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TABLE OF CONTENTS


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on JanuarySeptember 30, 2013

Registration No. 333-186164333-            

UNITED STATES


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT

UNDER

Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


HD Supply, Inc.*

(Exact Name of Registrant as Specified in its Charter)

Delaware500075-2007383


(State or other jurisdiction of


incorporation)

 

5000
(Primary Standard Industrial


Classification Code Number)

 

75-2007383
(I.R.S. Employer


Identification No.)

3100 Cumberland Boulevard, Suite 1480


Atlanta, Georgia 30339


(770) 852-9000

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’sRegistrant's Principal Executive Offices)

Ricardo J. Nunez, Esq.


Senior Vice President, General Counsel and Corporate Secretary


HD Supply, Inc.


3100 Cumberland Boulevard, Suite 1480


Atlanta, Georgia 30339


(770) 852-9000


(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

With a copy to:


Steven J. Slutzky, Esq.


Debevoise & Plimpton LLP


919 Third Avenue


New York, New York 10022
(212) 909-6000

*    Information regarding additional registrants is contained in the Table of Additional Registrants on the following page.

(212) 909-6000

*Information regarding additional registrants is contained in the Table of Additional Registrants on the following page.

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box ¨o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer" and “smaller"smaller reporting company”company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer¨Accelerated filer¨
Non-accelerated filero Accelerated filer þo  (DoNon-accelerated filer ý
(Do not check if a
smaller reporting company)		 Smaller reporting company¨o

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ¨o

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ¨o

CALCULATION OF REGISTRATION FEE

        
 
Title of Each Class of Securities
to be Registered
 Amount to be
Registered
 Proposed Maximum
Offering Price Per
Unit(1)
 Proposed Maximum
Aggregate Offering
Price
 Amount of
Registration Fee(2)
 

7.50% Senior Notes due 2020 of HD Supply, Inc. 

 $1,275,000,000 100% $1,275,000,000 $173,910(2)
 

Guarantees of 7.50% Senior Notes due 2020(3)

 — — — None(4)
 

Total

 $1,275,000,000 100% $1,275,000,000 $173,910

 

(1)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(f) promulgated under the Securities Act of 1933, as amended.

(2)
The registration fee has been calculated under Rule 457(f) of the Securities Act.

(3)
See the following page for a table of guarantor registrants.

(4)
Each of the guarantors will fully and unconditionally guarantee the senior notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act, no separate fee for the guarantee is payable.


           

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this registration statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.determine.

   

Index to Financial StatementsTable of Contents


Table of Additional Registrants*

Exact Name of Registrant as Specified in its Charter

State or Other
Jurisdiction of
Incorporation or
Organization		I.R.S. Employer
Identification
Number
Number

Brafasco Holdings II, Inc.

 Subsidiary Guarantor Delaware  54-2167751 

Brafasco Holdings, Inc.

 Subsidiary Guarantor Delaware  36-4392444 

Creative Touch Interiors, Inc.

 Subsidiary Guarantor Maryland  52-1009987 

HD Builder Solutions Group, LLC

 Subsidiary Guarantor Delaware  02-0647515 

HD Supply Construction Supply Group, Inc.

 Subsidiary Guarantor Delaware  84-1380403 

HD Supply Construction Supply, Ltd.

 Subsidiary Guarantor Florida  26-0100647 

HD Supply Distribution Services, LLC

 Subsidiary Guarantor Delaware  20-2860740 

HD Supply Electrical, Ltd.

Subsidiary GuarantorFlorida26-0100654

HD Supply Facilities Maintenance Group, Inc.

 Subsidiary Guarantor Delaware  14-1900568 

HD Supply Facilities Maintenance, Ltd.

 Subsidiary Guarantor Florida  52-2418852 

HD Supply GP & Management, Inc.

 Subsidiary Guarantor Delaware  51-0374238 

HD Supply Holdings, LLC

 Subsidiary Guarantor Florida  42-1651863 

HD Supply Management, Inc.

 Subsidiary Guarantor Florida  43-2080574 

HD Supply Repair & Remodel, LLC

 Subsidiary Guarantor Delaware  20-2749043 

HD Supply Support Services, Inc.

 Subsidiary Guarantor Delaware  59-3758965 

HD Supply Utilities Group, Inc.

 Subsidiary Guarantor Delaware  52-2048968 

HD Supply Utilities, Ltd.

 Subsidiary Guarantor Florida  26-0100651 

HD Supply Waterworks Group, Inc.

 Subsidiary Guarantor Delaware  05-0532711 

HD Supply Waterworks, Ltd.

 Subsidiary Guarantor Florida  05-0550887 

HDS IP Holding, LLC

 Subsidiary Guarantor Nevada  61-1540596 

HDS Power Solutions, Inc.

 Subsidiary Guarantor Michigan  38-1992495 

HSI IP, Inc.

 Subsidiary Guarantor Delaware  66-0620064 

LBM Holdings, LLC

 Subsidiary Guarantor Delaware  59-0999516 

ProValue, LLC

 Subsidiary Guarantor Delaware  55-0872477 

White Cap Construction Supply, Inc.

 Subsidiary Guarantor Delaware  95-3043400 
*
The address including zip code and telephone number including area code for each additional registrant is 3100 Cumberland Boulevard, Suite 1480, Atlanta, Georgia 30339; (770) 852-9000.

*The address including zip code and telephone number including area code for each additional registrant is 3100 Cumberland Boulevard, Suite 1480, Atlanta, Georgia 30339; (770) 852-9000

Index to Financial StatementsTable of Contents

The information in this prospectus is not complete and may be changed. We may not complete this exchange offer or issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JANUARYSEPTEMBER 30, 2013

PROSPECTUS

LOGOLOGO

HD Supply, Inc.

Offer to Exchange

$950,000,0001,275,000,000 Outstanding 10.50%7.50% Senior Subordinated Notes due 20212020
for $1,275,000,000 Registered 7.50% Senior Notes due 2020

for $950,000,000 Registered 10.50% Senior Subordinated Notes 2021

HD Supply, Inc. is offering to exchange $950,000,000$1,275,000,000 aggregate principal amount of its outstanding unregistered 10.50%7.50% Senior Subordinated Notes due 20212020 (the “Old Notes”"Old Notes") for a like principal amount of its registered 10.50%7.50% Senior Subordinated Notes due 20212020 (the “New Notes”"New Notes").

The terms of the New Notes are identical in all material respects to the terms of the Old Notes, except that the New Notes are registered under the Securities Act of 1933, as amended (the “Securities Act”"Securities Act"), and will not contain restrictions on transfer or provisions relating to additional interest, will bear a different CUSIP number from the Old Notes and will not entitle their holders to registration rights.

No public market currently exists for the Old Notes or the New Notes.

The exchange offer will expire at 5:00 p.m., New York City time, on                        , 2013 (the “Expiration Date”"Expiration Date") unless we extend the Expiration Date. You should read the section called “The"The Exchange Offer”Offer" for further information on how to exchange your Old Notes for New Notes.

See “Risk Factors”"Risk Factors" beginning on page 2324 for a discussion of risk factors that you should consider prior to tendering your Old Notes in the exchange offer and risk factors related to ownership of the New Notes.

Each broker-dealer that receives New Notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter”"underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of up to 90 days after the consummation of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan"Plan of Distribution.”"

Neither the U.S. Securities and Exchange Commission (“SEC”("SEC") nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is                        , 2013

Index to Financial StatementsTable of Contents


TABLE OF CONTENTS

Pages

Forward-Looking Statements and InformationProspectus Summary

  i1 

TrademarkRisk Factors

  iii24 

Market and Industry DataThe Exchange Offer

  iii52 

Certain Terms Used in This ProspectusUse of Proceeds

  iv60 

SummarySelected Consolidated Financial Data

  161 

Risk Factors

23

The Exchange Offer

49

Use of Proceeds

57

Selected Historical Financial Data

58

Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations

  6463 

Business

  97103 

Management

  102120 

Executive Compensation

  110128 

Security Ownership of Certain Beneficial Owners and Management

  123147 

Certain Relationships and Related Party Transactions

  126151 

Description of Other Indebtedness

  129154 

Description of Notes

  140159 

Plan of Distribution

  210231 

United StatesU.S. Federal Income Tax Considerations

  211232 

Certain ERISA Considerations

  212233 

Validity of the NotesLegal Matters

  213234 

Where You Can Find More Information

  213235 

Experts

  213236 

Index to Consolidated Financial Statements

  F-1 


You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this prospectus in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer or solicitation of an offer in such jurisdiction. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. Also, you should not assume that there has been no change in the affairs of HD Supply, Inc. and its subsidiaries since the date of this prospectus.

For additional information regarding the availability of this prospectus and other information available upon request, see “Where"Where You Can Find More Information.”

"

Index to Financial Statements

i

Table of Contents


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

This prospectus and the information incorporated by reference herein includes forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates,” “anticipates”"believes," "expects," "may," "will," "should," "could," "seeks," "intends," "plans," "estimates," "anticipates" or other comparable terms. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this reportprospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, financial condition, liquidity, prospects and growth strategies and the industries in which we operate and including, without limitation, statements relating to our estimated or anticipated financial performance or results.future performance.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may beare beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated results of operations, financial condition and liquidity, and theindustry development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this report.prospectus. In addition, even if our consolidated results of operations, financial condition and liquidity, and theindustry development of the industries in which we operate are consistent with the forward-looking statements contained in this report,prospectus, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including those reflected in forward-looking statements relating to our operations and business, the risks and uncertainties discussed in “Risk Factors”"Risk Factors" and those described from time to time in our other filings with the SEC. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include:

Inherent

    •
    inherent risks of the residential,maintenance, repair and operations market, infrastructure spending and the non-residential and public infrastructureresidential construction and facility maintenance and repair markets;

Our

•
our ability to achieve profitability;

Our

•
our ability to service our debt and to refinance all or a portion of our indebtedness;

Our substantial indebtedness and our ability to incur additional indebtedness;

Limitations

•
limitations and restrictions in the agreements governing our indebtedness;

Our ability to obtain additional financing on acceptable terms;

Increases in interest rates;

Rating agency actions with respect to our indebtedness;

The interests of

•
the Equity Sponsors (as defined herein);

The competitive environment in which we operate and demand for our products and services in highly competitive and fragmented industries;

Goodwill and other impairment charges;

Our obligations under long-term, non-cancelable leases;

Consolidation among our competitors;

The

•
the loss of any of our significant customers;

Failure to collect monies owed from customers, including on credit sales;

Competitive

•
competitive pricing pressure from our customers;

Our

•
our ability to identify and acquire suitable acquisition candidates on favorable terms;

Variability in our revenues and earnings;

i

Index to Financial Statements

Cyclicality

•
cyclicality and seasonality of the residential,maintenance, repair and operations market, infrastructure spending and the non-residential and infrastructureresidential construction and facility maintenance and repair markets;

Fluctuations in commodity and energy prices;

Our

•
our ability to identify and develop relationships with a sufficient number of qualified suppliers and to maintain our supply chains;

Our

•
our ability to manage fixed costs;

Changes in our product mix;

The impairment of financial institutions;

The

•
the development of alternatives to distributors in the supply chain;

Our

•
our ability to manage our working capital through product purchasing and customer credit policies;

Inclement weather, anti-terrorism measures and other disruptions to the transportation network;

Interruptions in the proper functioning of information technology (“IT”) systems;

Our ability to implement our technology initiatives;

Changes in U.S. federal, state or local regulations;

Exposure to construction defect and product liability claims and other legal proceedings;

Potential

•
potential material liabilities under our self-insured programs;

Changes in U.S. health care legislation;

Our

•
our ability to attract, train and retain highly qualified associates and key personnel;

ii

Fluctuations in foreign currency exchange rates;Table of Contents

Inability to protect our intellectual property rights;

Changes in U.S. and foreign tax law;

Limitations

    •
    limitations on our income tax net operating loss carry forwardscarryforwards in the event of an ownership change;

Our

•
our ability to identify and integrate new products;

and

•
the significant influence our sponsors have over corporate decisions.

        

Significant costs related to compliance with environmental, health and safety laws, including new climate change regulations; and

Our ability to achieve and maintain effective disclosure controls and internal control over our financial reporting.

You should read this prospectus, and the information incorporated by reference herein, including the uncertainties and factors discussed under “Risk"Risk Factors,”" completely and with the understanding that actual future results may be materially different from expectations. All forward looking statements made in this prospectus or the information incorporated by reference herein are qualified by these cautionary statements. TheseAll forward looking statements are made only as of the date of this prospectus or the applicable document incorporated by reference herein, as the case may be, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward looking or cautionary statements to reflect changes in assumptions, the occurrence offuture events unanticipated or otherwise, changes in future operating results over time or otherwise.developments. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.


ii

Index to Financial Statements


TRADEMARKTRADEMARKS

We use various trademarks, service marks and brand names, such asHD Supply (and design),Crown Bolt, National Waterworks (and design),USABluebook,Creative Touch Interiors andWhite Cap that we deem particularly important to the advertising activities and operation of our various lines of business, and some of these marks are registered in the United States and, in some cases, other jurisdictions. This prospectus also refers to the brand names, trademarks or service marks of other companies. All brand names and other trademarks or service marks cited in this prospectus are the property of their respective holders.



MARKET AND INDUSTRY DATA

This prospectus includes estimates regarding market and industry data and forecasts, which are based on publicly available information, industry publications and surveys, reports from government agencies, reports by market research firms and our own estimates based on our management’smanagement's knowledge of and experience in the residential and commercial services industry and market segmentssectors in which we compete. We have not independently verified market and industry data from third partythird-party sources. This information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process, and other limitations and uncertainties inherent in surveys of market size. In addition, consumer preferences



SUPPLEMENTAL INFORMATION

Our fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. Fiscal year ended February 3, 2013 (fiscal 2012) includes 53 weeks. Fiscal years ended January 29, 2012 (fiscal 2011) and the competitive landscape canJanuary 30, 2011 (fiscal 2010) both include 52 weeks. The six months ended August 4, 2013 and do change.

July 29, 2012 both included 26 weeks.

        Unless otherwise indicated, the information in this prospectus excludes our Industrial Pipes, Valves and Fittings ("IPVF") business which we sold on March 26, 2012 to Shale-Inland Holdings, LLC. Our annual financial statements presented herein have been revised to present IPVF as a discontinued operation for the periods presented.


iii

Index to Financial Statements

Table of Contents


CERTAIN TERMS USED IN THIS PROSPECTUS

In this prospectus, unless otherwise indicated or the context otherwise requires:

“

    •
    "12.0% Senior Notes”Notes" refers to the Company’sCompany's former 12.0% Senior Cash Pay Notes due 2014.

“

•
"2007 Senior Subordinated Notes”ABL Credit Facility" refers to the Company’s 13.5% Senior Subordinated Notes due 2015.

•

“April 2012 First Priority Notes” refers to the Company’s outstanding 8 1/8% Senior Secured First Priority Notes due 2019 issued on April 12, 2012 in an aggregate principal amount of $950,000,000.

“April 2012 Senior Notes” refers to the Company’s 14.875% Senior Notes due 2020 issued on April 12, 2012 in an aggregate principal amount of $757,002,000.

•

“August 2012 First Priority Notes” refers to the Company’s outstanding 8 1/8% Senior Secured First Priority Notes due 2019 issued on August 2, 2012 in an aggregate principal amount of $300,000,000.

“Bain” refers to investment funds associated with Bain Capital Partners, LLC, or any successor to its investment management business.

“Carlyle” refers to investment funds associated with Carlyle Investment Management, LLC, or any successor to its investment management business.

“CD&R” refers to investment funds associated with Clayton, Dubilier & Rice, LLC, or any successor to its investment management business.

“Equity Sponsors” refers collectively to Bain, Carlyle and CD&R.

“Existing ABL Credit Facility” refers to theformer senior asset-based revolving credit facility entered into by HD Supply (as successor by merger to HDS Acquisition Subsidiary, Inc.) on August 30, 2007 (as amended by Amendment No. 1, dated as of October 3, 2007, Amendment No. 2, dated as of November 1, 2007, and Limited Consent and Amendment No. 3, dated as of March 19, 2010), in an aggregate principal amount of $2,100 million, a portion of which may be used for letters of credit or swing-line loans.

“Existing

•
"2007 Acquisition" refers to the transactions described in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Relationship with Home Depot—Historical Relationship."

•
"2007 Senior Secured Credit Facility”Facility" refers to the former senior secured credit facility entered into by HD Supplythe Company (as successor by merger to HDS Acquisition Subsidiary, Inc.) on August 30, 2007, as amended on October 2, 2007 and November 1, 2007, which consists of a $1,000 million term loan facility and a $300 million revolving credit facility.

“Existing Term Loan”

•
"2007 Senior Subordinated Notes" refers to the Company's former 13.5% Senior Subordinated Notes due 2015.

•
"2007 Term Loan" refers to the former $1,000 million term loan facility under the Existing2007 Senior Secured Credit Facility.

“

•
"April 2012 First Priority Notes”Notes" refers to the Company's outstanding 81/8% Senior Secured First Priority Notes due 2019 issued on April 12, 2012 in an aggregate principal amount of $950,000,000.

•
"April 2012 Senior Unsecured Notes" refers to the Company's 14.875% Senior Notes due 2020 issued on April 12, 2012 in an aggregate principal amount of $757,002,000.

•
"August 2012 First Priority Notes" refers to the Company's outstanding 81/8% Senior Secured First Priority Notes due 2019 issued on August 2, 2012 in an aggregate principal amount of $300,000,000.

•
"Bain" refers to investment funds associated with Bain Capital Partners, LLC, or any successor to its investment management business.

•
"Carlyle" refers to investment funds associated with Carlyle Investment Management, LLC, or any successor to its investment management business.

•
"CD&R" refers to investment funds associated with Clayton, Dubilier & Rice, LLC, or any successor to its investment management business.

•
"Equity Sponsors" refers collectively to Bain, Carlyle and CD&R.

•
"First Priority Notes" refers collectively to the April 2012 First Priority Notes and the August 2012 First Priority Notes.

“

•
"GAAP" refers to accounting principles generally accepted in the United States of America.

•
"HD Supply,” “the Company,” “we,” “our”" the "Company," "we," "our" and “us”"us" refer to HD Supply, Inc. and its consolidateddirectly and indirectly owned subsidiaries as a combined entity, except where it is clear that the terms mean only HD Supply, Inc. exclusive of its subsidiaries.

“Holding”

•
"Holdings" refers to HDS Investment Holding,HD Supply Holdings, Inc., our ultimate parent company.

iv

“Indenture”Table of Contents

    •
    "Indenture" refers to the indenture governing the Notes.

iv

Indexnotes.

•
"January 2013 Senior Subordinated Notes" refers to Financial Statements

“the Company's former 10.50% Senior Subordinated Notes due 2021 issued on January 16, 2013 in an aggregate principal amount of $950,000,000.

•
"October 2012 Senior Notes”Notes" refers to the Company’sCompany's 11.50% Senior Notes due 2020 issued on October 15, 2012 in thean aggregate principal amount of $1,000,000,000.

“Refinancing Transactions”

•
"Second Priority Notes" refers to the transactions described in “Summary—The Refinancing Transactions.”

“Second Priority Notes” refers to the Company’sCompany's 11% Senior Secured Second Priority Notes due 2020 issued on April 12, 2012 in thean aggregate principal amount of $675,000,000.

“

•
"Senior ABL Agreement”Agreement" refers to the credit agreement governing the Senior ABL Facility.

“

•
"Senior ABL Facility”Facility" refers to our new revolving asset backed credit facility described in “Description"Description of Other Indebtedness.”

“"

•
"Senior Credit Facilities”Facilities" refers collectively to the Senior ABL Facility and the Senior Term Facility.

“

•
"Senior Term Agreement”Agreement" refers to the credit agreement governing the Senior Term Facility.

“

•
"Senior Term Facility”Facility" refers to our new term credit facility described in “Description"Description of Other Indebtedness.”

“"

•
"Subsidiary Guarantors”Guarantors" refers to the subsidiaries of the issuer that will guarantee the Notes.notes.

v

    Table of Contents

           

    “Transactions” refers to the transactions described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Relationship with Home Depot—Historical relationship.”

    v

    Index to Financial Statements


    PROSPECTUS SUMMARY

    This summary highlights information contained elsewhere in this prospectus and may not contain all of the information that may be important to you. For a more complete understanding of our business, and the Refinancing Transactions (as defined herein), you should read this summary together with the more detailed information and financial statements appearing elsewhere and incorporated by reference in this prospectus. You should read this entire prospectus carefully, including our consolidated financial statements and the related notes as well as the “Risk Factors”"Risk Factors" and “Forward-Looking"Forward-Looking Statements and Information”Information" sections.

    Unless otherwise indicated, the information in this prospectus excludes our Industrial, Pipe, Valve and Fitting business (“IPVF”) which we sold on March 26, 2012 to Shale-Inland Holdings, LLC.
    Our unaudited financial statements for the nine months ended October 28, 2012 and October 30, 2011 and our annual financial statements for each of the fiscal years ended January 29, 2012 (“fiscal 2011”), January 30, 2011 (“fiscal 2010”) and January 31, 2010 (“fiscal 2009”) have been revised to present IPVF as a discontinued operation for the periods presented.Company

    Our Company

    We are one of the largest industrial distributors in North America. We believe we have leading positions in the United States and Canada based on sales serving three distinct market sectors: Infrastructure & Energy,sectors in which we specialize: Maintenance, Repair & ImprovementOperations; Infrastructure & Power; and Specialty Construction. With a diverse portfolioThese market sectors are large and fragmented, and we believe they present opportunities for significant growth. We aspire to be the "First Choice" of industry-leading distribution businessescustomers, associates, suppliers and more than 80 years of experience,the communities in which we provide a broad range ofoperate. This aspiration drives our relentless focus and is reflected in the customer and market centricity, speed and precision, intense teamwork, process excellence and trusted relationships that define our culture. We believe this aspiration distinguishes us from other distributors and has driven above-market growth and delivered attractive returns on invested capital.

            We serve our markets with an integrated go-to-market strategy. We operate through over 600 locations across 46 U.S. states and nine Canadian provinces. We have approximately 15,000 associates delivering localized, customer-tailored products, services and services toexpertise. We serve approximately 440,000 professional500,000 customers, includingwhich include contractors, government entities, maintenance professionals, home builders and industrial businesses. Through approximately 630 locations across the United StatesOur broad range of end-to-end product lines and Canada we have an expansive offering of approximatelyservices include over one million stock-keeping units (“SKUs”("SKUs") of quality, name-brand and proprietary-brand products at competitive prices.as well as value-add services supporting the entire lifecycle of a project from infrastructure and construction to maintenance, repair and operations. For the fiscal year ended February 3, 2013, or fiscal 2012, we generated $8.0 billion in Net sales, representing 14.3% growth over the fiscal year ended January 29, 2012, we generated $7.0 billion in Net sales, $508or fiscal 2011, or 12.2% growth excluding the 53rd week of fiscal 2012; $683 million of Adjusted EBITDA, representing 34.4% growth over fiscal 2011, or 31.7% growth excluding the 53rd week of fiscal 2012; and incurred a Net loss of $543 million.$1,179 million representing an increase of 117.1% over fiscal 2011, or an increase of 119.7% excluding the 53rd week of fiscal 2012. For the six months ended August 4, 2013, we generated $4.3 billion in Net sales, representing 11.0% growth over the six months ended July 29, 2012; $382 million of Adjusted EBITDA, representing 17.5% growth over the six months ended July 29, 2012; and incurred a Net loss of $203 million, representing an improvement of 51.2% over the six months ended July 29, 2012. For a reconciliation of netNet income (loss), the most directly comparable financial measure under GAAP, to Adjusted EBITDA, see “—Summary Consolidated"Management's Discussion and Analysis of Financial Data.”Condition and Results of Operations—Key Business Metrics—Cash interest expense and Adjusted EBITDA."

    We provide localized, customer-driven services to a diverse group of end markets and customers through approximately 14,400 associates and a network of approximately 630 locations across 46 U.S. states and 9 Canadian Provinces. Our comprehensive supply chain solutions consist of services such as jobsite delivery, will call or direct-ship options. Furthermore, volume purchasing, comprehensive product assortment, product knowledge and availability allow our customers to reduce procurement costs and enhance overall workforce productivity.        We believe the combination of these services with our national footprint, broad purchasing scale and extensive product offering drive our long-standing customer relationships and create competitive advantage.advantage stem from our knowledgeable associates, extensive product and service offerings, national footprint, integrated technology, broad purchasing scale and strategic supplier relationships. We believe that our comprehensive supply chain solutions improve the effectiveness and efficiency of our customers' businesses. Our value-add services include customer training, material and product fabrication, kitting, jobsite delivery, will call pick up options, as well as onsite managed inventory, online material management and emergency response capabilities. Furthermore, we believe our product application knowledge, comprehensive product assortment, and sourcing expertise allow our customers to perform reliably and provide them the tools to enhance profitability. We reach our customers through a variety of sales channels, including a serviceprofessional outside and inside sales force,forces, call centers customer service representatives and abranch supported direct marketing program. The direct marketing strategy consistsprograms utilizing market-specific product catalogs, and business unit


    Table of a national account sales program, a HD Supply branded website and segment-specific product catalogues.Contents

    websites. Our distribution network allows us to provide rapid, reliable, on-time delivery and customer pickup throughout the United States.U.S. and Canada. Additionally, we believe our highly integrated technology provides leading e-commerce and integrated workflow capabilities for our customers, while providing us unparalleled pricing, budgeting, reporting and analytical capabilities across our Company. We believe customers view us as an integral part of the value chain due to our extensive product knowledge, expansive product availability and the ability to directly integrate with their systems and workflows.

            Since 2007 we have undertaken significant operating and growth initiatives at all levels. We developed and are implementing a multi-year strategy to optimize our business mix. This strategy includes entering new markets and product lines, streamlining and upgrading our process and technology capabilities, acquiring new capabilities and selling non-core business units. At the same time, we attracted what we believe to be "best of the best" talent capitalizing on relevant experience, teamwork and change navigation. With this transformational execution behind us, we believe our company is well-positioned to continue to grow in our revenues at a growth rate in excess of the growth rates of the markets in which we operate.


    Summary of Reportable Segments

            We operate through four reportable segments: Facilities Maintenance, Waterworks, Power Solutions and White Cap. Although these reportable segments are distinct and specialized to reflect the needs of their customers, we operate our Company with an integrated go-to-market strategy.

      •
      Facilities Maintenance.  Facilities Maintenance distributes maintenance, repair and operations ("MRO") products, provides value-add services and fabricates custom products to multifamily, hospitality, healthcare and institutional facilities.

      •
      Waterworks.  Waterworks distributes complete lines of water and wastewater transmission products, serving contractors and municipalities in the water and wastewater industries for non-residential and residential uses.

      •
      Power Solutions.  Power Solutions distributes electrical transmission and distribution products, power plant MRO supplies and smart-grid products, and arranges materials management and procurement outsourcing for the power generation and distribution industries.

      •
      White Cap.  White Cap distributes specialized hardware, tools, engineered materials and safety products to non-residential and residential contractors.

     


    Index to Financial Statements

    Geographic FootprintTable of Contents

    LOGO

    Our business        The table below is differentiated by diversity in the products, businesses and end markets which we serve. The following charts summarizea summary of our revenue by line of business and end market for the fiscal year ended January 29, 2012.four reportable segments.


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    LOGO Overview

    		 LOGO

    Catalog Based Distributor of MRO Products to Maintenance Professionals

    Distributor of Water, Sewer, Storm and Fire Protection Products

    Distributor of Utilities and Electrical Construction and Industrial Products

    Distributor of Specialty Construction and Safety Supplies

    Fiscal 2012 Net Sales

    $2.2 billion

    $2.0 billion

    $1.8 billion

    $1.2 billion

    Fiscal 2012 Adjusted EBITDA(1)

    $389 million

    $137 million

    $72 million

    $56 million

    Adjusted EBITDA Margin(2)

    18%

    7%

    4%

    5%

    Growth(3)

    20%

    21%

    40%

    224%

    Est. Market Share(4)

    4%

    20%

    5%

    6%

    Est. Market Position(5)

    #1 in Multifamily

    #1 Nationally

    #1 in Utilities

    #1 Full Service Distributor Nationally

    Locations

    40 Distribution Centers in U.S.; 2 in Canada

    238 Branches in 44 U.S. States

    97 Branches in 26 U.S. States; 4 in Canada

    137 Branches in 31 U.S. States

    Approx. SKUs

    175,000

    300,000

    220,000

    230,000

    Select Products

    Electrical and Lighting Items; Plumbing; HVAC Products; Appliances; Janitorial Supplies; Hardware; Kitchen and Bath Cabinets; Window Coverings; Textiles and Guest Amenities; Healthcare Maintenance; Water and Wastewater Treatment Products

    Water and Wastewater Transmission Products Including Pipe (PVC, Ductile Iron, HDPE); Fittings; Valves; Fire Protection; Metering Systems; Storm Drain; Hydrants; Fusion Machine Rental; Valve Testing and Repair

    Pole Line Hardware; Wire and Cable; Gear and Controls; Power Equipment; Fixtures and Lighting; Meters

    Concrete Accessories and Chemicals; Tools; Engineered Materials and Fasteners; Safety; Erosion and Waterproofing






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    Value-add Services

    Next Day Delivery; Customized and Fabricated Products; Renovations and Installation Services; Technical Support; Customer Training; e-Commerce Solutions

    Proprietary PC-based Estimating Software; Job Management Reports; Electronic Billing; On-demand Customer Reports; Part Number Interchange; Material Management Online ("MMO"); Database Depot; Distributor Managed Inventory ("DMI")

    Emergency Response Solutions; Integrated Inventory and Sourcing Solutions; IT Solutions (Virtual Warehouse, EDI, Online Ordering, Custom Online Catalog); SmartGrid; Project Services (Material Take Offs and Laydown Yards); Tool Repair

    Pre-Bid Assistance; Product Submittals; Value Engineering; Change Order Support; Rentals (Tilt-Up Braces, Forming/Shoring, Equipment); Fabrication Including Detailing and Engineering; Tool Repair; Electronic Billing

    Customer Examples

    Residential Property Owners and Managers; Hotels and Lodging Facilities; Assisted Living Facilities; Institutions; Water and Wastewater Treatment Facilities

    Professional Contractors Serving Municipalities, Non-residential and Residential Construction

    Municipalities and Co-ops; Investor Owned Utilities; Non-residential, Residential and Mechanical Contractors; Industrial (Industrial Manufactures, MRO, Oil and Gas Contractors)

    Professional Contractors Serving Non-residential, Residential and Industrial Construction






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    (1)
    Adjusted EBITDA is our measure of profitability for our reportable segments as presented within our consolidated financial statements in accordance with GAAP. See Note 14 to our audited consolidated financial statements.
    (2)
    Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by Net sales.
    (3)
    Growth is equal to growth in Adjusted EBITDA over fiscal 2011 and excludes the 53rd week of fiscal 2012.
    (4)
    Management estimates based on market data and industry knowledge. Market share is based on our revenues relative to the estimated addressable market size.
    (5)
    Market position is based on our revenues relative to the estimated revenues of known competitors in addressable markets. Unless stated otherwise, market position refers to management's estimate of our market position in North America within the estimated addressable markets we serve.


    Our Industry

    Through seven industrial distribution businesses in the U.S. and a Canadian operation, we provideTable of Contents



    Our Market Sectors

            We offer a diverse range of products and services to professional customers in the Infrastructure & Energy, Maintenance, Repair & ImprovementOperations, Infrastructure & Power and Specialty Construction market sectors. Most of our businessessectors in the U.S. and Canada. The markets in which we operate in markets withhave a high degree of customer and supplier fragmentation, whichwith customers that typically demand a high level of service and availability of a broad set of complex products from a large number of suppliers. These factors drivemarket dynamics make the importance of the distributor a critical element within the value chainchain.

            The table below summarizes our market sectors, business units and create barriersend-markets, including our net sales by end-market.

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    *
    Excludes HD Supply Canada.

    (1)
    Crown Bolt, Creative Touch Interiors, Repair & Remodel and HD Supply Canada, in addition to entry for suppliersCorporate and Eliminations, comprise "Corporate & Other."

    (2)
    Figures do not foot due to sell directly to customers.

    Index to Financial Statements
    rounding. Excludes HD Supply Canada.

    Maintenance, Repair & ImprovementOperations

    Our        In the Maintenance, Repair & Improvement businessesOperations market sector, our Facilities Maintenance, Crown Bolt and Repair & Remodel business units serve customers across multiple industries by primarily delivering supplies and services needed to maintain and upgrade facilities across multiple industries. The sector is a $64 billion addressable market where our demand is driven by maintenance requirements for the existing stock of U.S. structuresmultifamily, hospitality, healthcare and traditional repair and remodel construction across multiple industries. Our businesses in this sector have non-branch based operating models. Ourinstitutional facilities. Facilities Maintenance and Crown Bolt businesses are distribution center based models, while our Repair & Remodel business is aoperates through retail outletoutlets primarily serving cash and carry customers. OurWe believe demand in this market sector is driven primarily by ongoing maintenance requirements of a broad range of existing structures and traditional repair and remodeling construction activity across


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    multiple industries. We believe Facilities Maintenance customers value speed and product availability over price. In addition, we believe that our leadership position withinin this sector should allowpositions us to capitalize on improving business conditions within the segment. Weacross our addressable market. For example, we expect to benefit from an increase inthe relative stability of demand from our customers in maintenance repair and improvementfor MRO materials during periods of lower vacancy rates within multifamily housing and highhigher occupancy rates.rates within hospitality.

    Multifamily Vacancy Rate

    Multifamily Revenue Per Occupied Stock

    LOGOLOGO

    Source: REIS (“United States Apartment 3Q 2012 MetroTrend Futures”)

    Our businesses serving customers in Maintenance, Repair & Improvement include:

    Facilities Maintenance. Supplies maintenance, repair and operations (“MRO”) products and upgrade and renovation services largely to the multifamily, healthcare, hospitality, institutional and commercial properties markets. Products include kitchen and bathroom plumbing products, heating, ventilating and air conditioning (“HVAC”) products, tools and repair materials, appliances, cabinet and drawer hardware, door hardware and locksets, fasteners, lighting, electrical maintenance supplies, safety products, guest amenities, textiles, healthcare maintenance and janitorial supplies. Facilities Maintenance is a distribution center based model.

    Repair & Remodel. Offers light remodeling and construction supplies primarily to small remodeling contractors and trade professionals. Products include kitchen cabinets, windows, plumbing materials, masonry, electrical equipment, lumber, flooring and tools and tool rentals for small remodeling, home improvement and do-it-yourself residential projects. Repair & Remodel is a retail outlet business primarily serving cash and carry customers.

    Crown Bolt. A retail distribution operator, providing program and packaging solutions, sourcing, distribution, and in-store service, primarily serving The Home Depot, Inc., (“Home Depot” or “THD”) and other hardware stores. Products include fasteners, builders hardware, rope and chain and plumbing accessories primarily consumed in home improvement, do-it-yourself projects and residential construction. Crown Bolt is a distribution center based model.

    Index to Financial Statements

    Infrastructure & EnergyPower

    To        In the Infrastructure & Power market sector, Waterworks and Power Solutions support both established infrastructure and economic growth, our Infrastructure & Energy businesses serve customers in the Infrastructure & Energy market sectornew projects by striving to meet theirmeeting demand for the critical supplies and services used to build and maintain water systems and for theelectrical power generation, transmission and distribution and application of electrical power. Theinfrastructure. We believe demand in this market sector is a $42 billion addressable market where our demandin the U.S. is driven in the United Statesprimarily by an aging national infrastructure, anand overburdened existingnational infrastructure, general population growth trends and the need for cost-effective energy distribution. The broad geographic presence of our business units, through a regionally organized branch distribution network, reduces our exposure to economic factors in any single region. We believe we have the potential to capitalize on a substantial backlog of deferred projects that will need to be addressed in the coming years as a result of our customers delaying much needed upgrades or repairs during the recent economic downturn as well as a recovery in the non-residential and residential construction end-markets.

    Specialty Construction

            In the Specialty Construction market sector, White Cap and Creative Touch Interiors ("CTI") serve professional contractors and trades by meeting their distinct and customized supply needs in non-residential, residential and industrial applications. We believe demand in this market sector is driven primarily by residential construction, non-residential construction, and industrial and repair and remodeling construction spending. White Cap is our primary business unit serving this sector through the broad national presence of its regionally organized branch distribution network. CTI serves its market through a network of branches and design centers. We believe we are well-positioned to benefit from the recovery from historical lows within the non-residential and residential construction end-markets.


    Our Strengths

    We believe that we benefit significantly from the following competitive strengths:

            Collaborative results-driven culture and exacting execution driving growth.    Our culture of customer and market centricity, speed and precision, intense teamwork, process excellence and trusted relationships promotes continuous learning and drives our entire team to perform at the highest level. Rather than singularly investing and recognizing returns in one business unit, we leverage investments in one business unit across all of our other business units.

            Leadership positions with significant scale in large, fragmented markets.    Our Facilities Maintenance, Power Solutions, Waterworks and White Cap business units are leading North American industrial distributors in each of the addressable markets they serve based on sales. We believe that our size and competitive position as well as the fragmentation and competitive dynamics of the markets we serve make them opportunity-rich for profitable growth.

            Specialized business model delivering a customer-success based value proposition.    We offer our customers a breadth of products and services tailored to their specific needs. Our local presence and intimate understanding of our customers allow us to optimize our sales coverage model. We also provide differentiated, value-add services to our customers.


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            We believe that the breadth of our product and service offering provides significant competitive advantages versus smaller local and regional competitors, helping us earn new business and secure repeat business.

            Strategic diversity across customers, suppliers, geographic footprint, products and end-markets.    We believe that by developing relationships with a diverse set of customers, we gain significant visibility into the future needs of our marketplace. Our broad base of approximately 500,000 customers has low concentration with no single customer representing more than 4% of our total sales and our top 10 customers representing only approximately 8% of our total sales during fiscal 2012. We maintain relationships with approximately 15,000 suppliers and maintain multiple suppliers for many of our products, thereby limiting the risk of product shortages. Our diverse geographic footprint of over 600 locations limits our dependence on any one region. We also believe that our diversity of end-market exposures is a key competitive strength, as our growth opportunities and ability to deploy resources are not constrained by any single end-market dynamic. We believe that we stand to benefit both from large end-markets that are characterized by stable long-term growth potential, as well as from end-markets that are exposed to cyclical dynamics.

            Highly efficient and well-invested operating platform driving high returns on invested capital.    Through a series of efficiency improvements and investments in the business, we believe we have transformed our business into a highly efficient platform which is well-positioned for future growth.

            Transformational management team.    HD Supply's executive management team has played a vital role in establishing our leading market share positions in each of our four main business units. Our CEO, Joseph DeAngelo, has over 25 years of global operating experience, including over 17 years in various leadership roles at General Electric Company ("GE") and The Home Depot, Inc. ("Home Depot"), including Chief Operating Officer. The rest of our executive management team has an average of more than 11 years at HD Supply and its predecessors, and brings decades of experience from leading companies. Consistent themes at all levels of our management are long-tenured experience, focus on team chemistry and active presence in the field, which promote effective change.

            Highly integrated technology infrastructure.    We have an integrated IT infrastructure and a number of common technologies and centers of excellence. Our access to and ability to analyze real-time data provided by our integrated IT infrastructure allows us to take appropriate and swift action across our business units, which we believe differentiates us from our smaller competitors.

            Deep and strategically aligned relationships with suppliers.    We have developed extensive and long-term relationships with many of our suppliers. We believe our above-market growth provides our suppliers with their own growth opportunities. This plus a history of close coordination, positions us as a preferred distributor for our key suppliers. We believe this provides access to new products, custom training on specialized products and early awareness of upcoming projects. Further, because they enable us to source both standard and difficult-to-find products in a timely manner, our strategic supplier relationships make us the distributor of choice to many of our customers.


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            Proven results.    As a result of our strengths discussed above, we have consistently achieved above-market organic growth across our four reportable segments. Organic sales growth for fiscal 2012 compared to the growth in the relevant addressable market is illustrated in the chart below.

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    (1)
    We define the relevant addressable market as the estimated total dollars spent in markets where a reportable segment offers products. Market growth figures are management estimates of changes in total spending in the relevant addressable market derived from third-party data sources.

    (2)
    Segment growth based on organic sales growth (excluding acquisitions). HD Supply growth figures exclude the 53rd week of fiscal 2012.


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            In addition, we have consistently achieved strong operating leverage driven by our transformational execution, lean and dynamic organization, and strategic growth initiatives. Operating leverage for fiscal 2012 is illustrated in the chart below.

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    (1)
    Segment growth based on sales and Adjusted EBITDA growth. Both growth figures include acquisitions and exclude the 53rd week of fiscal 2012.


    Our Strategy

            Our objective is to strengthen our competitive position, achieve above-market rates of profitable growth and increase shareholder value through the following key strategies:

            Be the First Choice.    Our aspiration to be the "First Choice" of customers, associates, suppliers and communities drives our strategy and defines our culture. We seek to strengthen existing customer relationships and cultivate new ones through our customer-centric approach and dedication to their success.

            Our dedication to providing superior work environments, experiences and opportunities supports our efforts to be the "First Choice" of the most qualified and motivated associates in the industry. Similarly, we believe that we maintain excellent relationships with our suppliers and strive to be their first call when choosing a go-to-market strategy for their products. Consistent with our local presence and focus, we actively invest in the communities in which we operate, supporting organizations, programs and events that foster community development both financially and through the volunteer efforts of our associates.

            Continue to invest in specific, high-return initiatives.    Over the past three years, we have invested more than $600 million into specific, targeted operating and growth initiatives driving profitability and efficient growth. We will continue to leverage these initiatives and invest in additional growth initiatives. We expect these initiatives will help us maintain above market, profitable growth rates.

            Capitalize on accelerating growth across our multiple and varied end-markets.    We have made significant investments and believe we can benefit from the recovery and growth in our end-markets. We have also strategically and operationally positioned ourselves to benefit from a recovery in our end-markets that are exposed to cyclical dynamics. We believe the maintenance, repair and operations market, infrastructure spending and the non-residential and residential construction markets are


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    entering a series of inflection points which will accelerate in sequential, overlapping stages throughout the economic cycle, as they have historically. Additionally, we believe many of our customers delayed required upgrades or repairs during the recent economic downturn, and there is a substantial backlog of projects that will need to be addressed in the coming years fromyears. We believe our ample supply capacity and significant operating leverage will result in growth across our various end-markets.

            Continue to invest in attracting, retaining and developing world-class talent.    To be the "First Choice," we will maintain and expand our already-strong talent base. We develop our employees through specialized training and learning tools. In addition, we deliver attractive opportunities to our associates while spreading knowledge and expertise across our entire organization through frequently redeploying top talent between business units. We believe these opportunities are superior to those offered by much of our competition, and help us develop, attract and retain world-class talent. Furthermore, our focus and culture have led to investments in a range of broader associate benefits, such as our "Be Well" program, through which our CEO has challenged each employee to achieve a specified level of physical health (as measured by body mass index and other health targets), which we stand to benefit. Intrack and reward across the utilities space specifically, we stand to capitalize upon forecasts of $55 billion in planned transmission investment by shareholder-owned utilities over the next four years.

    Actual and Planned Transmission Investment by Shareholder—Owned Utilities (US$ in Millions)1

    LOGO

    Source:Edison Electric Institute, Business Information Group as of July 2012.

    1Amounts adjusted for inflation and are expressed in real 2011 dollars.
    2Planned total industry expenditures are preliminary.

    The broad geographic presence of these businesses, through a regionally organized distribution network of branches, reduces our exposure to economic factors in any single region. The Infrastructure & Energy sector is made up of the following businesses:

    Waterworks.Distributes complete lines of water and wastewater transmission products, serving contractors and municipalities in all aspects of the water and wastewater industries. Products include pipes, fittings, valves, hydrants and meters for use in the construction, maintenance and repair of water and waste-water systems as well as fire-protection systems. Waterworks also provides adjacent offerings, including smart meters (AMR/AMI), high-density polyethylene (HDPE) pipe and specific engineered treatment plant products and services. Waterworks complements its product offering with various value-added services such as water meter testing and reconditioning, fusion machine rental, inventory management, hot-tapping, water systems audits, control valve testing and repair, onsite inventory trailers, manhole rehabilitation, line stopping and online material management.organization.

    Power Solutions. Distributes electrical transmission and distribution products, power plant MRO supplies, smart-grid technologies, and provides materials management and procurement outsourcing arrangements to the power generation and distribution industries. Products include conductors such as wire and cable, transformers,

    Index to Financial Statements

    overhead transmission and distribution hardware, switches, protective devices and underground distribution, connectors used in the construction or maintenance and repair of electricity transmission and substation distribution infrastructure, and electrical wire and cable, switchgear, supplies, lighting and conduit used in residential and commercial construction.

    Specialty Construction

    Our Specialty Construction businesses serve professional contractors and trades by striving to meet their very distinct customized supply needs in commercial, residential and industrial applications. The sector is a $17 billion addressable market where demand is driven by single family, multifamily, commercial, municipal, and repair and remodel construction spending. White Cap is the primary business that serves this sector through a broad national presence, a regionally organized distribution network of branches. We believe we are well positioned to capitalize upon the recovery of the residential and non-residential construction sectors which are expected to see a continued rebound in the next several years from historical low levels.

    Non-Residential Construction Spending ($)
    Indexed to 2007

    Residential Construction: Single Family Starts,
    Indexed to 2007

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    Source: Management estimates based on industry data.

    Our businesses serving customers in this market include:

    White Cap. Distributes specialized hardware, tools and building materials to professional contractors. Products include tilt-up brace systems, forming and shoring systems, concrete chemicals, hand and power tools, rebar, ladders, safety and fall arrest equipment, specialty screws and fasteners, sealants and adhesives, drainage pipe, geo-synthetics, and erosion and sediment control used broadly across all types of residential and non-residential construction.

    Creative Touch Interiors (“CTI”).Offers turnkey supply and installation services for multiple interior finish options, including flooring, cabinets, countertops, and window coverings, along with comprehensive design center services for residential, commercial and senior living projects.

    HD Supply Canada

    HD Supply Canada is an industrial distributor that primarily focuses on servicing fasteners/industrial supplies and specialty lighting markets. HD Supply Canada operates across nine provinces.

    Index to Financial Statements

    Our Strengths

    We believe that        Continue our company has the following competitive strengths:

    Market share leader with significant scale distributing a broad product offering to diverse end markets nationally: We operate in the large, fragmented U.S. and Canadian residential, non-residential and infrastructure construction, renovation and improvement markets. We have leading market share in our four major businesses. Facilities Maintenance is the largest distributor to multi-family properties and Power Solutions is the largest utilities distributor. Many of our competitors lack the resources and scale to compete with our product depth and knowledge, strong customer service, global sourcing capability, broad geographic coverage, and sophisticated information technology systems. Our expansive national footprint drives competitive advantage in our markets and gives us the ability to not only provide excellent national service but also leverage our purchasing power through our significant scale. As a result, we have developed leading market positions and believe that we are poised to capture additional market share and capitalize on continued consolidation in the industry.

    Our broad end-market and geographic exposure, low customer concentration and diverse product and service offerings across our businesses help reduce the risks related to a single end market, customer or vendor. We serve a broad array of end markets with favorable long-term growth prospects, driven by many different factors. Furthermore, we operate approximately 630 locations strategically located across 46 U.S. States and 9 Canadian Provinces. Our broad business mix reduces our exposure to the seasonality and cyclicality of any individual end market or region. We offer approximately one million SKUs to approximately 440,000 professional customers, including contractors, government entities, maintenance professionals, home builders and industrial businesses. Our large, highly fragmented customer base has very low account concentration with our largest customer, Home Depot, representing only 3.9% of our total sales in fiscal year ending January 2012. In addition, no customer, other than Home Depot, represented more than 1.0% of our total sales in the same year.

    Addressable Market Opportunity and HD Supply’s Position (US$ in Billions)

    LOGO

    Index to Financial Statements

    1Management estimates.
    2Sales for the year ended January 29, 2012.
    3Power Solutions is the largest utilities distributor. Facilities Maintenance is the largest distributor to multifamily properties.

    Strategic supplier relationships.We have developed relationships with approximately 14,000 strategic suppliers, many of which are long-standing relationships. These supplier relationships provide us with reliable access to inventory, volume purchasing benefits and the ability to deliver a diverse product offering on a cost-effective basis. We maintain multiple suppliers for a substantial number of our products, thereby limiting the risk of product shortage for customers. We also have a sourcing office located in China in order to help us advantageously procure a number of supplies from low cost countries. Our strong supplier relationships allow us to leverage our existing relationships into strategic partnerships. We seek synergies across business lines with suppliers by aggregating purchases where possible to achieve favorable pricing and terms.

    Highly integrated, industry-leading technology platform. Each of our portfolio companies has converged on a single, integrated technology platform specific to their business. Leveraging common technologies and centers of excellence across HD Supply, they provide leading capabilities for web commerce, order and warehouse management, pricing, reporting and business analytics. The core enterprise resource planning platforms are extended by a series of world-class on-premise and cloud-based solutions. Together, these provide seamless customer integration for sales, optimize receivables and inventory management, as well as highly-scalable internal processes without rework and waste.

    Robust liquidity and strong cash flow generation. Historically, our strong competitive position and high quality products and services have allowed us to generate attractive and stable gross margins. These margins together with limited capital expenditures and modest working capital requirements significantly benefit our operating flexibility and ability to generate significant cash flow. As is typical with the flexibility associated with a distribution operating model, our cost structure is largely based on variable costs and furthermore capital expenditures were approximately 1.6% of our sales for the twelve months ended January 29, 2012. This operating model allows us to adjust to changing industry dynamics and as a result, in periods of decreased sales activity, we are able to generate cash flow as our costs are reduced and working capital contracts. In addition, we believe that our strong liquidity position is a strategic asset, as it allows us to serve our customers’ needs in all operating environments.

    Experienced management team and strong equity sponsorship. Our management team is focused on stringent operational and financial metrics and has successfully navigated through the economic downturn in 2008 and 2009. In the fiscal year ending January 2012, sales grew by 9.0% year-over-year and our Adjusted EBITDA increased by 48% over the past two fiscal years. The strong rebound is largely attributable to the successful execution of our strategy by our senior management team, which has an average of more than 20 years of distribution, construction and diversified industry experience. Our CEO, Joseph DeAngelo, has over 25 years of global operating experience including 17 years at General Electric Company, where he gained extensive operational, sourcing and financial experience across numerous General Electric business units. Our business heads have significant experience across industries with our company and at other leading industrial companies such as General Electric Company, Arrow Electronics, Inc., Honeywell International Inc. and The Stanley Works. The presidents of our businesses have vast industry experience, the majority of which has been accrued in service at our legacy companies. Further, each of our Equity Sponsors brings a strong track record of creating value through their ownership of large distribution businesses, including Rexel S.A., Brenntag Holding GmbH & Co. KG and Wesco Aircraft Hardware Corp.

    Index to Financial Statements

    Our Strategy

    We are focused on driving strong performance and ongoing operational improvements at our businesses through the following initiatives:

    Build upon strong leadership positions among our principal lines of business. Our Waterworks and White Cap lines of business currently enjoy the leading position in their respective markets. Our Facilities Maintenance line of business has the leading position in the U.S. multifamily MRO segment of the facilities MRO market and our Power Solutions line of business has the leading position in the U.S. and Canada in the utilities distribution market. We believe that our market share substantially exceeds that of the next largest competitor in each of these four markets. We believe our scale and local-market presence position us to gain further share as we expect that our suppliers and customers will continue to seek relationships with fewer, larger distributors. Our ongoing focus will be to continue to develop our principal lines of business with a focus on leveraging our strong market positions and investing locally to grow market share.

    Focus on organic sales growth initiatives. Our businesses focus on acquiring new customers as well as selling new products to existing customers. We currently sell approximately one million SKUs to approximately 440,000 customers comprised of contractors, government entities, maintenance professionals, home builders and industrial businesses. Our diversity enables us to increase our sales to existing customers by satisfying a broad range of their needs across multiple lines of business. We have multiple initiatives to identify and enter adjacent markets and new geographies to expand our customer base. Our products include the materials necessary for the construction of a facility through its ongoing maintenance and through future remodeling and expansion. We continue to invest in organic growth initiatives within our principal lines of business including in the following:

    •

    Facilities Maintenance: Increase market share in multifamily, hospitality, healthcare, institutional and industrial end markets.

    •

    Waterworks: Expand into new geographies, direct-to-distribution, and adjacent product lines such as meters, treatment plants, storm drainage and fusible plastics.

    •

    White Cap: Grow local market and MSA leadership and enhance merchandising.

    •

    Power Solutions: Increase market share within the independent owned utilities market and the generation market, establish alliances in new markets and expand existing product and solution portfolio.

    Continued focus on operational efficiencyexcellence and margin enhancement initiatives will leadspeed and precision of execution.    Our gross margins have increased from 28.0% in fiscal 2009 to improved cash flows.28.9% in fiscal 2012 and our Selling, general and administrative expenses as a percentage of sales declined from 23.0% to 20.7% during the same time period. We place a particular emphasis on maintaining a strong focus onemphasize sourcing, pricing discipline and working capital optimization.management across all of our business units. As a result of our financial efficiency, during what has been an otherwise difficult operating environment over the past several years, has improved as evidenced by our expansion of gross margins from 28.0% in fiscal 2009discipline and ability to 28.7% in fiscal 2011. In addition, we have successfully leveragedleverage our fixed cost infrastructure, as SG&A as a percentage of sales have declined from 23.0% in fiscal 2009our financial performance has improved through the recent downturn. Our continued focus on operational excellence enables us to 21.8% in fiscal 2011, which has enabled our Adjusted EBITDAdrive the speed and precision necessary to grow at a CAGR of 21.7% during this period.be the "First Choice."

    Gross Margin Improvement Initiatives:

    Continued consolidation        Attract new customers and develop new market opportunities.    We believe the comprehensive nature of our vendorsoperations across a project lifecycle facilitates extensive, shared market awareness among our business leaders. We believe this widespread market insight enhances our customer relationships as it allows us to aggregate total product spend, reductionpartner with customers in understanding their specific needs and providing quality products and services. We intend to capitalize on our market awareness of vendor overlapnew projects to maximize sales across our lines of business and increased sourcing from low cost countries

    Optimize our inbound freight costs, physical facilities and delivery fleet

    Grow sales of private-label products which typically generate higher gross margins than leading third-party brands sold by our businesses and enhance customer loyalty. Approximately 7.1%all of our fiscal 2011 sales were generatedbusiness units. Our four principal business units can provide the materials and tools necessary to construct buildings and infrastructure above and below the ground, while also supplying the components needed to keep the operations well maintained. We believe this is the "HD Supply Advantage," or our differentiated ability to "supply the products and services to build your city and keep it running."

            Supplement strong organic growth with "tuck-in" acquisitions in core and adjacent markets.    Our organic growth is complemented by private label products

    Indexselect "tuck-in" acquisitions in core and adjacent markets to Financial Statements

    Operating Cost Enhancement Initiatives:

    Consolidationsupplement our product set, geographic footprint and other capabilities. Our business development team selectively pursues acquisitions that are culturally compatible and meet our growth and business model criteria. As a result of our back officehighly efficient operations, reducing our overall cost structure

    Investment in technology to improve efficiencies within our transportation managementindustry-leading IT systems, strategically aligned supplier relationships and our warehouse management systems

    Continued optimization of investment in working capital

    Proactive portfolio optimization. Through past divestitures, we have focused our portfolio around our four key business lines which we believebroad distribution platform, there are positionedopportunities to achieve leading financial and strategic performance. Approximately 90% of our sales are concentratedsubstantial synergies in our primary business lines in which we believe we have companies with leading market positions. Our management team is incentivized to achieve our operational goals focused on achieving organic growth, profitability and high returns and we believe our current set of businesses will allow us to achieve these goals. We have a strong track record of integrating new businesses through “tuck-in” acquisitions, and continue to evaluate accretive opportunities in adjacent geographies, customers and product categories.thereby reduce our effective (post-synergy) transaction multiples.


    Ownership and Corporate StructureInformation

    Equity Sponsor Overview

    The        On July 2, 2013, our parent company, Holdings, completed an initial public offering of 61,170,212 shares of its common stock on the NASDAQ Global Select Market. As of September 24, 2013,


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    investment funds associated with the Equity Sponsors own 83.8%57% of the outstanding capital stock of our parent company, Holding,Holdings without giving effect to outstanding options.

            The Equity Sponsors are in the business of making investments in companies, and may from time to time in the future acquire controlling interests in businesses that complement or directly or indirectly compete with certain portions of our business. If the Equity Sponsors pursue such acquisitions in our industry, those acquisition opportunities may not be available to us.

    Bain Capital Partners, LLC.    Established in 1984, Bain Capital Partners, LLC is one of the world’sworld's leading private investment firms with approximately $60 billion in assets under management, over 400 investment professionals, and 10 offices in 6 countries. Bain’sfirms. Bain's affiliated advisorsfunds make private equity, public equity, leveraged debt, venture capital and absolute return investments across a wide range of industries, asset classes, and geographies. Over 28 years, Bain has completed over 460 private equity investments. Select current portfolio companies include HCA, Michael’sMichael's Stores, Bloomin’Bloomin' Brands and Sensata Technologies.

    The Carlyle Group. The    Carlyle Group is a global alternative asset manager with $147$170 billion of assets under management in 89113 active funds and 5267 fund of fund vehicles as of December 31, 2011.2012. Carlyle invests across four segments—Corporate Private Equity, Real Assets, Global Market Strategies and Fund of Funds Solutions—in Africa, Asia, Australia, Europe, the Middle East, North America and South America. The Carlyle Group employs more than 1,3001,400 people in 33 offices across six continents. Select portfolio companies include: Dunkin’ Brands Group, Nielsen, AMC, Allison Transmission, Axalta Coating Systems, and Kinder Morgan.Getty Images.

    Clayton, Dubilier & Rice, LLC.    Founded in 1978, Clayton, Dubilier & Rice, LLCCD&R is a private equity firm withcomposed of a combination of financial and operating executives pursuing an investment strategy predicated on building stronger, more profitable businesses. The firm’s professionals include a combination of financial and operating executives. Since inception, CD&R has managed the investment of approximately $16more than $18 billion in 4956 U.S. and European businesses with an aggregate transaction value of approximately $80$90 billion. CD&R has a long history of investing in market-leading distribution businesses, including VWR International, a leading global distributor of laboratory supplies, U.S. Foodservice,US Foods, the second largest broadline foodservice distributor in the United States,U.S., Rexel, the leading distributor worldwide of electrical supplies, and Diversey, a leading global manufacturer and distributor of commercial cleaning, sanitation and hygiene solutions.solutions, and AssuraMed, a specialty retailer and distributor of medical supplies.

     


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    Index to Financial Statements

    The following chart illustrates our current ownership, organizational and capital structure:structure, as of September 24, 2013:

    GRAPHIC

    LOGO

    *
    *
    Does not give effect to outstanding options.
    (1)Borrower under the Senior Credit Facilities and issuer of the First Priority Notes, the Second Priority Notes, the April 2012 Senior Notes, the October 2012 Senior Notes, the 2007 Senior Subordinated Notes, the Old Notes and the New Notes.
    (2)A Canadian subsidiary of HD Supply is a borrower under the Senior ABL Facility. Each domestic subsidiary of HD Supply (other than certain excluded subsidiaries, “Excluded Subsidiaries”) currently guarantees HD Supply’s obligations under the Senior ABL Facility, and each such domestic subsidiary and certain Canadian subsidiaries of HD Supply (other than Excluded Subsidiaries) currently guarantee the obligations of the Canadian borrower under the Senior ABL Facility. The Senior ABL Facility and guarantees thereof are secured as described under “Description of Other Indebtedness—Senior Credit Facilities—Senior ABL Facility.”
    (3)The New Notes will be guaranteed by each domestic subsidiary of HD Supply that is a borrower under the Senior ABL Facility or guarantees HD Supply’s indebtedness under any Credit Facility and that is a Wholly Owned Domestic Subsidiary or that guarantees Capital Markets Securities. See “Description of Notes—Subsidiary Guarantees.” These subsidiaries also guarantee the First Priority Notes, the Second Priority Notes, the April 2012 Senior Notes, the October 2012 Senior Notes, the 2007 Senior Subordinated Notes and the Old Notes. See “Description of Other Indebtedness—First Priority Notes,” “Description of Other Indebtedness—Second Priority Notes,” “Description of Other Indebtedness—April 2012 Senior Notes,” “Description of Other Indebtedness—October 2012 Senior Notes” and “Description of Other Indebtedness—2007 Senior Subordinated Notes.”

    Index to Financial Statements

    The Refinancing Transactions

    The following transactions (the “Refinancing Transactions”) occurred on April 12, 2012:

    Entry into a new Senior Term Facility and the repayment of all amounts outstanding under our Existing Senior Secured Credit Facility.

    Entry into a new Senior ABL facility and the repayment of all amounts outstanding under our Existing ABL Credit Facility.

    Bain and Carlyle exchanged certain of the 12.0% Senior Notes held by them prior to the redemption of the 12.0% Senior Notes for a portion of the April 2012 Senior Notes (the “Sponsor Exchange”).

    CD&R purchased a portion of the April 2012 Senior Notes (the “CD&R Purchase” and together with the Sponsor Exchange, the “April 2012 Senior Notes Issuance”).

    The issuance of the April 2012 First Priority Notes.

    The issuance of the Second Priority Notes.

    The redemption of the remaining 12.0% Senior Notes.

    The termination of the guarantee by Home Depot of our payment obligations for principal and interest under the Existing Term Loan under the Existing Senior Secured Credit Facility.

    In addition, on August 2, 2012, we issued the August 2012 First Priority Notes.

    On October 15, 2012, we issued $1 billion of the October 2012 Senior Notes at par. As a result of the issuance, we incurred $18 million in debt issuance costs. On November 8, 2012, the net proceeds from the October 2012 Senior Notes issuance were used to redeem $930 million of the outstanding 2007 Senior Subordinated Notes at a redemption price of 103.375%.

    On January 16, 2013, we issued $950 million of the Old Notes at par. At closing, we paid $14 million in debt issuance costs. We intend to use the net proceeds from the Old Notes issuance to redeem $889 million of the outstanding 2007 Senior Subordinated Notes on or about February 8, 2013, at a redemption price of 103.375%.

    On January 29, 2013, we announced the pricing of a private offering of $1,275,000,000 of Senior Notes due 2020 (the “2013 Senior Notes”). We intend to use the entire net proceeds from the 2013 Senior Notes issuance to refinanceoptions.

    (1)
    Has pledged all of the capital stock of HD Supply, Inc. as security for our outstanding April 2012 Senior Notes at a redemptionindebtedness.

    (2)
    Borrower or repurchase price equal to the principal amountissuer of the April 2012 Senior Notes to be redeemed or repurchased, plus a make-whole premium determined in accordance with the termsour outstanding indebtedness. See "Description of the indenture governing the April 2012 Senior Notes, plus accrued and unpaid interest thereon through the redemption or repurchase date, and to pay related fees and expenses. The 2013 Senior Notes issuance is scheduled to close on February 1, 2013, subject to the satisfactionOther Indebtedness."

    (3)
    Domestic operating subsidiaries are guarantors of customary closing conditions.

    our outstanding indebtedness. See "Description of Other Indebtedness."

    * * * * *

    HD Supply, Inc. is a Delaware corporation. Our principal executive offices are located at 3100 Cumberland Boulevard, Suite 1480, Atlanta, Georgia 30339, and our telephone number at that address is (770) 852-9000. Our website is www.hdsupply.com. Information on, and which can be accessed through, our website is not incorporated in this prospectus.

