SEGMENT INFORMATION

6 Months Ended

Aug. 02, 2015

SEGMENT INFORMATION

SEGMENT INFORMATION

NOTE 11 — SEGMENT INFORMATION

HD Supply’s operating segments are based on management structure and internal reporting. Each segment offers different products and services to the end customer, except for Corporate, which provides general corporate overhead support. The Company determines the reportable segments in accordance with the principles of segment reporting within ASC 280, Segment Reporting. For purposes of evaluation under these segment reporting principles, the Chief Operating Decision Maker for HD Supply assesses HD Supply’s ongoing performance, based on the periodic review and evaluation of Net sales, Adjusted EBITDA, and certain other measures for each of the operating segments.

HD Supply has three reportable segments, each of which is presented below:

· Facilities Maintenance—Facilities Maintenance distributes maintenance, repair and operations (‘‘MRO’’) products, provides value-add services and fabricates custom products to multifamily, hospitality, healthcare and institutional facilities.

· Waterworks—Waterworks distributes complete lines of water and wastewater transmission products, serving contractors and municipalities in the water and wastewater industries for non-residential and residential uses.

· Construction & Industrial - White Cap—Construction & Industrial - White Cap distributes specialized hardware, tools, engineered materials and safety products to non-residential and residential contractors.

In addition to the reportable segments, the Company’s consolidated financial results include ‘‘Corporate & Other.’’ Corporate & Other is comprised of the following operating segments: Interior Solutions, Home Improvement Solutions and HD Supply Canada. Interior Solutions offers turnkey supply and installation services for multiple interior finish options, including flooring, cabinets, countertops, and window coverings, along with comprehensive design center services for non-residential, residential and senior living projects. Home Improvement Solutions offers light remodeling and construction supplies, kitchen and bath cabinets, windows, plumbing materials, electrical equipment and other products, primarily to small remodeling contractors and trade professionals. HD Supply Canada is an industrial distributor that primarily focuses on servicing fasteners/industrial supplies markets operating across six Canadian provinces. Corporate & Other also includes costs related to our centralized support functions, which are comprised of finance, information technology, human resources, legal, supply chain and other support services, and removes inter-segment transactions.

The following tables present Net sales, Adjusted EBITDA, and other measures for each of the reportable segments and total continuing operations for the periods indicated (amounts in millions):

	Facilities Maintenance		Waterworks		Construction & Industrial - White Cap		Corporate & Other			Total Continuing Operations
Three Months Ended August 2, 2015
Net Sales	$	733	$	702	$	431	$	140		$	2,006
Adjusted EBITDA	156		66		43		(7		)	258
Depreciation(1) & Software Amortization	11		3		7		6			27
Other Intangible Amortization	2		—		—		1			3
Three Months Ended August 3, 2014
Net Sales	$	686	$	665	$	389	$	140		$	1,880
Adjusted EBITDA	139		57		33		(5		)	224
Depreciation(1) & Software Amortization	13		3		7		5			28
Other Intangible Amortization	20		1		5		1			27
Six Months Ended August 2, 2015
Net Sales	$	1,368	$	1,272	$	819	$	269		$	3,728
Adjusted EBITDA	278		111		75		(18		)	446
Depreciation(1) & Software Amortization	23		5		13		11			52
Other Intangible Amortization	3		1		—		3			7
Six Months Ended August 3, 2014
Net Sales	$	1,290	$	1,216	$	733	$	274		$	3,513
Adjusted EBITDA	248		98		55		(11		)	390
Depreciation(1) & Software Amortization	25		5		11		12			53
Other Intangible Amortization	40		2		10		3			55

(1) Depreciation includes amounts recorded within Cost of sales in the Consolidated Statements of Operations and Comprehensive Income.

Reconciliation to Consolidated Financial Statements

	Three Months Ended					Six Months Ended
	August 2, 2015		August 3, 2014			August 2, 2015			August 3, 2014
Total Adjusted EBITDA	$	258	$	224		$	446		$	390
Depreciation and amortization (1)	30		55			59			108
Stock-based compensation	5		4			10			9
Restructuring	—		3			—			6
Other	1		(1		)	—			(1		)
Operating income	222		163			377			268
Interest expense, net	106		116			212			232
Loss on extinguishment & modification of debt (2)	—		—			—			2
Other (income) expense, net (3)	1		—			1			1
Income from Continuing Operations Before Provision for Income Taxes	115		47			164			33
Provision (benefit) for income taxes (4)	13		16			(170		)	13
Income from continuing operations	102		31			334			20
Less Income from discontinued operations, net of tax	7		17			17			16
Net Income	$	109	$	48		$	351		$	36

(1) Depreciation and amortization includes amounts recorded within Cost of sales in the Consolidated Statements of Operations.

(2) Represents the loss on extinguishment of debt including the premium paid to repurchase or call the debt as well as the write-off of unamortized deferred financing costs and other assets or liabilities associated with such debt. Also includes the costs of debt modification.

(3) Represents the costs expensed in connection with Holdings’ public offerings.

(4) During the six months ended August 2, 2015, the Company recorded a reduction in unrecognized tax benefits as a result of IRS and state audit settlements. See “Note 6, Income Taxes” and “Note 10, Commitments and Contingencies” for discussion of the IRS audit settlement.