NOTE 12—SUBSIDIARY GUARANTORS

HDS (the “Debt Issuer”) has outstanding December 2014 First Priority Notes, October 2012 Senior Unsecured Notes, and February 2013 Senior Unsecured Notes (collectively the “Notes”), which are guaranteed by certain of its subsidiaries (the “Subsidiary Guarantors”). The Subsidiary Guarantors are direct or indirect wholly-owned domestic subsidiaries of HDS. The subsidiaries of HDS that do not guarantee the Notes (“Non-guarantor Subsidiaries”) are direct or indirect wholly-owned subsidiaries of HDS and primarily include HDS’s operations in Canada.

The Debt Issuer’s payment obligations under the Notes are jointly and severally guaranteed by the guarantors and all guarantees are full and unconditional.

These guarantees are subject to release under the circumstances as described below:

(i)

concurrently with any direct or indirect sale or disposition (by merger or otherwise) of any Subsidiary Guarantor or any interest therein in accordance with the terms of the applicable indebtedness by HDS or a restricted subsidiary, following which such Subsidiary Guarantor is no longer a restricted subsidiary of HDS;

(ii)

at any time that such Subsidiary Guarantor is released from all of its obligations under all of its guarantees of payment of any indebtedness of HDS or any Subsidiary Guarantor under all other indebtedness and is not a borrower under the Senior ABL Facility;

(iii)

upon the merger or consolidation of any Subsidiary Guarantor with and into HDS or another Subsidiary Guarantor that is the surviving entity in such merger or consolidation, or upon the liquidation of such Subsidiary Guarantor following the transfer of all of its assets to HDS or another Subsidiary Guarantor;

(iv)

concurrently with any Subsidiary Guarantor becoming an unrestricted subsidiary;

(v)

during the period when the rating on the notes is changed to investment grade and certain covenants cease to apply while such investment grade rating is maintained, upon the merger or consolidation of any Subsidiary Guarantor with and into another subsidiary that is not a Subsidiary Guarantor with such other subsidiary being the surviving entity in such merger or consolidation, or upon liquidation of such Subsidiary Guarantor following the transfer of all of its assets to a subsidiary that is not a Subsidiary Guarantor;

(vi)

upon legal or covenant defeasance of HDS’s obligations under the applicable indebtedness, or satisfaction and discharge of the indenture governing the applicable indebtedness; or

(vii)

subject to customary contingent reinstatement provisions, upon payment in full of the aggregate principal amount of all applicable indebtedness then outstanding and all other obligations guaranteed by a Subsidiary Guarantor then due and owing.

In addition, HDS has the right, upon 30 days’ notice to the applicable trustee, to cause any Subsidiary Guarantor that has not guaranteed payment of any indebtedness of HDS or any Subsidiary Guarantor under all other indebtedness and is not a borrower under the Senior ABL Facility to be unconditionally released from all obligations under its Subsidiary Guarantee, and such Subsidiary Guarantee shall thereupon terminate and be discharged and of no further force or effect.

In connection with the issuance of the Notes, HDS determined the need for compliance with Rule 3-10 of SEC Regulation S-X. In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, HDS has included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(f) of SEC Regulation S-X. The following supplemental financial information sets forth, on a consolidating basis under the equity method of accounting, the condensed statements of operations and comprehensive income, the condensed balance sheets, and the condensed statements of cash flows for the Debt Issuer, for the Subsidiary Guarantors and the Non-guarantor Subsidiaries and total consolidated Debt Issuer and subsidiaries (amounts in millions).

