NOTE 13 — 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 held an investment in the Company’s 13.5% Senior Subordinated Notes, which was eliminated in consolidation. During the third quarter of fiscal 2012, the investment in the 13.5% Senior Subordinated Notes was contributed to the Parent in a non-cash transaction. The Parent retired this portion of the 13.5% Senior Subordinated Notes. These transactions had no impact on the consolidated results of operations or financial position.

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 October 28, 2012
	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	2,036		$	110		$	—		$	2,146
Cost of sales		—			1,448			82			—			1,530

Gross Profit		—			588			28			—			616
Operating expenses:
Selling, general and administrative		16			381			21			—			418
Depreciation and amortization		3			81			—			—			84

Total operating expenses		19			462			21			—			502
Operating Income (Loss)		(19	)		126			7			—			114
Interest expense		178			75			1			(89	)		165
Interest (income)		(75	)		(1	)		(13	)		89			—
Net (earnings) loss of equity affiliates		(71	)		—			—			71			—

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(51	)		52			19			(71	)		(51	)
Provision (benefit) for income taxes		3			(3	)		2			—			2

Income (Loss) from Continuing Operations		(54	)		55			17			(71	)		(53	)
Income (loss) from discontinued operations, net of tax		4			(1	)		—			—			3

Net Income (Loss)	$	(50	)	$	54		$	17		$	(71	)	$	(50	)
Other comprehensive income — foreign currency translation adjustment		—			—			—			—			—

Total Comprehensive Income (Loss)	$	(50	)	$	54		$	17		$	(71	)	$	(50	)


	Three Months Ended October 30, 2011
	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	1,791		$	102		$	—		$	1,893
Cost of sales		—			1,283			75			—			1,358

Gross Profit		—			508			27			—			535
Operating expenses:
Selling, general and administrative		21			349			19			—			389
Depreciation and amortization		3			78			—			—			81

Total operating expenses		24			427			19			—			470
Operating Income (Loss)		(24	)		81			8			—			65
Interest expense		180			75			—			(95	)		160
Interest (income)		(75	)		(1	)		(19	)		95			—
Net (earnings) loss of equity affiliates		(26	)		—			—			26			—

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(103	)		7			27			(26	)		(95	)
Provision (benefit) for income taxes		16			(1	)		9			—			24

Income (Loss) from Continuing Operations		(119	)		8			18			(26	)		(119	)
Income (loss) from discontinued operations, net of tax		14			—			—			—			14

Net Income (Loss)	$	(105	)	$	8		$	18		$	(26	)	$	(105	)
Other comprehensive income (loss) — foreign currency translation adjustment		(6	)		—			(6	)		6			(6	)

Total Comprehensive Income (Loss)	$	(111	)	$	8		$	12		$	(20	)	$	(111	)


	Nine Months Ended October 28, 2012
	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	5,726		$	315		$	—		$	6,041
Cost of sales		—			4,075			233			—			4,308

Gross Profit		—			1,651			82			—			1,733
Operating expenses:
Selling, general and administrative		52			1,107			64			—			1,223
Depreciation and amortization		10			239			1			—			250

Total operating expenses		62			1,346			65			—			1,473
Operating Income (Loss)		(62	)		305			17			—			260
Interest expense		545			225			1			(282	)		489
Interest (income)		(225	)		(3	)		(54	)		282			—
Net (earnings) loss of equity affiliates		(143	)		—			—			143			—
Loss on extinguishment of debt		220			—			—			—			220

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(459	)		83			70			(143	)		(449	)
Provision (benefit) for income taxes		19			(6	)		23			—			36

Income (Loss) from Continuing Operations		(478	)		89			47			(143	)		(485	)
Income (loss) from discontinued operations, net of tax		12			7			—			—			19

Net Income (Loss)	$	(466	)	$	96		$	47		$	(143	)	$	(466	)
Other comprehensive income — foreign currency translation adjustment		—			—			—			—			—

Total Comprehensive Income (Loss)	$	(466	)	$	96		$	47		$	(143	)	$	(466	)


	Nine Months Ended October 30, 2011
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	5,073		$	303		$	—		$	5,376
Cost of sales		—			3,625			223			—			3,848

Gross Profit		—			1,448			80			—			1,528
Operating expenses:
Selling, general and administrative		57			1,026			61			—			1,144
Depreciation and amortization		9			235			1			—			245