     


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    Index to Financial Statements

    Summary of Risk Factors

            Our business is subject to a number of risks of which you should be aware and carefully consider before making an investment decision. These risks are discussed in "Risk Factors", and include but are not limited to the following:

      •
      inherent risks of the maintenance, repair and operations market, infrastructure spending and the non-residential and residential construction markets;

      •
      our substantial level of debt;

      •
      our ability to service our debt and to refinance all or a portion of our indebtedness;

      •
      decline in the new residential construction or non-residential construction markets;

      •
      residential renovation and improvement activity levels may not return to historic levels;

      •
      our ability to achieve or maintain profitability;

      •
      our ability to compete effectively;

      •
      our ability to timely and efficiently access products that meet our standards for quality;

      •
      interruptions to the proper functioning of our IT systems or an inability to implement our IT initiatives; and

      •
      our ability to identify new products and product lines and integrate them into our distribution network.


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    Summary of the Terms of the Exchange Offer

            

    The Old Notes were issued in transactions exempt from registration under the Securities Act.

    Notes Offered

    		$950,000,0001,275,000 aggregate principal amount of new 10.50%7.50% Senior Subordinated Notes due 2021,2020, which have been registered under the Securities Act.

     

    When we use the term “Notes”"Notes" in this prospectus, the related discussion applies to both the Old Notes and the New Notes.

     

    The terms of the New Notes are identical in all material respects to the terms of the Old Notes, except that the New Notes are registered under the Securities Act and will not be subject to restrictions on transfer, will bear a different CUSIP and ISIN number than the Old Notes, will not entitle their holders to registration rights and will be subject to terms relating to book-entry procedures and administrative terms relating to transfers that differ from those of the Old Notes.

     

    The CUSIP numbers for the Old Notes are 40415R AL9AN5 (Rule 144A) and U4047C AF4AG2 (Regulation S). The ISIN numbers for the Old Notes are US40415RAL96US40415RAN52 (Rule 144A) and USU4047CAF42USU4047CAG25 (Regulation S). The CUSIP number for the New Notes is 40415R AM7AP0 and the ISIN number for the New Notes is US40415RAM79.US40415RAP01.

    The Exchange Offer

    You may exchange Old Notes for a like principal amount of New Notes. The consummation of the exchange offer is not conditioned upon any minimum or maximum aggregate principal amount of Old Notes being tendered for exchange.

    Resale of New Notes

    We believe the New Notes that will be issued in the exchange offer may be resold by most investors without compliance with the registration and prospectus delivery provisions of the Securities Act, subject to certain conditions. You should read the discussions under the headings “The"The Exchange Offer”Offer" for further information regarding the exchange offer and resale of the New Notes.

     


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    Registration Rights Agreement

    We have undertaken the exchange offer pursuant to the terms of the exchange and registration rights agreement we entered into with the initial purchasers on January 16,February 1, 2013 (the “Registration"Registration Rights Agreement”Agreement"). Pursuant to the Registration Rights Agreement, we agreed to use our commercially reasonable efforts to consummate an exchange offer for the Old Notes pursuant to an effective registration statement or to cause resales of the Old Notes to be registered. We have filed this registration statement to meet our obligations under the Registration Rights Agreement. If we fail to satisfy our obligations under the Registration Rights Agreement and a Registration Default occurs, the interest rate on the Registrable Securities will be increased by (i)(i) 0.25 percent per annum for the first 90-day period beginning on the day immediately following such Registration Default and (ii)(ii) an

    Index to Financial Statements

    additional 0.25 percent per annum with respect to each subsequent 90-day period, in each case until and including the date such Registration Default ends, up to a maximum increase of 0.50 percent per annum. See “Exchange"Exchange Offer; Registration Rights.”"

    Consequences of Failure to Exchange the Old Notes

    You will continue to hold Old Notes that remain subject to their existing transfer restrictions if:

    you do not tender your Old Notes; or

    you tender your Old Notes and they are not accepted for exchange.

     

    •

    you do not tender your Old Notes; or

    •

    you tender your Old Notes and they are not accepted for exchange.

    With some limited exceptions, we will have no obligation to register the Old Notes after we consummate the exchange offer. See “The"The Exchange Offer—Terms of the Exchange Offer; Period for Tendering Old Notes.”"

    Expiration Date

    The exchange offer will expire at 5:00 p.m., New York City time, on                        , 2013 (the “Expiration Date”"Expiration Date"), unless we extend it, in which case Expiration Date means the latest date and time to which the exchange offer is extended.

    Interest on the New Notes

    The New Notes will accrue interest from the most recent date to which interest has been paid or provided for on the Old Notes or, if no interest has been paid on the Old Notes, from the date of original issue of the Old Notes.

     


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    Conditions to the Exchange Offer

    The exchange offer is subject to several customary conditions. We will not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes, and we may terminate or amend the exchange offer if we determine in our reasonable judgment at any time before the Expiration Date that the exchange offer would violate applicable law, any applicable interpretation of the SEC or its staff or any order of any governmental agency or court of competent jurisdiction. The foregoing conditions are for our sole benefit and may be waived by us at any time. In addition, we will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, if at any time any stop order is threatened or in effect with respect to:

    the registration statement of which this prospectus constitutes a part; or

    the qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).

     

    •

    the registration statement of which this prospectus constitutes a part; or

    •

    the qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").

    See “The"The Exchange Offer—Conditions to the Exchange Offer.”" We reserve the right to terminate or amend the exchange offer at any time prior to the Expiration Date upon the occurrence of any of the foregoing events.

    Index to Financial Statements

    Procedures for Tendering Old Notes

    If you wish to participate in the exchange offer, you must submit required documentation and effect a tender of Old Notes pursuant to the procedures for book-entry transfer (or other applicable procedures), all in accordance with the instructions described in this prospectus and in the letter of transmittal or electronic acceptance instruction. See “The"The Exchange Offer—Procedures for Tendering Old Notes.”"

    Guaranteed Delivery Procedures

    If you wish to tender your Old Notes, but cannot properly do so prior to the Expiration Date, you may tender your Old Notes according to the guaranteed delivery procedures set forth under “The"The Exchange Offer—Guaranteed Delivery Procedures.”"

    Withdrawal Rights

    Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Old Notes, a notice of withdrawal must be actually received by the Exchange Agent at its address set forth in “The"The Exchange Offer—Exchange Agent”Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. See “The"The Exchange Offer—Withdrawal Rights.”"

     


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    Acceptance of Old Notes and Delivery of New Notes

    Except in some circumstances, any and all Old Notes that are validly tendered in the exchange offer prior to 5:00 p.m., New York City time, on the Expiration Date will be accepted for exchange. The New Notes issued pursuant to the exchange offer will be delivered promptly after the Expiration Date. See “The"The Exchange Offer—Acceptance of Old Notes for Exchange; Delivery of New Notes.”"

    Certain U.S. Federal Income Tax Considerations

    		We believe that

    The exchange of an Old Note for a New Note pursuant to the exchange offer will not be treated as a sale or exchange of the Old Notes for the New Notes will not constituteNote by a taxable exchangeHolder for U.S. federal income tax purposes. See “Certain United States"U.S. Federal Income Tax Considerations.”"

    Exchange Agent

    Wells Fargo Bank, National Association is serving as the Exchange Agent for the New Notes (the “Exchange Agent”"Exchange Agent").

     


    Index to Financial StatementsTable of Contents


    Summary of the Terms of the New Notes

    The terms of the New Notes offered in the exchange offer are identical in all material respects to the Old Notes, except that the New Notes:

      •
      are registered under the Securities Act and therefore will not be subject to restrictions on transfer;



    •
    will not be subject to provisions relating to additional interest;



    •
    will bear a different CUSIP and ISIN number;



    •
    will not entitle their holders to registration rights; and



    •
    will be subject to terms relating to book-entry procedures and administrative terms relating to transfers that differ from those of the Old Notes.

    The following summary contains basic information about the New Notes and the guarantees thereof and is not intended to be complete. Capitalized terms used in this section and not otherwise defined shall have the meaning ascribed thereto in the “Description"Description of Notes”Notes" in this prospectus. For a more complete understanding of the New Notes and the guarantees, please refer to the section entitled “Description"Description of Notes.”Notes" in this prospectus.

    Issuer

    		HD Supply, Inc.

    Notes Offered

    $950,000,0001,275,000,000 aggregate principal amount of 10.50 %7.50% Senior Subordinated Notes due 2021.2020.

    Maturity

    The New Notes will mature on JanuaryJuly 15, 2021.2020.

    Interest

    The New Notes will bear interest at a rate of 10.50%7.50%, payable in cash on April 15 and October 15 and at maturity, commencing on April 15, 2013. Interest accrues on the New Notes accrues from January 16,February 1, 2013.

    Ranking

    The New Notes are our unsecured senior subordinated indebtedness and rank:

    •

    equal in right of payment with all of our existing and future senior indebtedness;

    •

    senior in right of payment to all of our existing and future subordinated indebtedness;

    •

    effectively subordinated to all of our existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness; and

    •

    structurally subordinated to approximately $65 million of indebtedness and other liabilities of our non-guarantor subsidiaries, including all of our foreign subsidiaries, as of August 4, 2013.

    subordinated in right of payment to all our existing and future senior indebtedness;

    equal in right of payment with all of our existing and future senior subordinated indebtedness;

    senior in right of payment to all of our existing and future indebtedness that is by its terms expressly subordinated in right of payment to the Notes;

    effectively subordinated to all of our existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness; and

    structurally subordinated to approximately $67 million of indebtedness and other liabilities of our non-guarantor subsidiaries, including all of our foreign subsidiaries, as of October 28, 2012.

     


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    Index to Financial Statements

    As of October 28, 2012,August 4, 2013, we had approximately $3.3$3.4 billion of senior secured indebtedness, net of unamortized discount of $27$21 million $5.1and including unamortized premium of $19 million, approximately $5.7 billion of senior indebtedness, net of unamortized discount of $56$21 million and including unamortized premium of $19 million, and our non-guarantor subsidiaries had approximately $67$65 million of indebtedness. As of October 28, 2012,August 4, 2013, we also had commitments for additional borrowings under the revolving Senior ABL Facility of $867$888 million.

    Guarantors

    The New Notes are guaranteed, on ana senior unsecured senior subordinated basis, by each of our direct and indirect domestic existing and future subsidiaries that is a wholly owned domestic subsidiaryWholly Owned Domestic Subsidiary (other than certain excluded subsidiaries)Excluded Subsidiaries), and by each other domestic subsidiary that is a borrower under a seniorSenior ABL facilityFacility or that guarantees our obligations under any credit facility or capital markets securities. These guarantees are subject to release under specified circumstances. See “Description"Description of Notes—Subsidiary Guarantees.”" The guarantee of each Subsidiary Guarantor iswill be a senior subordinatedunsecured obligation of that Subsidiary Guarantor and ranks:will rank:

    subordinated in right of payment to all existing and future senior indebtedness of such Subsidiary Guarantor;

    equal in right of payment with all existing and future senior subordinated indebtedness of such Subsidiary Guarantor;

    senior in right of payment to all existing and future indebtedness of such Subsidiary Guarantor that is by its terms expressly subordinated in right of payment to the Notes;

    effectively subordinated to all existing and future secured indebtedness of such Subsidiary Guarantor, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral owned by such Subsidiary Guarantor; and

    structurally subordinated to all indebtedness and other liabilities of any non-guarantor subsidiary of such Subsidiary Guarantor.

     

    •

    equal in right of payment with all existing and future senior indebtedness of that Subsidiary Guarantor;

    •

    senior in right of payment to all existing and future subordinated indebtedness of such Subsidiary Guarantor;

    •

    effectively subordinated to all existing and future secured indebtedness of that Subsidiary Guarantor, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral owned by such Subsidiary Guarantor; and

    •

    structurally subordinated to all indebtedness and other liabilities of any non-guarantor subsidiary of that Subsidiary Guarantor.


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    As of October 28, 2012,August 4, 2013, the indebtedness and other liabilities of our non-guarantor subsidiaries was approximately $67$65 million. The New Notes arewill be structurally subordinated to the indebtedness and other liabilities of such non-guarantor subsidiaries. Our non-guarantor subsidiaries generated approximately 6%5% of our Net sales for fiscal 20112012 and held approximately 3% of our assets as of October 28, 2012.August 4, 2013.

    Optional Redemption

    We may redeem the Notes, in whole or in part, at any time (1) prior to JanuaryOctober 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the make-whole premium described under “Description"Description of Notes—Optional Redemption,”" and (2) on and after JanuaryOctober 15, 2016, at the redemption prices described under “Description"Description of Notes—Optional Redemption,”" plus accrued and unpaid interest, if any, to the redemption date.

    Index to Financial Statements
    In addition, at any time after July 31, 2013 and on or before July 31, 2014, we may also redeem up to 100% of the aggregate principal amount of the Notes with funds not exceeding the proceeds of certain qualified public equity offerings at the redemption prices and on the conditions described under “Description of Notes—Optional Redemption.”

    Optional Redemption After Certain Equity Offerings

    Prior to JanuaryOctober 15, 2016,2015, we may redeem on one or more occasions up to 35% of the original aggregate principal amount of the Notes in an amount not exceeding the net proceeds of one or more equity offerings at the redemption prices and on the conditions described under “Description"Description of Notes—Optional Redemption.”"

    Offer to Repurchase

    If we experience a change of control, we must offer to repurchase all of the Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. See “Description"Description of Notes—Change of Control.”"

     

    If we sell certain assets, under certain circumstances we must make an offer to purchase Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase. See “Description"Description of Notes—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock.”"

    Certain Covenants

    The Indenture contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:

    incur more indebtedness;

    pay dividends, redeem stock or make other distributions;

    make investments;

    create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers;

    create liens;

    transfer or sell assets;

    merge or consolidate; and

    enter into certain transactions with our affiliates.

     

    •

    incur more indebtedness;

    •

    pay dividends, redeem stock or make other distributions;


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    •

    make investments;

    •

    create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers;

    •

    create liens;

    •

    transfer or sell assets;

    •

    merge or consolidate; and

    •

    enter into certain transactions with our affiliates.

    These covenants are subject to important exceptions and qualifications, which are described under “Description"Description of Notes—Certain Covenants”Covenants" and “Description"Description of Notes—Merger and Consolidation.”"

    Risk Factors

    In evaluating an investment in the New Notes, prospective investors should carefully consider, along with other information included in this prospectus, the specific factors set forth under “Risk Factors.”

     


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    Index to Financial Statements


    Ratios of Earnings to Fixed Charges

    Our consolidated ratios of earnings to fixed charges for the nine-monthsix-month period ended October 28, 2012,August 4, 2013, the fiscal years ended February 3, 2013, January 29, 2012, January 30, 2011, January 31, 2010 and February 1, 2009 the Successor period from August 30, 2007 to February 3, 2008 and the Predecessor period from January 29, 2007 to August 29, 2007 are as follows:

      Successor     Predecessor 
      Nine-month
    period ended
    October 28, 2012    		  Fiscal year ended  Period from
    Aug. 30,
    2007 to
    Feb. 3, 2008    		     Period from
    Jan.  29, 2007
    to
    Aug. 29, 2007    		 
       Jan. 29, 2012  Jan. 30,
    2011    		  Jan. 31,
    2010    		  Feb.1,
    2009    		    

    Ratio of earnings to fixed charges(1)

    		  (2)   (2)   (2)   (2)   (2)   (2)     1.1x  

    (1)For the purposes of calculating the ratio of earnings to fixed charges, earnings consist of income from continuing operations before provision (benefit) for income taxes plus fixed charges. Fixed charges include cash and non-cash interest expense, whether expensed or capitalized, amortization of debt issuance cost, amortization of the guarantee by Home Depot of our payment obligations for principal and interest under the Existing Term Loan (the “THD Guarantee”) and the portion of rental expense representative of the interest factor.
    (2)For the nine-month period ended October 28, 2012, fiscal 2011, fiscal 2010, fiscal 2009, fiscal 2008, and the period from August 30, 2007 to February 3, 2008, our earnings were insufficient to cover fixed charges by $449 million, $484 million, $585 million, $678 million, $1,477 million and $275 million, respectively.
     
    		  
    		 Fiscal year ended(1) 
     
    		 Six-month
    period ended
    August 4, 2013    		 Feb. 3,
    2013    		 Jan. 29,
    2012    		 Jan. 30,
    2011    		 Jan. 31,
    2010    		 Feb.1,
    2009    		 

    Ratio of earnings to fixed charges(2)

    		        (3)       (3)       (3)       (3)       (3)       (3)
    (1)
    The fiscal year ended February 3, 2013 includes 53 weeks. All other fiscal years reported include 52 weeks.

    (2)
    For the purposes of calculating the ratio of earnings to fixed charges, earnings consist of income from continuing operations before provision (benefit) for income taxes plus fixed charges. Fixed charges include cash and non-cash interest expense, whether expensed or capitalized, amortization of debt issuance cost and the portion of rental expense representative of the interest factor.

    (3)
    For the six-month period ended August 4, 2013, fiscal 2012, fiscal 2011, fiscal 2010, fiscal 2009, fiscal 2008, our earnings were insufficient to cover fixed charges by $148 million, $1,196 million, $484 million, $585 million, $678 million, and $1,477 million, respectively.

     


    Table of Contents

    Index to Financial Statements


    Summary Consolidated and Combined Financial and Operating Data

    The following table presents our summary historicalconsolidated financial data, as of and for the periods indicated. The summary historicalconsolidated financial informationdata as of and for the ninesix months ended October 28,August 4, 2013 and July 29, 2012 and October 30, 2011 hashave been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The summary historicalconsolidated financial data as of February 3, 2013 and January 29, 2012 and for the fiscal years ended February 3, 2013, January 29, 2012 and January 30, 2011 January 31, 2010, February 1, 2009 and for the period from August 30, 2007 to February 2008 and the period from January 29, 2007 to August 29, 2007 have been derived from our historicalaudited consolidated financial statements.statements included elsewhere in this prospectus. The summary consolidated financial data as of January 30, 2011 are derived from our audited financial statements which are not included in this prospectus.

    On March 26, 2012, HD Supply disposed of its Industrial Pipes, Valves and Fittings (“IPVF”) business. During fiscal 2011, HD Supply disposed of its Plumbing/HVAC and SESCO/QUESCO operations. In accordance with Accounting Standards Codification (“ASC”) 205-20, Discontinued Operations, the results of the IPVF, Plumbing/HVAC and SESCO/QUESCO operations and the gain on sale of the businesses are classified as discontinued operations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations and gain on the sale of businesses, net of tax, as one line item on the        This "Summary Consolidated Statements of Operations. All prior period Consolidated Statements of Operations have been revised to reflect this presentation.

    This “Summary Consolidated and Combined Financial and Operating Data”Data" should be read in conjunction with “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations,”Operations" and our audited consolidated financial statements and related notes included elsewhere in “Audited Consolidated Financial Statements” and unaudited consolidated financial statement and related notes included in “Unaudited Consolidated Financial Statements.”this prospectus. Our historical consolidated and combined financial data may not be indicative of our future performance.

     
    		 Six Months Ended Fiscal Year Ended 
     
    		 August 4,
    2013    		 July 29,
    2012    		 February 3,
    2013    		 January 29,
    2012    		 January 30,
    2011    		 
     
    		 (Dollars in millions)
    		 

    Consolidated Statement of Operations:

    		                

    Net sales

    		 $4,325 $3,895 $8,035 $7,028 $6,449 

    Cost of sales

    		  3,066  2,778  5,715  5,014  4,608 
                

    Gross profit

    		  1,259  1,117  2,320  2,014  1,841 

    Total operating expenses

    		  1,009  971  2,149  1,859  1,804 
                

    Operating income

    		  250  146  171  155  37 

    Interest expense

    		  291  324  658  639  623 

    Loss (gain) on extinguishment and modification of debt

    		  87  220  709  —  5 

    Other (income) expense, net

    		  20  —  —  —  (6)
                

    Income (loss) from continuing operations before provision (benefit) for income taxes and discontinued operations

    		  (148) (398) (1,196) (484) (585)

    Provision (benefit) for income taxes

    		  55  34  3  79  28 
                

    Income (loss) from continuing operations

    		  (203) (432) (1,199) (563) (613)

    Income (loss) from discontinued operations, net of tax

    		  —  16  20  20  (6)
                

    Net income (loss)

    		 $(203)$(416)$(1,179)$(543)$(619)
                

    Balance sheet data (end of period):

    		                

    Cash and cash equivalents(1)

    		 $109 $90 $141 $111 $292 

    Total assets(2)

    		  6,587  6,639  7,334  6,738  7,089 

    Total debt, less current maturities(3)

    		  5,678  5,765  6,430  5,380  5,239 

    Other financial data:

    		                

    Working capital(4)

    		 $1,281 $1,069 $1,120 $1,012 $1,176 

    Cash interest expense(5)

    		  276  273  535  457  365 

    Adjusted EBITDA(6)

    		  382  325  683  508  411 

    Capital expenditures

    		  (64) (52) 115  115  49 
    (1)
    Cash and cash equivalents as of February 3, 2013 excludes $936 million of cash equivalents that were restricted for the redemption of debt.

     


    Table of Contents

    Index to Financial Statements

      Successor     Predecessor 
      Historical
    Nine months ended    		  Historical
    Fiscal year ended    		  Period
    from
    August 30,
    2007 to
    February 3,
    2008    		     Period
    from
    January 29,
    2007 to
    August 29,
    2007    		 
      October 28,
    2012    		  October 30,
    2011    		  January 29,
    2012    		  January 30,
    2011    		  January 31,
    2010    		  February 1,
    2009    		    
      (Dollars in millions)       

    Consolidated Statement of Operations:

    		          

    Net sales

    		 $6,041   $5,376   $7,028   $6,449   $6,313   $8,198   $3,838     $5,903  

    Cost of sales

    		  4,308    3,848    5,014    4,608    4,545    5,980    2,808      4,329  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Gross profit

    		  1,733    1,528    2,014    1,841    1,768    2,218    1,030      1,574  

    Operating expenses:

    		          

    Selling, general and administrative

    		  1,223    1,144    1,532    1,455    1,453    1,770    860      1,208  

    Depreciation and amortization

    		  250    245    327    341    359    374    156      105  

    Restructuring

    		  —      —      —      8    21    31    —        —    

    Goodwill impairment

    		  —      —      —      —      219    867    —        —    
     

     

     

    		 ��

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Total operating expenses

    		  1,473    1,389    1,859    1,804    2,052    3,042    1,016      1,313  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Operating income (loss)

    		  260    139    155    37    (284)   (824)   14      261  

    Interest expense

    		  489    477    639    623    602    644    289      220  

    Interest income

    		  —      —      —      —      —      (3)   —        —    

    Loss (gain) on extinguishment of debt

    		  220    —      —      —      (200)   —      —        —    

    Other (income) expense, net

    		  —      (1)   —      (1)   (8)   12    —        —    
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Income (loss) from continuing operations before provision (benefit) for income taxes and discontinued operations

    		  (449)   (337)   (484)   (585)   (678)   (1,477)   (275)     41  

    Provision (benefit) for income taxes

    		  36    59    79    28    (198)   (329)   (100)     17  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Income (loss) from continuing operations

    		  (485)   (396)   (563)   (613)   (480)   (1,148)   (175)     24  

    Income (loss) from discontinued operations, net of tax

    		  19    26    20    (6)   (34)   (107)   (12)     (32) 
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Net income (loss)

    		 $(466)  $(370)  $(543)  $(619)  $(514)  $(1,255)  $(163)    $56  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Balance sheet data (end of period):

    		          

    Working capital(1)

    		 $1,279    $1,012   $1,176   $1,925   $2,071   $2,009     

    Cash and cash equivalents

    		  158     111    292    539    771    108     

    Total assets

    		  7,678     6,738    7,089    7,845    9,088    10,593     

    Total debt(2)

    		  6,915     5,462    5,249    5,775    6,056    5,800     

    Total stockholder’s equity (deficit)

    		  (881)    (428)   96    688    1,175    2,433     

    Other financial data (unaudited):

    		          

    Cash interest expense(3)

    		 $403   $307   $457   $365   $363   $397   $191     $220  

    EBITDA(4)

    		  292    387    484    381    288    (455)   173      370  

    Adjusted EBITDA(4)

    		  529    406    508    411    343    476    176      401  

    Capital expenditures

    		  80    58    115    49    58    77    75      176  

    Statement of cash flows data:

    		          

    Cash flows provided by (used in) operating activities, net

    		 $(327)  $(264)  $(165)  $551   $69   $548   $364     $408  

    Cash flows provided by (used in) investing activities, net

    		  (777)   —      (6)   (45)   (41)   37    (8,255)     (140) 

    Cash flows provided by (used in) financing activities, net

    		  1,151    111    (10)   (755)   (263)   86    7,977      (269) 

    (1)We define working capital as current assets (including cash) minus current liabilities, which include the current portion of long-term debt and accrued interest thereon.
    (2)Total debt includes current and non-current installments of long-term debt and capital leases.
    (3)Cash interest expense represents total interest expense in continuing operations less (i) amortization of deferred financing costs, (ii) amortization of the asset related to the estimated fair value of the THD Guarantee, (iii) paid-in-kind (“PIK”) interest expense on our 2007 Senior Subordinated Notes and April 2012 Senior Notes (iv) amortization of amounts in accumulated other comprehensive income related to derivatives and (v) amortization of original issue discounts and premium. Effective September 1, 2011, the interest expense on our 2007 Senior Subordinated Notes is no longer paid-in-kind, but rather paid in cash. Interest payments on the April 2012 Senior Notes will be paid in kind through October 2017.

    Index to Financial Statements

    (2)
    Includes $936 million of Cash equivalents restricted for debt redemption for the fiscal year ended February 3, 2013.

    (3)
    Includes capital leases and associated discounts and premiums. Excludes $10 million, $10 million, $899 million, $82 million and $10 million of Current installments of long-term debt for the six months ended August 4, 2013 and July 29, 2012 and the fiscal years ended February 3, 2013, January 29, 2012 and January 30, 2011, respectively.

    (4)
    Working capital represents current assets minus current liabilities.

    (5)
    Cash interest expense is not a recognized term under GAAP and does not purport to be an alternative to interestInterest expense. Management believes that cash interest expense is useful for analyzing the cash flow needs and debt service requirements of the Company. The following table providesFor additional detail, including a reconciliation offrom interest expense, the most directly comparable financial measure under GAAP, to Cashcash interest expense for the periods, presented (amounts in millions):

      Successor     Predecessor 
      Historical
    Nine months ended    		  Historical
    Fiscal year ended    		  Period
    from
    August 30,
    2007 to
    February 3,
    2008    		   Period
    from
    January 29,
    2007 to
    August 29,
    2007    		 
      October 28,
    2012    		  October 30,
    2011    		  January 29,
    2012    		  January 30,
    2011    		  January 31,
    2010    		  February 1,
    2009    		    

    Interest expense

    		 $489   $477   $639   $623   $602   $644   $ 289    $ 220  

    Amortization of deferred financing costs

    		  (18)   (28)   (37)   (36)   (33)   (33)   (14)     —    

    Amortization of THD Guarantee

    		  (2)   (10)   (13)   (14)   (21)   (21)   (9)     —    

    PIK interest expense on our 2007 Senior Subordinated Notes and April 2012 Senior Notes

    		  (63)   (132)   (132)   (206)   (182)   (192)   (75)     —    

    Amortization of amounts in accumulated other comprehensive income related to derivatives

    		  —      —      —      (2)   (3)   (1)   —        —    

    Amortization of original issue discounts and premium

    		  (3)   —      —      —      —      —      —        —    
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Cash interest expense

    		 $403   $307   $457   $365   $363   $397   $191     $220  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    (4)EBITDA, a measure used by management to evaluate operating performance, is defined as Net income (loss) less Income (loss) from discontinued operations, net of tax, plus (i) Interestsee "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Cash interest expense and Interest income, net, (ii) Provision (benefit) for income taxes, and (iii) Depreciation and amortization. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and other debt service requirements. We believe EBITDA is helpful in highlighting trends because EBITDA excludes the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, age and book depreciation of facilities and capital investments. We further believe that EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an EBITDA measure when reporting their results. We use non-GAAP financial measures to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to other similarly titled measures of other companies.

    In addition, we present Adjusted EBITDA because it is a primary measure used by management to evaluate operating performance. EBITDA."

    (6)
    Adjusted EBITDA is based on “Consolidated EBITDA,”not a recognized term under GAAP and does not purport to be an alternative to Net income (loss) as a measure used in calculating financial ratios in several material debt covenants in our Senior Term Facility and our Senior ABL Facility. Borrowings under these facilities are a key source of liquidity and our ability to borrow under these facilities depends upon, among other things, our compliance with such financial ratio covenants. In particular, both facilities contain restrictive covenants that can restrict our activities if we do not maintain financial ratios calculated based on Consolidated EBITDA and our Senior ABL Facility requires us to maintain a minimum fixed charge coverage ratio if we do not maintain a specified amount of borrowing availability. Adjusted EBITDA is defined as EBITDA adjusted to exclude non-cash items and certain other adjustments to Consolidated Net Income permitted in calculating Consolidated EBITDA under our Senior Term Facility and our Senior ABL Facility. We believe that inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provideoperating performance. For additional information to investors about how the covenants in those agreements operate and about certain non-cash items, items that we do not expect to continue at the same level and other items. The Senior Term Facility and Senior ABL Facility permit us to make certain adjustments to Consolidated Net Income in calculating Consolidated EBITDA, such as projected net cost savings, which are not reflected in the Adjusted EBITDA data presented in this prospectus and the documents incorporated by reference herein. We may in the future reflect such permitted adjustments in our calculations of Adjusted EBITDA. These covenants are important to the Company as failure to comply with certain covenants would result in a default under our Senior Credit Facilities. The material covenants in our Senior Credit Facilities are discussed in “Description of Other Indebtedness—Senior Credit Facilities.”

    EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for analyzing our results as reported under GAAP. Some of these limitations are:

    EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

    Index to Financial Statements

    EBITDA and Adjusted EBITDA do not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt;

    EBITDA and Adjusted EBITDA do not reflect our income tax expenses or the cash requirements to pay our taxes;

    EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and

    although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements.

    The following table presentsdetail, including a reconciliation of netfrom Net income (loss), the most directly comparable financial measure under GAAP, to EBITDA and Adjusted EBITDA for the periods presented, (amounts in millions):

      Successor     Predecessor 
      Historical
    Nine months ended    		  Historical
    Three months
    ended    		  Historical
    Fiscal year ended    		  Period
    from
    August 30,
    2007 to
    February 3,
    2008    		     Period
    from
    January 29,
    2007 to
    August 29,
    2007    		 
      October 28,
    2012    		  October 30,
    2011    		  January 29,
    2012    		  January 29,
    2012    		  January 30,
    2011    		  January 31,
    2010    		  February 1,
    2009    		    

    Net income (loss)

    		 $(466)  $(370)  $(173)  $(543)  $(619)  $(514)  $(1,255)  $(163)    $56  

    Less income (loss) from discontinued operations, net of tax

    		  19    26    (6)   20    (6)   (34)   107    12      32  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Income (loss) from continuing operations

    		  (485)   (396)   (167)   (563)   (613)   (480)   (1,148)   (175)     24  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Interest expense

    		  489    477    162    639    623    602    641    289      220  

    Provision (benefit) from income taxes

    		  36    59    20    79    28    (198)   (329)   (100)     17  

    Depreciation and amortization(i)

    		  252    247    82    329    343    364    381    159      109  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    EBITDA

    		 $292   $387   $97   $484   $381   $288   $(455)  $173     $370  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Adjustments to EBITDA:

    		           

    Other (income) expense, net(ii)

    		  —      (1)   1    —      (1)   (8)   12    —        —    

    Loss (gain) on extinguishment of debt(iii)

    		  220    —      —      —      —      (200)   —      —        —    

    Goodwill impairment(iv)

    		  —      —      —      —      —      219    867    —        —    

    Restructuring charge(v)

    		  —      —      —      —      8    21    32    —        —    

    Stock-based compensation(vi)

    		  13    16    4    20    17    18    14    1      31  

    Management fee & related expenses paid to Equity Sponsors(vii)

    		  4    4    1    5    5    5    6    2      —    

    Other

    		  —      —      (1)   (1)   1    —      —      —        —    
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Adjusted EBITDA

    		 $529   $406   $102   $508   $411   $343   $476   $176     $401  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    (i)Depreciation and amortization includes amounts recorded within Cost of sales in the Consolidated and Combinded Statements of Operations.
    (ii)Represents the gains/losses associated with the changes in fair value of interest rate swap contracts not accounted for under hedge accounting and other non-operating income/expense.
    (iii)Represents the loss/(gain) on extinguishment of debt including the premium/(discount) paid to repurchase or call the debt as well as the writeoff of unamortized deferred financing costs associated with such debt.
    (iv)Represents the non-cash impairment charge of goodwill recognized during fiscal 2009 and fiscal 2008 in accordance with Accounting Standards Codification 350, Intangibles—Goodwill and Other.
    (v)Represents the costs incurred for employee reductions and branch closures or consolidations. These costs include occupancy costs, severance, and other costs incurred to exit a location.
    (vi)The Predecessor period includes stock-based compensation costs for stock options, Employee Stock Purchase Plans and restricted stock. The Successor periods include stock-based compensation costs for stock options.
    (vii)The Company entered into a management agreement whereby the Company pays the Equity Sponsors a $5 million annual aggregate management fee and related expenses through August 2017.
    see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Cash interest expense and Adjusted EBITDA."

     


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    RISK FACTORS

    Investing in the Notes involves a high degree of risk. Before you make your investment decision, you should carefully consider the risks described below and the other information contained in this prospectus, including the consolidated financial statements and the related notes. If any of the following risks actually occurs, our business, financial position, results of operations or cash flows could be materially adversely affected.


    Risks Relating to the New Notes and Our Indebtedness

    We have substantial debt and may incur substantial additional debt, which could adversely affect our financial health, andreduce our profitability, limit our ability to obtain financing in the future react to changes in ourand pursue certain business opportunities and make payments onreduce the New Notes.value of your investment.

    As of October 28, 2012,August 4, 2013, we had an aggregate principal amount of $6,915$5,688 million of outstanding debt, net of unamortized discounts of $56$21 million and including unamortized premium of $22$19 million. In fiscal 2012 we incurred $658 million of interest expense.

    Our substantial        The amount of our debt or such other obligations could have important consequences for the holders of our notes. Because of our substantial debt:the Notes, including, but not limited to:

      •
      a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes;



    •
    our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes and our ability to satisfy our obligations with respect to our outstanding notesother purposes may be impaired in the future;



    •
    we are exposed to the risk of increased interest rates because a portion of our borrowings including under our debt facilities, is at variable rates of interest;



    •
    we may be at a competitive disadvantage compared to our competitors with less debt or with comparable debt at more favorable interest rates and that, as a result, may be better positioned to withstand economic downturns;



    •
    our ability to refinance indebtedness may be limited or the associated costs may increase;



    •
    our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing may be impaired in the future;



    •
    it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on and acceleration of such indebtedness;



    •
    we may be more vulnerable to general adverse economic and industry conditions; and



    •
    our flexibility to adjust to changing market conditions and our ability to withstand competitive pressures could be limited, or we may be prevented from making capital investments that are necessary or important to our operations in general, growth strategy and efforts to improve operating margins of our businesses.

    business units.

    Our ability to generate the significant amount of cash needed to pay interest and principal on the New Notes and service our other debt and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.

    As a holding company, we have no independent operations or material assets other than our ownership of equity interests in our subsidiaries and invested cash, and we depend on our subsidiaries to distribute funds to us so that we may pay our obligations and expenses, including to satisfy our


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    obligations under the New Notes, our outstanding notes and the Senior Credit Facilities. Our ability to make scheduled payments on, or to refinance our obligations under, our debt depends on the ability of our subsidiaries to make distributions and dividends to us, which, in turn, depends on their operating results, cash requirements, financial condition, and general

    Index to Financial Statements

    business conditions, and any legal and regulatory restrictions on the payment of dividends to which they may be subject, many of which may be beyond our control. In addition, while our subsidiaries currently have no legal or regulatory restrictions on payments of dividends to us, they may be subject to such restrictions in the future. If we do not receive sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general corporate expenses or service our debt obligations.

    If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or refinance our debt. We cannot make assurances that we will be able to refinance our debt on terms acceptable to us, or at all. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

    As of October 28, 2012, approximately $1.27 billionAugust 4, 2013, $1,269 million of our First Priority Notes, including $22$19 million of unamortized premium, $675 million of our Second Priority Notes, $889 million of our 2007 Senior Subordinated Notes (as adjusted to reflect the redemption of a portion of the 2007 Senior Subordinated Notes on November 8, 2012), approximately $784 million of our April 2012 Senior Notes, net of $29 million unamortized discount and $1 billion of our October 2012 Senior Notes and $1,275 million of the Old Notes, were outstanding. The Senior Credit FacilitiesTerm Facility will mature in 2017, unless more than $450 million of 2007the Senior Subordinated Notes or any unsecured indebtedness incurred to refinanceABL Facility will mature in 2018 (or, if earlier, the 2007 Senior Subordinated Notes, remains outstanding on the date that is 90 days prior to its maturity date in which caseof the Senior Credit Facilities will mature 90 days prior to the maturity of such 2007 Senior Subordinated Notes or such refinancing indebtedness. Similarly,Term Facility), the First Priority Notes will mature in 2019 and the Second Priority Notes, the April 2012 Senior Notes and the October 2012 Senior Notes will mature in 2020, unless an event of default occurs because more than $450 million of 2007 Senior Subordinated Notes or any unsecured indebtedness (generally including the April 2012 Senior Notes, the October 2012 Senior Notes, the Old Notes and the New Notes) incurred to refinance the 2007 Senior Subordinated Notes, remains outstanding on the date that is 45 days prior to its maturity date (or 90 days for the First Priority Notes), in which case, the applicable indebtedness may be accelerated 45 days (or 90 days for the First Priority Notes) prior to the maturity of such 2007 Senior Subordinated Notes or refinancing indebtedness. No 2007 Senior Subordinated Notes will remain outstanding after the application of the proceeds of the offering of the Old Notes, which we expect to occur on or about February 8, 2013. All currently outstanding unsecured indebtedness incurred to refinance the 2007 Senior Subordinated Notes matures more than 45 or 90 days, as applicable, after the maturity of the Senior Credit Facilities, the First Priority Notes, the Second Priority Notes or the October 2012 Senior Notes, as applicable, except that the October 2012 Senior Notes mature before the April 2012 Senior Notes and, therefore, unless the terms of the April 2012 Senior Notes are amended or otherwise modified, holders (or the trustee) of the April 2012 Senior Notes could accelerate such April 2012 Senior Notes 45 days prior to the scheduled maturity date of the October 2012 Senior Notes and the occurrence of the respective event of default under the April 2012 Senior Notes would,will mature in turn, cause an event of default under the October 2012 Senior Notes. In addition, on or after the fifth anniversary of the issue date of the April 2012 Senior Notes, we will be required to redeem or pay portions of the April 2012 Senior Notes in amounts intended to ensure the April 2012 Senior Notes are not treated as applicable high yield discount obligations for U.S. federal income tax purposes (the “AHYDO mandatory prepayments”).2020. We cannot make assurances that we will be able to refinance any of our indebtedness, including the First Priority Notes, the Second Priority Notes, the AprilOctober 2012 Senior Notes, (including our obligations to make the AHYDO mandatory prepayments, if any), the October 2012 Senior Notes and the Senior Credit Facilities, or obtain additional financing, particularly because of our anticipated high levels of debt and the debt incurrence restrictions imposed by the agreements governing our debt (including the restrictions imposed by the Indenture), as well as prevailing market conditions. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our debt facilities and the indentures governing our outstanding notes restrict our ability to dispose of assets and how we use the proceeds from any such dispositions. We cannot make assurances that we will be able to consummate those dispositions, or if we do, what the timing of the dispositions will be or whether the proceeds that we realize will be adequate to meet our debt service obligations, including amounts under our outstanding notes, when due.

    Index to Financial Statements

    Your right to receive payments on theNew Notes is junior to all of our and the guarantors’ senior indebtedness, including our and the guarantors’ obligations under the Senior Credit Facilities, the First Priority Notes, the Second Priority Notes, the April 2012 Senior Notes, the October 2012 Senior Notes and future senior debt.

    The New Notes are general unsecured subordinated obligations that are junior in right of payment to all our existing and future secured and unsecured senior indebtedness, including the Senior Credit Facilities, the First Priority Notes, the Second Priority Notes, the April 2012 Senior Notes and the October 2012 Senior Notes. The senior subordinated guarantees are general unsecured subordinated obligations of the guarantors that are junior in right of payment to all of the applicable guarantor’s existing and future senior indebtedness, including its guarantee of the Senior Credit Facilities, the First Priority Notes, the Second Priority Notes, the April 2012 Senior Notes and the October 2012 Senior Notes. We and the guarantors may not pay principal, premium, if any, interest or other amounts on account of the New Notes or the senior subordinated guarantees in the event of a payment default or certain other defaults in respect of certain of our senior indebtedness, including debt under our Senior Credit Facilities, unless the senior indebtedness has been paid in full or the default has been cured or waived. In addition, in the event of certain other defaults with respect to the senior indebtedness, we or the guarantors may not be permitted to pay any amount of the New Notes or the senior subordinated guarantees for a designated period of time.

    Because of the subordination provisions in the New Notes and the senior subordinated guarantees, in the event of a bankruptcy, liquidation or dissolution of us or any guarantor, our or the applicable guarantor’s assets will not be available to pay obligations under the New Notes or the applicable senior subordinated guarantee until we have or the applicable guarantor has made all payments on our or its senior indebtedness, respectively. We cannot assure you that sufficient assets will remain after all these payments have been made to make any payments on the New Notes or the applicable senior subordinated guarantees, including payments of principal or interest when due.

    As of October 28, 2012, we had $5.1 billion of senior indebtedness, net of unamortized discounts of $56 million and including unamortized premium of $22 million that was senior to the New Notes. As of October 28, 2012, we also had commitments for additional borrowings under the revolving Senior ABL Facility of $867 million, all of which would have been senior to the New Notes if borrowed.

    Despite our current level of indebtedness, we may still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described above.

    We may be able to incur significant additional indebtedness in the future, including secured debt. Although the indentures governing our other indebtedness, the Senior Term Agreement and the Senior ABL Agreement contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. If we incur any additional unsecured senior subordinated indebtedness that ranks equally with the New Notes, the holders of that debt will be entitled to share ratably with the holders of the New Notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of our company. If we incur additional secured or unsecured senior indebtedness that ranks equally with the NewNotes, the Notes will be effectively subordinated to the right of our and the guarantors’ additional seniorguarantors' existing and future secured indebtedness to the extent of the value of our and the guarantors' assets securing such indebtedness. This may have the effect of reducing the amount of proceeds paid to you. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness, including obligations under lease arrangements that are currently recorded


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    as operating leases even if operating leases were to be treated as debt under GAAP. In addition, the Senior ABL Facility provides commitments of up to $1,500 million (less approximately $395$500 million of borrowings drawn at October 28, 2012August 4, 2013 and approximately $61$56 million of undrawn outstanding letters of credit with a borrowing base of approximately $1,323$1,444 million at October 28, 2012)August 4, 2013). All of those borrowings are seniorsecured by the ABL Priority Collateral on a first-priority basis. Moreover, the First Priority Indenture and the Second Priority Indenture permit us to incur certain additional indebtedness that would be secured by the New Notes.Cash Flow Priority Collateral on a first-priority and second-priority basis, and the ABL Priority Collateral on a second-priority and third-priority basis. If new debt is added to our current debt levels, the related risks that we and the Subsidiary Guarantors now face could intensify. See “Description"Description of Other Indebtedness.”Indebtedness—Senior Credit Facilities," "Description of Notes" and "Description of Other Indebtedness—First Priority Notes and Second Priority Notes."

    Index to Financial Statements

    The agreements and instruments governing our debt including the New Notes, contain restrictions and limitations that could significantly impact our ability to operate our business and adversely affect the holders of our notes.

    The Senior Credit Facilities contain covenants that, among other things, restrict or limit our ability and the ability of our subsidiaries to:

      •
      dispose of assets;



    •
    incur additional indebtedness (including guarantees of additional indebtedness);



    •
    prepay the New Notes or amend other specifiedour various debt instruments;



    •
    pay dividends and make certain payments;



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    create liens on assets;



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    engage in certain asset sales, mergers, acquisitions, consolidations or sales of all, or substantially all, of our assets;



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    engage in certain transactions with affiliates; and



    •
    permit consensual restrictions on our subsidiariessubsidiaries' ability to pay dividends.

    The Indenture and the indentures governing our First Priority Notes, Second Priority Notes, April 2012 Senior Notes, October 2012 Senior Notes and, until suchoutstanding notes are redeemed in full, our 2007 Senior Subordinated Notes, contain restrictive covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:

      •
      incur additional debt;



    •
    pay dividends, redeem stock or make other distributions;



    •
    make certain investments;



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    create liens;



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    transfer or sell assets;



    •
    merge or consolidate with other companies; and



    •
    enter into certain transactions with our affiliates.

    Our ability to comply with the covenants and restrictions contained in the Senior Credit Facilities and the indentures governing our outstanding notes may be affected by economic, financial and industry conditions beyond our control. The breach of any of these covenants or restrictions could result in a default under either the Senior Credit Facilities or the indentures governing our outstanding notes that would permit the applicable lenders or noteholders, as the case may be, to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay debt,indebtedness, lenders having secured obligations, such as the lenders under the Senior Credit Facilities, could proceed against the collateral securing the secured obligations. In any


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    such case, we may be unable to borrow under the Senior Credit Facilities and may not be able to repay amounts due under such facilities and the New Notes.notes. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent.

    The New Notes will be unsecured and effectively subordinated to the rights of our and the guarantors’guarantors' existing and future secured indebtedness to the extent of the value of our and our guarantors’guarantors' assets securing such indebtedness.

    The Senior Credit Facilities, the First Priority Notes and the Second Priority Notes are senior to the New Notes and are secured by collateral. The New Notes and the related guarantees will be unsecured and therefore do not have the benefit of such collateral. Accordingly, the New Notes and the related guarantees will be effectively subordinated to all such secured indebtedness. If an event of default occurs under the Senior Credit Facilities, the First

    Index to Financial Statements

    Priority Notes or the Second Priority Notes, the senior secured lenders and noteholders will have a prior right to our assets securing such indebtedness, to the exclusion of the holders of the New Notes, even if we are in default under the New Notes. In that event, our assets would first be used to repay indebtedness and other obligations secured by such assets (including amounts outstanding under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes), resulting in all or a portion of our assets being unavailable to satisfy the claims of the holders of the New Notes and other unsecured indebtedness, including, without limitation, the April 2012 Senior Notes, the October 2012 Senior Notes and, until such notes are redeemed in full, the 2007 Senior Subordinated Notes. Therefore, in the event of any distribution or payment of our assets in any foreclosure, dissolution, winding-up, liquidation, reorganization or other bankruptcy proceeding, holders of New Notes will participate in our remaining assets ratably with all holders of our unsecured indebtedness that is deemed to be of the same class as such notes, and potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor. Further, if the lenders foreclose and sell the pledged interests in any subsidiary guarantor under the New Notes, then that guarantor will be released from its guarantee of the New Notesnotes automatically and immediately upon the sale. In any of the foregoing events, we cannot assure you that there will be sufficient assets to pay amounts due on the New Notes. As a result, holders of New Notes may receive less, ratably, than holders of secured indebtedness.

    As of October 28, 2012,August 4, 2013, approximately $3.3$3.4 billion of our indebtedness, net of unamortized discount of $27$21 million and including unamortized premium of $22$19 million, was secured. We also have commitments for additional borrowings under the revolving Senior ABL Facility of $867$888 million, all of which would be secured if borrowed.

    The New Notes will be structurally subordinated to all obligations of our existing and future subsidiaries that do not serve as Subsidiary Guarantors of the New Notes.

    The New Notes will be guaranteed, on ana senior unsecured senior subordinated basis, by each of our direct and indirect domestic existing and future subsidiaries that is a Wholly Owned Domestic Subsidiary (other than an Excluded Subsidiary), and by each other domestic subsidiary that is a borrower under the Senior ABL Facility or that guarantees our indebtedness under any Credit Facility or Capital Markets Securities (in each case, as defined in “Description"Description of Notes”Notes"). Our subsidiaries that do not guarantee the New Notes will have no obligation, contingent or otherwise, to pay amounts due under the New Notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payment. The New Notes will be structurally subordinated to all indebtedness and other obligations of any non-guarantor subsidiary such that in the event of insolvency, liquidation, reorganization, dissolution or other winding up of any subsidiary that is not a Subsidiary Guarantor, all of that subsidiary’ssubsidiary's creditors (including trade creditors and preferred stockholders, if any) would be entitled to payment in full out of that subsidiary’ssubsidiary's assets before we would be entitled to any payment from that subsidiary’ssubsidiary's assets. In addition, the creditors of any unrestricted subsidiary and its subsidiaries will have a senior claim on the assets of such unrestricted subsidiary and its subsidiaries.


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    In addition, the indentures governing our outstanding notes, subject to certain limitations, permit these subsidiaries to incur additional indebtedness and do not contain any limitation on the amount of other liabilities, such as trade payables, that may be incurred by these subsidiaries.

    In addition, our subsidiaries that provide, or will provide, guarantees of the New Notes will be automatically released from those guarantees in accordance with the terms of the Indenture upon the occurrence of certain events, including the following:

      •
      the designation of that Subsidiary Guarantor as an unrestricted subsidiary;



    •
    the release or discharge of any guarantee or indebtedness (including the Senior Credit Facilities) that resulted in the creation of the guarantee of the New Notes by such Subsidiary Guarantor if it would not then otherwise be required to guarantee the New Notes; or



    •
    the sale or other disposition, including the sale of substantially all the assets, of that Subsidiary Guarantor.

    Index to Financial Statements

    If any subsidiary guarantee is released, no holder of the New Notes will have a claim as a creditor against that subsidiary, and the indebtedness and other liabilities, including trade payables and preferred stock, if any, whether secured or unsecured, of that subsidiary will be effectively senior to the claim of any holders of the New Notes. See “Description"Description of Notes—Subsidiary Guarantees.”"

    As of October 28, 2012,August 4, 2013, the indebtedness and other liabilities of our non-guarantor subsidiaries was approximately $67$65 million. The New Notes will be structurally subordinated to the indebtedness and other liabilities of such non-guarantor subsidiaries. Our non-guarantor subsidiaries generated approximately 6%5% of our Net sales for fiscal 20112012 and held approximately 3% of our assets as of October 28, 2012.August 4, 2013.

    We may not be able to repurchase the New Notes upon a change of control.

    Upon the occurrence of specific kinds of change of control events, we will be required to offer to repurchase all outstanding New Notes and Old Notes, the First Priority Notes, the Second Priority Notes the April 2012 Senior Notes and the October 2012 Senior Notes and, until such notes are redeemed in full, the 2007 Senior Subordinated Notes at 101% of their principal amount, plus accrued and unpaid interest to the purchase date. Additionally, under the Senior Term Facility and the Senior ABL Facility, a change of control (as defined therein) constitutes an event of default that permits the lenders to accelerate the maturity of borrowings under the respective agreements and terminate their commitments to lend. The source of funds for any purchase of the New Notes and the Old Notes, the First Priority Notes, the Second Priority Notes the April 2012 Senior Notes,and the October 2012 Senior Notes and, until such notes are redeemed in full, the 2007 Senior Subordinated Notes, and repayment of borrowings under the Senior Term Facility and the Senior ABL Facility would be our available cash or cash generated from our and our subsidiaries’subsidiaries' operations or other sources, including borrowings, sales of assets or sales of equity. We may not be able to repurchase the New Notes upon a change of control because we may not have sufficient financial resources to purchase all of the debt securities that are tendered upon a change of control and repay our other indebtedness that will become due. We may require additional financing from third parties to fund any such purchases, and we may be unable to obtain financing on satisfactory terms or at all. Further, our ability to repurchase the New Notes may be limited by law. In order to avoid the obligations to repurchase the New Notes and the Old Notes, the First Priority Notes, the Second Priority Notes the April 2012 Senior Notes,and the October 2012 Senior Notes and, until such notes are redeemed in full, the 2007 Senior Subordinated Notes, and events of default and potential breaches of the Senior Term Agreement and the Senior ABL Credit Agreement, we may have to avoid certain change of control transactions that would otherwise be beneficial to us.

    In addition, some important corporate events, such as leveraged recapitalizations, may not, under the Indenture, constitute a “change"change of control”control" that would require us to repurchase the New Notes, even though those corporate events could increase the level of our indebtedness or otherwise adversely affect our capital structure, credit ratings or the value of the New Notes.notes. See “Description"Description of Notes—Change of Control.”"


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    We may have future capital needs and may not be able to obtain additional financing on acceptable terms.

    Although we believe that our current cash position and the additional committed funding available under our Senior ABL Facility is sufficient for our current operations, any reductions in our available borrowing capacity, or our inability to renew or replace our debt facilities, when required or when business conditions warrant, could have a material adverse effect on our business, financial condition and results of operations. The economic conditions, credit market conditions, and economic climate affecting our industry, as well as other factors, may constrain our financing abilities. Our ability to secure additional financing, if available, and to satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, the availability of credit generally, economic conditions and financial, business and other factors, many of which are beyond our control. The market conditions and the macroeconomic conditions that affect our industry could have a material adverse effect on our ability to secure financing on favorable terms, if at all.

    Index to Financial Statements

    We may be unable to secure additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under the indebtedness outstanding from time to time. Furthermore, if financing is not available when needed, or is available on unfavorable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. If additional funds are raised through the issuance of additional equity securities, our stockholders may experience significant dilution.

    Increases in interest rates would increase the cost of servicing our debt and could reduce our profitability.

    A significant portion of our outstanding debt, including under the Senior Credit Facilities, bears interest at variable rates. As a result, increases in interest rates would increase the cost of servicing our debt and could materially reduce our profitability and cash flows. Each 1% increase in interest rates on our variable-rate debt would increase our annual forecasted interest expense by approximately $14$15 million based on balances as of October 28, 2012August 4, 2013 and excluding the effect of the interest rate floor on our Senior Term Facility. Assuming all revolving loans were fully drawn, each one percentage point change in interest rates would result in a $25 million change in annual cash interest expense on our Senior Credit Facilities, excluding the effect of the interest rate floor on our Senior Term Facility. The impact of increases in interest rates could be more significant for us than it would be for some other companies because of our substantial indebtedness.

    Holders of the New Notes may not be able to determine when a change of control giving rise to their right to have the New Notes repurchased has occurred following a sale of “substantially all”"substantially all" of our assets.

    The definition of change of control in the Indenture includes a phrase relating to the sale of “all"all or substantially all”all" of our assets. There is no precise established definition of the phrase “substantially all”"substantially all" under applicable law. Accordingly, the ability of a holder of New Notes to require us to repurchase its New Notes as a result of a sale of less than all our assets to another person may be uncertain.

    Federal and state fraudulent transfer laws may permit a court to void the New Notes or the guarantees, and if that occurs, you may not receive any payments on the New Notes.

    Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of the New Notes and the incurrence of the guarantees of the New Notes. Under federal bankruptcy law and comparable provisions of state fraudulent transfer or conveyance laws, which may vary from state to state, the New Notes or the guarantees thereof could be voided as a fraudulent transfer or conveyance if we or any of the Subsidiary Guarantors, as applicable, (a)(a) issued the New Notes or incurred the guarantee with the intent of hindering, delaying or defrauding creditors or (b)(b) received less than


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    reasonably equivalent value or fair consideration in return for either issuing the New Notes or incurring the guarantee and, in the case of (b) only, one of the following is also true at the time thereof:

      •
      we or any of the Subsidiary Guarantors, as applicable, were insolvent or rendered insolvent by reason of the issuance of the New Notes or the incurrence of the guarantee;



    •
    the issuance of the New Notes or the incurrence of the guarantee left us or any of the Subsidiary Guarantors, as applicable, with an unreasonably small amount of capital or assets to carry on the business; or



    •
    we or any of the Subsidiary Guarantors intended to, or believed that we or such Subsidiary Guarantor would, incur debts beyond our or such Subsidiary Guarantor’sGuarantor's ability to pay as they mature.

    As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or a valid antecedent debt is satisfied. A court would likely find that a Subsidiary Guarantor did not receive reasonably equivalent value or fair consideration for its guarantee to the extent such Subsidiary Guarantor did not obtain a reasonably equivalent benefit from the issuance of the New Notes.

    Index to Financial Statements

    We cannot be certain as to the standards a court would use to determine whether or not we or any of the Subsidiary Guarantors were insolvent at the relevant time or, regardless of the standard that a court uses, whether the New Notes or the guarantees would be subordinated to our or any of our Subsidiary Guarantors’Guarantors' other debt. In general, however, a court would deem an entity insolvent if:

      •
      the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;



    •
    the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or



    •
    it could not pay its debts as they became due.

    Each subsidiary guarantee contains a provision intended to limit the Subsidiary Guarantor’sGuarantor's liability to the maximum amount that it could incur without causing the incurrence of obligations under its subsidiary guarantee to be a fraudulent transfer. This provision may not be effective to protect the subsidiary guarantees from being avoided under fraudulent transfer law. A recent bankruptcy court action in Florida questioned the validity of such a customary savings clause in a guaranty.

    To the extent that any of the subsidiary guarantees is avoided, then, as to that subsidiary, the guaranty will not be enforceable.

    If a court were to find that the issuance of the New Notes or the incurrence of a guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under the New Notes or that guarantee, could subordinate the New Notes or that guarantee to presently existing and future indebtedness of ours or of the related Subsidiary Guarantor or could require the holders of the New Notes to repay any amounts received with respect to that guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, you may not receive any repayment on the New Notes. Further, the avoidance of the New Notes could result in an event of default with respect to our and our subsidiaries’subsidiaries' other debt that could result in acceleration of that debt.

    Finally, as a court of equity, the bankruptcy court may subordinate the claims in respect of the New Notes to other claims against us under the principle of equitable subordination if the court determines that (1)(1) the holders of New Notes engaged in some type of inequitable conduct, (2)(2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the


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    holders of New Notes and (3)(3) equitable subordination is not inconsistent with the provisions of the Bankruptcy Code.

    Certain restrictive covenants in the Indenture will not apply during any time that such New Notes achieve investment grade ratings.

    Most of the restrictive covenants in the Indenture will not apply during any time that the New Notes achieve investment grade ratings from Moody’sMoody's Investment Service, Inc. and Standard & Poor’s,Poor's, and no default or event of default has occurred. If these restrictive covenants cease to apply, we may take actions, such as incurring additional debt or making certain dividends or distributions, which would otherwise be prohibited under the Indenture. Ratings are given by these rating agencies based upon analyses that include many subjective factors. The investment grade ratings, if granted, may not reflect all of the factors that would be important to holders of the New Notes.

    The market for non-investment grade debt has been subject to severe disruptions that have caused substantial volatility in the prices of securities similar to the New Notes.

    Historically, the market for non-investment grade debt has been subject to severe disruptions that have caused substantial volatility in the prices of securities similar to the New Notes. The market, for the New Notes may experience similar disruptions, and any such disruptions may adversely affect the liquidity in that market or

    Index to Financial Statements

    the prices at which you may sell your New Notes. Investment funds advised by entities associated with the Equity Sponsors may purchase Old Notes and New Notes in the offering or in the market without any special limitation. In addition, subsequent to their initial issuance, the New Notes may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar notes, our performance and other factors.

    A downgrade, suspension or withdrawal of the rating assigned by a rating agency to the New Notes or our Senior Credit Facilities, if any, could cause the liquidity or market value of the New Notes to decline.

    Our First Priority Notes, Second Priority Notes April 2012 Senior Notes,and October 2012 Senior Notes, the Old Notes and the New Notes and, until such notes are redeemed in full, the 2007 Senior Subordinated Notes, have been rated by Standard & Poor’sPoor's Corporation and Moody’sMoody's Investor Services. Our Senior Credit Facilities have also been rated by Standard & Poor’sPoor's and Moody’s.Moody's. In determining our credit ratings, the rating agencies consider a number of both quantitative and qualitative factors. These factors include earnings, fixed charges such as interest, cash flows, total debt outstanding, total secured debt, off balance sheet obligations and other commitments, total capitalization and various ratios calculated from these factors. Our debt securities, including the New Notes offered hereby, and our debt facilities may in the future be rated by additional rating agencies. We cannot make assurances that any rating so assigned will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in that rating agency’sagency's judgment, circumstances relating to the basis of the rating, such as an adverse change to our business, so warrant. The interest rates and other terms within our current credit agreements are not impacted by rating agency actions. Any lowering or withdrawal of a rating by a rating agency could reduce the liquidity or market value of our outstanding notes and make our ability to raise new funds or renew maturing debt more difficult.


    Risks Relating to Our Business

    We are subject to inherent risks of the residential,maintenance, repair and operations market, infrastructure spending and the non-residential and public infrastructureresidential construction and facility maintenance and repair markets, including risks related to general economic conditions.

    Demand for our products and services depends to a significant degree on spending in the residential, non-residential and infrastructure construction and facility maintenance and repairour markets. The level of activity in these endour markets depends on a variety of factors that we cannot control.


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    Historically, both new housing starts and residential remodeling have decreased in slow economic periods. In addition, residential construction activity can impact the level of non-residential construction activity. Other factors impacting the level of activity in the residentialnon-residential and nonresidentialresidential construction markets include:

      •
      changes in interest rates;



    •
    unemployment rates;



    •
    high foreclosure rates and unsold/foreclosure inventory;



    •
    unsold new housing inventory;

    periods of economic slowdown or recession;



    •
    availability of financing (including the impact of disruption in the mortgage markets);

    adverse changes in local, regional, or general economic conditions;



    •
    adverse changes in industrial economic outlook;



    •
    a decrease in the affordability of homes;



    •
    vacancy rates;



    •
    capacity utilization;

    Index to Financial Statements



    •
    capital spending;



    •
    commercial investment;



    •
    corporate profitability;



    •
    local, state and federal government regulation; and



    •
    shifts in populations away from the markets that we serve.

    In the infrastructure construction market, the level of activity        Infrastructure spending depends largely on interest rates, availability and commitment of public funds for municipal spending, capacity utilization and general economic conditions. In the facility maintenance, repair and repairoperations market, the level of activity depends largely on the number of units and occupancy rates within multifamily, hospitality, healthcare and institutional facilities markets. Because all of our markets are sensitive to changes in the economy, downturns (or lack of substantial improvement) in the economy in any region in which we operate have adversely affected and could continue to adversely affect our business, financial condition and results of operations. For example, we distribute many of our products to waterworks contractors in connection with non-residential, residential commercial and industrial construction projects. The water and wastewater transmission products industry is affected by changes in economic conditions, including national, regional and local standards in construction activity, and the amount spent by municipalities on waterworks infrastructure. While we operate in many markets in the United States and Canada, our business is particularly impacted by changes in the economies of California, Texas and Florida, which represented approximately 15%, 13%, and 10%9%, respectively, in Netnet sales for fiscal 2011.2012.

