FORTUNE BRANDS INNOVATIONS, INC. FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto, which are included in this report, as well as our audited consolidated financial statements for the year endedDecember 31, 2019 , which are included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . This discussion contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), regarding the expected or potential impact of the novel coronavirus pandemic ("COVID-19") on our business, operations or financial condition in addition to statements regarding our general business strategies, market potential, future financial performance, the potential of our brands and other matters, expected capital spending, expected pension contributions, the anticipated impact of recently issued accounting standards on our financial statements, planned business strategies, anticipated market potential, future financial performance, impact of acquisitions and other matters. Statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans" and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on current expectations, estimates, assumptions and projections about our industry, business and future financial results, available at the time this report is filed with theSecurities and Exchange Commission . Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including but not limited to: (i) the uncertainties relating to the impact of COVID-19 on the Company's business, operations and financial results, (ii) our reliance on the North American home improvement, repair and new home construction activity levels, and the North American and global economies generally, (iii) the competitive nature of consumer and trade brand businesses, (iv) risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility, (v) our ability to develop new products or processes and improve existing products and processes, (vi) risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, (vii) risks associated with doing business internationally, including changes in trade-related tariffs and risks with uncertain trade environments, (viii) changes in government and industry standards, (ix) risks associated with entering into potential strategic acquisitions and integrating acquired property, (x) our ability to secure and protect our intellectual property rights, (xi) our reliance on key customers and suppliers, including wholesale distributors and dealers, (xii) risks associated with the disruption of operations, (xiii) our inability to obtain raw materials and finished goods in a timely and cost-effective manner, (xiv) our ability to attract and retain qualified personnel and other labor constraints, (xv) impairments in the carrying value of goodwill or other acquired intangible assets, (xvi) delays or outages in our information technology system or computer networks, (xvii) risk of increases in our defined benefit-related costs and funding requirements, (xviii) future tax law changes or the interpretation of existing tax laws, (xix) potential liabilities and costs from claims and litigation, and (xx) our ability to access the capital markets on terms acceptable to us. These and other factors are discussed in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as updated in Part II, Item 1A "Risk Factors" below. We undertake no obligation to, and expressly disclaim any such obligation to, update or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise, except as required by law.
OVERVIEW
References to "Fortune Brands," "the Company," "we," "our" and "us" refer toFortune Brands Home & Security, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires. The Company is a leading home and security products company with a portfolio of leading branded products used for residential home repair, remodeling, new construction and security applications. During the first nine months of 2020, in response to the COVID-19 pandemic, a number of countries andU.S. states issued orders requiring nonessential businesses to close ("closure orders") and persons who were not engaged in essential businesses to stay at home. Most states and jurisdictions designated our products, our retail channel partners and residential construction as essential business activities. A small number of jurisdictions where we operate did not deem our products as part of an essential business, impacting both our ability to manufacture and the demand for some of our products. 22
-------------------------------------------------------------------------------- While our financial results were negatively impacted during the second quarter by these closure orders, sales volumes increased as these restrictions were relaxed benefiting our third quarter results. Due to the continued inherent uncertainty surrounding COVID-19, including rapidly changing governmental directives, public health challenges and market reactions, it is challenging to estimate the future performance of our business and the financial impacts of COVID-19. The long-term impacts of the COVID-19 pandemic continue to be unclear, and they may negatively affect our results in later periods, largely depending on the timing and shape of the economic recovery as well as any further closures related to COVID-19. Our first priority with regard to COVID-19 continues to be to ensure the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities. Because of our comprehensive use of appropriate risk mitigation and safety practices, we have largely been able to continue our business operations in this unprecedented business environment which could differentiate us from some of our competition. We believe that the disruption caused by the pandemic created increased consumer interest in investing in their homes and accelerated trends that we were experiencing prior to the pandemic, such as the shift towards value-priced cabinetry products and a focus on outdoor living. We have also taken proactive steps in our manufacturing supply chain and other areas to drive efficiencies which we expect to allow us to be more competitive both during and after the pandemic. We continue to believe that the Company has certain competitive advantages including market-leading brands, a diversified mix of channels, lean and flexible supply chains, a decentralized business model and a strong capital structure. We believe these long-held strengths will enable us to compete effectively during and after the COVID-19 pandemic. We will continue to focus on outperforming our markets in growth, profitability and returns in order to drive increased shareholder value. We believe the Company's track record reflects the long-term attractiveness and potential of the categories we serve and our leading brands.
