX-31.2 
EX-32.1 
EX-32.2 
 
i


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Thermon Group Holdings, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands, except share and per share data)
 September 30, 2020March 31, 2020
(Unaudited)
Assets  
Current assets:  
Cash and cash equivalents$51,362 $43,237 
Accounts receivable, net of allowances of $1,003 and $834 as of September 30, 2020 and March 31, 2020, respectively66,104 92,478 
Inventories, net71,317 60,273 
Contract assets11,979 10,194 
Prepaid expenses and other current assets11,435 9,219 
Income tax receivable7,370 2,535 
Total current assets219,567 217,936 
Property, plant and equipment, net of depreciation and amortization of $50,589 and $43,550 as of September 30, 2020 and March 31, 2020, respectively72,691 72,542 
Goodwill206,071 197,978 
Intangible assets, net104,174 104,546 
Operating lease right-of-use assets15,049 16,637 
Deferred income taxes2,944 2,904 
Other long-term assets6,579 8,362 
Total assets$627,075 $620,905 
Liabilities  
Current liabilities:  
Accounts payable$25,162 $25,070 
Accrued liabilities21,269 23,757 
Current portion of long-term debt2,500 2,500 
Contract liabilities3,108 4,538 
Lease liabilities3,947 3,553 
Income taxes payable219 1,217 
Total current liabilities56,205 60,635 
Long-term debt, net of current maturities and deferred debt issuance costs and debt discounts of $3,962 and $4,447 as of September 30, 2020 and March 31, 2020, respectively168,288 169,053 
Deferred income taxes21,623 22,245 
Non-current lease liabilities14,072 15,571 
Other non-current liabilities8,288 6,962 
Total liabilities268,476 274,466 
Commitments and contingencies (Note 11)
 Equity
Common stock: $.001 par value; 150,000,000 authorized; 33,169,798 and 32,916,818 shares issued and outstanding at September 30, 2020 and March 31, 2020, respectively33 33 
Preferred stock: $.001 par value; 10,000,000 authorized; no shares issued and outstanding  
Additional paid in capital229,998 227,741 
Accumulated other comprehensive loss(49,744)(63,894)
Retained earnings 178,312 182,559 
Total equity358,599 346,439 
Total liabilities and equity$627,075 $620,905 
The accompanying notes are an integral part of these condensed consolidated financial statements
1


Thermon Group Holdings, Inc.
 
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(Dollars in Thousands, except share and per share data)
 
Three Months Ended September 30, 2020Three Months Ended September 30, 2019Six Months Ended September 30, 2020Six Months Ended September 30, 2019
Sales$66,406 $102,935 $123,254 $194,647 
Cost of sales37,475 57,503 70,204 112,073 
Gross profit28,931 45,432 53,050 82,574 
Operating expenses:
Marketing, general and administrative and engineering23,788 28,130 51,629 55,848 
Amortization of intangible assets2,097 4,461 5,130 8,894 
Income (loss) from operations3,046 12,841 (3,709)17,832 
Other income/(expenses):
Interest income17 65 42 116 
Interest expense(2,433)(3,951)(5,013)(7,721)
Other income/(expense)582 (172)1,314 61 
Income (loss) before provision for income taxes1,212 8,783 (7,366)10,288 
Income tax expense (benefit)(626)1,862 (3,119)1,906 
Net income (loss)$1,838 $6,921 $(4,247)$8,382 
Income (loss) attributable to non-controlling interests 9  (1)
Net income (loss) available to Thermon Group Holdings, Inc.$1,838 $6,912 $(4,247)$8,383 
Comprehensive income (loss):
Net income (loss) available to Thermon Group Holdings, Inc.$1,838 $6,912$(4,247)$8,383 
Foreign currency translation adjustment5,254 (4,813)14,729 (378)
Other(199)337 (579)337 
Comprehensive income$6,893 $2,436 $9,903 $8,342 
Net income (loss) per common share:
Basic$0.06 $0.21 $(0.13)$0.26 
Diluted0.06 0.21 (0.13)0.25 
Weighted-average shares used in computing net income per common share:
Basic33,164,921 32,727,023 33,075,902 32,681,410 
Diluted33,417,654 33,244,387 33,075,902 33,111,778 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2


Thermon Group Holdings, Inc.