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

	Three Months Ended November 1, 2015
	Debt Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Total HDS

Net Sales	$	—		$	1,982		$	31		$	(1	)	$	2,012
Cost of sales	—			1,330			16			—			1,346

Gross Profit	—			652			15			(1		)	666
Operating expenses:
Selling, general and administrative	17			378			11			(1		)	405
Depreciation and amortization	4			24			—			—			28
Restructuring Charge	—			4			—			—			4

Total operating expenses	21			406			11			(1		)	437
Operating Income (Loss)	(21		)	246			4			—			229
Interest expense	100			61			—			(62		)	99
Interest (income)	(60		)	(2		)	—			62			—
Loss on extinguishment & modification of debt	100			—			—			—			100
Other (income) expense, net	—			—			—			—			—
Net (earnings) loss of equity affiliates	(343		)	—			—			343			—

Income From Continuing Operations Before Provision (Benefit) for Income Taxes	182			187			4			(343		)	30
Provision (benefit) for income taxes	157			(145		)	3			—			15

Income from Continuing Operations	25			332			1			(343		)	15
Income (loss) from discontinued operations, net of tax	225			13			(3		)	—			235

Net Income (Loss)	$	250		$	345		$	(2	)	$	(343	)	$	250
Other comprehensive income (loss) — foreign currency translation adjustment	18			—			18			(18		)	18

Total Comprehensive Income (Loss)	$	268		$	345		$	16		$	(361	)	$	268

	Three Months Ended November 2, 2014
	Debt Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Total HDS

Net Sales	$	—		$	1,881		$	35		$	(2	)	$	1,914
Cost of sales	—			1,282			18			(1		)	1,299

Gross Profit	—			599			17			(1		)	615
Operating expenses:
Selling, general and administrative	20			356			14			—			390
Depreciation and amortization	3			42			1			—			46
Total operating expenses	23			398			15			—			436
Operating Income (Loss)	(23		)	201			2			(1		)	179
Interest expense	117			61			—			(63		)	115
Interest (income)	(59		)	(3		)	—			62			—
Other (income) expense, net	(4		)	—			—			—			(4		)
Net (earnings) loss of equity affiliates	(105		)	—			—			105			—

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes	28			143			2			(105		)	68
Provision (benefit) for income taxes	(33		)	62			(1		)	—			28

Income (Loss) from Continuing Operations	61			81			3			(105		)	40
Income (loss) from discontinued operations, net of tax	(1		)	19			2			—			20

Net Income (Loss)	$	60		$	100		$	5		$	(105	)	$	60
Other comprehensive income (loss) — foreign currency translation adjustment	(3		)	—			(3		)	3			(3		)

Total Comprehensive Income (Loss)	$	57		$	100		$	2		$	(102	)	$	57

	Nine Months Ended November 1, 2015
	Debt Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries		Eliminations			Total HDS

Net Sales	$	—		$	5,648		$	94	$	(2	)	$	5,740
Cost of sales	—			3,786			50		(1		)	3,835

Gross Profit	—			1,862			44		(1		)	1,905
Operating expenses:
Selling, general and administrative	60			1,118			34		(1		)	1,211
Depreciation and amortization	11			72			1		—			84
Restructuring charge	—			4			—		—			4

Total operating expenses	71			1,194			35		(1		)	1,299
Operating Income (Loss)	(71		)	668			9		—			606
Interest expense	315			182			—		(186		)	311
Interest (income)	(182		)	(4		)	—		186			—
Loss on extinguishment & modification of debt	100			—			—		—			100
Other (income) expense, net	1			—			—		—			1
Net (earnings) loss of equity affiliates	(493		)	—			—		493			—

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes	188			490			9		(493		)	194
Provision (benefit) for income taxes	(188		)	29			4		—			(155		)

Income (Loss) from Continuing Operations	376			461			5		(493		)	349
Income from discontinued operations, net of tax	225			22			5		—			252

Net Income (Loss)	$	601		$	483		$	10	$	(493	)	$	601
Other comprehensive income (loss) — foreign currency translation adjustment	16			—			16		(16		)	16

Total Comprehensive Income (Loss)	$	617		$	483		$	26	$	(509	)	$	617

	Nine Months Ended November 2, 2014
	Debt Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Total HDS

Net Sales	$	—		$	5,329		$	100		$	(2	)	$	5,427
Cost of sales	—			3,616			55			(1		)	3,670

Gross Profit	—			1,713			45			(1		)	1,757
Operating expenses:
Selling, general and administrative	53			1,061			39			(1		)	1,152
Depreciation and amortization	12			139			1			—			152
Restructuring	1			5			—			—			6

