NOTE 16 — 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 wholly-owned domestic subsidiaries of the Company. 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 include the Company’s operations in Canada and a non-operating subsidiary in the United States that holds an investment of $373 million in principal, $261 million net of the discount at January 29, 2012, of the Company’s 13.5% Senior Subordinated Notes, which is eliminated in consolidation.

In connection with the Notes, the Company determined the need for compliance with Rule 3-10 of SEC Regulation S-X (“Rule 3-10”). In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, the Company has included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(d) of SEC Regulation S-X. 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 HD Supply, Inc. (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


	Fiscal Year Ended January 29, 2012
	Parent Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Total

Net Sales	$	–	$	6,630	$	398	$	–	$	7,028
Cost of sales		–		4,720		294		–		5,014

Gross Profit		–		1,910		104		–		2,014
Operating expenses:
Selling, general and administrative		78		1,372		82		–		1,532
Depreciation and amortization		12		313		2		–		327

Total operating expenses		90		1,685		84		–		1,859

Operating Income (Loss)		(90)		225		20		–		155
Interest expense		722		298		1		(382)		639
Interest (income)		(299)		(3)		(80)		382		–
Net loss of equity affiliates		30		–		–		(30)		–

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes		(543)		(70)		99		30		(484)
Provision (benefit) for income taxes		32		10		37		–		79

Income (Loss) from Continuing Operations		(575)		(80)		62		30		(563)
Loss from discontinued operations, net of tax		32		(15)		3		–		20

Net Income (Loss)	$	(543)	$	(95)	$	65	$	30	$	(543)


	Fiscal Year Ended January 30, 2011
	Parent Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total

Net Sales	$	–	$	6,085	$	364	$	–	$	6,449
Cost of sales		–		4,339		269		–		4,608

Gross Profit		–		1,746		95		–		1,841
Operating expenses:
Selling, general and administrative		82		1,302		71		–		1,455
Depreciation and amortization		16		322		3		–		341
Restructuring		–		8		–		–		8

Total operating expenses		98		1,632		74		–		1,804

Operating Income (Loss)		(98)		114		21		–		37
Interest expense		701		298		–		(376)		623
Interest (income)		(298)		(4)		(74)		376		–
Other (income) expense, net		(1)		–		–		–		(1)
Net loss of equity affiliates		178		–		–		(178)		–

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes		(678)		(180)		95		178		(585)
Provision (benefit) for income taxes		(17)		6		39		–		28

Income (Loss) from Continuing Operations		(661)		(186)		56		178		(613)
Loss from discontinued operations, net of tax		42		(49)		1		–		(6)

Net Income (Loss)	$	(619)	$	(235)	$	57	$	178	$	(619)


	Fiscal Year Ended January 31, 2010
	Parent Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total

Net Sales	$	–	$	5,987	$	326	$	–	$	6,313
Cost of sales		–		4,301		244		–		4,545

Gross Profit		–		1,686		82		–		1,768
Operating expenses:
Selling, general and administrative		83		1,304		66		–		1,453
Depreciation and amortization		22		334		3		–		359
Restructuring		1		21		(1)		–		21
Goodwill impairment		–		196		23		–		219

Total operating expenses		106		1,855		91		–		2,052

Operating Income (Loss)		(106)		(169)		(9)		–		(284)
Interest expense		679		305		–		(382)		602
Interest (income)		(304)		(11)		(67)		382		–
Other (income) expense, net		(206)		7		(9)		–		(208)
Net loss of equity affiliates		348		–		–		(348)		–

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes		(623)		(470)		67		348		(678)
Provision (benefit) for income taxes		(70)		(148)		20		–		(198)

Income (Loss) from Continuing Operations		(553)		(322)		47		348		(480)
Loss from discontinued operations, net of tax		39		(72)		(1)		–		(34)

Net Income (Loss)	$	(514)	$	(394)	$	46	$	348	$	(514)

CONDENSED CONSOLIDATING BALANCE SHEETS


	January 29, 2012
	Parent Issuer			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total

ASSETS
Current assets:
Cash and cash equivalents	$	49		$	12	$	50	$	–	$	111
Receivables, net		4			922		97		(21)		1,002
Inventories		–			1,027		81		–		1,108
Deferred tax asset		–			89		2		(33)		58
Other current assets		8			34		5		–		47

Total current assets		61			2,084		235		(54)		2,326


Property and equipment, net		61			331		6		–		398
Goodwill		–			3,143		8		–		3,151
Intangible assets, net		–			731		4		–		735
Deferred tax asset		158			–		6		(164)		–
Investment in subsidiaries		3,456			–		–		(3,456)		–
Intercompany notes receivable		2,774			641		–		(3,415)		–
Other assets		122			6		261		(261)		128

Total assets	$	6,632		$	6,936	$	520	$	(7,350)	$	6,738


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	21		$	648	$	45	$	–	$	714
Accrued compensation and benefits		42			93		5		–		140
Current installments of long-term debt		82			–		–		–		82
Deferred tax liabilities		33			–		–		(33)		–
Other current liabilities		284			104		11		(21)		378

