COMMITMENTS AND CONTINGENCIES

9 Months Ended

Oct. 30, 2011

COMMITMENTS AND CONTINGENCIES

NOTE 13 – COMMITMENTS AND CONTINGENCIES

HD Supply is involved in litigation from time to time in the ordinary course of business. In Management’s opinion, none of the proceedings are material in relation to the consolidated operations, cash flows, or financial position of HD Supply and the Company has adequate reserves to cover its estimated probable loss exposure.

As of October 30, 2011, the Company maintains a $21 million demand deposit account with a financial institution that collateralizes a $20 million letter of credit issued to guarantee the financial performance of the Company for the benefit of one of the Company’s business partners. The demand deposit account is reflected within Other assets in the accompanying Consolidated Balance Sheet.

The Company is currently under examination by the Internal Revenue Service (“IRS”) related to its fiscal 2007 and fiscal 2008 tax returns (the “Audit Years”) and corresponding net operating loss carryback refund claims (“Carryback”) for which the Company received cash refunds of taxes previously paid. For the Audit Years, the IRS has issued Notices of Proposed Adjustments (“NOPAs” or “Proposed Assessment”) to the Company pursuant to which the IRS proposes to disallow certain deductions claimed by the Company and also disallow the carryback of net operating losses resulting from the disallowed deductions. The Company believes that the deductions it reported on the tax returns filed for the Audit Years and corresponding Carryback are accurate and appropriate. Therefore, the Company has formally contested the NOPAs. The Company anticipates that before the end of fiscal year 2011, it will receive a Revenue Agent Report (or “30-Day Letter”) from the IRS assessing the Company tax. Based upon the NOPAs, the Company is estimating the 30-Day Letter will contain a Proposed Assessment of tax for approximately $317 million to $325 million including accrued interest. Upon receipt of the 30-Day Letter, the Company will challenge the Proposed Assessment by filing a formal protest with the Appeals Division of the IRS. During the protest period, the Company will not pay the Proposed Assessment as the Company intends to vigorously defend its positions.