Total operating expenses	66			1,205			40			(1		)	1,310
Operating Income (Loss)	(66		)	508			5			—			447
Interest expense	349			182			—			(184		)	347
Interest (income)	(181		)	(3		)	—			184			—
Loss on extinguishment & modification of debt	2			—			—			—			2
Other (income) expense, net	(3		)	—			—			—			(3		)
Net (earnings) loss of equity affiliates	(234		)	—			—			234			—

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes	1			329			5			(234		)	101
Provision (benefit) for income taxes	(101		)	143			(1		)	—			41

Income (Loss) from Continuing Operations	102			186			6			(234		)	60
Income (loss) from discontinued operations, net of tax	(6		)	44			(2		)	—			36

Net Income (Loss)	$	96		$	230		$	4		$	(234	)	$	96
Other comprehensive income (loss) — foreign currency translation adjustment	(1		)	—			(1		)	1			(1		)

Total Comprehensive Income (Loss)	$	95		$	230		$	3		$	(233	)	$	95

CONDENSED CONSOLIDATING BALANCE SHEETS

	As of November 1, 2015
	Debt Issuer			Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			Total HDS

ASSETS
Current assets:
Cash and cash equivalents	$	43		$	18	$	12	$	—		$	73
Receivables, net	4			1,069		19		—			1,092
Inventories	—			848		20		—			868
Deferred tax asset	—			57		2		(55		)	4
Other current assets	11			25		1		—			37

Total current assets	58			2,017		54		(55		)	2,074

Property and equipment, net	48			276		3		—			327
Goodwill	—			2,869		—		—			2,869
Intangible assets, net	—			132		2		—			134
Deferred tax asset	—			—		1		—			1
Investment in subsidiaries	2,740			—		—		(2,740		)	—
Intercompany notes receivable	2,192			594		—		(2,786		)	—
Other assets	74			3		—		—			77

Total assets	$	5,112		$	5,891	$	60	$	(5,581	)	$	5,482


LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	10		$	627	$	14	$	—		$	651
Accrued compensation and benefits	38			89		2		—			129
Current installments of long-term debt	9			—		—		—			9
Deferred tax liabilities	55			—		—		(55		)	—
Other current liabilities	57			120		9		—			186

Total current liabilities	169			836		25		(55		)	975


Long-term debt, excluding current installments	4,385			—		—		—			4,385
Deferred tax liabilities	13			129		—		—			142
Intercompany notes payable	594			2,192		—		(2,786		)	—
Other liabilities	79			26		3		—			108

Total liabilities	5,240			3,183		28		(2,841		)	5,610


Stockholder’s equity (deficit)	(128		)	2,708		32		(2,740		)	(128		)

Total liabilities and stockholder’s equity (deficit)	$	5,112		$	5,891	$	60	$	(5,581	)	$	5,482

	As of February 1, 2015
	Debt Issuer			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total HDS

ASSETS
Current assets:
Cash and cash equivalents	$	28		$	25	$	32	$	—		$	85
Receivables, net	1			851		16		—			868
Inventories	—			767		17		—			784
Deferred tax asset	—			66		2		(59		)	9
Current assets of discontinued operations	—			455		54					509
Other current assets	12			29		2		—			43

Total current assets	41			2,193		123		(59		)	2,298

Property and equipment, net	55			283		2		—			340
Goodwill	—			2,868		1		—			2,869
Intangible assets, net	—			143		2		—			145
Deferred tax asset	8			—		1		(8		)	1
Non-current assets of discontinued operations	—			288		7		—			295
Investment in subsidiaries	3,216			—		—		(3,216		)	—
Intercompany notes receivable	2,191			611		—		(2,802		)	—
Other assets	109			3		—		—			112

Total assets	$	5,620		$	6,389	$	136	$	(6,085	)	$	6,060


LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	14		$	485	$	11	$	—		$	510
Accrued compensation and benefits	50			90		4		—			144
Current installments of long-term debt	34			—		—		—			34
Deferred tax liabilities	59			—		—		(59		)	—
Current liabilities of discontinued operations	—			200		17		—			217
Other current liabilities	124			97		9		—			230