Total operating expenses		66			1,261			62			—			1,389
Operating Income (Loss)		(66	)		187			18			—			139
Interest expense		537			223			1			(284	)		477
Interest (income)		(223	)		(2	)		(59	)		284			—
Net (earnings) loss of equity affiliates		1			—			—			(1	)		—
Other (income) expense, net		(1	)		—			—			—			(1	)

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes		(380	)		(34	)		76			1			(337	)
Provision (benefit) for income taxes		24			7			28			—			59

Income (Loss) from Continuing Operations		(404	)		(41	)		48			1			(396	)
Income (loss) from discontinued operations, net of tax		34			(11	)		3			—			26

Net Income (Loss)	$	(370	)	$	(52	)	$	51		$	1		$	(370	)
Other comprehensive income (loss) — foreign currency translation adjustment		1			—			1			(1	)		1

Total Comprehensive Income (Loss)	$	(369	)	$	(52	)	$	52		$	—		$	(369	)

CONDENSED CONSOLIDATING BALANCE SHEETS


	October 28, 2012
	Parent Issuer			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	107		$	18	$	33	$	—		$	158
Cash restricted for debt redemption		985			—		—		—			985
Receivables, net		—			1,032		73		—			1,105
Inventories		—			937		57		—			994
Deferred tax asset		—			84		2		(21	)		65
Intercompany receivable		—			1		—		(1	)		—
Other current assets		12			31		2		—			45

Total current assets		1,104			2,103		167		(22	)		3,352

Property and equipment, net		63			321		6		—			390
Goodwill		—			3,272		7		—			3,279
Intangible assets, net		—			514		4		—			518
Deferred tax asset		80			—		6		(86	)		—
Investment in subsidiaries		2,986			—		—		(2,986	)		—
Intercompany notes receivable		2,774			608		—		(3,382	)		—
Other assets		130			6		3		—			139

Total assets	$	7,137		$	6,824	$	193	$	(6,476	)	$	7,678

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	13		$	723	$	43	$	—		$	779
Accrued compensation and benefits		38			94		5		—			137
Current installments of long-term debt		940			—		—		—			940
Deferred tax liabilities		21			—		—		(21	)		—
Intercompany payable		—			—		1		(1	)		—
Other current liabilities		98			108		11		—			217

Total current liabilities		1,110			925		60		(22	)		2,073

Long-term debt, excluding current installments		5,975			—		—		—			5,975
Deferred tax liabilities		—			235		—		(86	)		149
Intercompany notes payable		608			2,774		—		(3,382	)		—
Other liabilities		325			30		7		—			362

Total liabilities		8,018			3,964		67		(3,490	)		8,559

Stockholder’s equity (deficit)		(881	)		2,860		126		(2,986	)		(881	)

Total liabilities and stockholder’s equity (deficit)	$	7,137		$	6,824	$	193	$	(6,476	)	$	7,678


	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


	Nine Months Ended October 28, 2012
	Parent Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Net cash flows from operating activities	$	(368	)	$	19		$	72		$	(50	)	$	(327	)

Cash flows from investing activities
Capital expenditures		(19	)		(59	)		(2	)		—			(80	)
Proceeds from sale of property and equipment		—			5			—			—			5
Purchase of debt investments		—			—			(1	)		1			—
Purchase of other investments		(985	)		—			—			—			(985	)
Proceeds from sale of a business		480			—			1			—			481
Payment for a business acquired		—			(196	)		—			—			(196	)
Proceeds from (payments of) intercompany notes		—			33			—			(33	)		—
Investments (return of capital) in equity affiliates		(169	)		—			—			169			—
Other investing activities		—			—			(2	)		—			(2	)

Net cash flows from investing activities		(693	)		(217	)		(4	)		137			(777	)

Cash flows from financing activities
Dividend payment		—			—			(50	)		50			—
Equity contribution (return of capital)		—			204			(35	)		(169	)		—
Borrowings (repayments) of intercompany notes		(33	)		—			—			33			—
Borrowings of long-term debt		4,140			—			—			—			4,140
Repayments of long-term debt		(3,289	)		—			—			(1	)		(3,290	)
Borrowings on long-term revolver		1,192			—			—			—			1,192
Repayments of long-term revolver		(797	)		—			—			—			(797	)
Debt issuance and modification fees		(95	)		—			—			—			(95	)
Other financing activities		1			—			—			—			1

Net cash flows from financing activities		1,119			204			(85	)		(87	)		1,151

Net increase (decrease) in cash & cash equivalents	$	58		$	6		$	(17	)	$	—		$	47
Cash and cash equivalents at beginning of period		49			12			50			—			111

Cash and cash equivalents at end of period	$	107		$	18		$	33		$	—		$	158


	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

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