We believe long-term our most attractive opportunities are to invest in profitable organic growth initiatives. We also believe that we have the potential to generate additional growth from leveraging our cash flow and balance sheet strength by pursuing accretive strategic acquisitions, non-controlling equity investments and joint ventures, and by returning cash to shareholders through a combination of dividends and share repurchases as explained in further detail under "Liquidity and Capital Resources" below.
The U.S. market for our products primarily consists of spending on both new home
construction and repair and remodel activities within existing homes, with a
majority of the markets we serve consisting of repair and remodel
spending. Growth in the U.S. market for our products will largely depend on
consumer confidence, employment, home prices, stable mortgage rates and credit
availability, all of which may be further impacted by COVID-19 for an unknown
duration.
In addition to the potential COVID-19 impacts noted above, we may be impacted by
fluctuations in the cost and availability of raw materials, tariffs,
transportation costs, changes in foreign exchange and promotional activity among
our competitors. We strive to offset the potential unfavorable impact of these
items with productivity improvement initiatives and price increases.
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RESULTS OF OPERATIONS
Nine Months EndedSeptember 30, 2020 Compared To Nine Months EndedSeptember 30, 2019 Net Sales % Change vs. Prior (In millions) 2020 2019 Year Plumbing$ 1,564.4 $ 1,478.8 5.8 % Doors & Security 1,052.7 1,017.6 3.4 Cabinets 1,813.5 1,797.7 0.9 Net sales$ 4,430.6 $ 4,294.1 3.2 % Operating Income (Loss) % Change vs. Prior 2020 2019 Year Plumbing$ 330.6 $ 307.9 7.4 % Doors & Security 143.5 122.5 17.1 Cabinets 163.1 134.0 21.7 Less: Corporate expenses (69.0 ) (58.4 ) (18.2 ) Operating income$ 568.2 $ 506.0 12.3 % The following discussion of consolidated results of operations and segment results refers to the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . Consolidated results of operations should be read in conjunction with segment results of operations.
Net sales
Net sales increased by
Cost of products sold
Cost of products sold increased by$100.4 million , or 3.6%, due to higher net sales, the impact of higher tariffs and unfavorable mix partially offset by the benefit from productivity improvements.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by
Amortization of intangible assets
Amortization of intangible assets increased by
Asset impairment charges
Asset impairment charges of$22.5 million in 2020 related to indefinite-lived tradenames in our Plumbing and Cabinets segments. Asset impairment charges of$29.5 million in 2019 related to an indefinite-lived tradename within our Cabinets segment.
Restructuring charges
Restructuring charges of$16.5 million in the nine months endedSeptember 30, 2020 primarily related to headcount actions associated with COVID-19 across all of our segments and costs associated with changes in our manufacturing processes within our Plumbing segment. Restructuring charges of$11.2 million in the nine months endedSeptember 30, 2019 primarily related to severance costs within our Plumbing and Cabinets segments and costs associated with closing facilities within our Plumbing and Doors & Security segments. 24
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RESULTS OF OPERATIONS (Continued)
Operating income
Operating income increased by$62.2 million , or 12.3%, primarily due to price increases to help mitigate the impact of higher tariffs, higher net sales, benefits from productivity improvements and previously approved restructuring actions as well as lower asset impairment charges. These factors were partially offset by the impact of unfavorable mix, higher tariffs and higher transportation costs.
Interest expense
Interest expense decreased
Other income, net
Other income, net, was$13.4 million in the nine months endedSeptember 30, 2020 , compared to$2.2 million in the nine months endedSeptember 30, 2019 . The increase in other income, net is primarily due to gains of$11.0 million related to ourJanuary 2020 investment in Flo and due to higher defined benefit income in 2020 ($3.1 million increase), partially offset by unfavorable foreign currency adjustments. In future periods the Company may record, within other income and expense, material adjustments associated with actuarial gains and losses arising from periodic remeasurement of our liabilities for defined benefit plans. At a minimum, the Company will remeasure its defined benefit plan liabilities in the fourth quarter of each year. Remeasurements due to plan amendments and settlements may also occur in interim periods during the year. Remeasurement of these liabilities attributable to updating our liability discount rates and expected return on assets may, in particular, result in material income or expense recognition. Based on current relevant interest rate benchmarks and year-to-date pension asset returns, the Company may incur additional defined benefit plan actuarial losses of approximately$0.16 per share in the fourth quarter of 2020 due to declining discount rates sinceDecember 31, 2019 , the last remeasurement date. Any actuarial loss incurred in the fourth quarter will be based upon spot discount rates as ofDecember 31, 2020 and our full year 2020 pension asset returns and may differ materially from this estimate. A 50 basis point change in our discount rate impacts our defined benefit plan liabilities by approximately$65 million . Income taxes The effective income tax rates for the nine months endedSeptember 30, 2020 and 2019 were 23.5% and 25.0%, respectively. The effective income tax rate in 2020 was favorably impacted by a benefit related to share-based compensation, and in 2019, was favorably impacted by a benefit related to decreases in uncertain tax positions, as a result of audit settlements with taxing authorities.
