Discontinued Operations

9 Months Ended

Sep. 30, 2015

Discontinued Operations

Discontinued Operations

B. DISCONTINUED OPERATIONS

The presentation of discontinued operations includes a component or group of components that we have or intend to dispose of, and represents a strategic shift that has (or will have) a major effect on our operations and financial results.  For spin off transactions, discontinued operations treatment is appropriate following the completion of the spin off.

On September 30, 2014, we announced a plan to spin off 100 percent of our Installation and Other Services businesses into an independent, publicly-traded company named TopBuild Corp. (“TopBuild”) through a tax-free distribution of the stock of TopBuild to our stockholders.  We initiated the spin off as TopBuild was no longer considered core to our long-term growth strategy in branded building products.  On June 30, 2015, immediately prior to the effective time of the spin off, TopBuild paid a cash distribution to us of $200 million using the proceeds of its new debt financing arrangement.  This transaction was reported as a financing activity in the condensed consolidated statements of cash flows.

We have accounted for the spin off of TopBuild as a discontinued operation. (Losses) gains from this discontinued operation were included in income (loss) from discontinued operations, net, in the condensed consolidated statements of operations.

The major classes of line items constituting pre-tax (loss) profit of discontinued operations, in millions:

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2015			2014			2015			2014
Net sales	$	—		$	398		$	762		$	1,117
Cost of sales	—			309			603			877
Gross profit	—			89			159			240
Selling, general and administrative expenses	—			68			148			201
Income from discontinued operations	$	—		$	21		$	11		$	39
(Loss) gain on disposal of discontinued operations, net (1)	(1		)	1			(1		)	(2		)
(Loss) income before income tax	(1		)	22			10			37
Income tax benefit (expense) (2)	1			(12		)	(11		)	(16		)
Income (loss) from discontinued operations, net	$	—		$	10		$	(1	)	$	21

(1) Included in (loss) gain on disposal of discontinued operations, net in 2014 are additional costs and charges related to the 2013 sale of Tvilum.

(2) The unusual relationship between income tax expense and income before income tax for the nine months ended September 30, 2015 resulted primarily from certain non-deductible transaction costs related to the spin off of TopBuild.

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

	December 31,
	2014
Cash	$	4
Receivables	220
Inventories	107
Deferred income taxes	38
Prepaid expenses and other	4
Property and equipment, net	93
Goodwill	1,044
Other intangible assets, net	3
Other assets	1
Total assets classified as held for sale	$	1,514
Accounts payable	$	229
Accrued liabilities	71
Other liabilities	40
Deferred income taxes	167
Total liabilities classified as held for sale	$	507

Other selected financial information for TopBuild during the period owned by us, were as follows, in millions:

	Nine Months Ended
	Sep. 30,		Sep. 30,
	2015		2014
Depreciation and amortization	$	6	$	19
Capital expenditures	$	7	$	9

In conjunction with the spin off, we have entered into a Transition Services Agreement with TopBuild to provide TopBuild administrative services subsequent to the separation.  The fees for services rendered under the Transition Services Agreement are not expected to be material to our results of operations.