Condensed Consolidated Statements of Equity (Unaudited)
(Dollars in Thousands)
Common Stock OutstandingCommon StockAdditional Paid-in CapitalRetained Earnings (loss)Accumulated Other Comprehensive Income (Loss)Total
Balances at March 31, 202032,916,818 $33 $227,741 $182,559 $(63,894)$346,439 
Issuance of common stock in exercise of stock options81,995 — 437 — — 437 
Issuance of common stock as deferred compensation to employees39,458 — — — — — 
Issuance of common stock as deferred compensation to executive officers63,477 — — — — — 
Issuance of common stock as deferred compensation to directors13,520 — — — — — 
Stock compensation expense— — 1,133 — — 1,133 
Repurchase of employee stock units on vesting— — (557)— — (557)
Net loss available to Thermon Group Holdings, Inc.— — — (6,085)— (6,085)
Foreign currency translation adjustment— — — — 9,475 9,475 
Other— — — — (380)(380)
Balances at June 30, 202033,115,268 $33 $228,754 $176,474 $(54,799)$350,462 
Issuance of common stock in exercise of stock options1,344 — 15 — — 15 
Issuance of common stock as deferred compensation to employees33,789 — — — — — 
Issuance of common stock as deferred compensation to executive officers6,005 — — — — — 
Issuance of common stock as deferred compensation to directors13,392 — — — — — 
Stock compensation expense— — 1,358 — — 1,358 
Repurchase of employee stock units on vesting— — (129)— — (129)
Net income available to Thermon Group Holdings, Inc.— — — 1,838 — 1,838 
Foreign currency translation adjustment— — — — 5,254 5,254 
Other— — — — (199)(199)
Balances at September 30, 202033,169,798 $33 $229,998 $178,312 $(49,744)$358,599 


3


Common Stock OutstandingCommon StockAdditional Paid-in CapitalRetained EarningsNon-controlling InterestsAccumulated Other Comprehensive Income (Loss)Total
Balances at March 31, 201932,624,200 $33 $223,040 $170,621 $4,204 $(48,949)$348,949 
Issuance of common stock in exercise of stock options5,417  62 — — — 62 
Issuance of common stock as deferred compensation to employees39,139 — — — — — — 
Issuance of common stock as deferred compensation to executive officers32,621 — — — — — — 
Issuance of common stock as deferred compensation to directors3,654 — — — — — — 
Stock compensation expense— — 1,019 — — — 1,019 
Repurchase of employee stock units on vesting— — (784)— — — (784)
Net income available to Thermon Group Holdings, Inc.— — — 1,471 — — 1,471 
Foreign currency translation adjustment— — — — — 4,435 4,435 
Remeasurement of non-controlling interest— — (315)— 315 — — 
Loss attributable to non-controlling interests— — — — (10)— (10)
Balances at June 30, 201932,705,031 $33 $223,022 $172,092 $4,509 $(44,514)$355,142 
Issuance of common stock as deferred compensation to employees16,262 — — — — — — 
Issuance of common stock as deferred compensation to executive officers14,757 — — — — — — 
Issuance of common stock as deferred compensation to directors6,389 — — — — — — 
Stock compensation expense— — 1,323 — — — 1,323 
Repurchase of employee stock units on vesting— — (95)— — — (95)
Net income available to Thermon Group Holdings, Inc.— — — 6,912 — — 6,912 
Foreign currency translation adjustment— — — — — (4,813)(4,813)
Purchase of shares from non-controlling interests— —  — (4,508) (4,508)
Remeasurement of non-controlling interest— — 10 — (10)— — 
Income attributable to non-controlling interests— — — — 9 — 9 
Other— — — — — 337 337 
Balances at September 30, 201932,742,439 $33 $224,260 $179,004 $ $(48,990)$354,307 

The accompanying notes are an integral part of these consolidated financial statements