Total current liabilities		462			845		61		(54)		1,314


Long-term debt, excluding current installments		5,641			–		–		(261)		5,380
Deferred tax liabilities		–			275		–		(164)		111
Intercompany notes payable		641			2,774		–		(3,415)		–
Other liabilities		316			37		8		–		361

Total liabilities		7,060			3,931		69		(3,894)		7,166


Stockholders’ equity		(428	)		3,005		451		(3,456)		(428)

Total liabilities and stockholders’ equity	$	6,632		$	6,936	$	520	$	(7,350)	$	6,738


	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


	Fiscal Year Ended January 29, 2012
	Parent Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total

Net cash flows from operating activities	$	(629)	$	458	$	6	$	–	$	(165)

Cash flows from investing activities
Capital expenditures		(15)		(98)		(2)		–		(115)
Proceeds from sales of property and equipment		–		4		–		–		4
Payments for businesses acquired		–		(21)		–		–		(21)
Proceeds from sale of a business		117		–		11		–		128
Purchase of investments		(21)		(2)		–		–		(23)
Proceeds from sale of investments		21		–		–		–		21
Proceeds from (payments of) intercompany notes		–		(337)		–		337		–

Net cash flows from investing activities		102		(454)		9		337		(6)

Cash flows from financing activities
Borrowings (repayments) of intercompany notes		337		–		–		(337)		–
Repayments of long-term debt		(10)		–		–		–		(10)
Borrowings on long-term revolver		1,053		–		–		–		1,053
Repayments of long-term revolver		(1,053)		–		–		–		(1,053)

Net cash flows from financing activities		327		–		–		(337)		(10)

Effect of exchange rates on cash		–		–		–		–		–

Net increase (decrease) in cash & cash equivalents	$	(200)	$	4	$	15	$	–	$	(181)
Cash and cash equivalents at beginning of period		249		8		35		–		292

Cash and cash equivalents at end of period	$	49	$	12	$	50	$	–	$	111


	Fiscal Year Ended January 30, 2011
	Parent Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total

Net cash flows from operating activities	$	452	$	83	$	16	$	–	$	551

Cash flows from investing activities
Capital expenditures		(6)		(41)		(2)		–		(49)
Proceeds from sales of property and equipment		–		4		–		–		4
Proceeds from (payments of) intercompany notes		–		(46)		–		46		–
Return of investment		33		–		–		(33)		–

Net cash flows from investing activities		27		(83)		(2)		13		(45)

Cash flows from financing activities
Equity contribution (return of capital)		1		–		(33)		33		1
Borrowings (repayments) of intercompany notes		46		–		–		(46)		–
Repayments of long-term debt		(40)		–		–		–		(40)
Borrowings on long-term revolver		178		–		–		–		178
Repayments of long-term revolver		(860)		–		–		–		(860)
Debt modification and issuance costs		(34)		–		–		–		(34)

Net cash flows from financing activities		(709)		–		(33)		(13)		(755)

Effect of exchange rates on cash		–		–		2		–		2

Net increase (decrease) in cash & cash equivalents	$	(230)	$	–	$	(17)	$	–	$	(247)
Cash and cash equivalents at beginning of period		479		8		52		–		539

Cash and cash equivalents at end of period	$	249	$	8	$	35	$	–	$	292


	Fiscal Year Ended January 31, 2010
	Parent Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total

Net cash flows from operating activities	$	51	$	16	$	13	$	(11)	$	69

Cash flows from investing activities
Capital expenditures		(9)		(48)		(1)		–		(58)
Proceeds from sales of property and equipment		1		7		–		–		8
Refunds (payments) for businesses acquired, net of cash acquired		22		(16)		(3)		3		6
Proceeds from sale of a business		6		–		–		(3)		3
(Payments for) proceeds from debt & other investments		–		5		(67)		62		–
Investments in equity affiliates		(62)		–		–		62		–
Proceeds from (payments of) intercompany notes		12		39		–		(51)		–

Net cash flows from investing activities		(30)		(13)		(71)		73		(41)

Cash flows from financing activities
Equity contribution		–		–		51		(51)		–
Borrowings (repayments) of intercompany notes		(39)		(12)		–		51		–
Repayments of long-term debt		(10)		–		–		(62)		(72)
Borrowings on long-term revolver		5		–		–		–		5
Repayments of long-term revolver		(196)		–		–		–		(196)

Net cash flows from financing activities		(240)		(12)		51		(62)		(263)

Effect of exchange rates on cash		–		–		3		–		3

Net increase (decrease) in cash & cash equivalents		(219)		(9)		(4)		–		(232)
Cash and cash equivalents at beginning of period		698		17		56		–		771

Cash and cash equivalents at end of period	$	479	$	8	$	52	$	–	$	539