SUBSIDIARY GUARANTORS

6 Months Ended

Jul. 29, 2012

SUBSIDIARY GUARANTORS

NOTE 12 — SUBSIDIARY GUARANTORS

The Company has issued 13.5% Senior Subordinated 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 13.5% Senior Subordinated 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 $374 million in principal, $277 million net of the discount at July 29, 2012, of the Company’s 13.5% Senior Subordinated Notes, which is eliminated in consolidation.

In connection with the 13.5% Senior Subordinated 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 and comprehensive income (loss), the condensed balance sheets, and the condensed statements of cash flows for the parent company issuer of the 13.5% Senior Subordinated 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 STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

	Three Months Ended July 29, 2012
	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	1,954		$	105		$	—		$	2,059
Cost of sales		—			1,388			77			—			1,465
Gross Profit		—			566			28			—			594
Operating expenses:
Selling, general and administrative		16			371			21			—			408
Depreciation and amortization		3			79			1			—			83
Total operating expenses		19			450			22			—			491
Operating Income (Loss)		(19	)		116			6			—			103
Interest expense		179			75			—			(96	)		158
Interest (income)		(75	)		—			(21	)		96			—
Net (earnings) loss of equity affiliates		(65	)		—			—			65			—
Other (income) expense, net		—			—			—			—			—
Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(58	)		41			27			(65	)		(55	)
Provision (benefit) for income taxes		(2	)		(6	)		9			—			1
Income (Loss) from Continuing Operations		(56	)		47			18			(65	)		(56	)
Income (loss) from discontinued operations, net of tax		—			—			—			—			—
Net Income (Loss)	$	(56	)	$	47		$	18		$	(65	)	$	(56	)
Other comprehensive income — foreign currency translation adjustment		(3	)		—			(3	)		3			(3	)
Total Comprehensive Income (Loss)	$	(59	)	$	47		$	15		$	(62	)	$	(59	)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (CONTINUED)

	Three Months Ended July 31, 2011
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	1,770		$	105		$	—		$	1,875
Cost of sales		—			1,264			78			—			1,342
Gross Profit		—			506			27			—			533
Operating expenses:
Selling, general and administrative		18			347			20			—			385
Depreciation and amortization		3			79			—			—			82
Total operating expenses		21			426			20			—			467
Operating Income (Loss)		(21	)		80			7			—			66
Interest expense		178			74			1			(94	)		159
Interest (income)		(74	)		—			(20	)		94			—
Net (earnings) loss of equity affiliates		(20	)		—			—			20			—
Other (income) expense, net		—			—			—			—			—
Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(105	)		6			26			(20	)		(93	)
Provision (benefit) for income taxes		6			—			9			—			15
Income (Loss) from Continuing Operations		(111	)		6			17			(20	)		(108	)
Income (loss) from discontinued operations, net of tax		10			(4	)		1			—			7
Net Income (Loss)	$	(101	)	$	2		$	18		$	(20	)	$	(101	)
Other comprehensive income — foreign currency translation adjustment		(1	)		—			(1	)		1			(1	)
Total Comprehensive Income (Loss)	$	(102	)	$	2		$	17		$	(19	)	$	(102	)

	Six Months Ended July 29, 2012
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	3,690		$	205		$	—		$	3,895
Cost of sales		—			2,627			151			—			2,778
Gross Profit		—			1,063			54			—			1,117
Operating expenses:
Selling, general and administrative		36			726			43			—			805
Depreciation and amortization		7			158			1			—			166
Total operating expenses		43			884			44			—			971
Operating Income (Loss)		(43	)		179			10			—			146
Interest expense		367			150			—			(193	)		324
Interest (income)		(150	)		(2	)		(41	)		193			—
Net (earnings) loss of equity affiliates		(72	)		—			—			72			—
Other (income) expense, net		220			—			—			—			220
Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(408	)		31			51			(72	)		(398	)
Provision (benefit) for income taxes		16			(3	)		21			—			34
Income (Loss) from Continuing Operations		(424	)		34			30			(72	)		(432	)
Income (loss) from discontinued operations, net of tax		8			8			—			—			16
Net Income (Loss)	$	(416	)	$	(42	)	$	30		$	(72	)	$	(416	)
Other comprehensive income — foreign currency translation adjustment		—			—			—			—			—
Total Comprehensive Income (Loss)	$	(416	)	$	(42	)	$	30		$	(72	)	$	(416	)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (CONTINUED)

	Six Months Ended July 31, 2011
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	3,282		$	201		$	—		$	3,483
Cost of sales		—			2,342			148			—			2,490
Gross Profit		—			940			53			—			993
Operating expenses:
Selling, general and administrative		36			677			42			—			755
Depreciation and amortization		6			157			1			—			164
Total operating expenses		42			834			43			—			919
Operating Income (Loss)		(42	)		106			10			—			74
Interest expense		357			148			1			(189	)		317
Interest (income)		(148	)		(1	)		(40	)		189			—
Net (earnings) loss of equity affiliates		27			—			—			(27	)		—
Other (income) expense, net		(1	)		—			—			—			(1	)
Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(277	)		(41	)		49			27			(242	)
Provision (benefit) for income taxes		8			8			19			—			35
Income (Loss) from Continuing Operations		(285	)		(49	)		30			27			(277	)
Income (loss) from discontinued operations, net of tax		20			(11	)		3			—			12
Net Income (Loss)	$	(265	)	$	(60	)	$	33		$	27		$	(265	)
Other comprehensive income — foreign currency translation adjustment		7			—			7			(7	)		7
Total Comprehensive Income (Loss)	$	(258	)	$	(60	)	$	40		$	20		$	(258	)

