NOTE 15—SUBSIDIARY GUARANTORS

The Company has issued 12.0% Senior Notes and 13.5% Senior Subordinated Notes (collectively the “Notes”) guaranteed by certain of its subsidiaries (the “Guarantor Subsidiaries”). The Guarantor Subsidiaries are direct or indirect 100 percent-owned domestic subsidiaries of the Company. The guarantees are full and unconditional, to the extent allowed by law, and joint and several. The subsidiaries of the Company that do not guarantee the Notes (“Non-guarantor Subsidiaries”) are direct or indirect wholly-owned subsidiaries of the Company and are made up of the Company’s operations in Canada and a non-operating subsidiary in the United States that holds an investment of $373 million in principal, $253 million net of the discount at October 30, 2011, of the Company’s 13.5% Senior Subordinated Notes, which is eliminated in consolidation.

The following supplemental financial information sets forth, on a consolidating basis, the condensed statements of operations, the condensed balance sheets, and the condensed statements of cash flows for the parent company issuer of the Notes (the “Parent Issuer”), for the Guarantor Subsidiaries and for the Non-guarantor Subsidiaries and total consolidated HD Supply, Inc. and subsidiaries (amounts in millions):

CONDENSED CONSOLIDATING INCOME STATEMENTS


	Three Months Ended October 30, 2011
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	1,967		$	108		$	—		$	2,075
Cost of sales		—			1,415			80			—			1,495

Gross Profit		—			552			28			—			580
Operating expenses:
Selling, general and administrative		22			374			21			—			417
Depreciation and amortization		3			81			1			—			85

Total operating expenses		25			455			22			—			502
Operating Income (Loss)		(25	)		97			6			—			78
Interest expense		180			84			—			(104	)		160
Interest (income)		(84	)		—			(20	)		104			—
Net (earnings) loss of equity affiliates		(26	)		—			—			26			—

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(95	)		13			26			(26	)		(82	)
Provision (benefit) for income taxes		16			—			8			—			24

Income (Loss) from Continuing Operations		(111	)		13			18			(26	)		(106	)
Income (loss) from discontinued operations, net of tax		6			(5	)		—			—			1

Net Income (Loss)	$	(105	)	$	8		$	18		$	(26	)	$	(105	)


	Three Months Ended October 31, 2010
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	1,771		$	103		$	—		$	1,874
Cost of sales		—			1,275			77			—			1,352

Gross Profit		—			496			26			—			522
Operating expenses:
Selling, general and administrative		20			348			18			—			386
Depreciation and amortization		4			84			1			—			89
Restructuring		—			—			—			—			—

Total operating expenses		24			432			19			—			475
Operating Income (Loss)		(24	)		64			7			—			47
Interest expense		171			84			—			(102	)		153
Interest (income)		(83	)		—			(19	)		102			—
Other (income) expense, net		(1	)		—			—			—			(1	)
Net loss of equity affiliates		7			—			—			(7	)		—

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(118	)		(20	)		26			7			(105	)
Provision (benefit) for income taxes		(18	)		(6	)		9			—			(15	)

Income (Loss) from Continuing Operations		(100	)		(14	)		17			7			(90	)
Income (loss) from discontinued operations, net of tax		1			(10	)		—			—			(9	)

Net Income (Loss)	$	(99	)	$	(24	)	$	17		$	7		$	(99	)


	Nine Months Ended October 30, 2011
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	5,571		$	327		$	—		$	5,898
Cost of sales		—			4,003			241			—			4,244

Gross Profit		—			1,568			86			—			1,654
Operating expenses:
Selling, general and administrative		58			1,098			65			—			1,221
Depreciation and amortization		9			247			2			—			258

Total operating expenses		67			1,345			67			—			1,479
Operating Income (Loss)		(67	)		223			19			—			175
Interest expense		537			250			1			(311	)		477
Interest (income)		(250	)		(2	)		(59	)		311			—
Other (income) expense, net		(1	)		—			—			—			(1	)
Net loss of equity affiliates		1			—			—			(1	)		—

