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Discontinued Operations | 9 Months Ended
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Sep. 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, for proceeds of approximately $8 million, of which $2 million net of cash disposed was received upon sale. The remaining $6 million was accounted for as a note receivable that is expected to be collected within two years of the divestiture. In connection with the sale, we recognized a loss of $70 million for both the three-month and nine-month periods ended September 30, 2019, which is included in (loss) income from discontinued operations, net in the condensed consolidated statements of operations. 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. C. DISCONTINUED OPERATIONS (Continued) 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 (loss) 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 $15 million in cash as of September 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 $2 million is accounted for as a short-term receivable; payable in two monthly installments before December 31, 2020. All post-closing adjustments related to our divestiture of Milgard were finalized with the buyer in the second quarter of 2020. 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 nine months ended September 30, 2020, which is included in (loss) 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 nine months ended September 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 (loss) from discontinued operations before income tax was income of $6 million and $7 million for the three and nine months ended September 30, 2019, respectively. The results of the cabinetry business recorded in income (loss) from discontinued operations before income tax was income of $28 million for the three months ended September 30, 2019 and a loss of $8 million and income of $86 million for the nine months ended September 30, 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 September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net sales | $ | — |  |  | $ | 403 |  |  | $ | 101 |  |  | $ | 1,234 |
Cost of sales | — |  |  | 314 |  |  | 78 |  |  | 959 |
Gross profit | — |  |  | 89 |  |  | 23 |  |  | 275 |
Selling, general and administrative expenses | — |  |  | 56 |  |  | 31 |  |  | 176 |
Impairment charge for goodwill (A) | — |  |  | — |  |  | — |  |  | 7 |
Other income (expense), net | — |  |  | 1 |  |  | — |  |  | 1 |
Income (loss) from discontinued operations | — |  |  | 34 |  |  | (8) |  |  | 93 |
(Loss) gain on disposal of discontinued operations | — |  |  | (70) |  |  | 602 |  |  | (70) |
(Loss) income before income tax | — |  |  | (36) |  |  | 594 |  |  | 23 |
Income tax expense (B) | — |  |  | (1) |  |  | (183) |  |  | (22) |
(Loss) income from discontinued operations, net | $ | — |  |  | $ | (37) |  |  | $ | 411 |  |  | $ | 1 |
(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. (B) The unusual relationship between income tax expense and (loss) income before income tax for 2019 resulted primarily from a loss on the sale of UKWG providing no foreign tax benefit. 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 |
C. DISCONTINUED OPERATIONS (Concluded) Other selected financial information for Cabinetry, Milgard and UKWG during the period owned by us, were as follows, in millions:
|  | Nine Months Ended September 30,
|  | 2020 |  | 2019
Depreciation and amortization |  | $ | — |  |  | $ | 27 |
Capital expenditures |  | 1 |  |  | 27 |
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. As of September 30, 2020, our Transition Service Agreement with Milgard concluded. The fees for services rendered under each of the Transition Service Agreements were not material and are not expected to be material to our results of operations for Milgard and Cabinetry, respectively. As a part of the Cabinetry Transition Services Agreement, we guaranteed Cabinetry's obligations to a third-party while Cabinetry continued to participate in our voluntary supply chain finance program to the extent Cabinetry under its new ownership became delinquent on its payments. As of September 30, 2020, the amount Cabinetry and its new owners owed under the program was less than the $10 million letter of credit provided to the third-party by the new owners in conjunction with the Transition Services Agreement. Cabinetry exited our program in June 2020 and as of the date of filing, all outstanding invoices have been paid. As such, there is no remaining exposure and no losses were recognized under the 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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