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Thermon Group Holdings, Inc.
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands) 
 Six Months Ended September 30, 2020Six Months Ended September 30, 2019
Operating activities  
Net income (loss)$(4,247)$8,382 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation and amortization10,643 13,956 
Amortization of deferred debt issuance costs515 870 
Stock compensation expense2,491 2,342 
Deferred income taxes(2,142)(462)
Release of reserve for uncertain tax positions, net (2,343)
Loss on long-term cross currency swap3,491 798 
Remeasurement gain on intercompany balances(4,537)(147)
Changes in operating assets and liabilities:  
Accounts receivable29,767 6,313 
Inventories(9,431)(958)
Contract assets(3,169)9,054 
Other current and non-current assets(3,593)(4,432)
Accounts payable(17)1,052 
Accrued liabilities and non-current liabilities(1,228)(3,542)
Income taxes payable and receivable(5,939)(833)
Net cash provided by operating activities12,604 30,050 
Investing activities  
Purchases of property, plant and equipment(4,132)(3,839)
Sale of rental equipment37 145 
Net cash used in investing activities(4,095)(3,694)
Financing activities  
Proceeds from revolving credit facility37,189 10,000 
Payments on long-term debt and revolving credit facility(38,714)(23,131)
Purchase of shares from non-controlling interests (4,508)
Proceeds from exercise of stock options452 62 
Repurchase of employee stock units on vesting(686)(879)
Payments on finance leases(139)(79)
Net used in financing activities(1,898)(18,535)
Effect of exchange rate changes on cash, cash equivalents and restricted cash1,304 (121)
Change in cash, cash equivalents and restricted cash7,915 7,700 
Cash, cash equivalents and restricted cash at beginning of period46,007 33,841 
Cash, cash equivalents and restricted cash at end of period$53,922 $41,541 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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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
Thermon Group Holdings, Inc. and its direct and indirect subsidiaries are referred to collectively as “we,” “our,” or the “Company” herein. We are a provider of highly engineered industrial process heating solutions for process industries. Our core thermal solutions product - also referred to as heat tracing - provides an external heat source to pipes, vessels and instruments for the purposes of freeze protection, temperature and flow maintenance, environmental monitoring, and surface snow and ice melting. In addition to our heat tracing products, we also provide (i) industrial process heating solutions focused on advanced heating and filtration solutions for industrial and hazardous area applications, which are sold under our Thermon Heating Solutions (or “THS”) brand, and (ii) temporary power products that are designed to provide a safe and efficient means of supplying temporary electrical power distribution and lighting at energy infrastructure facilities for new construction and during maintenance and turnaround projects at operating facilities, which are sold under our Thermon Power Solutions (or “TPS”) brand. As a manufacturer, we offer a full suite of products (such as heating units, heating cables, tubing bundles and control systems) and services (such as design optimization, engineering, installation and maintenance services) required to deliver comprehensive solutions to complex projects.
    The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2020. 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 September 30, 2020 and March 31, 2020, and the results of our operations for the three and six months ended September 30, 2020 and 2019.
Impact of COVID-19 Pandemic
The recent COVID-19 pandemic and the measures being taken to address and limit the spread of the virus have adversely affected the economies and financial markets of many countries, resulting in an economic downturn that has negatively impacted, and may continue to negatively impact, global demand for our products and services. We may experience a decline in the demand of our products and services that could materially and negatively impact our business, financial condition, results of operation and overall financial performance in future periods.
On April 11, 2020, the Canadian government officially enacted the Canadian Emergency Wage Subsidy (“CEWS”) for the purposes of assisting employers in financial hardship due to the COVID-19 pandemic and of reducing potential lay-offs of employees. The CEWS, which was made retroactive to March 1, 2020, generally provides “eligible entities” with a wage subsidy of up to 75% of “eligible remuneration” paid to an eligible employee per week, limited to a certain weekly maximum. On September 23, 2020, the Canadian government announced that the CEWS program would be extended through the summer of 2021 and announced certain modifications to the subsidy calculation. Our Canadian operations have benefited from such wage subsidies and have received distributions from the Canadian government during the six months period ended September 30, 2020. During the three and six month ended September 30, 2020, we recorded subsidies in the amount of $2,532 and $4,948, respectively, for which we qualify, as an offset or reduction to the related underlying expenses and assets, accordingly.
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 September 30, 2020, 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 three and six months ended September 30, 2020 are not necessarily indicative of the results that may be achieved for the fiscal year ending March 31, 2021. 
Restricted Cash and Cash Equivalents

    The Company maintains restricted cash related to certain letter of credit guarantees and performance bonds securing performance obligations. The following table provides a reconciliation of cash, cash equivalents, restricted cash included in
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prepaid expenses and other current assets and restricted cash included in other long-term assets reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.
September 30,
20202019
Cash and cash equivalents$51,362 $39,014 
Restricted cash included in prepaid expenses and other current assets2,190 2,054 
Restricted cash included in other long-term assets370 473 
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows$53,922 $41,541 

    Amounts shown in restricted cash included in prepaid expenses and other current assets and other long-term assets represent those required to be set aside by a contractual agreement, which contain cash deposits pledged as collateral on performance bonds and letters of credit. Amounts shown in restricted cash in other long-term assets represent such agreements that require a commitment term longer than one year.

