NOTE 11—SUBSIDIARY GUARANTORS

HDS (the “Debt Issuer”) has outstanding December 2014 First Priority Notes and April 2016 Senior Unsecured Notes (collectively the “Notes”), which are 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 (the “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 Senior 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 Senior 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, the condensed balance sheets and the condensed statements of cash flows for the Debt Issuer, for the Subsidiary Guarantors and the Non-guarantor Subsidiaries and total consolidated Debt Issuer and subsidiaries (amounts in millions).

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

	Three Months Ended April 30, 2017
	Debt Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries		Elim- inations			Total HDS
Net Sales	$	—		$	1,842		$	32	$	(1	)	$	1,873
Cost of sales	—			1,226			17		(1		)	1,242

Gross Profit	—			616			15		—			631
Operating expenses:
Selling, general and administrative	21			398			12		—			431
Depreciation and amortization	4			20			—		—			24
Restructuring	—			—			—		—			—

Total operating expenses	25			418			12		—			455
Operating Income (Loss)	(25		)	198			3		—			176
Interest expense	56			51			1		(59		)	49
Interest (income)	(51		)	(8		)	—		59			—
Net (earnings) loss of equity affiliates	(155		)	—			—		155			—
Loss on extinguishment of debt	3			—			—		—			3
Other (income) expense, net	2			—			—		—			2

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes	120			155			2		(155		)	122
Provision (benefit) for income taxes	35			2			—		—			37

Income (Loss) from Continuing Operations	85			153			2		(155		)	85
Income (loss) from discontinued operations, net of tax	—			—			—		—			—

Net Income (Loss)	$	85		$	153		$	2	$	(155	)	$	85

Other comprehensive income—foreign currency translation adjustment	1			—			1		(1		)	1

Total Comprehensive Income (Loss)	$	86		$	153		$	3	$	(156	)	$	86

	Three Months Ended May 1, 2016
	Debt Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries		Elim- inations			Total HDS
Net Sales	$	—		$	1,752		$	29	$	—		$	1,781
Cost of sales	—			1,156			16		—			1,172

Gross Profit	—			596			13		—			609
Operating expenses:
Selling, general and administrative	20			370			11		—			401
Depreciation and amortization	3			20			—		—			23
Restructuring	1			6			—		—			7

Total operating expenses	24			396			11		—			431
Operating Income (Loss)	(24		)	200			2		—			178
Interest expense	89			61			—		(65		)	85
Interest (income)	(61		)	(4		)	—		65			—
Net (earnings) loss of equity affiliates	(145		)	—			—		145			—
Loss on extinguishment of debt	115			—			—		—			115

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes	(22		)	143			2		(145		)	(22		)
Provision (benefit) for income taxes	(8		)	—			—		—			(8		)

Income (Loss) from Continuing Operations	(14		)	143			2		(145		)	(14		)
Income (loss) from discontinued operations, net of tax	—			—			—		—			—

Net Income (Loss)	$	(14	)	$	143		$	2	$	(145	)	$	(14	)

Other comprehensive income—foreign currency translation adjustment	4			—			4		(4		)	4

Total Comprehensive Income (Loss)	$	(10	)	$	143		$	6	$	(149	)	$	(10	)

CONDENSED CONSOLIDATING BALANCE SHEETS

	As of April 30, 2017
	Debt Issuer		Subsidiary Guarantors		Non- Guarantor Subsidiaries			Elim- inations			Total HDS
ASSETS
Current assets:
Cash and cash equivalents	$	30	$	18	$	4		$	—		$	52
Receivables, net	2		995		18			—			1,015
Inventories	—		895		18			—			913
Intercompany receivables	—		1		—			(1		)	—
Other current assets	14		24		2			—			40

Total current assets	46		1,933		42			(1		)	2,020

Property and equipment, net	81		225		3			—			309
Goodwill	—		2,869		—			—			2,869
Intangible assets, net	—		108		1			—			109
Deferred tax asset	705		—		2			(128		)	579
Investment in subsidiaries	3,624		—		—			(3,624		)	—
Intercompany notes receivable	1,005		511		—			(1,516		)	—
Other assets	18		4		—			—			22

Total assets	$	5,479	$	5,650	$	48		$	(5,269	)	$	5,908

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	12	$	696	$	13		$	—		$	721
Accrued compensation and benefits	29		53		2			—			84
Current installments of long-term debt	14		—		—			—			14
Intercompany payables	—		—		1			(1		)	—
Other current liabilities	56		93		5			—			154

Total current liabilities	111		842		21			(1		)	973

Long-term debt, excluding current installments	3,658		—		58			—			3,716
Deferred tax liabilities	—		128		—			(128		)	—
Intercompany notes payable	511		1,005		—			(1,516		)	—
Other liabilities	92		18		2			—			112

Total liabilities	4,372		1,993		81			(1,645		)	4,801

Stockholder’s equity (deficit)	1,107		3,657		(33		)	(3,624		)	1,107

Total liabilities and stockholder’s equity (deficit)	$	5,479	$	5,650	$	48		$	(5,269	)	$	5,908

	As of January 29, 2017
	Debt Issuer		Subsidiary Guarantors		Non- Guarantor Subsidiaries			Elim- inations			Total HDS
ASSETS
Current assets:
Cash and cash equivalents	$	51	$	17	$	5		$	—		$	73
Receivables, net	3		885		16			—			904
Inventories	—		813		18			—			831
Intercompany receivables	—		1		—			(1		)	—
Other current assets	13		22		2			—			37

Total current assets	67		1,738		41			(1		)	1,845

Property and equipment, net	76		225		2			—			303
Goodwill	—		2,869		—			—			2,869
Intangible assets, net	—		111		1			—			112
Deferred tax asset	681		—		2			(127		)	556
Investment in subsidiaries	2,451		—		—			(2,451		)	—
Intercompany notes receivable	2,192		584		—			(2,776		)	—
Other assets	16		4		—			—			20

Total assets	$	5,483	$	5,531	$	46		$	(5,355	)	$	5,705

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	13	$	508	$	11		$	—		$	532
Accrued compensation and benefits	38		100		2			—			140
Current installments of long-term debt	14		—		—			—			14
Intercompany payables	—		—		1			(1		)	—
Other current liabilities	52		99		6			—			157

Total current liabilities	117		707		20			(1		)	843

Long-term debt, excluding current installments	3,737		—		61			—			3,798
Deferred tax liabilities	—		127		—			(127		)	—
Intercompany notes payable	584		2,192		—			(2,776		)	—
Other liabilities	87		17		2			—			106

Total liabilities	4,525		3,043		83			(2,904		)	4,747

Stockholder’s equity (deficit)	958		2,488		(37		)	(2,451		)	958

Total liabilities and stockholder’s equity (deficit)	$	5,483	$	5,531	$	46		$	(5,355	)	$	5,705

CONDENSED CONSOLIDATING CASH FLOW STATEMENTS

	Three Months Ended April 30, 2017
	Debt Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Elim- inations			Total HDS
Net cash flows from operating activities	$	139		$	(56	)	$	—		$	—		$	83

Cash flows from investing activities
Capital expenditures	(6		)	(18		)	—			—			(24		)
Proceeds from sales of property and equipment				2									2
Proceeds from (payments of) intercompany notes	—			73			—			(73		)	—

Net cash flows from investing activities	$	(6	)	$	57		$	—		$	(73	)	$	(22	)

Cash flows from financing activities
Borrowings of (repayments of) intercompany notes	(73		)	—			—			73			—
Repayments of long-term debt	(100		)	—			—			—			(100		)
Borrowings on long-term revolver debt	75			—			—			—			75
Repayments on long-term revolver debt	(54		)	—			(1		)	—			(55		)
Debt issuance costs	(5		)	—			—			—			(5		)
Other financing activities	3			—			—			—			3

Net cash flows from financing activities	(154		)	—			(1		)	73			(82		)

Effect of exchange rates on cash	—			—			—			—			—

Net increase (decrease) in cash & cash equivalents	$	(21	)	$	1		$	(1	)	$	—		$	(21	)
Cash and cash equivalents at beginning of period	51			17			5			—			73

Cash and cash equivalents at end of period	$	30		$	18		$	4		$	—		$	52

	Three Months Ended May 1, 2016
	Debt Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries		Elim- inations			Total HDS
Net cash flows from operating activities	$	169		$	(93	)	$	—	$	—		$	76

Cash flows from investing activities
Capital expenditures	(4		)	(13		)	—		—			(17		)
Proceeds from (payments of) intercompany notes	—			105			—		(105		)	—
Other investing activities	(1		)	1			—		—			—

Net cash flows from investing activities	$	(5	)	$	93		$	—	$	(105	)	$	(17	)

Cash flows from financing activities
Borrowings of (repayments of) intercompany notes	(105		)	—			—		105			—
Borrowings of long-term debt	1,000			—			—		—			1,000
Repayments of long-term debt	(1,108		)	—			—		—			(1,108		)
Debt issuance costs	(14		)	—			—		—			(14		)
Other financing activities	(1		)	(1		)	—		—			(2		)

Net cash flows from financing activities	(228		)	(1		)	—		105			(124		)

Effect of exchange rates on cash	—			—			2		—			2

Net increase (decrease) in cash & cash equivalents	$	(64	)	$	(1	)	$	2	$	—		$	(63	)
Cash and cash equivalents at beginning of period	233			18			15		—			266

Cash and cash equivalents at end of period	$	169		$	17		$	17	$	—		$	203