    In addition, the residential, non-residential and public infrastructure construction and facility maintenance and repair markets in which we compete are sensitive to general business and economic conditions in the United States and worldwide, including availability of credit, interest rates, fluctuations in capital, credit and mortgage markets, and business and consumer confidence. There was a significant decline in economic growth, both in the U.S. and globally, that began in the second half of 2007 and continued through 2009. In addition, volatility and disruption in the capital markets during that period reached unprecedented levels, with stock markets falling dramatically and credit becoming very expensive or unavailable to many companies without regard to those companies’ underlying financial strength. As a result of these developments, many lenders and institutional investors reduced, and in some cases, ceased to provide funding to borrowers. Adverse developments in global financial markets and general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows, including our ability and the ability of our customers and suppliers to access capital. There was a significant decline in economic growth, both in the United States and worldwide, that began in the second half of 2007 and continued through 2009. In addition, volatility and disruption in the capital markets during that period reached unprecedented levels, with stock markets falling dramatically and credit becoming very expensive or unavailable to many companies without regard to those companies' underlying financial strength. As a result of these


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    developments, many lenders and institutional investors reduced, and in some cases, ceased to provide funding to borrowers. Although there have been some indications of stabilization in the general economy and certain industries and markets in which we operate, there can be no guarantee that any improvement in these areas will continue or be sustained.

    We have been, and expect tomay continue to be, adversely impacted by the decline in the new residential construction market since its peak in 2005.

    Most of our businessesbusiness units are dependent to varying degrees upon the new residential construction market. The homebuilding industry is undergoinghas undergone a significant and sustained downturn.decline from its peak in 2005. According to the U.S. Census Bureau, actual single family housing starts in the U.S. during 2012 increased 24% from 2011 decreased 8% from 2010 levels. We believe that the market downturn over the past several years is attributable to a variety of factors including: the lasting impact of the recent economic recession; limited credit availability; excess home inventories; a substantial reductionlevels, but remain 69% below their peak in speculative home investment; a decline in consumer confidence; higher unemployment; and an industry-wide softening of demand.2005. The multi-year downturn in the homebuilding industry has resulted in a substantial reduction in demand for our products and services, which in turn had a significant adverse effect on our business and operating results during fiscal years 2008 to 2011.2012, as compared to peak levels. In addition, the mortgage markets continue to experience disruption and reduced availability of mortgages for potential homebuyers due to more restrictive standards to qualify for mortgages, including with respect to new home construction loans.

    Index to Financial Statements

    We cannot predict the duration of the current housing industry market conditions, or the timing or strength of any future recovery of housing activity in our markets. We also cannot provide any assurances that the homebuilding industry will recover to historical levels, or that the operational strategies we have implemented to address the current market conditions will be successful. Continued weakness in the new residential construction market would have a significant adverse effect on our business, financial condition and operating results. In addition, because of these factors, there may be fluctuations in our operating results, and the results for any historical period may not be indicative of results for any future period.

    The non-residential construction industrymarket continues to experience a downturn which could materially and adversely affect our business, liquidity and results of operations.

    Many of our businessesbusiness units are dependent on the non-residential construction industrymarket and the slowdown and volatility of the United States economy in general is having an adverse effect on our businessesbusiness units that serve this industry. According to the U.S. Census Bureau, actual non-residential construction put-in-place in the U.S. during 2012 increased 8% from 2011 declined 2% from 2010 levels, and 16% from 2009.but remains 12% lower than 2009 levels. From time to time, our businessesbusiness units that serve the non-residential construction industrymarket have also been adversely affected in various parts of the country by declines in non-residential construction starts due to, among other things, changes in tax laws affecting the real estate industry, high interest rates and the level of residential construction activity. Continued uncertainty about current economic conditions will continue to pose a risk to our businessesbusiness units that serve the non-residential construction industrymarket as participants in this industry may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a continued material negative effect on the demand for our products and services.

    We cannot predict the duration of the current market conditions, or the timing or strength of any future recovery of non-residential construction activity in our markets. Continued weakness in the non-residential construction market would have a significant adverse effect on our business, financial condition and operating results. In addition, because of these factors, there may be fluctuations in our operating results, and the results for any historical period may not be indicative of results for any future period.


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    Residential renovation and improvement activity levels may not return to historic levels which may negatively impact our business, liquidity and results of operations.

    Certain of our businessesbusiness units rely on residential renovation and improvement (including repair and remodeling) activity levels. Unlike most previous cyclical declines in new home construction in which we did not experience comparable declines in our home improvement businesses,business units, the recent economic decline adversely affected our home improvement businessesbusiness units as well. According to Moody’sMoody's Economy.com, residential improvement project spending in the United States increased only 4%10% in 2011.2012, but remains 14% below its peak in 2006. Continued high unemployment levels, high mortgage delinquency and foreclosure rates, limitations in the availability of mortgage and home improvement financing and significantly lower housing turnover, may continue to limit consumers’consumers' spending, particularly on discretionary items, and affect their confidence level leading to continued reduced spending on home improvement projects. The impact of these economic factors specific to the home improvement industry is exacerbated by unemployment.

    We cannot predict the timing or strength of a significant recovery in these markets. Continued depressed activity levels in consumer spending for home improvement and new home construction will continue to adversely affect our results of operations and our financial position. Furthermore, continued economic weakness may cause unanticipated shifts in consumer preferences and purchasing practices and in the business models and strategies of our customers. Such shifts may alter the nature and prices of products demanded by the end consumer and our customers and could adversely affect our operating performance.

    We may be unable to achieve or maintain profitability.

    We have set goals to achieve profitability and if achieved, to progressively improve our profitability over time by growing our sales, increasing our gross margin and reducing our expenses as a percentage of sales. For the fiscal years 2012, 2011 and 2010 we had net

    Index to Financial Statements

    losses of $1,179 million, $543 million and $619$609 million, respectively. There can be no assurance that we will achieve our enhanced profitability goals. Factors that could significantly adversely affect our efforts to achieve these goals include, but are not limited to, the following:

    failure to to:

      •
      grow our revenue through organic growth or through acquisitions;

    failure to

    •
    improve our revenue mix by investing (including through acquisitions) in businesses that provide higher margins than we have been able to generate historically;

    failure to

    •
    achieve improvements in purchasing or to maintain or increase our rebates from vendors through our vendor consolidation and/or low-cost country initiatives;

    failure to

    •
    improve our gross margins through the utilization of improved pricing practices and technology and sourcing savings;

    failure to

    •
    maintain or reduce our overhead and support expenses as we grow;

    failure to

    •
    effectively evaluate future inventory reserves;

    failure to

    •
    collect monies owed from customers;

    •
    maintain relationships with our significant customers; and

    failure to

    •
    integrate any businesses acquired.

    Any of these failures or delays may adversely affect our ability to increase our profitability.


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    Goodwill is subjectWe may be required to take impairment testing and may affectcharges relating to our operations which could impact our future operating results.

    As of October 28, 2012,August 4, 2013, goodwill represented approximately 43%48% of our total assets. Goodwill is not amortized and is subject to impairment testing at least annually using a fair value based approach. The identification and measurement of impairment involves the estimation of the fair value of reporting units. Accounting for impairment contains uncertainty because management must use judgment in determining appropriate assumptions to be used in the measurement of fair value. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment and incorporate management assumptions about expected future cash flows and contemplate other valuation techniques. Future cash flows can be affected by changes in industry or market conditions among other things.

    The recoverability of goodwill is evaluated at least annually and when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. The annual impairment test performed during the third quarter of each fiscal year resulted in no impairment of goodwill during the nine months ended October 28,fiscal 2012, nor fiscal 2011 or fiscal 2010. DuringHowever, during the fourth quarter of fiscal 2009,2012, our Crown Bolt business reached an agreement to amend and extend its strategic purchase agreement with Home Depot. While the amendment extends the agreement five years through fiscal 2019, retaining Crown Bolt as the exclusive supplier of certain products to Home Depot, it eliminates the minimum purchase requirement and adjusted future pricing. These changes resulted in a reduction of expected future cash proceeds from Home Depot. We, therefore, considered this amendment a triggering event and, as such, we performed an additional goodwill impairment analysis for Crown Bolt. As a result of the analysis, we recorded a non-cash, pre-tax goodwill impairment charge of $224$150 million during the fourth quarter of which $219 million relatesfiscal 2012.

            We cannot accurately predict the amount and timing of any impairment of assets. In addition to continuing operations, driven by a reductionthe goodwill impairment charge we recorded in expected future cash flows for certain businesses primarily as a result of the decline in the residential construction market and general weakness in the U.S. economy.

    In view of the general economic downturn in the U.S.,fiscal 2012, we may be required to take additional impairment charges relating to our operationsgoodwill or close under-performing locations.

    During fiscal 2009, we recorded impairment charges related to the carrying value of goodwill for four of our reporting units. While a goodwill impairment charge was not recorded during fiscal 2011 or fiscal 2010, if weakness in the residential and/or non-residential construction markets and/or the general U.S. economy continues, we may need to take additional goodwill and/orother asset impairment charges relating to certain of our reporting units and asset groups.groups, if weakness in the non-residential and/or residential construction markets and/or the general U.S. economy continues. Similarly, certain company transactions, such as the amendment to the Crown Bolt strategic purchase agreement with Home Depot, could result in additional goodwill impairment charges being recorded. Any such non-cash charges would have an adverse effect on our financial results.

    In addition,view of the general economic downturn in the United States, we have closed certainmay be required to close under-performing branches. As of January 29, 2012, approximately 235 net branches have been closed and approximately 9,000 employees have been terminated since the Transactions.locations.

            We may have to close additionalunder-performing branches from time to time as warranted by general economic conditions and/or weakness in certainthe industries in which we operate. For example, during the economic downturn from 2007 through fiscal 2010, we closed branches and terminated employees as part of our markets. Suchrestructuring plans during that timeframe. Any future facility closures could have a significant adverse effect on our financial condition, operating results and cash flows.

    Index to Financial Statements

    We occupy most of our facilities under long-term non-cancelable leases. We may be unable to renew leases on favorable terms or at the end of their terms. Ifall. Also, if we close a facility, we remain obligated under the applicable lease.

    Most of our facilities are located in leased premises. Many of our current leases are non-cancelable and typically have terms ranging from 3 to 105 years, and most providewith options to renew for specified periods of time. We believe that leases we enter into in the future will likely be long-term and non-cancelable and have similar renewal options. IfHowever, there can be no assurance that we will be able to renew our current or future leases on favorable terms or at all which could have an adverse effect on our ability to operate our business and on our results of operations. In addition, if we close or idle a facility, we generally remain committed to perform our obligations under the applicable lease, which includes,include, among other things, payment of the base rent for the balance of the lease term. Over the course of the last three fiscal years, we closed or idled facilities for which we remain liable on the


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    lease obligations. Our obligation to continue making rental payments in respect of leases for closed or idled facilities could have a material adverse effect on our business and results of operations.

    The industries in which we operate are highly competitive and fragmented, and demand for our products and services could decrease if we are not able to compete effectively.

    The industriesmarkets in which we operate are fragmented including the residential, non-residential and public infrastructure construction and facility repair and maintenance markets. There is significant competition in each of our businesses.highly competitive. Our competition includes other wholesalersdistributors and manufacturers that sell products directly to their respective customer base and some of our customers that resell our products. To a limited extent, retailers of electrical fixtures and supplies, building materials, maintenance, repair and operations supplies and contractors’contractors' tools also compete with us. We also expect that new competitors may develop over time as internet-based enterprises become more established and reliable and refine their service capabilities. Competition varies depending on product line, customer classification and geographic area. The principal competitive factors in our business include, but are not limited to:

            

    availability and cost of materials and supplies;

    technical product knowledge and expertise as to application and usage;

    advisory or other service capabilities;

    ability to build and maintain customer relationships;

    effective use of technology to identify sales and operational opportunities;

    same-day delivery capabilities in certain product lines; and

    pricing of products and provisions of credit.

    We compete with many local, regional and, in several markets and product categories, other national distributors. Several of our competitors in one or more of our businessesbusiness units have substantially greater financial and other resources than us. No assurance can be given that we will be able to respond effectively to such competitive pressures. Increased competition by existing and future competitors could result in reductions in sales, prices, volumes and gross margins that could materially adversely affect our business, financial condition and results of operations. Furthermore, our success will depend, in part, on our ability to maintain our market share and gain market share from competitors.

    In addition, our contracts with municipalities are often awarded and renewed through periodic competitive bidding. We may not be successful in obtaining or renewing these contracts. Our inability to replace a significant number of contracts, lost through competitive bidding processes with other revenue sources within a reasonable timewhich could be harmful to our business and financial performance.

    Index to Financial Statements

    Our competitors in the residential, non-residential and infrastructure construction and facility maintenance and repair distribution markets continue to consolidate, which could cause these markets to become more competitive and could negatively impact our business.

    Our competitors in the residential, non-residential and infrastructure construction and facility maintenance and repair distribution markets in the United States and Canada are consolidating. This consolidation is being driven by customer needs and supplier capabilities, which could cause the industriesmarkets to become more competitive as greater economies of scale are achieved by distributors. Customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations. We believe these customer needs could result in fewer distributors as the remaining distributors become larger and capable of being a consistent source of supply.

    There can be no assurance that we will be able to take advantage effectively of thethis trend toward consolidation. The trend in our industry toward consolidation could make it more difficult for us to maintain operating margins and could also increase competition for our acquisition targets and result in higher purchase price multiples. Furthermore, as our industrial and construction customers face increased foreign competition and potentially lose business to foreign competitors or shift their operations overseas in an effort to reduce expenses, we may face increased difficulty in growing and maintaining our market share and growth prospects.prospects in these markets.

    The loss of any of our significant customers could adversely affect our financial condition.

    Our ten largest customers generated approximately 9.6%8% of our Net sales in fiscal 2011,2012, and our largest customer, Home Depot, accounted for 3.9%approximately 4% of our Net sales in that same period. We cannot guarantee that we will maintain or improve our relationships with these customers or that we will continue to supply these customers at historical levels. During the economic downturn, some of our customers reduced their operations. For example, some homebuilder customers exited or severely curtailed building activity in certain of our markets. There is no assurance that our customers will determine to increase their operations or return to historic levels. Slow economic recovery could


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    continue to have a significant adverse effect on our financial condition, operating results and cash flows.

    In addition, consolidation among customers could also result in a loss of some of our present customers to our competitors. The loss of one or more of our significant customers, a significant customer's decision to purchase our products in significantly lower quantities than they have in the past, or deterioration in our relationsrelationship with any of them could significantly affect our financial condition, operating results and cash flows. OurFor example, during fiscal 2012 our Crown Bolt business is partyagreed to aan amendment of its strategic purchase agreement with Home Depot, which providesDepot. While the amendment extends the agreement five years through fiscal 2019, it eliminated the minimum purchase requirement and adjusts future pricing. These changes resulted in a guaranteed revenue stream to Crown Bolt through January 31, 2015 by specifying minimum annual purchase requirementsreduction of expected future cash proceeds from Home Depot. We, therefore, considered this amendment a triggering event and, as such, we performed an additional goodwill impairment analysis for Crown Bolt. As of October 28, 2012, the net book valuea result of the strategic purchase agreement is $50analysis, we recorded a non-cash, pre-tax goodwill impairment charge of $150 million andduring the net book valuefourth quarter of goodwill assigned to Crown Bolt is $215 million. We are currently in discussions with Home Depot regarding the amendment and extension of the current strategic purchase agreement, including the terms of such amendment and extension. The options being discussed with Home Depot concerning the amendment and extension could result in an impairment of the strategic purchase agreement, the goodwill assigned to Crown Bolt or both, which could be significant.fiscal 2012.

    Generally, our customers are not required to purchase any minimum amount of products from us. The contracts into which we have entered with most of our customers typically provide that we supply particular products or services for a certain period of time when and if ordered by the customer. Should our customers purchase our products in significantly lower quantities than they have in the past, such decreased purchases could have a material adverse effect on our financial condition, operating results and cash flows.

    Index to Financial Statements

    The majority of our net sales are credit sales which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the industry and geographic areas in which they operate, and the failure to collect monies owed from customers could adversely affect our financial condition.

    The majority of our Net sales volume in fiscal 20112012 was facilitated through the extension of credit to our customers whose ability to pay is dependent, in part, upon the economic strength of the construction industry in the areas where they operate. Our businessesbusiness units offer credit to customers, either through unsecured credit that is based solely upon the creditworthiness of the customer, or secured credit for materials sold for a specific job where the security lies in lien rights associated with the material going into the job. The type of credit offered depends both on the financial strength of the customer and the nature of the business in which the customer is involved. End users, resellers and other non-contractor customers generally purchase more on unsecured credit than secured credit. The inability of our customers to pay off their credit lines in a timely manner, or at all, would adversely affect our financial condition, operating results and cash flows. Furthermore, our collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward.

    Because we depend on the creditworthiness of certain of our customers, if the financial condition of our customers declines, our credit risk could increase. Significant contraction in the construction market,our markets, coupled with tightened credit availability and financial institution underwriting standards, could adversely affect certain of our customers. Should one or more of our larger customers declare bankruptcy, it could adversely affect the collectability of our accounts receivable, bad debt reserves and net income.

    We are subject to competitive pricing pressure from our customers.

    Certain of our largest customers historically have exerted significant pressure on their outside suppliers to keep prices low because of their market share and their ability to leverage such market share in the highly fragmented building products supply industry. The economic downturn has resulted in increased pricing pressures from our customers. If we are unable to generate sufficient cost savings to offset any price reductions, our financial condition, operating results and cash flows may be adversely affected.


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    We may not achieve the acquisition component of our growth strategy.

    Acquisitions willmay continue to be an important component of our growth strategy; however, there can be no assurance that we will be able to continue to grow our business through acquisitions as we have done historically or that any businesses acquired will perform in accordance with expectations or that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove to be correct. Future acquisitions may result in the incurrence of debt and contingent liabilities, and an increase in interest expense and amortization expensesexpense and significant charges relative to integration costs. Our strategy could be impeded if we do not identify suitable acquisition candidates and our financial condition and results of operations will be adversely affected if we overpay for acquisitions.

    Acquisitions involve a number of special risks, including:

      •
      problems implementing disclosure controls and procedures;

    procedures for the newly acquired business;

    •
    unforeseen difficulties extending internal control over financial reporting and performing the required assessment at the newly-acquirednewly acquired business;



    •
    potential adverse short-term effects on operating results through increased costs or otherwise;



    •
    diversion of management’smanagement's attention and failure to recruit new, and retain existing, key personnel of the acquired business;



    •
    failure to successfully implement infrastructure, logistics and systems integration;



    •
    our business growth could outpace the capability of our systems;

    Index to Financial Statements

    unforeseen liabilities inherent in the acquired business that manifest themselves after the acquisition is completed; and



    •
    the risks inherent in the systems of the acquired business and risks associated with unanticipated events or liabilities, any of which could have a material adverse effect on our business, financial condition and results of operations.

    In addition, we may not be able to obtain financing necessary to complete acquisitions on attractive terms or at all.

    A range of factors may make our quarterly and monthly revenues and earnings variable.

    We have historically experienced, and in the future expect to continue to experience, variability in revenues and earnings on a quarterly and monthly basis. The factors expected to contribute to this variability include, among others: (i)(i) the cyclical nature of some of the markets in which we compete, including the newnon-residential and residential and commercial construction markets, (ii)(ii) general economic conditions in the various local markets in which we compete, (iii)(iii) the pricing policies of our competitors, (iv)(iv) the production schedules of our customers and (v)(v) the effects of the weather. These factors, among others, make it difficult to project our operating results on a consistent basis, which may affect the price of our securities.

    The residential,maintenance, repair and operations market, infrastructure spending and the non-residential and infrastructureresidential construction and facility maintenance and repair markets are cyclicalseasonal and seasonal.cyclical.

    Although weather patterns affect our operating results throughout the year, adverse weather historically has reduced construction and maintenance and repair activity in theour first and fourth quarters in our markets.fiscal quarters. In contrast, our highest volume of Net sales historically has occurred in our second fiscal quarter. To the extent that hurricanes, severe storms, floods, other natural disasters or similar events occur in the marketsgeographic regions in which we operate, our business may be adversely affected. In addition, most of our businessesbusiness units experience seasonal variation as a result of the dependence of our customers on suitable weather to engage in construction, maintenance and renovation and improvement projects. For example, White Cap sells products used primarily in the residentialnon-residential and non-residentialresidential construction industry. Generally, during the winter months, construction activity declines due to


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    inclement weather and shorter daylight hours. As a result, operating results for the businessesbusiness units that experience such seasonality may vary significantly from period to period. We anticipate that fluctuations from period to period will continue in the future.

    Fluctuating commodity prices may adversely impact our results of operations.

    The cost of steel, aluminum, copper, ductile iron, polyvinyl chlorides (“PVC”)        Disruptions at distribution centers or shipping ports, due to events such as work stoppages, the flooding from Hurricane Sandy in 2012, as well as disruptions caused by tornadoes, blizzards and other commodities usedstorms from time to time, may affect our ability to both maintain key products in theinventory and deliver products we distribute can be volatile. Although we attempt to resist cost increases by our suppliers and to pass on increased costs to our customers we are not always able to do so quickly or at all. In addition, if prices decrease for commodities usedon a timely basis, which may in products we distribute, we may have inventories purchased at higher prices than prevailing market prices. Significant fluctuations in the cost of the commodities used in products we distribute have in the past adversely affected, and in the future mayturn adversely affect our results of operationsoperations.

            In addition, infrastructure spending and financial condition.

    If petroleum prices increase, our results of operations could be adversely affected.

    Petroleum prices have fluctuated significantly in recent years. Prices and availability of petroleum products are subject to political, economic and market factors that are outside our control. Political events in petroleum-producing regions as well as hurricanes and other weather-related events may cause the price of fuel to increase. Within several of our principal and other businesses, we deliver a significant volume of products to our customers by truck. Our operating profit will be adversely affected if we are unable to obtain the fuel we require or to fully offset the anticipated impact of higher fuel prices through increased prices or fuel surcharges to our customers. Besides passing fuel costs on to customers, we have not entered into any hedging arrangements that

    Index to Financial Statements

    protect against fuel price increases and we do not have any long-term fuel purchase contracts. If shortages occur in the supply of necessary petroleum products and we are not able to pass along the full impact of increased petroleum prices to our customers, our results of operations would be adversely affected.

    Product shortages and cyclicality in the residential, non-residential and infrastructureresidential construction and facility maintenance and repair markets may impair our operating results.

    Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers or other suppliers. Generally, our products are obtainable from various sources and in sufficient quantities. However, the loss of, or substantial decrease in the availability of, products from our suppliers, or the loss of our key supplier agreements, could adversely impact our financial condition, operating results and cash flows. In addition, supply interruptions could arise from shortages of raw materials (including petroleum products), labor disputes or weather conditions affecting products or shipments, transportation disruptions or other factors beyond our control. Short and long-term disruptions in our supply chain would result in a need to maintain higher inventory levels as we replace similar product domestically, a higher cost of product and ultimately a decrease in our Net sales and profitability. A disruption in the timely availability of our products by our key suppliers would result in a decrease in our revenues and profitability, especially in our businesses with supplier concentration, such as our Waterworks business. Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. Failure by our suppliers to continue to supply us with products on commercially reasonable terms, or at all, would put pressure on our operating margins and have a material adverse effect on our financial condition, operating results and cash flows. Short-term changes in the cost of these materials, some of which are subject to significant fluctuations, are sometimes, but not always passed on to our customers. Our delayed ability to pass on material price increases to our customers could adversely impact our financial condition, operating results and cash flows.

    In addition, the residential, non-residential and infrastructure construction and facility maintenance and repair markets are subject to cyclical market pressures. The length and magnitude of these cycles have varied over time and by market. Prices of the products we sell are historically volatile and subject to fluctuations arising from changes in supply and demand, national and international economic conditions, labor costs, competition, market speculation, government regulation and trade policies, as well as from periodic delays in the delivery of our products. We have a limited ability to control the timing and amount of changes to prices that we pay for our products. In addition, the supply of our products fluctuates based on available manufacturing capacity. A shortage of capacity, or excess capacity, in the industry can result in significant increases or declines in market prices for those products, often within a short period of time. Such price fluctuations can adversely affect our financial condition, operating results and cash flows.

    Fluctuating commodity prices may adversely impact our results of operations.

            The cost of steel, aluminum, copper, ductile iron, polyvinyl chlorides ("PVC") and other commodities used in the products we distribute can be volatile. Although we attempt to resist cost increases by our suppliers and to pass on increased costs to our customers, we are not always able to do so quickly or at all. In addition, if prices decrease for commodities used in products we distribute, we may have inventories purchased at higher prices than prevailing market prices. Significant fluctuations in the cost of the commodities used in products we distribute have in the past adversely affected, and in the future may adversely affect, our results of operations and financial condition.

    If petroleum prices increase, our results of operations could be adversely affected.

            Petroleum prices have fluctuated significantly in recent years. Prices and availability of petroleum products are subject to political, economic and market factors that are outside our control. Political events in petroleum-producing regions as well as hurricanes and other weather-related events may cause the price of fuel to increase. Within several of our business units, we deliver a significant volume of products to our customers by truck. Our operating profit will be adversely affected if we are unable to obtain the fuel we require or to fully offset the anticipated impact of higher fuel prices through increased prices or fuel surcharges to our customers. Besides passing fuel costs on to customers, we have not entered into any hedging arrangements that protect against fuel price increases and we do not have any long-term fuel purchase contracts. If shortages occur in the supply of necessary petroleum products and we are not able to pass along the full impact of increased petroleum prices to our customers, our results of operations would be adversely affected.

    Product shortages may impair our operating results.

            Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers or other suppliers. Generally, our products are obtainable from various sources and in sufficient quantities. However, the loss of, or substantial decrease in the availability of, products from our suppliers, or the loss of our key supplier agreements, could adversely impact our financial condition, operating results and cash flows. In addition, supply


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    interruptions could arise from shortages of raw materials (including petroleum products), labor disputes or weather conditions affecting products or shipments, transportation disruptions or other factors beyond our control. Short- and long-term disruptions in our supply chain would result in a need to maintain higher inventory levels as we replace similar product, a higher cost of product and ultimately a decrease in our Net sales and profitability. A disruption in the timely availability of our products by our key suppliers would result in a decrease in our revenues and profitability, especially in our business units with supplier concentration, such as our Waterworks business. Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. Failure by our suppliers to continue to supply us with products on commercially reasonable terms, or at all, would put pressure on our operating margins and have a material adverse effect on our financial condition, operating results and cash flows. Short-term changes in the cost of these materials, some of which are subject to significant fluctuations, are sometimes, but not always passed on to our customers. Our inability to pass on material price increases to our customers could adversely impact our financial condition, operating results and cash flows.

    We rely on third partythird-party suppliers and long supply chains, and if we fail to identify and develop relationships with a sufficient number of qualified suppliers, or if there is a significant interruption in our supply chains, our ability to timely and efficiently access products that meet our standards for quality could be adversely affected.

    We buy our products and supplies from suppliers located throughout the worldworld. These suppliers manufacture and they manufacture or purchase insource products from the United States and abroad the products we buy from them.abroad. Our ability to continue to identify and develop relationships with qualified suppliers who can satisfy our standards for quality and our need to access products and supplies in a timely and efficient manner is a significant challenge. We may be required to replace a supplier if their products do not meet our quality or safety standards. In addition, our suppliers could discontinue selling products manufactured in foreign countries at any time for reasons that may or may not be in our control or the suppliers’suppliers' control. Our operating results and inventory levels could suffer if we are unable to promptly replace a supplier who is unwilling or unable to satisfy our requirements with a supplier providing similar products. Our suppliers’suppliers' ability to deliver products may also be affected by financing constraints caused by credit market conditions, which could negatively impact our revenue and cost of products sold, at least until alternate

    Index to Financial Statements

    sources of supply are arranged.

            In addition, since a portionsome of the products that we distribute isare produced in foreign countries, we are dependent on long supply chains for the successful delivery of many of our products. The length and complexity of these supply chains make them vulnerable to numerous risks, many of which are beyond our control, which could cause significant interruptions or delays in delivery of our products. Factors such as political instability, the financial instability of suppliers, suppliers’suppliers' noncompliance with applicable laws, trade restrictions, labor disputes, currency fluctuations, changes in tariff or import policies, severe weather, terrorist attacks and transport capacity and cost may disrupt these supply chains and our ability to access products and supplies. For example, if the government of China were to reduce or withdraw the tax benefits they provide our Chinese suppliers, the cost of some of our products may increase and our margins could be reduced. We expect more of our products will be imported in the future, which will further increase these risks. If we increase the percentage of our products that are sourced from lower-cost countries, these risks will be amplified. Moreover, these risks will be amplified by our ongoing efforts to consolidate our supplier base across our businesses. We expect more of our products will be imported in the future, which will further increase these risks.business units. A significant interruption in our supply chains caused by any of the above factors could result in increased costs or delivery delays and result in a decrease in our Net sales and profitability.

    We have substantial fixed costs and, as a result, our operating income is sensitive to changes in our net sales.

    A significant portion of our expenses are fixed costs (including personnel), which do not fluctuate with Net sales. Consequently, a percentage decline in our Net sales could have a greater percentage


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    effect on our operating income if we do not act to reduce personnel or take other cost reduction actions. Any decline in our Net sales would cause our profitability to be adversely affected. Moreover, a key element of our strategy is managing our assets, including our substantial fixed assets, more effectively, including through sales or other disposals of excess assets. Our failure to rationalize our fixed assets in the time, and within the costs, we expect could have an adverse effect on our results of operations and financial condition.

    A change in our product mix could adversely affect our results of operations.

    Our results may be affected by a change in our product mix. Our outlook, budgeting and strategic planning assume a certain volume mix of sales as well as a product mix of sales. If actual results vary from this projected volume and product mix of sales, our financial results could be negatively impacted.

    The impairment or failure of financial institutions may adversely affect us.

    We have exposure to counterparties with which we execute transactions, including U.S. and foreign commercial banks, insurance companies, investment banks, investment funds and other financial institutions, some of which may be exposed to bankruptcy, illiquidity, default or similar risks.institutions. Many of these transactions could expose us to risk in the event of the bankruptcy, receivership, default or similar event involving a counterparty. For example, one of the financial institutions that was committed to fund our Existing ABL Credit Facility failed to meet a funding request by the Company in the first quarter of 2011. While we have not realized any significant losses to date, the bankruptcy, receivership, default or similar event involving one of our financial institution counterparties could have a material adverse impact on our access to funding or our ability to meet our financing agreement obligations.

    The development of alternatives to distributors in the supply chain could cause a decrease in our sales and operating results and limit our ability to grow our business.

    Our customers could begin purchasing more of their product needs directly from manufacturers, which would result in decreases in our Net sales and earnings. Our suppliers could invest in infrastructure to expand their own local sales force and sell more products directly to our customers, which also would negatively impact our business. For example, multiple municipalities may outsource their entire waterworks systems to a single company, thereby increasing such company’scompany's leverage in the marketplace and its ability to buy directly from suppliers, which may have a material adverse effect on our operating results.

    Index to Financial Statements

    In addition to these factors, our customers may elect to establish their own building products manufacturing and distribution facilities, or give advantages to manufacturing or distribution intermediaries in which they have an economic stake. These changes in the supply chain could adversely affect our financial condition, operating results and cash flows.

    Because our business is working-capitalworking capital intensive, we rely on our ability to manage our product purchasing and customer credit policies.

    Our operations are working-capitalworking capital intensive, and our inventories, accounts receivable and accounts payable are significant components of our net asset base. We manage our inventories and accounts payable through our purchasing policies and our accounts receivable through our customer credit policies. If we fail to adequately manage our product purchasing or customer credit policies, our working capital and financial condition may be adversely affected.

    Inclement weather, anti-terrorismAnti-terrorism measures and other disruptions to the transportation network could impact our distribution system and our operations.

    Our ability to provide efficient distribution of products to our customers is an integral component of our overall business strategy. Disruptions at distribution centers or shipping ports, due to events such as the flooding from Hurricane Sandy, Hurricane Irene and the outbreaks of tornadoes in 2011, blizzards in 2010, and the hurricanes of 2005, may affect our ability to both maintain key products in inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our results of operations.

    Furthermore, inIn the aftermath of terrorist attacks in the United States, federal, state and local authorities have implemented and continue to implement various security measures that


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    affect many parts of the transportation network in the United States and abroad. Our customers typically need quick delivery and rely on our on-time delivery capabilities. If security measures disrupt or impede the timing of our deliveries, we may fail to meet the needs of our customers, or may incur increased expenses to do so.

    Interruptions in the proper functioning of IT systems could disrupt operations and cause unanticipated increases in costs or decreases in revenues, or both.

    Because we use our information systems to, among other things, manage inventories and accounts receivable, make purchasing decisions and monitor our results of operations, the proper functioning of our IT systems is critical to the successful operation of our business. Although our IT systems are protected through physical and software safeguards and remote processing capabilities exist, IT systems are still vulnerable to natural disasters, power losses, unauthorized access, telecommunication failures and other problems. If critical IT systems fail, or are otherwise unavailable, our ability to process orders, track credit risk, identify business opportunities, maintain proper levels of inventories, collect accounts receivable and pay expenses and otherwise manage our businessesbusiness units would be adversely affected.

            Third-party service providers are responsible for managing a significant portion of our information systems. Our business and results of operations may be adversely affected if the third-party service provider does not perform satisfactorily.

    The implementation of our technology initiatives could disrupt our operations in the near term, and our technology initiatives might not provide the anticipated benefits or might fail.

    We have made, and will continue to make, significant technology investments in each of our businessesbusiness units and in our administrative functions. Our technology initiatives are designed to streamline our operations to allow our associates to continue to provide high quality service to our customers and to provide our customers a better experience, while improving the quality of our internal control environment. The cost and potential problems and interruptions associated with the implementation of our technology initiatives could disrupt or reduce the efficiency of our operations in the near term. In addition, our new or upgraded technology might not provide the anticipated benefits, it might take longer than expected to realize the anticipated benefits or the technology might fail altogether.

    Index to Financial Statements

    We may experience a failure in or breach of our operational or information security systems, or those of our third partythird-party service providers, as a result cyber attacks or information security breaches.

    Information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber attacks. A failure in or breach of our operational or information security systems, or those of our third partythird-party service providers, as a result of cyber attacks or information security breaches could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and/or cause losses. As a result, cyber security and the continued development and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us. Although we believe that we have robust information security procedures and other safeguards in place, as cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.


    Third party service providers are responsible for managing a significant portionTable of our information systems. Our business and results of operations may be adversely affected if the third party service provider does not perform satisfactorily.Contents

    Our costs of doing business could increase as a result of changes in U.S. federal, state or local regulations.

    Our operations are principally affected by various statutes, regulations and laws in the 46 U.S. states and nine Canadian provinces in which we operate. While we are not engaged in a “regulated”regulated industry, we are subject to various laws applicable to businesses generally, including laws affecting land usage, zoning, the environment, health and safety, transportation, labor and employment practices (including pensions), competition, immigration and other matters. Additionally, building codes may affect the products our customers are allowed to use, and consequently, changes in building codes may affect the saleability of our products. Changes in U.S. federal, state or local regulations governing the sale of some of our products could increase our costs of doing business. In addition, changes to U.S. federal, state and local tax regulations could increase our costs of doing business. We sell products to governmental customers and must comply with requirements in connection with such contracts. We cannot provide assurance that we will not incur material costs or liabilities in connection with regulatory requirements.

    We deliver products to many of our customers through our own fleet of vehicles. The U.S. Department of Transportation or the “DOT,”(the "DOT") regulates our operations in domestic interstate commerce. We are subject to safety requirements governing interstate operations prescribed by the DOT. Vehicle dimensions and driver hours of service also remain subject to both federal and state regulation. More restrictive limitations on vehicle weight and size, trailer length and configuration, or driver hours of service could increase our costs, which, if we are unable to pass these cost increases on to our customers, would reduce our gross margins, increase our selling,Selling, general and administrative expenses and reduce our net income.Net income (loss).

    We cannot predict whether future developments in law and regulations concerning our businessesbusiness units will affect our business, financial condition and results of operations in a negative manner. Similarly, we cannot assess whether our businessesbusiness units will be successful in meeting future demands of regulatory agencies in a manner which will not materially adversely affect our business, financial condition or results of operations.

    We will need to begin disclosing our use of 'conflict minerals' in certain of the products we distribute, which will impose costs on us and could raise reputational and other risks.

            The SEC has promulgated final rules in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act, regarding disclosure of the use of certain minerals, known as 'conflict minerals', that are mined from the Democratic Republic of the Congo and adjoining countries. These new requirements will require due diligence efforts in fiscal year 2013 and thereafter, with initial disclosure requirements effective in May 2014. There will be costs associated with complying with these disclosure requirements, including costs to determine which of our products are subject to the new rules and the source of any 'conflict minerals' used in those products. In addition, the implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in those products. Also, we may face reputational challenges if we are unable to verify the origins for all metals used in products through the procedures we may implement. We may also encounter challenges to satisfy customers that may require all of the components of products purchased to be certified as conflict free. If we are not able to meet customer requirements, customers may choose to disqualify us as a distributor.

    The nature of our business exposes us to construction defect and product liability claims as well as other legal proceedings.

    We rely on manufacturers and other suppliers to provide us with the products we sell and distribute. As we do not have direct control over the quality of the products manufactured or supplied by such third partythird-party suppliers, we are exposed to risks relating to the quality of the products we distribute and install. It is possible that

    Index to Financial Statements

    inventory from a manufacturer or supplier could be sold to our customers and later be alleged to have quality problems or to have caused personal injury, subjecting us


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    to potential claims from customers or third parties. We have been subject to such claims in the past, which have been resolved without material financial impact. We are currently involved in construction defect and product liability claims relating to our various construction trades and the products we distribute and manufacture and relating to products we have installed. In certain situations, we have undertaken to voluntarily remediate any defects, which can be a costly measure.

    We also operate a large fleet of trucks and other vehicles and therefore face the risk of traffic accidents.

            While we currently maintain insurance coverage to address a portion of these types of liabilities, we cannot make assurances that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. Further, while we seek indemnification against potential liability for products liability claims from relevant parties, including but not limited to manufacturers and distributors,suppliers, we cannot guarantee that we will be able to recover under such indemnification agreements. Moreover, as we increase the number of private label products we distribute, our exposure to potential liability for products liability claims may increase. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant time periods, regardless of the ultimate outcome. An unsuccessful product liability defense could be highly costly and accordingly result in a decline in revenues and profitability. In addition, uncertainties with respect to the Chinese legal system may adversely affect us in resolving claims arising from our proprietary brand products manufactured in China. Because many laws and regulations are relatively new and the Chinese legal system is still evolving, the interpretations of many laws, regulations and rules are not always uniform. Finally, even if we are successful in defending any claim relating to the products we distribute, claims of this nature could negatively impact customer confidence in our products and our company.Company.

    We        From time to time, we are also involved in a number of legal proceedings, and while we cannot predict the outcomes of such proceedings and other contingencies with certainty, some of these outcomes may adversely affect our operations or increase our costs.

    We are involved in a number of legal proceedings, including government inquiries and investigations, as well as class action, products liability, consumer, employment, tort proceedings and other litigation. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, including environmental remediation and other proceedings commenced by government authorities. The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions which could adversely affect our operations or could require us to pay substantial amounts of money. Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of management’smanagement's attention and resources from other matters. We have been contacted by prosecutorsinformed that the Office of the United States Attorney for the South Coast Air Quality ManagementNorthern District (“SCAQMD”) in California regarding allegations that we sold products in violation of applicable SCAQMD VOC (volatile organic compound) rules. We have received a request for information from SCAQMD seeking informationNew York is conducting an investigation related to the alleged violations. We areactivities of certain disadvantaged business enterprises. In May of 2011, in connection with that investigation, the processgovernment executed a search of respondingan entity from which Waterworks purchased assets shortly before the search was executed. On June 20, 2012, in connection with that same investigation, the government executed search warrants at two Waterworks branches. The Company was updated by the government on its investigation in March 2013 and continues to cooperate with the request for information. Weinvestigation. While the Company cannot predict the outcome, it believes a potential loss on this matter is reasonably possible but due to the current state of this matter. While we may be requiredthe investigation it is not able to payestimate a fine or other penalty, which could be significant, we do not expect the outcome to have a material adverse effect on our consolidated financial condition or resultsrange of operations. See “Business—Legal proceedings.”potential loss.

    If we become subject to material liabilities under our self-insured programs, our financial results may be adversely affected.

    We provide workers’workers' compensation, automobile and product/general liability coverage through a high deductible insurance program. In addition, we provide medical coverage to some of our employees through a self-insured preferred provider organization. Though we believe that we have adequate insurance coverage in excess of self-insured retention levels, our results of operations and financial condition may be adversely affected if the number and severity of insurance claims increases.


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    Index to Financial Statements

    We may see increased costs arising from health care reform.

    In March 2010, the United States government enacted comprehensive health care reform legislation which, among other things, includes guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded and imposes new and significant taxes on health insurers and health care benefits. The legislation imposes implementation effective dates which began in 2010 and extend through 2020, and many of the changes require additional guidance from government agencies or federal regulations. Therefore, due to the phased-in nature of the implementation and the lack of interpretive guidance, it is difficult to determine at this time what impact the health care reform legislation will have on our financial results. Possible adverse effects of the health reform legislation include increased costs, exposure to expanded liability and requirements for us to revise ways in which we provide healthcare and other benefits to our employees. In addition,As a result, our results of operations, financial position and cash flows could be materially adversely affected.

    Our success depends upon our ability to attract, train and retain highly qualified associates and key personnel.

    To be successful, we must attract, train and retain a large number of highly qualified associates while controlling related labor costs. Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and health and other insurance costs. We compete with other businesses for these associates and invest significant resources in training and motivating them. There is no assurance that we will be able to attract or retain highly qualified associates in the future, including, in particular, those employed by companies we acquire. A very small proportion of our employees are currently covered by collective bargaining or other similar labor agreements. Historically, the effects of collective bargaining and other similar labor agreements on us have not been significant. However, if a larger number of our employees were to unionize, including in the wake of any future legislation that makes it easier for employees to unionize, the effect on us may be negative. Any inability by us to negotiate acceptable new contracts under these collective bargaining arrangements could cause strikes or other work stoppages, and new contracts could result in increased operating costs. If any such strikes or other work stoppages occur, or if other employees become represented by a union, we could experience a disruption of our operations and higher labor costs. Labor relations matters affecting our suppliers of products and services could also adversely affect our business from time to time.

    In addition, our business results depend largely upon our executiveschief executive officer and senior management team as well as our branch managers and sales personnel, including those of companies recently acquired, and their experience, knowledge of local market dynamics and specifications and long-standing customer relationships. We customarily sign employment letters providing for an agreement not to compete with key personnel of companies we acquire in order to maintain key customer relationships and manage the transition of the acquired business. Our inability to retain or hire qualified branch managers or sales personnel at economically reasonable compensation levels would restrict our ability to grow our business, limit our ability to continue to successfully operate our business and result in lower operating results and profitability.

    Fluctuations in foreign currency exchange rates may significantly reduce our revenues and profitability.

    As an industrial distributor of manufactured products, our profitability is tied to the prices we pay to the manufacturers from which we purchase our products. Some of our suppliers price their products in currencies other than the U.S. dollar or incur costs of production in non-U.S. currencies. Accordingly, depreciation of the U.S. dollar against foreign currencies increases the prices we pay for these products. Even short-term currency fluctuations could adversely impact revenues and profitability if we are unable to pass higher supply costs on to our customers. Our delayed ability to pass on


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    material price increases to our customers could adversely impact our financial condition, operating results and cash flows.

    Index to Financial Statements

    If we are unable to protect our intellectual property rights, or we infringe on the intellectual property rights of others, our ability to compete could be negatively impacted.

    Our ability to compete effectively depends, in part, upon our ability to protect and preserve proprietary aspects of our intellectual property, including our trademarks and customer lists. The use of our intellectual property or similar intellectual property by others could adversely impact our ability to compete, cause us to lose Net sales or otherwise harm our business. If it became necessary for us to resort to litigation to protect these rights, any proceedings could be burdensome and costly, and we may not prevail.

    Also, we cannot be certain that the products that we sell do not and will not infringe issued patents or other intellectual property rights of others. Further, we are subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the trademarks, patents and other intellectual property rights of third parties by us or our customers in connection with their use of the products that we distribute. Should we be found liable for infringement, we (or our suppliers) may be required to enter into licensing agreements (if available on acceptable terms or at all) or pay damages and cease making or selling certain products. Moreover, we may need to redesign or sell different products to avoid future infringement liability. Any of the foregoing could cause us to incur significant costs, prevent us from selling our products or negatively impact our ability to compete.

    Income tax payments may ultimately differ from amounts currently recorded by us. Future tax law changes may materially increase our prospective income tax expense.

    We are subject to income taxation in many jurisdictions in the U.S. as well as numerous foreign jurisdictions. Judgment is required in determining our worldwide income tax provision and, accordingly, there are many transactions and computations for which our final income tax determination is uncertain. We are routinely audited by income tax authorities in many tax jurisdictions. Although we believe the recorded tax estimates are reasonable, the ultimate outcome from any audit (or related litigation) could be materially different from amounts reflected in our income tax provisions and accruals. Future settlements of income tax audits may have a material effect on earnings between the period of initial recognition of tax estimates in the financial statements and the point of ultimate tax audit settlement. Additionally, it is possible that future income tax legislation in any jurisdiction to which we are subject may be enacted that could have a material impact on our worldwide income tax provision beginning with the period that such legislation becomes effective.

    We carried back tax net operating losses (“NOL”("NOL") from our tax years ended on February 3, 2008 and February 1, 2009 to tax years during which we were a member of Home Depot’sDepot's U.S. federal consolidated tax group. As a result of those NOL carrybacks, Home Depot received cash refunds from the Internal Revenue Service (“IRS”("IRS") in the amount of approximately $354 million. Under an agreement (the “Agreement”"Tax Cooperation Agreement") between HoldingHoldings and Home Depot, Home Depot paid to us the refund proceeds resulting from the NOL carrybacks.

    In connection with an audit of our U.S. federal income tax returns filed for the tax years ended on February 3, 2008 and February 1, 2009, the IRS has disallowed certain deductions claimed by us. DuringIn May 2012, the IRS issued a formal Revenue Agent’sAgent's Report (“RAR”("RAR") challenging approximately $299 million (excluding interest) of the cash refunds resulting from our NOL carrybacks. In January 2013, the IRS issued a revised RAR reducing the challenge to approximately $131 million (excluding interest) of cash refunds from our carrybacks. The issuance of the January 2013 revised RAR formally revoked the original May 2012 RAR and reduced the amount of cash refunds the IRS is currently challenging by $168 million. As of January 29,August 4, 2013, we estimate the interest to which the IRS would be entitled, if successful in all claims, to be


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    approximately $14$18 million. If the IRS is ultimately successful with respect to the proposed adjustments, we, pursuant to the terms of the Tax Cooperation Agreement, we would be required to reimburse Home Depot an amount equal to the disallowed refunds plus related interest. If the IRS is successful in defending its positions with respect to the disallowed deductions, certain of those disallowed deductions may be available to us in the form of increases in our deferred tax assets by approximately $63 million before any valuation allowance.

    We believe that our positions with respect to the deductions and the corresponding NOL carrybacks are supported by, and consistent with, applicable tax law. In collaboration with Home Depot, we will challengehave challenged the

    Index to Financial Statements

    proposed adjustments by filing a formal protest with the Office of Appeals Division within the IRS. During the administrative appeal period and as allowed under statute, we intend to vigorously defend our positions rather than pay any amount related to the proposed adjustments. In the event of an unfavorable outcome at the Office of Appeals, we will strongly consider litigating the matter in U.S. Tax Court. The unpaid assessment would continue to accrue interest at the statutory rate until resolved. If we are ultimately required to pay a significant amount related to the proposed adjustments to Home Depot pursuant to the terms of the Tax Cooperation Agreement (or to the IRS), our cash flows, future results of operations and financial positions could be affected in a significant and adverse manner.

    Our income tax net operating loss carry forwardsNOL carryforwards could be substantially limited if we experience an ownership change foras defined in the Internal Revenue Code.

            As of August 4, 2013, we have U.S. federal NOL carryforwards of $2.4 billion ($823 million on a tax-effected basis), comprised of $1.8 billion ($636 million on a tax-effected basis) of U.S. federal NOL carryforwards at the end of fiscal 2012 and U.S. federal income tax purposes.

    Aslosses of October 28, 2012, we had$532 million through the second quarter of fiscal 2013 ($186 million on a tax-effected basis). Such NOL carryforwards begin to expire in fiscal 2029. We also have significant amounts of U.S. federal net operating loss carry forwardsstate NOL carryforwards, which begin to expire in various years between fiscal 2013 and state net operating loss carry forwards.fiscal 2030. Our ability to deduct these net operating loss carry forwardsNOL carryforwards against future taxable income could be substantially limited if we experience an “ownership"ownership change,”" as defined in Section 382 of the Internal Revenue Code of 1986, as amended. In general, an ownership change would occur if there is a change inmay result from transactions (including direct or indirect sales, acquisitions or issuances of Holdings stock) increasing the aggregate ownership of certain persons (or groups of persons) in Holdings stock by more than 50% of our stock50 percentage points over a three-year period.testing period (generally three years). Any such limitation on the use of our net operating loss carry forwardsNOL carryforwards could result in the payment of taxes above the amounts currently estimated for future periods and have a negative effect on our future results of operations and financial position.

    We may not be able to identify new products and new product lines and integrate them into our distribution network, which may impact our ability to compete.

    Our business depends in part on our ability to identify future products and product lines that complement existing products and product lines and that respond to our customers’customers' needs. We may not be able to compete effectively unless our product selection keeps up with trends in the markets in which we compete or trends in new products. In addition, our ability to integrate new products and product lines into our distribution network could impact our ability to compete. Furthermore, the success of new products and new product lines will depend on market demand and there is a risk that new products and new product lines will not deliver expected results, which could negatively impact our future sales and results of operations. Our expansion into new markets may present competitive, distribution and regulatory challenges that differ from current ones. We may be less familiar with the target customers and may face different or additional risks, as well as increased or unexpected costs, compared to existing operations. Growth into new markets may also bring us into direct competition with companies with whom we have little or no past experience as competitors. To the extent we are reliant upon expansion into new geographic, industry and product markets for growth and do not meet the new challenges posed by such expansion, our future sales growth could be negatively impacted, our


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    operating costs could increase, and our business operations and financial results could be negatively affected.

    We could incur significant costs in complying with environmental, health and safety laws or permits or as a result of satisfying any liability or obligation imposed under such laws or permits.

    Our operations are subject to various federal, state, local and foreign environmental, health and safety laws and regulations. Among other things, these laws regulate the emission or discharge of materials into the environment, govern the use, storage, treatment, disposal and management of hazardous substances and wastes, protect the health and safety of our employees and the end-usersend users of our products, regulate the materials used in and the recycling of products and impose liability for the costs of investigating and remediating, and damages resulting from, present and past releases of hazardous substances. Violations of these laws and regulations or non-compliance with any conditions contained in any environmental permit can result in substantial fines or penalties, injunctive relief, requirements to install pollution or other controls or equipment, civil and criminal sanctions, permit revocations and/or facility shutdowns. We could be held liable for the costs to address contamination of any real property we have ever owned, operated or used as a disposal site. We could also incur fines, penalties, sanctions or be subject to third-party claims for property damage, personal injury or nuisance or otherwise as a result of violations of or liabilities under environmental laws of in connection with releases of hazardous or other materials. In addition, changes in, or new interpretations of, existing laws, regulations or enforcement policies, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including additional investigation or other obligations with respect to any potential health hazards of our products or business activities or the imposition of new permit requirements, may lead to additional compliance or other costs that could have material adverse effect on our business, financial condition or results of operations. See “—We are involved in a number of legal proceedings, and while we cannot predict the outcome of such proceedings and other contingencies with certainty, some of these outcomes may adversely affect our operations or increase our costs.”"Business—Legal Proceedings."

    Index to Financial Statements

    We may be affected by global climate change or by legal, regulatory or market responses to such potential change.

    Concern over climate change, including the impact of global warming, has led to significant federal, state, and international legislative and regulatory efforts to limit greenhouse gas (“GHG”("GHG") emissions. For example, in the past several years, the U.S. Congress has considered various bills that would regulate GHG emissions. While these bills have not yet received sufficient Congressional support for enactment, some form of federal climate change legislation is possible in the future. Even in the absence of such legislation, the Environmental Protection Agency, spurred by judicial interpretation of the Clean Air Act, may regulate GHG emissions, especially diesel engine emissions, and this could impose substantial costs on us. These costs include an increase in the cost of the fuel and other energy we purchase and capital costs associated with updating or replacing our internal fleet of trucks and other vehicles prematurely. In addition, new laws or future regulation could directly and indirectly affect our customers and suppliers (through an increase in the cost of production or their ability to produce satisfactory products) and our business (through the impact on our inventory availability, cost of sales, operations or demands for the products we sell). Until the timing, scope and extent of any future regulation becomes known, we cannot predict its effect on our cost structure or our operating results. Notwithstanding our dedication to being a responsible corporate citizen, it is reasonably possible that such legislation or regulation could impose material costs on us. Moreover, even without such legislation or regulation, increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies involved in the transportation of goods could harm our reputation and reduce customer demand for our products and services.


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    Our failure to maintain effective disclosure controls and internal control over financial reporting could adversely affect our business, financial position and results of operations.

    We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended.        We are required to evaluate the effectiveness of our disclosure controls and internal control over financial reporting on a periodic basis and publicly disclose the results of these evaluations and related matters, in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. These reporting and other obligations place significant additional demands on our management and administrative and operational resources, including our accounting resources, which could adversely affect our operations among other things. To comply with these requirements, we have upgraded, and are continuing to upgrade our systems, including information technology, implemented additional financial and management controls, reporting systems and procedures and hired additional legal, internal audit, accounting and finance staff.procedures. We cannot be certain that we will be successful in maintaining adequate control over our financial reporting and financial processes. Furthermore, as we grow our business, our disclosure controls and internal controls will become more complex, and we may require significantly more resources to ensure that these controls remain effective. If we are unable to continue upgrading our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, additional management and other resources of our companyCompany may need to be devoted to assist in compliance with the disclosure and financial reporting requirements and other rules that apply to reporting companies, which could adversely affect our business, financial position and results of operations.

    Due to an exemption established by rules of the SEC, for non-accelerated filers, we arehave not been required to have and have not had our independent registered public accounting firm perform an evaluation of our internal control over financial reporting as of the end of our last fiscal year in accordance with the provisions of the Sarbanes-Oxley Act of 2002. Had our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act of 2002, additional control deficiencies may have been identified by our independent registered public accounting firm and those control deficiencies could have also represented one or more material weaknesses.

    Fulfilling our obligations incident to being a public company, including with respect to the requirements of and related rules under the Sarbanes-Oxley Act of 2002, will be expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.

            Following the completion of Holdings' initial public offering, Holdings is subject to the reporting and corporate governance requirements, the listing standards of NASDAQ and the Sarbanes-Oxley Act of 2002, that apply to issuers of listed equity, which imposes certain new compliance costs and obligations upon Holdings. The changes necessitated by publicly listing Holdings' equity require a significant commitment of additional resources and management oversight which will increase our operating costs. These changes also place additional demands on our finance and accounting staff and on our financial accounting and information systems. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors' fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, Holdings is required, among other things, to:

      •
      define and expand the roles and the duties of Holdings' Board of Directors and its committees; and

      •
      institute more comprehensive compliance, investor relations and internal audit functions.

            In particular, beginning with the year ending February 1, 2015 our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of Holdings' internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002.


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    If our independent registered public accounting firm is unable to provide Holdings with an unqualified report regarding the effectiveness of Holdings' internal control over financial reporting (at such time as it is required to do so), investors could lose confidence in the reliability of our and Holdings' financial statements. Failure to comply with the Sarbanes-Oxley Act of 2002 could potentially subject Holdings to sanctions or investigations by the SEC, NASDAQ, or other regulatory authorities.

    Future changes in financial accounting standards may significantly change our reported results of operations.

            GAAP is subject to interpretation by the Financial Accounting Standards Board ("FASB"), the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. In addition, the SEC has announced a multi-year plan that could ultimately lead to the use of International Financial Reporting Standards by U.S. issuers in their SEC filings. Any such change could have a significant effect on our reported financial results.

            Additionally, our assumptions, estimates and judgments related to complex accounting matters could significantly affect our financial results. GAAP and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to, revenue recognition, impairment of long-lived assets, leases and related economic transactions, intangibles, self-insurance, income taxes, property and equipment, litigation, and stock-based compensation are highly complex and involve many subjective assumptions, estimates and judgments by us. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by us (i) could require us to make changes to our accounting systems to implement these changes that could increase our operating costs and (ii) could significantly change our reported or expected financial performance.

            In an exposure draft issued in August 2010 and revised in May 2013, the FASB, together with the International Accounting Standards Board ("IASB"), proposed a comprehensive set of changes in accounting for leases. The lease accounting model contemplated by these changes is a "right of use" model that assumes that each lease creates an asset (the lessee's right to use the leased asset) and a liability (the future rent payment obligations) which should be reflected on a lessee's balance sheet to fairly represent the lease transaction and the lessee's related financial obligations. We conduct operations primarily under leases that are accounted for as operating leases, with no related assets and liabilities on our balance sheet. The proposed changes would require that substantially all of our operating leases be recognized as assets and liabilities on our balance sheet. The effective date has not been determined. Comments on the revised exposure draft are due by September 13, 2013. Changes in lease accounting rules or their interpretation, or changes in underlying assumptions, estimates or judgments by us could significantly change our reported or expected financial performance.

    The interests of the Equity Sponsors may differ from the interests of holders of our debt.

            As of September 24, 2013, CD&R, Carlyle and Bain beneficially own approximately 57% of the outstanding shares of Holdings' common stock. As a result, of the Transactions, the Equity Sponsors and their affiliates own mostexercise significant influence over all matters requiring stockholder approval for the foreseeable future, including approval of the outstanding capital stock of our parent company, Holding. Holdingsignificant corporate transactions.

            Holdings entered into a stockholders agreement with certain of its stockholders, in

    Index to Financial Statements

    connection withincluding the closing of the TransactionsEquity Sponsors and Home Depot, which contains, among other things, provisions relating to Holding’sHoldings' governance transfer restrictions, tag-along rights, drag-along rights, preemptive rights and certain unanimous approval rights. This stockholders agreement provides that the Equity Sponsors are currently entitled to elect (or cause to be elected) nine out of ten of Holding’sHoldings' directors, which includes three designees of each Equity Sponsor. One of the directors designated by the Equity


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    Sponsor associated with CD&R shall serve as the chairman. See “Certain"Certain Relationships and Related Party Transactions—Stockholders agreement and stockholder arrangements”.arrangements."

            The interests of theHoldings' existing stockholders, including our Equity Sponsors, may differ from our interest and from those of holders of our outstanding notes in material respects. For example, the Equity Sponsors may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their overall equity portfolios, even though such transactions might involve risks to holders of our outstanding notes. The Equity Sponsors are in the business of making investments in companies, and may from time to time in the future, acquire interests in businesses that directly or indirectly compete with certain portions of our business or are suppliers of our customers. The companies in which one or more of the Equity Sponsors invest may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. Additionally, the Equity Sponsors may determine that the disposition of some or all of their interests in our company would be beneficial to the Equity Sponsors at a time when such disposition could be detrimental to the holders of our outstanding notes. If we encounter financial difficulties, or we are unable to pay our debts as they mature, the interests of our equity holders might conflict with thosethe interests of the holders of the Notes in material respects. Holdings' Board of Directors has adopted corporate governance guidelines that, among other things, address potential conflicts between a director's interests and our outstanding notes.interests. In addition, Holdings has adopted a code of business conduct that, situation, for example,among other things, requires our employees to avoid actions or relationships that might conflict or appear to conflict with their job responsibilities or the holdersinterests of HD Supply and to disclose their outside activities, financial interests or relationships that may present a possible conflict of interest or the appearance of a conflict to management or corporate counsel. These corporate governance guidelines and code of business ethics do not, by themselves, prohibit transactions with our outstanding notes might want us to raise additional equity from our equity holders or other investors to reduce our leverage and pay our debts, while our equity holders might not want to increase their investment in us or have their ownership diluted and instead choose to take other actions, such as selling our assets. The Equity Sponsors have no obligation to provide us with financing and are able to sell their equity ownership in us at any time. Moreover, the Equity Sponsors’ ownership of our company may have the effect of discouraging offers to acquire control of our Company.principal stockholders.


    Risks Related to Not Participating in the Exchange Offer

    You may have difficulty selling the Old Notes that you do not exchange.

    If you do not exchange your Old Notes for the New Notes offered in the exchange offer, your Old Notes will continue to be subject to significant restrictions on transfer. Those transfer restrictions are described in the Indenture and arose because the Old Notes were originally issued under exemptions from the registration requirements of the Securities Act.

    The Old Notes may not be offered, sold or otherwise transferred, except in compliance with the registration requirements of the Securities Act, pursuant to an exemption from registration under the Securities Act or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with applicable state securities laws. The Company did not register the Old Notes under the Securities Act, and it does not intend to do so. If you do not exchange your Old Notes, your ability to sell those Old Notes will be significantly limited.

    If a large number of outstanding Old Notes are exchanged for New Notes issued in the exchange offer, it may be more difficult for you to sell your unexchanged Old Notes due to the limited amounts of Old Notes that would remain outstanding following the exchange offer.


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    THE EXCHANGE OFFER

    Pursuant to the Registration Rights Agreement, we agreed to prepare and file with the SEC a registration statement on an appropriate form under the Securities Act with respect to a proposed offer to the holders of the Old Notes to issue and deliver to such holders of Old Notes, in exchange for their Old Notes, a like aggregate principal amount of New Notes that are identical in all material respects to the Old Notes, except for provisions relating to registration rights and the transfer restrictions relating to the Old Notes, and except for certain related differences described below. See “Exchange"Exchange Offer; Registration Rights.”"

    Terms of the Exchange Offer; Period for Tendering Old Notes

    This prospectus and the accompanying letter of transmittal contain the terms and conditions of the exchange offer. Upon the terms and subject to the conditions included in this prospectus and in the accompanying letter of transmittal, which together constitute the exchange offer, we will accept for exchange Old Notes which are properly tendered on or prior to the Expiration Date, unless you have previously withdrawn them.

    When you tender Old Notes as provided below, our acceptance of the Old Notes will constitute a binding agreement between you and us upon the terms and subject to the conditions in this prospectus and in the accompanying letter of transmittal. In tendering Old Notes, you should also note the following important information:

      •
      You may only tender Old Notes in minimum denominations of $2,000 and any integral multiple of $1,000 in excess thereof.



    •
    We will keep the exchange offer open for not less than 20 business days, or longer if required by applicable law, after the date on which notice of the exchange offer is mailed to holders of the Old Notes. We are sending this prospectus, together with the letter of transmittal, on or about the date of this prospectus, to all of the registered holders of Old Notes at their addresses listed in the Trustee’sTrustee's security register with respect to the Old Notes.



    •
    The exchange offer expires at 5:00 p.m., New York City time, on                        , 2013; provided, however, that we, in our sole discretion, may extend the period of time for which the exchange offer is open.



    •
    As of the date of this prospectus, $950,000,000$1,275,000,000 aggregate principal amount of Old Notes was outstanding. The exchange offer is not conditioned upon any minimum principal amount of Old Notes being tendered.



    •
    Our obligation to accept Old Notes for exchange in the exchange offer is subject to the conditions described under “— "—Conditions to the Exchange Offer.”

    "

    •
    We expressly reserve the right, at any time, to extend the period of time during which the exchange offer is open, and thereby delay acceptance of any Old Notes, by giving oral (promptly followed in writing) or written notice of an extension to the Exchange Agent and notice of that extension to the holders of Notes as described below. During any extension, all Old Notes previously tendered will remain subject to the exchange offer unless withdrawal rights are exercised as described under “—"—Withdrawal Rights.”" Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder of Notes promptly after the expiration or termination of the exchange offer.