Recent Accounting Pronouncements

    Financial Instruments- In June 2016, the FASB issued Accounting Standards Update 2016-13 Financial Instruments -Credit Losses (“ASC Topic 326”), which amends the guidance on the impairment of financial instruments. The standard adds an impairment model, referred to as current expected credit loss, which is based on expected losses rather than incurred losses. The standard applies to most debt instruments, trade receivables, lease receivables, reinsurance receivables, financial guarantees and loan commitments. Under the guidance, companies are required to disclose credit quality indicators disaggregated by year of origination for a five-year period. The new guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We adopted this standard effective April 1, 2020, and such adoption did not have a material impact on our consolidated financial statements.

    Intangibles- In January 2017, the FASB issued Accounting Standards Update 2017-04 Intangibles - Goodwill and other (“ASC Topic 350”), which amends and simplifies the accounting for goodwill impairment by eliminating step 2 of the goodwill impairment test. Under the amended guidance, goodwill impairment will be measured as the excess of the reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill for that reporting unit. The changes are effective for annual and interim periods beginning after December 15, 2019, and amendments should be applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. We adopted this standard effective April 1, 2020, and such adoption did not have a material impact on our 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.
Level 1 — uses quoted prices in active markets for identical assets or liabilities we have the ability to access.
Level 2 — uses observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. 
Financial assets and liabilities with carrying amounts approximating fair value include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities. The carrying amount of these financial assets and liabilities approximates fair value because of their short maturities. At September 30, 2020 and March 31, 2020, 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:
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 September 30, 2020March 31, 2020 
 Carrying
Value
Fair ValueCarrying
Value
Fair ValueValuation Technique
Financial Liabilities     
Outstanding principal amount of senior secured credit facility$174,750 $173,439 $176,000 $150,480 Level 2 - Market Approach
 
At September 30, 2020 and March 31, 2020, the fair value of our long-term debt is based on market quotes available for issuance of debt with similar terms. As the quoted price is only available for similar financial assets, the Company concluded the pricing is indirectly observable through dealers and has been classified as Level 2. The Company believes the decline in fair value as of March 31, 2020 was temporary due to the COVID-19 pandemic.
Cross Currency Swap
    The Company has entered into a long-term cross currency swap to hedge the currency rate fluctuations related to a $42,958 intercompany receivable at September 30, 2020 from our wholly-owned Canadian subsidiary, Thermon Canada Inc., maturing on October 30, 2022. Periodic principal payments are to be settled twice annually with interest payments settled quarterly through the cross currency derivative contract. We do not designate the cross currency swap as a cash flow hedge under ASC Topic 815, Derivatives and Hedging ("ASC 815"). We recorded $1,507 and $3,450 of unrealized mark-to-market losses on the cross currency swap, which is reported as "Other income and expense", in the condensed consolidated statement operations and comprehensive income for the three and six months ended September 30, 2020, respectively. Cross currency swap contracts are measured on a recurring basis at fair value and are classified as Level 2 measurements. Hedge assets in the amount of $1,000 and $4,011 were included in "Other long-term assets" in the condensed consolidated balance sheet as of September 30, 2020 and March 31, 2020, respectively. For the six months ended September 30, 2020, the loss on the long-term cross currency swap derivative contract was offset by unrealized gain on the intercompany note of $3,805 for a net gain of $355.
Deferred Compensation Plan
    The Company provides a non-qualified deferred compensation plan for certain highly compensated employees where payroll contributions are made by the employees on a pre-tax basis. Included in “Other long-term assets” in the condensed consolidated balance sheet at September 30, 2020 and March 31, 2020 were $4,132 and $2,849, respectively, of deferred compensation plan assets held by the Company. Deferred compensation plan assets (mutual funds) are measured at fair value on a recurring basis based on quoted market prices in active markets (Level 1). The Company has a corresponding liability to participants of $4,144 and $2,886 included in “Other long-term liabilities” in the condensed consolidated balance sheet at September 30, 2020 and March 31, 2020, respectively. Deferred compensation expense included in "marketing, general and administrative and engineering" were $781 and $36 for the three months ended September 30, 2020 and 2019, respectively, and $1,311 and $139 for the six months ended September 30, 2020 and 2019, respectively. Expenses and income from our deferred compensation plan were offset by unrealized gains and losses for the deferred compensation plan included in "Other income and expense" on our condensed consolidated statements of comprehensive income. Our unrealized gains and losses on investments were gains of $840 and $21 for the three months ended September 30, 2020 and 2019, respectively, and $1,363 and $116 for the six months ended September 30, 2020 and 2019, respectively.
    
