SEGMENT INFORMATION

9 Months Ended

Oct. 29, 2017

SEGMENT INFORMATION

SEGMENT INFORMATION

NOTE 10 — 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 two 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.

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

In addition to the reportable segments, the Company’s consolidated financial results include ‘‘Corporate.’’ Corporate includes costs related to the Company’s centralized support functions, which are comprised of finance, information technology, human resources, legal, supply chain and other support services, and removes inter-segment transactions.

See “Note 2 — Discontinued Operations” for further information on the sale of the Waterworks business, a previous HD Supply reportable segment.

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		Construction & Industrial		Corporate			Total Continuing Operations
Three Months Ended October 29, 2017
Net sales	$	754	$	617	$	(1	)	$	1,370
Adjusted EBITDA	153		76		(15		)	214
Depreciation(1) & Software Amortization	7		9		3			19
Other Intangible Amortization	1		1		1			3
Three Months Ended October 30, 2016
Net sales	$	724	$	552	$	(1	)	$	1,275
Adjusted EBITDA	140		67		(19		)	188
Depreciation(1) & Software Amortization	8		7		4			19
Other Intangible Amortization	1		1		1			3
Nine Months Ended October 29, 2017
Net sales	$	2,205	$	1,737	$	(4	)	$	3,938
Adjusted EBITDA	426		200		(47		)	579
Depreciation(1) & Software Amortization	19		27		11			57
Other Intangible Amortization	4		1		4			9
Nine Months Ended October 30, 2016
Net sales	$	2,142	$	1,597	$	(5	)	$	3,734
Adjusted EBITDA	425		184		(51		)	558
Depreciation(1) & Software Amortization	23		24		10			57
Other Intangible Amortization	4		1		4			9

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

Reconciliation to Consolidated Financial Statements

	Three Months Ended					Nine Months Ended
	October 29, 2017			October 30, 2016		October 29, 2017			October 30, 2016
Total Adjusted EBITDA	$	214		$	188	$	579		$	558
Depreciation and amortization(1)	22			22		66			66
Stock-based compensation	7			4		19			15
Restructuring	3			3		3			14
Operating Income	182			159		491			463
Interest expense	36			65		134			219
Interest income	(1		)	—		(1		)	—
Loss on extinguishment & modification of debt(2)	78			59		81			174
Income from Continuing Operations Before Provision for Income Taxes	69			35		277			70
Provision for income taxes	23			15		92			30
Income from Continuing Operations	46			20		185			40
Income from discontinued operations, net of tax	406			40		794			104
Net Income	$	452		$	60	$	979		$	144

(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 write-off of unamortized deferred financing costs, original issue discount, and other assets or liabilities associated with such debt. Also includes the costs of debt modifications.