Net income attributable to Fortune Brands
Net income attributable to Fortune Brands was$389.5 million in the nine months endedSeptember 30, 2020 compared to$327.8 million in the nine months endedSeptember 30, 2019 . The increase was due to higher operating income, higher other income and lower interest expense, partly offset by higher income tax expenses and higher equity in losses of affiliate.
Results By Segment
Plumbing
Net sales increased by$85.6 million , or 5.8%, due to higher sales volume from retail and e-commerce customers in theU.S. who remained open during the economic shutdowns, higher sales volume inChina despite closures for COVID-19 and price increases to help mitigate the cumulative impact of tariffs. These factors were partly offset by lower sales from showroom customers whose locations closed or operated at limited capacity as a result of the COVID-19 pandemic and higher rebate costs as well as unfavorable foreign exchange of approximately$8 million . Operating income increased by$22.7 million , or 7.4%, due to higher sales volume, the benefit from productivity improvements and lower restructuring and other charges. These benefits were partly offset by unfavorable mix, asset impairment charges ($13.0 million in 2020), the impact of higher tariffs and higher advertising and marketing costs as well as unfavorable foreign exchange of approximately$3 million . 25
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RESULTS OF OPERATIONS (Continued)
Doors & Security
Net sales increased by$35.1 million , or 3.4%, due to higher volume for doors and decking products, price increases to help mitigate tariffs and the benefit from new customers in decking products. These factors were partially offset by lower volume primarily due to COVID-19 related weakness in the commercial security market, the discontinuance of a doors product line, higher rebate costs and unfavorable mix. Foreign exchange was unfavorable by approximately$1 million . Operating income increased by$21.0 million , or 17.1%, due to higher sales volume, the benefit from productivity improvements, the absence in 2020 of amortization expense related to Fiberon's inventory fair value adjustment ($1.8 million in 2019) and the absence in 2020 of an expense due to a fair value adjustment associated with an idle manufacturing facility ($1.7 million in 2019). Foreign exchange was favorable by approximately$3 million . These factors were partially offset by unfavorable mix, the impact of higher tariffs and higher restructuring costs.
Cabinets
Net sales increased by$15.8 million , or 0.9%, due to higher volume and price increases to help mitigate the cumulative impact of tariffs. These factors were partly offset by a continued shift to value-priced products from make-to-order products, as well as unfavorable foreign exchange of approximately$1 million . Operating income increased by$29.1 million , or 21.7%, due to higher net sales, the benefit from productivity improvements and lower asset impairment charges ($20.0 million decrease). These factors were partly offset by a continued shift to value-priced products from make-to-order products and higher tariffs.
