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. Eliminations include the adjustments necessary to eliminate intercompany transactions.

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


							Total
	Facilities		Construction				Continuing
	Maintenance		& Industrial		Eliminations		Operations
Three Months Ended July 29, 2018
Net sales	$	820	$	781	$	(1)	$	1,600
Adjusted EBITDA		150		96		—		246
Depreciation(1) & Software Amortization		9		12		—		21
Other Intangible Amortization		2		4		—		6
Three Months Ended July 30, 2017
Net sales	$	769	$	584	$	(1)	$	1,352
Adjusted EBITDA		145		63		—		208
Depreciation(1) & Software Amortization		8		11		—		19
Other Intangible Amortization		3		—		—		3

Six Months Ended July 29, 2018
Net sales	$	1,543	$	1,447	$	(1)	$	2,989
Adjusted EBITDA		273		163		—		436
Depreciation(1) & Software Amortization		18		22		—		40
Other Intangible Amortization		4		7		—		11
Six Months Ended July 30, 2017
Net sales	$	1,451	$	1,120	$	(3)	$	2,568
Adjusted EBITDA		253		112		—		365
Depreciation(1) & Software Amortization		17		21		—		38
Other Intangible Amortization		5		1		—		6

(1)

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

Reconciliation to Consolidated Financial Statements


	Three Months Ended				Six Months Ended
	July 29, 2018		July 30, 2017		July 29, 2018		July 30, 2017
Total Adjusted EBITDA	$	246	$	208	$	436	$	365
Depreciation and amortization(1)		27		22		51		44
Stock-based compensation		6		6		12		12
Restructuring		2		—		9		—
Acquisition and integration costs(2)		1		—		3		—
Other		(1)		—		(1)		—
Operating income		211		180		362		309
Interest expense		35		49		69		98
Interest (income)		—		—		(1)		—
Loss on extinguishment of debt(3)		—		—		—		3
Income from Continuing Operations Before Provision for Income Taxes		176		131		294		208
Provision for income taxes		46		50		75		69
Income from continuing operations		130		81		219		139
Income from discontinued operations, net of tax		1		361		1		388
Net income	$	131	$	442	$	220	$	527

(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 purchase price of approximately $362 million, net of cash acquired. 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 $414 million.