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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
(Mark One)

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

For the quarterly period ended June 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: 001-32240
 
neenahinccorporatesmall.jpg
(Exact name of registrant as specified in its charter)
 

Delaware
 
20-1308307
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
f

3460 Preston Ridge Road

 
Alpharetta
,
Georgia
30005
 
(Address of principal executive offices, including zip code)
(678) 566-6500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
NP
New 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 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one):
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
(Do not check if a 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 August 3, 2020, there were 16,802,188 shares of the Company’s Common Stock outstanding.


Table of Contents

TABLE OF CONTENTS


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

Part I—FINANCIAL INFORMATION


Item 1.  Financial Statements

NEENAH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share data)
(Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Net sales
 
$
161.4

 
$
253.4

 
$
395.0

 
$
493.1

Cost of products sold
 
140.0

 
202.7

 
319.6

 
398.7

Gross profit
 
21.4

 
50.7

 
75.4

 
94.4

Selling, general and administrative expenses
 
20.8

 
26.9

 
47.4

 
52.2

Asset restructuring and impairment costs (Note 10)
 
55.3

 
2.0

 
55.3

 
2.0

Other restructuring and non-routine costs
 
1.3

 
1.5

 
2.7

 
1.5

Loss on debt extinguishment (Note 5)
 
1.9

 

 
1.9

 

COVID-19 costs
 
0.4

 

 
1.5

 

Acquisition and due diligence costs
 
0.1

 

 
1.1

 

Other expense - net
 
0.1

 
0.5

 
0.4

 
1.5

Operating income (loss)
 
(58.5
)
 
19.8

 
(34.9
)
 
37.2

Interest expense - net
 
3.0

 
3.0

 
5.9

 
6.2

Income (loss) from continuing operations before income taxes
 
(61.5
)
 
16.8

 
(40.8
)
 
31.0

Provision (benefit) for income taxes
 
(11.4
)
 
3.2

 
(7.1
)
 
5.6

Net income (loss)
 
$
(50.1
)
 
$
13.6

 
$
(33.7
)
 
$
25.4

 
 
 
 
 
 
 
 
 
Earnings (Loss) Per Common Share
 
 

 
 

 
 
 
 
Basic
 
$
(2.98
)
 
$
0.80

 
$
(2.01
)
 
$
1.50

Diluted
 
$
(2.98
)
 
$
0.80

 
$
(2.01
)
 
$
1.49

 
 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding (in thousands)
 
 

 
 

 
 
 
 
Basic
 
16,797

 
16,863

 
16,812

 
16,861

Diluted
 
16,797

 
16,910

 
16,812

 
16,914

 
 
 
 
 
 
 
 
 
Cash Dividends Declared Per Share of Common Stock
 
$
0.47

 
$
0.45

 
$
0.94

 
$
0.90

 
See Notes to Condensed Consolidated Financial Statements

F-1

Table of Contents

NEENAH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Net income (loss)
 
$
(50.1
)
 
$
13.6

 
$
(33.7
)
 
$
25.4

Reclassification of amounts recognized in the condensed consolidated statements of operations:
 
 
 
 
 
 
 
 
Amortization of adjustments to pension and other postretirement benefit liabilities (Note 6)
 
1.5

 
1.4

 
3.1

 
3.1

Unrealized foreign currency translation gain (loss)
 
3.6

 
1.5

 
(0.4
)
 
(1.7
)
Net gain from pension and other postretirement benefit plans
 

 
4.9

 

 
4.9

Income from other comprehensive income items
 
5.1

 
7.8

 
2.7

 
6.3

Provision for income taxes
 
0.4

 
1.6

 
0.6

 
1.8

Other comprehensive income
 
4.7

 
6.2

 
2.1

 
4.5

Comprehensive income (loss)
 
$
(45.4
)
 
$
19.8

 
$
(31.6
)
 
$
29.9

 
See Notes to Condensed Consolidated Financial Statements

F-2

Table of Contents

NEENAH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
 
June 30, 2020
 
December 31, 2019
ASSETS
 
 

 
 

Current Assets
 
 

 
 

Cash and cash equivalents
 
$
26.2

 
$
9.0

Restricted cash (Note 5)
 
176.5

 

Accounts receivable (less allowances of $1.9 million and $1.5 million)
 
91.8

 
102.6

Inventories
 
115.0

 
122.8

Prepaid and other current assets
 
16.1

 
18.3

Total Current Assets
 
425.6

 
252.7

Property, Plant and Equipment
 
 