Corporate
Corporate expenses increased by
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-------------------------------------------------------------------------------- Three Months EndedSeptember 30, 2020 Compared To Three Months EndedSeptember 30, 2019 Net Sales % Change vs. Prior (In millions) 2020 2019 Year Plumbing$ 590.6 $ 514.1 14.9 % Doors & Security 406.7 355.2 14.5 Cabinets 654.8 589.7 11.0 Net sales$ 1,652.1 $ 1,459.0 13.2 % Operating Income (Loss) % Change vs. Prior 2020 2019 Year Plumbing$ 116.6 $ 112.0 4.1 % Doors & Security 66.8 50.1 33.3 Cabinets 82.1 25.1 227.1 Less: Corporate expenses (25.3 ) (19.2 ) (31.8 ) Operating income$ 240.2 $ 168.0 43.0 %
The following discussion of consolidated results of operations and segment
results refers to the three months ended
Net sales
Net sales increased by
Cost of products sold
Cost of products sold increased by
Selling, general and administrative expenses
Selling, general and administrative expenses increased by
Amortization of intangible assets
Amortization of intangible assets increased by
Asset impairment charges
Asset impairment charges of
Restructuring charges
Restructuring charges of$1.6 million in the three months endedSeptember 30, 2020 primarily related to severance and other costs associated with changes in our manufacturing processes within our Plumbing segment partially offset by a credit related to severance costs and the cancellation of a previously approved restructuring action in our Cabinets segment. Restructuring charges of$5.5 million in the three months endedSeptember 30, 2019 primarily related to severance costs within our Plumbing and Cabinets segments. 27
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RESULTS OF OPERATIONS (Continued)
Operating income
Operating income increased by$72.2 million , or 43.0%, primarily due to higher net sales, the absence of the 2019 asset impairment charge in Cabinets (29.5 million), the benefits from productivity improvements and previously approved organizational restructuring actions as well as lower restructuring charges in 2020 as compared to the prior year. These factors were partially offset by unfavorable mix, higher employee related costs, higher rebate costs, higher advertising costs, higher tariffs and higher transportation costs.
Interest expense
Interest expense decreased
Other income, net
Other income, net, was$2.1 million in the three months endedSeptember 30, 2020 , compared to$0.3 million in the three months endedSeptember 30, 2019 . The increase in other income, net is primarily due to higher defined benefit income in 2020 ($2.1 million increase).
Income taxes
The effective income tax rates for the three months endedSeptember 30, 2020 and 2019 were 24.3% and 27.0%, respectively. The effective income tax rate in 2020 was favorably impacted by a benefit related to share-based compensation.
Net income attributable to Fortune Brands
Net income attributable to Fortune Brands was$164.6 million in the three months endedSeptember 30, 2020 compared to$105.6 million in the three months endedSeptember 30, 2019 . The increase was due to higher operating income, lower interest expense and higher other income, partly offset by higher income tax expenses and higher equity in losses of affiliate.
Results By Segment
Plumbing
Net sales increased by
Operating income increased by$4.6 million , or 4.1%, due to higher sales and productivity improvements. These benefits were partly offset by higher employee related costs, higher restructuring and other charges, higher advertising and marketing costs, unfavorable sales mix, the impact of higher tariffs and higher air freight transportation costs.
Doors & Security
Net sales increased by$51.5 million , or 14.5%, on higher volume in theU.S. , price increases to help mitigate the cumulative impact from tariff related costs and the benefit from new customers in decking products. These factors were partially offset by the discontinuance of a doors product line and higher customer program costs. Foreign exchange was favorable by approximately$1 million .
Operating income increased by
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RESULTS OF OPERATIONS (Continued)
Cabinets
Net sales increased by$65.1 million , or 11.0%, on higher in-stock volume and price increases to help mitigate the cumulative impact of tariffs. These factors were partly offset by a continued shift to value-priced products. Operating income increased by$57.0 million , or 227.1%, due to higher net sales, the absence of the 2019 asset impairment charge ($29.5 million ), lower restructuring costs ($6.2 million decrease), the benefits from productivity initiatives and from leveraging our existing fixed cost base and lower promotion costs. These factors were partly offset by a continued shift to value-priced products. Corporate
Corporate expenses increased by
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash on hand, cash flows from operating activities, cash borrowed under our credit facilities and cash from debt issuances in the capital markets. Our operating income is generated by our subsidiaries. We believe our operating cash flows, including funds available under our credit facilities and access to capital markets, provide sufficient liquidity to support the Company's liquidity and financing needs, which are to support working capital requirements, fund capital expenditures and service indebtedness, as well as to finance acquisitions, repurchase shares of our common stock and pay dividends to stockholders, as the Board of Directors deems appropriate. Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section of our Annual Report on Form 10-K for the year-endedDecember 31, 2019 entitled "Item 1A. Risk Factors," updated in "Item 1A - Risk Factors" below. In addition, we cannot predict whether or when we may enter into acquisitions, joint ventures or dispositions, pay dividends, or what impact any such transactions could have on our results of operations, cash flows or financial condition, whether as a result of the issuance of debt or equity securities, or otherwise. Long-Term Debt AtSeptember 30, 2020 , the Company had aggregate outstanding notes in the amount of$1.8 billion , with varying maturities (the "Notes"). The Notes are unsecured senior obligations of the Company. The following table provides a summary of the Company's outstanding Notes, including the net carrying value of the Notes, net of underwriting commissions, price discounts and debt issuance costs as ofSeptember 30, 2020 andDecember 31, 2019 : Net Carrying Value Principal Issuance Date Maturity Date September December 31, (in millions) Amount 30, 2020 2019 3.000% Senior Notes$ 400.0 June 2015 June 2020 $ -$ 399.7 4.000% Senior Notes 500.0 June 2015 June 2025 496.4 495.8 4.000% Senior Notes (the "2018 Notes") 600.0 September 2018 September 2023 596.8 596.1 3.250% Senior Notes 700.0 September 2019 September 2029 693.3 692.7 Total Senior Notes