    •
    We expressly reserve the right to amend or terminate the exchange offer, and not to accept for exchange any Old Notes that we have not yet accepted for exchange, at any time prior to the Expiration Date. If we make a material change to the terms of the exchange offer, including the waiver of a material condition, we will, to the extent required by law, disseminate additional

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        offer materials and extend the period of time for which the exchange offer is open so that at least five business days remain in the exchange offer following notice of a material change.

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    •
    We will give oral (promptly followed in writing) or written notice of any extension, amendment, termination or non-acceptance described above to holders of the Old Notes as promptly as practicable. If we extend the Expiration Date, we will give notice by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the business day after the previously scheduled Expiration Date. Without limiting the manner in which we may choose to make any public announcement and subject to applicable law, we will have no obligation to publish, advertise or otherwise communicate any public announcement other than by issuing a release to an appropriate news agency. Such announcement may state that we are extending the exchange offer for a specified period of time.



    •
    Holders of Old Notes do not have any appraisal or dissenters’dissenters' rights in connection with the exchange offer.



    •
    Old Notes which are not tendered for exchange, or are tendered but not accepted, in connection with the exchange offer will remain outstanding and be entitled to the benefits of the Indenture, but will not be entitled to any further registration rights under the Registration Rights Agreement.



    •
    We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC thereunder.



    •
    By executing, or otherwise becoming bound by, the letter of transmittal, you will be making to us the representations described under “— "—Resale of the New Notes.”

    "

      Important rules concerning the exchange offer

    You should note the following important rules concerning the exchange offer:

      •
      All questions as to the validity, form, eligibility, time of receipt and acceptance of Old Notes tendered for exchange will be determined by us in our sole discretion, which determination shall be final and binding.



    •
    We reserve the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or to not accept any particular Old Notes if such acceptance might, in our judgment or the judgment of our counsel, be unlawful.



    •
    We also reserve the absolute right to waive any defects or irregularities or conditions of the exchange offer as to any particular Old Notes either before or after the Expiration Date, including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the exchange offer. Unless we agree to waive any defect or irregularity in connection with the tender of Old Notes for exchange, you must cure any defect or irregularity within any reasonable period of time as we shall determine.



    •
    Our interpretation of the terms and conditions of the exchange offer as to any particular Old Notes either before or after the Expiration Date shall be final and binding on all parties. Neither we, the Exchange Agent nor any other person shall be under any duty to notify you of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failing to so notify you.

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    Procedures for Tendering Old Notes

      What to submit and how

    If you, as a holder of any Old Notes, wish to tender your Old Notes for exchange in the exchange offer, you must, except as described under “— "—Guaranteed Delivery Procedures,”" transmit the following on or prior to the Expiration Date to the Exchange Agent:

      (1)   if Old Notes are tendered in accordance with the book-entry procedures described under “—"—Book-Entry Transfer,”" an Agent’sAgent's Message, as defined below, transmitted through DTC’sDTC's ATOP, or (2) a properly

      Index to Financial Statements

      completed and duly executed letter of transmittal, or a facsimile copy thereof, to the Exchange Agent at the address set forth below under “—"—Exchange Agent,”" including all other documents required by the letter of transmittal.

    In addition,

      (1)   a timely confirmation of a book-entry transfer of Old Notes into the Exchange Agent’sAgent's account at DTC using the procedure for book-entry transfer described under “—"—Book-Entry Transfer”Transfer" (a “Book-Entry Confirmation”"Book-Entry Confirmation"), along with an Agent’sAgent's Message, must be actually received by the Exchange Agent prior to the Expiration Date, or

      (2)   certificates for Old Notes must be actually received by the Exchange Agent along with the letter of transmittal on or prior to the Expiration Date, or

      (3)   you must comply with the guaranteed delivery procedures described below.

    The term “Agent’s Message”"Agent's Message" means a message, transmitted through ATOP by DTC to, and received by, the Exchange Agent and forming a part of a Book-Entry Confirmation, that states that DTC has received an express acknowledgement that the tendering holder has received and agrees to be bound by the letter of transmittal or, in the case of an Agent’sAgent's Message relating to guaranteed delivery, that such holder has received and further agrees to be bound by the notice of guaranteed delivery, and that we may enforce the letter of transmittal, and the notice of guaranteed delivery, as the case may be, against such holder.

    The method of delivery of Old Notes, letters of transmittal, notices of guaranteed delivery and all other required documentation, including delivery of Old Notes through DTC and transmission of Agent’sAgent's Messages through DTC’sDTC's ATOP, is at your election and risk. Delivery will be deemed made only when all required documentation is actually received by the Exchange Agent. Delivery of documents or instructions to DTC does not constitute delivery to the Exchange Agent. If delivery is by mail, we recommend that registered mail, properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to assure timely delivery to the Exchange Agent. Holders tendering Old Notes or transmitting Agent’sAgent's Messages through DTC’sDTC's ATOP must allow sufficient time for completion of ATOP procedures during DTC’sDTC's normal business hours. No Old Notes, Agent’sAgent's Messages, letters of transmittal, notices of guaranteed delivery or any other required documentation should be sent to us.

      How to sign your letter of transmittal and other documents

    Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes being surrendered for exchange are tendered:

      (1)   by a registered holder of the Old Notes who has not completed the box entitled “Special"Special Issuance Instructions”Instructions" or “Special"Special Delivery Instructions”Instructions" on the letter of transmittal, or

      (2)   for the account of an “eligible guarantor”"eligible guarantor" institution within the meaning of Rule 17Ad-15 under the Exchange Act, or a commercial bank or trust company having an office or correspondent in the United States that is a member in good standing of a medallion program


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      recognized by the Securities Transfer Association Inc., including the Securities Transfer Agents Medallion Program (“STAMP”("STAMP"), the Stock Exchanges Medallion Program (“SEMP”("SEMP") and the New York Stock Exchange Medallion Signature Program (“MSP”("MSP") (each, an “Eligible Institution”"Eligible Institution").

    If signatures on a letter of transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, the guarantees must be by an Eligible Institution.

    If the letter of transmittal is signed by a person or persons other than the registered holder or holders of Old Notes, the Old Notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders appear on the Old Notes and with the signatures guaranteed.

    Index to Financial Statements

    If the letter of transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers or corporations or others acting in a fiduciary or representative capacity, the person should so indicate when signing and, unless waived by us, proper evidence satisfactory to us of such person’sperson's authority to so act must be submitted.

    Acceptance of Old Notes for Exchange; Delivery of New Notes

    Once all of the conditions to the exchange offer are satisfied or waived, we will accept all Old Notes properly tendered and not properly withdrawn, and will issue the New Notes promptly after The Expiration Date. See “—"—Conditions to the Exchange Offer”Offer" below. For purposes of the exchange offer, our giving of oral (promptly followed in writing) or written notice of acceptance to the Exchange Agent will be considered our acceptance of the tendered Old Notes.

    In all cases, we will issue New Notes in exchange for Old Notes that are accepted for exchange only after timely receipt by the Exchange Agent of:

      •
      a Book-Entry Confirmation or Old Notes in proper form for transfer,



    •
    a properly transmitted Agent’sAgent's Message or a properly completed and duly executed letter of transmittal, and



    •
    all other required documentation.

    If we do not accept any tendered Old Notes for any reason included in the terms and conditions of the exchange offer, if you submit certificates representing Old Notes in a greater principal amount than you wish to exchange or if you properly withdraw tendered Old Notes in accordance with the procedures described under “—"—Withdrawal Rights,”" we will return any unaccepted, non-exchanged or properly withdrawn Old Notes, as the case may be, without expense to the tendering holder. In the case of Old Notes tendered by book-entry transfer into the Exchange Agent’sAgent's account at DTC using the book-entry transfer procedures described below, unaccepted, non-exchanged or properly withdrawn Old Notes will be credited to an account maintained with DTC. We will return the Old Notes or have them credited to the DTC account, as applicable, promptly after the expiration or termination of the exchange offer.

    Book-Entry Transfer

    The Exchange Agent will make a request to establish an account with respect to the Old Notes at DTC for purposes of the exchange offer promptly after the date of this prospectus. Any financial institution that is a participant in DTC’sDTC's systems, including Euroclear Bank, S.A./N.V., as operator of the Euroclear System (“Euroclear”("Euroclear"), or Clearstream Banking,société anonyme (“Clearstream” ("Clearstream") may make book-entry delivery of Old Notes by causing DTC to transfer Old Notes into the Exchange Agent’sAgent's account at DTC in accordance with DTC’sDTC's ATOP procedures for transfer. However, the exchange for the Old Notes so tendered will only be made after timely confirmation of book-entry transfer of Old Notes into the Exchange Agent’sAgent's account, and timely receipt by the Exchange Agent of


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    an Agent’sAgent's Message and all other documents required by the letter of transmittal. Only participants in DTC may deliver Old Notes by book-entry transfer.

    Although delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent’sAgent's account at DTC, the letter of transmittal, or a facsimile copy thereof, properly completed and duly executed, with any required signature guarantees, or an Agent’sAgent's Message, with all other required documentation, must in any case be transmitted to and received by the Exchange Agent at its address listed under “—"—Exchange Agent”Agent" on or prior to the Expiration Date, or you must comply with the guaranteed delivery procedures described below under “—"—Guaranteed Delivery Procedures.”"

    If your Old Notes are held through DTC, you must complete the accompanying form called “Instructions"Instructions to Registered Holder and/or Book-Entry Participant,”" which will instruct the DTC participant through whom you

    Index to Financial Statements

    hold your Old Notes of your intention to tender your Old Notes or not tender your Old Notes. Please note that delivery of documents or instructions to DTC does not constitute delivery to the Exchange Agent and we will not be able to accept your tender of Old Notes until the Exchange Agent actually receives from DTC the information and documentation described under “—"—Acceptance of Old Notes for Exchange; Delivery of New Notes.”"

    Guaranteed Delivery Procedures

    If you are a registered holder of Old Notes and you want to tender your Old Notes but the procedure for book-entry transfer cannot be completed prior to the Expiration Date, your Old Notes are not immediately available or time will not permit your Old Notes to reach the Exchange Agent before the Expiration Date, a tender may be effected if:

      •
      the tender is made through an Eligible Institution, as defined above,



    •
    prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution, by facsimile transmission, mail or hand delivery, a properly completed and duly executed notice of guaranteed delivery, substantially in the form provided by us, or an Agent’sAgent's Message with respect to guaranteed delivery in lieu thereof, in either case stating:



    •
    the name and address of the holder of Old Notes,



    •
    the amount of Old Notes tendered,



    •
    that the tender is being made by delivering such notice and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, a Book-Entry Confirmation or the certificates for all physically tendered Old Notes, in proper form for transfer, together with either an appropriate Agent’sAgent's Message or a properly completed and duly executed letter of transmittal in lieu thereof, and all other required documentation, will be deposited by that Eligible Institution with the Exchange Agent, and



    •
    a Book-Entry Confirmation or the certificates for all physically tendered Old Notes, in proper form for transfer, together with either an appropriate Agent’sAgent's Message or a properly completed and duly executed letter of transmittal in lieu thereof, and all other required documentation, are received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date.

    Withdrawal Rights

    You can withdraw your tender of Old Notes at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date.

    For a withdrawal to be effective, a written notice of withdrawal must be actually received by the Exchange Agent prior to such time, properly transmitted either through DTC’sDTC's ATOP or to the


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    Exchange Agent at the address listed below under “—"—Exchange Agent.”" Any notice of withdrawal must:

      •
      specify the name of the person having tendered the Old Notes to be withdrawn;



    •
    identify the Old Notes to be withdrawn;



    •
    specify the principal amount of the Old Notes to be withdrawn;



    •
    contain a statement that the tendering holder is withdrawing its election to have such Notes exchanged for New Notes;



    •
    except in the case of a notice of withdrawal transmitted through DTC’sDTC's ATOP system, be signed by the holder in the same manner as the original signature on the letter of transmittal by which the Old Notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer to have the Trustee with respect to the Old Notes register the transfer of the Old Notes in the name of the person withdrawing the tender;

    Index to Financial Statements



    •
    if certificates for Old Notes have been delivered to the Exchange Agent, specify the name in which the Old Notes are registered, if different from that of the withdrawing holder;



    •
    if certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of those certificates, specify the serial numbers of the particular certificates to be withdrawn, and, except in the case of a notice of withdrawal transmitted through DTC’sDTC's ATOP system, include a notice of withdrawal signed in the same manner as the letter of transmittal by which the Old Notes were tendered, including any required signature guarantees; and



    •
    if Old Notes have been tendered using the procedure for book-entry transfer described above, specify the name and number of the account at DTC from which the Old Notes were tendered and the name and number of the account at DTC to be credited with the withdrawn Old Notes, and otherwise comply with the procedures of DTC.

    Please note that all questions as to the validity, form, eligibility and time of receipt of notices of withdrawal will be determined by us, and our determination shall be final and binding on all parties. Any Old Notes so withdrawn will be considered not to have been validly tendered for exchange for purposes of the exchange offer. New Notes will not be issued in exchange for such withdrawn Old Notes unless the Old Notes so withdrawn are validly re-tendered.

    If you have properly withdrawn Old Notes and wish to re-tender them, you may do so by following one of the procedures described under “—"—Procedures for Tendering Old Notes”Notes" above at any time on or prior to the Expiration Date.

    Conditions to the Exchange Offer

    Notwithstanding any other provisions of the exchange offer, we will not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes and may terminate or amend the exchange offer, if we determine in our reasonable judgment at any time before the Expiration Date that the exchange offer would violate applicable law or any applicable interpretation of the staff of the SEC.

    The foregoing conditions are for our sole benefit and may be waived by us regardless of the circumstances giving rise to that condition. Our failure at any time to exercise the foregoing rights shall not be considered a waiver by us of that right. The rights described in the prior paragraph are ongoing rights which we may assert at any time and from time to time.


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    In addition, we will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, if at any time any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act.

    We reserve the right to terminate or amend the exchange offer at any time prior to the Expiration Date upon the occurrence of any of the foregoing events.

    Index to Financial Statements

    Exchange Agent

    Wells Fargo Bank, National Association has been appointed as the Exchange Agent for the exchange offer. All executed letters of transmittal, notices of guaranteed delivery, notices of withdrawal and any other required documentation should be directed to the Exchange Agent at the address set forth below. Requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the Exchange Agent, addressed as follows:

    By mail, hand or overnight courier: By facsimile: For information or confirmation
    by telephone:


    Wells Fargo Bank, National Association



    (612) 667-6282

    Corporate Trust Operations
    608 2nd Avenue South
    Minneapolis, MN 55402

    		 (612) 667-6282 

    Corporate Trust Operations
    (800) 344-5128, Option 0

    Minneapolis, MN 55402

    Delivery to an address other than the address of the Exchange Agent as listed above or transmission of instructions via facsimile other than as listed above does not constitute a valid delivery.

    Fees and Expenses

    The principal solicitation is being made by mail; however, additional solicitation may be made by telephone or in person by our officers, regular employees and affiliates. We will not pay any additional compensation to any of our officers and employees who engage in soliciting tenders. We will not make any payment to brokers, dealers or others soliciting acceptances of the exchange offer. However, we will pay the Exchange Agent reasonable and customary fees (including attorney fees and expenses) for their services and will reimburse them for their reasonable out-of-pocket expenses in connection with the exchange offer.

    The estimated cash expenses to be incurred in connection with the exchange offer, including legal, accounting, SEC filing, printing and Exchange Agent expenses, will be paid by us and are estimated in the aggregate to be less than $1.0 million.

    Transfer Taxes

    Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct us to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax.

    Resale of the New Notes

    Under existing interpretations of the staff of the SEC contained in several no-action letters to third parties, the New Notes would in general be freely transferable by holders thereof (other than affiliates of us) after the exchange offer without further registration under the Securities Act (subject to certain representations required to be made by each holder of Old Notes participating in the exchange offer,


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    as set forth below). The relevant no-action letters include the Exxon Capital Holdings Corporation letter, which was made available by the SEC on May 13, 1988, the Morgan Stanley & Co. Incorporated letter, which was made available by the SEC on June 5, 1991, the K-111 Communications Corporation letter, which was made available by the SEC on May 14, 1993, and the Shearman & Sterling letter, which was made available by the SEC on July 2, 1993.

    However, any purchaser of Old Notes who is an “affiliate”"affiliate" of ours or who intends to participate in the exchange offer for the purpose of distributing the New Notes:

      •
      will not be able to rely on such SEC interpretation;



    •
    will not be able to tender its Old Notes in the exchange offer; and

    Index to Financial Statements



    •
    must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of Old Notes unless such sale or transfer is made pursuant to an exemption from those requirements.

    By executing, or otherwise becoming bound by, the letter of transmittal, you will represent to us that:

      •
      any New Notes to be received by you will be acquired in the ordinary course of business;



    •
    you have no arrangements or understandings with any person to participate in the distribution of the Old Notes or New Notes within the meaning of the Securities Act; and



    •
    you are not our “affiliate”"affiliate" within the meaning of Rule 405 under the Securities Act;



    •
    if you are a broker-dealer, you will receive the New Notes for your own account in exchange for the Old Notes acquired as a result of market-making activities or other trading activities and that you will deliver a prospectus in connection with any resale of New Notes (see “Plan"Plan of Distribution”Distribution");



    •
    if you are not a broker-dealer, you are not engaged in and do not intend to engage in the distribution of the New Notes; and



    •
    you are not acting on behalf of any person that could not truthfully make any of the foregoing representations contained in this paragraph.

    We have not sought, and do not intend to seek, a no-action letter from the SEC with respect to the effects of the exchange offer, and there can be no assurance that the SEC staff would make a similar determination with respect to the New Notes as it has made in previous no-action letters.

    In addition, in connection with any resales of Old Notes, each participating broker-dealer receiving New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such exchanging dealer as a result of market-making activities or other trading activities, must represent that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. We have agreed that for a period of up to 90 days after the exchange offer is consummated, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. See “Plan"Plan of Distribution.”"

    The SEC has taken the position in the Shearman & Sterling no-action letter, which it made available on July 2, 1993, that broker-dealers may fulfill their prospectus delivery requirements with respect to the New Notes, other than a resale of an unsold allotment from the original sale of the Old Notes, by delivery of the prospectus contained in the exchange offer registration statement.


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    Index to Financial Statements


    USE OF PROCEEDS

    The exchange offer is intended to satisfy our obligations under the Registration Rights Agreement we entered into in connection with the private offering of the Old Notes. We will not receive any cash proceeds from the issuance of the New Notes under the exchange offer. In consideration for issuing the New Notes as contemplated by this prospectus, we will receive Old Notes in like principal amounts, the terms of which are identical in all material respects to the New Notes, subject to limited exceptions. Old Notes surrendered in exchange for New Notes will be retired and canceled and cannot be reissued. Accordingly, the issuance of the New Notes will not result in any increase in our indebtedness.


    Index to Financial StatementsTable of Contents


    SELECTED HISTORICALCONSOLIDATED FINANCIAL DATA

    The following table presents our selected historicalsummary consolidated financial data, as of and for the periods indicated. The selected historicalconsolidated financial informationdata as of and for the ninesix months ended October 28,August 4, 2013 and July 29, 2012 and October 30, 2011 hashave been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The selected historicalconsolidated financial data as of February 3, 2013 and January 29, 2012 and for the fiscal years ended February 3, 2013, January 29, 2012 and January 30, 2011 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data as of January 30, 2011 and as of, and for, the fiscal years ended January 31, 2010 and February 1, 2009 are derived from our audited consolidated financial statements which are not included in this prospectus.

            This "Selected Consolidated Financial Data" should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes included elsewhere in this prospectus. Our consolidated financial data may not be indicative of our future performance.

     
    		 Six Months Ended Fiscal Year Ended 
     
    		 August 4,
    2013    		 July 29,
    2012    		 February 3,
    2013    		 January 29,
    2012    		 January 30,
    2011    		 January 31,
    2010    		 February 1,
    2009    		 
     
    		 (Dollars in millions, except share and per share data)
    		 

    Consolidated statement of operations data:

    		                      

    Net sales

    		 $4,325 $3,895 $8,035 $7,028 $6,449 $6,313 $8,198 

    Cost of sales

    		  3,066  2,778  5,715  5,014  4,608  4,545  5,980 
                    

    Gross profit

    		  1,259  1,117  2,320  2,014  1,841  1,768  2,218 

    Operating expenses:

    		                      

    Selling, general and administrative

    		  889  805  1,661  1,532  1,455  1,453  1,770 

    Depreciation and amortization

    		  120  166  336  327  341  359  374 

    Restructuring

    		  —  —  —  —  8  21  31 

    Goodwill and other intangible asset impairment

    		  —  —  152  —  —  219  867 
                    

    Total operating expenses

    		  1,009  971  2,149  1,859  1,804  2,052  3,042 
                    

    Operating income (loss)

    		  250  146  171  155  37  (284) (824)

    Interest expense

    		  291  324  658  639  623  602  644 

    Interest income

    		  —  —  —  —  —  —  (3)

    Loss (gain) on extinguishment and modification of debt

    		  87  220  709  —  5  (200) — 

    Other (income) expense, net

    		  20  —  —  —  (6) (8) 12 
                    

    Income (loss) from continuing operations before provision (benefit) for income taxes and discontinued operations

    		  (148) (398) (1,196) (484) (585) (678) (1,477)

    Provision (benefit) for income taxes

    		  55  34  3  79  28  (198) (329)
                    

    Income (loss) from continuing operations

    		  (203) (432) (1,199) (563) (613) (480) (1,148)

    Income (loss) from discontinued operations, net of tax

    		  —  16  20  20  (6) (34) (107)
                    

    Net income (loss)

    		 $(203)$(416)$(1,179)$(543)$(619)$(514)$(1,255)
                    

    Balance sheet data (end of period):

    		                      

    Cash and cash equivalents(1)

    		 $109 $90 $141 $111 $292 $539 $771 

    Total assets(2)

    		  6,587  6,639  7,334  6,738  7,089  7,845  9,088 

    Total debt, less current maturities(3)

    		  5,678  5,765  6,430  5,380  5,239  5,765  6,046 

    Total stockholders' equity (deficit)

    		  (753) (834) (1,591) (428) 96  688  1,175 

    Other financial data:

    		                      

    Working capital(4)

    		 $1,281 $1,069 $1,120 $1,012 $1,176 $1,925 $2,071 

    Cash interest expense(5)

    		  276  273  535  457  365  363  397 

    Adjusted EBITDA(6)

    		  382  325  683  508  411  343  476 

    Capital expenditures

    		  (64) (52) 115  115  49  58  77 

    Statement of cash flows data:

    		                      

    Cash flows provided by (used in) operating activities, net

    		 $(577)$(324)$(681)$(165)$551 $69 $548 

    Cash flows provided by (used in) investing activities, net

    		  879  215  (800) (6) (45) (41) 37 

    Cash flows provided by (used in) financing activities, net

    		  (333) 88  1,511  (10) (755) (263) 86 
    (1)
    Cash and cash equivalents as of February 3, 2013 excludes $936 million of cash equivalents that were restricted for the redemption of debt.

    (2)
    Includes $936 million of Cash equivalents restricted for debt redemption for the fiscal year ended February 3, 2013.

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    (3)
    Includes capital leases and associated discounts and premiums. Excludes $10 million, $10 million, $899 million, $82 million, $10 million, $10 million and $10 million of Current installments of long-term debt for the six months ended August 4, 2013 and July 29, 2012 and the fiscal years ended February 3, 2013, January 29, 2012, January 30, 2011, and January 31, 2010 and February 1, 2009, respectively.

    (4)
    Working capital represents current assets minus current liabilities.

    (5)
    Cash interest expense is not a recognized term under GAAP and does not purport to be an alternative to interest expense. For additional detail, including a reconciliation from interest expense, the most directly comparable financial measure under GAAP, to cash interest expense for the periodperiods, See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Cash interest expense and Adjusted EBITDA."

    (6)
    Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income (loss) as a measure of operating performance. For additional detail, including a reconciliation from August 30, 2007net income (loss), the most directly comparable financial measure under GAAP, to FebruaryAdjusted EBITDA for the periods presented, See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Cash interest expense and Adjusted EBITDA."

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    MANAGEMENT'S DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    Overview

            We are one of the largest industrial distributors in North America. We believe we have leading positions in the three distinct market sectors in which we specialize: Maintenance, Repair & Operations; Infrastructure & Power; and Specialty Construction. We serve these markets with an integrated go-to-market strategy. We operate through over 600 locations across 46 U.S. states and nine Canadian provinces. We have approximately 15,000 associates delivering localized, customer-tailored products, services and expertise. We serve approximately 500,000 customers, which include contractors, government entities, maintenance professionals, home builders and industrial businesses. Our broad range of end-to-end product lines and services include over one million SKUs of quality, name-brand and proprietary-brand products as well as value-add services supporting the entire lifecycle of a project from infrastructure and construction to maintenance, repair and operations.

    Description of Segments

            We operate our Company through four reportable segments: Facilities Maintenance, Waterworks, Power Solutions and White Cap.

            Facilities Maintenance.    Facilities Maintenance distributes MRO products, provides value-add services and fabricates custom products to customers that include multifamily, hospitality, healthcare and institutional facilities. Products include electrical and lighting items, plumbing, HVAC products, appliances, janitorial supplies, hardware, kitchen and bath cabinets, window coverings, textiles and guest amenities, healthcare maintenance and water and wastewater treatment products.

            Waterworks.    Waterworks distributes complete lines of water and wastewater transmission products, serving contractors and municipalities in the water and wastewater industries for residential and non-residential uses. Products include pipes, fittings, valves, hydrants and meters for use in the construction, maintenance and repair of water and wastewater systems as well as fire-protection systems. Waterworks has complemented its core products through additional offerings, including smart meters (AMR/AMI), HDPE pipes and specific engineered treatment plant products and services.

            Power Solutions.    Power Solutions distributes electrical transmission and distribution products, power plant MRO supplies and smart-grid products, and arranges materials management and procurement outsourcing for the power generation and distribution industries. Products include conductors such as wire and cable, transformers, overhead transmission and distribution hardware, switches, protective devices and underground distribution, connectors used in the construction or maintenance and repair of electricity transmission and substation distribution infrastructure, and electrical wire and cable, switchgear, supplies, lighting and conduit used in non-residential and residential construction.

            White Cap.    White Cap distributes specialized hardware, tools and engineered materials to non-residential and residential contractors. Products include tilt-up brace systems, forming and shoring systems, concrete chemicals, hand and power tools, rebar, ladders, safety and fall arrest equipment, specialty screws and fasteners, sealants and adhesives, drainage pipe, geo-synthetics, erosion and sediment control equipment and other engineered materials used broadly across all types of non-residential and residential construction.

            In addition to the reportable segments, our consolidated financial results include "Corporate and Other." Corporate & Other is comprised of the following business units: Crown Bolt, CTI, Repair & Remodel and HD Supply Canada. Crown Bolt is a retail distribution operator providing program and packaging solutions, sourcing, distribution, and in-store service, fasteners, builders' hardware, rope and


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    chain and plumbing accessories, primarily serving Home Depot and other hardware stores. CTI offers turnkey supply and installation services for multiple interior finish options, including flooring, cabinets, countertops, and window coverings, along with comprehensive design center services for non-residential, residential and senior living projects. Our Repair & Remodel business unit offers light remodeling and construction supplies, kitchen and bath cabinets, windows, plumbing materials, electrical equipment and other products, primarily to small remodeling contractors and trade professionals. HD Supply Canada is an industrial distributor that primarily focuses on servicing fasteners/industrial supplies and specialty lighting markets which operates across nine provinces. Corporate & Other also includes costs related to our centralized support functions, which include finance, information technology, human resources, legal, supply chain and other support services and removes inter-segment transactions.

    Acquisitions

            We enter into strategic acquisitions to expand into new markets, new platforms, and new geographies in an effort to better service existing customers and attract new ones. In accordance with the acquisition method of accounting under Accounting Standards Codification ("ASC") 805, Business Combinations, the results of the acquisitions we completed are reflected in our consolidated financial statements from the date of acquisition forward.

            On December 3, 20082012, the Company purchased substantially all of the assets of Water Products of Oklahoma, Inc., Arkansas Water Products, LLC, and Municipal Water Works Supply, LP (collectively, "Water Products") for approximately $52 million. These businesses distribute water, sewer, gas and related products such as pipes, valves, fittings, hydrants, pumps and meters, and offer maintenance products and repair services primarily to municipalities and contractors. The businesses are operated as part of the period from JanuaryWaterworks segment.

            On June 29, 20072012, the Company purchased Peachtree Business Products LLC ("Peachtree") for approximately $196 million. Headquartered in Marietta, Georgia, Peachtree specializes in customizable business and property marketing supplies, serving residential and commercial property managers, medical facilities, schools and universities, churches and funeral homes. Peachtree is operated as part of the Facilities Maintenance segment.

            On May 2, 2011, the Company closed on a transaction to August 29, 2007 have been derived fromacquire substantially all of the assets of Rexford Albany Municipal Supply Company, Inc. ("RAMSCO") for approximately $21 million. RAMSCO specializes in distributing water, sanitary and storm sewer materials primarily to municipalities and contractors through four locations in upstate New York. These locations are operated as part of our historical financial statements.Waterworks segment.

    Discontinued operations

    On March 26, 2012, HD Supply disposedthe Company sold all of its Industrial Pipes, Valvesthe issued and Fittings (“IPVF”) business.outstanding equity interests in our IPVF business to Shale-Inland Holdings, LLC. The Company received cash proceeds of approximately $477 million, net of $5 million of transaction costs. As a result of the sale, we recorded a $12 million pre-tax gain in fiscal 2012.

            On September 9, 2011, the Company sold all of the issued and outstanding equity interests in our Plumbing/HVAC business to Hajoca Corporation. The Company received cash proceeds of approximately $116 million, net of $8 million remaining in escrow and $4 million of transaction costs. As a result of the sale, the Company recorded a $7 million pre-tax gain in fiscal 2011. During fiscal 2011, HD Supply disposed of its Plumbing/HVAC2012, the Company paid an additional $1 million in transaction costs and SESCO/QUESCO operations.received $4 million from escrow.

            In accordance with Accounting Standards Codification (“ASC”)ASC 205-20, Discontinued Operations, the results of the IPVF, Plumbing/HVAC and SESCO/QUESCOthese operations andas well as the gain on sale of the businesses are classified as discontinued operations. The presentation of


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    discontinued operations includes revenues and expenses of the discontinued operations and the gain on the sale of businesses, net of tax, as one line item on the Consolidated Statements of Operations.Operations and Comprehensive Income (Loss). All prior period Consolidated Statements of Operations and Comprehensive Income (Loss) presented have been revised to reflect this presentation.

    This “Selected Historical Financial Data” should be read in conjunction with “Management’s Discussion and Analysis For additional detail related to the results of Financial Condition and Resultsoperations of Operations,”the discontinued operations, see Note 3 to our audited consolidated financial statementsstatements.

    Key business metrics

    Net Sales

            We earn our Net sales primarily from the sale of construction, infrastructure, maintenance and renovation and improvement related notesproducts and our provision of related services to approximately 500,000 customers, including contractors, government entities, maintenance professionals, home builders and industrial businesses. We recognize sales, net of sales tax and allowances for returns and discounts, when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, price to the buyer is fixed and determinable and collectability is reasonably assured. Net sales in certain business units, particularly Waterworks and Power Solutions, fluctuate with the price of commodities as we seek to minimize the effects of changing commodities prices by passing such increases in the prices of certain commodity-based products to our customers.

            We ship products to customers predominantly by internal fleet and to a lesser extent by third-party carriers. Net sales are recognized from product sales when title to the products is passed to the customer, which generally occurs at the point of destination for products shipped by internal fleet and at the point of shipping for products shipped by third-party carriers.

            We include shipping and handling fees billed to customers in Net sales. Shipping and handling costs associated with inbound freight are capitalized to inventories and relieved through Cost of sales as inventories are sold. Shipping and handling costs associated with outbound freight are included in “Audited Consolidated Financial Statements”Selling, general and unaudited consolidated financial statementadministrative expenses.

            We include shipping and related noteshandling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are capitalized to inventories and relieved through cost of sales as inventories are sold. Shipping and handling costs associated with outbound freight are included in “Unaudited Consolidated Financial Statements.”Selling, general and administrative expenses and totaled $60 million and $55 million for the six months ended August 4, 2013 and the six months ended July 29, 2012, respectively, and $116 million, $96 million and $91 million in fiscal 2012, fiscal 2011 and fiscal 2010, respectively.

    Gross profit

            Gross profit primarily represents the difference between the product cost from our suppliers (net of earned rebates and discounts) including the cost of inbound freight and the sale price to our customers. The cost of outbound freight (including internal transfers), purchasing, receiving and warehousing are included in Selling, general and administrative expenses within operating expenses. Our historical consolidated and combined financial dataGross profits may not be indicativecomparable to those of our future performance.other companies, as other companies may include all of the costs related to their distribution network in Cost of sales.

    Operating expenses

            Operating expenses are primarily comprised of selling, general and administrative costs, which include payroll expenses (salaries, wages, employee benefits, payroll taxes and bonuses), rent, insurance, utilities, repair and maintenance and professional fees. In addition, operating expenses include depreciation and amortization.

      Successor     Predecessor 
      Historical
    Nine months ended    		  Historical
    Fiscal year ended    		  Period from
    August 30,
    2007 to
    February 3,
    2008    		     Period from
    January 29,
    2007 to August  29,
    2007    		 
      October 28,
    2012    		  October 30,
    2011    		  January 29,
    2012    		  January 30,
    2011    		  January 31,
    2010    		  February 1,
    2009    		    
      (Dollars in millions)       

    Consolidated Statement of Operations:

    		          

    Net sales

    		 $6,041   $5,376   $7,028   $6,449   $6,313   $8,198   $3,838     $5,903  

    Cost of sales

    		  4,308    3,848    5,014    4,608    4,545    5,980    2,808      4,329  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Gross profit

    		  1,733    1,528    2,014    1,841    1,768    2,218    1,030      1,574  

    Operating expenses:

    		          

    Selling, general and administrative

    		  1,223    1,144    1,532    1,455    1,453    1,770    860      1,208  

    Depreciation and amortization

    		  250    245    327    341    359    374    156      105  

    Restructuring

    		  —      —      —      8    21    31    —        —    

    Goodwill impairment

    		  —      —      —      —      219    867    —        —    
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Total operating expenses

    		  1,473    1,389    1,859    1,804    2,052    3,042    1,016      1,313  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Operating income (loss)

    		  260    139    155    37    (284)   (824)   14      261  

    Interest expense

    		  489    477    639    623    602    644    289      220  

    Interest income

    		  —      —      —      —      —      (3)   —        —    

    Loss (gain) on extinguishment of debt

    		  220    —      —      —      (200)   —      —        —    

    Other (income) expense, net

    		  —      (1)   —      (1)   (8)   12    —        —    
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Income (loss) from continuing operations before provision (benefit) for income taxes and discontinued operations

    		  (449)   (337)   (484)   (585)   (678)   (1,477)   (275)     41  

    Provision (benefit) for income taxes

    		  36    59    79    28    (198)   (329)   (100)     17  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Income (loss) from continuing operations

    		  (485)   (396)   (563)   (613)   (480)   (1,148)   (175)     24  

    Income (loss) from discontinued operations, net of tax

    		  19    26    20    (6)   (34)   (107)   (12)     (32) 
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Net income (loss)

    		 $(466)  $(370)  $(543)  $(619)  $(514)  $(1,255)  $(163)    $56  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

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    IndexCash interest expense and Adjusted EBITDA

      Cash interest expense:

            Cash interest expense represents total interest expense in continuing operations less (i) amortization of deferred financing costs, (ii) amortization of the asset related to Financial Statements

      Successor     Predecessor 
      Historical
    Nine months ended    		  Historical
    Fiscal year ended    		  Period from
    August 30,
    2007 to
    February 3,
    2008    		     Period from
    January 29,
    2007 to
    August 29,
    2007    		 
      October 28,
    2012    		  October 30,
    2011    		  January 29,
    2012    		  January 30,
    2011    		  January 31,
    2010    		  February 1,
    2009    		    
      (Dollars in millions)       

    Balance sheet data (end of period):

    		          

    Working capital(1)

    		 $1,279    $1,012   $1,176   $1,925   $2,071   $2,009     

    Cash and cash equivalents

    		  158     111    292    539    771    108     

    Total assets

    		  7,678     6,738    7,089    7,845    9,088    10,593     

    Total debt(2)

    		  6,915     5,462    5,249    5,775    6,056    5,800     

    Total stockholder’s equity (deficit)

    		  (881)    (428)   96    688    1,175    2,433     

    Other financial data (unaudited):

    		          

    Cash interest expense(3)

    		 $403   $307   $457   $365   $363   $397   $191     $220  

    EBITDA(4)

    		  292    387    484    381    288    (455)   173      370  

    Adjusted EBITDA(4)

    		  529    406    508    411    343    476    176      401  

    Capital expenditures

    		  80    58    115    49    58    77    75      176  

    Statement of cash flows data:

    		          

    Cash flows provided by (used in) operating activities, net

    		 $(327)  $(264)  $(165)  $551   $69   $548   $364     $408  

    Cash flows provided by (used in) investing activities, net

    		  (777)   —      (6)   (45)   (41)   37    (8,255)     (140) 

    Cash flows provided by (used in) financing activities, net

    		  1,151    111    (10)   (755)   (263)   86    7,977      (269) 
    the estimated fair value of the THD Guarantee (as defined below), (iii) PIK interest expense on our 2007 Senior Subordinated Notes and April 2012 Senior Unsecured Notes, (iv) amortization of amounts in accumulated other comprehensive income related to derivatives and (v) amortization of original issue discounts and premium. Effective September 1, 2011, the interest expense on our 2007 Senior Subordinated Notes was no longer paid-in-kind, but rather paid in cash.

            

    (1)We define working capital as current assets (including cash) minus current liabilities, which include the current portion of long-term debt and accrued interest thereon.
    (2)Total debt includes current and non-current installments of long-term debt and capital leases.
    (3)Cash interest expense represents total interest expense in continuing operations less (i) amortization of deferred financing costs, (ii) amortization of the asset related to the estimated fair value of the THD Guarantee, (iii) paid-in-kind (“PIK”) interest expense on our 2007 Senior Subordinated Notes and April 2012 Senior Notes (iv) amortization of amounts in accumulated other comprehensive income related to derivatives and (v) amortization of original issue discounts and premium. Effective September 1, 2011, the interest expense on our 2007 Senior Subordinated Notes is no longer paid-in-kind, but rather paid in cash. Interest payments on the April 2012 Senior Notes will be paid in kind through October 2017.

    Cash interest expense is not a recognized term under GAAP and does not purport to be an alternative to interest expense. Management believes that cash interest expense is useful for analyzing the cash flow needs and debt service requirements of the Company. The following table provides a reconciliation of interest expense, the most directly comparable financial measure under GAAP, to Cashcash interest expense for the periods presented (amountspresented:

     
    		 Six Months Ended Fiscal Year Ended 
     
    		 August 4,
    2013    		 July 29,
    2012    		 February 3,
    2013    		 January 29,
    2012    		 January 30,
    2011    		 January 31,
    2010    		 February 1,
    2009    		 
     
    		 (Dollars in millions)
    		 

    Interest expense

    		 $291 $324 $658 $639 $623 $602 $644 

    Amortization of deferred financing costs

    		  (14) (13) (23) (37) (36) (33) (33)

    Amortization of THD Guarantee

    		  —  (2) (2) (13) (14) (21) (21)

    PIK interest expense on our 2007 Senior Subordinated Notes and April 2012 Senior Unsecured Notes(a)

    		  —  (34) (93) (132) (206) (182) (192)

    Amortization of amounts in accumulated other comprehensive income related to derivatives

    		  —  —  —  —  (2) (3) (1)

    Amortization of original issue discounts and premium

    		  (1) (2) (5) —  —  —  — 
                    

    Cash interest expense

    		 $276 $273 $535 $457 $365 $363 $397 
                    

    (Increase) decrease in accrued interest

    		  28  78  86  (101) (2) 3  — 
                    

    Cash interest payments(b)

    		 $304 $351 $621 $356 $363 $366 $397 
                    
    (a)
    PIK interest expense in millions):

      Successor     Predecessor 
      Historical
    Nine months ended    		  Historical
    Fiscal year ended    		  Period
    from
    August 30,
    2007 to
    February 3,
    2008    		     Period
    from
    January 29,
    2007 to
    August 29,
    2007    		 
      October 28,
    2012    		  October 30,
    2011    		  January 29,
    2012    		  January 30,
    2011    		  January 31,
    2010    		  February 1,
    2009    		    

    Interest expense

    		 $489   $477   $639   $623   $602   $644   $ 289     $ 220  

    Amortization of deferred financing costs

    		  (18)   (28)   (37)   (36)   (33)   (33)   (14)     —    

    Amortization of THD Guarantee

    		  (2)   (10)   (13)   (14)   (21)   (21)   (9)     —    

    PIK interest expense on our 2007 Senior Subordinated Notes and April 2012 Senior Notes

    		  (63)   (132)   (132)   (206)   (182)   (192)   (75)     —    

    Amortization of amounts in accumulated other comprehensive income related to derivatives

    		  —      —      —      (2)   (3)   (1)   —        —    

    Amortization of original issue discounts and premium

    		  (3)   —      —      —      —      —      —        —    
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Cash interest expense

    		 $403   $307   $457   $365   $363   $397   $191     $220  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    (4)

    EBITDA, a measure used by management to evaluate operating performance, is defined as Net income (loss) less Income (loss) from discontinued operations, net of tax, plus (i) Interest expense and Interest income, net, (ii) Provision (benefit) for income taxes, and (iii) Depreciation and amortization. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net

    Index to Financial Statements
    income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and other debt service requirements. We believe EBITDA is helpful in highlighting trends because EBITDA excludes the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, age and book depreciation of facilities and capital investments. We further believe that EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an EBITDA measure when reporting their results. We use non-GAAP financial measures to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to other similarly titled measures of other companies.

    the fiscal year ended February 3, 2013 represents PIK interest incurred on the April 2012 Senior Unsecured Notes. In October 2012, $56 million of this interest was capitalized at the first interest payment date. The entire $93 million of interest was paid in cash upon extinguishment of these notes on February 1, 2013.

    (b)
    In addition weto the cash interest payments noted in the table, in the year ended February 3, 2013, the Company paid $502 million of original issue discounts and PIK interest related to the extinguishment of all of the 14.875% Senior Notes and $930 million of the 2007 Senior Subordinated Notes. In addition, during the three months ended May 5, 2013, the Company paid $364 million of original issue discounts and PIK interest related to the extinguishments of

    Table of Contents

      $889 million of 2007 Senior Subordinated Notes and a portion of the term loans under the Senior Term Facility (the "Term Loans").

      Adjusted EBITDA:

            We present Adjusted EBITDA because it is a primary measure used by management to evaluate operating performance. We believe the presentation of Adjusted EBITDA enhances investors' overall understanding of the financial performance of our business. Adjusted EBITDA is not a recognized term under accounting principles generally accepted in the United States of America ("GAAP") and does not purport to be an alternative to Net income (loss) as a measure of operating performance. We believe Adjusted EBITDA is helpful in highlighting operating trends, because it excludes the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, age and book depreciation of facilities and capital investments. We further believe that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA when reporting their results. We compensate for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

    Adjusted EBITDA is based on “Consolidated"Consolidated EBITDA,”" a measure which is defined in our Senior Term Facility and Senior ABL Facility and used in calculating financial ratios in several material debt covenants in our Senior Term Facility and our Senior ABL Facility.covenants. Borrowings under these facilities are a key source of liquidity and our ability to borrow under these facilities depends upon, among other things, our compliance with such financial ratio covenants. In particular, both facilities contain restrictive covenants that can restrict our activities if we do not maintain financial ratios calculated based on Consolidated EBITDA and our Senior ABL Facility requires us to maintain a minimum fixed charge coverage ratio of 1:1 if we do not maintain aour specified excess availability (including an amount by which our borrowing base exceeds the outstanding amounts) under the Senior ABL Facility falls below the greater of borrowing availability.$150 million and 10% of the aggregate commitments. Adjusted EBITDA is defined as EBITDANet income (loss) less Income (loss) from discontinued operations, net of tax, plus (i) Interest expense and Interest income, net, (ii) Provision (benefit) for income taxes, (iii) Depreciation and amortization and further adjusted to exclude non-cash items and certain other adjustments to Consolidated Net Income permitted in calculating Consolidated EBITDA under our Senior Term Facility and our Senior ABL Facility. We believe that inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about how the covenants in those agreements operate and about certain non-cash items, items that we do not expect to continue at the same level and other items. The Senior Term Facility and Senior ABL Facility permit us to make certain additional adjustments to Consolidated Net Income in calculating Consolidated EBITDA, such as projected net cost savings, which are not reflected in the Adjusted EBITDA data presented in this prospectus and the documents incorporated by reference herein.prospectus. We may in the future reflect such permitted adjustments in our calculations of Adjusted EBITDA. These covenants are important to the Company as failure to comply with certain covenants would result in a default under our Senior Credit Facilities. The material covenants in our Senior Credit Facilities are discussed in “Description"Description of Other Indebtedness—Senior Credit Facilities.”"

    EBITDA and        Adjusted EBITDA havehas limitations as analytical tools and should not be considered in isolation or as substitutesa substitute for analyzing our results as reported under GAAP. Some of these limitations are:

    EBITDA and

      •
      Adjusted EBITDA dodoes not reflect changes in, or cash requirements for, our working capital needs;

    Table of Contents

    EBITDA and

      •
      Adjusted EBITDA dodoes not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt;

    EBITDA and

    •
    Adjusted EBITDA dodoes not reflect our income tax expenses or the cash requirements to pay our taxes;

    EBITDA and

    •
    Adjusted EBITDA dodoes not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and



    •
    although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA dodoes not reflect any cash requirements for such replacements.

    Index to Financial Statements

    The following table presents a reconciliation of net income (loss), the most directly comparable financial measure under GAAP, to EBITDA and Adjusted EBITDA for the periods presented (amounts in millions):presented:

      Successor     Predecessor 
      Historical
    Nine months ended    		  Historical
    Three months
    ended    		  Historical
    Fiscal year ended    		  Period
    from
    August 30,
    2007 to
    February 3,
    2008    		     Period
    from
    January 29,
    2007 to
    August 29,
    2007    		 
      October 28,
    2012    		  October 30,
    2011    		  January 29,
    2012    		  January 29,
    2012    		  January 30,
    2011    		  January 31,
    2010    		  February 1,
    2009    		    

    Net income (loss)

    		 $(466)  $(370)  $(173)  $(543)  $(619)  $(514)  $(1,255)  $(163)    $56  

    Less income (loss) from discontinued operations, net of tax

    		  19    26    (6)   20    (6)   (34)   107    12      32  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Income (loss) from continuing operations

    		  (485)   (396)   (167)   (563)   (613)   (480)   (1,148)   (175)     24  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Interest expense

    		  489    477    162    639    623    602    641    289      220  

    Provision (benefit) from income taxes

    		  36    59    20    79    28    (198)   (329)   (100)     17  

    Depreciation and amortization(i)

    		  252    247    82    329    343    364    381    159      109  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    EBITDA

    		 $292   $387   $97   $484   $381   $288   $(455)  $173     $370  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Adjustments to EBITDA:

    		           

    Other (income) expense, net(ii)

    		  —      (1)   1    —      (1)   (8)   12    —        —    

    Loss (gain) on extinguishment of debt(iii)

    		  220    —      —      —      —      (200)   —      —        —    

    Goodwill impairment(iv)

    		  —      —      —      —      —      219    867    —        —    

    Restructuring charge(v)

    		  —      —      —      —      8    21    32    —        —    

    Stock-based compensation(vi)

    		  13    16    4    20    17    18    14    1      31  

    Management fee & related expenses paid to Equity Sponsors(vii)

    		  4    4    1    5    5    5    6    2      —    

    Other

    		  —      —      (1)   (1)   1    —      —      —        —    
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    Adjusted EBITDA

    		 $529   $406   $102   $508   $411   $343   $476   $176     $401  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		    

     

     

    		 

    (i)
     
    		 Six Months Ended Fiscal Year Ended 
     
    		 August 4,
    2013    		 July 29,
    2012    		 February 3,
    2013    		 January 29,
    2012    		 January 30,
    2011    		 January 31,
    2010    		 February 1,
    2009    		 
     
    		 (Dollars in millions)
    		 

    Net income (loss)

    		 $(203)$(416)$(1,179)$(543)$(619)$(514)$(1,255)

    Less: Income (loss) from discontinued operations, net of tax

    		  —  16  20  20  (6) (34) (107)
                    

    Income (loss) from continuing operations

    		  (203) (432) (1,199) (563) (613) (480) (1,148)
                    

    Interest expense

    		  291  324  658  639  623  602  641 

    Provision (benefit) for income taxes

    		  55  34  3  79  28  (198) (329)

    Depreciation and amortization(i)

    		  122  167  339  329  343  364  381 

    Other (income) expense, net(ii)

    		  —  —  —  —  (6) (8) 12 

    Loss (gain) on extinguishment and modification of debt(iii)

    		  87  220  709  —  5  (200) — 

    Goodwill and other intangible asset impairment(iv)

    		  —  —  152  —  —  219  867 

    Restructuring charge(v)

    		  —  —  —  —  8  21  32 

    Stock-based compensation(vi)

    		  8  10  16  20  17  18  14 

    Management fee & related expenses paid to Equity Sponsors(vii)

    		  2  3  5  5  5  5  6 

    Costs related to initial public offering(viii)

    		  20  —  —  —  —  —  — 

    Other

    		  —  (1) —  (1) 1  —  — 
                    

    Adjusted EBITDA

    		 $382 $325 $683 $508 $411 $343 $476 
                    
    (i)
    Depreciation and amortization includes amounts recorded within Cost of sales in the Consolidated and Combinded Statements of Operations.
    (ii)Represents the gains/losses associated with the changes in fair value of interest rate swap contracts not accounted for under hedge accounting and other non-operating income/expense.
    (iii)Represents the loss/(gain) on extinguishment of debt including the premium/(discount) paid to repurchase or call the debt as well as the writeoff of unamortized deferred financing costs associated with such debt.
    (iv)Represents the non-cash impairment charge of goodwill recognized during fiscal 2009 and fiscal 2008 in accordance with Accounting Standards Codification 350, Intangibles—Goodwill and Other.
    (v)Represents the costs incurred for employee reductions and branch closures or consolidations. These costs include occupancy costs, severance, and other costs incurred to exit a location.
    (vi)The Predecessor period includes stock-based compensation costs for stock options, Employee Stock Purchase Plans and restricted stock. The Successor periods include stock-based compensation costs for stock options.
    (vii)The Company entered into a management agreement whereby the Company pays the Equity Sponsors a $5 million annual aggregate management fee and related expenses through August 2017.

    Index to Financial Statements

    Quarterly Financial Data

    The following tables present quarterly unaudited financial results for the nine months ended October 28, 2012 and the fiscal years ended January 29, 2012 (fiscal 2011) and January 30, 2011 (fiscal year 2010), reflecting the results of our IPVF, Plumbing/HVAC and SESCO/QUESCO businesses, as discontinued operations.

      Fiscal 2012  Fiscal 2011  Fiscal 2010 
    (Dollars in millions) Q1-12  Q2-12  Q3-12  Q1-11  Q2-11  Q3-11  Q4-11  Q1-10  Q2-10  Q3-10  Q4-10 

    Net Sales

    		 $1,836   $2,059   $2,146   $1,608   $1,875   $1,893   $1,652   $1,552   $1,719   $1,724   $1,454  

    Cost of Sale

    		  1,313    1,465    1,530    1,148    1,342    1,358    1,166    1,109    1,231    1,236    1,032  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    Gross Profit

    		  523    594    616    460    533    535    486    433    488    488    422  

    Operating Expenses:

    		           

    Selling, General & Administrative

    		  397    408    418    370    385    389    388    371    370    365    349  

    Depreciation & Amortization

    		  83    83    84    82    82    81    82    87    87    84    83  

    Restructuring

    		  —      —      —      —      —      —      —      5    3    —      —    
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    Total Operating Expenses

    		  480    491    502    452    467    470    470    463    460    449    432  

    Operating Income (Loss)

    		  43    103    114    8    66    65    16    (20)   28    39    (10) 

    Interest Expense

    		  166    158    165    158    159    160    162    156    155    153    159  

    Loss on extinguishment of debt

    		  220    —      —      —      —      —      —      —      —      —      —    

    Other (income) expense, net

    		  —      —      —      (1)   —      —      1    4    (2)   (1)   (2) 
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    Income (loss) from continuing operations before income taxes

    		  (343)   (55)   (51)   (149)   (93)   (95)   (147)   (180)   (125)   (113)   (167) 

    Income Tax (Benefit) Expense

    		  33    1    2    20    15    24    20    22    (12)   (15)   33  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    Income (Loss) from continuing operations

    		  (376)   (56)   (53)   (169)   (108)   (119)   (167)   (202)   (113)   (98)   (200) 

    Income (loss) from discontinued operations, net of tax

    		  16    —      3    5    7    14    (6)   —      (2)   (1)   (3) 
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    Net Income (Loss)

    		 $(360)  $(56)  $(50)  $(164)  $(101)  $(105)  $(173)  $(202)  $(115)  $(99)  $(203) 
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    EBITDA(1)

    		 $(94)  $187   $199   $92   $148   $147   $97   $64   $117   $125   $75  

    Adjusted EBITDA(1)

    		 $133   $192   $204   $96   $155   $155   $102   $78   $124   $130   $79  

    (1)Reconciliation of Quarterly Net Income (Loss) to Adjusted EBITDA

    Index to Financial Statements
      Fiscal 2012  Fiscal 2011  Fiscal 2010 
    (Dollars in millions) Q1-12  Q2-12  Q3-12  Q1-11  Q2-11  Q3-11  Q4-11  Q1-10  Q2-10  Q3-10  Q4-10 

    Net Income (Loss)

    		 $(360)  $(56)  $(50)  $(164)  $(101)  $(105)  $(173)  $(202)  $(115)  $(99)  $(203) 

    Less (income) loss from discontinued operations, net of tax

    		  16    —      3    5    7    14    (6)   —      (2)   (1)   (3) 
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    Income (loss) from continuing operations

    		  (376)   (56)   (53)   (169)   (108)   (119)   (167)   (202)   (113)   (98)   (200) 

    Interest expense, net

    		  166    158    165    158    159    160    162    156    155    153    159  

    Provision (benefit) for income taxes

    		  33    1    2    20    15    24    20    22    (12)   (15)   33  

    Depreciation and amortization(i)

    		  83    84    85    83    82    82    82    88    87    85    83  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    EBITDA

    		  (94)   187    199    92    148    147    97    64    117    125    75  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    Adjustments to EBITDA

    		           

    Other (income) expense, net(ii)

    		  —      —      —      (1)   —      —      1    4    (2)   (1)   (2) 

    Loss on extinguishment of debt(iii)

    		  220    —      —      —      —      —      —      —      —      —      —    

    Restructuring charge(iv)

    		  —      —      —      —      —      —      —      5    3    —      —    

    Stock-based compensation(v)

    		  5    5    3    4    5    7    4    4    4    5    4  

    Management fee & related expenses paid to Equity Sponsors(vi)

    		  1    2    1    1    2    1    1    1    2    1    1  

    Other

    		  1    (2)   1    —      —      —      (1)   —      —      —      1  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    Adjusted EBITDA

    		 $133   $192   $204   $96   $155   $155   $102   $78   $124   $130   $79  
     

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		  

     

     

    		 

    (i)Depreciation and amortization includes amounts recorded within Cost of sales in the Consolidated Statements of Operations.
    (ii)Represents the gains/losses associated with the changes in fair value of interest rate swap contracts not accounted for under hedge accounting and other non-operating income/expense.
    (iii)Represents the loss on extinguishment of debt including the premium paid to call the debt as well as the writeoff of unamortized deferred financing costs associated with such debt.
    (iv)Represents the costs incurred for employee reductions and branch closures or consolidations. These costs include occupancy costs, severance, and other costs incurred to exit a location.
    (v)Represents stock-based compensation costs for stock options.
    (vi)The Company entered into a management agreement whereby the Company pays the Equity Sponsors a $5 million annual aggregate management fee and related expenses through August 2017.

    Index to Financial Statements

    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    Overview

    HD Supply, Inc. is one of the largest industrial distribution companies in North America. With a diverse portfolio of industry-leading businesses, we provide a broad range of products and services to approximately 440,000 professional customers in the infrastructure and energy, maintenance, repair and improvement, and specialty construction markets.

    We provide an expansive offering of approximately one million SKUs of name brand and propriety brand products at competitive prices. Through approximately 630 locations across 46 states and 9 Canadian provinces, we provide localized, customer-driven services including jobsite delivery, will call or direct-ship options, diversified logistics and innovative solutions that contribute to our customers’ success.

    Description of market sectors

    Through seven industrial distribution businesses in the U.S. and a Canadian operation, we provide products and services to professional customers in the Infrastructure & Energy, Maintenance, Repair & Improvement and Specialty Construction market sectors, as presented below:

    Infrastructure & Energy—To support established infrastructure and economic growth, our Infrastructure & Energy businesses serve customers in the Infrastructure & Energy market sector by striving to meet their demand for the critical supplies and services used to build and maintain water systems, and for the generation, transmission, distribution and application of electrical power. This market sector is made up of the following businesses:

    •

    Waterworks—Distributes complete lines of water and wastewater transmission products, serving contractors and municipalities in all aspects of the water and wastewater industries.

    •

    Power Solutions (formerly “Utilities/Electrical”)— Distributes electrical transmission and distribution products, power plant maintenance, repair and operations (“MRO”) supplies, smart-grid technologies, and provides materials management and procurement outsourcing arrangements to the power generation and distribution industries and distributes electrical products such as wire and cable, switch gear supplies, lighting and conduit to residential and commercial contractors.

    Maintenance, Repair & Improvement—Our Maintenance, Repair & Improvement businesses serve customers in the Maintenance, Repair & Improvement market sector by striving to meet their continual demand for supplies needed to fix and upgrade facilities across multiple industries. This market sector is made up of the following businesses:

    •

    Facilities Maintenance—Supplies MRO products and upgrade and renovation services largely to the multifamily, healthcare, hospitality, and institutional markets.

    •

    Crown Bolt—A retail distribution operator, providing program and packaging solutions, sourcing, distribution, and in-store service, primarily serving The Home Depot, Inc.

    •

    Repair & Remodel—Offers light remodeling and construction supplies primarily to small remodeling contractors and trade professionals.

    Specialty Construction—Our Specialty Construction businesses serve customers in the Specialty Construction market sector by striving to meet their very distinct, customized supply needs in commercial, residential and industrial applications. This market sector is made up of the following businesses:

    •

    White Cap—Distributes specialized hardware, tools, building materials, and safety equipment to professional contractors.

    Index to Financial Statements
    •

    Creative Touch Interiors (“CTI”)— Offers turnkey supply and installation services for multiple interior finish options, including flooring, cabinets, countertops, and window coverings, along with comprehensive design center services for residential, commercial, and senior living projects.

    For a description of the relationship among our market sectors, our businesses and our financial reporting segments, see “Business—Our sectors.”

    Acquisitions

    We enter into strategic acquisitions to expand into new markets, new platforms, and new geographies in an effort to better service existing customers and attract new ones. In accordance with the acquisition method of accounting under Accounting Standards Codification (“ASC”) 805, Business Combinations, the results of the acquisitions we completed are reflected in our consolidated financial statements from the date of acquisition forward.

    On December 3, 2012, we acquired substantially all of the assets of Water Products of Oklahoma, Inc., Arkansas Water Products, LLC, and Municipal Water Supply, LP. These businesses distribute water, sewer, gas and related products such as pipes, valves, fittings, hydrants, pumps and meters, and offer maintenance products and repair services primarily to municipalities and contractors. The business will be operated as part of the Waterworks segment.

    On June 29, 2012, we purchased Peachtree Business Products LLC (“Peachtree”) for approximately $196 million. Headquartered in Marietta, Georgia, Peachtree specializes in customizable business and property marketing supplies, serving residential and commercial property managers, medical facilities, schools and universities, churches and funeral homes. Peachtree is operated as part of our Facilities Maintenance business. For additional information, see “Notes to Audited Consolidated Financial Statements—Note 2—Acquisitions” and “Notes to Unaudited Consolidated Financial Statements—Note 2—Acquisitions.”

    On May 2, 2011, we closed on a transaction to acquire substantially all of the assets of Rexford Albany Municipal Supply Company, Inc. (“RAMSCO”) for approximately $21 million. RAMSCO specializes in distributing water, sanitary and storm sewer materials primarily to municipalities and contractors through four locations in upstate New York. These locations are operated as part of the HD Supply Waterworks business.

    Discontinued operations

    On March 26, 2012, we sold all of the issued and outstanding equity interests in our Industrial Pipes, Valves and Fittings (“IPVF”) business to Shale-Inland Holdings, LLC for proceeds of approximately $469 million. Upon closing, we received cash proceeds of approximately $464 million, net of $5 million of transaction costs. As a result of the sale, we recorded a $9 million pre-tax gain in the first quarter of fiscal 2012. During the third quarter of fiscal 2012, the Company received $13 million for the final working capital settlement, and, as a result, recorded an additional $3 million pre-tax gain.

    On September 9, 2011, we sold all of the issued and outstanding equity interests in our Plumbing/HVAC business to Hajoca Corporation. We received cash proceeds of approximately $116 million, net of $8 million remaining in escrow and $4 million of transaction costs. As a result of the sale, we recorded a $7 million pre-tax gain in fiscal 2011. During the first quarter of fiscal 2012, the Company paid an additional $1 million in transaction costs. During the third quarter of fiscal 2012, the Company received $4 million from escrow.

    On February 28, 2011, we sold substantially all of the assets of SESCO/QUESCO, an electrical products division of HD Supply Canada, to Sonepar Canada, and received proceeds of approximately $11 million, less $1 million remaining in escrow. As a result of the sale, we recorded a $2 million pre-tax gain in fiscal 2011. During the second quarter of fiscal 2012, we received $1 million from escrow.

    Index to Financial Statements

    Financial Information

    In accordance with ASC 205-20, Discontinued Operations, the results of the IPVF, Plumbing/HVAC and SESCO/QUESCO operations as well as the gain on sale of businesses are classified as discontinued operations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations and the gain on the sale of businesses, net of tax, as one line item on the Consolidated Statements of Operations and Comprehensive Income. All prior period Consolidated StatementsIncome (Loss).

    (ii)
    Represents the (gains)/losses associated with the changes in fair value of Operationsinterest rate swap contracts not accounted for under hedge accounting and Comprehensive Income presented have been revisedother non-operating (income)/expense.

    Table of Contents

    (iii)
    Represents the loss/(gain) on extinguishment and modification of debt including the premium/(discount) paid to reflect this presentation. For additional detailrepurchase or call the debt as well as the write-off of unamortized deferred financing costs and other assets associated with such debt.

    (iv)
    Represents the non-cash impairment charge of goodwill and an intangible asset recognized in accordance with Accounting Standards Codification 350, Intangibles—Goodwill and Other.

    (v)
    Represents the costs incurred for employee reductions and branch closures or consolidations. These costs include occupancy costs, severance, and other costs incurred to exit a location.

    (vi)
    Represents the stock-based compensation costs for stock options and restricted stock.

    (vii)
    Holdings entered into consulting agreements with the Equity Sponsors whereby Holdings paid the Equity Sponsors a $4.5 million annual aggregate management fee and related expenses. These consulting agreements were terminated in conjunction with Holdings' initial public offering in the second quarter of fiscal 2013.