CONDENSED CONSOLIDATING BALANCE SHEETS

	July 29, 2012
	Parent Issuer			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	34		$	25	$	31	$	—		$	90
Receivables, net		14			1,019		89		(21	)		1,101
Inventories		—			939		58		—			997
Deferred tax asset		—			84		2		(50	)		36
Intercompany receivable		—			1		—		(1	)		—
Other current assets		9			36		2		—			47
Total current assets		57			2,104		182		(72	)		2,271
Property and equipment, net		63			321		5		—			389
Goodwill		—			3,272		7		—			3,279
Intangible assets, net		—			575		4		—			579
Deferred tax asset		89			—		6		(95	)		—
Investment in subsidiaries		3,371			—		—		(3,371	)		—
Intercompany notes receivable		2,774			582		—		(3,356	)		—
Other assets		114			4		280		(277	)		121
Total assets	$	6,468		$	6,858	$	484	$	(7,171	)	$	6,639
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	9		$	729	$	41	$	—		$	779
Accrued compensation and benefits		35			65		4		—			104
Current installments of long-term debt		10			—		—		—			10
Deferred tax liabilities		70			—		—		(70	)		—
Intercompany payable		—			—		1		(1	)		—
Other current liabilities		214			106		10		(21	)		309
Total current liabilities		338			900		56		(92	)		1,202
Long-term debt, excluding current installments		6,035			—		7		(277	)		5,765
Deferred tax liabilities		—			195		—		(75	)		120
Intercompany notes payable		582			2,774		—		(3,356	)		—
Other liabilities		347			32		7		—			386
Total liabilities		7,302			3,901		70		(3,800	)		7,473
Stockholder’s equity (deficit)		(834	)		2,957		414		(3,371	)		(834	)
Total liabilities and stockholder’s equity (deficit)	$	6,468		$	6,858	$	484	$	(7,171	)	$	6,639

CONDENSED CONSOLIDATING BALANCE SHEETS (CONTINUED)

	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 STOCKHOLDER’S EQUITY (DEFICIT)
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
Stockholder’s equity (deficit)		(428	)		3,005		451		(3,456	)		(428	)
Total liabilities and stockholder’s equity (deficit)	$	6,632		$	6,936	$	520	$	(7,350	)	$	6,738

CONDENSED CONSOLIDATING CASH FLOW STATEMENTS

	Six Months Ended July 29, 2012
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net cash flows from operating activities	$	(318	)	$	(18	)	$	37		$	(25	)	$	(324	)
Cash flows from investing activities
Capital expenditures		(14	)		(38	)		—			—			(52	)
Proceeds from sale of property and equipment		—			2			—			—			2
Purchase of debt investments		—			—			(1	)		1			—
Payment for a business acquired		—			(196	)		—			—			(196	)
Proceeds from sale of a business		463			—			1			—			464
Proceeds from (payments of) intercompany notes		—			59			—			(59	)		—
Investments (return of capital) in equity affiliates		(169	)		—			—			169			—
Other investing activities		—			—			(3	)		—			(3	)
Net cash flows from investing activities		280			(173	)		(3	)		111			215
Cash flows from financing activities
Dividend payment		—			—			(25	)		25			—
Equity contribution (return of capital)		—			204			(35	)		(169	)		—
Borrowings (repayments) of intercompany notes		(59	)		—			—			59			—
Borrowings of long-term debt		2,817			—			—			—			2,817
Repayments of long-term debt		(3,287	)		—			—			(1	)		(3,288	)
Borrowings on long-term revolver		997			—			7			—			1,004
Repayments of long-term revolver		(372	)		—			—			—			(372	)
Debt issuance and modification fees		(73	)		—			—			—			(73	)
Net cash flows from financing activities		23			204			(53	)		(86	)		88
Effect of exchange rates on cash		—			—			—			—			—
Net increase (decrease) in cash & cash equivalents	$	(15	)	$	13		$	(19	)	$	—		$	(21	)
Cash and cash equivalents at beginning of period		49			12			50			—			111
Cash and cash equivalents at end of period	$	34		$	25		$	31		$	—		$	90
	Six Months Ended July 31, 2011
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net cash flows from operating activities	$	(268	)	$	(21	)	$	(7	)	$	—		$	(296	)
Cash flows from investing activities
Capital expenditures		(8	)		(27	)		—			—			(35	)
Proceeds from sales of property and equipment		—			4			—			—			4
Purchase of investments		(21	)		—			—			—			(21	)
Proceeds from sale of a business		—			—			11			—			11
Payments for a business acquired		—			(21	)		—			—			(21	)
Proceeds from (payments of) intercompany notes		—			71			—			(71	)		—
Net cash flows from investing activities		(29	)		27			11			(71	)		(62	)
Cash flows from financing activities
Borrowings (repayments) of intercompany notes		(71	)		—			—			71			—
Repayments of long-term debt		(5	)		—			—			—			(5	)
Borrowings on long-term revolver		632			—			—			—			632
Repayments of long-term revolver		(472	)		—			—			—			(472	)
Net cash flows from financing activities		84			—			—			71			155
Effect of exchange rates on cash		—			—			2			—			2
Net increase (decrease) in cash & cash equivalents	$	(213	)	$	6		$	6		$	—		$	(201	)
Cash and cash equivalents at beginning of period		249			8			35			—			292
Cash and cash equivalents at end of period	$	36		$	14		$	41		$	—		$	91