Total current liabilities	281			872		41		(59		)	1,135


Long-term debt, excluding current installments	5,223			—		—		—			5,223
Deferred tax liabilities	—			174		—		(8		)	166
Intercompany notes payable	611			2,191		—		(2,802		)	—
Other liabilities	265			26		5		—			296

Total liabilities	6,380			3,263		46		(2,869		)	6,820


Stockholder’s equity (deficit)	(760		)	3,126		90		(3,216		)	(760		)

Total liabilities and stockholder’s equity (deficit)	$	5,620		$	6,389	$	136	$	(6,085	)	$	6,060

CONDENSED CONSOLIDATING CASH FLOW STATEMENTS

	Nine Months Ended November 1, 2015
	Debt Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total HDS

Net cash flows from operating activities	$	130		$	29		$	14		$	—		$	173

Cash flows from investing activities
Capital expenditures	(9		)	(52		)	—			—			(61		)
Proceeds from sale of property and equipment	—			2			—			—			2
Proceeds from sale of a business	810			—			—			—			810
Investments in equity affiliates - Return of capital	34			—			—			(34		)	—
Proceeds from (payments of) intercompany notes	—			16			—			(16		)	—
Other investing activities	—			—			—			—			—

Net cash flows from investing activities	835			(34		)	—			(50		)	751

Cash flows from financing activities
Equity contribution (return of capital)	—			(2		)	(32		)	34			—
Borrowings from (repayments to) intercompany notes	(16		)	—			—			16			—
Borrowings of long-term debt	287			—			—			—			287
Repayments of long-term debt	(1,150		)	—			—			—			(1,150		)
Borrowings on long-term revolver	784			—			—			—			784
Repayments on long-term revolver	(850		)	—			—			—			(850		)
Debt issuance and modification fees	(6		)	—			—			—			(6		)
Other financing activities	1			—			—			—			1

Net cash flows from financing activities	(950		)	(2		)	(32		)	50			(934		)

Effect of exchange rates on cash	—			—			(2		)	—			(2		)

Net increase (decrease) in cash & cash equivalents	$	15		$	(7	)	$	(20	)	$	—		$	(12	)
Cash and cash equivalents at beginning of period	28			25			32			—			85

Cash and cash equivalents at end of period	$	43		$	18		$	12		$	—		$	73

	Nine Months Ended November 2, 2014
	Debt Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total HDS

Net cash flows from operating activities	$	41		$	55		$	25		$	—		$	121

Cash flows from investing activities
Capital expenditures	(11		)	(79		)	(2		)	—			(92		)
Investments in equity affiliates - Return of capital	27			—			—			(27		)	—
Proceeds from sale of property and equipment	—			3			—			—			3
Proceeds from (payments of) intercompany notes	—			25			—			(25		)	—
Other investing activities	1			—			—			(1		)	—

Net cash flows from investing activities	17			(51		)	(2		)	(53		)	(89		)

Cash flows from financing activities
Equity contribution (return of capital)	—			—			(27		)	27			—
Borrowings (repayments) of intercompany notes	(25		)	—			—			25			—
Borrowings of long-term debt	20			—			—			—			20
Repayments of long-term debt	(27		)	—			—			—			(27		)
Borrowings on long-term revolver	524			—			—			—			524
Repayments of long-term revolver	(554		)	—			—			—			(554		)
Debt issuance and modification fees	(3		)	—			—			—			(3		)
Other financing activities	(1		)				—			1			—

Net cash flows from financing activities	(66		)	—			(27		)	53			(40		)

Effect of exchange rates on cash	—			—			—			—			—

Net increase (decrease) in cash & cash equivalents	$	(8	)	$	4		$	(4	)	$	—		$	(8	)
Cash and cash equivalents at beginning of period	53			17			41			—			111

Cash and cash equivalents at end of period	$	45		$	21		$	37		$	—		$	103