$ 1,786.5 $ 2,184.3 DuringJune 2020 , we repaid all amounts outstanding on the 3.000% Senior Notes issued inJune 2015 which were scheduled to mature inJune 2020 using borrowings under our 2019 Revolving Credit Agreement (as defined below). InSeptember 2019 , the Company issued$700 million of unsecured senior notes ("2019 Notes") in a registered public offering. The 2019 Notes are due in 2029 with a coupon rate of 3.25%. The Company used the proceeds from the 2019 Notes offering to repay in full a$350 million term loan and to pay down outstanding balances under our 2019 Revolving Credit Agreement. 29 --------------------------------------------------------------------------------
Credit Facilities
InApril 2020 , the Company entered into a 364-day, supplemental$400 million revolving credit facility (the "2020 Revolving Credit Agreement"), and borrowings thereunder will be used for general corporate purposes. Given the uncertain nature and duration of the COVID-19 pandemic, this was a proactive step taken out of an abundance of caution to provide ample liquidity for the business. The terms and conditions of the 2020 Revolving Credit Agreement are essentially the same as the Company's existing$1.25 billion revolving credit facility except for additional provisions related to cash hoarding and the use of debt issuance proceeds. Interest rates under the 2020 Revolving Credit Agreement are variable based on LIBOR at the time of the borrowing and the Company's long-term credit rating and can range from LIBOR + 1.4% to LIBOR + 1.8%. The 2020 Revolving Credit Agreement includes a covenant under which the Company is required to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0. Consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, depreciation, amortization of intangible assets, losses from asset impairments, and certain other one-time adjustments. In addition, the 2020 Revolving Credit Agreement includes a covenant under which the Company's ratio of consolidated total indebtedness minus certain cash and cash equivalents to consolidated EBITDA generally may not exceed 3.5 to 1.0. As ofSeptember 30, 2020 , there were no outstanding borrowings under this facility and we were in compliance with all covenants under this facility. InSeptember 2019 , the Company entered into a second amended and restated$1.25 billion revolving credit facility (the "2019 Revolving Credit Agreement"), and borrowings thereunder will be used for general corporate purposes. The terms and conditions of the 2019 Revolving Credit Agreement, including the total commitment amount, essentially remained the same as under the previous credit agreement, except that the maturity date was extended toSeptember 2024 . Borrowings amounting to$165.0 million were rolled-over from the prior revolving credit facility into the 2019 Revolving Credit Agreement. Interest rates under the 2019 Revolving Credit Agreement are variable based on LIBOR at the time of the borrowing and the Company's long-term credit rating and can range from LIBOR + 0.91% to LIBOR + 1.4%. This amendment and restatement of the credit agreement was a non-cash transaction for the Company. OnSeptember 30, 2020 our outstanding borrowings under this facility was$300.0 million . OnDecember 31, 2019 our outstanding borrowings under this facility was zero. This facility is included in Long-term debt in the condensed consolidated balance sheets. As ofSeptember 30, 2020 , we were in compliance with all covenants under this facility. InSeptember 2019 , the Company used the proceeds from the 2019 Notes to repay the full outstanding balance on the Term Loan entered into inMarch 2018 and subsequently amended inAugust 2018 andMarch 2019 (the "Term Loan"). Following theMarch 2019 amendment, the Term Loan provided for borrowings of$350 million and matured inMarch 2020 . AtDecember 31, 2019 , amounts due under the Term Loan were zero. Cash and Seasonality OnSeptember 30, 2020 , we had cash and cash equivalents of$464.5 million , of which$374.4 million was held at non-U.S. subsidiaries. We manage our global cash requirements considering (i) available funds among the subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay and record tax expense on those funds that are repatriated. Our operating cash flows are significantly impacted by the seasonality of our business. We typically generate most of our operating cash flow in the third and fourth quarters of each year. We use operating cash in the first quarter of the year Additionally, as noted in the overview section above, the potential future impact of COVID-19 on our net sales, supply chain, manufacturing, and distribution, as well as overall new construction, repair and remodel activity, and consumer spending, are uncertain. We believe that our current cash position, cash flow generated from operations, and amounts available under our revolving credit facilities should be sufficient for our operating requirements and enable us to fund our capital expenditures, dividend payments, and any required long-term debt payments. In addition, we believe that we have the ability to obtain alternative sources of financing if required. We expect capital expenditures during 2020 to be in the range of$120 to$150 million . Given the current uncertainty related to COVID-19, we may adjust our capital expenditures as necessary or appropriate to support the operations of the business.