Trade Related Foreign Currency Forward Contracts
We transact business in various foreign currencies and have established a program that primarily utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency exposures. Under this program, increases or decreases in our foreign currency exposures are offset by gains or losses on the forward contracts to mitigate foreign currency transaction gains or losses. These foreign currency exposures arise from intercompany transactions as well as third party accounts receivable or payable that are denominated in foreign currencies. Our forward contracts generally have terms of 30 days. We do not use forward contracts for trading purposes or designate these forward contracts as hedging instruments pursuant to ASC 815. We adjust the carrying amount of all contracts to their fair value at the end of each reporting period and unrealized gains and losses are included in "Other income and expense" on our condensed consolidated statements of comprehensive income. These gains and losses are designed to offset gains and losses resulting from settlement of receivables or payables by our foreign operations which are settled in currency other than the local transactional currency. The fair value is determined by quoted prices from active foreign currency markets (Level 2). Fair value amounts for such forward contracts on our condensed consolidated balance sheets are either classified as accounts receivable, net or accrued liabilities depending on whether the forward contract is in a gain (accounts receivable, net) or loss (accrued liabilities) position. Our
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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 September 30, 2020 and March 31, 2020, the notional amounts of forward contracts were as follows:
Notional amount of foreign currency forward contracts by currency
September 30, 2020March 31, 2020
Russian Ruble$1,172 $1,103 
Euro 500 
Canadian Dollar11,500 1,500 
South Korean Won3,000 3,500 
Mexican Peso1,500 2,000 
Australian Dollar800 700 
Great Britain Pound500 500 
Total notional amounts$18,472 $9,803 

The following table represents the fair value of our foreign currency forward contracts:
September 30, 2020March 31, 2020
Fair ValueFair Value
AssetsLiabilitiesAssetsLiabilities
Foreign currency forward contracts$19 $114 $140 $49 
Foreign currency gains or losses related to our forward contracts in the accompanying condensed consolidated statements of operations and comprehensive income were losses of $145 and $199 in the three months ended September 30, 2020 and 2019, respectively, and losses of $49 and $241 for the six months ended September 30, 2020 and 2019, respectively. Gains and losses from our forward contracts were offset by transaction gains or losses incurred with the settlement of transactions denominated in foreign currencies. For the three months ended September 30, 2020 and 2019, our net foreign currency transactions were gains of $150 and losses of $90, respectively, and gains of $331 and $123 for the six months ended September 30, 2020 and 2019, respectively.
3. Leases
    In February 2016, the FASB issued ASC Topic 842, which amends the accounting guidance on leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance leases or operating leases as determined pursuant to ASC Topic 842, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently issued amendments to the standard, including providing an additional and optional transition method to adopt the new standard, as well as certain practical expedients related to land easements and lessor accounting.
The Company adopted ASC Topic 842 and its amendments and applied the transition provisions as of April 1, 2019. The Company did not elect the package of practical expedients permitted under the transition guidance, which allows companies to carryforward historical assessments of: (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company elected a policy of not recording leases on its condensed consolidated balance sheets when the leases have a term of 12 months or less and the Company is not reasonably certain to elect an option to purchase the leased asset. The Company recognizes payments on these leases within selling, administrative and other expenses on a straight-line basis over the lease term. Lease expense related to manufacturing facilities is included in overhead absorption rates and allocated to cost of sales. The Company elected the practical expedient to combine lease and non-lease components for all asset classes.    
During the three months ended September 30, 2020, we exercised the early termination option in one of our existing leases in Canada, which resulted in the remeasurement of the related ROU asset and lease liability and accelerated the lease
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amortization and expense to align with the cease use date of the facility. We intend to vacate the facility on December 31, 2020. The resulting incremental charges of $46 for abandonment treatment of the lease have been included in our restructuring charges for the three months ended September 30, 2020.
Description of Leases
The significant majority of our lease obligations are for real property. We lease numerous facilities relating to our operations, primarily for office, manufacturing and warehouse facilities, as well as both long-term and short-term employee housing. Leases for real property have terms ranging from month-to-month to ten years. We also lease various types of equipment, including vehicles, office equipment (such as copiers and postage machines), heavy warehouse equipment (such as fork lifts), heavy construction equipment (such as cranes), medium and light construction equipment used for customer project needs (such as pipe threading machines) and mobile offices and other general equipment that is normally associated with an office environment. Equipment leases generally have terms ranging from six months to five years.
Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We do not have any significant leases that have not yet commenced but that create significant rights and obligations for us.

