NOTE 11—SUBSIDIARY GUARANTORS

HDS (the “Debt Issuer”) had outstanding December 2014 First Priority Notes, April 2012 Second Priority Notes, October 2012 Senior Unsecured Notes, and February 2013 Senior Unsecured Notes (collectively the “Notes”) guaranteed by certain of its subsidiaries (the “Subsidiary Guarantors”). The Subsidiary Guarantors are direct or indirect wholly-owned domestic subsidiaries of HDS. The subsidiaries of HDS that do not guarantee the Notes (“Non-guarantor Subsidiaries”) are direct or indirect wholly-owned subsidiaries of HDS and primarily include HDS’s operations in Canada.

The Debt Issuer’s payment obligations under the Notes are jointly and severally guaranteed by the guarantors and all guarantees are full and unconditional.

These guarantees are subject to release under the circumstances as described below:

(i)

concurrently with any direct or indirect sale or disposition (by merger or otherwise) of any Subsidiary Guarantor or any interest therein in accordance with the terms of the applicable indebtedness by HDS or a restricted subsidiary, following which such Subsidiary Guarantor is no longer a restricted subsidiary of HDS;

(ii)

at any time that such Subsidiary Guarantor is released from all of its obligations under all of its guarantees of payment of any indebtedness of HDS or any Subsidiary Guarantor under all other indebtedness and is not a borrower under the ABL Facility;

(iii)

upon the merger or consolidation of any Subsidiary Guarantor with and into HDS or another Subsidiary Guarantor that is the surviving entity in such merger or consolidation, or upon the liquidation of such Subsidiary Guarantor following the transfer of all of its assets to HDS or another Subsidiary Guarantor;

(iv)

concurrently with any Subsidiary Guarantor becoming an unrestricted subsidiary;

(v)

during the period when the rating on the notes is changed to investment grade and certain covenants cease to apply while such investment grade rating is maintained, upon the merger or consolidation of any Subsidiary Guarantor with and into another subsidiary that is not a Subsidiary Guarantor with such other subsidiary being the surviving entity in such merger or consolidation, or upon liquidation of such Subsidiary Guarantor following the transfer of all of its assets to a subsidiary that is not a Subsidiary Guarantor;

(vi)

upon legal or covenant defeasance of HDS’s obligations under the applicable indebtedness, or satisfaction and discharge of the indenture governing the applicable indebtedness; or

(vii)

subject to customary contingent reinstatement provisions, upon payment in full of the aggregate principal amount of all applicable indebtedness then outstanding and all other obligations guaranteed by a Subsidiary Guarantor then due and owing.

In addition, HDS has the right, upon 30 days’ notice to the applicable trustee, to cause any Subsidiary Guarantor that has not guaranteed payment of any indebtedness of HDS or any Subsidiary Guarantor under all other indebtedness and is not a borrower under the ABL Facility to be unconditionally released from all obligations under its Subsidiary Guarantee, and such Subsidiary Guarantee shall thereupon terminate and be discharged and of no further force or effect.

In connection with the issuance of the Notes, HDS determined the need for compliance with Rule 3-10 of SEC Regulation S-X. In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, HDS has included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(f) of SEC Regulation S-X. The following supplemental financial information sets forth, on a consolidating basis under the equity method of accounting, the condensed statements of operations and comprehensive income (loss), the condensed balance sheets, and the condensed statements of cash flows for the parent company issuer of the Notes, HDS, for the Subsidiary Guarantors and for the Non-guarantor Subsidiaries and total consolidated HDS and subsidiaries (amounts in millions).