 
 

Property, plant and equipment, at cost
 
782.1

 
850.6

Less accumulated depreciation
 
462.6

 
470.0

Property, Plant and Equipment—net
 
319.5

 
380.6

Lease Right-of-Use Assets (Note 1)
 
21.0

 
13.9

Deferred Income Taxes
 
22.3

 
13.4

Goodwill
 
83.1

 
83.1

Intangible Assets—net
 
63.3

 
66.7

Other Noncurrent Assets
 
17.6

 
17.4

TOTAL ASSETS
 
$
952.4

 
$
827.8

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 

 
 

Current Liabilities
 
 

 
 

Debt payable within one year (Note 5)
 
$
179.7

 
$
2.6

Lease liabilities payable within one year (Note 1)
 
2.8

 
1.9

Accounts payable
 
37.0

 
48.9

Accrued expenses
 
47.0

 
47.0

Total Current Liabilities
 
266.5

 
100.4

Long-term Debt
 
201.7

 
198.2

Noncurrent Lease Liabilities (Note 1)
 
19.3

 
13.0

Noncurrent Employee Benefits
 
89.3

 
93.1

Deferred Income Taxes
 
12.1

 
12.9

Other Noncurrent Obligations
 
5.5

 
3.9

TOTAL LIABILITIES
 
594.4

 
421.5

Contingencies and Legal Matters (Note 9)
 

 

TOTAL STOCKHOLDERS’ EQUITY
 
358.0

 
406.3

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
952.4

 
$
827.8

 
See Notes to Condensed Consolidated Financial Statements

F-3

Table of Contents

NEENAH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In millions, shares in thousands)
(Unaudited)

 
 
2020 Activity
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balance, December 31, 2019
 
18,678

 
$
0.2

 
$
(82.8
)
 
$
334.1

 
$
268.1

 
$
(113.3
)
 
$
406.3

Net income
 

 

 

 

 
16.4

 

 
16.4

Other comprehensive loss, including income taxes
 

 

 

 

 

 
(2.6
)
 
(2.6
)
Dividends declared
 

 

 

 

 
(8.0
)
 

 
(8.0
)
Shares purchased (Note 8)
 

 

 
(3.6
)
 

 

 

 
(3.6
)
Stock options exercised
 
3

 

 

 

 

 

 

Restricted stock vesting (Note 8)
 
8

 

 
(0.2
)
 

 

 

 
(0.2
)
Stock-based compensation
 

 

 

 
1.5

 

 

 
1.5

Balance, March 31, 2020
 
18,689

 
$
0.2

 
$
(86.6
)
 
$
335.6

 
$
276.5

 
$
(115.9
)
 
$
409.8

Net loss
 

 

 

 

 
(50.1
)
 

 
(50.1
)
Other comprehensive income, net of income taxes
 

 

 

 

 

 
4.7

 
4.7

Dividends declared
 

 

 

 

 
(8.0
)
 

 
(8.0
)
Shares purchased (Note 8)
 

 

 

 

 

 

 

Stock options exercised
 
2

 

 

 

 

 

 

Restricted stock vesting (Note 8)
 
9

 

 

 

 

 

 

Stock-based compensation
 

 

 

 
1.6

 

 

 
1.6

Balance, June 30, 2020
 
18,700

 
0.2

 
(86.6
)
 
337.2

 
218.4

 
(111.2
)
 
358.0





F-4

Table of Contents

 
 
2019 Activity
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Treasury Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total
Balance, December 31, 2018
 
18,597

 
$
0.2

 
$
(76.6
)
 
$
328.5

 
$
243.2

 
$
(105.1
)
 
$
390.2

Net income
 

 

 

 

 
11.8

 

 
11.8

Other comprehensive loss, including income taxes
 

 

 

 

 

 
(1.7
)
 
(1.7
)
Dividends declared
 

 

 

 

 
(7.6
)
 

 
(7.6
)
Shares purchased (Note 8)
 

 

 
(0.3
)
 

 

 

 
(0.3
)
Stock options exercised
 
9

 

 

 

 

 

 

Restricted stock vesting (Note 8)
 
3

 

 
(0.1
)
 

 

 

 
(0.1
)
Stock-based compensation
 

 

 

 
1.9

 

 

 
1.9

Balance, March 31, 2019
 
18,609

 
$
0.2

 
$
(77.0
)
 
$
330.4

 
$
247.4

 
$
(106.8
)
 
$
394.2

Net income
 

 

 

 

 
13.6

 

 
13.6

Other comprehensive income, net of income taxes
 

 

 

 

 

 
6.2

 
6.2

Dividends declared
 

 

 

 

 
(7.6
)
 

 
(7.6
)
Shares purchased (Note 8)
 

 

 
(1.6
)
 

 

 

 
(1.6
)
Stock options exercised
 
1

 

 

 

 

 

 

Restricted stock vesting (Note 8)
 
21

 

 

 

 

 

 

Stock-based compensation
 

 

 

 
1.7

 

 

 
1.7

Other/currency
 

 

 

 

 

 

 

Balance, June 30, 2019
 
18,631

 
0.2

 
(78.6
)
 
332.1

 
253.4

 
(100.6
)
 
406.5



See Notes to Condensed Consolidated Financial Statements

F-5

Table of Contents

NEENAH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
 
2020
 
2019
OPERATING ACTIVITIES
 
 

 
 

Net income (loss)
 
$
(33.7
)
 
$
25.4

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
19.7

 
19.0

Stock-based compensation
 
3.1

 
3.6

Deferred income tax provision (benefit)
 
(10.3
)
 
1.9

Asset impairment costs (Note 10)
 
52.3

 

Loss on debt extinguishment (Note 5)
 
1.9

 

Loss on asset dispositions
 
0.1

 
0.1

Provision for uncollectible accounts receivable
 
1.1

 

Non-cash effects of changes in liabilities for uncertain income tax positions
 

 
(0.4
)
Decrease (increase) in working capital
 
7.9

 
(7.3
)
Pension and other postretirement benefits
 
(0.1
)
 
(0.9
)
Long-term payroll taxes
 
1.7

 

Other
 
(0.1
)
 
(0.4
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
 
43.6

 
41.0

 
 
 
 
 
INVESTING ACTIVITIES
 
 

 
 

Capital expenditures
 
(8.0
)
 
(9.0
)
Purchase of marketable securities
 
(0.1
)
 
(0.3
)
Other
 
(0.2
)
 
(0.3
)
NET CASH USED IN INVESTING ACTIVITIES
 
(8.3
)
 
(9.6
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 

 
 

Long-term borrowings (Note 5)
 
291.0

 
124.3

Repayments of long-term debt (Note 5)
 
(107.5
)
 
(139.9
)
Debt issuance costs
 
(5.2
)
 
(0.4
)
Cash dividends paid
 
(16.0
)
 
(15.2
)
Shares purchased (Note 8)
 
(3.8
)
 
(2.0
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
158.5

 
(33.2
)
 
 
 
 
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(0.1
)
 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
 
193.7

 
(1.8
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
 
9.0

 
9.9

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
 
$
202.7

 
$
8.1

 
 
 
 
 
RECONCILIATION TO THE CONDENSED CONSOLIDATED BALANCE SHEET:
 
 
 
 
Cash and cash equivalents
 
$
26.2

 
$
8.1

Restricted cash (Note 5)
 
176.5

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
 
$
202.7

 
$
8.1

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 

 
 

Cash paid during period for interest, net of interest costs capitalized
 
$
5.4

 
$
5.7

Cash paid during period for income taxes
 
$
3.0

 
$
9.3

Non-cash investing activities:
 
 

 
 

Liability for equipment acquired
 
$
2.1

 
$
1.7


 See Notes to Condensed Consolidated Financial Statements

F-6

Table of Contents

NEENAH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions, except as noted)


Note 1.  Background and Basis of Presentation
Background
Neenah, Inc. ("Neenah" or the "Company"), is a Delaware corporation incorporated in April 2004. The Company has two primary operations: its technical products business and its fine paper and packaging business. See Note 11, "Business Segment Information."

Basis of Consolidation and Presentation
These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Management believes that the disclosures made are adequate for a fair presentation of the Company’s results of operations, financial position and cash flows. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results of operations, financial position and cash flows for the interim periods presented herein. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make extensive use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates.
 
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
 
The condensed consolidated financial statements of Neenah and its subsidiaries included herein are unaudited. The condensed consolidated financial statements include the financial statements of the Company and its wholly owned and majority owned subsidiaries. Intercompany balances and transactions have been eliminated.

Impacts of COVID-19
The Company assessed the impacts of the novel coronavirus pandemic (“COVID-19” or the "pandemic") on its various accounting estimates and significant judgments, including those that require consideration of forecasted financial information in the context of the unknown future impacts of COVID-19, using information that is reasonably available at this time. The accounting estimates and other matters assessed included, but were not limited to, goodwill, indefinite-lived intangibles and other long-lived assets, allowance for uncollectible accounts receivable, valuation allowances for tax assets and revenue recognition. Based on the Company’s current assessment of these estimates and due to the adverse impacts of COVID-19, the Company recorded a non-cash impairment loss of $52.3 million to write-down certain long-lived assets for the three months ended June 30, 2020. The Company also recorded $2.6 million of restructuring charges due to the idling of a fine paper machine and other smaller assets and $0.4 million of related severance costs. See Note 10, "Asset Restructuring and Impairment Costs" for further discussion.

The Company also recorded incremental and direct costs of responding to COVID-19 including purchases of personal protective equipment and additional cleaning and sanitation costs of $1.5 million for the six months ended June 30, 2020. This included a one-time special payment to its mill operators of $1.1 million related to COVID-19 during the three months ended March 31, 2020.


F-7

Table of Contents

Earnings per Share ("EPS")
The following table presents the computation of basic and diluted EPS (dollars in millions except per share amounts, shares in thousands):
 
Earnings (Loss) Per Basic Common Share
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Income (loss) from continuing operations
 
$
(50.1
)
 
$
13.6

 
$
(33.7
)
 
$
25.4

Amounts attributable to participating securities
 

 
(0.1
)
 
(0.1
)
 
(0.2
)
Net income (loss) available to common stockholders
 
$
(50.1
)
 
$
13.5

 
$
(33.8
)
 
$
25.2

 
 
 
 
 
 
 
 
 
Weighted-average basic shares outstanding
 
16,797

 
16,863

 
16,812

 
16,861

 
 
 

 
 

 
 
 
 
Basic earnings (loss) per share
 
$
(2.98
)
 
$
0.80

 
$
(2.01
)
 
$
1.50

 


Earnings (Loss) Per Diluted Common Share 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Income (loss) from continuing operations
 
$
(50.1
)
 
$
13.6

 
$
(33.7
)
 
$
25.4

Amounts attributable to participating securities
 

 
(0.1
)
 
(0.1
)
 
(0.2
)
Net income (loss) available to common stockholders
 
$
(50.1
)
 
$
13.5

 
$
(33.8
)
 
$
25.2

 
 
 
 
 
 
 
 
 
Weighted-average basic shares outstanding
 
16,797

 
16,863

 
16,812

 
16,861

Add: Assumed incremental shares under stock compensation plans (a)
 

 
47

 

 
53

Weighted-average diluted shares
 
16,797

 
16,910

 
16,812

 
16,914

 
 
 

 
 

 
 

 
 

Diluted earnings (loss) per share
 
$
(2.98
)
 
$
0.80

 
$
(2.01
)
 
$
1.49

 
(a)        For the three months ended June 30, 2020 and 2019, there were 338,690 and 230,928 potentially dilutive options, respectively, excluded from the computation of dilutive common shares because the exercise price of such options exceeded the average market price of the Company’s Common Stock. For the six months ended June 30, 2020 and 2019, there were 340,886 and 231,129 potentially dilutive options, respectively, similarly excluded from the computation of dilutive common shares. In addition, as a result of the loss from continuing operations for the three and six months ended June 30, 2020, incremental shares of 23,000 and 28,000, respectively, resulting from the dilutive options and performance share units, were excluded from the diluted earnings per share calculation as the effect would have been anti-dilutive.
 
Fair Value of Financial Instruments
The Company measures the fair value of financial instruments in accordance with Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820") which establishes a framework for measuring fair value. ASC Topic 820 provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
 

F-8

Table of Contents

The following table presents the carrying value and the fair value of the Company’s debt: 
 
 
June 30, 2020
 
December 31, 2019
 
 
Carrying
Value
 
Fair Value (a)
 
Carrying
Value
 
Fair Value (a)
Term Loan B (variable rates)
 
$
200.0

 
$
200.0

 
$

 
$

2021 Senior Notes (5.25% fixed rate)
 
175.0

 
175.0

 
175.0

 
174.3

Global Revolving Credit Facility (variable rates)
 
10.1

 
10.1

 
21.6

 
21.6

German loan agreement (2.45% fixed rate)
 
2.9

 
3.0

 
3.5

 
3.6

German loan agreement (1.45% fixed rate)
 
3.0

 
3.0

 
3.7

 
3.7

Total debt
 
$
391.0

 
$
391.1

 
$
203.8

 
$
203.2


(a)         The fair value for all debt instruments was estimated from Level 2 measurements using rates currently available to the Company for debt of the same remaining maturities.

As of June 30, 2020, the Company had $4.1 million in marketable securities in the U.S. classified as "Other Noncurrent Assets" on the Condensed Consolidated Balance Sheet. The cost of such marketable securities was $4.5 million. Fair value for the Company’s marketable securities was estimated from Level 1 inputs. The Company’s U.S. marketable securities are designated for the payment of benefits under its supplemental employee retirement plan ("SERP"). As of June 30, 2020, Neenah Germany had investments of $2.1 million that were restricted to the payment of certain post-retirement employee benefits of which $0.6 million and $1.5 million are classified as "Prepaid and other current assets" and "Other Noncurrent Assets", respectively, on the Condensed Consolidated Balance Sheet. The cost of these investments approximate market.

Revenue from Contracts with Customers
The Company recognizes sales revenue at a point in time following the transfer of control of the product to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. Sales are reported net of allowable discounts and estimated returns. Reserves for cash discounts, trade allowances and sales returns are estimated using historical experience. The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products. Accordingly, the Company records customer payments of shipping and handling costs as a component of net sales and classifies such costs as a component of cost of sales. The Company excludes tax amounts assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers from our measurement of transaction prices. Accordingly, such tax amounts are not included as a component of net sales or cost of sales.

The Company considers each transaction/shipment as a separate performance obligation. Neenah recognizes revenue when the title transfers to the customer. As such, the remaining performance obligations at period end are not considered significant.

Sales terms in the technical products business vary depending on the type of product sold and customer category. In general, sales are collected in 45 to 55 days. Extended credit terms of up to 120 days are offered to customers located in certain international markets. Fine paper and packaging sales terms range between 20 and 30 days with discounts of 0 to 2% for customer payments, with discounts of 1% and 20-day terms used most often. Extended credit terms are offered to customers located in certain international markets.

Refer to Note 11, "Business Segment Information" for disaggregation of segment revenue from contracts with customers for the three and six months ended June 30, 2020 and 2019.

Allowance for Uncollectible Accounts Receivable
In January 2020, the Company adopted Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the FASB's guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model (known as the "current expected credit loss model" or "CECL") that is based on expected losses rather than incurred losses. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows. Losses on receivables are estimated based on known troubled accounts and historical experience of losses incurred. Receivables are considered impaired and written-off when it is probable that contractual payments due will not be collected in accordance with the terms of the agreement. The allowance for uncollectible accounts receivable was $1.9 million and $1.5 million as of June 30, 2020 and December 31, 2019. The Company recorded a $1.0 million provision for uncollectible accounts receivable from the impacts of

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COVID-19 for the three months ended March 31, 2020. There were no significant new provisions recorded for the three months ended June 30, 2020.

Leases
The Company has operating leases for corporate offices, warehouses and certain equipment, with remaining lease terms of up to 11 years, some of which include options to extend the leases for up to five years. The Company determines if an arrangement is a lease at inception. Operating leases with terms greater than 12 months are included in "Lease Right-of-Use Assets", "Lease liabilities payable within one year" and "Noncurrent Lease Liabilities" on the Condensed Consolidated Balance Sheets. As of June 30, 2020, the Company did not have any material finance leases.

In March 2020, the Company entered into operating leases for two warehouse buildings, and recognized a right-of-use ("ROU") asset and a corresponding lease liability of $6.6 million with a term of 10 years, and an ROU asset and corresponding lease liability of $1.8 million with a term of 5 years. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.


Note 2.  Accounting Standards Changes
As of June 30, 2020, no amendments to the ASC have been issued that will have or are reasonably likely to have a material effect on the Company’s financial position, results of operations or cash flows.


Note 3.  Supplemental Balance Sheet Data
 
The following table presents inventories by major class:
 
 
June 30, 2020
 
December 31, 2019
Raw materials
 
$
31.5

 
$
32.8

Work in progress
 
20.0

 
26.4

Finished goods
 
67.0

 
67.3

Supplies and other
 
5.5

 
5.2

 
 
124.0

 
131.7

Adjust FIFO inventories to LIFO cost
 
(9.0
)
 
(8.9
)
Total
 
$
115.0

 
$
122.8


 
The FIFO values of inventories valued on the LIFO method were $99.3 million and $102.2 million as of June 30, 2020 and December 31, 2019, respectively. For the three and six months ended June 30, 2020, income from continuing operations before income taxes was reduced by less than $0.1 million due to a decrease in certain LIFO inventory quantities.

The following table presents changes in accumulated other comprehensive income (loss) ("AOCI") for the six months ended June 30, 2020
 
 
Net Unrealized Foreign
Currency Translation
Loss
 
Net Loss from
Pension and Other
Postretirement
Liabilities
 
Accumulated Other
Comprehensive Loss
AOCI — December 31, 2019
 
$
(19.0
)
 
$
(94.3
)
 
$
(113.3
)
Other comprehensive loss before reclassifications
 
(0.4
)
 

 
(0.4
)
Amounts reclassified from AOCI
 

 
3.1

 
3.1

Income (loss) from other comprehensive income items
 
(0.4
)
 
3.1

 
2.7

Provision (benefit) for income taxes
 
(0.2
)
 
0.8

 
0.6

Other comprehensive income (loss)
 
(0.2
)
 
2.3

 
2.1

AOCI — June 30, 2020
 
$
(19.2
)
 
$
(92.0
)
 
$
(111.2
)


For each of the six months ended June 30, 2020 and 2019, the Company reclassified $3.1 million of costs from AOCI to "Other expense - net" on the Condensed Consolidated Statements of Operations. For each of the six months ended June 30, 2020 and

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2019, the Company recognized an income tax benefit of $0.8 million related to such reclassifications classified as "Provision for income taxes" on the Condensed Consolidated Statements of Operations.


Note 4. Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Income tax expense (benefit) represented (19)% and 19% of pre-tax book income (loss) for the three months ended June 30, 2020 and 2019, respectively, and (17)% and 18% of pre-tax book income (loss) for the six months ended June 30, 2020 and 2019, respectively. The effective income tax (benefit) rates for the three and six months ended June 30, 2020 were significantly impacted by the effects of the $52.3 million asset impairment loss of the U.S. transportation filtration asset (see Note 10, "Asset Restructuring and Impairment Costs"). As of June 30, 2020, the Company evaluated its ability to utilize its deferred tax assets, including research and development and other tax credits and net operating losses ("NOLs"), before they expire. As a result of the impacts of COVID-19 and other factors, a $4.0 million tax expense was recorded to increase the valuation allowance against certain state tax credits and NOLs. In determining the need for a valuation allowance, the Company considered many factors, including specific taxing jurisdictions, sources of taxable income and income tax strategies. A valuation allowance is recognized if, based on the weight of available evidence, the Company concludes that it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

The following table presents the principal reasons for the difference between the Company's effective income tax (benefit) rate and the U.S. federal statutory income tax (benefit) rate:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
U.S. federal statutory income tax (benefit) rate
 
(21
)%
 
21
 %
 
(21
)%
 
21
 %
U.S. state income taxes (benefit), net of federal income tax effect
 
(4
)%
 
2
 %
 
(5
)%
 
1
 %
Foreign tax rate differences and financing structure
 
 %
 
 %
 
 %
 
1
 %
U.S. taxes on foreign earnings
 
 %
 
 %
 
1
 %
 
1
 %
Research and development and other tax credits
 
2
 %
 
(7
)%
 
(3
)%
 
(6
)%
Excess tax benefits from stock compensation
 
 %
 
 %
 
 %
 
 %
Uncertain income tax positions
 
 %
 
1
 %
 
1
 %
 
(1
)%
Valuation allowances
 
6
 %
 
 %
 
10
 %
 
 %
Other differences - net
 
(2
)%
 
2
 %
 
 %
 
1
 %
Effective income tax (benefit) rate
 
(19
)%
 
19
 %
 
(17
)%
 
18
 %




Note 5.  Debt
Long-term debt consisted of the following: 
 
 
June 30, 2020
 
December 31, 2019
Term Loan B (variable rates) due June 2027
 
$
200.0

 
$

2021 Senior Notes (5.25% fixed rate) due May 2021
 
175.0

 
175.0

Global Revolving Credit Facility (variable rates) due December 2023
 
10.1

 
21.6

German loan agreement (2.45% fixed rate) due in quarterly installments ending September 2022
 
2.9

 
3.5

German loan agreement (1.45% fixed rate) due in quarterly installments ending March 2023