    We lease temporary power products under our TPS product brand line to our customers on a short-term basis. Lease contracts associated with such rental of the temporary power products have historically been month-to-month contracts without purchase options. No lease contracts in which the Company was the lessor have had an initial term in excess of one year. As such, lease revenues for temporary power products recognized under ASC Topic 842 in the interim period did not materially differ from leases that would have been recorded under ASC Topic 840.
Variable Lease Payments
A majority of our lease agreements include fixed rental payments. A small number of our lease agreements include fixed rental payments that are adjusted periodically for changes in the Consumer Price Index (“CPI”). Payments based on an index or rate such as CPI are included in the lease payments based on the commencement date index or rate. Estimated changes to the index or rate during the lease term are not considered in the determination of the lease payments.
Options to Extend or Terminate Leases
Most of our real property leases include early termination options and/or one or more options to renew, with renewal terms that can extend the lease term for an additional one to five years or longer. The exercise of lease termination and renewal options is at our sole discretion. If it is reasonably certain that we will exercise such renewal options, the periods covered by such renewal options are included in the lease term and are recognized as part of our ROU assets and lease liabilities. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Discount Rate
The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. A large concentration of the Company's operating lease liabilities are attributed to our North American operations. Many of our Europe, Middle East and Africa (“EMEA”) operations and Asia-Pacific operations borrow funds from the debt facilities maintained by our U.S. operating subsidiary and establish intercompany balances to account for these loans. This practice is due to the more preferential rates available to our U.S. operating subsidiary and/or the ease with which funds can be drawn from the debt facilities already established within the United States. With this in mind, the Company has utilized its U.S. credit facility rate as the worldwide incremental borrowing rate. The Company used incremental borrowing rates as of April 1, 2020 for operating leases that commenced prior to April 1, 2020 to establish the lease liabilities. For operating leases that commenced during the six months ended September 30, 2020, rates applicable at or close to the time of the inception of the lease were used to establish the new lease's ROU liabilities.
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Lease Term and Discount RateSeptember 30, 2020March 31, 2020
Weighted average remaining lease term
Operating5.96.2
Finance3.33.4
Weighted average discount rate
Operating4.83 %4.82 %
Finance6.95 %6.98 %

    Supplemental balance sheet information related to leases was as follows:
AssetsClassificationSeptember 30, 2020March 31, 2020
OperatingOperating lease right-of-use assets$15,049 $16,637 
FinanceProperty, plant and equipment551 695 
Total right-of-use assets$15,600 $17,332 
Liabilities
Current
OperatingLease liabilities$3,743 $3,352 
FinanceLease liabilities204 201 
Non-current
OperatingNon-current lease liabilities13,703 15,060 
FinanceNon-current lease liabilities369 511 
Total lease liabilities$18,019 $19,124 
    
Supplemental statement of operations information related to leases was as follows:
Lease expenseClassification Three Months Ended September 30, 2020 Three Months Ended September 30, 2019Six Months Ended September 30, 2020Six Months Ended September 30, 2019
Operating lease expenseMarketing, general and administrative and engineering$1,243 $959 $2,384 $1,767 
Finance lease expense:
Amortization of ROU assetsMarketing, general and administrative and engineering68 66 145 125 
Interest expense on finance lease liabilitiesInterest expense11 13 22 26 
Short-term lease expenseMarketing, general and administrative and engineering30 252 51 715 
Net lease expense$1,352 $1,290 $2,602 $2,633 