    (viii)
    Represents the costs expensed in connection with Holdings' initial public offering, including approximately $18 million paid to the results of operationsEquity Sponsors for termination of the discontinued operations, see “Notes to Audited Consolidated Financial Statements—Note 3—Discontinued Operations” and “Notes to Unaudited Consolidated Financial Statements—Note 3—Discontinued Operations.”

    Key business metrics

    Net sales

    We earn our revenues primarily from the sale of approximately one million construction, infrastructure, maintenance and renovation and improvement related products and our provision of related services to approximately 440,000 professional customers, including contractors, government entities, maintenance professionals, home builders and industrial businesses. We recognize our revenue, net of sales tax and allowances for returns and discounts, when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, price to the buyer is fixed and determinable and collectability is reasonably assured. Net sales in certain of our businesses fluctuate with the costs of commodities used in the products we distribute.

    We ship products to customers predominantly by internal fleet and to a lesser extent by third party carriers. Revenues are recognized from product sales when title to the products is passed to the customer, which generally occurs at the point of destination for products shipped by internal fleet and at the point of shipment for products shipped by third party carriers.

    We include shipping and handling fees billed to customers in Net sales. Shipping and handling costs associated with inbound freight are capitalized to inventories and relieved through Cost of sales as inventories are sold. Shipping and handling costs associated with outbound freight are included in Selling, general and administrative expenses and totaled $96 million, $91 million, and $84 million in fiscal 2011, fiscal 2010, and fiscal 2009, respectively.

    Gross profit

    Gross profit primarily represents the difference between the product cost from our suppliers (net of earned rebates and discounts) including the cost of inbound freight and the sale price to our customers. The cost of outbound freight (including internal transfers), purchasing, receiving and warehousing are included in Selling, general and administrative expenses within operating expenses. Our gross profits may not be comparable to those of other companies, as other companies may include all of the costs related to their distribution network in cost of sales.

    Operating expenses

    Operating expenses are primarily comprised of selling, general and administrative costs, which include payroll expenses (salaries, wages, employee benefits, payroll taxes and bonuses), rent, insurance, utilities, repair and maintenance and professional fees. In addition, operating expenses include depreciation and amortization.

    EBITDA and Adjusted EBITDA

    EBITDA, a measure used by management to evaluate operating performance, is defined as Net income (loss) less Income (loss) from discontinued operations, net of tax, plus (i) Interest expense and Interest income, net, (ii) Provision (benefit) for income taxes, and (iii) Depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted to exclude non-cash items and certain other adjustments to Consolidated Net Income.

    Index to Financial Statements

    EBITDA and Adjusted EBITDA are not recognized terms under accounting principles generally accepted in the United States of America (“U.S. GAAP”) and do not purport to be alternatives to net income as measures of operating performance or to cash flows from operating activities as measures of liquidity. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow available for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and other debt service requirements. We believe EBITDA and Adjusted EBITDA are helpful in highlighting trends because they exclude the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, age and book depreciation of facilities and capital investments. We further believe that EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present EBITDA and Adjusted EBITDA measures when reporting their results. We use non-GAAP financial measures to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business than U.S. GAAP results alone. Because not all companies use identical calculations, our presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

    EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for analyzing our results as reported under U.S. GAAP. Some of these limitations are:

    EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

    consulting agreements.

    EBITDA and Adjusted EBITDA do not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt;

    EBITDA and Adjusted EBITDA do not reflect our income tax expenses or the cash requirements to pay our taxes;

    EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and

    although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements.

    Relationship with Home Depot

    Historical relationship

    On August 30, 2007, investment funds associated with Bain Capital Partners, LLC, The Carlyle Group and Clayton, Dubilier & Rice, Inc.the Equity Sponsors formed HDS Investment Holding, Inc. (“Holding”)Holdings and entered into a stock purchase agreement with The Home Depot Inc. (“Home Depot” or “THD”) pursuant to which Home Depot agreed to sell to HoldingHoldings or to a wholly ownedwholly-owned subsidiary of HoldingHoldings certain intellectual property and all of the outstanding common stock of HD Supply, Inc. and the Canadian subsidiary, CND Holdings, Inc. On August 30, 2007, through a series of transactions, Holding’sHoldings' direct wholly-owned subsidiary, HDS Holding Corporation, acquired direct control of HD Supply, throughInc. (through the merger of its wholly ownedwholly-owned subsidiary, HDS Acquisition Corp., with and into HD Supply.Supply, Inc.) and the Canadian subsidiary, CND Holdings, Inc. Through these transactions (the “Transactions”"2007 Acquisition"), Home Depot was paid cash of approximately $8.2 billion and 12.5% of Holding’sHoldings' common stock worth $325 million for certain intellectual property and all of the outstanding common stock of HD Supply and CND Holdings, including all dividends and interest payable associated with those shares.million.

    On-going relationship

    We derive revenue from the sale of products to Home Depot. Revenue from these sales is recorded at an amount that approximates market. In addition to sales, we purchase products from Home Depot. All purchases are at amounts that management believes an unrelated third party would pay.

    Index to Financial Statements

    Strategic agreement

    On the closing date of the Transactions,2007 Acquisition, Home Depot entered into a strategic purchase agreement with Crown Bolt. This agreement provides a guaranteed revenue stream to Crown Bolt through January 31, 2015 by specifying minimum annual purchase requirements from Home Depot. As of October 28,During fiscal 2012 and fiscal 2011, Crown Bolt recorded an additional $19 million and $20 million, respectively, in net sales to satisfy the net book value ofminimum purchase requirement provisions under the strategic purchase agreement. On February 1, 2013, Crown Bolt reached an agreement is $50to amend and extend its strategic purchase agreement with Home Depot. While the amendment extends the agreement five years through January 31, 2020, retaining Crown Bolt as the exclusive supplier of certain products to Home Depot, it eliminates the minimum purchase requirement and additionally reduces future pricing by approximately $20 million annually. These changes resulted in a reduction of expected future cash proceeds from Home Depot. We, therefore, considered this amendment a triggering event and, as such, performed an additional goodwill impairment analysis for Crown Bolt. As a result of the analysis, Crown Bolt recorded a non-cash, pre-tax goodwill impairment charge of $150 million during the fourth quarter of fiscal 2012. Additionally, we recorded a $2 million charge to write off an unamortized tradename as a result of the discontinued use of the tradename. For more information on these charges, see "—Critical Accounting Policies—Goodwill" and "Notes to Audited Consolidated Financial Statements—Note 5—Goodwill and Intangible Assets."


    Table of Contents

            HD Supply derived revenue from the sale of products to Home Depot of $296 million, $275 million, and $299 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively. HD Supply derived revenue from the net book valuesale of goodwill assignedproducts to Crown Bolt is $215 million. We are currentlyHome Depot of $136 million and $143 million in discussionsthe six months ended August 4, 2013 and July 29, 2012, respectively.

    Tax Sharing Arrangements

            For a discussion of tax sharing arrangements with Home Depot, regarding the amendment and extension of the current strategic purchase agreement, including the terms of such amendment and extension. The options being discussed withrisk that we may be required to reimburse Home Depot concerning the amendmentan amount equal to a contested tax refund plus related interest, see "Risk Factors—Risks Relating to Our Business—Income tax payments may ultimately differ from amounts currently recorded by us. Future tax law changes may materially increase our prospective income tax expense," and extension could result in an impairment of the strategic purchase agreement, the goodwill assigned to Crown Bolt or both, which could be significant."Certain Relationships and Related Party Transactions—Tax sharing arrangements."

    Seasonality

    In a typical year, our operating results are impacted by seasonality. Historically, sales of our products have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these periods. Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as cold or wet weather, which can delay construction projects.

    Basis of presentationPresentation

    HD Supply’sSupply's fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. Fiscal year ended February 3, 2013 (fiscal 2012) includes 53 weeks. Fiscal years ended January 29, 2012 (“fiscal 2011”),(fiscal 2011) and January 30, 2011 (“fiscal 2010”), and January 31, 2010 (“fiscal 2009”) all(fiscal 2010) both include 52 weeks. The threeimpact of a 53rd week in fiscal 2012 led to increased net sales of $148 million and increased Adjusted EBITDA of $14 million. The six months ended October 28,August 4, 2013 and July 29, 2012 (“third quarter 2012”) and October 30, 2011 (“third quarter 2011”) both include thirteenincluded 26 weeks. The nine months ended October 28, 2012 and October 30, 2011 both include thirty-nine weeks.


    Table of Contents

    Index to Financial Statements

    Consolidated resultsResults of operations—NineOperations—Six Months Ended October 28,August 4, 2013 and July 29, 2012 and October 30, 2011

     
    		 Six Months Ended  
    		 
     
    		 August 4,
    2013    		 July 29,
    2012    		 Percentage
    Increase (Decrease)    		 
     
    		 (Dollars in millions)
    		  
    		 

    Net Sales

    		 $4,325 $3,895  11.0%

    Gross Profit

    		  1,259  1,117  12.7 

    Operating expenses:

    		          

    Selling, general and administrative

    		  889  805  10.4 

    Depreciation and amortization

    		  120  166  (27.7)
             

    Total operating expenses

    		  1,009  971  3.9 

    Operating Income

    		  250  146  71.2 

    Interest expense

    		  291  324  (10.2)

    Loss on extinguishment & modification of debt

    		  87  220   *

    Other (income) expense, net

    		  20  —   *
             

    Income (Loss) from Continuing Operations Before Income Taxes

    		  (148) (398) 62.8 

    Provision (benefit) for income taxes

    		  55  34  61.8 
             

    Income (Loss) from Continuing Operations

    		  (203) (432) 53.0 

    Income (loss) from discontinued operations, net of tax

    		  —  16   *
             

    Net Income (Loss)

    		 $(203)$(416) 51.2 
             

    Non-GAAP financial data:

    		          

    Adjusted EBITDA

    		 $382 $325  17.5%


     
    		 % of Net Sales
    Six Months Ended    		  
    		 
     
    		 August 4,
    2013    		 July 29,
    2012    		 Basis Point
    Increase (Decrease)    		 

    Net Sales

    		  100.0% 100.0% — 

    Gross Profit

    		  29.1  28.7  40 

    Operating expenses:

    		          

    Selling, general and administrative

    		  20.6  20.7  (10)

    Depreciation and amortization

    		  2.7  4.3  (160)

    Total operating expenses

    		  23.3  25.0  (170)

    Operating Income

    		  5.8  3.7  210 

    Interest expense

    		  6.7  8.3  (160)

    Loss on extinguishment & modification of debt

    		  2.0  5.6  (360)

    Other (income) expense, net

    		  0.5  —  50 

    Income (Loss) from Continuing Operations Before Income Taxes

    		  (3.4) (10.2) 680 

    Provision (benefit) for income taxes

    		  1.3  0.9  40 

    Income (Loss) from Continuing Operations

    		  (4.7) (11.1) 640 

    Income (loss) from discontinued operations, net of tax

    		  —  0.4  (40)

    Net Income (Loss)

    		  (4.7) (10.7) 600 

    Non-GAAP financial data:

    		          

    Adjusted EBITDA

    		  8.8  8.3  50 

    Table of Contents

    Six Months Ended August 4, 2013 Compared to Six Months Ended July 29, 2012

    Highlights

            

        Three Months Ended  Percentage
    Increase
    (Decrease)    		  Nine Months Ended  Percentage
    Increase
    (Decrease)    		 
    Dollars in millions  October 28,
    2012    		  October 30,
    2011    		   October 28,
    2012    		  October 30,
    2011    		  

    Net Sales

    		  $2,146   $1,893    13.4   $6,041   $5,376    12.4  

    Gross Profit

    		   616    535    15.1    1,733    1,528    13.4  

    Operating expenses:

    		       

    Selling, general and administrative

    		   418    389    7.5    1,223    1,144    6.9  

    Depreciation and amortization

    		   84    81    3.7    250    245    2.0  
      

     

     

    		  

     

     

    		   

     

     

    		  

     

     

    		  

    Total operating expenses

    		   502    470    6.8    1,473    1,389    6.0  

    Operating Income

    		   114    65    75.4    260    139    87.1  

    Interest expense

    		   165    160    3.1    489    477    2.5  

    Loss on extinguishment of debt

    		   —      —      —      220    —      *  

    Other (income) expense, net

    		   —      —      —      —      (1)   *  
      

     

     

    		  

     

     

    		   

     

     

    		  

     

     

    		  

    Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

    		   (51)   (95)   (46.3)   (449)   (337)   33.2  

    Provision (benefit) for income taxes

    		   2    24    (91.7)   36    59    (39.0) 
      

     

     

    		  

     

     

    		   

     

     

    		  

     

     

    		  

    Income (Loss) from Continuing Operations

    		   (53)   (119)   (55.5)   (485)   (396)   22.5  

    Income (loss) from discontinued operations, net of tax

    		   3    14    (78.6)   19    26    (26.9) 
      

     

     

    		  

     

     

    		   

     

     

    		  

     

     

    		  

    Net Income (Loss)

    		  $(50)  $(105)   (52.4)  $(466)  $(370)   25.9  
      

     

     

    		  

     

     

    		   

     

     

    		  

     

     

    		  

    Non-GAAP financial data:

    		       

    EBITDA(a)

    		  $199   $147    35.4   $292   $387    (24.5) 

    Adjusted EBITDA(a)

    		  $204   $155    31.6   $529   $406    30.3  

       % of Net Sales  Basis  Point
    Increase
    (Decrease)    		  % of Net Sales  Basis  Point
    Increase
    (Decrease)    		 
       Three Months Ended   Nine Months Ended  
       October 28,
    2012    		  October 30,
    2011    		   October 28,
    2012    		  October 30,
    2011    		  

    Net Sales

    		   100.0%   100.0%   —      100.0%   100.0%   —    

    Gross Profit

    		   28.7    28.3    40    28.7    28.4    30  

    Operating expenses:

    		       

    Selling, general and administrative

    		   19.5    20.5    (100)   20.2    21.3    (110) 

    Depreciation and amortization

    		   3.9    4.3    (40)   4.2    4.5    (30) 

    Total operating expenses

    		   23.4    24.8    (140)   24.4    25.8    (140) 

    Operating Income

    		   5.3    3.5    180    4.3    2.6    170  

    Interest expense

    		   7.7    8.5    (80)   8.1    8.9    (80) 

    Loss on extinguishment of debt

    		   —      —      —      3.6    —      *  

    Other (income) expense, net

    		   —      —      —      —      —      *  

    Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

    		   (2.4)   (5.0)   (260)   (7.4)   (6.3)   (110) 

    Provision (benefit) for income taxes

    		   0.1    1.3    (120)   0.6    1.1    (50) 

    Income (Loss) from Continuing Operations

    		   (2.5)   (6.3)   380    (8.0)   (7.4)   (60) 

    Income (loss) from discontinued operations, net of tax

    		   0.1    0.7    (60)   0.3    0.5    (20) 

    Net Income (Loss)

    		   (2.4)   (5.6)   320    (7.7)   (6.9)   (80) 

    Non-GAAP financial data:

    		       

    EBITDA(a)

    		   9.3    7.8    150    4.8    7.2    (240) 

    Adjusted EBITDA(a)

    		   9.5    8.2    130    8.8    7.6    120  

    *not meaningful
    (a)For a reconciliation of EBITDA and Adjusted EBITDA to Income (loss) from continuing operations and Net income (loss), see “Summary—Summary Consolidated Financial Data.”

    Index to Financial Statements

    Nine months ended October 28, 2012 compared to nine months ended October 30, 2011

    Highlights

    Net sales in third quarter 2012the first six months of fiscal 2013 increased $253$430 million, or 13.4%11.0%, compared to third quarter 2011. Allthe same period in fiscal 2012. Each of our market sectorsfour reportable segments realized increases in Net sales, led by the Maintenance, Repair & Improvement market sector. During third quarter 2012, our sales initiatives and cost control resulted in an improvement in oursales. Operating income of $49 million, or 75.4%, as compared to third quarter 2011 and an improvement in our third quarter 2012 Adjusted EBITDA of $49 million, or 31.6%, as compared to third quarter 2011. As of October 28, 2012, our available liquidity was $982 million.

    Our increases in Net Sales and Adjusted EBITDA were achieved despite the continued weak economy and construction markets. However, single-family housing starts are projected to increase by a 20% to 30% compound annual rate from 2011 to 2014. A compound annual growth rate of between 6% and 13% is forecasted for non-residential construction from 2011 to 2014.

    Net sales

    Net sales in third quarter 2012 increased $253 million, or 13.4%, compared to third quarter 2011 and $665 million, or 12.4%, in the first ninesix months of fiscal 20122013 increased $104 million, or 71.2%, as compared to the same period in fiscal 2011.2012. Our growth initiatives and investments in the business resulted in an increase to Adjusted EBITDA of $57 million, or 17.5%, in the first six months of fiscal 2013 as compared to the same period in fiscal 2012.

            During second quarter 2013, Holdings completed an initial public offering of approximately 61 million shares of its common stock, resulting in net proceeds of approximately $1.0 billion, net of underwriters' discounts and commissions and paid and unpaid offering expenses of approximately $17 million. The net proceeds from the offering were used to redeem all $950 million of the outstanding January 2013 Senior Subordinated Notes and pay related transaction fees and other expenses. The remaining net proceeds were used for general corporate purposes. As a result of the debt repayment, HD Supply, Inc. incurred a loss on extinguishment of debt of approximately $44 million. In addition, HD Supply, Inc. amended the Senior ABL Facility, to, among other changes, lower the borrowing margin by 25 basis points and extend the maturity date of the Senior ABL Facility to June 28, 2018 (or the maturity date under the Term Loan Facility, if earlier). In connection with the amendment, HD Supply, Inc. recognized an approximately $3 million loss on extinguishment of debt for the write-off of pro-rata unamortized deferred debt costs for the portion of the amendment considered an extinguishment. As of August 4, 2013, our liquidity was $946 million. (See "Liquidity and Capital Resources—External Financing" for further information.)

    Net sales

            Net sales in the first six months of fiscal 2013 increased $430 million, or 11.0%, as compared to the same period in fiscal 2012.

    Each of our market sectorsreportable segments experienced an increase in Net sales during both the third quarter 2012 andin the first ninesix months of fiscal 20122013 as compared to the same periods ofperiod in fiscal 2011.2012. The Net sales increases were primarily due to salesgrowth initiatives at each of our market sectorsbusinesses and, to a lesser extent, increases in market volume.volume and recent acquisitions. Organic sales growth was 12.4% for third quarter 2012 and 11.8%9.1% in the first ninesix months of fiscal 2012 as compared to the same periods of fiscal 2011.

    Gross profit

    Gross profit increased $81 million, or 15.1%, during third quarter 2012 as compared to third quarter 2011 and $205 million, or 13.4%, in the first nine months of fiscal 20122013 as compared to the same period in fiscal 2011.

    An increase2012. Our fiscal 2012 acquisitions provided $78 million of non-organic sales growth in gross profit in third quarter 2012 and the first ninesix months of fiscal 20122013.

    Gross profit

            Gross profit increased $142 million, or 12.7%, in the first six months of fiscal 2013 as compared to the same periodsperiod in fiscal 2011 was experienced across all of our market sectors.2012.

            The increase in grossGross profit, during both periods was driven by our Facilities Maintenance, Repair & ImprovementWaterworks, and Specialty Construction sectors.White Cap businesses, was primarily due to sales growth from initiatives, market volume and product mix. The first six months of fiscal 2013 included a reduction to Gross profit of $12 million due to the negotiated price reduction under the amended strategic purchase agreement between Crown Bolt and The Home Depot, Inc. ("Home Depot"). While the amendment extended the agreement five years through January 31, 2020, retaining Crown Bolt as the exclusive supplier of certain products to Home Depot, it eliminated the minimum purchase requirement and additionally reduced future pricing.

    Gross profit as a percentage of Net sales (“("gross margin”margin") was 28.7% in third quarter 2012, an increase ofincreased approximately 40 basis points to 29.1% as compared to third quarter 2011. In28.7% in the same period in fiscal 2012. The improvement in gross margin was driven by our Facilities Maintenance, Waterworks and White Cap businesses.


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    Operating expenses

            Operating expenses increased $38 million, or 3.9%, in the first ninesix months of fiscal 2012, gross margin of 28.7% increased approximately 30 basis points2013 as compared to the same period in fiscal 2011. The improvement in both periods was driven by our Maintenance, Repair & Improvement and Specialty Construction sectors.2012.

    Operating expenses

    Operating expenses increased $32 million, or 6.8%, during third quarter 2012 and $84 million, or 6.0%, in the first nine months of fiscal 2012 as compared to the same periods of fiscal 2011.

    Selling, general and administrative expenses increased $29$84 million, or 7.5%, during third quarter 2012 and $79 million, or 6.9%10.4%, in the first ninesix months of fiscal 20122013 as compared to the same periods ofperiod in fiscal 2011, driven by our Maintenance, Repair & Improvement sector.2012. The increases areincrease is primarily as a result of increases in variable expenses due to higher sales volume increases and investmentinvestments in salesgrowth initiatives. Depreciation and amortization expense increased slightly, with an increase of $3decreased $46 million, or 3.7%, in third quarter 2012 and $5 million, or 2.0%27.7%, in the first ninesix months of fiscal 20122013 as compared to the same periodsperiod in fiscal 2012. The decrease is primarily as a result of certain acquisition-related intangible assets, recorded in 2007 when HD Supply separated from Home Depot, becoming fully amortized during fiscal 2011. The increase is due to the timing of investment in property and equipment.

    2012.

    Index to Financial Statements

    Operating expenses as a percentage of Net sales decreased approximately 140170 basis points to 23.4% in the third quarter 2012 and approximately 140 basis points to 24.4%23.3% in the first ninesix months of fiscal 20122013 as compared to the same periods in fiscal 2011.2012. The improvement reflectsdecrease was driven by the lower Depreciation and amortization expense, which resulted in an approximately 160 basis points in the first six months of fiscal 2013. Selling, general and administrative expenses as a percentage of Net sales were relatively flat, decreasing approximately 10 basis points in the first six months of fiscal 2013. The decrease was due the leverage of fixed costs through sales volume increases, primarily at our Specialty Construction market.Waterworks and Power Solutions. These improvements were partially offset by increases in Selling, general and administrative expenses as a percentage of Net sales at Facilities Maintenance and White Cap due to the impact of the investment in sales force additions and greenfields to support continued growth.

    Operating income (loss)

    Operating income increased $49$104 million, or 75.4%, during third quarter 2012 and $121 million, or 87.1%71.2%, in the first ninesix months of fiscal 20122013 as compared to the same periods ofperiod in fiscal 2011. These improvements were2012. The improvement was due to the improvement inhigher Net sales and Gross profit and control over growththe reduction in Operating expenses.Depreciation and amortization expense.

    Operating income as a percentage of Net sales increased approximately 180 basis points in third quarter 2012 and approximately 170210 basis points in the first ninesix months of fiscal 20122013 as compared to the same periods ofin fiscal 2011.2012. The improvement in both periods was driven by our Specialty Construction market sector,the reduction in Depreciation and to a lesser extent, our Maintenance, Repair & Improvementamortization expense and Infrastructure & Energy market sectors.improvements in gross margins.

    Interest expense

    Interest expense increased $5decreased $33 million, or 3.1%, during third quarter 2012 and $12 million, or 2.5%10.2%, in the first ninesix months of fiscal 20122013 as compared to the same periods ofperiod in fiscal 2011.2012. The increasedecrease in third quarter 2012 was primarilyinterest expense is due to an increase ina lower average interest rate on our outstanding borrowings,indebtedness, partially offset by a higher average outstanding balance.

    Loss on extinguishment & modification of debt

            In second quarter 2013, the Company redeemed all $950 million outstanding aggregate principal amount of the January 2013 Senior Subordinated Notes at a redemption price equal to 103% of the principal amount thereof. As a result, in second quarter 2013, the Company incurred a $44 million loss on extinguishment of debt, which includes a $29 million premium payment to redeem the January 2013 Senior Subordinated Notes and approximately $15 million to write off the unamortized deferred debt cost.

            Also in second quarter 2013, the Company amended the Senior ABL Facility to, among other changes, lower amortizationthe borrowing margin by 25 basis points and extend the maturity date of the Senior ABL Facility to June 28, 2018 (or the maturity date under the Term Loan Facility, if earlier). In connection with the amendment, the Company recognized an approximately $3 million loss on extinguishment of debt for the write-off of pro-rata unamortized deferred debt costs for the portion of


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    the amendment considered an extinguishment in accordance with ASC 470-50, Debt-Modifications and no amortizationExtinguishments.

            In first quarter 2013, the Company redeemed all of the THD Guarantee in$889 million outstanding of the second and third quarters13.5% Senior Subordinated Notes due the 2007 Senior Subordinated Notes at redemption price of fiscal 2012 as103.375% of the principal amount thereof. As a result, of the Refinancing Transactions. The increase in interest expense during the first nine months of fiscal 2012 was primarily due to the additional interest expense paid asCompany incurred a result of the shortened call period on the early extinguishment of the 12.0% Senior Notes and an increase in outstanding borrowings, partially offset by lower amortization of deferred debt costs and no amortization of the THD Guarantee in the second and third quarters of fiscal 2012.

    Loss$34 million loss on extinguishment of debt, which includes a $30 million premium payment to redeem the 2007 Senior Subordinated Notes and approximately $4 million to write off the unamortized deferred debt cost.

            In addition, during first quarter 2013, the Company amended the Term Loan Facility to lower the borrowing margin by 275 basis points and replace the hard call provision applicable to optional prepayment of Term Loans thereunder with a soft call option. A portion of the amendment was considered an extinguishment in accordance with ASC 470-50, resulting in a $5 million loss on extinguishment of debt, which included approximately $2 million of fees, $2 million to write off the pro-rata portion of unamortized original issue discount, and $1 million to write off the pro-rata portion of unamortized deferred debt cost. A significant portion of the amendment of the Term Loan Facility was considered a modification in accordance with ASC 470-50. As a result, the Company incurred approximately $1 million in financing fees that were expensed.

    In connection with the refinancing of mostthe senior portion of ourthe Company's debt instrumentsstructure in first quarter 2012, wethe Company recorded a charge of $220 million to Other (income) expense, net in the Consolidated Statement of Operations and Comprehensive Income (Loss) in accordance with U.S. GAAP (ASC 470-50, Debt-Modifications and Extinguishments).ASC 470-50. This charge consisted of $150 million for the premium paid to the holders of the 12.0% Senior Notes dated as of August 30, 2007, as contractually required, upon early extinguishment, $46 million write-off of unamortized deferred debt costs and $24 million to write-offwrite off the remaining unamortized valueasset associated with Home Depot’sDepot's guarantee of the Company’sour payment obligations for principal and interest under the Term Loan under the Existing2007 Senior Secured Credit Facility that was terminated in the refinancing. See “NotesApril 2012 Refinancing Transactions.

            For additional information on the fiscal 2013 transactions, see "Liquidity and Capital Resources—External Financing." For additional information on the fiscal 2012 transactions, see Notes to Audited Consolidated Financial Statements—Note 6—Debt”Debt" and “Notes"Notes to Unaudited Consolidated Financial Statements—Note 6—4—Debt.”"

    Other (income) expense, net

    During first quarter 2011, we recognized a gain        In connection with Holdings' initial public offering, approximately $20 million in related fees and expenses were incurred, including an aggregate fee of $1approximately $18 million relatedpaid to the maturity ofEquity Sponsors to terminate our interest rate swaps.consulting agreements with them. For additional information on this transaction, see "Notes to Unaudited Consolidated Financial Statements—Note 3—Related Parties."

    Provision (benefit) for income taxes

    The provision for income taxes from continuing operations in third quarter 2012the first six months of fiscal 2013 was $2$55 million compared to $24$34 million in third quarter 2011.the first six months of fiscal 2012. The effective rate for continuing operations for third quarter 2012the first six months of 2013 was a provision of 2.9%36.8%, reflecting the impact of increasing the U.S. valuation allowance, increasing the deferred tax liability for U.S. goodwill amortization for tax purposes, and the accrual of income taxes for foreign and certain state jurisdictions. The effective rate for continuing operations for third quarter 2011 was 24.8%, reflecting the impact of increasing the U.S. valuation allowance, increasing the deferred tax liability for U.S. goodwill amortization for tax purposes, additional unrecognized tax benefits and the accrual of income taxes for foreign and certain state jurisdictions.

    Index to Financial Statements

    The provision for income taxes from continuing operations in the first nine months of fiscal 2012 was $36 million compared to $59 million in the first nine months of fiscal 2011. The effective rate for continuing operations for the first ninesix months of fiscal 2012 was a provision of 8.0%8.6%, reflecting the impact of increasing the U.S. valuation allowance, increasing the deferred tax liability for U.S. goodwill amortization for tax purposes, and the accrual of income taxes for foreign and certain state jurisdictions. The tax expense for the first ninesix months of fiscal 2012 was partially offset by an adjustment to the Company’sCompany's valuation allowance as a result of the acquisitionPeachtree acquisition.


    Table of additional deferred tax liabilities in conjunction with the Peachtree acquisition. The effective rate for continuing operations for the first nine months of fiscal 2011 was 17.5%, reflecting the impact of increasing the U.S. valuation allowance, increasing the deferred tax liability for U.S. goodwill amortization for tax purposes, additional unrecognized tax benefits and the accrual of income taxes for foreign and certain state jurisdictions.Contents

    We regularly assess the realization of our net deferred tax assets and the need for any valuation allowance. This assessment requires management to make judgments about the benefits that could be realized from future taxable income, as well as other positive and negative factors influencing the realization of deferred tax assets.

    EBITDA and Adjusted EBITDA

            Adjusted EBITDA increased $52$57 million, or 35.4%, in third quarter 2012 as compared to third quarter 2011 and decreased $95 million in the first nine months of fiscal 2012 as compared to the first nine months of fiscal 2011. The decrease in the year-to-date period is primarily due to the $220 million loss on extinguishment of debt. Adjusted EBITDA, which excludes the loss on extinguishment of debt, increased $49 million, or 31.6%, in third quarter 2012 and $123 million, or 30.3%17.5%, in the first ninesix months of fiscal 20122013 as compared to the same periodsperiod in fiscal 2012. Each of our reportable segments experienced an increase in Adjusted EBITDA in the first six months of fiscal 2011.2013 as compared to the same period in fiscal 2012.

    The increase in Adjusted EBITDA in boththe first six months of fiscal 2013 was primarily due to the increases in Net sales and Gross profit. The first six months of fiscal 2013 included a reduction to Adjusted EBITDA of $12 million due to the negotiated price reduction under the amended strategic purchase agreement between Crown Bolt and Home Depot. Adjusted EBITDA as a percentage of Net sales increased approximately 50 basis points in the first six months of fiscal 2013 as compared to the same period in fiscal 2012, primarily due to gross margin improvements.

    Consolidated Results of Operations—Fiscal Years 2012, 2011, 2010

     
    		  
    		  
    		  
    		 Increase
    (Decrease)    		 
     
    		 Fiscal Year 
     
    		 2012
    vs.
    2011    		 2011
    vs.
    2010    		 
     
    		 2012 2011 2010 
     
    		 (Dollars in millions)
    		  
    		  
    		 

    Net sales

    		 $8,035 $7,028 $6,449  14.3% 9.0%

    Gross profit

    		  2,320  2,014  1,841  15.2  9.4 

    Operating expenses:

    		                

    Selling, general & administrative

    		  1,661  1,532  1,455  8.4  5.3 

    Depreciation & amortization

    		  336  327  341  2.8  (4.1)

    Restructuring

    		  —  —  8  —   *

    Goodwill and other intangible asset impairment

    		  152  —  —   *  *
                  

    Total operating expenses

    		  2,149  1,859  1,804  15.6  3.0 

    Operating income (loss)

    		  171  155  37  10.3   *

    Interest expense

    		  658  639  623  3.0  2.6 

    Loss on extinguishment and modification of debt

    		  709  —  5   *  *

    Other (income) expense, net

    		  —  —  (6) —   *
                  

    Income (loss) from continuing operations before provision (benefit) for income taxes

    		  (1,196) (484) (585)  *  *

    Provision (benefit) for income taxes

    		  3  79  28   *  *
                  

    Income (loss) from continuing operations

    		 $(1,199)$(563)$(613)  *  *
                  

    Non-GAAP Financial Data:

    		                

    Adjusted EBITDA(1)

    		 $683 $508 $411  34.4  23.6 
    *
    not meaningful.

    (1)
    See "—Key Business Metrics" for a reconciliation of Net income (loss), the most directly comparable financial measure under GAAP, to Adjusted EBITDA for the periods presented.

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    		 % of Net sales
    Fiscal Year    		 
     
    		 2012 2011 2010 

    Net sales

    		  100.0% 100.0% 100.0%

    Gross profit

    		  28.9  28.7  28.5 

    Operating expenses:

    		          

    Selling, general & administrative

    		  20.7  21.8  22.6 

    Depreciation & amortization

    		  4.2  4.7  5.2 

    Restructuring

    		  —  —  0.1 

    Goodwill & other intangible asset impairment

    		  1.9  —  — 
            

    Total operating expenses

    		  26.8  26.5  27.9 

    Operating income (loss)

    		  2.1  2.2  0.6 

    Interest expense

    		  8.2  9.1  9.7 

    Loss on extinguishment and modification of debt

    		  8.8  —   *

    Other (income) expense, net

    		  —  —   *
            

    Income (loss) from continuing operations before provision (benefit) for income taxes

    		  (14.9) (6.9) (9.1)

    Provision (benefit) for income taxes

    		   * 1.1  0.4 
            

    Income (loss) from continuing operations

    		  (14.9) (8.0) (9.5)
            

    Non-GAAP Financial Data:

    		          

    Adjusted EBITDA

    		  8.5  7.2  6.4 
    *
    not meaningful.

    Fiscal 2012 Compared to Fiscal 2011

    Highlights

            Net sales in fiscal 2012 increased $1,007 million, or 14.3%, compared to fiscal 2011. Excluding the impact of the 53rd week in fiscal 2012, Net sales increased $859 million, or 12.2%, as compared to fiscal 2011. All of our business units realized increases in Net sales, led by Facilities Maintenance, Waterworks, Power Solutions and White Cap. Operating income increased $16 million, or 10.3%, during fiscal 2012 as compared to fiscal 2011, negatively impacted by the goodwill and other intangible asset impairment and positively impacted by the 53rd week in fiscal 2012. Excluding the impairment and the 53rd week, Operating income increased $154 million, or 99.4%, during fiscal 2012 as compared to fiscal 2011. Adjusted EBITDA increased by $175 million, or 34.4%, in fiscal 2012 as compared to fiscal 2011. In addition, on a 52-week basis, Adjusted EBITDA grew $161 million, or 31.7%, in fiscal 2012 as compared to fiscal 2011. This growth was driven by our sales initiatives, continued focus on margin expansion and cost control, geographic and product line expansions through acquisitions and greenfields, and improvements in the markets we serve.

            During fiscal 2012, Crown Bolt and Home Depot agreed to an amendment and five-year extension of the strategic purchase agreement, which eliminated the minimum purchase requirement beginning with fiscal 2013, but retains Crown Bolt as the exclusive supplier of products purchased by Home Depot from Crown Bolt through January 31, 2020. In addition, we refinanced all of our outstanding indebtedness, extending our closest principal maturity from 2015 to 2017 and lowered our future cash interest payments. We maintain strong liquidity with $981 million available as of February 3, 2013.


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    Net sales

            Net sales increased $1,007 million, or 14.3%, to $8,035 million during fiscal 2012 as compared to fiscal 2011. Excluding the impact of the 53rd week in fiscal 2012, Net sales increased $859 million, or 12.2%, as compared to fiscal 2011.

            For the full year and on a 52-week basis, each of our business units experienced an increase in Net sales during fiscal 2012 as compared to fiscal 2011. The Net sales increases were primarily due to sales initiatives at each of our business units and, to a lesser extent, increases in market volume and acquisitions. Organic sales growth on a 52-week basis was 11.4% for fiscal 2012 as compared to fiscal 2011.

    Gross profit

            Gross profit increased $306 million, or 15.2%, to $2,320 million during fiscal 2012 as compared to fiscal 2011. Excluding the impact of the 53rd week in fiscal 2012, Gross profit increased $264 million, or 13.1%, as compared to fiscal 2011.

            An increase in gross profit in fiscal 2012 was experienced across all of our business units, driven by Facilities Maintenance, Waterworks, Power Solutions and White Cap.

            Gross profit as a percentage of Net sales ("gross margin") increased approximately 20 basis points to 28.9% in fiscal 2012 from 28.7% in fiscal 2011. The improvement was driven by Facilities Maintenance and White Cap.

    Operating expenses

            Operating expenses increased $290 million, or 15.6%, to $2,149 million during fiscal 2012 as compared to fiscal 2011. Excluding the $152 million goodwill and other intangible asset impairment, operating expenses increased $138 million, or 7.4%, during fiscal 2012 as compared to fiscal 2011.

            Selling, general and administrative expenses increased $129 million, or 8.4%, in fiscal 2012 as compared to fiscal 2011. Excluding the impact of the 53rd week, Selling, general and administrative expenses increased $101 million, or 6.6%, in fiscal 2012 as compared to fiscal 2011. This was primarily a result of an increase in variable expenses due to higher sales volumes and investment in sales initiatives. Depreciation and amortization expense increased by $9 million, or 2.8%, in fiscal 2012 as compared to fiscal 2011. The increase was due to investment in property and equipment.

            Operating expenses as a percentage of Net sales increased approximately 30 basis points to 26.8% in fiscal 2012 as compared to fiscal 2011, primarily due to the goodwill and other intangible asset impairment charge. Excluding the impairment charge, Operating expenses as a percentage of Net sales decreased approximately 160 basis points to 24.9% in fiscal 2012 as compared to fiscal 2011. The improvement reflects the leverage of fixed costs through sales volume increases primarily at White Cap and Waterworks, and, to a lesser extent, Facilities Maintenance.

    Operating income (loss)

            Operating income increased $16 million, or 10.3%, during fiscal 2012 as compared to fiscal 2011, negatively impacted by the goodwill and other intangible asset impairment and positively impacted by the 53rd week in fiscal 2012. Excluding the impairment and the 53rd week, Operating income increased $154 million, or 99.4%, during fiscal 2012 as compared to fiscal 2011. The improvement was due to the increase in Net sales and Gross profit and control over the growth in Operating expenses.

            Operating income as a percentage of Net sales decreased approximately 10 basis points in fiscal 2012 as compared to fiscal 2011, impacted negatively by the goodwill and other intangible asset impairment charge. Excluding the impairment charge, Operating income as a percentage of Net sales


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    increased approximately 180 basis points to 4.0% in fiscal 2012 as compared to fiscal 2011, driven by Facilities Maintenance, Waterworks, Power Solutions and White Cap.

    Interest expense

            Interest expense increased $19 million, or 3.0%, during fiscal 2012 as compared to fiscal 2011. The increase was primarily due to the additional interest expense paid as a result of the shortened call period on the early extinguishment of the 12.0% Senior Notes and an increase in outstanding borrowings, partially offset by lower amortization of deferred debt costs, only one fiscal quarter of amortization of the intangible asset value assigned to Home Depot's guarantee of the Company's payment obligations for principal and interest under the 2007 Term Loan under the 2007 Senior Secured Credit Facility ("THD Guarantee") in fiscal 2012, and a reduction in effective interest rates from our refinancing activity.

    Loss on extinguishment and modification of debt

            During fiscal 2012, the Company's debt refinancing and redemption activities resulted in charges of $709 million recorded in accordance with GAAP (ASC 470-50, Debt-Modifications and Extinguishments).

            In connection with the refinancing of most of the Company's debt instruments in the first quarter of fiscal 2012, the Company recorded a charge of $220 million, which consisted of $150 million for the premium paid to the holders of 12.0% Senior Notes, as contractually required, upon early extinguishment, a $46 million write-off of unamortized deferred debt costs and $24 million to write off the remaining unamortized value associated with the THD Guarantee that was terminated in the refinancing.

            In connection with the partial redemption of the 2007 Senior Subordinated Notes in the fourth quarter of fiscal 2012, the Company recorded a charge of $37 million, which included a $31 million premium payment to redeem the 2007 Senior Subordinated Notes and $5 million to write off the pro-rata portion of the unamortized deferred debt costs.

            In connection with the repurchase of the April 2012 Senior Unsecured Notes in the fourth quarter of fiscal 2012, the Company recorded a charge of $452 million, which consisted of a $422 million make-whole premium payment, a $28 million write-off of unamortized original issue discount, and $2 million write-off of unamortized deferred debt costs.

    Provision (benefit) for income taxes

            The provision for income taxes from continuing operations in fiscal 2012 was $3 million compared to $79 million in fiscal 2011. The effective rate for continuing operations for fiscal 2012 was an expense of 0.2%, reflecting the impact of a $442 million increase in the U.S. valuation allowance on deferred tax assets driven by the uncertainty regarding our ability to utilize the NOL for fiscal 2012. The U.S. valuation allowance for fiscal 2012 includes an increase of $44 million related to deferred tax liabilities generated by indefinite life intangibles. The deferred tax liability associated with indefinite life intangibles is not available as a source of taxable income to support the realization of deferred tax assets created by other deductible temporary timing differences. The fiscal 2012 effective tax rate was also impacted by a reduction in deferred tax liabilities of $39 million related to the goodwill impairment for book purposes. The fiscal 2012 goodwill impairment created a deferred tax asset which reduced the fiscal 2012 tax expense by decreasing the deferred tax liability associated with indefinite life intangibles which prior to the impairment could not serve as a source of taxable income.

            In addition, the tax expense for fiscal 2012 was also reduced by an adjustment to the Company's valuation allowance as a result of the acquisition of additional deferred tax liabilities in conjunction


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    with the Peachtree acquisition. The Company recorded a $6 million reduction in income tax expense associated with an adjustment to the Company's valuation allowance as a result of the Peachtree acquisition. The impact to the Company's income tax rate of acquiring Peachtree's net deferred tax liability is recorded in the Company's financial statements outside of Peachtree's purchase accounting. Peachtree's net deferred tax liability of $6 million recorded in purchase accounting is available to the Company as a source of future taxable income to support the realization of the Company's deferred tax assets which results in lowering the Company's valuation allowance and income tax expense by such amount.

            The effective rate for continuing operations for fiscal 2011 was an expense of 16.4%, reflecting the impact of a $259 million increase in the U.S. valuation allowance on deferred tax assets driven by the uncertainty regarding our ability to utilize the NOL for fiscal 2011. The U.S. valuation allowance for fiscal 2011 includes an increase of $58 million related to deferred tax liabilities generated by indefinite lived intangibles. The deferred tax liability associated with indefinite life intangibles is not available as a source of taxable income to support the realization of deferred tax assets created by other deductible temporary timing differences.

            We regularly assess the realization of our net deferred tax assets and the need for any valuation allowance. This assessment requires management to make judgments as to the recoverability of the deferred tax assets and if it is determined that it is "more likely than not" that the benefits will not be realized, valuation allowances are recognized. In evaluating whether it is "more likely than not" that the Company would recover these deferred tax assets, future taxable income, the reversal of existing temporary differences, and tax planning strategies are considered.

    Adjusted EBITDA

            Adjusted EBITDA increased by $175 million, or 34.4%, in fiscal 2012 as compared to fiscal 2011. On a 52-week basis, Adjusted EBITDA increased $161 million, or 31.7%, as compared to fiscal 2011.

            The increase in Adjusted EBITDA in fiscal 2012 is primarily due to the increases in Net sales and Gross profit. Adjusted EBITDA as a percentage of Net sales increased approximately 130 basis points to 9.5%8.5% in third quarter 2012 and approximately 120 basis points to 8.8% in the first nine months of fiscal 2012 as compared to the same periods offiscal 2011, primarily due to the leverage of fixed costs through sales volume increases and efforts to control variable expenses.

    Consolidated results of operations—Fiscal Years 2011, 2010, 2009

       Fiscal Year  Percentage Increase
    (Decrease)    		 
    Dollars in millions  2011  2010  2009  2011 vs.
    2010    		  2010 vs.
    2009    		 

    Net sales

    		  $7,028   $6,449   $6,313    9.0    2.2  

    Gross profit

    		   2,014    1,841    1,768    9.4    4.1  

    Operating expenses:

    		      

    Selling, general & administrative

    		   1,532    1,455    1,453    5.3    0.1  

    Depreciation & amortization

    		   327    341    359    (4.1)   (5.0) 

    Restructuring

    		   —      8    21    *    (61.9) 

    Goodwill impairment

    		   —      —      219    *    *  
      

     

     

    		  

     

     

    		  

     

     

    		   

    Total operating expenses

    		   1,859    1,804    2,052    3.0    (12.1) 

    Operating income (loss)

    		   155    37    (284)   *    *  

    Interest expense

    		   639    623    602    2.6    3.5  

    Other (income) expense, net

    		   —      (1)   (208)   *    *  
      

     

     

    		  

     

     

    		  

     

     

    		   

    Income (loss) from continuing operations before provision (benefit) for income taxes

    		   (484)   (585)   (678)   17.3    13.7  

    Provision (benefit) for income taxes

    		   79    28    (198)   *    *  
      

     

     

    		  

     

     

    		  

     

     

    		   

    Income (loss) from continuing operations

    		  $(563)  $(613)  $(480)   8.2    (27.7) 
      

     

     

    		  

     

     

    		  

     

     

    		   

    Other Financial Data:

    		      

    EBITDA(a)

    		  $484   $381   $288    27.0    32.3  

    Adjusted EBITDA(a)

    		  $508   $411   $343    23.6    19.8  

    Index to Financial Statements

    *not meaningful.
    (a)For a reconciliation of EBITDA and Adjusted EBITDA to Income (loss) from continuing operations and Net income (loss), see “Summary—Summary Consolidated Financial Data.”

       % of Net Sales
    Fiscal Year    		  Basis Point Increase
    (Decrease)    		 
       2011  2010  2009  2011 vs.
    2010    		  2010 vs.
    2009    		 

    Net sales

    		   100.0%   100.0%   100.0%   —      —    

    Gross profit

    		   28.7    28.5    28.0    20    50  

    Operating expenses:

    		      

    Selling, general & administrative

    		   21.8    22.6    23.0    (80)   (40) 

    Depreciation & amortization

    		   4.7    5.2    5.7    (50)   (50) 

    Restructuring

    		   —      0.1    0.3    (10)   (20) 

    Goodwill impairment

    		   —      —      3.5    —      (350) 
      

     

     

    		  

     

     

    		  

     

     

    		   

    Total operating expenses

    		   26.5    27.9    32.5    (140)   (460) 

    Operating income (loss)

    		   2.2    0.6    (4.5)   160    510  

    Interest expense

    		   9.1    9.7    9.5    (60)   20  

    Other (income) expense, net

    		   —      —      (3.3)   —      (330) 
      

     

     

    		  

     

     

    		  

     

     

    		   

    Income (loss) from continuing operations before provision (benefit) for income taxes

    		   (6.9)   (9.1)   (10.7)   220    160  

    Provision (benefit) for income taxes

    		   1.1    0.4    (3.1)   70    350  
      

     

     

    		  

     

     

    		  

     

     

    		   

    Income (loss) from continuing operations

    		   (8.0)   (9.5)   (7.6)   150    (190) 
      

     

     

    		  

     

     

    		  

     

     

    		   

    Other Financial Data:

    		      

    EBITDA(a)

    		   6.9    5.9    4.6    100    130  

    Adjusted EBITDA(a)

    		   7.2    6.4    5.4    80    100  

    *not meaningful.
    (a)For a reconciliation of EBITDA and Adjusted EBITDA to Income (loss) from continuing operations and Net income (loss), see “Summary—Summary Consolidated Financial Data.”

    Fiscal 2011 comparedCompared to fiscalFiscal 2010

    Highlights

    Net sales in fiscal 2011 increased $579 million, or 9.0%, compared to fiscal 2010. All of our market sectors realized increases in Net sales, ledThe increase was driven by the Infrastructure & Energy market sector.Facilities Maintenance, Waterworks, Power Solutions and White Cap. Despite continued weakness in the economy, during fiscal 2011, our sales initiatives, continued focus on margin expansion and cost control resulted in an increase in our Operating income of $118 million and our Adjusted EBITDA of $97 million, or 23.6%, as compared to fiscal 2010.

    Our increases in Net Sales and Adjusted EBITDA were achieved despite the In addition, we continued weak economy and construction markets. Single-family housing starts declined approximately 8% in 2011, but are projected to increase by a 20% to 30% compound annual rate from 2011 to 2014. Non-residential construction declined 2% in 2011 versus 2010. A compound annual growth ratemaintain strong liquidity, with $1.2 billion available as of between 6% and 13% is forecasted from 2011 to 2014.January 29, 2012.

    Net sales

    Net sales increased $579 million, or 9.0%, to $7,028 million during fiscal 2011 as compared to fiscal 2010.

    Each of our market sectors experienced an increase in Net sales during fiscal 2011 as compared to fiscal 2010.        Net sales were positively impacted by sales initiatives, improvements in the energy market, sales initiatives, and commodity prices. Our Infrastructure & Energy market sector experienced the largest growth,The increase was led by Facilities Maintenance with an increase of $276$188 million, or 8.8%11.2%, in fiscal 2011 as compared to fiscal 2010.


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    Index to Financial Statements

    Gross profit

    Gross profit increased $173 million, or 9.4%, to $2,014 million during fiscal 2011 as compared to fiscal 2010.

    An increase in gross profit in fiscal 2011 was experienced across all of our market sectors.        The improvements in gross profit were primarily driven bydue to increased sales volumes.volumes across most of our business units. Gross profit as a percentage of Net sales (“gross margin”)margin increased approximately 20 basis points to 28.7% in fiscal 2011 from 28.5% in fiscal 2010, primarily as a result of product mix.

    Operating expenses

    Operating expenses increased $55 million, or 3.0%, to $1,859 million during fiscal 2011 as compared to fiscal 2010.

    Selling, general and administrative expenses increased at all of our market sectorsfour largest business units during fiscal 2011 as compared to fiscal 2010, primarily as a result of increases in variable expenses due to sales volume increases and, to a lesser extent, an increase in employee benefits related to the restoration of the Company’sCompany's match on the 401(k) defined contribution plan. Selling, general and administrative expenses as a percentage of Net sales declined approximately 80 basis points to 21.8% in fiscal 2011 as compared to fiscal 2010, through the leverage of fixed costs through sales volume increases and efforts to control variable expenses.

    Depreciation and amortization expense declined primarily due to lower capital expenditures in recent years. During fiscal 2010, we recorded $8 million of restructuring charges under the fiscal 2009 restructuring plan.

    Operating income (loss)

    Operating income of $155 million increased $118 million during fiscal 2011 as compared to fiscal 2010, as a result of the improvement in Net sales and Gross profit and control over growth in Operating expenses. Operating income as a percentage of Net sales increased approximately 160 basis points in fiscal 2011 as compared to fiscal 2010. The improvement was driven by our Specialty ConstructionWhite Cap and Maintenance, Repair & Improvement market sectors, and, to a lesser extent, our and Infrastructure & Energy market sector.Facilities Maintenance.

    Interest expense

    Interest expense associated with interest-bearing debt was higher in fiscal 2011 as compared to fiscal 2010. The increase iswas due to an increase in the principal of the 2007 Senior Subordinated Notes due to the paid-in-kind interest capitalization, partially offset by a decline in average debt balances on the Existing2007 ABL Credit Facility and Cash Flow Revolverthe existing cash flow revolving credit facility as compared to fiscal 2010. Interest expense in fiscal 2011 was also positively impacted by a reduction in interest rates on our variable rate debt as compared to fiscal 2010.

    Other (income) expense, netLoss on extinguishment and modification of debt

    During fiscal 2010, we recognized a $6 million gain related to the valuation of our interest rate swaps.

    In connection with the amendment of ourthe Company's debt agreements in first quarterfiscal 2010, we incurred financing fees of approximately $34prepaid $30 million of which approximately $3 million were charged to Other (income) expense, net in the Consolidated Statement of Operations for fiscal 2010 in accordance with U.S. GAAP (Accounting Standards Codification (“ASC”) 470- 50, Debt-Modifications and Extinguishments). The remaining $31 million was deferred and is being amortized to interest expense over the termaggregate principal of the amended agreements. In addition, in connection with the $30 million prepayment2007 Term Loan. As a result of non-extending Term Loans under the Senior Secured Credit Facility in first quarter 2010,this extinguishment, we wrote-off the unamortized pro-rata portion of the THD Guarantee and the unamortized pro-rata portion of the deferred debt costs, resulting in a charge of $2 million. In addition, in connection with the amendment of our debt agreements in fiscal 2010, we incurred $3 million reflected in of financing fees.

    Other (income) expense, net in

            During fiscal 2010, we recognized a $6 million gain related to the Consolidated Statementsvaluation of Operations for fiscal 2010.our interest rate swaps.


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    Index to Financial Statements

    Provision (benefit) for income taxes

    The provision (benefit) for income taxes from continuing operations increased to a $79 million provision in fiscal 2011 from a $28 million provision in fiscal 2010. The effective rate for continuing operations for fiscal 2011 was an expense of 16.4%, mainly driven byreflecting the impact of a $243$259 million increase in the U.S. valuation allowance on deferred tax assets. The U.S. valuation allowance for fiscal 2011 includesincluded an increase of $58 million related to deferred tax liabilities generated by indefinite lived intangibles. The deferred tax liability associated with indefinite life intangibles is not available as a source of taxable income to support the realization of deferred tax assets created by other deductible temporary timing differences. The effective rate for continuing operations for fiscal 2010 was an expense of 4.8% driven by the impact of a $217$228 million increase in the valuation allowance on deferred tax assets.

    We regularly assess the realization of our net deferred tax assets and the need for any valuation allowance. This assessment requires management to make judgments as to the recoverability of the deferred tax assets and if it is determined that it is “more likely than not” that the benefits will not be realized, valuation allowances are recognized. In evaluating whether it is “more likely than not” that the Company would recover these deferred tax assets, future taxable income, the reversal of existing temporary differences, and tax planning strategies are considered.

    EBITDA and Adjusted EBITDA

    EBITDA increased $103 million, or 27.0%, in fiscal 2011 as compared to fiscal 2010 and        Adjusted EBITDA increased $97 million, or 23.6%, in fiscal 2011 as compared to fiscal 2010. The increase in EBITDA and Adjusted EBITDA is primarily due to the increases in Net sales and Gross profit. Adjusted EBITDA as a percentage of Net sales increased approximately 80 basis points to 7.2% in fiscal 2011, primarily due to the leverage of fixed costs through sales volume increases and efforts to control variable expenses.

    Fiscal 2010 compared to fiscal 2009Results of Operations by Reportable Segment

    HighlightsFacilities Maintenance

     
    		 Six Months Ended  
    		 
     
    		 August 4,
    2013    		 July 29,
    2012    		 Increase
    (Decrease)    		 
     
    		 (Dollars in millions)
    		  
    		 

    Net sales

    		 $1,199 $1,068  12.3%

    Operating income

    		 $163 $137  19.0%

    % of Net sales

    		  13.6% 12.8% 80bps 

    Depreciation and amortization

    		  62  57  8.8%
             

    Adjusted EBITDA

    		 $225 $194  16.0%

    % of Net sales

    		  18.8% 18.2% 60bps 


     
    		 Fiscal Year Increase (Decrease) 
     
    		 2012 2011 2010 2012
    vs. 2011    		 2011
    vs. 2010    		 
     
    		 (Dollars in millions)
    		  
    		  
    		 

    Net sales

    		 $2,182 $1,870 $1,682  16.7% 11.2%

    Operating income (loss)

    		 $271 $213 $179  27.2% 19.0%

    % of Net sales

    		  12.4% 11.4% 10.6% 100bps  80bps 

    Depreciation and amortization

    		  118  105  103  12.4% 1.9%
                  

    Adjusted EBITDA

    		 $389 $318 $282  22.3% 12.8%

    % of Net sales

    		  17.8% 17.0% 16.8% 80bps  20bps 

    Six Months Ended August 4, 2013 Compared to Six Months Ended July 29, 2012

    Net Sales

    Net sales in fiscal 2010 increased $136$131 million, or 2.2%12.3%, compared to fiscal 2009, led by increased volume in the Maintenance, Repair & Improvement market sector. For the first time since 2006, the residential construction market, measured by single family housing starts, experienced positive growth in 2010,six months of 7%.

    Our Operating income in fiscal 2010 improved by $321 million, primarily as a result of the non-cash goodwill impairment charge of $219 million recorded in fiscal 2009. As a result of our continued cost reduction and margin expansion efforts, our Operating income in fiscal 2010 increased by $102 million2013 as compared to the same period of fiscal 2009 excluding2012.


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            New growth initiatives contributed approximately $66 million of the goodwill impairment charge. Duringyear-over-year increase. These growth initiatives consist of investments in sales personnel, products and technology, aligned with our customers' multifamily, hospitality, and healthcare industries. The acquisition of Peachtree in June 2012 contributed approximately $30 million of non-organic Net sales. Organic sales growth was 9.5% in the first six months of 2013 as compared to the same period in fiscal 2010, our2012.

    Adjusted EBITDA

            Adjusted EBITDA increased $68$31 million, or 19.8%16.0%, in the first six months of fiscal 2013 as compared to fiscal 2009.

    During fiscal 2010, the Company recorded charges of $8 million for branch closures and consolidations under previously announced plans. During fiscal 2009, the Company recorded charges of $21 million for branch closures, primarily at our Specialty Construction and Infrastructure & Energy market sectors under a plan initiated in the third quartersame period of fiscal 2009. Fiscal 2009 was also negatively impacted by inventory valuation charges of $5 million recorded in the fourth quarter as a result of continued weakness in the construction market. The inventory valuation charges are included in Cost of sales in the Company’s consolidated statement of operations. We continued to benefit from our ongoing corporate cost reduction efforts and branch closure and consolidation activities.2012.

    Net sales

    Net sales increased $136 million, or 2.2%, to $6,449 million during fiscal 2010 as compared to fiscal 2009.

    The increase in Net sales in fiscal 2010 was driven by our Maintenance, Repair & Improvementdue to new growth initiatives and Infrastructure & Energy market sectors,the Peachtree acquisition. This increase was partially offset by a decrease at our Specialty Construction market sector. Net

    Index to Financial Statements

    sales were positively impacted by market volumes, efforts to gain market share, sales initiatives, commodity prices, and approximately $34 million of positive impact from the Canadian exchange rate in fiscal 2010 as compared to fiscal 2009. Partially offsetting these increases was the negative impact of the continuing weakness in the residential construction market and the continued weakening in the commercial construction market.

    Gross profit

    Gross profit increased $73 million, or 4.1%, to $1,841 million during fiscal 2010 as compared to fiscal 2009.

    The increase in gross profit during fiscal 2010 was driven by our Maintenance, Repair & Improvement and Specialty Construction market sectors. Gross profit for our Infrastructure & Energy market sector increased slightly during fiscal 2010 as compared to fiscal 2009.

    Gross profit as a percentage of Net sales (“gross margin”) increased approximately 50 basis points to 28.5% in fiscal 2010 from 28.0% in fiscal 2009. The increases were driven by improved product sourcing, product mix, and a shift in our business mix toward our higher margin Maintenance, Repair & Improvement sector. In addition, the gross margin in fiscal 2009 was negatively impacted by $5 million of inventory valuation charges.

    Operating expenses

    Operating expenses decreased $248 million, or 12.1%, to $1,804 million during fiscal 2010 as compared to fiscal 2009. Operating expenses in fiscal 2009 included a goodwill impairment charge of $219 million. Excluding the goodwill impairment charge in fiscal 2009, Operating expenses decreased $29 million, or 1.6%, in fiscal 2010 as compared to fiscal 2009.

    Selling, general and administrative expenses increased during fiscal 2010 as compared to fiscal 2009 at our Maintenance, Repair & Improvement sector primarily related to software implementation, freight costs and personnel expenses supporting new sales growth initiatives and volume increases. Substantially offsetting these increases were decreases at our Specialty Construction and Infrastructure & Energy sectors, primarily due to personnel reductions, reduced operating costs due to branch closures, and other cost reduction initiatives begun during fiscal 2009.

    Depreciation and amortization expense decreased during fiscal 2010 as compared to fiscal 2009 due to the timing of asset acquisitions and amortization of intangible assets. This decrease was partially offset by an increase in software amortization expense. In addition, Operating expenses included restructuring charges of $8 million and $21 million during fiscal 2010 and fiscal 2009, respectively.

    Operating expenses as a percentage of Net sales decreased significantly in fiscal 2010 as compared to fiscal 2009, primarily due to the goodwill impairment charge in fiscal 2009. Excluding the goodwill impairment charge, Operating expenses as a percentage of Net sales decreased approximately 100 basis points in fiscal 2010 as compared to fiscal 2009. This decrease was driven by personnel reductions, reduced operating costs due to branch closures, and other cost reduction efforts at our Specialty Construction and Infrastructure & Energy sectors, partially offset by an increase in expenses at our Maintenance, Repair & Improvement sector.

    Operating income (loss)

    Operating income of $37 million improved $321 million during fiscal 2010 as compared to an Operating loss of $284 million in fiscal 2009, primarily due to the goodwill impairment charge in fiscal 2009. Excluding the goodwill impairment charge in fiscal 2009, Operating income improved $102 million during fiscal 2010 as compared to fiscal 2009, primarily at our Specialty Construction sector, though all of our sectors experienced improvements in Operating income, excluding goodwill impairments. Operating income as a percentage of Net sales increased significantly in fiscal 2010 as compared fiscal 2009, primarily due to the goodwill impairment charge in fiscal 2009. Excluding the goodwill impairment charge, Operating income as a percentage of Net sales

    Index to Financial Statements

    increased approximately 160 basis points in fiscal 2010 as compared to fiscal 2009. The improvement in fiscal 2010 was driven by our Specialty Construction sector and, to a lesser extent, our Infrastructure & Energy and Maintenance, Repair & Improvement sectors.

    Interest expense

    Interest expense associated with interest-bearing debt was higher in fiscal 2010 as compared to fiscal 2009. The increase in interest expense is primarily due to an increase in the principal of the 2007 Senior Subordinated Notes due to the paid-in-kind interest capitalization and an increase in interest rates as a result of our credit amendments, partially offset by a decline in average debt balances. The lower average debt balances in fiscal 2010 were due to repayments on the Existing ABL Credit Facility, Term Loan, and Revolving Credit Facility, partially offset by the interest capitalization on the 2007 Senior Subordinated Notes.

    Other (income) expense, net

    During fiscal 2010, we recognized a $6 million gain related to the valuationhiring of our interest rate swaps.

    In connection withadditional associates to support the amendment of our debt agreements in first quarter 2010, we incurred financing fees of approximately $34 million, of which approximately $3 million were charged to Other (income) expense, net in the Consolidated Statement of Operations for fiscal 2010 in accordance with U.S. GAAP (ASC 470- 50, Debt-Modificationsexpanding business and Extinguishments). The remaining $31 million was deferreddrive future growth, and is being amortized to interest expense over the term of the amended agreements. In addition, in connection with the first quarter 2010 $30 million prepayment of non-extending Term Loans under the Existing Senior Secured Credit Facility, we wrote-off the unamortized pro-rata portion of the THD Guarantee and the unamortized pro-rata portion of the deferred debt costs, resulting in a charge of $2 million, reflected in Other (income) expense, net in the Consolidated Statements of Operations for fiscal 2010.

    During first quarter 2009, we repurchased $252 million principal amount, plus accrued interest of $15 million, of the 2007 Senior Subordinated Notes for $62 million. As a result, we recognized a $200 million pre-tax gain for the extinguishment of this portion of the 2007 Senior Subordinated Notes, net of the write-off of unamortized deferred debt issuance costs. In addition, we recognized an $11 million gain in fiscal 2009 related to the valuation of our interest rate swaps.