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

	Three Months Ended May 3, 2015
	Debt Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Total HDS

Net Sales	$	—		$	2,147		$	74	$	—		$	2,221
Cost of sales	—			1,520			52		—			1,572
Gross Profit	—			627			22		—			649
Operating expenses:
Selling, general and administrative	23			410			14		—			447
Depreciation and amortization	4			31			—		—			35
Total operating expenses	27			441			14		—			482
Operating Income (Loss)	(27		)	186			8		—			167
Interest expense	107			61			—		(62		)	106
Interest (income)	(60		)	(2		)	—		62			—
Net (earnings) loss of equity affiliates	(135		)	—			—		135			—
Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes	61			127			8		(135		)	61
Provision (benefit) for income taxes	(181		)	(1		)	1		—			(181		)
Income (Loss) from Continuing Operations	242			128			7		(135		)	242
Net Income (Loss)	$	242		$	128		$	7	$	(135	)	$	242
Other comprehensive income (loss) — foreign currency translation adjustment	5			—			5		(5		)	5
Total Comprehensive Income (Loss)	$	247		$	128		$	12	$	(140	)	$	247

	Three Months Ended May 4, 2014
	Debt Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total HDS

Net Sales	$	—		$	2,006		$	88		$	—		$	2,094
Cost of sales	—			1,425			66			—			1,491
Gross Profit	—			581			22			—			603
Operating expenses:
Selling, general and administrative	17			394			15			—			426
Depreciation and amortization	5			53			—			—			58
Restructuring	—			2			1			—			3
Total operating expenses	22			449			16			—			487
Operating Income (Loss)	(22		)	132			6			—			116
Interest expense	117			60			—			(61		)	116
Interest (income)	(60		)	(1		)	—			61			—
Net (earnings) loss of equity affiliates	(76		)	—			—			76			—
Loss on extinguishment & modification of debt	2			—			—			—			2
Other (income) expense, net	1			—			—			—			1
Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes	(6		)	73			6			(76		)	(3		)
Provision (benefit) for income taxes	5			(4		)	—			—			1
Income (Loss) from Continuing Operations	(11		)	77			6			(76		)	(4		)
Income (loss) from discontinued operations, net of tax	(1		)	3			(10		)	—			(8		)
Net Income (Loss)	$	(12	)	$	80		$	(4	)	$	(76	)	$	(12	)
Other comprehensive income (loss) — foreign currency translation adjustment	1			—			1			(1		)	1
Total Comprehensive Income (Loss)	$	(11	)	$	80		$	(3	)	$	(77	)	$	(11	)

CONDENSED CONSOLIDATING BALANCE SHEETS

	As of May 3, 2015
	Debt Issuer			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total HDS
ASSETS
Current assets:
Cash and cash equivalents	$	89		$	17	$	38	$	—		$	144
Receivables, net	2			1,120		44		—			1,166
Inventories	—			1,137		46		—			1,183
Deferred tax asset	—			66		2		(57		)	11
Other current assets	10			48		2		—			60
Total current assets	101			2,388		132		(57		)	2,564
Property and equipment, net	52			313		4		—			369
Goodwill	—			3,067		4		—			3,071
Intangible assets, net	—			190		2		—			192
Deferred tax asset	1			—		5		(1		)	5
Investment in subsidiaries	3,169			—		—		(3,169		)	—
Intercompany notes receivable	2,192			521		—		(2,713		)	—
Other assets	102			7		—		—			109
Total assets	$	5,617		$	6,486	$	147	$	(5,940	)	$	6,310

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	14		$	842	$	31	$	—		$	887
Accrued compensation and benefits	28			57		2		—			87
Current installments of long-term debt	—			—		—		—			—
Deferred tax liabilities	57			—		—		(57		)	—
Other current liabilities	68			123		9		—			200
Total current liabilities	167			1,022		42		(57		)	1,174

Long-term debt, excluding current installments	5,361			—		—		—			5,361
Deferred tax liabilities	—			174		—		(1		)	173
Intercompany notes payable	521			2,192		—		(2,713		)	—
Other liabilities	76			28		6		—			110
Total liabilities	6,125			3,416		48		(2,771		)	6,818

Stockholder’s equity (deficit)	(508		)	3,070		99		(3,169		)	(508		)
Total liabilities and stockholder’s equity (deficit)	$	5,617		$	6,486	$	147	$	(5,940	)	$	6,310

