SEGMENT INFORMATION

9 Months Ended

Nov. 01, 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 its 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 November 1, 2015
Net Sales	$	716	$	705	$	451	$	140		$	2,012
Adjusted EBITDA	149		70		48		(2		)	265
Depreciation(1) & Software Amortization	11		3		5		6			25
Other Intangible Amortization	1		1		1		1			4
Three Months Ended November 2, 2014
Net Sales	$	660	$	695	$	411	$	148		$	1,914
Adjusted EBITDA	139		64		35		(8		)	230
Depreciation(1) & Software Amortization	12		2		5		8			27
Other Intangible Amortization	16		1		4		—			21
Nine Months Ended November 1, 2015
Net Sales	$	2,084	$	1,977	$	1,270	$	409		$	5,740
Adjusted EBITDA	427		181		123		(20		)	711
Depreciation(1) & Software Amortization	34		8		18		17			77
Other Intangible Amortization	4		2		1		4			11
Nine Months Ended November 2, 2014
Net Sales	$	1,950	$	1,911	$	1,144	$	422		$	5,427
Adjusted EBITDA	387		162		90		(19		)	620
Depreciation(1) & Software Amortization	37		7		16		20			80
Other Intangible Amortization	56		3		14		3			76

(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						Nine Months Ended
	November 1, 2015			November 2, 2014			November 1, 2015			November 2, 2014
Total Adjusted EBITDA	$	265		$	230		$	711		$	620
Depreciation and amortization (1)	29			48			88			156
Stock-based compensation	4			3			14			12
Restructuring	4			—			4			6
Other	(1		)	—			(1		)	(1		)
Operating income	229			179			606			447
Interest expense, net	99			115			311			347
Loss on extinguishment & modification of debt (2)	100			—			100			2
Other (income) expense, net (3)	—			(4		)	1			(3		)
Income from Continuing Operations Before Provision for Income Taxes	30			68			194			101
Provision (benefit) for income taxes (4)	15			28			(155		)	41
Income from continuing operations	15			40			349			60
Income from discontinued operations, net of tax	235			20			252			36
Net Income	$	250		$	60		$	601		$	96

(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 secondary offerings of Holdings’ common stock by certain of Holdings’ stockholders.

(4) During the nine months ended November 1, 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.