    Provision (benefit) for income taxes

    The provision (benefit) for income taxes from continuing operations decreased to a $28 million provision in fiscal 2010 from a $198 million benefit in fiscal 2009. The effective rate for continuing operations for fiscal 2010 was an expense of 4.8%,by other variable expenses driven by the impact of a $217 million increase in the valuation allowance on deferred tax assets. The effective rate for continuing operations for fiscal 2009 was a benefit of 29.2%, driven by the impact of the goodwill impairment.volume increase.

    EBITDA and Adjusted EBITDA

    EBITDA increased $93 million, or 32.3%, in fiscal 2010 as compared to fiscal 2009 and Adjusted EBITDA increased $68 million, or 19.8%, in fiscal 2010 as compared to fiscal 2009. The increase in EBITDA and Adjusted EBITDA is primarily due to the increases in Net sales and Gross profit. Fiscal 2009 EBITDA was negatively affected by the $219 million goodwill impairment, offset by the $200 million gain on debt extinguishment, net of the write-off of unamortized deferred debt issuance costs.        Adjusted EBITDA as a percentage of Net sales increased approximately 10060 basis points in the first six months of fiscal 2013 as compared to the same period of fiscal 2012. The improvement in the first six months of fiscal 2013 included gross margin expansions of approximately 90 basis points, which were partially offset by an increase in Selling, general and administrative expenses as a percentage of Net sales due to the impact of the investment in sales force additions and the Peachtree acquisition.

    Fiscal 2012 Compared to Fiscal 2011

    Net sales

            Net sales increased $312 million, or 16.7%, during fiscal 2012 as compared to fiscal 2011. Excluding the impact of the 53rd week in fiscal 2012, Net sales increased $271 million, or 14.5%, as compared to fiscal 2011.

            New sales initiatives contributed approximately $110 million of the year-over-year increase. These sales initiatives consist of investments in sales personnel, products and technology, aligned with our customers' multifamily, hospitality, and healthcare industries. Net sales were also positively impacted by improving market conditions in the multifamily and hospitality markets and approximately $40 million from the Peachtree acquisition in June 2012. Organic sales growth on a 52-week basis was 12.4% in fiscal 2012 as compared to fiscal 2011.

    Adjusted EBITDA

            Adjusted EBITDA increased $71 million, or 22.3%, during fiscal 2012 as compared to fiscal 2011. Excluding the impact of the 53rd week in fiscal 2012, Adjusted EBITDA increased $63 million, or 19.8%, as compared to fiscal 2011.

            The increase was due to sales volume, new sales initiatives, and the Peachtree acquisition. This increase was partially offset by increased Selling, general and administrative expense related to the hiring of additional associates to support the expanding business and drive future growth.

            Adjusted EBITDA as a percentage of Net sales increased approximately 80 basis points to 6.4%17.8% in fiscal 2012 as compared to fiscal 2011. The increase was due to expansion of gross margins of approximately 50 basis points and the leverage of fixed costs through sales volume increases of approximately 20 basis points, including the impact of the investment in sales force additions.


    Table of Contents

    Fiscal 2011 Compared to Fiscal 2010

    Net sales

            Net sales increased $188 million, or 11.2%, to $1,870 million during fiscal 2011 as compared to fiscal 2010.

            New sales initiatives, primarily in the multifamily, hospitality, and healthcare markets, contributed approximately $120 million of the year-over-year increase. In addition, Net sales were positively impacted by favorable market conditions in the multifamily and hospitality markets.

    Adjusted EBITDA

            Adjusted EBITDA increased $36 million, or 12.8%, during fiscal 2011 as compared to fiscal 2010.

            The increase was due to volume increases and new sales initiatives, partially offset by increased Selling, general and administrative expense, primarily $31 million of personnel costs related to increasing sales volume and new initiatives. Also, contributing to the increased Selling, general and administrative expenses were increased average fuel prices and the reinstatement of the Company's 401(k) match.

            Adjusted EBITDA as a percentage of Net sales increased approximately 20 basis points to 17.0% in fiscal 2011 as compared to fiscal 2010, primarily due to the leverage of fixed costs through sales volume increases, and efforts to control variable expenses.

    partially offset by the investment in new sales initiatives.

    Waterworks

     
    		 Six Months Ended  
    		 
     
    		 August 4,
    2013    		 July 29,
    2012    		 Increase
    (Decrease)    		 
     
    		 (Dollars in millions)
    		  
    		 

    Net sales

    		 $1,124 $988  13.8%

    Operating income

    		 $81 $15   *

    % of Net sales

    		  7.2% 1.5% 570bps 

    Depreciation and amortization

    		  7  52  (86.5)%
             

    Adjusted EBITDA

    		 $88 $67  31.3%

    % of Net sales

    		  7.8% 6.8% 100bps 
    *
    not meaningful

     
    		 Fiscal Year Increase (Decrease) 
     
    		 2012 2011 2010 2012
    vs. 2011    		 2011
    vs. 2010    		 
     
    		 (Dollars in millions)
    		  
    		  
    		 

    Net sales

    		 $2,028 $1,772 $1,659  14.4% 6.8%

    Operating income (loss)

    		 $31 $12 $(6) 158.3%  *

    % of Net sales

    		  1.5% 0.7% (0.4)% 80bps  110bps 

    Depreciation and amortization

    		  106  100  99  6.0% 1.0%

    Restructuring

    		  —  —  1  —   *
                  

    Adjusted EBITDA

    		 $137 $112 $94  22.3% 19.1%

    % of Net sales

    		  6.8% 6.3% 5.7% 50bps  60bps 
    *
    not meaningful.

    Index to Financial Statements

    ResultsTable of operations by market sectorContents

    Infrastructure & Energy

       Nine Months
    Ended    		  Increase
    (Decrease)    		 
    Dollars in millions  October 28,
    2012    		  October 30,
    2011    		  

    Net sales

    		  $2,864   $2,611    9.7% 

    Operating income

    		  $66   $41    61% 

    % of Net sales

    		   2.3%   1.6%   70 bps 

    Depreciation & amortization

    		   97    93    4.3% 
      

     

     

    		  

     

     

    		  

    Adjusted EBITDA

    		  $163   $134    21.6% 

    % of Net sales

    		   5.7%   5.1%   60 bps 

          Increase
    (Decrease)    		 
       Fiscal Year  2011
    vs. 2010    		  2010
    vs. 2009    		 
    Dollars in millions  2011  2010  2009   

    Net sales

    		  $3,396   $3,120   $3,060    8.8%   2.0% 

    Operating income (loss)

    		  $38   $19   $(181)   100.0%   *  

    % of Net sales

    		   1.1%   0.6%   (5.9)%   50 bps   650 bps 

    Depreciation and amortization

    		   124    123    124    0.8%   (0.8)% 

    Restructuring

    		   —      1    7    *    *  

    Goodwill impairment

    		   —      —      188    —      *  
      

     

     

    		  

     

     

    		  

     

     

    		   

    Adjusted EBITDA

    		  $162   $143   $138    13.3%   3.6% 

    % of Net sales

    		   4.8%   4.6%   4.5%   20 bps   10 bps 

    *not meaningful.

    Nine months ended October 28,Six Months Ended August 4, 2013 Compared to Six Months Ended July 29, 2012 compared to nine months ended October 30, 2011

    Net Sales

    Net sales increased $103$136 million, or 11.2%, in third quarter 2012 as compared to third quarter 2011 and increased $253 million, or 9.7%13.8%, in the first ninesix months of fiscal 20122013 as compared to the same period of fiscal 2011.2012.

    The        Growth initiatives, including fusible plastics, storm drainage, treatment plant initiatives, and greenfields, contributed approximately $88 million of the year-over-year increase in Net sales in third quarter 2012 was driven by increases of $63 million, or 12.8%, at Waterworks and $39 million, or 9.1%, at Power Solutions. The increase in Net sales in the first ninesix months of fiscal 2012 was driven by increases of $168 million, or 12.2%, at Waterworks and $84 million, or 6.8%, at Power Solutions.

    The2013. Net sales increase at Waterworkswere negatively affected by decreases in third quarter 2012 was primarilyprices due to core market-share growth and new sales initiatives. The increase in Net sales at Power Solutions was driven by increasing demand from large investor-owned utilities.

    The Net sales increase at Waterworks in the year-to-date period wascommodity price deflation, primarily due to sales initiatives, increases in commodity prices, primarily polyvinyl chloride (“PVC”)PVC and ductile iron products, and core market-share growth.products. The December 2012 acquisition of Water Products contributed Net sales of approximately $48 million in the first six months of fiscal 2013. Organic sales growth at Waterworks was 12.8% in third quarter 2012 and 11.6%8.9% in the first ninesix months of fiscal 2012 as compared to the same periods of fiscal 2011. The Net sales increase at Power Solutions was driven by increasing demand from large investor-owned utilities and sales initiatives.

    Index to Financial Statements

    Adjusted EBITDA

    Adjusted EBITDA increased $10 million, or 18.9%, during third quarter 2012 as compared to third quarter 2011 and increased $29 million, or 21.6%, in the first nine months of fiscal 20122013 as compared to the same period of fiscal 2011.2012.

    Adjusted EBITDA

            Adjusted EBITDA increased $21 million, or 31.3%, in the first six months of fiscal 2013 as compared to the same period of fiscal 2012.

    The increase in third quarter was drivendue to new growth initiatives and, to a lesser extent, the Water Products acquisition, partially offset by an increase of $5 million at Waterworksincreased Selling, general and $4 million at Power Solutions. The increase in Adjusted EBITDA inadministrative expense, primarily personnel and variable costs due to the year-to-date period was driven by an increase of $18 million at Waterworks and $11 million at Power Solutions. The Adjusted EBITDA increase in both periods across the sector was driven by increasing sales.increased volume.

    Adjusted EBITDA as a percentage of Net sales increased approximately 40 basis points in third quarter 2012 as compared to third quarter 2011 and increased approximately 60100 basis points in the first ninesix months of fiscal 20122013 as compared to the same period of fiscal 2012. The improvement was due to the expansion of gross margins and a decline in Selling, general and administrative expense as a percentage of Net sales. The period included gross margin expansions of approximately 50 basis points primarily driven by growth initiatives, product sourcing and the Water Products acquisition. Selling, general and administrative expense as a percentage of Net sales declined approximately 50 basis points, primarily due to the leverage of fixed costs through sales volume increases.

    Fiscal 2012 Compared to Fiscal 2011

    Net sales

            Net sales increased $256 million, or 14.4%, in fiscal 2012 as compared to fiscal 2011. Excluding the impact of the 53rd week in fiscal 2012, Net sales increased $220 million, or 12.4%, as compared to fiscal 2011.

            Sales initiatives, including meter automation, storm drainage, and greenfields, contributed approximately $124 million of the year-over-year increase. Net sales increased approximately $52 million as a result of increases in prices due to commodity price inflation, primarily PVC and ductile iron products. The fiscal 2012 acquisition of Water Products and the fiscal 2011 acquisition of RAMSCO added a combined $23 million of non-organic Net sales in fiscal 2012. Organic sales growth on a 52-week basis was 11.2% in fiscal 2012 as compared to fiscal 2011. In addition, Waterworks was also positively impacted by the gradual improvement in the residential housing market.

    Adjusted EBITDA

            Adjusted EBITDA increased $25 million, or 22.3%, during fiscal 2012 as compared to fiscal 2011. Excluding the impact of the 53rd week in fiscal 2012, Adjusted EBITDA increased $23 million, or 20.5%, as compared to fiscal 2011.

            The increase was due to volume increases and new sales initiatives, partially offset by increased Selling, general and administrative expense, primarily personnel costs due to the increased volume.


    Table of Contents

            Adjusted EBITDA as a percentage of Net sales increased approximately 50 basis points in both periods was drivenfiscal 2012 as compared to fiscal 2011. Selling, general and administrative expense as a percentage of Net sales declined approximately 110 basis points primarily bydue to the leverage of fixed costs through sales volume increases, efforts to control variable expenses and product mix. In addition, both periods were negatively impactedThis improvement was partially offset by an approximately 60 basis point compression of gross margin compression at Waterworks frommargins due primarily to fluctuating commodity prices.

    Fiscal 2011 comparedCompared to fiscalFiscal 2010

    Net sales

    Net sales increased $276$113 million, or 8.8%6.8%, to $3,396$1,772 million during fiscal 2011 as compared to fiscal 2010.

    The increase        Increases in prices due to commodity price inflation, primarily PVC, contributed approximately $82 million of the year-over-year increase. In addition, the fiscal 2011 acquisition of RAMSCO contributed $30 million to the Net sales increase. Organic sales growth in fiscal 2011 was driven by increases of $163 million, or 11.2%, at Power Solutions and $113 million, or 6.8%, at Waterworks.

    Net sales growth at Power Solutions and Waterworks was primarily due to sales initiatives, increased transmission and substation projects, and positive impacts from fluctuating commodity prices, primarily copper and steel at Power Solutions and primarily PVC at Waterworks. The acquisition of RAMSCO also contributed to the Net sales increase at Waterworks.5.0%.

    Adjusted EBITDA

    Adjusted EBITDA increased $19$18 million, or 13.3%19.1%, during fiscal 2011 as compared to fiscal 2010, driven by an2010.

            The increase of $18 million at Waterworks. Adjusted EBITDA increased $1 million at Power Solutions.

    The Adjusted EBITDA increase at Waterworks was driven by volume increases and positive impacts from fluctuating commodity prices. The positive impacts at Waterworks were partially offset by higher Selling, general and administrative costs, primarily due to variable compensation as a result of higher sales volumes.

    Adjusted EBITDA as a percentage of Net sales increased approximately 2060 basis points in fiscal 2011 as compared to fiscal 2010. The increase was driven primarily by the leverage of fixed costs through sales volume increases and efforts to control variable expenses at Waterworks and expenses.

    Power Solutions partially offset by slight gross margin compression at Power Solutions.

     
    		 Six Months Ended  
    		 
     
    		 August 4,
    2013    		 July 29,
    2012    		 Increase
    (Decrease)    		 
     
    		 (Dollars in millions)
    		  
    		 

    Net sales

    		 $918 $855  7.4%

    Operating income

    		 $24 $22  9.1%

    % of Net sales

    		  2.6% 2.6% — 

    Depreciation and amortization

    		  12  12  — 
             

    Adjusted EBITDA

    		 $36 $34  5.9%

    % of Net sales

    		  3.9% 4.0% (10)bps 


     
    		 Fiscal Year Increase (Decrease) 
     
    		 2012 2011 2010 2012
    vs. 2011    		 2011
    vs. 2010    		 
     
    		 (Dollars in millions)
    		  
    		  
    		 

    Net sales

    		 $1,787 $1,625 $1,462  10.0% 11.1%

    Operating income (loss)

    		 $47 $25 $25  88.0% — 

    % of Net sales

    		  2.6% 1.5% 1.7% 110bps  (20)bps 

    Depreciation and amortization

    		  25  25  24  —  4.2%
                  

    Adjusted EBITDA

    		 $72 $50 $49  44.0% 2.0%

    % of Net sales

    		  4.0% 3.1% 3.4% 90bps  (30)bps 

    Fiscal 2010 compared to fiscal 2009Table of Contents

    Six Months Ended August 4, 2013 Compared to Six Months Ended July 29, 2012

    Net salesSales

    Net sales increased $60$63 million, or 2.0%7.4%, to $3,120 million duringin the first six months of fiscal 20102013 as compared to the same period of fiscal 2009.2012.

    The increase in Net sales in fiscal 2010 was dueattributable to an increase of $53 million, or 3.7%, at Power Solutions and an increase of $7 million, or 0.4%, at Waterworks.

    Index to Financial Statements

    The Netincreasing sales growth at Power Solutions wasvolume with our utilities customers, primarily driven by volume increases due to a gradual improvement in the residential market, partially offset by lower capitaltransmission projects and maintenance spend by utilities in most customer end-markets primarily due to continued weakness in the overall economyproduct and continued focus on working capital management. In addition, Net sales increased at Power Solutions and Waterworks through sales initiatives and positive impacts from fluctuating commodity prices, primarily copper and steel at Power Solutions and primarily PVC at Waterworks.service expansion.

    Adjusted EBITDA

    Adjusted EBITDA increased $5$2 million, or 3.6%5.9%, duringin the first six months of fiscal 20102013 as compared to the same period of fiscal 2009, driven by an2012.

            The increase of $9 million at Power Solutions. These increases were partially offset by a decrease in Adjusted EBITDA at Waterworks of $5 million.

    The Adjusted EBITDA increase at Power Solutions was driven by volume increases in the residential market, partially offset by volume declines in the utilities sector. Waterworks experienced decreases in Selling, general and administrative costs primarily due to volume declinesincreases in Net sales and personnel reductions. Offsetting these positive impacts to Adjusted EBITDA, Waterworks experienced margin compression in fiscal 2010 as a result of competitive pricing pressures and product mix.

    Adjusted EBITDA as a percentage of net sales increased approximately 10 basis points in fiscal 2010 as compared to fiscal 2009. The increase in fiscal 2010 was driven by the leverage of fixed costs through sales volume increases partially offset by margin compression at Waterworks.

    Maintenance, Repair & Improvementand efforts to control expenses.

            

       Nine Months Ended  Increase
    (Decrease)    		 
    Dollars in millions  October 28,
    2012    		  October 30,
    2011    		  

    Net sales

    		  $1,985   $1,745    13.8% 

    Operating income

    		  $241   $195    23.6% 

    % of Net sales

    		   12.1%   11.2%   90 bps 

    Depreciation & amortization

    		   111    107    3.7% 
      

     

     

    		  

     

     

    		  

    Adjusted EBITDA

    		  $352   $302    16.6% 

    % of Net sales

    		   17.7%   17.3%   40 bps 

                Increase (Decrease) 
       Fiscal Year  2011
    vs. 2010    		  2010
    vs. 2009    		 
    Dollars in millions  2011  2010  2009   

    Net sales

    		  $2,292   $2,117   $2,023    8.3%   4.6% 

    Operating income

    		  $254   $205   $156    23.9%   31.4% 

    % of Net sales

    		   11.1%   9.7%   7.7%   140 bps   200 bps 

    Depreciation and amortization

    		   143    146    149    (2.1)%   (2.0)% 

    Restructuring

    		   —      —      1    —      *  

    Goodwill impairment

    		   —      —      30    —      *  
      

     

     

    		  

     

     

    		  

     

     

    		   

    Adjusted EBITDA

    		  $397   $351   $336    13.1%   4.5% 

    % of Net sales

    		   17.3%   16.6%   16.6%   70 bps   —    

    *not meaningful.

    Nine months ended October 28, 2012 compared to nine months ended October 30, 2011

    Net Sales

    Adjusted EBITDA as a percentage of Net sales increased $94 million, or 15.6%, in third quarter 2012 as comparedremained relatively flat decreasing approximately 10 basis points to third quarter 2011 and increased $240 million, or 13.8%,3.9% in the first ninesix months of fiscal 20122013 as compared to the same period of fiscal 2011.

    2012.

    IndexFiscal 2012 Compared to Financial Statements
    Fiscal 2011

    The increases inNet sales

            Net sales in third quarter 2012 and the first nine months of fiscal 2012 were driven by Facilities Maintenance, which had increases of $90increased $162 million, or 18.2%10.0%, and $214 million, or 14.9%, respectively, and, to a lesser extent, Crown Bolt and Repair & Remodel. The Net sales growth at Facilities Maintenance in both periods was primarily due to new initiatives in the multi-family, hospitality, and healthcare markets. Net sales in both periods were also positively impacted by improving market conditions in the hospitality and multi-family markets. Organic sales growth at Facilities Maintenance was 14.5% in third quarter 2012 and 13.2% in the first nine months of fiscal 2012 as compared to the same periods of fiscal 2011. Excluding the impact of the 53rd week in fiscal 2012, Net sales increased $127 million, or 7.8%, as compared to fiscal 2011.

            Approximately $145 million of the year-over-year increase is attributable to increasing sales volume with our utilities customers. Net sales were also positively impacted in fiscal 2012 by volume increases with our construction and industrial customers.

    Adjusted EBITDA

    Adjusted EBITDA increased $24$22 million, or 23.3%44.0%, during third quarter 2012 as compared to third quarter 2011 and increased $50 million, or 16.6%, in the first nine months of fiscal 2012 as compared to the same period of fiscal 2011.

    The increase Excluding the impact of the 53rd week in fiscal 2012, Adjusted EBITDA in both periodsincreased $20 million, or 40.0%, as compared to fiscal 2011.

            The Adjusted EBITDA increase was driven by increases at Facilities Maintenanceincreasing sales and leverage of $25 million in third quarter 2012 and $52 million in the year-to-date period. These increases were due tofixed costs through sales volume increases and new sales initiatives, partially offset by increased Selling, general and administrative expense related to the volume increases and new initiatives.

    increases. Adjusted EBITDA as a percentage of Net sales increased approximately 11090 basis points to 18.2% in third quarter 2012 as compared to third quarter 2011 and increased approximately 40 basis points to 17.7% in the first nine months of fiscal 2012 as compared to the same period offiscal 2011. The increase in both periods was primarily due to the leverage of fixed costs through sales volume increases, partially offset by the investment in new sales initiatives at Facilities Maintenance.

    Fiscal 2011 compared to fiscal 2010

    Net sales

    Net sales increased $175 million, or 8.3%, to $2,292 million during fiscal 2011 as compared to fiscal 2010.

    The increase in Net sales in fiscal 2011 was driven by Facilities Maintenance, which had an increase of $188 million, or 11.2%, and, to a lesser extent, Repair & Remodel, which had an increase of $10 million, or 7.1%. Partially offsetting this sales growth was a decline in Net sales at Crown Bolt.

    The Net sales growth at Facilities Maintenance was driven by new initiatives primarily in the hospitality, multi-family, and healthcare markets. In addition, Net sales were positively impacted by favorable market conditions in the multi-family and hospitality industries. The Net sales growth at Repair & Remodel was driven by volume, primarily as a result of sales initiatives and the opening of a new location in the Los Angeles market during the second quarter of fiscal 2010. The decrease in Crown Bolt’s Net sales was primarily due to the discontinuation of the audio-visual product line at the end of fiscal 2010. During fiscal 2011 and fiscal 2010, Crown Bolt recorded $20 million and $12 million, respectively, in Net sales in accordance with the minimum purchase requirement provisions of the strategic purchase agreement with Home Depot.

    Adjusted EBITDA

    Adjusted EBITDA increased $46 million, or 13.1%, during fiscal 2011 as compared to fiscal 2010.

    The increase in Adjusted EBITDA was driven by Facilities Maintenance and, to a lesser extent, Crown Bolt and Repair & Remodel. The increase at Facilities Maintenance in fiscal 2011 was due to volume increases and new sales initiatives, partially offset by increased Selling, general and administrative expense related to the volume increases and new initiatives. Also, contributing to the increased Selling, general and administrative expenses were increased average fuel prices and the reinstatement of the Company’s 401(k) match.

    Index to Financial Statements

    Adjusted EBITDA as a percentage of Net sales increaseddeclined approximately 7090 basis points, to 17.3% in fiscal 2011 as compared to fiscal 2010, primarily due to the leverage of fixed costs through sales volume increases and efforts to control variable expense at Facilities Maintenance and Repair & Remodel, and gross margin improvements due to product mix at Crown Bolt. These increases were partially offset by investment in sales force additions at Facilities Maintenance and a shift in mix within the sector.expenses.

    Fiscal 2010 compared2011 Compared to fiscal 2009Fiscal 2010

    Net sales

    Net sales increased $94$163 million, or 4.6%11.1%, to $2,117$1,625 million during fiscal 20102011 as compared to fiscal 2009.2010.

    The        Approximately $115 million of the year-over-year increase inis attributable to increasing sales volume with our utilities customers. Net sales growth was primarily due to sales initiatives, increased transmission and substation projects, and increases in fiscal 2010 was driven by Facilities Maintenance, which had an increaseprices due to commodity price inflation, primarily copper and steel.


    Table of $73Contents

    Adjusted EBITDA

            Adjusted EBITDA increased $1 million, or 4.5%. Crown Bolt and Repair & Remodel also had a combined increase in Net sales2.0%, during fiscal 2010 of $21 million, or 5.0%,2011 as compared to fiscal 2009.

    2010. The Net sales growth at Facilities Maintenance was driven by new initiatives primarily in the hospitality, multi-family, and healthcare markets. The Net sales growth at Repair & Remodel was driven by volume, primarily as a result of sales initiatives and the opening of a new location in the Los Angeles market. During fiscal 2010, Crown Bolt recorded $12 million in Net sales in accordance with the minimum purchase requirement provisions of the strategic purchase agreement with Home Depot. Partially offsetting this positive impact to Crown Bolt’s Net sales was a decrease in Net sales due to volume and price decreases.

    Adjusted EBITDA

    Adjusted EBITDA increased $15 million, or 4.5%, during fiscal 2010 as compared to fiscal 2009.

    The increase in Adjusted EBITDA was driven by the $12 million of Net sales recorded at Crown Bolt in accordance with the strategic purchase agreement provisions. In addition, the sector experienced improvements in gross marginis driven by sales initiatives, favorable product mix, and certain one-time costs incurred during fiscal 2009. Partially offsetting these favorable impacts was an increase in Selling, general and administrative costs related to software implementation, freight costs and personnel expenses supporting new sales growth initiatives and volume increases.increases offset by margin compression.

    Adjusted EBITDA as a percentage of Net sales remained flatdecreased approximately 30 basis points in fiscal 20102011 as compared to fiscal 2009.2010. The positive impactsdecrease was driven by an approximately 70 basis point compression of the gross margin increases weremargins, partially offset by an increase in Selling, generalthe leverage of fixed costs through sales volume increases and administrativeefforts to control variable expenses.

    Specialty ConstructionWhite Cap

     
    		 Six Months Ended  
    		 
     
    		 August 4,
    2013    		 July 29,
    2012    		 Increase
    (Decrease)    		 
     
    		 (Dollars in millions)
    		  
    		 

    Net sales

    		 $646 $573  12.7%

    Operating income

    		 $20 $10  100.0%

    % of Net sales

    		  3.1% 1.7% 140bps 

    Depreciation and amortization

    		  18  16  12.5%
             

    Adjusted EBITDA

    		 $38 $26  46.2%

    % of Net sales

    		  5.9% 4.5% 140bps 

     

       Nine Months Ended  Increase
    (Decrease)    		 
    Dollars in millions  October 28,
    2012    		  October 30,
    2011    		  

    Net sales

    		  $1,059   $891    18.9% 

    Operating income (loss)

    		  $20   $(27)   *  

    % of Net sales

    		   1.9%   (3.0)%   490 bps 

    Depreciation & amortization

    		   29    33    12.1% 
      

     

     

    		  

     

     

    		  

    Adjusted EBITDA

    		  $49   $6    *  

    % of Net sales

    		   4.6%   0.7%   390 bps 

     
    		 Fiscal Year Increase (Decrease) 
     
    		 2012 2011 2010 2012
    vs. 2011    		 2011
    vs. 2010    		 
     
    		 (Dollars in millions)
    		  
    		  
    		 

    Net sales

    		 $1,178 $981 $852  20.1% 15.1%

    Operating income (loss)

    		 $24 $(16)$(54)  * 70.4%

    % of Net sales

    		  2.0% (1.6)% (6.3)% 360bps  470bps 

    Depreciation and amortization

    		  32  33  39  (3.0)% (15.4)%

    Restructuring

    		  —  —  5  —   *
                  

    Adjusted EBITDA

    		 $56 $17 $(10)  *  *

    % of Net sales

    		  4.8% 1.7% (1.2)% 310bps  290bps 
    *
    not meaningful.

    IndexSix Months Ended August 4, 2013 Compared to Financial Statements
         Increase (Decrease) 
      Fiscal Year  2011
    vs. 2010    		  2010
    vs. 2009    		 
    Dollars in millions 2011  2010  2009   

    Net sales

    		 $1,171   $1,061   $1,095    10.4%   (3.1)% 

    Operating income (loss)

    		 $(38)  $(84)  $(142)   (54.8)%   (40.8)% 

    % of Net sales

    		  (3.2)%   (7.9)%   (13.0)%   (470) bps   (510) bps 

    Depreciation and amortization

    		  43    51    61    (15.7)%   (16.4)% 

    Restructuring

    		  —      8    13    *    (38.5)% 
     

     

     

    		  

     

     

    		  

     

     

    		   

    Adjusted EBITDA

    		 $5   $(25)  $(68)   *    (63.2)% 

    % of Net sales

    		  0.4%   (2.4)%   (6.2)%   280 bps   (380) bps 

    *not meaningful.

    Nine months ended October 28,Six Months Ended July 29, 2012 compared to nine months ended October 30, 2011

    Net Sales

    Net sales increased $53$73 million, or 16.1%, in third quarter 2012 as compared to third quarter 2011 and increased $168 million, or 18.9%12.7%, in the first ninesix months of fiscal 20122013 as compared to the same period of fiscal 2011.2012.

    The        Growth initiatives contributed approximately $50 million of the year-over-year increase in Net sales in both third quarter 2012 and the first ninesix months of fiscal 20122013, of which approximately half was driven by White Cap, which had an increase of $41 million, or 14.8%our Managed Sales Approach ("MSA"), with the remainder driven by category management, direct marketing and $143 million, or 19.1%, respectively, and, to a lesser extent, CTI. Thegreenfield initiatives. In addition, Net sales growth at White Cap in both periods was primarily due to new sales initiatives. The increase in Net sales at CTI in both periods was primarily due to sales initiatives, improvementswere positively impacted by the gradual improvement in the residential housing market and sales to senior living facilities.market.

    Adjusted EBITDA

    Adjusted EBITDA increased $14$12 million, or 140%, during third quarter 2012 as compared to third quarter 2011 and increased $43 million, or 717%46.2%, in the first ninesix months of fiscal 20122013 as compared to the same period of fiscal 2011.2012.


    Table of Contents

    The improvementincrease in Adjusted EBITDA in both periods was driven by White Cap, and, to a lesser extent, CTI. The improvement at White Cap in both periods was primarily driven by gross profit increases, as a resultgrowth initiatives, market volume, and product mix. This increase was partially offset by increased Selling, general and administrative expense related to the hiring of sales initiatives, improved margin dueadditional associates to mixsupport the expanding business and sourcing initiatives. The improvement at CTI in both periods was primarily driven by sales increases and cost control initiatives.drive future growth.

    Adjusted EBITDA as a percentage of Net sales increased approximately 330140 basis points to 6.3% in third quarter 2012 as compared to third quarter 2011 and increased approximately 390 basis points to 4.6% in the first ninesix months of fiscal 20122013 as compared to the same period of fiscal 2012. The increase was primarily due to gross margin improvements of approximately 180 basis points, driven by sourcing initiatives and product mix. This improvement was partially offset by an increase in Selling, general and administrative expenses as a percentage of Net sales due to the impact of the investment in sales force additions and greenfields to support continued growth in our business.

    Fiscal 2012 Compared to Fiscal 2011

    Net Sales

            Net sales increased $197 million, or 20.1%, during fiscal 2012 as compared to fiscal 2011. Excluding the impact of the 53rd week in fiscal 2012, Net sales increased $176 million, or 17.9%, as compared to fiscal 2011.

            Sales initiatives contributed approximately $130 million of the year-over-year increase driven primarily through our Managed Sales Approach ("MSA"). MSA is a structured approach to drive revenue at a regional level through analysis, tools and sales management. In addition, White Cap was also positively impacted by the gradual improvement in the residential housing market.

    Adjusted EBITDA

            Adjusted EBITDA increased $39 million to $56 million during fiscal 2012 as compared to $17 million in fiscal 2011. Excluding the impact of the 53rd week in fiscal 2012, Adjusted EBITDA increased $38 million as compared to fiscal 2011.

            The increase in Adjusted EBITDA was primarily driven by sales initiatives, product mix and sourcing initiatives.

            Adjusted EBITDA as a percentage of Net sales increased approximately 310 basis points to 4.8% in fiscal 2012 as compared to fiscal 2011, primarily due to improvedan approximately 120 basis point improvement of gross margins and the leverage of fixed costs through sales volume increases at both businesses,increases. Gross margins were favorably impacted by purchase discounts and cost control initiatives at CTI.rebates achieved as a result of higher purchasing volumes.

    Fiscal 2011 comparedCompared to fiscalFiscal 2010

    Net sales

    Net sales increased $110$129 million, or 10.4%15.1%, to $1,171$981 million during fiscal 2011 as compared to fiscal 2010.

    The        Sales initiatives contributed approximately $81 million of the year-over-year increase indriven primarily though our MSA and marketing initiatives. Net sales was drivenwere also positively impacted by a $130$27 million or 15.2%, increase at White Cap, partially offset by a decline in Net sales at CTI. The increase in Net sales at White Cap was driven primarily by sales initiatives and, to a lesser extent, rising commodity prices, primarily steel. The decrease in Net sales during fiscal 2011 at CTI was driven by volume declines in the residential construction market, in part due to the expiration of the U.S. tax incentives for homebuyers in the second quarter of fiscal 2010.

    commodity price inflation, primarily steel.

    Index to Financial Statements

    Adjusted EBITDA

    Adjusted EBITDA improved $30$27 million during fiscal 2011 to $5$17 million compared to a loss of $25$10 million in fiscal 2010.

    The improvement in Adjusted EBITDA was driven by White Cap, and, to a lesser extent, CTI. White Cap’s improvement was primarily driven by gross profit increases as a result of volume and commodity impacts, the leverage of fixed costs through sales volume increases, and efforts to control variable expenses. The improvement in CTI’s Adjusted EBITDA was primarily due to a decrease in Selling, general, and administrative expense, as a result


    Table of personnel reductions, the closure of certain underperforming branches, and efforts to control variable expenses.Contents

    Adjusted EBITDA as a percentage of Net sales improved to 0.4%1.7% in fiscal 2011 from (2.4%)(1.2)% in fiscal 2010, primarily due to the leverage of fixed costs through sales volume increases and efforts to control variable expenses at White Cap and, to a lesser extent, improved gross margins at both businesses and a shift in mix within the sector.

    Fiscal 2010 compared to fiscal 2009

    Net sales

    Net sales decreased $34 million, or 3.1%, to $1,061 million during fiscal 2010 as compared to fiscal 2009.

    White Cap and CTI experienced declines in Net sales of $20 million and $14 million, respectively, in fiscal 2010 as compared to fiscal 2009, which represent declines of 2.3% and 6.4%, respectively. The Net sales decreases were driven by a continued impact of the weakened construction markets as the residential recovery has stalled. Partially offsetting these declines were favorable impacts to Net sales during fiscal 2010 due to rising commodity prices.

    Adjusted EBITDA

    Adjusted EBITDA improved $43 million during fiscal 2010 to a loss of $25 million compared to a loss of $68 million in fiscal 2009.

    Thean approximate 70 basis point improvement in Adjusted EBITDA in fiscal 2010 was driven by a decrease in Selling, general and administrative expenses, primarily due to personnel reductions, reduced operating costs due to branch closures, and other cost reduction initiatives begun during fiscal 2009. In addition, fiscal 2010 Adjusted EBITDA was favorably impacted by gross profit increases, driven by product mix, commodity impacts, and one-time costs incurred during fiscal 2009.

    Adjusted EBITDA as a percentage of Net sales improved approximately 380 basis points in fiscal 2010 as compared to fiscal 2009. The improvement was primarily due to improved gross margins and significant reductions in fixed costs across the sector.margins.

    Liquidity and capital resourcesCapital Resources

            Our operations are conducted almost entirely through our subsidiaries and our ability to generate cash to meet our debt service obligations or to pay dividends is highly dependent on the earnings and the receipt of funds from our subsidiaries via dividends or intercompany loans.

    Sources and uses of cash

    Our sources of funds, primarily from operations, cash on-hand, and, to the extent necessary, from readily available external financing arrangements are sufficient to meet all current obligations on a timely basis. We believe that these sources of funds will be sufficient to meet the operating needs of our business for at least the next twelve months.

            On July 2, 2013, Holdings completed an initial public offering of its common stock, resulting in net proceeds of approximately $1,038 million, net of underwriters' discounts and commissions and paid and unpaid offering expenses of approximately $17 million (including the payment to the Equity Sponsors of a transaction fee of approximately $11 million). The net proceeds from Holdings' initial public offering were used to (1) redeem all $950 million of outstanding January 2013 Senior Subordinated Notes, including the payment of a $29 million premium to redeem the notes and $29 million of accrued interest through the redemption date, and (2) pay related fees and expenses, including the payment to the Equity Sponsors of an aggregate fee to terminate the consulting agreements of approximately $18 million. The remaining net proceeds were used for general corporate purposes.

    During the first ninesix months of fiscal 2013, the Company's use of cash was primarily driven by the payment of interest on debt and net debt repayments, substantially offset by the net proceeds of Holdings' initial public offering and the receipt of cash from the sale of short-term investments of cash restricted for the extinguishment of the 2007 Senior Subordinated Notes. This net use of cash was partially offset by cash receipts from operations.

            During fiscal 2012, our sources of funds were primarily due to cash receipts from operations, net debt borrowings, and proceeds from the sale of IPVF. These sources of cash were offset by the costs associated with the debt refinancing,refinancings, investment of cash restricted for debt repayment, payment of interest on debt, and the acquisition of Peachtree Business Products LLC.

    acquisitions.

    Index to Financial Statements

    As of October 28, 2012,August 4, 2013, our combined liquidity of approximately $982$946 million was comprised of $158$109 million in cash and cash equivalents and $824$837 million of additional available borrowings (excluding $51 million of borrowings on available cash balances) under our Senior ABL Facility, based on qualifying inventory and receivables.


    Although we believe that our end-markets will improve and enable us to generate higher earnings and cash flows in future years, even in the absenceTable of this expected improvement, we believe our current liquidity and earnings are sufficient to meet all of our operating needs and financial obligations through 2014. The chart below illustrates how our liquidity changes based on historical Adjusted EBITDA and capital expenditures, and our anticipated debt service requirements (amounts in millions).Contents

            

       Three  Months
    Ended
    January
    2013    		   Fiscal Year 
         2013   2014 

    Starting Liquidity(1)

    		  $982    $1,031    $1,037  

    Add:

    		      

    Adjusted EBITDA(2)

    		   102     631     631  

    Subtract:

    		      

    Cash Interest Payments(3)

    		   22     500     500  

    Capital Expenditures(2)

    		   29     115     115  

    Debt Principal Payments(4)

    		   2     10     10  
      

     

     

    		   

     

     

    		   

     

     

    		 

    Ending Liquidity

    		  $1,031    $1,037    $1,043  
      

     

     

    		   

     

     

    		   

     

     

    		 

    (1)Starting liquidity for the three months ended January 2013 is equal to our ending liquidity at October 28, 2012.
    (2)Adjusted EBITDA for the three months ended January 2013 is equal to the Adjusted EBITDA for the fourth quarter of fiscal 2011. Capital Expenditures for the three months ended January 2013 are equal to 25% of the fiscal 2011 Capital Expenditures. Adjusted EBITDA for fiscal 2013 and fiscal 2014 are equal to the Adjusted EBITDA for the twelve months ended October 28, 2012. Capital Expenditures for fiscal 2013 and fiscal 2014 are equal to the fiscal 2011 Capital Expenditures. For a reconciliation of the nine months ended October 28, 2012 and the three months ended January 29, 2012 Adjusted EBITDA to Net income (loss), the most directly comparable financial measure under U.S. GAAP, see “Selected Historical Financial Data.” By including these assumptions in this report we do not intend to make any projection regarding future Adjusted EBITDA or capital expenditure levels. Actual results in the future may differ materially from historic levels.
    (3)Our cash interest payments for the three months ended January 2013 are expected to be approximately $22 million. This excludes the interest paid on November 8, 2012, for the partial redemption of the 2007 Senior Subordinated Notes as the cash used for this payment was restricted as of October 28, 2012; therefore, was not included in our starting liquidity. Our cash interest payments for fiscal 2013 and fiscal 2014 are expected to be approximately $500 million.
    (4)Represents required principal payments on our Term Loan due October 2017. This does not include the principal and premium paid on November 8, 2012, for the partial redemption of the 2007 Senior Subordinated Notes as the cash used for these payments was restricted as of October 28, 2012; therefore, was not included in our starting liquidity.

    Index to Financial Statements

    Information about the Company’sCompany's cash flows, by category, is presented in the Consolidated Statements of Cash Flows and is summarized as follows:

    Net cash provided by (used for):

       Nine Months Ended  Increase
    (Decrease)    		 
    Amounts in millions  October 28, 2012  October 30, 2011  
         

    Operating activities

    		  $(327)  $(264)  $(63) 

    Investing activities

    		   (777)   —      (777) 

    Financing activities

    		   1,151    111    1,040  
     
    		 Six Months Ended  
    		  
    		  
    		 
     
    		 Fiscal Year 
     
    		 August 4,
    2013    		 July 29,
    2012    		 
     
    		 2012 2011 2010 
     
    		 (Dollars in millions)
    		 

    Operating activities

    		 $(577)$(324)$(681)$(165)$551 

    Investing activities

    		  879  215  (800) (6) (45)

    Financing activities

    		  (333) 88  1,511  (10) (755)

    Working capital

            Working capital, excluding cash and cash equivalents, was $1,172 million as of August 4, 2013, increasing approximately $193 million as compared to $979 million as of July 29, 2012. The increase was primarily driven by an increase in Receivables and Inventory reflecting higher sales volumes, partially offset by an increase in Accounts Payable and a decrease in deferred tax assets.

    Working capital, excluding cash and cash equivalents, increased to $1,121$979 million as of October 28,the end of fiscal 2012 from $1,081$901 million as of October 30,the end of fiscal 2011. During March 2012, we sold our IPVF business. Excluding the disposition impact, working capital increased approximately $350$410 million, primarily due to an increase in Receivablesreceivables and Inventoryinventory reflecting higher sales volumes and a decrease in accrued interest, offset by an increase in Accounts Payable and a decrease in Deferred tax assets.

    Working capital, excluding cash and cash equivalents, increased to $901 million as of the end of fiscal 2011 from $884 million as of the end of fiscal 2010. The increase was primarily driven by an increase in receivables and inventory as well as a decrease to accounts payable due to the timing of inventory purchases, substantially offset by the working capital decrease for the sale of businesses and increases in accrued interest and the current maturities of long-term debt.

    Working capital, excluding cash and cash equivalents, decreased to $884 million as of the end of fiscal 2010 from $1,386 million as of the end of fiscal 2009. The decrease was primarily driven by the collection of an income tax receivable of $220 million and an increase to accounts payable of $321 million due to the timing of inventory purchases.

    Operating activities

    Cash flow from operating activities in the first ninesix months of fiscal 2013 was a use of $577 million compared with cash used by operating activities of $324 million in the first six months of fiscal 2012. The use of cash in the first six months of fiscal 2013 was driven by the payment of $364 million of original issue discounts and PIK interest related to the extinguishment of the 2007 Senior Subordinated Notes and a portion of the Term Loans. Additionally, cash interest paid in the first six months of fiscal 2013 unrelated to extinguishments was $304 million, compared to $351 million in the first six months of fiscal 2012. Excluding the cash interest payments, including PIK interest and original issue discounts paid, in both periods, cash flow from operating activities increased $64 million in the first six months of fiscal 2013 as compared to the first six months of fiscal 2012.

            Cash flow from operating activities in fiscal 2012 was a use of $327$681 million compared with a use of $264$165 million in the first nine months of fiscal 2011. Cash interest paid during the first nine monthsThe use of cash in fiscal 2012 was $576driven by the payment of $502 million of original issue discounts and PIK interest related to the extinguishment of all of the April 2012 Senior Unsecured Notes and $930 million of the 2007 Senior Subordinated Notes. Additionally, cash interest paid in fiscal 2012 unrelated to extinguishments was $621 million compared to $340$356 million in first nine months of fiscal 2011. Excluding the cash interest payments in both periods, cash flow from operating activities increased $173$251 million in the first nine months of fiscal 2012 as compared to the same period of fiscal 2011. The increase was primarily due the timing of payments for the purchase of inventory and theto an increase in sales volume,volumes, partially offset by an increase in working capital, excluding the impact of dispositions, to support the increasing sales volumes.


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    Cash flow from operating activities in fiscal 2011 was a use of $165 million compared with cash flowsflow provided by operating activities of $551 million in fiscal 2010. The decrease was primarily due to the timing of payments for the purchase of inventory and the receipt of an IRS refund in fiscal 2010 of $220 million.

    Cash flow from operatingInvesting activities in

            During the first six months of fiscal 20102013, cash provided by investing activities was $551$879 million, compared with $69 million in fiscal 2009. The increase was primarily due to the timingproceeds of payments$936 million from the sale of short-term investments of cash restricted for the purchaseextinguishment of inventory and the receipt of an IRS refund of $220 million in fiscal 2010. These increases were2007 Senior Subordinated Notes, partially offset by the receipt$64 million of an IRS refund in fiscal 2009 of $134 million.capital expenditures.

    Investing activities

    During the first ninesix months of fiscal 2012, cash provided by investing activities was $215 million, primarily driven by $464 million of proceeds from the sale of a business, net, offset by $196 million payments for a business acquisition and $52 million in capital expenditures.

            During fiscal 2012, cash used in investing activities was $777$800 million, primarily driven by the net investment of $985$936 million of cash proceeds from the sale of the October 2012 Senior Notes, $196debt issuances, $248 million payments for a business acquisitionacquisitions and $80$115 million in capital expenditures. These payments were partially offset by $481 million of net proceeds from the sale of a business. During the first nine months of fiscal

    businesses.

    Index to Financial Statements

    2011, cash provided by investing activities was zero, driven by $98 million of proceeds from the sale of businesses and $4 million of proceeds from the sale of property and equipment, offset by $58 million in capital expenditures, $21 million in business acquisition payments, and $23 million in investments.

    During fiscal 2011, cash used in investing activities was $6 million, primarily driven by $115 million of capital expenditures and the $21 million acquisition of RAMSCO, partially offset by $128 million of proceeds from the sale of businesses. During fiscal 2011, capital expenditures increased $66 million as compared to fiscal 2010, driven by the purchase of open-ended vehicle leases and reflecting our commitment to invest in our business through information technology, greenfield expansion and other strategic initiatives.

    During fiscal 2010, cash used in investing activities was $45 million, primarily driven by $49 million of capital expenditures.

    Financing activities

    During the first six months of fiscal 2009,2013, cash used in investingfinancing activities was $41$333 million, primarily driven by $58due to net debt payments of $1,340 million, including an aggregate $59 million in contractually required premiums paid to extinguish the 2007 Senior Subordinated Notes and January 2013 Senior Subordinated Notes prior to maturity, and payments of capital expenditures$34 million for debt issuance and the $16 million acquisition of ORCO, partiallymodification costs. This was substantially offset by the receipt$1,040 million in net proceeds from Holdings' initial public offering of $22 million for the final working capital adjustment related to the Transactions.Holdings' common stock.

    Financing activities

    During the first ninesix months of fiscal 2012, cash provided by financing activities was $1,151$88 million, due to net debt borrowings of $1,245$161 million, offset by payments of $73 million for debt issuance costs.

            During fiscal 2012, cash provided by financing activities was $1,511 million, due to net debt borrowings of $1,641 million, which includes a $150the financing of $603 million of contractually required premiumpremiums paid to extinguish the 12.0% Senior Notes, the 2007 Senior Subordinated Notes, and the April 2012 Senior Unsecured Notes prior to maturity, offset by payments of $95$132 million for debt issuance costs. During the first nine months of fiscal 2011, cash provided by financing activities was $111 million, due to net debt borrowings.

    During fiscal 2011, cash used in financing activities was $10 million, due entirely to net debt repayments.

    During fiscal 2010, cash used in financing activities was $755 million, due to net debt repayments of $722 million, including the prepayment on the 2007 Term Loan of $30 million, and $34 million in financing fees related to the amendment of our credit agreements.


    During fiscal 2009, cash used in financing activities was $263 million, as a resultTable of net debt repayments, including the repurchase of $252 million principal amount of the 2007 Senior Subordinated Notes for $62 million.Contents

    External Financing

    As of October 28, 2012,August 4, 2013, we had an aggregate principal amount of $6.9$5.7 billion of outstanding debt, net of unamortized discounts of $21 million and including unamortized premiums of $34$19 million, and an additional $867$888 million of additional available borrowings under our Senior ABL Facility (after giving effect to the borrowing base limitations and approximately $61$56 million in letters of credit issued and including $43$51 million of borrowings available on qualifying cash balances). In addition, as of October 28, 2012, we had $985 million of cash restricted for the redemption of debt. From time to time, depending on market conditions and other factors, we may seek to repay, redeem, repurchase or otherwise acquire or refinance a portion or all of our indebtedness. We may make such repurchases in privately negotiated transactions or otherwise.

            On August 1, 2013, HD Supply, Inc. redeemed all $950 million outstanding aggregate principal amount of the January 2013 Senior Subordinated Notes at a redemption price equal to 103% of the principal amount thereof and paid accrued and unpaid interest thereon through the redemption date. As a result, in second quarter 2013, HD Supply, Inc. incurred a $44 million loss on extinguishment of debt, which included a $29 million premium payment to redeem the January 2013 Senior Subordinated Notes and approximately $15 million to write off the unamortized deferred debt cost in accordance with ASC 470-50, Debt-Modifications and Extinguishments.

            On June 28, 2013, HD Supply, Inc. amended the Senior ABL Facility to (i) reduce the applicable margin for borrowings under the Senior ABL Facility by 0.25%; (ii) reduce the commitment fee applicable thereunder by 0.125%; (iii) extend the maturity date of the Senior ABL Facility to June 28, 2018 (or, if earlier, the maturity date under the Term Loan Facility); (iv) make certain changes to the borrowing base and (v) reduce the sublimit available for letters of credit under the Senior ABL Facility from $400 million to $250 million. In connection with the amendment, HD Supply, Inc. paid approximately $2 million in financing fees which will be amortized into interest expense over the remaining term of the amended facility in accordance with ASC 470-50. A portion of the amendment was considered an extinguishment, resulting in an approximately $3 million loss on extinguishment of debt for the write-off of pro-rata unamortized deferred debt costs.

            On February 15, 2013, HD Supply, Inc. amended the Senior Term Facility to lower the borrowing margin by 275 basis points. The Term Loans (as defined below) are subject to an interest rate equal to LIBOR (subject to a floor of 1.25%) plus a borrowing margin of 3.25% or Prime plus a borrowing margin of 2.25% at HD Supply Inc.'s election. The amendment also replaced the hard call provision applicable to optional prepayment of Term Loans thereunder with a soft call option. The soft call option provides for a premium equal to 1.0% of the aggregate principal amount of Term Loans being prepaid if, on or prior to August 15, 2013, HD Supply, Inc. enters into certain repricing transactions. In connection with the amendment, HD Supply, Inc. paid approximately $30 million in financing fees, of which approximately $27 million will be amortized into interest expense over the remaining term of the amended facility in accordance with ASC 470-50. A portion of the amendment was considered an extinguishment, resulting in a $5 million loss on extinguishment of debt, which included approximately $2 million of fees, $2 million to write off the pro-rata portion of unamortized original issue discount, and $1 million to write off the pro-rata portion of unamortized deferred debt cost. The portion of the amendment considered a modification resulted in a charge of $1 million.

            On February 8, 2013, HD Supply, Inc. redeemed the remaining $889 million outstanding aggregate principal amount of 2007 Senior Subordinated Notes at a redemption price equal to 103.375% of the principal amount thereof and paid accrued and unpaid interest thereon through the redemption date. As a result, in the first quarter of fiscal 2013, HD Supply, Inc. incurred a $34 million loss on extinguishment of debt, which included a $30 million premium payment to redeem the 2007 Senior Subordinated Notes and approximately $4 million to write off the unamortized deferred debt cost.

            On February 1, 2013, HD Supply, Inc. issued the February 2013 Senior Unsecured Notes at par. As a result of the issuance, the Company incurred and paid $21 million in debt issuance costs. The net


    Table of Contents

    proceeds from the February 2013 Senior Unsecured Notes issuance were used to repurchase all of the outstanding April 2012 Senior Unsecured Notes, plus a $422 million make-whole premium calculated in accordance with the April 2012 Senior Unsecured Notes Indenture, plus $37 million of uncapitalized PIK interest thereon through February 1, 2013. Also on February 1, 2013, the trustee for the April 2012 Senior Unsecured Notes cancelled all of the outstanding April 2012 Senior Unsecured Notes. As a result of these transactions, the Company incurred a $452 million loss on extinguishment, which included the make-whole premium, a $28 million write-off of unamortized original issue discount, and a $2 million write-off of unamortized deferred debt costs.

            On January 16, 2013, HD Supply, Inc. issued the January 2013 Senior Subordinated Notes at par. As a result of the issuance, the Company incurred and paid $16 million in debt issuance costs. On February 8, 2013, we used the net proceeds from the January 2013 Senior Subordinated Notes issuance to redeem all of the remaining $889 million outstanding 2007 Senior Subordinated Notes at a redemption price equal to 103.375% of the principal amount thereof and paid (together with $36 million of cash on hand) accrued and unpaid interest thereon through the redemption date. As a result, in the first quarter of fiscal 2013, the Company reported a $34 million loss on extinguishment, which includes a $30 million premium payment to redeem the 2007 Senior Subordinated Notes and $4 million to write-off the unamortized deferred debt cost.

    On October 15, 2012, HD Supply, Inc. issued $1,000 million of the October 2012 Senior Notes at par. As a result of the issuance, the Company incurred $18and paid $17 million in debt issuance costs, of which $15 million was paid as of October 28, 2012.

    costs. On November 8, 2012, we used the net proceeds offrom the October 2012 Senior Notes issuance were used to redeem $930 million of the Company’s outstanding 2007 Senior Subordinated Notes at a premiumredemption price equal to 103.375% of 103.375% plusthe principal amount thereof and to pay $23 million of accrued interest. As a result, in the fourth quarter of fiscal 2012, the Company will reportincurred a $37 million loss on extinguishment, which includesincluded a $31 million premium payment to redeem the 2007 Senior Subordinated Notes prior to maturity and $5 million to write-offwrite off the pro-rata portion of the unamortized deferred debt costs. Subsequent to the redemption, $889 million of the Company’s 2007 Senior Subordinated

    Refinancing Transactions and Additional Notes remains outstanding.

    On January 16, 2013, we issued $950 million of the Old Notes at par. At closing, we paid $14 million in debt issuance costs. We intend to use the net proceeds from the Old Notes issuance to redeem $889 million of the outstanding 2007 Senior Subordinated Notes on February 8, 2013, at a redemption price of 103.375%.

    Index to Financial Statements

    On April 12, 2012, HD Supply, Inc. consummated the following transactions (the “Refinancing Transactions”"Refinancing Transactions") in connection with the refinancing of the senior portion of its debt structure:

      •
      the issuance of $950 million of itsthe April 2012 First Priority Notes

    Notes;

    •
    the issuance of $675 million of itsthe Second Priority Notes

    Notes;

    •
    the issuance of approximately $757 million of itsthe April 2012 Senior Notes

    Unsecured Notes;

    •
    entry into a new senior term facility (the “Seniorthe Senior Term Facility”)Facility maturing in 2017 and providing for term loans in an aggregate principal amount of $1,000 million; and



    •
    entry into a new senior asset based lending facility (the “ABL Facility”)the Senior ABL Facility maturing in 2017 and providing for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $1,500 million.

    million (subject to availability under the borrowing base).

    The proceeds of the April 2012 First Priority Notes, the Second Priority Notes, the April 2012 Senior Unsecured Notes, the Senior Term Facility and the Senior ABL Facility were used to (i) repay all amounts outstanding under the 2007 Senior Secured Credit Facility, (ii) repay all amounts outstanding under the existing indebtednessABL Credit Facility dated as of August 30, 2007, (iii) repurchase all remaining outstanding 12.0% Senior Notes and to(iv) pay related fees and expenses.

            Affiliates of certain of the Equity Sponsors owned an aggregate principal amount of approximately $484 million of the 12.0% Senior Notes which they exchanged in a non-cash transaction for their investment in the April 2012 Senior Unsecured Notes.


    Table of Contents

    On August 2, 2012, the CompanyHD Supply, Inc. issued $300 million additional aggregate principal amount of itsthe August 2012 First Priority Notes at a premium of 107.5%107.500%. At closing, the Company received approximately $317 million, net of transaction fees. The August 2012 First Priority Notes were issued under the indenture pursuant to which HD Supplywe previously issued the$950 million aggregate principal amount of April 2012 First Priority Notes, all of which remain outstanding. The net proceeds from the sale of the August 2012 First Priority Notes were applied to reduce outstanding borrowings under the Company’sSenior ABL facility.Facility.

    As a result of the Refinancing Transactions and the saleissuance of the August 2012 First Priority Notes, the Company incurred $80 million in debt issuance costs all of which was paid as of October 28, 2012, and recorded a $220 million loss on extinguishment, which included a $150 million premium payment to redeem the 12.0% Senior Notes, $46 million to write-offwrite off the pro-rata portion of the unamortized deferred debt costs, and $24 million to write-offwrite off the remaining unamortized valueOther asset associated with Home Depot’sDepot's guarantee of the Company’sCompany's payment obligations for principal and interest under the Term Loanterm loan under the Existing2007 Senior Secured Credit Facility that was terminated in the refinancing.Refinancing Transactions.

    For additional information onUnamortized deferred debt costs

            In accordance with ASC 470, Debt, the Company’s externalCompany determined that all of the redemption of 12.0% Senior Notes was an extinguishment as either the original note holders were unknown or the refinancing was considered a "substantial" change. As a result of the extinguishment, the Company wrote-off approximately $24 million in unamortized deferred financing arrangements, see “Notes to Audited Consolidated Financial Statements—Note 6—Debt”charges associated with the 12.0% Senior Notes. Similarly, under ASC 470, approximately $834 million of the Existing ABL Credit Facility and “Notes to Unaudited Consolidated Financial Statements—Note 6—Debt.”

    approximately $1,169 million of the 2007 Senior Secured Credit Facility were deemed extinguishments, with the remaining portions considered modifications. As a result of the extinguishment, the Company wrote-off approximately $22 million of $42 million in unamortized deferred financing charges associated with these credit agreements.

    Index to Financial Statements

    Long-term debt as of October 28, 2012August 4, 2013 and January 29, 2012February 3, 2013 consisted of the following (dollars in millions):following:

     
    		 August 4, 2013 February 3, 2013 
     
    		 Outstanding
    Principal    		 Interest
    Rate(1)    		 Outstanding
    Principal    		 Interest
    Rate(1)    		 
     
    		 (Dollars in millions)
    		 

    Senior ABL Facility due June 28, 2018(2)

    		 $500  1.69%$300  1.96%

    Term Loans due October 12, 2017, net of unamortized discount of $21 million as of August 4, 2013 and $26 million as of February 3, 2013

    		  969  4.50  969  7.25 

    First Priority Notes due April 15, 2019, including unamortized premium of $19 million as of August 4, 2013 and $21 million as of February 3, 2013

    		  1,269  8.125  1,271  8.125 

    Second Priority Notes due April 15, 2020

    		  675  11.00  675  11.00 

    October 2012 Senior Notes due July 15, 2020

    		  1,000  11.50  1,000  11.50 

    Senior Notes due July 15, 2020

    		  1,275  7.50  1,275  7.50 

    Senior Subordinated Notes due January 15, 2021

    		  —  —  950  10.50 

    2007 Senior Subordinated Notes due September 1, 2015

    		  —  —  889  13.50 
                

    Total long-term debt

    		 $5,688     7,329    

    Less current installments

    		  (10)    (899)   
                

    Long-term debt, excluding current installments

    		 $5,678    $6,430    
                
    (1)
    Represents the stated rate of interest, without including the effect of discounts and premiums.

    (2)
    The Senior ABL Facility will mature on June 28, 2018 (or, if earlier, the maturity date of the Senior Term Facility).

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       October 28, 2012   January 29, 2012 
       Outstanding
    Principal    		  Interest
    Rate %(1)    		   Outstanding
    Principal    		  Interest
    Rate %(1)    		 

    ABL Facility due April 12, 2017

    		  $395    2.21    $—      —    

    Term Loan due October 12, 2017, net of unamortized discount of $27 million as of October 28, 2012

    		   970    7.25     —      —    

    8.125% First Priority Notes due April 15, 2019, including unamortized premium of $22 million as of October 28, 2012

    		   1,272    8.13     —      —    

    11.0% Second Priority Notes due April 15, 2020

    		   675    11.00     —      —    

    11.5% Senior Notes due July 15, 2020

    		   1,000    11.50     

    14.875% Senior Notes due October 12, 2020, net of unamortized discount of $29 million as of October 28, 2012

    		   784    14.88     —      —    

    Term Loan due August 30, 2012

    		   —      —       73    1.53  

    Term Loan due April 1, 2014

    		   —      —       855    3.03  

    ABL Term Loan due April 1, 2014

    		   —      —       214    3.56  

    12.0% Senior Notes due September 1, 2014

    		   —      —       2,500    12.00  

    13.5% Senior Subordinated Notes due September 1, 2015

    		   1,819    13.50     1,820    13.50  
      

     

     

    		    

     

     

    		  

    Total long-term debt

    		  $6,915      5,462   

    Less current installments

    		   (940)     (82)  
      

     

     

    		    

     

     

    		  

    Long-term debt, excluding current installments

    		  $5,975     $5,380   
      

     

     

    		    

     

     

    		  

    (1)Represents the stated rate of interest, without including the effect of discounts and premiums.

    Debt covenants

    The Company’s        HD Supply's outstanding debt agreements contain various restrictive covenants including, but not limited to, limitations on additional indebtedness and dividend payments and stipulations regarding the use of proceeds from asset dispositions. The Company is in compliance with all such covenants.See "Description of Other Indebtedness."

    Rating agency actions

    During the third quarter of fiscal 2012, Moody’s Investors Service (“Moody’s”) changed HD Supply’s rating outlook to positive, from a stable outlook. During the first quarter of fiscal 2012, Moody’s upgraded HD Supply’s rating to Caa1, with a stable outlook, from Caa2, with a negative outlook. The speculative grade liquidity assessment remains SGL-3. Moody’s cited improvements in our operations and credit metrics. In addition, Moody’s acknowledged the refinancing of our existing capital structure which extended our maturity profile effectively by one year to 2015. The interest rates and other terms within our current credit agreements are not impacted by rating agency actions.

    Interest rate swaps

    We maintained interest rate swap agreements to exchange fixed and variable rate interest payment obligations without the exchange of the underlying principal amounts. At execution, our swaps committed us to pay fixed interest and receive variable interest, effectively converting $400 million of floating-rate debt to fixed rate debt. Swaps with a combined $200 million notional value matured on January 31, 2010. The remaining swaps with a combined $200 million notional value matured on January 31, 2011, the first day of fiscal 2011.

    Index to Financial Statements

    The following table summarizes the weighted average rates and notional amounts of these agreements for the periods presented.

       Fiscal 2011   Fiscal 2010  Fiscal 2009 

    Weighted average notional value outstanding (millions)

    		   —      $200   $400  

    Weighted average fixed rate paid

    		   —       3.9%   3.8% 

    Weighted average floating rate received

    		   —       0.3%   0.3% 

    Commodity and interest rate riskInterest Rate Risk

    Commodity risk

    We are aware of the potentially unfavorable effects inflationary pressures may create through higher asset replacement costs and related depreciation, higher interest rates and higher material costs. In addition, our operating performance is affected by price fluctuations in the commodity-based products that we purchase and sell, which contain commodities such as steel, copper, aluminum, PVC, petroleum and other commodities. We are also exposed to fluctuations in petroleum costs as we deliver a substantial portion of the products we sell by truck. We seek to minimize the effects of inflation and changing prices through economies of purchasing and inventory management resulting in cost reductions and productivity improvements as well as price increases to maintain reasonable gross margins.

