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 two reportable segments, each of which is presented below:

Facilities Maintenance—Facilities Maintenance distributes maintenance, repair and operations 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 incurs 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. All Corporate overhead costs are allocated to the reportable segments. Interest expense, interest income, other non-operating income and expenses, and provision for income taxes are not allocated to the Company’s reportable segments. Eliminations include the adjustments necessary to eliminate intercompany 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		Construction & Industrial		Eliminations			Total Continuing Operations
Three Months Ended April 29, 2018
Net sales	$	723	$	666	$	—		$	1,389
Adjusted EBITDA	123		67		—			190
Depreciation(1) & Software Amortization	9		10		—			19
Other Intangible Amortization	2		3		—			5
Three Months Ended April 30, 2017
Net sales	$	682	$	536	$	(2	)	$	1,216
Adjusted EBITDA	108		49		—			157
Depreciation(1) & Software Amortization	9		10		—			19
Other Intangible Amortization	2		1		—			3

(1)

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

Reconciliation to Consolidated Financial Statements

	Three Months Ended
	April 29, 2018			April 30, 2017
Total Adjusted EBITDA	$	190		$	157
Depreciation and amortization(1)	24			22
Stock-based compensation	6			6
Restructuring	7			—
Acquisition and integration costs (2)	2			—

Operating income	151			129
Interest expense	34			49
Interest (income)	(1		)	—
Loss on extinguishment of debt(3)	—			3

Income from Continuing Operations Before Provision for Income Taxes	118			77
Provision for income taxes	29			19

Income from continuing operations	89			58
Income from discontinued operations, net of tax	—			27

Net income	$	89		$	85

(1)

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

(2)

Represents the cost incurred in the acquisition and integration of A.H. Harris Construction Supplies.

(3)

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.

On March 5, 2018, the Company completed the acquisition of A.H. Harris for a total purchase price of approximately $362 million, net of cash acquired. A.H. Harris is included in the Construction & Industrial reportable segment. The acquisition reduced total assets of the Corporate reportable segment by the purchase price and increased total assets of the Construction & Industrial reportable segment by approximately $412 million