Share Repurchases and Dividends
In the first quarter of 2020, we repurchased 2.5 million shares of our outstanding common stock under the Company's share repurchase programs for$150.0 million . We did not repurchase any shares during the second or third quarter of 2020. OnSeptember 21, 2020 , the Company's Board of Directors authorized the repurchase of up to$500 million of shares of the Company's common stock over the two years endingSeptember 21, 2022 . The share repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares and may be suspended or discontinued at any time. In the first nine months of 2020, we paid dividends in the amount of$99.9 million to the Company's shareholders. Our Board of Directors will continue to evaluate dividend payment opportunities on a quarterly basis. There can be no assurance as to when and if 30
-------------------------------------------------------------------------------- future dividends will be paid, and at what level, because the payment of dividends is dependent on our financial condition, results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors. There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Fortune Brands.
Acquisitions
We periodically review our portfolio of brands and evaluate potential strategic transactions and other capital initiatives to increase shareholder value.
Cash Flows
Below is a summary of cash flows for the nine months endedSeptember 30, 2020 and 2019. Nine Months Ended (In millions)September 30, 2020 2019
Net cash provided by operating activities
(124.1 ) (78.1 )
Net cash used in financing activities (308.8 ) (201.9 )
Effect of foreign exchange rate changes on cash 1.9 (1.2 )
Net increase in cash and cash equivalents
Net cash provided by operating activities was$506.8 million in the nine months endedSeptember 30, 2020 , compared to net cash provided by operating activities of$353.8 million in the nine months endedSeptember 30, 2019 . The increase in cash provided of$153.0 million was primarily due to lower increases in working capital, higher net income and increases in accrued taxes. Net cash used in investing activities was$124.1 million in the nine months endedSeptember 30, 2020 , compared to net cash used in investing activities of$78.1 million in the nine months endedSeptember 30, 2019 . The increase in cash used of$46.0 million was primarily due to the acquisition of additional shares of Flo Technologies inJanuary 2020 andApril 2020 , partially offset by a decline in capital expenditures. Net cash used in financing activities was$308.8 million in the nine months endedSeptember 30, 2020 , compared to cash used in financing activities of$201.9 million in the nine months endedSeptember 30, 2019 . The increase in cash used of$106.9 million was primarily due to lower net borrowings in 2020 compared to 2019 ($114.3 million ), higher share repurchases in 2020 compared to 2019, partly offset by higher proceeds from the exercise of stock options and the absence of deferred acquisition payments made during 2019 ($19.0 million ).
Pension Plans
Subsidiaries of Fortune Brands sponsor their respective defined benefit pension plans that are funded by a portfolio of investments maintained within our benefit plan trust. As ofDecember 31, 2019 , the fair value of our total pension plan assets was$677.2 million , representing 77% of the accumulated benefit obligation liability. During the nine months endedSeptember 30, 2020 , we made our required minimum pension contributions of$18 million . We may make a potential voluntary contribution in the range of$10 million to$30 million during the remainder of 2020. For the foreseeable future, we believe that we have sufficient liquidity to meet the minimum funding that may be required by the Pension Protection Act of 2006.
Foreign Exchange
We have operations in various foreign countries, principally
RECENTLY ISSUED ACCOUNTING STANDARDS
The adoption of recent accounting standards, as discussed in Note 2, "Recently
Issued Accounting Standards," to our Consolidated Financial Statements, has not
had and is not expected to have a significant impact on our revenue, earnings or
liquidity.
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