    As discussed above, our results of operations were favorably or negatively impacted by fluctuating commodity prices based on our ability or inability to pass increases in the prices of certain commodity-based products to our customers. Such commodity price fluctuations have from time to time produced volatility in our financial performance and could continue to do so in the future.

    Interest rate risk related to debt

    We are exposed to market risk associated with changes in interest rates, foreign currency exchange rate fluctuations and certain commodity prices. To reduce these risks, we selectively use financial instruments and other proactive management techniques. We do not use financial instruments for trading purposes or speculation. During the first quarter of fiscal 2012, we refinanced a significant portion of our outstanding indebtedness. During the second and third quarters of fiscal 2012, we issued additional debt. As a result of these transactions, our interest rate risk related to debt has materially changed. See “Notes to Unaudited Consolidated Financial Statements—Note 6—Debt.”

    We are subject to interest rate risk associated with our Senior ABL Facility and our Senior Term Facility.debt. While changes in interest rates impact the fair value of the fixed ratefixed-rate debt, there is no impact to earnings and cash flow. Alternatively, while changes in interest rates do not affect the fair value of our variable-interest ratevariable-rate debt, they do affect future earnings and cash flows.

            Our Senior ABL Facility and our Senior Term Facility bear variable interest rates.

      •
      The Senior ABL Facility bears interest (i) in the case of U.S. dollar denominated loans, either at LIBOR or the Prime Rate, at the option of the Company, plus applicable borrowing margins and (ii) in the case of Canadian dollar denominated loans, either at the BA Rate or the Canadian Prime Rate, at the option of the Company, plus applicable borrowing margins. The borrowing margins are defined by a pricing grid, as included in the Senior ABL Facility agreement, based on average excess availability for the previous quarter.

      •
      Subsequent to the modification on February 15, 2013, the Senior Term Facility bears interest at LIBOR (subject to a floor of 1.25%) plus a borrowing margin of 3.25% or Prime plus a borrowing margin of 2.25% at the borrower's election.

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            A 1% increase in interest rates on our variable-rate debt would increase our annual forecasted interest expense by approximately $14$15 million (based on our borrowings as of October 28, 2012August 4, 2013 and excluding the effect of the interest rate floor on our Senior Term Facility).

    Off-balance sheet arrangements

    In accordance with generally accepted accounting principles in the United States,GAAP, operating leases for a portion of our real estate and other assets are not reflected in our Consolidated Balance Sheets.

    Index to Financial Statements

    Contractual obligationsObligations

    The following table discloses aggregate information about our contractual obligations as of January 29, 2012February 3, 2013 and the periods in which payments are due (amounts in millions):due:

           Payments Due By Period 
       Total   Fiscal
    2012    		   Fiscal
    2013-2014    		   Fiscal
    2015-2016    		   Fiscal Years
    after 2016    		 

    Long-term debt

    		  $5,462    $82    $3,560    $1,820    $—    

    Interest on long-term debt(1)

    		   1,987     595     1,146     246     —    

    Operating leases

    		   482     126     180     90     86  

    Purchase obligations(2)

    		   671     671     —       —       —    
      

     

     

    		   

     

     

    		   

     

     

    		   

     

     

    		   

     

     

    		 

    Total contractual cash obligations(3)

    		  $8,602    $1,474    $4,886    $2,156    $86  
      

     

     

    		   

     

     

    		   

     

     

    		   

     

     

    		   

     

     

    		 

    (1)The interest on long-term debt includes payments for agent administration fees.
    (2)Purchase obligations include various commitments with vendors to purchase goods and services, primarily inventory. These purchase obligations are generally cancelable, but the Company has no intent to cancel.
    (3)The contractual obligations table excludes $214
     
    		  
    		 Payments Due By Period 
     
    		 Total Fiscal
    2013    		 Fiscal
    2014 - 2015    		��Fiscal
    2016 - 2017    		 Fiscal Years
    after 2017    		 
     
    		 (Dollars in millions)
    		 

    Long-term debt(1)

    		 $7,334 $899 $20 $1,265 $5,150 

    Interest on long-term debt(2)

    		  3,940  546  1,086  1,066  1,242 

    Operating leases

    		  482  123  180  98  81 

    Purchase obligations(3)

    		  684  684  —  —  — 
                

    Total contractual cash obligations(4)

    		 $12,440 $2,252 $1,286 $2,429 $6,473 
    (1)
    "Fiscal 2013" includes $889 million of unrecognized tax benefits due to uncertainty regarding the timing of future cash payments, if any, related to the liabilities recorded in accordance with the U.S. GAAP guidance for uncertain tax positions.

    Pro forma contractual obligations

    The following table discloses aggregate information about our contractual obligations, giving pro forma effect to the Refinancing Transactions, the offering of the August 2012 First Priority Notes, the offering of the October 2012 Senior Notes, the offering of the Old Notes, and the redemption of the 2007 Senior Subordinated Notes that were redeemed on February 8, 2013.

    (2)
    The interest on long-term debt includes the effect of the amendment to our Senior Term Facility on February 15, 2013 that reduced the applicable borrowing margins on the outstanding Term Loans. The interest on long-term debt includes payments for agent administration fees. The interest rates for the Senior ABL Facility are calculated based on the rates as of January 29, 2012February 3, 2013. On June 28, 2013, HD Supply, Inc. amended the Senior ABL Facility to (i) reduce the applicable margin for borrowings under the Senior ABL Facility by 0.25%; (ii) reduce the commitment fee applicable thereunder by 0.125%; (iii) extend the maturity date of the Senior ABL Facility to June 28, 2018 (or, if earlier, the maturity date under the Senior Term Facility); (iv) make certain changes to the borrowing base and (v) reduce the periodssublimit available for letters of credit under the Senior ABL Facility from $400 million to $250 million. See "Description of Other Indebtedness—Senior Credit Facilities."

    (3)
    Purchase obligations include various commitments with vendors to purchase goods and services, primarily inventory. These purchase obligations are generally cancelable, but the Company has no intent to cancel.

    (4)
    The contractual obligations table excludes $215 million of unrecognized tax benefits due to uncertainty regarding the timing of future cash payments, if any, related to the liabilities recorded in which payments are due (amounts in millions):

           Payments Due By Period 
       Total   Fiscal
    2012    		   Fiscal
    2013-2014    		   Fiscal
    2015-2016    		   Fiscal Years
    after 2016    		 

    Long-term debt

    		  $6,542    $8    $20    $20    $6,494  

    Interest on long-term debt(1)

    		   4,025     372     916     938     1,799  

    Operating leases

    		   482     126     180     90     86  

    Purchase obligations(2)

    		   671     671     —     —     —  
      

     

     

    		   

     

     

    		   

     

     

    		   

     

     

    		   

     

     

    		 

    Total contractual cash obligations(3)

    		  $11,720    $1,177    $1,116    $1,048    $8,379  
      

     

     

    		   

     

     

    		   

     

     

    		   

     

     

    		   

     

     

    		 

    (1)Includes estimates of potential payments or redemptions of the April 2012 Senior Notes intended to ensure the April 2012 Senior Notes are not treated as applicable high yield discount obligations for U.S. federal income tax purposes. Includes $910 million for interest that will be paid in kind through 2017, increasing the balance of the indebtedness outstanding rather than paid in cash.
    (2)Purchase obligations include various commitments with vendors to purchase goods and services, primarily inventory. These purchase obligations are generally cancelable, but the Company has no intent to cancel.
    (3)The contractual obligations table excludes $214 million of unrecognized tax benefits due to uncertainty regarding the timing of future cash payments, if any, related to the liabilities recorded in accordance with the U.S. GAAP guidance for uncertain tax positions.

    Index to Financial Statements
    accordance with the GAAP guidance for uncertain tax positions.

    Recent accounting pronouncementsAccounting Pronouncements

    Multiple-deliverable revenue arrangements—In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”). This ASU addresses how to separate deliverables under multiple-deliverable arrangements and how to measure and allocate arrangement consideration to one or more units of accounting. In addition, ASU 2009-13 expands the disclosures related to a company’s multiple-deliverable revenue arrangements. The Company adopted the provisions of ASU 2009-13 on January 31, 2011. The adoption did not have an impact on the consolidated financial statements or results of operations.

    Fair value measurement—In May 2011, the FASB issued ASU No. 2011-04, “Amendments"Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“IFRSs" ("ASU 2011-04”2011-04"). The amendments in this ASU are intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”("IFRS"). The amendments in this ASU explain how to measure fair value. They do not require additional fair value measurements and are not intended to


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    establish valuation standards or affect valuation practices outside of financial reporting. The amendments in this ASU are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011. The Company adopted the provisions of ASU 2011-04 on January 30, 2012. The adoption did not have an impact on the consolidatedCompany's financial statementsposition or results of operations.

    Comprehensive incomeincome: Presentation—In June 2011, the FASB issued ASU No. 2011-05, “Presentation"Presentation of Comprehensive Income” (“Income" ("ASU 2011-05”2011-05"), to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’stockholders' equity and requires that all non-owner changes in stockholders’stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The Company adopted the provisions of ASU 2011-05 on January 30, 2012. The adoption of ASU 2011-05 did not have an impact on the Company's financial position or results of operations.

            Comprehensive income: Reclassifications—In December 2011,February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), to supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU 2011-05, which were deferred indefinitely under ASU No. 2011-12, “Deferral"Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“2011-05" ("ASU 2011-12”2011-12"), which deferred the requirementissued in December 2011. The amendments in ASU 2013-02 require an entity to present on the faceprovide additional information about significant reclassifications out of the financial statements reclassification adjustments for items that are reclassified fromaccumulated other comprehensive income toby the respective line items of net income while the FASB further deliberates this aspect of the proposal. The amendments contained in ASU 2011-05 do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the provisions of ASU 2011-052013-02 on January 30, 2012.February 4, 2013. The adoption of ASU 2011-052013-02 did not have an impact on the Company’sCompany's financial position or results of operations.

    Goodwill impairment testing—In September 2011, the FASB issued ASU No. 2011-08, “Testing"Testing Goodwill for Impairment” (“Impairment" ("ASU 2011-08”2011-08"), which simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. ASU 2011-08 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, although early adoption is permitted. The Company adopted the provisions of ASU 2011-08 on January 30, 2012. The adoption of ASU 2011-08 did not have an impact on the Company’sCompany's financial position or results of operations.

            Release of Cumulative Translation Adjustment—In March 2013, the FASB issued ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity" ("ASU 2013-05"), which resolves diversity in practice regarding the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-05 will not have a material impact on the Company's financial position or results of operations.

            Presentation of unrecognized tax benefits—In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11"), which resolves diversity in practice on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit, or a portion of an


    Index

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    unrecognized tax benefit, should be presented in the financial statements as a reduction to Financial Statements

    a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except in certain situations, as defined in ASU 2013-11. The amendments in ASU 2013-11 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2013-11.

    Critical accounting policiesAccounting Policies

    Our critical accounting policies include:

    Revenue recognition

    We recognize revenue when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and collectability is reasonably assured. We ship products to customers predominantly by internal fleet and to a lesser extent by third partythird-party carriers. Revenues, net of sales tax and allowances for returns and discounts, are recognized from product sales when title to the products is passed to the customer, which generally occurs at the point of destination for products shipped by internal fleet and at the point of shipping for products shipped by third partythird-party carriers.

    Allowance for doubtful accounts

    We evaluate the collectability of accounts receivable based on numerous factors, including past transaction history with customers, their credit worthiness and an assessment of our lien and bond rights. Initially, we estimate an allowance for doubtful accounts as a percentage of aged receivables. This estimate is periodically adjusted when we become aware of a specific customer’scustomer's inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in our historical collection patterns. While we have a large customer base that is geographically dispersed, a slowdown in the markets in which we operate may result in higher than expected uncollectible accounts, and therefore, the need to revise estimates for bad debts. To the extent historical credit experience is not indicative of future performance or other assumptions used by management do not prevail, the allowance for doubtful accounts could differ significantly, resulting in either higher or lower future provisions for doubtful accounts.

    Inventories

    Inventories consist primarily of finished goods and are carried at the lower of cost or market. The cost of substantially all of our inventories is determined by the moving or weighted average cost method. We evaluate our inventory value at the end of each quarter to ensure that it is carried at the lower of cost or market. This evaluation includes an analysis of historical physical inventory results, a review of potential excess and obsolete inventories based on inventory aging and anticipated future demand. Periodically, each branch’sbranch's perpetual inventory records are adjusted to reflect any declines in net realizable value below inventory carrying cost. To the extent historical physical inventory results are not indicative of future results and if future events impact, either favorably or unfavorably, the saleability of our products or our relationship with certain key vendors, our inventory reserves could differ significantly, resulting in either higher or lower future inventory provisions.

    Consideration received from vendors

    At the beginning of each calendar year, we        We enter into agreements with many of our vendors providing for inventory purchase rebates (“("vendor rebates”rebates") upon achievement of specified volume purchasing levels. We accrue the receipt of vendor rebates as part of our cost of sales for products sold based on progress towards earning the vendor rebates, taking into consideration cumulative purchases of inventory to date and projected


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    purchases through the end of the year. An estimate of unearned vendor rebates is included in the carrying value of inventory at each period end for vendor rebates to be received on products not yet sold. While we believe we will continue to receive consideration from vendors in fiscal 20122013 and thereafter, there can be no assurance that vendors will continue to provide comparable amounts of vendor rebates in the future.

    Impairment of long-lived assets

     ��      Long-lived assets, including property and equipment, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. To analyze recoverability, we project undiscounted future cash flows over the remaining life of the asset. If these projected cash flows are less than the carrying amount, an impairment loss is recognized based on the fair value of the asset less any costs

    Index to Financial Statements

    of disposition. Our judgment regarding the existence of impairment indicators are based on market and operational performance. Future events could cause us to conclude that impairment indicators exist and that assets are impaired. Evaluating the impairment also requires us to estimate future operating results and cash flows that require judgment by management. If different estimates were used, the amount and timing of asset impairments could be affected.

    Goodwill

    Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in connection with business acquisitions. Accounting Standards Codification 350, Intangibles—Goodwill and Other, requires entities to periodically assess the carrying value of goodwill by reviewing the fair value of the net assets underlying all acquisition-related goodwill on a reporting unit basis, as defined by ASC 350. We assess the recoverability of goodwill in the third quarter of each fiscal year. We also use judgment in assessing whether we need to test goodwill more frequently for impairment than annually given factors such as unexpected adverse economic conditions, competition, product changes and other external events. If the carrying amount of a reporting unit that contains goodwill exceeds fair value, a possible impairment would be indicated.

    In accordance with ASU 2011-08, during fiscal 2012, we determined that it was not more likely than not that the fair value of Facilities Maintenance and White Cap was less than the carrying value for each business unit. Based on this assessment, we determined that it was not necessary to perform the two-step goodwill impairment test for these two reporting units. We bypassed this qualitative analysis for the remaining five reporting units and proceeded with the first step of the two-step goodwill impairment test. We determine the fair value of a reporting unit using a discounted cash flow (“DCF”("DCF") analysis and a market comparable method, with each method being equally weighted in the calculation.

    Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, the amount and timing of expected future cash flows, as well as relevant comparable company earnings multiples for the market comparable approach. The cash flows employed in the DCF analyses are based on the Company’sCompany's most recent long-range forecast and, for years beyond the forecast, the Company’sCompany's estimates, which are based on estimated exit multiples ranging from six to seven times the final forecasted year earnings before interest, taxes, depreciation and amortization. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units and range from 11.5% to 14.0%. For the market comparable approach, the Company evaluated comparable company public trading values, using earnings multiples and sales multiples that are used to value the reporting units.


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    There was no indication of impairment in any of the Company’sCompany's reporting units during the fiscal 2012, the fiscal 2011 or the fiscal 2010 annual testing and accordingly, the second step of the goodwill impairment analysis was not performed. At the time of our fiscal 2012 annual testing, the fair value of the reporting units exceeded their carrying value by the following percentages: 47% for Waterworks, 31% for Utilities, 6% for Crown Bolt, 40% for Repair & Remodel and 116% for Electrical.

            During the fourth quarter of fiscal 2012, Crown Bolt reached an agreement to amend and extend its strategic purchase agreement with Home Depot. While the amendment extends the agreement five years through fiscal 2019, it eliminates the minimum purchase requirement and adjusts future pricing. These changes resulted in a reduction of expected future cash proceeds from Home Depot. We, therefore, considered this amendment a triggering event and, as such, the Company performed an additional goodwill impairment analysis for Crown Bolt. As a result of step one of the analysis, there was an indication of impairment in the Crown Bolt reporting unit. Based on the results of step two, we recorded a non-cash, pre-tax goodwill impairment charge of $150 million during the fourth quarter of fiscal 2012. Additionally, we recorded a $2 million charge to write off an unamortized tradename as a result of the discontinued use of the tradename.

    The Company’s discounted cash flowCompany's DCF model is based on HD Supply’sour expectation of future market conditions for each of the reporting units, as well as discount rates that would be used by market participants in an arms-length transaction. Future events could cause the Company to conclude that market conditions have declined or discount rates have increased to the extent that the Company’sCompany's goodwill could be further impaired. It is not possible at this time to determine if any such future impairment charge would result.

    Income Taxes

    Income taxes are determined under the liability method as required by ASC 740, Income Taxes. Income tax expense or benefit is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Deferred tax assets and liabilities are measured using enacted tax rates

    Index to Financial Statements

    expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. This measurement is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, are not “more"more likely than not”not" to be realized. The Company recorded a valuation allowance related to its U.S. continuing operations of $72 million, $442 million, $259 million and $228 million and $7 million in the first quarter of fiscal 2013, fiscal 2012, fiscal 2011 fiscal 2010, and fiscal 2009,2010, as it believes it is “more"more likely than not”not" all of the U.S. deferred income tax assets will not be realized. In addition, the Company recorded an $8 million valuation allowance reduction, a $7 million valuation allowance reduction, and a $2 million valuation allowance increase related to its U.S. discontinued operations for fiscal 2012, fiscal 2011 and fiscal 2010, respectively. In the first nine months of fiscal 2012, the Company recorded a valuation allowance on its total U.S. operations of $185 million of which $192 million related to continuing operations which was reduced by $7 million for discontinued operations.

    The Company follows the U.S. GAAP guidance for uncertain tax positions within ASC 740, Income Taxes. ASC 740 provides guidance related to the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The standard prescribes the minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. Initial recognition, derecognition and measurement is based on management’smanagement's judgment given the facts, circumstances and information available at the reporting date. If these judgments are not accurate then future income tax expense or benefit could be different.


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    Self-insurance

    We have a high deductible insurance program for most losses related to general liability, product liability, environmental liability, automobile liability, workers’workers' compensation, and we are self-insured for medical claims and certain legal claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience.

    To the extent the projected future development of the losses resulting from environmental, workers’workers' compensation, automobile, general and product liability claims incurred as of October 28, 2012August 4, 2013 differs from the actual development of such losses in future periods, our insurance reserves could differ significantly, resulting in either higher or lower future insurance expense.

    Management estimates

    Management believes the assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, and in certain situations, could have a material adverse effect on our financial condition.

    New accounting guidanceStock-Based Compensation

    Fair value measurement—In May 2011,        Our stock-based compensation expense is estimated at the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). The amendments in this ASU are intended to improve the comparability ofgrant date based on an award's fair value measurements presentedas calculated by the Black-Scholes option-pricing model and disclosedis recognized as expense over the requisite service period. The Black-Scholes model requires various highly judgmental assumptions including expected volatility and option life. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, we estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience. To the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly. See Note 9 to our audited consolidated financial statements preparedstatements.

    Net Operating Loss Carryforwards

            As of August 4, 2013, we have U.S. federal NOL carryforwards of $2.4 billion ($823 million on a tax-effected basis), comprised of $1.8 billion ($636 million on a tax-effected basis) of U.S. federal NOL carryforwards at the end of fiscal 2012 and U.S. federal income tax losses of $532 million through the second quarter of fiscal 2013 ($186 million on a tax-effected basis). Such NOL carryforwards begin to expire in accordance with U.S. GAAPfiscal 2029. We also have significant state NOL carryforwards, which begin to expire in various years between fiscal 2013 and International Financial Reporting Standards (“IFRS”s).fiscal 2030. The amendments in this ASU explain howNOL carryforwards generally will be available to measure fair value. They do not require additional fair value measurementsus as deductions against future taxable income generated during the appropriate carryforward period. Although we have recorded a valuation allowance on certain of our deferred tax assets, which include the NOL carryforwards, our future cash tax payments could be significantly reduced by the utilization of the NOL carryforwards and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The Company adopted the provisions of ASU 2011-04 on January 30, 2012. The adoption did notcould have ana positive impact on our future liquidity. Any such cash tax savings are dependent upon our ability to generate taxable income in the consolidated financial statements or results of operations.

    Indexfuture. There can be no assurance that we will generate taxable income in the future sufficient to Financial Statements

    Comprehensive income—In June 2011,utilize the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”), to increase the prominence of items reportedNOL carryforwards in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive incomewhole or in two separate but consecutive statements. In the two-statement approach, the firstpart.

            A valuation allowance is recorded for financial statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The Company adopted the provisions of ASU 2011-05 on January 30, 2012. The adoption of ASU 2011-05 did not have an impact on the Company’s financial position or results of operations.

    Goodwill impairment testing—In September 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”), which simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whetherpurposes when it is more likely than not that some portion or all of the fairdeferred tax assets will not be realized. In making this determination,


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    we considered a number of factors, and significant weight was given to the fact that we have previously incurred significant losses. As a result, we have recorded a valuation allowance on certain of our deferred tax assets, which include the NOL carryforwards. The recording of a valuation allowance on certain of our deferred tax assets does not impact the amount of the NOL carryforwards or our carryforward periods, but instead is a determination that based upon current evidence it is more likely than not that such assets will not be realized.

            Our ability to deduct the NOL carryforwards against future taxable income could be limited if we experience an "ownership change," as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change may result from transactions (including direct or indirect sales, acquisitions or issuances of Holdings stock) increasing the aggregate ownership of certain persons (or groups of persons) in Holdings stock by more than 50 percentage points over a testing period (generally three years).

            Pursuant to rules under Section 382 of the Code and a published IRS notice, our "net unrealized built-in gain" may increase our ability to deduct our U.S. federal NOL carryforwards after an ownership change by reducing the impact of the otherwise applicable Section 382 limitation. The amount of any such net unrealized built-in gain depends in part on the value of Holdings at the time of the ownership change. Based on Holdings' current value, we believe that we currently have a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to performsignificant net unrealized built-in gain. However, there can be no assurance that these rules will be applicable at the two-step goodwill impairment test. The Company adopted the provisionstime of ASU 2011-08 on January 30, 2012. The adoption of ASU 2011-08 didan ownership change or, if these rules are applicable, that Holdings' value will not have an impactdecreased (which could reduce or eliminate our net unrealized built-in gain). State limitations on the Company’s financial positionuse of NOL carryforwards may differ from the U.S. federal limitations, and therefore on a state by state basis any such NOL limitation may not be affected in the same manner or resultsto the same extent.


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    Index to Financial Statements


    BUSINESS

    HD Supply isOur Company

            We are one of the largest industrial distributors in North America. We believe we have leading positions in the United States and Canada based on sales serving three distinct market sectors: Infrastructure & Energy,sectors in which we specialize: Maintenance, Repair & ImprovementOperations; Infrastructure & Power; and Specialty Construction, each of which offers different products and services to the end customer. The threeConstruction. These market sectors are made uplarge and fragmented, and we believe they present opportunities for significant growth. We aspire to be the "First Choice" of seven industrial distribution businesses. Through approximately 630customers, associates, suppliers and the communities in which we operate. This aspiration drives our relentless focus and is reflected in the customer and market centricity, speed and precision, intense teamwork, process excellence and trusted relationships that define our culture. We believe this aspiration distinguishes us from other distributors and has driven above-market growth and delivered attractive returns on invested capital.

            We serve our markets with an integrated go-to-market strategy. We operate through over 600 locations across the United States46 U.S. states and Canada, HD Supply operates a diverse portfolio of distribution businesses that providenine Canadian provinces. We have approximately one million SKUs to15,000 associates delivering localized, customer-tailored products, services and expertise. We serve approximately 440,000 professional500,000 customers, includingwhich include contractors, government entities, maintenance professionals, home builders and industrial businesses. Our broad range of end-to-end product lines and services include over one million SKUs of quality, name-brand and proprietary-brand products as well as value-add services supporting the entire lifecycle of a project from infrastructure and construction to maintenance, repair and operations. For the fiscal year ended February 3, 2013, or fiscal 2012, we generated $8.0 billion in Net sales, representing 14.3% growth over the fiscal year ended January 29, 2012, or fiscal 2011, or 12.2% growth excluding the 53rd week of fiscal 2012; $683 million of Adjusted EBITDA, representing 34.4% growth over fiscal 2011, or 31.7% growth excluding the 53rd week of fiscal 2012; and incurred a Net loss of $1,179 million representing an increase of 117.1% over fiscal 2011, or an increase of 119.7% excluding the 53rd week of fiscal 2012. For the six months ended August 4, 2013, we generated $4.3 billion in Net sales, representing 11.0% growth over the six months ended July 29, 2012; $382 million of Adjusted EBITDA, representing 17.5% growth over the six months ended July 29, 2012; and incurred a Net loss of $203 million, representing an improvement of 51.2% over the six months ended July 29, 2012. For a reconciliation of Net income (loss), the most directly comparable financial measure under GAAP, to Adjusted EBITDA, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Cash interest expense and Adjusted EBITDA."

            We believe our long-standing customer relationships and competitive advantage stem from our knowledgeable associates, extensive product and service offerings, national footprint, integrated technology, broad purchasing scale and strategic supplier relationships. We believe that our comprehensive supply chain solutions improve the effectiveness and efficiency of our customers' businesses. Our value-add services include customer training, material and product fabrication, kitting, jobsite delivery, will call pick up options, as well as onsite managed inventory, online material management and emergency response capabilities. Furthermore, we believe our product application knowledge, comprehensive product assortment, and sourcing expertise allow our customers to perform reliably and provide them the tools to enhance profitability. We reach our customers through a variety of sales channels, including professional outside and inside sales forces, call centers and branch supported direct marketing programs utilizing market-specific product catalogs, and business unit websites. Our distribution network allows us to provide rapid, reliable, on-time delivery and customer pickup throughout the U.S. and Canada. Additionally, we believe our highly integrated technology provides leading e-commerce and integrated workflow capabilities for our customers, while providing us unparalleled pricing, budgeting, reporting and analytical capabilities across our Company. We believe customers view us as an integral part of the value chain due to our extensive product knowledge, expansive product availability and the ability to directly integrate with their systems and workflows.


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            Since 2007 we have undertaken significant operating and growth initiatives at all levels. We developed and are implementing a multi-year strategy to optimize our business mix. This strategy includes entering new markets and product lines, streamlining and upgrading our process and technology capabilities, acquiring new capabilities and selling non-core business units. At the same time, we attracted what we believe to be "best of the best" talent capitalizing on relevant experience, teamwork and change navigation. With this transformational execution behind us, we believe our company is well-positioned to continue to grow in excess of the markets in which we operate.

            We operate our Company through four reportable segments: Facilities Maintenance, Waterworks, Power Solutions and White Cap. The charts below summarize the breakdown of the results for our reportable segments and Corporate & Other in fiscal 2012.

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    (1)
    Crown Bolt, CTI, Repair & Remodel and HD Supply Canada, in addition to Corporate and Eliminations, comprise "Corporate & Other."

    (2)
    Adjusted EBITDA is our measure of profitability for our reportable segments and Corporate & Other as presented within our audited consolidated financial statements in accordance with GAAP. See Note 14 to our audited consolidated financial statements.

            Facilities Maintenance.    Facilities Maintenance distributes MRO products, provides value-add services and fabricates custom products to customers that include multifamily, hospitality, healthcare and institutional facilities. Products include electrical and lighting items, plumbing, HVAC products, appliances, janitorial supplies, hardware, kitchen and bath cabinets, window coverings, textiles and guest amenities, healthcare maintenance and water and wastewater treatment products. Facilities Maintenance operates a distribution center-based model that sells its products primarily through a professional sales force, print catalogs and e-commerce. In fiscal 2012, Facilities Maintenance had $2.2 billion in Net sales, representing 16.7% growth over fiscal 2011, or 14.5% excluding the 53rd week of fiscal 2012, and $389 million of Adjusted EBITDA, representing 22.3% growth over fiscal 2011, or 19.8% excluding the 53rd week of fiscal 2012. In the six months ended August 4, 2013, Facilities Maintenance had $1,199 million in Net sales, representing 12.3% growth over the six months ended July 29, 2012, and $225 million of Adjusted EBITDA, representing 16.0% growth over the six months ended July 29, 2012.


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            Waterworks.    Waterworks distributes complete lines of water and wastewater transmission products, serving contractors and municipalities in the water and wastewater industries for residential and non-residential uses. Products include pipes, fittings, valves, hydrants and meters for use in the construction, maintenance and repair of water and wastewater systems as well as fire-protection systems. Waterworks has complemented its core products through additional offerings, including smart meters (AMR/AMI), HDPE pipes and specific engineered treatment plant products and services. In fiscal 2012, Waterworks had $2.0 billion in Net sales, representing 14.4% growth over fiscal 2011, or 12.4% excluding the 53rd week of fiscal 2012, and $137 million of Adjusted EBITDA, representing 22.3% growth over fiscal 2011, or 20.5% excluding the 53rd week of fiscal 2012. In the six months ended August 4, 2013, Waterworks had $1,124 million in Net sales, representing 13.8% growth over the six months ended July 29, 2012, and $88 million of Adjusted EBITDA, representing 31.3% growth over the six months ended July 29, 2012.

            Power Solutions.    Power Solutions distributes electrical transmission and distribution products, power plant MRO supplies and smart-grid products, and arranges materials management and procurement outsourcing for the power generation and distribution industries. Products include conductors such as wire and cable, transformers, overhead transmission and distribution hardware, switches, protective devices and underground distribution, connectors used in the construction or maintenance and repair of electricity transmission and substation distribution infrastructure, and electrical wire and cable, switchgear, supplies, lighting and conduit used in non-residential and residential construction. In fiscal 2012, Power Solutions had $1.8 billion in Net sales, representing 10.0% growth over fiscal 2011, or 7.8% excluding the 53rd week of fiscal 2012, and $72 million of Adjusted EBITDA, representing 44.0% growth over fiscal 2011, or 40.0% excluding the 53rd week of fiscal 2012. In the six months ended August 4, 2013, Power Solutions had $918 million in Net sales, representing 7.4% growth over the six months ended July 29, 2012, and $36 million of Adjusted EBITDA, representing 5.9% growth over the six months ended July 29, 2012.

            White Cap.    White Cap distributes specialized hardware, tools, engineered materials and safety products to non-residential and residential contractors. Products include tilt-up brace systems, forming and shoring systems, concrete chemicals, hand and power tools, rebar, ladders, safety and fall arrest equipment, specialty screws and fasteners, sealants and adhesives, drainage pipe, geo-synthetics, erosion and sediment control equipment and other engineered materials used broadly across all types of non-residential and residential construction. In fiscal 2012, White Cap had $1.2 billion in Net sales, representing 20.1% growth over fiscal 2011, or 17.9% excluding the 53rd week of fiscal 2012, and $56 million of Adjusted EBITDA, representing an increase of $39 million over fiscal 2011, or an increase of $38 million excluding the 53rd week of fiscal 2012. In the six months ended August 4, 2013, White Cap had $646 million in Net sales, representing 12.7% growth over the six months ended July 29, 2012, and $38 million of Adjusted EBITDA, representing 46.2% growth over the six months ended July 29, 2012.

            Corporate & Other.    Corporate & Other is comprised of the following business units: Crown Bolt, CTI, Repair & Remodel and HD Supply Canada. Crown Bolt is a retail distribution operator providing program and packaging solutions, sourcing, distribution, and in-store service, fasteners, builders' hardware, rope and chain and plumbing accessories, primarily serving Home Depot and other hardware stores. CTI offers turnkey supply and installation services for multiple interior finish options, including flooring, cabinets, countertops, and window coverings, along with comprehensive design center services for non-residential, residential and senior living projects. Our Repair & Remodel business unit offers light remodeling and construction supplies, kitchen and bath cabinets, windows, plumbing materials, electrical equipment and other products, primarily to small remodeling contractors and trade professionals. HD Supply Canada is an industrial distributor that primarily focuses on servicing fasteners/industrial supplies and specialty lighting markets which operates across nine provinces. Corporate & Other also includes costs related to our centralized support functions, which include


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    finance, information technology, human resources, legal, supply chain and other support services and removes inter-segment transactions. In fiscal 2012, Corporate & Other had $860 million in net sales and $29 million of Adjusted EBITDA. In the six months ended August 4, 2013, Corporate & Other had $438 million in net sales and $(5) million of Adjusted EBITDA.

    Summary of Reportable Segments

            The table below is a summary of our four reportable segments. Although our reportable segments are distinct and specialized to reflect the needs of their customers, we operate our Company with an integrated go-to-market strategy.

       
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    Overview

    		 

    Catalog Based Distributor of MRO Products to Maintenance Professionals

    		 

    Distributor of Water, Sewer, Storm and Fire Protection Products

    		 

    Distributor of Utilities and Electrical Construction and Industrial Products

    		 

    Distributor of Specialty Construction and Safety Supplies

     

    Fiscal 2012 Net Sales

    		 

    $2.2 billion

    		 

    $2.0 billion

    		 

    $1.8 billion

    		 

    $1.2 billion

     

    Fiscal 2012 Adjusted EBITDA(1)

    		 

    $389 million

    		 

    $137 million

    		 

    $72 million

    		 

    $56 million

     

    Adjusted EBITDA Margin(2)

    		 

    18%

    		 

    7%

    		 

    4%

    		 

    5%

     

    Growth(3)

    		 

    20%

    		 

    21%

    		 

    40%

    		 

    224%

     

    Est. Market Share(4)

    		 

    4%

    		 

    20%

    		 

    5%

    		 

    6%

     

    Est. Market Position(5)

    		 

    #1 in Multifamily

    		 

    #1 Nationally

    		 

    #1 in Utilities

    		 

    #1 Full Service Distributor Nationally

     

    Locations

    		 

    40 Distribution Centers in U.S.; 2 in Canada

    		 

    238 Branches in 44 U.S. States

    		 

    97 Branches in 26 U.S. States; 4 in Canada

    		 

    137 Branches in 31 U.S. States

     

    Approx. SKUs

    		 

    175,000

    		 

    300,000

    		 

    220,000

    		 

    230,000

     

    Select Products

    		 

    Electrical and Lighting Items; Plumbing; HVAC Products; Appliances; Janitorial Supplies; Hardware; Kitchen and Bath Cabinets; Window Coverings; Textiles and Guest Amenities; Healthcare Maintenance; Water and Wastewater Treatment Products

    		 

    Water and Wastewater Transmission Products Including Pipe (PVC, Ductile Iron, HDPE); Fittings; Valves; Fire Protection; Metering Systems; Storm Drain; Hydrants; Fusion Machine Rental; Valve Testing and Repair

    		 

    Pole Line Hardware; Wire and Cable; Gear and Controls; Power Equipment; Fixtures and Lighting; Meters

    		 

    Concrete Accessories and Chemicals; Tools; Engineered Materials and Fasteners; Safety; Erosion and Waterproofing


     
     
     

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    GRAPHIC
     

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    Value-add Services

    		 

    Next Day Delivery; Customized and Fabricated Products; Renovations and Installation Services; Technical Support; Customer Training; e-Commerce Solutions

    		 

    Proprietary PC-based Estimating Software; Job Management Reports; Electronic Billing; On-demand Customer Reports; Part Number Interchange; Material Management Online ("MMO"); Database Depot; Distributor Managed Inventory ("DMI")

    		 

    Emergency Response Solutions; Integrated Inventory and Sourcing Solutions; IT Solutions (Virtual Warehouse, EDI, Online Ordering, Custom Online Catalog); SmartGrid; Project Services (Material Take Offs and Laydown Yards); Tool Repair

    		 

    Pre-Bid Assistance; Product Submittals; Value Engineering; Change Order Support; Rentals (Tilt-Up Braces, Forming/Shoring, Equipment); Fabrication Including Detailing and Engineering; Tool Repair; Electronic Billing


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    Customer Examples

    Residential Property Owners and Managers; Hotels and Lodging Facilities; Assisted Living Facilities; Institutions; Water and Wastewater Treatment Facilities

    Professional Contractors Serving Municipalities, Non-residential and Residential Construction

    Municipalities and Co-ops; Investor Owned Utilities; Non-residential, Residential and Mechanical Contractors; Industrial (Industrial Manufactures, MRO, Oil and Gas Contractors)

    Professional Contractors Serving Non-residential, Residential and Industrial Construction






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    (1)
    Adjusted EBITDA is our measure of profitability for our reportable segments as presented within our consolidated financial statements in accordance with GAAP. See Note 14 to our audited consolidated financial statements.

    (2)
    Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by Net sales.

    (3)
    Growth is equal to growth in Adjusted EBITDA over fiscal 2011 and excludes the 53rd week of fiscal 2012.

    (4)
    Management estimates based on market data and industry knowledge. Market share is based on our revenues relative to the estimated addressable market size.

    (5)
    Market position is based on our revenues relative to the estimated revenues of known competitors in addressable markets. Unless stated otherwise, market position refers to management's estimate of our market position in North America within the estimated addressable markets we serve.

    Our Market Sectors

            We offer a diverse range of products and services to the Maintenance, Repair & Operations, Infrastructure & Power and Specialty Construction market sectors in the U.S. and Canada. The markets in which we operate have a high degree of customer and supplier fragmentation, with customers that typically demand a high level of service and availability of a broad set of complex products from a large number of suppliers. These market dynamics make the distributor a critical element within the value chain.


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            The table below summarizes our market sectors, business units and end-markets, including our net sales by end-market.

    GRAPHIC

    *
    Excludes HD Supply Canada.

    (1)
    Management estimates based on market data and industry knowledge.

    (2)
    Crown Bolt, Creative Touch Interiors, Repair & Remodel and HD Supply Canada, in addition to Corporate and Eliminations, comprise "Corporate & Other."

    (3)
    Figures do not foot due to rounding. Excludes HD Supply Canada.

    Maintenance, Repair & Operations

            In the Maintenance, Repair & Operations market sector, our Facilities Maintenance, Crown Bolt and Repair & Remodel business units serve customers across multiple industries by primarily delivering supplies and services needed to maintain and upgrade multifamily, hospitality, healthcare and institutional facilities. Facilities Maintenance and Crown Bolt are distribution center based models, while Repair & Remodel operates through retail outlets primarily serving cash and carry customers. We believe demand in this market sector is driven primarily by ongoing maintenance requirements of a broad range of existing structures and traditional repair and remodeling construction activity across multiple industries. We believe Facilities Maintenance customers value speed and product availability over price. In addition, we believe that our leadership position in this sector positions us to capitalize on improving business conditions across our addressable market. For example, we expect to benefit from the relative stability of demand for MRO materials during periods of lower vacancy rates within multifamily housing and higher occupancy rates within hospitality.


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    Infrastructure & Power

            In the Infrastructure & Power market sector, Waterworks and Power Solutions support both established infrastructure and new projects by meeting demand for critical supplies and services used to build and maintain water systems and electrical power generation, transmission and distribution infrastructure. We believe demand in this market sector in the U.S. is driven primarily by an aging and overburdened national infrastructure, general population growth trends and the need for cost-effective energy distribution. The broad geographic presence of our business units, through a regionally organized branch distribution network, reduces our exposure to economic factors in any single region. We believe we have the potential to capitalize on a substantial backlog of deferred projects that will need to be addressed in the coming years as a result of our customers delaying much needed upgrades or repairs during the recent economic downturn as well as a recovery in the non-residential and residential construction markets.

    Specialty Construction

            In the Specialty Construction market sector, White Cap and CTI serve professional contractors and trades by meeting their distinct and customized supply needs in non-residential, residential and industrial applications. We believe demand in this market sector is primarily by residential construction, non-residential construction, and industrial and repair and remodeling construction spending. White Cap is our primary business unit serving this sector through the broad national presence of its regionally organized branch distribution network. CTI serves its market through a network of branches and design centers. We believe we are well-positioned to benefit from the recovery from historical lows within the non-residential and residential construction end-markets.

    Our historyStrengths

            We believe that we benefit significantly from the following competitive strengths:

            Collaborative results-driven culture and exacting execution driving growth.    Our culture of customer and market centricity, speed and precision, intense teamwork, process excellence and trusted relationships promotes continuous learning and drives our entire team to perform at the highest level. We believe this integrated team approach results in first-class operational execution, which has contributed to growth of our revenues at a rate in excess of the growth rate of the markets we serve. This is further manifested through the systemic sharing and implementation of best practices within and across our business units. Rather than singularly investing and recognizing returns in one business unit, we leverage investments in one business unit across all of our other business units. For example, in 2012 we began utilizing Facilities Maintenance's category management, catalog and e-commerce expertise in our White Cap business which we believe has instilled discipline in merchandising, sourcing and pricing and contributed to sales growth and improved margins.

            Leadership positions with significant scale in large, fragmented markets.    Our Facilities Maintenance, Power Solutions, Waterworks and White Cap business units are leading North American industrial distributors in each of the addressable markets they serve based on sales. We have an extensive geographic footprint across North America with over 600 locations throughout 46 U.S. states and 9 Canadian provinces. Over the last several years we have strengthened our competitive position and financial profile through strategically exiting non-core operations to focus on the business units we believe present the greatest opportunity for profitable growth. We also believe that our size as well as the fragmentation and competitive dynamics of the markets we serve make them opportunity-rich for such growth. Because our generally smaller and local competitors typically have fewer financial and operational resources than we do, we believe we are better able to:

      •
      address our customers' needs over a project's lifecycle with our extensive product knowledge and availability as well as the ability to directly integrate with their systems and workflow;

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        •
        leverage local knowledge and maintain close customer relationships through our expansive branch and sales networks, while also offering the capabilities of a large organization;

        •
        attract, develop and deploy industry-leading talent, resulting in a deep pool of management, operations and sales expertise;

        •
        identify new opportunities ahead of our competition through our broad supplier and customer relationships and sales force reach; and

        •
        fund investments in product breadth and availability to support customer growth.

              Specialized business model delivering a customer-success based value proposition.    We offer our customers a breadth of products and services tailored to their specific needs. Our local presence and intimate understanding of our customers allow us to optimize our sales coverage model. We also provide differentiated, value-add services to our customers including:

        •
        superior product availability with many of our products available on a same or next day basis;

        •
        product and application expertise and technical support;

        •
        deep customer and vendor relationships with an integrated "solution sale";

        •
        co-located associates to assist with the customer's sourcing function; and

        •
        onsite product training.

              Our services and capabilities allow us to integrate with our customers and form part of their sourcing and procurement function. For example, within Waterworks and Power Solutions, our ERP systems can connect directly into our customers' internal systems, enabling our customers to streamline their product fulfillment and project execution process. We believe that the breadth of our product and service offering provides significant competitive advantages versus smaller local and regional competitors, helping us earn new business and secure repeat business.

              Strategic diversity across customers, suppliers, geographic footprint, products and end-markets.    We believe the diversity of our customers, suppliers, geographic footprint, products and markets served reduces our overall risk exposure. Our broad base of approximately 500,000 customers has low concentration with no single customer representing more than 4% of our total sales and our top 10 customers representing only approximately 8% of our total sales during fiscal 2012. We also believe that by developing relationships with a diverse set of customers, we gain significant visibility into the future needs of our marketplace. We maintain relationships with approximately 15,000 suppliers and maintain multiple suppliers for many of our products, thereby limiting the risk of product shortages. We believe this allows us to deliver a diverse product offering on a cost-effective and timely basis. Our largest supplier accounted for only 3% of our total inventory purchases in fiscal 2012. Our diverse geographic footprint of over 600 locations limits our dependence on any one region. Additionally, our product breadth enables us to meet our customers' specialized and evolving needs with a selection of over one million SKUs and a multitude of customized solutions.

              We believe that our diversity of end-market exposures is a key competitive strength, as our growth opportunities and ability to deploy resources are not constrained by any single end-market dynamic. We believe that we stand to benefit both from large end-markets that are characterized by stable long-term growth potential, as well as from end-markets that are exposed to cyclical dynamics. We expect these cyclical end-markets to recover in layered and overlapping stages at varying points in the economic cycle, as they have done in the past. For example, we believe that our largest business unit, Facilities Maintenance, will continue to provide an opportunity for consistent and substantial long-term growth, given the stability of its MRO end-markets and customer requirements. In addition, we believe our exposure to infrastructure end-markets through our Waterworks and Power Solutions business units will allow us to capitalize on recurring stable demand, as well as a projected increase in demand, due to the


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      current age and state of underinvestment in infrastructure in the U.S. Finally, we believe our exposure to non-residential and residential construction will drive substantial growth with the continued recovery from historical cyclical troughs.

              Highly efficient and well-invested operating platform driving high returns on invested capital.    Through a series of efficiency improvements and investments in the business, we believe we have transformed our business into a highly efficient platform which is well-positioned for future growth. We believe these initiatives have reduced our earnings volatility, freed up working capital, increased our margins, and positioned us to drive operating leverage going forward. Examples of our disciplined approach to streamline our business platform include:

        •
        disposing of our non-core Lumber & Building Materials, Plumbing & HVAC, and IPVF businesses;

        •
        reengineering our business processes to eliminate the need for over 4,000 existing positions, while still maintaining our capacity to grow;

        •
        decreasing our fixed costs by more than $120 million since 2008, which has allowed us to realize significant additional operating leverage;

        •
        replacing 20 disparate HR systems with a single integrated platform;

        •
        consolidating 21 data centers into two enterprise facilities with comprehensive disaster recovery capabilities; and

        •
        implementing, upgrading and consolidating ERP suites.

              In conjunction with substantial cost reductions, we have invested over $600 million into our sales force, working capital, technology and footprint since the beginning of 2010 to grow market share and gain access to complementary markets and products. Approximately $370 million of this investment represented Selling, general and administrative expenses, much of which was associated with expanding and training our sales force. Examples of our growth investments include:

        •
        enhancing our distribution footprint by relocating 53 facilities, opening 46 greenfields and expanding 16 facilities;

        •
        hiring over 700 associates for specific targeted growth initiatives;

        •
        augmenting our e-commerce and marketing programs; and

        •
        adding in excess of 200,000 SKUs.

              Transformational management team.    HD Supply's executive management team has played a vital role in establishing our leading market share positions in each of our four main business units. Our CEO, Joseph DeAngelo, has over 25 years of global operating experience, including over 17 years in various leadership roles at GE and Home Depot, including Chief Operating Officer. The rest of our executive management team has an average of more than 11 years at HD Supply and its predecessors, and brings decades of experience from leading companies including GE, Home Depot, Sears, Ferguson Enterprises, Exxon Mobil, Kraft and Arrow Electronics. We also have highly experienced business unit and field leaders, many of whom have served their respective local markets as part of our legacy businesses for over 20 years. Consistent themes at all levels of our management are long-tenured experience, focus on team chemistry and active presence in the field, which promote effective change.

              Focusing on stringent operational and financial metrics, our management team navigated the economic downturn in 2008 and 2009 while driving operating efficiencies in the business. In addition, we have successfully executed and integrated 20 acquisitions since 2006, including Hughes Supply, and most recently Peachtree and Water Products in fiscal 2012. Our team has also divested non-core businesses, reduced fixed costs by more than $120 million since 2008 and implemented a significant


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      ERP system consolidation and upgrade. We believe these achievements are driven by pervasive training and our instilled culture, comprised of top performers.

              Highly integrated technology infrastructure.    While each of our business units has adopted a single technology platform tailored to its respective markets, we have an integrated IT infrastructure and a number of common technologies and centers of excellence. Our centralized infrastructure provides leading capabilities for web commerce, order and warehouse management, pricing, reporting, administrative functions and business analytics. Additionally, this gives us central access to specific customer and product profitability across the entire business, allowing us to better understand performance variances across business units. Our infrastructure provides talent management, seamless customer integration for sales, optimized receivables and inventory management, as well as highly-scalable internal processes without rework and waste. Collectively, our access to and ability to analyze real-time data provided by our integrated IT infrastructure allows us to take appropriate and swift action across our business units, which we believe differentiates us from our smaller competitors.

              Deep and strategically aligned relationships with suppliers.    We have developed extensive and long-term relationships with many of our approximately 15,000 suppliers. While we make product purchases at each business unit, we have coordinated processes designed to ensure that our product sourcing is conducted under consistent standards and volume purchasing benefits are maximized under a single HD Supply umbrella. We believe our above-market growth provides our suppliers with their own growth opportunities. This plus a history of close coordination, positions us as a preferred distributor for our key suppliers. We believe this alignment with our suppliers allows us to work with their most knowledgeable representatives to obtain the best products and terms. In addition, we believe this provides access to new products, custom training on specialized products and early awareness of upcoming projects. Further, because they enable us to source both standard and difficult-to-find products in a timely manner, our strategic supplier relationships make us the distributor of choice to many of our customers.

              Proven results.    As a result of our strengths discussed above, we have consistently achieved above-market organic growth across our four reportable segments. Organic sales growth for fiscal 2012 compared to the growth in the relevant addressable market is illustrated in the chart below.

      GRAPHIC

      (1)
      We define the relevant addressable market as the estimated total dollars spent in markets where a reportable segment offers products. Market growth figures are management estimates of changes in total spending in the relevant addressable market derived from third-party data sources.

      (2)
      Segment growth based on organic sales growth (excluding acquisitions). HD Supply growth figures exclude the 53rd week of fiscal 2012.

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              In addition, we have consistently achieved strong operating leverage driven by our transformational execution, lean and dynamic organization, and strategic growth initiatives. Operating leverage for fiscal 2012 is illustrated in the chart below.

      GRAPHIC

      (1)
      Segment growth based on sales and Adjusted EBITDA growth. Both growth figures include acquisitions and exclude the 53rd week of fiscal 2012.

      Our Strategy

              Our objective is to strengthen our competitive position, achieve above-market rates of profitable growth through the following key strategies:

              Be the First Choice.    Our aspiration to be the "First Choice" of customers, associates, suppliers and communities drives our strategy and defines our culture. We seek to strengthen existing customer relationships and cultivate new ones through our customer-centric approach and dedication to their success. Strong, long-term, growing customer relationships—both existing and new—are at the core of our strategy, built upon focus, reliability, and product and service excellence. We believe that our customers understand and appreciate our "First Choice" philosophy, which helps us follow our growing customers as they enter new geographies and markets.

              "First Choice" extends beyond our customer relationships and includes our associates, suppliers and the communities in which we operate. Our dedication to providing superior work environments, experiences and opportunities supports our efforts to be the "First Choice" of the most qualified and motivated associates in the industry. Similarly, we believe that we maintain excellent relationships with our suppliers and strive to be their first call when choosing a go-to-market strategy for their products. Our scale and efficiency enable us to provide our suppliers with real-time feedback on demand characteristics and move their products with speed and precision, which helps ensure that we will continue to be their "First Choice." Consistent with our local presence and focus, we actively invest in the communities in which we operate, supporting organizations, programs and events that foster community development both financially and through the volunteer efforts of our associates.

              Continue to invest in specific, high-return initiatives.    Over the past three years, we have invested more than $600 million into specific, targeted operating and growth initiatives driving profitability and efficient growth. We will continue to leverage these initiatives and invest in additional growth initiatives.


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      We expect these initiatives will help us maintain above market, profitable growth rates. Our organic growth initiatives include:

        •
        further penetrating accounts with existing customers;

        •
        leveraging existing sales channels to introduce new products and services including proprietary brands;

        •
        acquiring talent to help penetrate untapped customer niches;

        •
        accelerating sales via established e-commerce and catalog channels as well as logistics capabilities;

        •
        continuing to expand our local presence through strategic greenfields; and

        •
        developing product and sales capabilities to serve new, adjacent markets.

              Capitalize on accelerating growth across our multiple and varied end-markets.    We have made significant investments and believe we can benefit from the recovery and growth in our end-markets. For example, in the Maintenance, Repair & Operations market, we expect continued steady growth to further benefit from an increase in demand during periods of lower multifamily vacancy rates and high occupancy rates within hospitality. We have also strategically and operationally positioned ourselves to benefit from a recovery in our end-markets that are exposed to cyclical dynamics. We believe our maintenance, repair and operations market, infrastructure spending and the non-residential and residential construction markets are entering a series of inflection points which will accelerate in sequential, overlapping stages throughout the economic cycle, as they have historically. Additionally, we believe many of our customers delayed required upgrades or repairs during the recent economic downturn, and there is a substantial backlog of projects to be addressed in the coming years. We believe our ample supply capacity and significant operating leverage will result in growth across our various end-markets.

              Continue to invest in attracting, retaining and developing world-class talent.    To be the "First Choice," we will maintain and expand our already-strong talent base. Our talent-focused strategy applies throughout our organization, from our most senior executive positions to the roles of each of our associates. We develop our employees through specialized training and learning tools. In addition, we deliver attractive opportunities to our associates while spreading knowledge and expertise across our entire organization through frequently redeploying top talent between business units. We believe these opportunities are superior to those offered by much of our competition, and help us develop, attract and retain world-class talent. Furthermore, our focus and culture have led to investments in a range of broader associate benefits, such as our "Be Well" program, through which our CEO has challenged each employee to achieve a specified level of physical health (as measured by body mass index and other health targets), which we track and reward across the organization.

              Continue our focus on operational excellence and speed and precision of execution.    Our gross margins have increased from 28.0% in fiscal 2009 to 28.9% in fiscal 2012 and our Selling, general and administrative expenses as a percentage of sales declined from 23.0% to 20.7% during the same time period. We emphasize sourcing, pricing discipline and working capital management across all of our business units. As a result of our discipline and ability to successfully leverage our fixed cost infrastructure, our financial performance has improved through the recent downturn. Our gross margin improvement initiatives include:

        •
        continuing the consolidation of our suppliers to aggregate total product spend and increase sourcing from low cost countries;

        •
        optimizing our inbound freight costs, physical facilities and delivery fleet; and

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        •
        growing sales of proprietary-brand products, which enhance customer loyalty and typically generate higher gross margins than leading third-party brands; approximately 7% of our fiscal 2012 sales were generated by proprietary-brand products.

              Other recent initiatives that allow us to capture cost savings as we grow include continued investment in technology, further optimization of our working capital and consolidation of our back office operations. Our continued focus on operational excellence enables us to drive the speed and precision necessary to be the "First Choice."

              Attract new customers and develop new market opportunities.    We believe the comprehensive nature of our operations across a project lifecycle facilitates extensive, shared market awareness among our business leaders. We believe this widespread market insight enhances our customer relationships as it allows us to partner with customers in understanding their specific needs and providing quality products and services. We intend to capitalize on our market awareness of new projects to maximize sales across all of our business units. Our four principal business units can provide the materials and tools necessary to construct buildings and infrastructure above and below the ground, while also supplying the components needed to keep the operations well maintained. We believe this is the "HD Supply Advantage," or our differentiated ability to "supply the products and services to build your city and keep it running."

              Supplement strong organic growth with "tuck-in" acquisitions in core and adjacent markets.    Our organic growth is complemented by select "tuck-in" acquisitions in core and adjacent markets to supplement our product set, geographic footprint and other capabilities. Through our own sales force as well as premier customer and supplier relationships, we are typically aware of relevant acquisition opportunities. Our business development team selectively pursues acquisitions that are culturally compatible and meet our growth and business model criteria. Additionally, as evidenced by our successful acquisition history, we have a strong track record as a disciplined acquiror who quickly and efficiently integrates acquired businesses into the HD Supply culture and operations. As a result of our highly efficient operations, industry-leading IT systems, strategically-aligned supplier relationships and broad distribution platform, there are opportunities to achieve substantial synergies in our acquisitions, and thereby reduce our effective (post-synergy) transaction multiples.

      Our History

      In March 1997, The Home Depot, Inc. (“Home Depot”),the former parent of our former parent,operating subsidiaries, acquired Maintenance Warehouse / America Corp., a Texas corporation organized on January 26, 1985, and a leading direct marketer of maintenance, repair and operations (“MRO”)MRO products to the hospitality and multifamily housing markets. Since 1997, our business has grown rapidly, primarily through the acquisition of more than 40 businesses. We changed our name to HD Supply, Inc. on January 1, 2007 and converted to a Delaware corporation on August 31, 2007.

      From fiscal 2000 to fiscal 2004, we extended our presence into new categories while growing existing businesses through 10 acquisitions. New businesses included plumbing and HVAC (through the acquisition of Apex Supply), flooring products and installation (Floors, Inc., Floor Works,Floorworks, Inc., Arvada Hardwood Floor Co.)Company) and specialty hardware, tools and materials for construction contractors (White Cap).

      Growth at existing businesses was driven organically and through “tuck-in”"tuck-in" acquisitions, expanding our presence in the Maintenance, Repair & Improvement segmentOperations market sector (N-E Thing Supply, Economy Maintenance Supply) and flooring and design services for professional homebuilders (Creative Touch Interiors).

              In fiscal 2005, we accelerated the pace of consolidation by acquiring 18 businesses, the largest of which was National Waterworks, a leading distributor of products used to build, repair and maintain water and wastewater transmission systems. In fiscal 2006, we transformed our business with the acquisition of Hughes Supply, which doubled our Net sales and further established our market leadership in a number of our largest businesses,business units, which we supplemented with 11 other strategic acquisitions.


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      In 2007, through the Transactions, investment funds associated with the Equity Sponsors formed HoldingHoldings and purchased HD Supply from Home Depot. In connection with the Transactions,2007 Acquisition, Home Depot obtained a 12.5% interest in the common stock of Holding.Holdings.

      Since 2007, we have focused on extending our presence in key growth sectors and exiting less attractive sectors. In February 2008, we sold our Lumber and Building Materials operations to ProBuild Holdings. In June 2009, we purchased substantially all of the assets of ORCO Construction Supply, the second largest construction materials distributor in the U.S., through our White Cap business.Cap. In February 2011, we sold all of the assets of SESCO/QUESCO, an electrical products division of HD Supply Canada, to Sonepar Canada. In May 2011, we purchased all of the assets of Rexford Albany Municipal Supply Company, Inc.,RAMSCO, expanding our Waterworks business in upstate New York. In September 2011, we sold our Plumbing/HVAC operations to Hajoca Corporation. In March 2012, we sold our Industrial PVFIPVF business to Shale-Inland Holdings LLC. In June 2012, we acquired Peachtree, Business Products LLC, which specializes in customizable business and property marketing supplies, serving residential and commercial property managers, medical facilities, schools and universities, churches and funeral homes. Peachtree Business Products LLC is operated as part of ourto enhance Facilities Maintenance business.Maintenance. In December 2012, we purchased substantially all of the assets of Water Products, expanding the geographic footprint of Oklahoma, Inc., Arkansas Water Products, LLC,Waterworks.

              On July 2, 2013, our parent company, Holdings, completed an initial public offering of 61,170,212 shares of its common stock on the NASDAQ Global Select Market, resulting in net proceeds of approximately $1.0 billion, net of underwriters' discounts and Municipal Water Works Supply, LP. These businesses distribute water, sewer, gascommissions and related products, such as pipes, valves, fittings, hydrants, pumpspaid and meters, and offer maintenance products and repair services primarilyunpaid offering expenses of approximately $17 million. The net proceeds from the offering were used to municipalities and contractors. The businesses are operated as partredeem all $950 million of the Waterworks segment.

      Index to Financial Statements

      Our sectors

      Through seven industrial distribution companies in the U.S.outstanding January 2013 Senior Subordinated Notes and a Canadian operation, we provide productspay related transaction fees and services to professional customers in the Infrastructure & Energy, Maintenance, Repair & Improvement and Specialty Construction market sectors. Most of our businesses operate in markets with a high degree of customer and supplier fragmentation, which typically demand a high level of service and availability of a broad set of complex products from a large number of suppliers. These factors drive the importance of the distributor within the value chain and create barriers to entryother expenses. The remaining net proceeds were used for suppliers to sell directly to customers.

      The following table sets forth the relationship among our three market sectors, our seven businesses and our four financial reporting segments.

      Market sector

      Business

      Financial reporting segment

      •   Infrastructure & Energy

      •   Waterworks

      •   Waterworks

      •   Power Solutions

      •   Power Solutions

      •   Maintenance, Repair & Improvement

      •   Facilities Maintenance

      •   Facilities Maintenance

      •   Crown Bolt

      •   Other

      •   Repair & Remodel

      •   Other

      •   Specialty Construction

      •   White Cap

      •   White Cap

      •   CTI

      •   Other

      For segment information, including Net sales, Adjusted EBITDA and Total assets of each financial reporting segment, and financial geographic data see “Notes to Audited Consolidated Financial Statements—Note 15—Segment Information” and “Notes to Unadudited Consolidated Financial Statements—Note 12—Segment Information.”general corporate purposes.

      Customers and suppliersSuppliers

      We maintain a customer base of approximately 440,000500,000 customers, the majoritymany of which represent long-term relationships. Home Depot is our largest customer, accounting for 3.9%approximately 4% of fiscal 20112012 Net sales. We are subject to very low customer concentration with no customer, other than Home Depot, representing more than 1% of fiscal 20112012 Net sales, reducing our exposure to any single customer.

      We have developed relationships with approximately 14,00015,000 strategic suppliers, many of which are long-standing. These supplier relationships provide us with reliable access to inventory, volume purchasing benefits and the ability to deliver a diverse product offering on a cost-effective basis. We maintain multiple suppliers for a substantial number of our products, thereby limiting the risk of product shortage for customers.

      Competition

      We operate in a highly fragmented industry and hold a leading positionpositions in multiple market sectors. Our nationalCompetition, including our competitors include Wolseley (Ferguson Enterprises), Rexel, Grainger, Wesco, Fastenal, Watsco and Interline Brands.specific competitive factors, varies for each market sector. The majority of our competitors, however, arecompetition comes from mid-size regional distributors and small, local distributors.distributors; however, we also face competition from a number of national competitors, including Fastenal, Grainger, MSC Industrial, Rexel, Watsco, WESCO and Wolseley plc (Ferguson division).

              We believe the principal competitive factors for our market sectors include local selling capabilities, availability, breadth and cost of materials and supplies, technical knowledge and expertise, value-add service capabilities, customer and supplier relationships, reliability and accuracy of service, effective use of technology, delivery capabilities and timeliness, pricing of products, and the provision of credit. We believe that our competitive strengths and strategy allow us to compete effectively in our market sectors.


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      Seasonality

      In a typical year, our operating results are impacted by seasonality. Historically, sales of our products have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these periods. Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as cold or wet weather, which can delay construction projects.

      Index to Financial Statements

      Infrastructure & Energy market sector

      We serve customers in the Infrastructure & Energy market sector by striving to meet their demand for the critical supplies and services required to support established infrastructure and promote economic growth. The Waterworks and Power Solutions businesses serve this sector. Their broad geographic presence, through a regionally organized distribution network of branches, reduces our exposure to economic factors in any single region.

      Products

      Waterworks: Pipes, fittings, valves, hydrants and meters for use in the construction, maintenance and repair of water and waste-water systems as well as fire-protection systems.

      Power Solutions: Conductors (wire and cable), transformers, overhead transmission and distribution hardware, switches, protective devices and underground distribution, connectors used in the construction or maintenance and repair of electricity transmission and substation distribution infrastructure, and electrical wire and cable, switchgear, supplies, lighting and conduit used in residential and commercial construction.

