Discontinued Operations

3 Months Ended

Mar. 31, 2020

Discontinued Operations and Disposal Groups [Abstract]

C. DISCONTINUED OPERATIONS

On September 6, 2019, we completed the divestiture of our UK Window Group business ("UKWG"), a manufacturer and distributor of windows and doors. Additionally, on November 6, 2019, we completed the divestiture of our Milgard Windows and Doors business ("Milgard"), a manufacturer and distributor of windows and doors.

In the third quarter of 2019, we determined that the previously reported Windows and Other Specialty Products segment met the criteria to be classified as a discontinued operation as a result of the combined sale of UKWG and Milgard. These businesses represented all of our windows businesses and all remaining businesses in the Windows and Other Specialty Products segment.

On November 14, 2019, we entered into a definitive agreement to sell Masco Cabinetry LLC ("Cabinetry"), a manufacturer of cabinetry products. We completed the divestiture of Cabinetry on February 18, 2020 for proceeds of approximately $989 million, including $853 million, net of cash disposed. The remaining $136 million was accounted for as preferred stock issued by a holding company of the buyer; refer to Note G for additional information. The total consideration for the sale is subject to final working capital adjustments. In connection with the sale, we recognized a gain on the divestiture of $585 million for the three months ended March 31, 2020, which is included in income from discontinued operations, net in the condensed consolidated statement of operations.

In the fourth quarter of 2019, we determined that the previously reported Cabinetry Products segment met the criteria to be classified as a discontinued operation, as Cabinetry represented all of our cabinet businesses and all remaining businesses in the Cabinetry Products segment.

We determined that the assets and liabilities for Cabinetry met the held for sale criteria in accordance with ASC 205-20, Discontinued Operations in 2019. Accordingly, the Cabinetry business' assets and liabilities were classified in the condensed consolidated balance sheet at December 31, 2019 as assets held for sale or liabilities held for sale. We ceased recording depreciation and amortization for the held for sale assets upon meeting the held for sale criteria.

As the combined sale of UKWG and Milgard and the sale of Cabinetry represented a strategic shift that will have a major effect on our operations and financial results, these businesses were presented in discontinued operations separate from continuing operations for the three months ended March 31, 2019, and for Cabinetry only for the three months ended March 31, 2020. In addition, depreciation and amortization, capital expenditures, and significant non-cash operating and investing activities related to discontinued operations were separately disclosed.

The results of the windows businesses recorded in (loss) income from discontinued operations before income tax was a loss of $8 million for the three months ended March 31, 2019. The results of the cabinetry business recorded in (loss) income from discontinued operations before income tax was a loss of $9 million and income of $23 million for the three months ended March 31, 2020 and 2019, respectively.

C. DISCONTINUED OPERATIONS (Continued)

The major classes of line items constituting income from discontinued operations, net, in millions:



	Three Months Ended March 31,
	2020			2019
Net sales	$	101		$	395
Cost of sales	78			318
Gross profit	23			77
Selling, general and administrative expenses	32			56
Impairment charge for goodwill (A)	—			7
Other income (expense), net	—			1
(Loss) income from discontinued operations	(9		)	15
Gain on disposal of discontinued operations	585			—
Income before income tax	576			15
Income tax expense	(179		)	(6		)
Income from discontinued operations, net	$	397		$	9


(A)	In the first quarter of 2019, we recognized a $7 million non-cash goodwill impairment charge related to a decline in the long-term outlook of our windows and doors business in the United Kingdom.

The carrying amount of major classes of assets and liabilities included as part of the Cabinetry discontinued operations, were as follows, in millions:



	December 31, 2019
Receivables	76
Prepaid expenses and other	7
Inventories	90
Property and equipment, net	157
Operating lease right-of-use assets	4
Goodwill	181
Other intangible assets, net	1
Other assets	12
Total assets classified as held for sale	$	528

Accounts payable	$	103
Accrued liabilities	46
Noncurrent operating lease liabilities	3
Other liabilities	10
Total liabilities classified as held for sale	$	162

Other selected financial information for Cabinetry, Milgard and UKWG during the period owned by us, were as follows, in millions:



	Three Months Ended
	March 31, 2020		March 31, 2019
Depreciation and amortization	$	—	$	9
Capital expenditures	1		11
ROU assets obtained in exchange for new lease obligations	—		—

C. DISCONTINUED OPERATIONS (Concluded)

In conjunction with the divestiture of Milgard and Cabinetry, we entered into Transition Services Agreements to provide administrative services to the buyers. The fees for services rendered under each Transition Services Agreement are not expected to be material to our results of operations.

As a part of the Cabinetry Transition Services Agreement, we have guaranteed Cabinetry's obligations to a third-party while Cabinetry continues to participate in our voluntary supply chain finance program to the extent Cabinetry under its new ownership becomes delinquent on its payments. The amount Cabinetry and its new owners owe under the program was $33 million at March 31, 2020. In conjunction with the Transition Services Agreement, the new owners provide a letter of credit to the third-party in the amount of $10 million. As such, the maximum exposure for us associated with this guarantee is the difference between the amount Cabinetry owes at any given point and the letter of credit. Cabinetry will be out of our program no later than June 14, 2020 and our guarantee will end when all remaining payments have been made, which is expected to be in the fourth quarter of 2020. No significant loss has been experienced or is probable under this guarantee.