	As of February 1, 2015
	Debt Issuer			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total HDS
ASSETS
Current assets:
Cash and cash equivalents	$	28		$	25	$	32	$	—		$	85
Receivables, net	1			1,040		47		—			1,088
Inventories	—			1,029		40		—			1,069
Deferred tax asset	—			66		2		(59		)	9
Other current assets	12			33		2		—			47
Total current assets	41			2,193		123		(59		)	2,298
Property and equipment, net	55			314		3		—			372
Goodwill	—			3,067		4		—			3,071
Intangible assets, net	—			198		2		—			200
Deferred tax asset	8			—		4		(8		)	4
Investment in subsidiaries	3,216			—		—		(3,216		)	—
Intercompany notes receivable	2,191			611		—		(2,802		)	—
Other assets	109			6		—		—			115
Total assets	$	5,620		$	6,389	$	136	$	(6,085	)	$	6,060

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	14		$	648	$	26	$	—		$	688
Accrued compensation and benefits	50			106		5		—			161
Current installments of long-term debt	34			—		—		—			34
Deferred tax liabilities	59			—		—		(59		)	—
Other current liabilities	124			118		10		—			252
Total current liabilities	281			872		41		(59		)	1,135

Long-term debt, excluding current installments	5,223			—		—		—			5,223
Deferred tax liabilities	—			174		—		(8		)	166
Intercompany notes payable	611			2,191		—		(2,802		)	—
Other liabilities	265			26		5		—			296
Total liabilities	6,380			3,263		46		(2,869		)	6,820

Stockholder’s equity (deficit)	(760		)	3,126		90		(3,216		)	(760		)
Total liabilities and stockholder’s equity (deficit)	$	5,620		$	6,389	$	136	$	(6,085	)	$	6,060

CONDENSED CONSOLIDATING CASH FLOW STATEMENTS

	Three Months Ended May 3, 2015
	Debt Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total HDS
Net cash flows from operating activities	$	51		$	(79	)	$	5		$	—		$	(23	)
Cash flows from investing activities
Capital expenditures	(3		)	(20		)	(1		)	—			(24		)
Proceeds from sale of property and equipment	—			1			—			—			1
Proceeds from (payments of) intercompany notes	—			90			—			(90		)	—
Net cash flows from investing activities	(3		)	71			(1		)	(90		)	(23		)
Cash flows from financing activities
Borrowings (repayments) of intercompany notes	(90		)	—			—			90			—
Repayments of long-term debt	(16		)	—			—			—			(16		)
Borrowings on long-term revolver	307			—			—			—			307
Repayments of long-term revolver	(188		)	—			—			—			(188		)
Net cash flows from financing activities	13			—			—			90			103
Effect of exchange rates on cash	—			—			2			—			2
Net increase (decrease) in cash & cash equivalents	$	61		$	(8	)	$	6		$	—		$	59
Cash and cash equivalents at beginning of period	28			25			32			—			85
Cash and cash equivalents at end of period	$	89		$	17		$	38		$	—		$	144

	Three Months Ended May 4, 2014
	Debt Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Total HDS
Net cash flows from operating activities	$	(74	)	$	(57	)	$	12	$	—		$	(119	)
Cash flows from investing activities
Capital expenditures	(5		)	(23		)	—		—			(28		)
Proceeds from (payments of) intercompany notes	—			80			—		(80		)	—
Net cash flows from investing activities	(5		)	57			—		(80		)	(28		)
Cash flows from financing activities
Borrowings (repayments) of intercompany notes	(80		)	—			—		80			—
Borrowings of long-term debt	20			—			—		—			20
Repayments of long-term debt	(22		)	—			—		—			(22		)
Borrowings on long-term revolver	275			—			—		—			275
Repayments of long-term revolver	(85		)	—			—		—			(85		)
Debt issuance and modification fees	(3		)	—			—		—			(3		)
Other financing activities	(1		)	—			—		—			(1		)
Net cash flows from financing activities	104			—			—		80			184
Effect of exchange rates on cash	—			—			1		—			1
Net increase (decrease) in cash & cash equivalents	$	25		$	—		$	13	$	—		$	38
Cash and cash equivalents at beginning of period	53			17			41		—			111
Cash and cash equivalents at end of period	$	78		$	17		$	54	$	—		$	149