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Discontinued Operations | 6 Months Ended
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Jun. 30, 2020
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operations | 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. During the second quarter of 2020, a $17 million pre-tax post-closing adjustment related to the finalization of working capital items was recorded to income from discontinued operations, net in the condensed consolidated statement of operations, as a gain on the divestiture of Milgard. Of the $17 million, we received $12 million in cash as of June 30, 2020, which is presented in investing activities on the condensed consolidated statement of cash flow as proceeds from disposition of businesses, net of cash disposed. The remaining $5 million is accounted for as a short-term receivable; payable in five monthly installments throughout the remainder of 2020. All post-closing adjustments related to our divestiture of Milgard were finalized with the buyer in the second quarter of 2020. C. DISCONTINUED OPERATIONS (Continued) 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 working capital adjustment was finalized with the buyer in the second quarter of 2020, resulting in no significant changes to net proceeds. In connection with the sale, we recognized a gain on the divestiture of $585 million for the six months ended June 30, 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 and six months ended June 30, 2020 and 2019, as applicable. 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 income from discontinued operations before income tax was income of $9 million and $1 million for the three and six months ended June 30, 2019, respectively. The results of the cabinetry business recorded in income (loss) from discontinued operations before income tax was income of $1 million and $35 million for the three months ended June 30, 2020 and 2019, respectively, and a loss of $8 million and income of $58 million for the six months ended June 30, 2020 and 2019, respectively. The major classes of line items constituting income from discontinued operations, net, in millions:
| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
Net sales | $ | — |  |  | $ | 436 |  |  | $ | 101 |  |  | $ | 831 |
Cost of sales | — |  |  | 327 |  |  | 78 |  |  | 645 |
Gross profit | — |  |  | 109 |  |  | 23 |  |  | 186 |
Selling, general and administrative expenses (A) | (1) |  |  | 64 |  |  | 31 |  |  | 120 |
Impairment charge for goodwill (B) | — |  |  | — |  |  | — |  |  | 7 |
Other income (expense), net | — |  |  | (1) |  |  | — |  |  | — |
Income (loss) from discontinued operations | 1 |  |  | 44 |  |  | (8) |  |  | 59 |
Gain on disposal of discontinued operations | 17 |  |  | — |  |  | 602 |  |  | — |
Income before income tax | 18 |  |  | 44 |  |  | 594 |  |  | 59 |
Income tax expense | (4) |  |  | (15) |  |  | (183) |  |  | (21) |
Income from discontinued operations, net | $ | 14 |  |  | $ | 29 |  |  | $ | 411 |  |  | $ | 38 |
(A) In the second quarter of 2020, certain remaining liabilities were adjusted to reflect current activity related to sold businesses. (B) 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. C. DISCONTINUED OPERATIONS (Concluded) 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:
|  | Six Months Ended June 30, |  |
|  | 2020 |  | 2019
Depreciation and amortization |  | $ | — |  |  | $ | 18 |
Capital expenditures |  | 1 |  |  | 19 |
ROU assets obtained in exchange for new lease obligations |  | — |  |  | 3 |
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 $20 million at June 30, 2020. In conjunction with the Transition Services Agreement, the new owners provided 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 exited our program in June 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.

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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