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(354	)		(25	)		77			1			(301	)
Provision (benefit) for income taxes		24			8			27			—			59

Income (Loss) from Continuing Operations		(378	)		(33	)		50			1			(360	)
Income (loss) from discontinued operations, net of tax		8			(19	)		1			—			(10	)

Net Income (Loss)	$	(370	)	$	(52	)	$	51		$	1		$	(370	)


	Nine Months Ended October 31, 2010
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	5,136		$	289		$	—		$	5,425
Cost of sales		—			3,696			215			—			3,911

Gross Profit		—			1,440			74			—			1,514
Operating expenses:
Selling, general and administrative		66			1,047			54			—			1,167
Depreciation and amortization		13			256			2			—			271
Restructuring		—			8			—			—			8

Total operating expenses		79			1,311			56			—			1,446
Operating Income (Loss)		(79	)		129			18			—			68
Interest expense		521			251			—			(308	)		464
Interest (income)		(250	)		(3	)		(55	)		308			—
Other (income) expense, net		1			—			—			—			1
Net loss of equity affiliates		99			—			—			(99	)		—

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(450	)		(119	)		73			99			(397	)
Provision (benefit) for income taxes		(29	)		(2	)		26			—			(5	)

Income (Loss) from Continuing Operations		(421	)		(117	)		47			99			(392	)
Income (loss) from discontinued operations, net of tax		5			(29	)		—			—			(24	)

Net Income (Loss)	$	(416	)	$	(146	)	$	47		$	99		$	(416	)

CONDENSED CONSOLIDATING BALANCE SHEETS


	October 30, 2011
	Parent Issuer			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	75		$	15	$	49	$	—		$	139
Receivables, net		35			1,016		86		(8	)		1,129
Inventories		—			1,008		81		—			1,089
Deferred tax asset		47			19		4		7			77
Intercompany receivable		—			1		—		(1	)		—
Other current assets		11			33		6		—			50

Total current assets		168			2,092		226		(2	)		2,484

Property and equipment, net		59			298		6		—			363
Goodwill		—			3,143		8		—			3,151
Intangible assets, net		—			795		4		—			799
Deferred tax asset		164			—		3		(167	)		—
Investment in subsidiaries		3,086			—		—		(3,086	)		—
Intercompany notes receivable		3,054			610		—		(3,664	)		—
Other assets		156			7		253		(253	)		163

Total assets	$	6,687		$	6,945	$	500	$	(7,172	)	$	6,960

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	12		$	714	$	49	$	—		$	775
Accrued compensation and benefits		40			90		6		—			136
Current installments of long-term debt		99			—		—		—			99
Intercompany payables		—			—		1		(1	)		—
Other current liabilities		135			117		11		(8	)		255

Total current liabilities		286			921		67		(9	)		1,265

Long-term debt, excluding current installments		5,737			—		—		(253	)		5,484
Deferred tax liabilities		—			274		—		(160	)		114
Intercompany notes payable		610			3,054		—		(3,664	)		—
Other liabilities		311			36		7		—			354

Total liabilities		6,944			4,285		74		(4,086	)		7,217

Stockholders’ equity (deficit)		(257	)		2,660		426		(3,086	)		(257	)

Total liabilities and stockholders’ equity (deficit)	$	6,687		$	6,945	$	500	$	(7,172	)	$	6,960


	January 30, 2011
	Parent Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	249	$	8	$	35	$	—		$	292
Receivables, net		2		830		75		—			907
Inventories		—		958		77		—			1,035
Deferred tax asset		40		62		4		(4	)		102
Intercompany receivable		—		3		—		(3	)		—
Other current assets		9		35		1		—			45