Supplemental statement of cash flows information related to leases was as follows:
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Cash paid for amounts included in the measurement of lease liabilitiesSix Months Ended September 30, 2020Six Months Ended September 30, 2019
Operating cash used for operating leases$1,697 $1,365 
Operating cash flows used for finance leases22 26 
Financing cash flows used for finance leases139 108 

Future lease payments under non-cancellable operating leases as of September 30, 2020 were as follows:
Future Lease PaymentsOperating LeasesFinance Leases
Twelve months ending September 30,
2021$4,502 $191 
20223,886 159 
20233,022 147 
20242,105 105 
20251,683 30 
Thereafter5,383  
Total lease payments$20,581 $632 
Less imputed interest(3,135)(59)
Total lease liability$17,446 $573 


4. Restructuring
During the six months ended September 30, 2020, we enacted certain restructuring initiatives to align our current cost structure with the present decline in demand for our products and services primarily due to COVID-19 and depressed oil prices. Moreover, the Company eliminated approximately 85 and 196 positions during the three and six months ended September 30, 2020, respectively (both hourly and salaried positions), and incurred $1,941 and $4,862 in one-time severance costs during the three and six months ended September 30, 2020, respectively, which were recorded to marketing, general and administrative and engineering in our condensed consolidated statements of operations and comprehensive income. In addition, we incurred $46 in lease abandonment charges related to a Canadian facility we intend to vacate on December 31, 2020, which was recorded to marketing, general and administrative and engineering expense in our condensed consolidated statements of operations and comprehensive income.
Restructuring costs by reportable segment were as follows:
Three Months Ended September 30, 2020Six Months Ended September 30, 2020
United States and Latin America$351 $2,414 
Canada1,270 2,128 
Europe, Middle East and Africa356 356 
Asia-Pacific10 10 
 $1,987 $4,908 

Restructuring activity related to accrued severance recorded to accrued liabilities in the condensed consolidated balance sheets is summarized as follows for the six months ended September 30, 2020:
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September 30, 2020
Beginning balance$ 
Costs incurred4,862 
Less cash payments(2,791)
Ending balance$2,071 

5. Net Income per Common Share
Basic net income per common share is computed by dividing net income available to Thermon Group Holdings, Inc. by the weighted average number of common shares outstanding during each period. Diluted net income per common share is computed by dividing net income available to Thermon Group Holdings, Inc. 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 associated performance targets will be met at the target level of performance for purposes of calculating diluted net income per common share.
The reconciliations of the denominators used to calculate basic and diluted net income (loss) per common share for the three and six months ended September 30, 2020 and 2019, respectively, are as follows:
 Three Months Ended September 30, 2020 Three Months Ended September 30, 2019Six Months Ended September 30, 2020Six Months Ended September 30, 2019
Basic net income per common share  
Net income (loss) available to Thermon Group Holdings, Inc.$1,838 $6,912 $(4,247)$8,383 
Weighted-average common shares outstanding33,164,921 32,727,023 33,075,902 32,681,410 
Basic net income (loss) per common share$0.06 $0.21 $(0.13)$0.26 

Three Months Ended September 30, 2020Three Months Ended September 30, 2019Six Months Ended September 30, 2020Six Months Ended September 30, 2019
Diluted net income per common share  
Net income (loss) available to Thermon Group Holdings, Inc.$1,838 $6,912 $(4,247)$8,383 
Weighted-average common shares outstanding33,164,921 32,727,023 33,075,902 32,681,410 
Common share equivalents:
Stock options3,376 201,730  205,359 
Restricted and performance stock units249,357 315,634  225,009 
Weighted average shares outstanding – dilutive (1)33,417,654 33,244,387 33,075,902 33,111,778 
Diluted net income (loss) per common share (2)$0.06 $0.21 $(0.13)$0.25 
(1) For the three months ended September 30, 2020, 256,444 equity awards were not included in the calculation of diluted net income per common share, as they would have had an anti-dilutive effect. For the six months ended September 30, 2020 and 2019, 283,764 and 16,557 equity awards, respectively, were not included in the calculation of diluted net income per common share, as they would have had an anti-dilutive effect.
(2) As the Company incurred a net loss for the six months ended September 30, 2020, there was no dilutive effect on net loss per common share as common share equivalents are antidilutive. Therefore, both basic and diluted net loss per common share were $(0.13) for the six months ended September 30, 2020.

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6. Inventories
Inventories consisted of the following: