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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 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: 001-32240
np-20200930_g1.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, Georgia30005
(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 classTrading Symbol(s)Name of each exchange on which registered
Common StockNPNew 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 November 2, 2020, there were 16,802,406 shares of the Company’s Common Stock outstanding.


Table of Contents
TABLE OF CONTENTS

 
  
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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 September 30,Nine Months Ended September 30,
2020201920202019
Net sales$190.7 $231.8 $585.7 $724.9 
Cost of products sold155.5 187.1 475.1 585.8 
Gross profit35.2 44.7 110.6 139.1 
Selling, general and administrative expenses19.1 23.1 66.5 75.3 
Asset restructuring and impairment costs (Note 10) 2.4 55.3 4.4 
Other restructuring and non-routine costs1.4  4.1 1.5 
COVID-19 costs0.6  2.1  
Loss on debt extinguishment (Note 5)  1.9  
Acquisition and due diligence costs  1.1  
Pension settlement and other benefit costs (Note 6) 0.1  0.1 
Other expense - net 0.2 0.1 0.6 1.6 
Operating income (loss)13.9 19.0 (21.0)56.2 
Interest expense - net3.6 2.8 9.5 9.0 
Income (loss) before income taxes10.3 16.2 (30.5)47.2 
Provision (benefit) for income taxes2.4 1.8 (4.7)7.4 
Net income (loss)$7.9 $14.4 $(25.8)$39.8 
Earnings (Loss) Per Common Share  
Basic$0.46 $0.85 $(1.55)$2.35 
Diluted$0.46 $0.84 $(1.55)$2.33 
Weighted Average Common Shares Outstanding (in thousands)  
Basic16,802 16,837 16,810 16,850 
Diluted16,821 16,905 16,810 16,910 
Cash Dividends Declared Per Share of Common Stock$0.47 $0.45 $1.41 $1.35 
 
See Notes to Condensed Consolidated Financial Statements
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NEENAH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net income (loss)$7.9 $14.4 $(25.8)$39.8 
Reclassification of amounts recognized in the condensed consolidated statements of operations:
Amortization of adjustments to pension and other postretirement benefit liabilities (Note 6)1.6 1.3 4.7 4.4 
SERP settlement loss (Note 6) 0.1  0.1 
Amounts recognized in the condensed consolidated statements of operations1.6 1.4 4.7 4.5 
Unrealized foreign currency translation gain (loss)7.9 (6.9)7.5 (8.6)
Net gain from pension and other postretirement benefit plans   4.9 
Income (loss) from other comprehensive income items9.5 (5.5)12.2 0.8 
Provision for income taxes0.8 0.3 1.4 2.1 
Other comprehensive income (loss)8.7 (5.8)10.8 (1.3)
Comprehensive income (loss)$16.6 $8.6 $(15.0)$38.5 
 
See Notes to Condensed Consolidated Financial Statements
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NEENAH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 September 30, 2020December 31, 2019
ASSETS  
Current Assets  
Cash and cash equivalents$41.3 $9.0 
Accounts receivable (less allowances of $1.7 million and $1.5 million)
99.8 102.6 
Inventories107.8 122.8 
Prepaid and other current assets14.8 18.3 
Total Current Assets263.7 252.7 
Property, Plant and Equipment  
Property, plant and equipment, at cost794.3 850.6 
Less accumulated depreciation472.2 470.0 
Property, Plant and Equipment—net322.1 380.6 
Lease Right-of-Use Assets (Note 1)20.7 13.9 
Deferred Income Taxes22.8 13.4 
Goodwill85.2 83.1 
Intangible Assets—net62.9 66.7 
Other Noncurrent Assets18.9 17.4 
TOTAL ASSETS$796.3 $827.8 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current Liabilities  
Debt payable within one year (Note 5)$4.8 $2.6 
Lease liabilities payable within one year (Note 1)2.9 1.9 
Accounts payable49.8 48.9 
Accrued expenses57.9 47.0 
Total Current Liabilities115.4 100.4 
Long-term Debt190.7 198.2 
Noncurrent Lease Liabilities (Note 1)18.9 13.0 
Noncurrent Employee Benefits84.7 93.1 
Deferred Income Taxes12.8 12.9 
Other Noncurrent Obligations6.8 3.9 
TOTAL LIABILITIES429.3 421.5 
Contingencies and Legal Matters (Note 9)  
TOTAL STOCKHOLDERS’ EQUITY367.0 406.3 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$796.3 $827.8 
 
See Notes to Condensed Consolidated Financial Statements
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NEENAH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In millions, shares in thousands)
(Unaudited)
2020 Activity
 Common Stock
 SharesAmountTreasury
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Balance, December 31, 201918,678 $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 exercised3 — — — — —  
Restricted stock vesting (Note 8)8 — (0.2)— — — (0.2)
Stock-based compensation— — — 1.5 — — 1.5 
Balance, March 31, 202018,689 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 exercised2 — — — — —  
Restricted stock vesting (Note 8)9 —  — — —  
Stock-based compensation— — — 1.6 — — 1.6 
Balance, June 30, 202018,700 0.2 (86.6)337.2 218.4 (111.2)358.0 
Net income— — — — 7.9 — 7.9 
Other comprehensive income, net of income taxes— — — — — 8.7 8.7 
Dividends declared— — — — (7.9)— (7.9)
Shares purchased (Note 8)— —  — — —  
Stock options exercised — — — — —  
Restricted stock vesting (Note 8)1 —  — — —  
Stock-based compensation— — — 0.3 — — 0.3 
Balance, September 30, 202018,701 $0.2 $(86.6)$337.5 $218.4 $(102.5)$367.0 


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2019 Activity
 Common Stock
 SharesAmountTreasury StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
Balance, December 31, 201818,597 $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 exercised9 — — — — —  
Restricted stock vesting (Note 8)3 — (0.1)— — — (0.1)
Stock-based compensation— — — 1.9 — — 1.9 
Balance, March 31, 201918,609 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 exercised1 — — — — —  
Restricted stock vesting (Note 8)21 —  — — —  
Stock-based compensation— — — 1.7 — — 1.7 
Balance, June 30, 201918,631 0.2 (78.6)332.1 253.4 (100.6)406.5 
Net income— — — — 14.4 — 14.4 
Other comprehensive loss, including income taxes— — — — — (5.8)(5.8)
Dividends declared— — — — (7.7)— (7.7)
Shares purchased (Note 8)— — (2.9)— — — (2.9)
Stock options exercised2 — — — — —  
Restricted stock vesting (Note 8)2 — (0.2)— — — (0.2)
Stock-based compensation— — — 1.2 — — 1.2 
Balance, September 30, 201918,635 $0.2 $(81.7)$333.3 $260.1 $(106.4)$405.5 


See Notes to Condensed Consolidated Financial Statements
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NEENAH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 Nine Months Ended September 30,
 20202019
OPERATING ACTIVITIES  
Net income (loss)$(25.8)$39.8 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization28.2 30.2 
Stock-based compensation3.4 4.8 
Deferred income tax provision (benefit)(11.3)1.1 
Asset impairment costs (Note 10)52.3  
Loss on debt extinguishment (Note 5)1.9  
Pension settlement and other benefit costs 0.1 
Loss on asset dispositions 0.1 
Provision for uncollectible accounts receivable0.7  
Non-cash effects of changes in liabilities for uncertain income tax positions (0.5)
Decrease in working capital28.7 1.4 
Pension and other postretirement benefits(0.3)(2.2)
Long-term payroll taxes2.9  
Other(0.3)(0.4)
NET CASH PROVIDED BY OPERATING ACTIVITIES80.4 74.4 
INVESTING ACTIVITIES  
Capital expenditures(11.8)(13.9)
Purchase of marketable securities(0.1)(0.3)
Other(0.3)(0.7)
NET CASH USED IN INVESTING ACTIVITIES(12.2)(14.9)
FINANCING ACTIVITIES  
Long-term borrowings (Note 5)291.2 155.5 
Repayments of long-term debt (Note 5)(294.3)(188.8)
Debt issuance costs(5.4)(0.4)
Cash dividends paid(23.9)(22.9)
Shares purchased (Note 8)(3.8)(5.1)
NET CASH USED IN FINANCING ACTIVITIES(36.2)(61.7)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS0.3 (0.3)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 32.3 (2.5)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR9.0 9.9 
CASH AND CASH EQUIVALENTS, END OF PERIOD$41.3 $7.4 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:  
Cash paid during period for interest, net of interest costs capitalized$9.7 $6.0 
Cash paid during period for income taxes$3.9 $11.4 
Non-cash investing activities:  
Liability for equipment acquired$2.4 $3.1 

 See Notes to Condensed Consolidated Financial Statements
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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 continues to assess 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 assessment of these estimates and due to the adverse impacts of COVID-19, during the three months ended June 30, 2020, the Company recorded a non-cash impairment loss of $52.3 million to write-down certain long-lived assets, and $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. During the three months ended September 30, 2020, the Company qualitatively reviewed its fixed assets and intangibles including goodwill and indefinite-lived intangibles and noted no impairment indicators triggered.

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 $2.1 million for the nine months ended September 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.

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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 September 30,Nine Months Ended September 30,
 2020201920202019
Income (loss) from continuing operations$7.9 $14.4 $(25.8)$39.8 
Amounts attributable to participating securities(0.1)(0.1)(0.2)(0.2)
Net income (loss) available to common stockholders$7.8 $14.3 $(26.0)$39.6 
Weighted-average basic shares outstanding16,802 16,837 16,810 16,850 
  
Basic earnings (loss) per share$0.46 $0.85 $(1.55)$2.35 
 


Earnings (Loss) Per Diluted Common Share 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Income (loss) from continuing operations$7.9 $14.4 $(25.8)$39.8 
Amounts attributable to participating securities(0.1)(0.1)(0.2)(0.2)
Net income (loss) available to common stockholders$7.8 $14.3 $(26.0)$39.6 
Weighted-average basic shares outstanding16,802 16,837 16,810 16,850 
Add: Assumed incremental shares under stock compensation plans (a)19 68  60 
Weighted-average diluted shares16,821 16,905 16,810 16,910 
    
Diluted earnings (loss) per share$0.46 $0.84 $(1.55)$2.33 
 
(a)        For the three months ended September 30, 2020 and 2019, there were 330,789 and 231,471 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 nine months ended September 30, 2020 and 2019, there were 337,180 and 231,199 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 nine months ended September 30, 2020, incremental shares of 25,626, 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).
 
As of September 30, 2020, the carrying values of the Company’s debt approximated fair value.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 September 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
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designated for the payment of benefits under its supplemental employee retirement plan ("SERP"). As of September 30, 2020, Neenah Germany had investments of $2.3 million that were restricted to the payment of certain post-retirement employee benefits of which $0.7 million and $1.6 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 approximated 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. 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. Credit terms of up to 90 days 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 nine months ended September 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 $1.7 million and $1.5 million as of September 30, 2020 and December 31, 2019. The Company recorded a $1.0 million provision for uncollectible accounts receivable from the impacts of COVID-19 for the three months ended March 31, 2020. For the three months ended September 30, 2020, the provision for uncollectible accounts receivable was reduced by $0.3 million as a result of improved collections.

Leases
The Company has operating leases for corporate offices, warehouses, converting operations, 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 September 30, 2020, the Company did not have any material financing 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.


F-9


Note 2.  Accounting Standards Changes
As of September 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 upon adoption.


Note 3.  Supplemental Balance Sheet Data
 
The following table presents inventories by major class:
 September 30, 2020December 31, 2019
Raw materials$30.5 $32.8 
Work in progress21.4 26.4 
Finished goods58.1 67.3 
Supplies and other6.1 5.2 
 116.1 131.7 
Adjust FIFO inventories to LIFO cost(8.3)(8.9)
Total$107.8 $122.8 
 
The FIFO values of inventories valued on the LIFO method were $92.1 million and $102.2 million as of September 30, 2020 and December 31, 2019, respectively. For the three and nine months ended September 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 nine months ended September 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)$(113.3)
Other comprehensive loss before reclassifications 7.5  7.5 
Amounts reclassified from AOCI 4.7 4.7 
Income from other comprehensive income items7.5 4.7 12.2 
Provision for income taxes0.2 1.2 1.4 
Other comprehensive income7.3 3.5 10.8 
AOCI — September 30, 2020$(11.7)$(90.8)$(102.5)

For the nine months ended September 30, 2020 and 2019, the Company reclassified $4.7 million and $4.4 million of costs, respectively, from AOCI to "Other expense - net" on the Condensed Consolidated Statements of Operations. For the nine months ended September 30, 2020 and 2019, the Company recognized an income tax benefit of $1.2 million and $1.1 million, respectively, 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 23% and 11% of pre-tax book income (loss) for the three months ended September 30, 2020 and 2019, respectively, and (15)% and 16% of pre-tax book income (loss) for the nine months ended September 30, 2020 and 2019, respectively. The effective income tax (benefit) rate for the nine months ended September 30, 2020 was 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") recorded during the three months ended June 30, 2020. Also, 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
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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 September 30,Nine Months Ended September 30,
2020201920202019
U.S. federal statutory income tax (benefit) rate21 %21 %(21)%21 %
U.S. state income taxes (benefit), net of federal income tax effect(1)%1 %(7)%1 %
Foreign tax rate differences and financing structure10 % %3 %1 %
U.S. taxes on foreign earnings3 %1 %2 %1 %
Research and development and other tax credits(10)%(5)%(7)%(6)%
Excess tax benefits from stock compensation % %1 % %
Uncertain income tax positions(8)%(7)%(2)%(3)%
Valuation allowances1 % %14 % %
Other differences - net7 % %2 %1 %
Effective income tax (benefit) rate23 %11 %(15)%16 %



Note 5.  Debt
Long-term debt consisted of the following: 
 September 30, 2020December 31, 2019
Term Loan B (variable rates) due June 2027$199.5 $ 
2021 Senior Notes (5.25% fixed rate) redeemed July 2020
 175.0 
Global Revolving Credit Facility (variable rates) due December 2023 21.6 
German loan agreement (2.45% fixed rate) due in quarterly installments ending September 2022
2.6 3.5 
German loan agreement (1.45% fixed rate) due in quarterly installments ending September 2022
2.8 3.7 
Debt discounts and deferred financing costs(9.4)(3.0)
Total debt195.5 200.8 
Less: Debt payable within one year4.8 2.6 
Long-term debt$190.7 $198.2 

 
2021 Senior Notes
On June 30, 2020, the Company initiated the calling of the 2021 senior unsecured notes (the "2021 Senior Notes") for redemption in full and recorded a debt extinguishment charge of $1.9 million related to the write-off of the remaining deferred financing costs associated with the 2021 Senior Notes. The redemption of the 2021 Senior Notes was completed on July 16, 2020.

Term Loan B Credit Facility
On June 30, 2020, the Company entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) by and among the Company, as borrower, certain of its domestic subsidiaries, as guarantors (the “Guarantors”, and together with the Company, the “Term Loan Parties”), a syndicate of banks, financial institutions and other entities as lenders (the “TLB Lenders”), and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders (the “TLB Administrative Agent”). The Term Loan Credit Agreement provides a seven-year Term Loan B credit facility (the "Term B Facility") in the initial principal amount of $200 million (the "Term Loan B".) The Term Loan B was executed in a single $200 million draw on the closing date. Proceeds under the Term B Facility were used to redeem in full the 2021 Senior Notes, repay borrowings under the
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Company’s senior secured revolving credit facility, pay fees and expenses of the transaction and for general corporate purposes. Under the terms of the Term Loan Credit Agreement, and subject to certain conditions and adjustments, the Company may from time to time solicit the TLB Lenders or new lenders to provide incremental term loan financings under the Term B Facility up to $125 million in the aggregate (each an "Incremental Term Facility"). The proceeds of an Incremental Term Facility may be used for general corporate purposes of the Company and its subsidiaries, including permitted acquisitions, investments and other uses not prohibited by the Term Loan Credit Agreement.

The obligations under the Term Loan Credit Agreement are jointly and severally guaranteed by the Guarantors and are secured by all or substantially all of the assets of the Term Loan Parties, including (i) a first- priority security interest in all of the tangible and intangible non-current assets of the Term Loan (collectively, the “TLB Priority Collateral”), and (ii) a second-priority security interest in all of the current assets of the Term Loan Parties comprising priority collateral of the lenders under the Company’s secured revolving credit facility (together with the TLB Priority Collateral, the “Collateral”). Under the terms of the Term Loan Credit Agreement, borrowings under the Term B Facility will bear interest, as selected by the Company, at a per annum rate equal to either (a) the reserve-adjusted LIBOR rate for interest periods of one, two or three months, plus an applicable rate of 4.00% per annum, or (b) the Alternate Base Rate, plus an applicable rate of 2.00% per annum. “Alternate Base Rate” will be equal to the greatest of (1) the prime rate as quoted from time to time in The Wall Street Journal or published by the Federal Reserve Board, (2) the overnight bank funding rate established by the Federal Reserve Bank of New York, plus 50 basis points, and (3) one-month reserve-adjusted LIBOR plus 100 basis points. The Alternate Base Rate is subject to a “floor” of 2.0%, and the adjusted LIBOR rate is subject to a “floor” of 1.0%. As of September 30, 2020, the weighted-average interest rate on outstanding Term Loan borrowings was 5.0% per annum. The Term Loan B is repayable in equal quarterly installments commencing on September 30, 2020 in an aggregate annual amount equal to 1% of the original principal amount of the Term B Facility (subject to certain reductions in connection with debt prepayments and debt buybacks). The entire unpaid principal balance of the Term Loan B, together with all accrued and unpaid interest thereon, will be due and payable at maturity on June 30, 2027.

The Company is required to make mandatory prepayments of the Term Loan B, commencing with the fiscal year ending December 31, 2021, based on certain secured leverage ratios levels, among other requirements, as per below:
Secured leverage ratio levelsMandatory prepayments
< 1.50
No prepayments required
1.50 - 2.50
25% of Excess Cash Flow