Total current assets		300		1,896		192		(7	)		2,381

Property and equipment, net		62		322		6		—			390
Goodwill		—		3,132		18		—			3,150
Intangible assets, net		—		988		4		—			992
Deferred tax asset		117		—		—		(117	)		—
Investment in subsidiaries		2,752		—		—		(2,752	)		—
Intercompany notes receivable		3,054		304		—		(3,358	)		—
Other assets		172		4		203		(203	)		176

Total assets	$	6,457	$	6,646	$	423	$	(6,437	)	$	7,089

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	20	$	730	$	55	$	—		$	805
Accrued compensation and benefits		32		80		6		—			118
Current installments of long-term debt		10		—		—		—			10
Intercompany payables		—		—		3		(3	)		—
Other current liabilities		157		104		11		—			272

Total current liabilities		219		914		75		(3	)		1,205

Long-term debt, excluding current installments		5,423		—		—		(184	)		5,239
Deferred tax liabilities		—		222		—		(121	)		101
Intercompany notes payable		304		3,054		—		(3,358	)		—
Other liabilities		415		45		7		(19	)		448

Total liabilities		6,361		4,235		82		(3,685	)		6,993

Stockholders’ equity		96		2,411		341		(2,752	)		96

Total liabilities and stockholders’ equity	$	6,457	$	6,646	$	423	$	(6,437	)	$	7,089

CONDENSED CONSOLIDATING CASH FLOW STATEMENTS


	Nine Months Ended October 30, 2011
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net cash flows from operating activities	$	(652	)	$	384		$	4		$	—		$	(264	)

Cash flows from investing activities
Capital expenditures		(11	)		(46	)		(1	)		—			(58	)
Proceeds from sale of property and equipment		—			4			—			—			4
Purchase of investments		(21	)		(2	)		—			—			(23	)
Proceeds from sale of businesses		93			(6	)		11			—			98
Payments for a business acquired		—			(21	)		—			—			(21	)
Proceeds from (payments of) intercompany notes		—			(306	)		—			306			—

Net cash flows from investing activities		61			(377	)		10			306			—

Cash flows from financing activities
Borrowings (repayments) of intercompany notes		306			—			—			(306	)		—
Repayments of long-term debt		(8	)		—			—			—			(8	)
Borrowings on long-term revolver		888			—			—			—			888
Repayments of long-term revolver		(769	)		—			—			—			(769	)

Net cash flows from financing activities		417			—			—			(306	)		111

Effect of exchange rates on cash		—			—			—			—			—

Net increase (decrease) in cash & cash equivalents	$	(174	)	$	7		$	14		$	—		$	(153	)
Cash and cash equivalents at beginning of period		249			8			35			—			292

Cash and cash equivalents at end of period	$	75		$	15		$	49		$	—		$	139


	Nine Months Ended October 31, 2010
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net cash flows from operating activities	$	266		$	45		$	4		$	—		$	315

Cash flows from investing activities
Capital expenditures		(4	)		(28	)		(2	)		—			(34	)
Proceeds from sales of property and equipment		—			1			—			—			1
Return of investment		33			—			—			(33	)		—
Proceeds from (payments of) intercompany notes		—			(17	)		—			17			—

Net cash flows from investing activities		29			(44	)		(2	)		(16	)		(33	)

Cash flows from financing activities
Equity contribution (return of capital)		1			—			(33	)		33			1
Borrowings (repayments) of intercompany notes		17			—			—			(17	)		—
Repayments of long-term debt		(38	)		—			—			—			(38	)
Borrowings on long-term revolver		178			—			—			—			178
Repayments of long-term revolver		(850	)		—			—			—			(850	)
Debt modification costs		(34	)		—			—			—			(34	)

Net cash flows from financing activities		(726	)		—			(33	)		16			(743	)

Effect of exchange rates on cash		—			—			2			—			2

Net increase (decrease) in cash & cash equivalents	$	(431	)	$	1		$	(29	)	$	—		$	(459	)
Cash and cash equivalents at beginning of period		479			8			52			—			539

Cash and cash equivalents at end of period	$	48		$	9		$	23		$	—		$	80