      Maintenance, Repair & Improvement market sector

      We serve customers in the Maintenance, Repair & Improvement market sector by delivering supplies and services needed to maintain and upgrade facilities across multiple industries. Our businesses serving customers in this market sector include Facilities Maintenance, Repair & Remodel and Crown Bolt. Facilities Maintenance and Crown Bolt are distribution center based models, while the Repair & Remodel business is a retail outlet primarily serving cash and carry customers.

      ProductsOperations:

      Facilities MaintenanceMaintenance:: Kitchen    Electrical and bathroomlighting items, plumbing, HVAC products, heating, ventilatingappliances, janitorial supplies, hardware, kitchen and air conditioning (“HVAC”) products, toolsbath cabinets, window coverings, textiles and repair materials, appliances, cabinet and drawer hardware, door hardware and locksets, fasteners, lighting, electrical maintenance supplies, safety products, guest amenities, textiles, healthcare maintenance and janitorial supplies for the maintenance, repairwater and ongoing operations of multifamily, hospitality, healthcare, institutional and commercial properties.wastewater treatment products.

      Crown BoltBolt::    Fasteners, builders hardware, rope and chain, and plumbing accessories primarily consumed in home improvement, do-it-yourself projects and residential construction.

      Repair & RemodelRemodel::    Kitchen cabinets, windows, plumbing materials, masonry, electrical equipment, lumber, flooring and tools and tool rentals for small remodeling, home improvement and do-it-yourself residential projects.

      Specialty Construction market sector

      We serve customers in the Specialty Construction market sector by delivering distinct, targeted products and services for commercial, residential and industrial applications. Our businesses serving this market sector include White Cap and CTI. Their broad geographic presence, through a regionally organized distribution network of branches, reduces our exposure to economic factors in any single region.

      ProductsInfrastructure & Power:

              Waterworks:    Water and wastewater transmission products including pipe (PVC, Ductile Iron, HDPE), fittings, valves, fire protection, metering systems, storm drain, hydrants, fusion machine rental, valve testing and repair.

              Power Solutions:    Pole line hardware, wire and cable, gear and controls, power equipment, fixtures and lighting, meters.

      Specialty Construction:

      White CapCap:: Tilt-up brace systems, forming    Concrete accessories and shoring systems, concrete chemicals, hand and power tools, rebar, ladders, safety and fall arrest equipment, specialty screwsengineered materials and fasteners, sealants and adhesives, drainage pipe, geo-synthetics, andsafety, erosion and sediment control used broadly across all types of residential and non-residential construction.waterproofing.

      Index to Financial Statements

      CTI        CTI::    Flooring, cabinets, countertops and window coverings, along with comprehensive design center services, for the interior finish of non-residential, residential commercial, and senior living projects.

      HD Supply CanadaProperties

      HD Supply Canada (“HDS Canada”) is        As of February 3, 2013, we had a network of over 600 locations, of which approximately 50 were owned and 550 were leased. We generally prefer to lease our locations, as it provides the flexibility to expand or relocate our sites as needed to serve evolving markets. Our leased locations comprise approximately 17 million square feet while our owned locations comprise approximately 2 million square feet. Our leases typically have an industrial distributorinitial term that primarily focuses on servicing fasteners/ industrial suppliesranges from 3 to 5 years, and specialty lighting markets. HDS Canada operates across nine provinces. In the Canadian specialty lighting distribution market, HDS Canada competes with other large national playersleases usually provide for the option to renew. We currently lease approximately 55,000 and 195,000 square feet of office space in Atlanta, Georgia and Orlando, Florida, respectively, for our corporate headquarters. We believe our locations meet our current needs and that additional locations will be available as well as regional distributors. Inwe expand in the fasteners market, HDS Canada’s key competitors are a few large, national players, including Fastenal and Acklands-Grainger, as well as regional competitors.future.


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      Intellectual property

      Our trademarks and those of our subsidiaries, certain of which are material to our business, are registered or otherwise legally protected in the United States, Canada and elsewhere. We, together with our subsidiaries, own approximately 200160 trademarks registered worldwide. We also rely upon trade secrets and know-how to develop and maintain our competitive position. We protect intellectual property rights through a variety of methods, including trademark, patent, copyright and trade secret laws, in addition to confidentiality agreements with suppliers, employees, consultants and others who have access to our proprietary information. Generally, registered trademarks have a perpetual life,provided that they are renewed on a timely basis and continue to be used properly as trademarks. We intend to maintain our material trademark registrations so long as they remain valuable to our business. Other than the trademarksHD Supply (and design),Crown Bolt, National Waterworks (and design),USABluebook,Creative Touch Interiors andWhite Cap, we do not believe our business is dependent to a material degree on trademarks, patents, copyrights or trade secrets. Other than commercially available software licenses, we do not believe that any of our licenses for third-party intellectual property are material to our business, taken as a whole. See “Risk"Risk Factors—Risks Relating to Our Business—If we are unable to protect our intellectual property rights, or we infringe on the intellectual property rights of others, our ability to compete could be negatively impacted.”"

      Employees

      In domestic and international operations, we had approximately 14,50015,000 employees as of October 28, 2012,February 3, 2013, consisting of approximately 8,8009,000 hourly personnel and 5,700approximately 6,000 salaried employees.

              As of October 28, 2012,August 4, 2013, less than one percent of our hourly workforce was covered by three separate collective bargaining agreements.

      Regulation

      Our operations are affected by various statutes, regulations and laws in the markets in which we operate, which historically have not had a material effect on our business. While we are not engaged in a “regulated”regulated industry, we are subject to various laws applicable to businesses generally, including laws affecting land usage, zoning, the environment, health and safety, transportation, labor and employment practices (including pensions), competition, immigration and other matters. Additionally, building codes may affect the products our customers are allowed to use, and consequently, changes in building codes may affect the saleability of our products. The transportation and disposal of many of our products are also subject to federal regulations. The U.S. Department of Transportation (“DOT”)DOT regulates our operations in domestic interstate commerce. We are subject to safety requirements governing interstate operations prescribed by the DOT. Vehicle dimensions and driver hours of service also remain subject to both federal and state regulation. See “Risk"Risk Factors—Risks Relating to Our Business—Our costs of doing business could increase as a result of changes in U.S. federal, state or local regulations.”"

      Index to Financial Statements

      Environmental, healthHealth and safety mattersSafety Matters

      We are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those pertaining to air emissions, water discharges, the handling, disposal and transport of solid and hazardous materials and wastes, the investigation and remediation of contamination and otherwise relating to health and safety and the protection of the environment and natural resources. As our operations, and those of many of the companies we have acquired, to a limited extent involve and have involved the handling, transport and distribution of materials that are, or could be classified as, toxic or hazardous, there is some risk of contamination and environmental damage inherent in our operations and the products we handle, transport and distribute. Our


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      environmental, health and safety liabilities and obligations may result in significant capital expenditures and other costs, which could negatively impact our business, financial condition and results of operations. We may be fined or penalized by regulators for failing to comply with environmental, health and safety laws and regulations, or we may be held responsible for such failures by companies we have acquired. In addition, contamination resulting from our current or past operations, and those of many of the companies we have acquired, may trigger investigation or remediation obligations, which may have a material adverse effect on our business, financial condition and results of operations.

      Legal proceedingsProceedings

      HD Supply is involved in litigation from time to time in the ordinary course of business. In management’smanagement's opinion, none of the proceedings are material in relation to the consolidated operations, cash flows, or financial position of HD Supply and the Company has adequate reserves to cover its estimated probable loss exposure.

      In April 2012, the Company was contacted by prosecutors for SCAQMD in California regarding allegations that the Company sold products in violation of applicable SCAQMD VOC (volatile organic compound) rules.        The Company has received a requestbeen informed that the Office of the United States Attorney for information from SCAQMD seeking informationthe Northern District of New York is conducting an investigation related to the alleged violations.activities of certain disadvantaged business enterprises. In May of 2011, in connection with that investigation, the government executed a search of an entity from which Waterworks purchased assets shortly before the search was executed. On June 20, 2012, in connection with that same investigation, the government executed search warrants at two Waterworks branches. The Company is inupdated by the process of respondinggovernment on its investigation periodically and continues to cooperate with the request for information. Althoughinvestigation. While the Company cannot predict the outcome, ofit believes a potential loss on this matter is reasonably possible but due to the current state of the investigation it doesis not expect the outcomeable to haveestimate a material adverse effect on its consolidated financial condition or resultsrange of operations.potential loss.


      Index to Financial StatementsTable of Contents


      MANAGEMENT

      The following table sets forth certain information concerning our executive officers and directors:directors. The respective age of each individual in the table below is as of August 31, 2013.

      Name
      		AgePosition

      NameJoseph J. DeAngelo

      		 Age52 

      Position

      Joseph J. DeAngelo

      		51President and Chief Executive Officer, Director of HoldingHoldings and HD Supply

      Ronald J. Domanico

      		 5455 Senior Vice President and Chief Financial Officer

      Ricardo J. Nunez

      		 4849 Senior Vice President, General Counsel and Corporate Secretary

      Vidya ChauhanMargaret Newman

      		 55Senior Vice President, Strategic Business Development

      Michele M. Markham

      		50Senior Vice President and Chief Information Officer

      Margaret Newman

      		 44 Senior Vice President, Human Resources, Marketing & Communications

      Joseph IzganicsJerry Webb

      		 5155 Senior Vice President, HD Supply

      Mark Fabere

      		54Senior Vice President, Operations

      Jerry Webb

      		54President,Chief Executive Officer, HD Supply Waterworks

      Anesa Chaibi

      		 4647 President and Chief Executive Officer, HD Supply Facilities Maintenance

      John Stegeman

      		 5152 Executive President, HD Supply and President, HD Supply White Cap

      Rick J. McClure

      		 54 President,Chief Executive Officer, HD Supply Power Solutions

      Steven MargoliusJames G. Berges

      		 54Chief Operating Officer, HD Supply Power Solutions and HD Supply Chief Commercial Officer

      Richard Fiechter

      		62President, HD Supply Repair & Remodel

      Gary Landress

      		61President, Crown Bolt

      Vasken Altounian

      		53President, HD Supply Canada

      James G. Berges

      		6566 Chairman of the Board of Directors of HoldingHoldings and HD Supply

      Vipul AminBetsy S. Atkins

      		 3660 Director of HoldingHoldings and HD Supply

      Brian A. Bernasek

      		 4041 Director of HoldingHoldings and HD Supply

      Paul B. Edgerley

      		 57 Director of HoldingHoldings and HD Supply

      Mitchell Jacobson

      		 6162 Director of HoldingHoldings and HD Supply

      Lew KlesselGregory Ledford

      		 4556 Director of HoldingHoldings and HD Supply

      Gregory LedfordPatrick R. McNamee

      		 5553 Director of HoldingHoldings and HD Supply

      Charles W. Peffer

      		65Director of Holdings and HD Supply

      Nathan K. Sleeper

      		 39 Director of HoldingHoldings and HD Supply

      Stephen M. Zide

      		 5253 Director of HoldingHoldings and HD Supply

      Joseph J. DeAngelo has been President and Chief Executive Officer since January 2005 and has been a director of Holding and HD Supply since August 30, 2007. Mr. DeAngelo served as Executive Vice President and Chief Operating Officer of Home Depot from January 2007 through August 30, 2007. From August 2005 to December 2006, he served as Senior Vice President—HD Supply. From January 2005 to August 2005, Mr. DeAngelo served as Senior Vice President—Home Depot Supply, Pro Business and Tool Rental and from April 2004 through January 2005, he served as Senior Vice President—Pro Business and Tool Rental. Mr. DeAngelo previously served as Executive Vice President of The Stanley Works, a tool manufacturing company, from March 2003 through April 2004. From 1986 until April 2003, Mr. DeAngelo held various positions with General Electric Company.GE. His final position with GE was as President and Chief Executive Officer of GEGeneral Electric TIP/Modular Space, a division of GEGeneral Electric Capital. Mr. DeAngelo holds a bachelor’sbachelor's degree in Accounting and Economics from the State University of New York at Albany.

      Ronald J. Domanico has been Senior Vice President and Chief Financial Officer since April 2010, joining HD Supply from Caraustar Industries, Inc., a leading manufacturer of recycled paperboard and converter of paperboard products, where he served as vice presidentVice President and chief financial officerChief Financial Officer beginning October 2002. Caraustar and certain of its subsidiaries filed voluntary petitions on May 31, 2009 in the United States Bankruptcy Court for the Northern District of Georgia seeking relief under the provisions of Chapter 11 of the Bankruptcy Code, and successfully emerged from bankruptcy in August 2009. Prior to joining Caraustar, Mr. Domanico was executive vice presidentExecutive Vice President and chief financial officerChief Financial Officer at AHL Services, Inc. From 1981 to 2000, he worked at Kraft Foods and Nabisco in progressively senior roles of increasing responsibility in financial management, operations, planning and business development. Mr. Domanico’sDomanico's last eleven years at Kraft and

      Index to Financial Statements

      Nabisco, including seven years living abroad, were in chief financial officer positions.positions of operating subsidiaries/divisions. When he left the company, he was senior vice presidentSenior Vice President and Chief Financial Officer for Nabisco International and Chief Executive Officer for Nabisco Asia. Mr. Domanico was named to the Caraustar board of directors in May 2006 and served until his departure in 2009. He is also a board member of the Georgia Council on Economic Education The Coles College of Business at Kennesaw State University, the Georgia Amateur Wrestling Association and the Fellowship of Christian Athletes—Wrestling and also serves on the advisory board of the CFO Roundtable. Mr. Domanico holds a bachelor's


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      degree in Management Science and an M.B.A. with a concentration in Finance from the University of Illinois in Urbana-Champaign.

      Ricardo J. Nunez has served as Senior Vice President, General Counsel and Corporate Secretary since August 2007 and iswas also responsible for all Legal, Regulatorymanaging our Real Estate, Loss Prevention, Corporate Security, Business Continuity, and Compliance affairsEnvironmental, Health and Safety operations for a portion of the Company.this time. Mr. Nunez served as Vice President of Legal Operations of The Home Depot Inc. from August 2005 to August 2007. Previously, he held leadership positions at General Electric (GE) Energy ("GE Energy"), which included lead legal counsel responsible for global manufacturing and sourcing, global compliance, and sales of products and services. Prior to joining GE Energy, Mr. Nunez served as counsel at Esso Inter-America Inc., the Exxon affiliate responsible for downstream operations throughout Latin America and the Caribbean. Mr. Nunez also spent four years at Steel, Hector & Davis, a law firm based in Florida, where he practiced real estate and land use law primarily. He is active in various civic and charitable organizations and currently servessits on the board of directors of The Westminster Schools and The Atlanta Speech School. Mr. Nunez holds a bachelor’sbachelor's degree in Economics from the Wharton School at the University of Pennsylvania and a J.D. from Columbia Law School.

      Vidya Chauhan has served as Senior Vice President, Strategic Business Development since July 2005. Prior to that, he worked as a consultant to Home Depot from October 2004 to July 2005. Mr. Chauhan pursued personal and other interests between December 2000 and October 2004. Prior to working with Home Depot and HD Supply, he worked at General Electric Company for 18 years, most recently in the position of Vice President and Chief Risk Officer for GE Auto Financial, between 1998 and 2000. Mr. Chauhan has also held several business development and leadership roles within GE Capital Services, Corporate Audit Staff and the Aerospace division between 1982 and 1998. Before commencing his corporate career, Mr. Chauhan was a Lieutenant with the U.S. Navy Submarine Force, where he served for five years as a Nuclear Engineer. He is a graduate of the University of Pennsylvania with a degree in Mathematics and Physics.

      Michele M. Markham has served as Senior Vice President and Chief Information Officer since she joined HD Supply in November 2005. Prior to joining HD Supply, Ms. Markham worked for General Electric Infrastructure as Global Indirect Sourcing Manager from June 2004 until November 2005. Ms. Markham was appointed Senior Vice President and Chief Information Officer at GE Capital–TIP/Modular Space from May 2002 until June 2004. From May 1995 until May 2002, she worked at GE Appliances in various Finance and Information Technology leadership roles. From March 1987 until May 1995, Ms. Markham worked at GE Plastics holding Finance, Sales and Information Technology positions. Ms. Markham holds an M.B.A., with a Finance concentration from Union College and holds a B.S. in Computer Science from Siena College.

      Margaret Newman joined HD Supply in April 2007 and has served as Senior Vice President of Human Resources, Marketing and Communications since July 2008, after having joined HD Supply in April 2007.2008. Prior to joining HD Supply, Ms. Newman held senior HRHuman Resources leadership roles at Conseco Insurance Group from August 2005 to April 2007, and at Sears Roebuck and Company from September 1997 to August 2005. She has overmore than 19 years of business experience in the manufacturing industry, building her expertise in organizational effectiveness,effectiveness; acquisition and integration,integration; benefits design,design; talent acquisition and management,management; leadership development and employee engagement. Ms. Newman holds a bachelor’sbachelor's degree in Psychology from Coe College and master’smaster's degree in Sociology from the University of Wisconsin.

      Joseph IzganicsJerry Webb has served as Senior Vice President,Chief Executive Officer, HD Supply Waterworks since April 2010 leading the Creative Touch Interiors, Crown Bolt, HD Supply Repair & Remodel,December 2011, and HD Supply Canada businesses. Prior to joining HD Supply, Mr. Izganics served as a division president for The Home Depot, where he was responsible for 800

      Index to Financial Statements

      stores across the Eastern United States. He joined The Home Depot in 1989 as an Assistant Manager in training and worked his way up through various leadership positions to Division President. With more than nineteen years of experience, he has served as Store Manager, District Manager, Regional Vice President and Division President for The Home Depot. From 2005 to 2007, he served as Senior Vice President of Pro Business and Tool Rental of Home Depot and served as its Senior Vice President of Services from 2002 to 2005. Prior to joining The Home Depot, he helped start a garden center business and held management positions with Mr. Goodbuys Home Center.

      Mark Faberehas served as Senior Vice President, Operations since August 2012. Prior to that, he served as vice president of global sourcing for HD Supply from January 2011 to August 2012. Mr. Fabere joined HD Supply in 2005, as a regional vice president, Creative Touch Interiors. He has since held leadership positions of increasing responsibility in operational roles supporting all of the HD Supply businesses. Mr. Fabere began his career in the GE Corporate Technical Sales and Marketing Leadership Program in 1985. He also graduated from the GE Corporate Training Leadership Program for Manufacturing and Operations. He subsequently held roles in quality, distribution, manufacturing, operations, and Six Sigma Quality and held the role of Plant Manager for one of GE Lighting’s largest manufacturing facilities. Mr. Fabere also worked for GE Equipment Services as senior vice president of operations for the trailer fleet service and modular space enterprise. Mr. Fabere holds a bachelor’s degree in Mechanical Engineering from Iowa State University.

      Jerry Webb has served as President, HD Supply Waterworks sincefrom March 2007.2007 to November 2011. Mr. Webb joined the HD Supply team in connection with the acquisition of National Waterworks Holdings, Inc., by HD Supply in August 2005. Mr. Webb has spent his entire career in HD Supply Waterworks and its predecessor companies: National Waterworks, U.S. Filter Distribution Group, Inc. and Davis Water & Waste Industries ("Davis"). Mr. Webb previously served as Vice President of the Southeast Region of National Waterworks and, subsequent to our acquisition of National Waterworks, of HD Supply Waterworks from November 2002 through March 2007. Mr. Webb startedHe began his career as a sales representativein 1981 with Davis Water and Waste Industries from 1986 until 1988, and worked as aserved in numerous capacities including Sales Representative, Operations Manager, Branch Manager, from 1988 until 1995. He then served asDistrict Manager and National Sales Manager of Davis Water between 1995 and 1996.Manager. Following the acquisition of Davis by U.S. Filter, Mr. Webb served as Vice President for the Southeast Region of U.S. Filter from 1996 until 2002. Mr. Webb receivedholds a B.B.A. degree in Accounting from Valdosta State University.

      Anesa Chaibi has served as President and Chief Executive Officer, HD Supply Facilities Maintenance since September 2005. Prior to joining HD Supply, Ms. Chaibi served as General Manager of Global Quality and Commercial Operations for GE Water & Process Technologies in 2005. From 2003 until 2005, Ms. Chaibi was General Manager, Global Sourcing atbegan her career in 1989 in the GE Chemical and Materials Leadership Program. She held roles of increasing responsibility in manufacturing, operations, production, marketing, corporate initiatives, global sourcing, Six Sigma Quality, and as a Business Leader within GE Silicones, Plastics, Power Systems, Industrial Systems, Water & Process Technologies and in 2004, became the General Manager, Global SourcingInfrastructure before leaving to join Home Depot and then HD Supply. During her career, she also worked for GE Infrastructure. In 2001,CSC Index as a Strategic Management Consultant. Ms. Chaibi joined GE Power Systems as General Manager, Product Management and Operations for the Digital Energy business unit, andhas a Bachelor of Science in January 2002, she was appointed General Manager for the Advanced Power Systems division, a position she held through April 2003. Ms. Chaibi started her career with General Electric in 1989 in the Technical Leadership Program, and held roles of increasing responsibility throughout GE Silicones and GE Plastics until 1995. After receiving her M.B.A. at Duke University in 1997, she returned to General Electric as a manager for Corporate Initiatives in 1998, having worked as a consultant for the CSC Index from 1997 to 1998. Ms. Chaibi received her undergraduate degree in Chemical Engineeringchemical engineering from West Virginia University and an M.B.A. from the Fuqua School of Business at Duke University.

      John Stegeman joined HD Supply in April 2010 as Executive President. Effective September 2010, Mr. Stegeman was also appointed to servePresident and focused on building the Specialty Construction and Safety business as the President of HD Supply White Cap, in addition to continuing his role of providing strategic input to HD Supply Waterworks, HD Supply Electrical, and HD Supply Plumbing/HVAC in his Executive President role.Cap. Prior to joining HD Supply, Mr. Stegeman was most recently presidentPresident and CEOChief Executive Officer of Ferguson Enterprises ("Ferguson"), headquartered in Newport News, Virginia from 2005 to 2009. He began his


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      career with Ferguson in 1985 as a management trainee and advanced through the company holding various management positions in three of Ferguson’sFerguson's five business groups: Waterworks, Plumbing, and Heating and Air Conditioning. Mr. Stegeman made a major impact onAs part of the Ferguson Waterworks business group, where he was senior vice presidentMr. Stegeman served as Senior Vice President before being named Chief Operating Officer of Ferguson in May 2005. Mr. Stegeman received a bachelor’sbachelor's degree from Virginia Tech and has attended advanced management programs at Wharton School of Business, IMD, Duke’sDuke University's Fuqua School of Business, University of Virginia Darden School of Business and Columbia University.

      Index to Financial Statements

      Rick J. McClure has served as President, HD Supply Power Solutions since MarchAugust 2012 when HD Supply combined its Utilities and Electrical businesses. Prior to that, he served as President of HD Supply Utilities from 2006 to August 2012. Mr. McClure joined HD Supply in connection with the acquisition of Hughes Supply by HD Supply in February 2006. He previously served in the same position atas President, Hughes SupplyUtilities from March 2004,2005 to 2006, and was Vice President of Utilities at Hughes Supply from August 2002 until March 2004.2005. Mr. McClure was President and Chief Executive Officer of Utiliserve from 1997 to August 2002, and spent almost 20 years in leadership roles within Operations Management and Sales & Operations Management at Utiliserve between 1978 and 2002. Mr. McClure holds a degree in Electrical Engineering from the University of Colorado at Denver.

      Steven Margolius has served as Chief Operating Officer, HD Supply Power Solutions and HD Supply Chief Commercial Officer since April 2011. Mr. Margolius served as Executive Vice President and Chief Operating Officer of United Sporting Companies from April 2010 until March 2011. Mr. Margolius served as President, HD Supply Electrical from April 2006 to March 2010 and as President, HD Supply Plumbing/HVAC from July 2009 to March 2010. Prior to joining the Company, Mr. Margolius served for five years as Vice President of Finance and Support Services for Arrow Electronics, North American Components Division. In addition to his financial role at Arrow, he led the Logistics organization and served as the leader for the Global Lean Sigma initiative. Mr. Margolius spent 15 years with General Electric Company, most recently serving as the General Manager for Pricing at GE Appliances. While with GE, he held multiple financial leadership roles in the areas of Global Financial Planning and Analysis, Sales and Marketing, and Manufacturing. His GE assignments have been in Europe and the U.S. and spanned the Power Systems, Plastics, Silicones, and Appliances businesses as well as the Corporate Audit Staff. Mr. Margolius is a graduate of the State University of New York and has received additional executive education at the Harvard Business School and the Stanford Business School.

      Richard Fiechter has served as President, HD Supply, Repair & Remodel since June 2005. During his 29-year tenure with HD Supply and its predecessor companies, Mr. Fiechter has held various positions from Regional Manager to President, including serving as Vice President, General Manager of Contractors’ Warehouse from April 1997 to June 2005. Prior to HD Supply, Mr. Fiechter was employed for 10 years by Payless Cashways, a home improvement products chain in the Midwest. Before Payless, Mr. Fiechter was a protégé of Ron Carver, owner of Carver Lumber, for over four years. Mr. Fiechter completed military service in 1976 as a Drill Sergeant in the United States Army.

      Raymond “Gary” Landress has served as the President of Crown Bolt since July 5, 2011. Prior to joining Crown Bolt, from 1998 to 2011, Mr. Landress served as the Senior Vice President at Fu Hsing Americas, a Taiwanese door lock manufacturing company, where he was responsible for the company’s U.S. operations and supporting top-tier customers. From 1992 to 1998 Mr. Landress served as the Senior Vice President and GM at Test Rite and from 1986 to 1992 he served as the Senior Vice President and COO at Titon Industries, where he led Operations, Manufacturing, Supply Chain, Sourcing, Sales, Merchandising, Marketing, and Product/Package Design.

      Vasken Altounian has served as President, HD Supply Canada since January 2008. Prior to joining the Company, Mr. Altounian was Chief Executive Officer of Rtica Corp., a development stage company in the insulation industry, from March 2007 to December 2007. Prior to joining Rtica Corp., Mr. Altounian spent 24 years with Delta Faucet Company, a division of Masco Corp., where he served as Executive Vice President of Sales and Marketing, globally at Delta Faucet in Indianapolis, from May 2005 to February 2007 and served as President of Delta Faucet Canada from April 1999 to May 2005. Mr. Altounian has a B.E. in Mechanical Engineering from the American University of Beirut, an M.S. in Industrial Engineering from Columbia University and an M.B.A. from Indiana University.

      James G. Berges has been the Chairman of the Board of Directors of Holding since August 30, 2007 and of HD Supply since November 19, 2009.2007. Mr. Berges has been an operating partner of Clayton, Dubilier & Rice, LLCCD&R since 2005. Mr. Berges was President of Emerson Electric Co. from 1999 and served as director of Emerson Electric Co. sincefrom 1997 until his retirement in 2005. Emerson Electric Co. is a global manufacturer of products, systems and services for industrial automation, process control, HVAC, electronics and communications, and appliances and tools. Mr. Berges holds a B.S. in Electrical Engineering from the University of Notre Dame. He is

      Index to Financial Statements

      a director of PPG Industries, Inc., NCI Building Systems, Inc., and Atkore International and chairman of the board of Sally Beauty Holdings, Inc. and Hussman International, Inc. He also served as director of MKS Instruments, Inc. from February 2002 to May 2007 and Diversey, Inc. from 2009 to 2010. Mr. Berges holds a B.S. in Electrical Engineering from the University of Notre Dame.

      Vipul AminBetsy S. Atkins became a director in September 2013. Ms. Atkins currently serves as chairperson of HoldingTrapezoid Digital Security Services, a digital security company focusing on hardware trust for enterprise and cloud environments. She served as chief executive officer of HD SupplyBaja Ventures, an independent venture capital firm focused on April 17, 2012. Mr. Amin isthe technology, renewable energy and life sciences industry, from 1991 through 2008. In 2009, Ms. Atkins served as chief executive officer and chairman of Clear Standards, Inc., which developed SaaS enterprise level software monitoring carbon emissions, prior to its sale to SAP AG. She previously served as chairperson and chief executive officer of NCI, Inc., a Principal with The Carlyle Group’s U.S. Buyout group, focusing primarily on buyouts, privatizationsfood manufacturer creating Nutraceutical and strategic minority investments throughout the U.S.Functional Food products, from 1991 through 1993. Ms. Atkins co-founded Ascend Communications, a manufacturer of communications equipment, in the industrial and transportation sector. Since joining The Carlyle Group in 2000, Mr. Amin has been actively involved in various of the firm’s portfolio companies, including PQ Corporation and HD Supply currently. In addition, Mr. Amin1989, where she was also a member of the transaction team that executed Carlyle’s investmentsboard of directors until its acquisition by Lucent Technologies in each1999. Ms. Atkins currently serves on the board of John Maneely Companydirectors of Polycom, Inc. and Rexnord Corporation. Prior to joining Carlyle, Mr. Amin was employed with Bowles Hollowell ConnorSchneider Electric, SA. Ms. Atkins has extensive public board experience, including most recently, SunPower Corporation (2005-2012); Reynolds American, Inc. (2004-2010); Chico's FAS, Inc. (2004-2013); and Towers Watson & Co. Mr. Amin received an M.B.A.(2010). Ms. Atkins holds a Bachelor of Arts from Harvardthe University and an A.B. in philosophy from Duke University.of Massachusetts.

      Brian A. Bernasek became a director of Holding and of HD Supply onin January 31, 2011. Mr. Bernasek is a Managing Director of The Carlyle Group where he focuses on investment opportunities primarily in the industrial and transportation sectors. Since joining The Carlyle Group in 2000, Mr. Bernasek has been actively involved in several of the firm’sfirm's investments, including Accudyne Industries, Allison Transmission, AxleTech International, Rexnord Corporation and The Hertz Corporation. Prior to joining The Carlyle, Group, Mr. Bernasek held positions with Investcorp International, a private equity firm, and in the investment banking division of Morgan Stanley & Co. Mr. Bernasek is a graduate of the University of Notre Dame and received his M.B.A. from the Harvard Business School. He is also a member of the Board of Directors of Accudyne Industries, Allison Transmission and The Hertz Corporation.Global Holdings.


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      Paul B. Edgerley became a director of Holding onin August 30, 2007 and of HD Supply on November 19, 2009.2007. Mr. Edgerley joined Bain Capital in 1988 and has been a Managing Director since 1990. PaulMr. Edgerley focuses on investment in the industrial and consumer product sectors. He currently serves on the Board of Directors of The Boston Celtics, Steel Dynamics, Sensata Technologies, MEI Conlux and Hero MotoCorp. Prior to joining Bain, Capital, Mr. Edgerley spent five years at Bain & Company where he worked as a Consultant and Manager in the healthcare, information services, retail and automobile industries. Previously, he was a certified public accountant working at Peat Marwick, Mitchell & Company. Mr. Edgerley was awarded an MBA with distinction from Harvard Business School and a BSB.S. from Kansas State University.

      Mitchell Jacobson became a director of Holding onin October 15, 2007 and of HD Supply on November 19, 2009.2007. Mr. Jacobson has served as Chairman of the Board of Directors of MSC Industrial Direct Co., Inc. (“MSC”) since January 1998. Mr. Jacobson also1998, and previously served as President of MSC from December 1995 until November 2003 and as Chief Executive Officer from December 1995 until November 2005. Mr. Jacobson served as President and Chief Executive Officer of Sid Tool Co., Inc., a wholly-owned subsidiary of MSC,in various executive officer roles from June 1982 to November 2003, continuing as Chief Executive Officer until November 2005. Mr. Jacobson currently serves on the Board of Directors of Wolfgang Puck Worldwide. In addition, he serves on the BoardBoards of Trustees for both New York University and the Board of Trustees for New York University School of Law, and is the Chaira member of the New York University School of Law Foundation Investment Committee. He serves as a Trustee for New York Presbyterian Hospital and is a member of the hospital's Investment Committee, as well as the Chair for New York Presbyterian Hospitalof the hospital's Hedge Fund Sub-Committee,Subcommittee and asa member of both the Vice Chair of the Committee on Patient Centered CareAsset Allocation and Service Quality.Private Investment Subcommittees. Further, he is a director of the Sid Jacobson Jewish Community Center. Mr. Jacobson is a graduate of Brandeis University and the New York University School of Law.

      Lew Klessel became a director of Holding on October 15, 2007 and of HD Supply on November 19, 2009. Mr. Klessel is a Managing Director at Bain Capital where he has worked since 2005. Prior to joining Bain Capital, Mr. Klessel held a variety of operating and strategy leadership positions from 1997 to 2005 at Home Depot, most recently as President of HD Supply Facilities Maintenance. He has also been a strategy consultant with McKinsey & Company and a Certified Public Accountant with Ernst & Young. Mr. Klessel received an M.B.A. from Harvard Business School and a B.S. from the Wharton School at the University of Pennsylvania. He also serves as a director for Michaels Stores and Guitar Center.

      Index to Financial Statements

      Gregory S. Ledford became a director of Holding and of HD Supply onin January 31, 2011. Mr. Ledford is a Managing Director of The Carlyle Group where he leads U.S. buyout opportunities in the Industrial and Transportation sectors. Since joining The Carlyle Group in 1988, Mr. Ledford has led the firm’sfirm's investments in Allison Transmission, AxleTech International, The Hertz Corporation, Horizon Lines, Grand Vehicle Works and Piedmont Holdings. From 1991 to 1997, he served as Chairman and Chief Executive Officer of The Reilly Corp., a former Carlyle portfolio company that was successfully sold in September 1997. Prior to joining The Carlyle, Group, Mr. Ledford was Director of Capital Leasing for MCI Telecommunications. Mr. Ledford is a graduate of the University of Virginia’sVirginia's McIntire School of Commerce, where he serves as the Vice President of the Fountain Board, and received his M.B.A. from Loyola College. Mr. Ledford is also a member of the Board of Directors of Allison Transmission, The Hertz CorporationAxalta Coating Systems, Genesee & Wyoming and Veyance Technologies.Technologies and previously served as a director of Hertz Global Holdings.

      Patrick R. McNamee became a director in September 2013. Mr. McNamee is executive vice president and chief operating officer of Express Scripts Holding Company, a pharmacy benefit management company. He joined Express Scripts in 2005 as senior vice president and chief information officer, expanding his role to its current scope in 2007. Prior to joining Express Scripts, Mr. McNamee worked for Misys Healthcare Systems, a healthcare technology company, as president and chief executive officer, Physician Systems, from September 2003 to February 2005. Mr. McNamee was employed by various subsidiaries of General Electric Corporation from July 1989 to September 2003, including as president and chief executive officer, GE Surgery, GE Medical Systems, from July 2002 to September 2003; chief information officer and chief quality officer, NBC, from March 2001 to July 2002; and chief information officer and general manager of e-Business, GE Transportation Systems, from March 1999 to March 2001. Mr. McNamee attended Marquette University and holds a bachelor's degree and master's degree in biomedical engineering.

      Charles W. Peffer became a director in July 2013. Mr. Peffer retired as a partner of KPMG LLP in 2002 after 32 years with KPMG in its Kansas City office. He served as Partner in Charge of Audit from 1986 to 1993 and Managing Partner of the Kansas City office from 1993 to 2000. He currently serves as Audit Committee Chairman on the board of directors of Garmin Ltd, Sensata Technologies, NPC International and the Commerce Funds, a family of eight mutual funds. Mr. Peffer holds a B.A. from the University of Kansas and an M.B.A. from Northwestern University.


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      Nathan K. Sleeper became a director of Holding and HD Supply onin April 14, 2010. Mr. Sleeper is a partner of Clayton, Dubilier & Rice, LLCCD&R and has significant financial and investment experience from his involvement in its investment in numerous portfolio companies and has played active roles in overseeing those businesses. Prior to joining Clayton, Dubilier & Rice, LLCCD&R in 2000, he worked in the investment banking division of Goldman, Sachs & Co. and at investment firm Tiger Management Corp. Mr. Sleeper has alsois a director of Wilsonart International Holdings, LLC, Roofing Supply Group, Inc., Hussman International, Inc., Atkore International Group, Inc., NCI Building Systems, and U.S. Foods, Inc. and previously served as a director of Hussman International,Hertz Global Holdings, Inc. since Septemberfrom 2005 to 2011 Atkore International Group, Inc. since December 2010, NCI Building Systems since October 2009, U.S. Foodservice, Inc. since July 2007, and Culligan Ltd. since October 2004.from 2004 to 2012. Mr. Sleeper holds a B.A. from Williams College and an M.B.A. from Harvard Business School.

      Stephen M. Zide became a director of Holding and HD Supply onin June 18, 2007. Mr. Zide has beenis a Managing Director of Bain, Capital since 2001 andhaving joined the firm in 1997. From 1998 to 2000, Mr. Zide was a Managing Director of Pacific Equity Partners, a strategic partner of Bain Capital in Sydney, Australia.He currently heads the firm's New York office and leads its North American Industrial Sector. Prior to joining Bain, Capital, Mr. Zide was a partner of the law firm of Kirkland & Ellis LLP, where he was a founding member of the New York office and specialized in representing private equity and venture capital firms.LLP. Mr. Zide received an M.B.A. from Harvard Business School, a J.D. from Boston University School of Law and a B.A. from the University of Rochester. He also serves as a director of Sensata Technologies B.V., Innophos Holdings, Inc., The Weather Channel, LLCConsolidated Container Corporation, Apex Tool Group, and Trinseo LLC.

      All of the directors of Holding were appointed by the Equity Sponsors pursuant to the Stockholders’Second Amended and Restated Stockholders Agreement of HoldingHoldings, dated August 30,as of September 21, 2007, as subsequently amended. Each of the Equity Sponsors is also an affiliate of the Company. On November 19, 2009, Holding and HD Supply took certain corporate actions to align the membership of the two Boards of Directors.

      Corporate Governance

      Board Composition

      Our business and affairs are managed under the direction of our BoardsBoard of Directors. We currently have ten11 directors. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.

      We        Our Board of Directors is divided into three classes whose members serve three-year terms expiring in successive years. The terms of office of members of our Board of Directors are a closelydivided into three classes:

        •
        Class I directors, whose terms will expire at the annual meeting of stockholders to be held corporation,in 2014;

        •
        Class II directors, whose terms will expire at the annual meeting of stockholders to be held in 2015; and there

        •
        Class III directors, whose terms will expire at the annual meeting of stockholders to be held in 2016.

              Our Class I directors are Messrs. Bernasek, Jacobson and Zide, our Class II directors are Ms. Atkins and Messrs. Edgerley, Ledford and Sleeper, and our Class III directors are Messrs. Berges, DeAngelo, McNamee and Peffer. At each annual meeting of stockholders, the successors to the directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following such election. Any vacancies in our classified board of directors will be filled by the remaining directors and the elected person will serve the remainder of the term of the class to which he or she is currently no established public trading market for our common stock.appointed. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

      As a result of the Transactions, Holding2007 Acquisition, Holdings entered into a Stockholders’ Agreementstockholders agreement with certain of its stockholders which provides that the Equity Sponsors are currently entitled to elect (or cause to be elected) nine out of ten of Holding’s directors, which includes three designees of each Equity Sponsor. The tenth director isIn addition, our Chief Executive Officer. OneOfficer serves as a director. Pursuant to the Second Amended and Restated


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      Stockholders Agreement, one of the directors designated by the Equity Sponsor associated with Clayton, Dubilier & Rice, Inc.CD&R serves as the chairman. Pursuant

              For the purposes of NASDAQ rules, Holdings has elected to an agreement between Clayton, Dubilier & Rice Fund VII, L.P. and Mitchell Jacobson, the fund appointed Mr. Jacobson to servebe a "controlled company." Accordingly, Holdings currently relies on exemptions from certain corporate governance requirements. Specifically, as a directorcontrolled company, Holdings is not required to have (1) a majority of Holding for so long as Mr. Jacobsonindependent directors, (2) a nominating and his immediate family continue to hold certain minimum investments in Holding and certain other conditions are met.

      corporate governance committee composed entirely of independent directors or (3) a compensation committee composed entirely of independent directors.

      Index to Financial Statements

      See “Certain Relationships and Related Transactions.” As discussed above, the composition of the Board of Directors of Holding mirrors that of HD Supply. There were no material changes in 2011 to the procedures by which security holders may recommend nominees to our Boards of Directors.

      When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable the BoardsBoard of Directors to satisfy their oversight responsibilities effectively in light of our business and structure, the BoardsBoard of Directors focused primarily on each person’sperson's background and experience as reflected in the information discussed in each of the directors’directors' individual biographies set forth immediately above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business. In particular, the members of the BoardsBoard of Directors considered the following important characteristics:

        •
        Messrs. Berges and Sleeper are representatives appointed by Clayton, Dubilier & Rice, Inc.CD&R and have significant financial and investment experience from their involvement in Clayton’sCD&R's investment in numerous portfolio companies and have played active roles in overseeing those businesses;



      •
      Mr. Jacobson, our independent director who was also appointed by CD&R, has extensive experience in our industry, including service as Chairman of the Board, Chief Executive Officer and in various other executive positions of a large publicly traded industrial supply company;



      •
      Messrs. Ledford Bernasek and AminBernasek are representatives appointed by The Carlyle, Group, and have significant financial and investment experience from their involvement in The Carlyle Group’sCarlyle's investment in numerous portfolio companies and have played active roles in overseeing those businesses;



      •
      Ms. Atkins has significant entrepreneurial and operational experience with companies in a high growth phase. Ms. Atkins also brings extensive knowledge in the areas of executive compensation and corporate governance.

      •
      Mr. McNamee brings to the Board exceptional strategic leadership and a unique combination of business savvy and information technology experience across a variety of industries.

      •
      Mr. Peffer has extensive practical and management experience in public accounting and corporate finance, including significant experience with KPMG and its predecessor firms. Mr. Peffer also brings leadership expertise through his directorship roles in other public companies, including service on audit committees;

      •
      Messrs. Zide Edgerley and KlesselEdgerley are representatives appointed by Bain, Capital Partners LLC (“Bain”), and have significant financial and investment experience from their involvement in Bain’sBain's investment in numerous portfolio companies and have played active roles in overseeing those businesses; and



      •
      Our Chief Executive Officer, Mr. DeAngleo,DeAngelo, has extensive experience in our industry, including as a senior executive of the Company and its predecessor since 2004, as well as leadership experience with other leading companies, including General Electric Company.

      GE.

      In addition, we believe Mr. Berges’Berges' experience in the manufacturing industry and Mr. Klessel’s experience in the home improvement industry areis valuable to our Board of Directors. In addition to private equity, several of the directors representing our Equity Sponsors also have backgrounds in other fields that bring a diversity of experience to our Board, including law – law—Mr. Zide, investment banking – banking—Mr. Bernasek strategy consulting – Mr. Klessel, and accounting – accounting—Mr. Edgerley. We also value the experience that our directors bring from their service on other boards. All of the directors appointed by the Equity Sponsors serve on the boards of other publicExchange Act reporting companies (companies with public equity and/or public debt), including numerous portfolio companies.


      The compositionTable of the Board of Directors for HD Supply and Holding is the same. The Boards consist of ten directors who have diverse backgrounds and experience and are chaired by James G. Berges.Contents

      Committees of the Board of Directors

      The BoardsBoard of Directors of both Holding and HD Supply havehas an Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and an Executive Committee. Each of the Audit Committee, the compositionCompensation Committee and Nominating and Corporate Governance Committee operate under a charter that has been approved by our Board of which is the same forDirectors. A copy of each of Holding and HD Supply.the charters is available on our website.

        Audit Committee

              The Audit Committees, consistingCommittee, which consists of Messrs. Peffer, Jacobson Klessel, and Amin haveMcNamee, has the responsibility for, among other things, assisting the Board of Directors of HD Supply in reviewing: our financial reporting and other internal control processes; our financial statements; the independent auditors’auditors' qualifications and independence; the performance of our internal audit function and independent auditors; and our compliance with legal and regulatory requirements and our code of business conduct and ethics. Our board of directors has determined that Mr. Peffer is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite financial sophistication as defined under the applicable rules and regulations of NASDAQ. Mr. McNamee and Mr. Peffer are independent under the applicable rules and regulations of the SEC and NASDAQ. Before June 26, 2014, our board of directors intends to replace Mr. Jacobson as a member of our Audit Committee with a person who will meet the applicable audit committee independence standards. All members of the Audit Committee will be familiar with finance and accounting practice and principles and will be financially literate.

        Compensation Committee

      The Compensation Committees, consistingCommittee, which consists of Ms. Atkins and Messrs. Bernasek, Sleeper and Zide, Bernasek, and Sleeper, havehas the responsibility for reviewing and approving the compensation and benefits of our employees, directors and consultants, administering our employee benefits

      Index to Financial Statements

      plans, authorizing and ratifying stock option grants and other incentive arrangements and authorizing employment and related agreements.

        Nominating and Corporate Governance Committee

              The Nominating and Corporate Governance Committee, which consists of Messrs. Berges, Edgerley and Ledford, has the responsibility for identifying and recommending candidates to the Board of Directors for election to our Board of Directors, reviewing the composition of the Board of Directors and its committees, developing and recommending to the Board of Directors corporate governance guidelines that are applicable to us, and overseeing Board of Directors evaluations.

        Executive Committee

              The Executive Committees, consistingCommittee, which consists of Messrs. Bernasek, Berges and Klessel, meetEdgerley, meets between meetings of the BoardsBoard of Directors, as needed, and havehas the power to exercise all the powers and authority of the BoardsBoard of Directors with respect to matters delegated to the CommitteesCommittee by the Boards,Board of Directors, except for the limitations under Section 144(c) of the Delaware General Corporation Law, and/or applicable limitations under the companies’company's organizational documents.

      Code of Conduct and Guidelines for Ethical Behavior

      Our Boards maintainBoard of Directors maintains a Code of Ethics for Senior Executive and Financial Officers that applies to our senior executive and financial officers including our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions. A copy of the Code of Ethics for Senior Executive and Financial Officers is available on our website at


      Table of Contents

      http://governance.hdsupply.com. We will promptly disclose any future amendments to this code on our website as well as any waivers from this code for executive officers and directors. Copies of this code are also available in print from our Corporate Secretary upon request. We also maintain a Code of Business Conduct and Ethics that governs all of our employees.

      Audit CommitteeDirector Compensation

              Our non-employee directors receive an annual cash retainer of $60,000 paid in equal installments at each quarterly board meeting and Financial Expertsan annual award of restricted stock units with a fair market value equal to $100,000. Except for fiscal 2013, the restricted stock units of Holdings will be granted on the day of Holdings' annual meeting and will vest either in full on the first anniversary of the grant date or in full on the annual meeting date next following the grant date or on a pro rata basis upon termination of board service by reason of the director's death, permanent disability or retirement at or after age 75, in each case whichever occurs first. For fiscal 2013, the restricted stock units were granted at the closing of Holdings' initial public offering or, if later, on the date the director commences board service and the number granted will be pro-rated for the remainder of the period until Holdings' first annual meeting. Restricted stock units will be paid upon vesting, or, at the director's election, on termination of board service pursuant to the deferral terms of the restricted stock unit agreement. Non-employee directors may also elect to convert all or a portion of their cash retainers into deferred stock units to be paid on termination of board service pursuant to the deferral terms of the deferred stock unit agreement. Dividend equivalents will be credited on restricted stock units and deferred stock units and will be subject to the same vesting and payment terms as the restricted stock units and deferred stock units to which the dividend equivalents relate. Restricted stock units and deferred stock units will be granted under Holdings' 2013 Omnibus Incentive Plan.

      Our Board of Directors has a separately-designated standing Audit Committee. Messrs. Jacobson, Klessel, and Amin are        A non-employee director appointed to serve as the memberschair of the Audit Committee. Mr. Jacobson,Committee receives an independentadditional annual cash retainer of $20,000, and a non-employee director has been identifiedappointed to serve as an “audit committee financial expert” as that term is defined in the rules and regulationsa member of the SEC.

      Audit Committee (other than the chair) receives an additional annual cash retainer of $10,000. Non-employee directors appointed to serve as the chair of any standing board committee other than the Audit Committee receive an additional annual cash retainer of $15,000 and any non-employee director appointed to serve as a member of any standing board committee other than the Audit Committee (other than the chair) receives an additional annual cash retainer of $7,500. Our directors do not receive additional fees for attending any board or committee meetings.

      Index        Non-employee directors are entitled to Financial Statementsreimbursement by the Company for reasonable expenses incurred while traveling to and from board and committee meetings as well as travel for other business related to their service on the board or its committees, subject to any maximum reimbursement obligations as may be established by the board from time to time.

              The board has also adopted stock ownership guidelines for its independent directors pursuant to which directors are expected to own Holdings' common stock (including through ownership of vested stock units) with a value equal to three times the annual cash board retainer amount.


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      EXECUTIVE COMPENSATION

      Overview

      The following Compensation Discussion and Analysis provides information regarding the material elements of our fiscal 20112012 compensation program for our “named"named executive officers,”" also referred to as the “NEOs.” The NEOs for fiscal 2011 are HD Supply’s principal executive officer, principal financial officer, and the three most highly compensated executive officers for fiscal 2011 other than the principal executive and financial officers."NEOs." The Compensation Committees of Holding’sHoldings' and HD Supply’sSupply's Boards, which have identical membership (collectively, the “Committee”"Committee"), pursuant to their charters, are responsible for establishing, implementing and reviewing on an annual basis both our compensation programs and actual compensation paid to our NEOs, except for our Chief Executive Officer, with respect to whom the Committee’sCommittee's decisions are subject to the review and final approval of Holding’sby our Board.

      Executive Summary

      As a result of improving market conditions and the Company’sCompany's execution of key initiatives, and cost saving strategies, the overall financial performance for fiscal 20112012 was above expectations. The strong fiscal 20112012 performance of the Company resulted in the following compensation decisions:

        •
        Mr. DeAngelo declined a proposed merit increase and continued with his current base salary amount. In order to ensure that the base pay amounts remain competitive for key leaders, Mr. Domanico received a 3% merit increase and Ms. Chaibi received an increase of 5%. Mr. Stegeman did not receive an increase given that his current base salary continued to be competitive. Mr. Fabere received an increase at the time of his promotion to Senior Vice President, Operations.

        •
        All of our NEOs earned a cash award under the annual cash incentive program, the Management Incentive Plan. As a result of our performance exceeding expectations, the awards earned ranged from 132%111% to 150%172% of target.

      Key leaders, including the

      •
      The Committee does not make routine annual equity grants. The NEOs, were awarded a stock optionexcept for Mr. Fabere, did not receive equity grants in 2012. During 2012, Mr. Fabere received an equity grant in April 2011. The options are intended to ensure that our current leadership team is retained and remains focused on the execution of key initiatives, and vest in their entirety on the third anniversary of the grant date.

      Steven Margolius was rehired by HD Supply in April 2011. Mr. Margolius was previously employed by us as President, Electrical from April 2006 to March 2010. In connection with his rehiring, his compensation in 2011 included a signing bonusrole as Vice President, Sourcing and a stock option grant.

      second grant in connection with his promotion to Senior Vice President, Operations.

      Determining Executive Compensation

      At HD Supply, our Human Resources team, in partnership with the Committee, drives the design and implementation of all executive compensation programs. Our finance team heavily supports the process by providing financial analysis and input and review of program design. Except with respect to his own compensation, our Chief Executive Officer has final management-level review of any compensation program before it is sent to the Committee for consideration and approval. The Committee has the task of evaluating and approving our material compensation programs, including our equity compensation program. WeManagement frequently consultconsults with the Committee during the design process to obtain their direction and feedback on how the design of our executive compensation programs support the overall strategy of the Company. As described below, data from outside consultants are also used during the design process to obtain further insight into the features of our compensation program.


      Table of Contents

      Philosophy and Objectives

      Our company and our aspiration to be the "First Choice" is built on the philosophymission of “One"One Team, Driving Customer Success and Value Creation,”" a philosophy we believe is best embodied by our SPIRIT values:

      Service: Help our customers succeed by delivering exceptional service and the best total value experience

      Performance:
       
      Exceed our commitments everydayevery day to our team, customers, sponsorssuppliers, Equity Sponsors and communities

      Integrity:
       
      Treat team members the way you would like you and your family to be treated

      Respect:
       
      Always do the right thing and always take the high road

      Innovation:
       
      Seek new ways to build a reliable, effective and efficient chain of execution for our customers

      Teamwork:
       
      Win together by creating an environment where every individual puts the team first

      Index to Financial Statements

      The Committee and our management believe that fostering these values requires a performance culture geared toward customer success and sustainable, long-term profitability. The Company’sCompany's compensation programs are designed to reward achievement of these goals, thereby attracting and retaining talent that will contribute to such a culture. In particular, our executive compensation programs are intended to meet the following objectives:

      To

        •
        to balance commitment, long-term financial success, short-term operational excellence and achievement of short-term goals. This balance includes but is not limited to driving profitable growth while aligning our executives’executives' long term interests with shareholders’shareholders' interests.

      To

      •
      to attract, retain and motivate our top executive talent.

      To

      •
      to differentiate rewards based on outstanding individual performance so as to promote a high performance culture.

      In addition, we intend that our compensation programs will be aligned with:

      •

      Our business strategy: Our compensation programs link pay to our strategy by rewarding profitability, long-term growth, excellence in achievement of short-term operational and financial goals and by reinforcing the “One Team” philosophy.

      •

      Our shareholders’ interests: Through the strategic use of equity-based compensation, the total compensation of our executives is directly linked to the sustained value they create for our shareholders.

      •

      Our goal of retaining and motivating key talent: To retain the best executive talent, the total compensation opportunity is designed to provide attractive levels of compensation if performance targets are met and upside opportunity when performance targets are exceeded.

        •
        Our business strategy:  Our compensation programs link pay to our strategy by rewarding executives upon achievement of profitability, long-term growth, excellence in achievement of short-term operational and financial goals and by reinforcing the "One Team" philosophy.

        •
        Our shareholders' interests:  Through the strategic use of equity-based compensation, the total compensation of our executives is directly linked to the sustained value they create for our shareholders.

        •
        Our goal of retaining and motivating key talent:  To retain the best executive talent, the total compensation opportunity is designed to provide attractive levels of compensation if performance targets are met and upside opportunity when performance targets are exceeded.

      Compensation ConsultantsConsultant and Use of Comparator Data

      For the last threefour fiscal years, the Company has engaged Pearl Meyer & Partners to provide input with respect to our executive compensation programs, including a market review of the competitiveness of total compensation of our executives and a review of our equity program. A representative from Pearl Meyer & Partners attends our Committee meetings.


      Table of Contents

              In light of new SEC rules, the Company requested and received information from Pearl Meyer & Partners with respect to potential conflicts of interest, including the following factors: (1) other services provided to us by the consultant; (2) fees paid by us as a percentage of the consulting firm's total revenue; (3) policies and procedures maintained by the consulting firm that are designed to prevent a conflict of interest; (4) any business or personal relationships between the individual consultants involved in the engagement and a member of the Committee; (5) any Holdings stock owned by the individual consultants involved in the engagement; (6) any business or personal relationships between our executive officers and the consulting firm or the individual consultants involved in the engagement. Based on an assessment of these factors, including information gathered from directors and executive officers addressing business or personal relationships with the consulting firm or the individual consultants, the Committee concluded that the work of Pearl Meyer & Partners did not raise any conflict of interest.

      In general, neither the Company nor the Committee has conclusivelyexclusively relied on any of the data or advice received from the consulting firmPearl Meyer & Partners as to the amount of any particular item of compensation. The consultantPearl Meyer & Partners provides input which the Company and Committee take into consideration, as the case may be, on the particular element of compensation under consideration.

      Comparator Data

      The Committee reviews compensation levels and practices at comparator companies in setting the compensation of our NEOs and when reviewing or establishing the establishment of the Company’sCompany's compensation programs for other associates. The information is used to help the Committee better understand the competitive market and how executives are compensated at other companies that are similar in size or industry, and companies with whom we compete for talent.

      Our unique portfolio modelbreadth of Specialty Business Units makes finding direct comparators challenging. We seek comparators that share a similar industrial distribution model or are a direct competitor to a specific line of business within our portfolio.business.

      Companies are therefore included in the comparator group because they (1) operate in the same business as the Company or one of our portfolio companiesbusiness units (industrial distribution of building supplies), (2) operate in a similar business (distribution of any product), or (3) operate in a similar business model (business to business). The comparator group was developed by management and the Committee, with input from our compensation consultant,Pearl Meyer & Partners, and has been used to provide input into both the value of total compensation for executives as well as the relative value of each component of compensation. We do not rely on percentile rankings of compensation

      Index to Financial Statements

      within the comparator group to determine specific compensation amounts for the NEOs; rather, the comparator group is used to identify programs and levels of pay which management and the Committee consider when evaluating our own programs and value of those programs.

      In fiscal 2011,2012, we used the following comparator group:group consisting of companies in the same or similar business or having a similar business model:

      Arrow Electronics Inc. Reason included in the
      comparator group      Masco Corp

      Name of company

      Coca-Cola Enterprises      		 Same
      business      Office Depot
      Conagra Foods Similar
      business      Owens & Minor
      Danaher, Corp Similar
      business
      model      Pepsi Bottling Group

      Arrow Electronics Inc.

      Fastenal Co.      		 Staples, Inc.
      Genuine Parts XWatsco, Inc.
      Interline Brands Inc. WESCO International, Inc.

      Coca-Cola Enterprises

      MSC Industrial Direct      		 X

      Conagra Foods

      		X

      Danaher, Corp

      		X

      Fastenal Co.

      		X

      Genuine Parts

      		X

      Interline Brands Inc.

      		X

      MSC Industrial Direct

      		X

      Masco Corp

      		X

      Office Depot

      		X

      Owens & Minor

      		X

      Pepsi Bottling Group

      		X

      Staples, Inc.

      		X

      Watsco, Inc.

      		X

      WESCO International, Inc.

      		X

      W.W. Grainger, Inc.

      		X

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      The comparator group is reviewed and updated each year as appropriate. No changes were made to the fiscal 20112012 comparator group as compared to fiscal 2010.2011.

      Employment of Chief Operating Officer Utilities/Electrical & Chief Commercial OfficerSenior Vice President, Operations

      During fiscal 2011, we rehired one senior executive officer. Steven Margolius was rehired in April 2011 as Chief Operations Officer, Utilities/Electrical and Chief Commercial Officer. Mr. Margolius was previously employed by HD Supply in2012, the role of Senior Vice President, Electrical from April 2006 to March 2010.Operations was reinstated. The role was filled with an internal candidate, Mark Fabere, who previously served as Vice President, Sourcing.

      Effective April 4, 2011,July 30, 2012, we entered into a promotion letter agreement with Mr. MargoliusFabere which provides for (1) a base salary of $385,000$285,000 per year, (2) an annual cash incentive award target bonus ofincrease from 40% to 60% (which is the same target bonus percent in effect when he left the Company), (3) a signing bonus in the amount of $75,000 (subject to a prorated clawback provision should Mr. Margolius voluntarily resign prior to April 4, 2013), and (4) the right to participate in other employee or fringe benefit programs for senior executives, including theHoldings' Stock Plan.Incentive Plan (the "Stock Plan"), and (4) an equity grant (described below). On November 8, 2012, Mr. MargoliusFabere received a stock option grant on April 11, 2011 as outlined in his offer of employment.promotion letter agreement. The option grant consisted of 226,41740,000 options having a strike price of $4.15$12.40 and a grant date fair value of $464,155$231,200 and 339,62560,000 options having a strike price of $10.00$20.00 and a grant date fair value of $410,946. These$250,800. In addition, Mr. Fabere received a stock grant in May 2012 in connection with a prior promotion to Vice President, Sourcing. The grant consisted of 30,000 options having a strike price of $11.78 and a grant date fair value of $169,200 and 45,000 options having a strike price of $20.00 and a grant date fair value of $179,100. All options granted vest in five equal annual installments on each of the first through fifth anniversaries of the grant date. The numberAs part of stock options outlined in Mr. Margolius’sour standard promotion offer, the offer letter agreement is consistent with the number of stock options Mr. Margolius forfeited when he left the Company in March 2010. The agreement also contains non-competition and non-solicitation provisions.

              The fiscal 2012 non-equity incentive plan compensation paid to Mr. Fabere included a prorated portion of the Long-term Incentive Plan ("LTIP") and Founders Award Plan ("FAP"). These two plans were available to Mr. Fabere in his role as Director, Sourcing. Upon his promotion to Vice President, Sourcing then to Senior Vice President, Operations, Mr. Fabere continued to participate in the Management Incentive Plan (described below), and was no longer eligible to participate in the LTIP or FAP.

              In addition, Mr. Fabere received a discretionary bonus of $30,000 in recognition of superior performance of goals and objectives. In order to ensure that he received the full value of the bonus, we assisted in paying the taxes on the bonus.

              While we considered Mr. Fabere an executive officer for fiscal 2012, we do not believe Mr. Fabere is currently an executive officer.

      Components of Compensation

      The Company believes that the compensation programs it maintains are important in achieving the compensation goals described above. For fiscal 2011,2012, the principal components of compensation for the named executive officers were:

        •
        base salary;



      •
      annual cash incentives;

      Index to Financial Statements



      •
      equity incentive compensation;compensation for one of the NEOs; and



      •
      benefits and perquisites.

      We also provided a signing bonus and an equity grant to Mr. Margolius who was rehired in fiscal 2011.        Each of our NEOs is party to an employment offer letter from us which contains certain employment and severance arrangements. These severance arrangements are discussed more fully below under “Potential"Potential Payments upon Termination or Change in Control.”"


      Table of Contents

      The design of each component of compensation fits into the overall executive pay program and supports the philosophy and objectives previously discussed in the following manner:

      Pay component

      		Objective of pay componentKey measures

      •

      Base salary

      		 

      •

      Key measures

      •   Base salary

      •   Provides competitive pay while managing fixed costs

      		 

      •

      Individual performance and contribution



      •

      Scope of responsibilities



      •

      Experience

      •

      Annual cash incentives

      		 

      •

      Focuses on short-term operational metrics that drive and support our long-term strategy



      •

      Where applicable, creates incentives for performance based on performance of individual NEOs’ businesses

      NEOs' business unit

      •

      To reward an executive for superior individual performance against non-financial goals

      		 

      •

      Achievement of agreed upon operating plan goals in profitability and working capital efficiency



      •

      Achievement of non-financial goals

      •   Signing bonuses

      •   To attract qualified executives

      •   To compensate an executive for forfeited equity or cash incentives with a prior company

      •   Individual qualifications and experience

      •   Equity awards granted in the form of stock options

      		 

      •

      Aligns executive interests to shareholders by rewarding long-term focus on profitability and value creation for the enterprise



      •

      Assists in the retention of key talent



      •

      Creates an “ownership culture”"ownership culture"

      		 

      •

      Growth in stock value



      •

      Employment retention through the vesting period of the stock options

      •

      Benefits and perquisites

      		 

      •

      Benefits provide a safety net of protection in the case of illness, disability or death.

      death

      •

      Perquisites generally enable the executive to perform their duties efficiently and minimize distractions

      		 

      •

      Benefits are provided to executives on the same basis as provided to our salaried associates



      •

      Perquisites are valued by our executives at minimal cost to us

      Index to Financial Statements

      A discussion of each of the components of compensation for the NEOs is below, including a discussion of the factors considered in determining the applicable amount payable or achievable under each component.


      Table of Contents

      Base Salary

      Base salaries are set to attract and retain top executive talent while managing fixed costs at an appropriate level. The determination of any particular executive’sexecutive's base salary is based on personal performance and contribution, experience in the role, changes to the scope of responsibilities, market rates of pay and internal equity. Each year, the Chief Executive Officer, with input from Human Resources, proposes base salary increases, if any, for all NEOs, excluding himself, based on performance and the Company’sCompany's merit increase budget.budget prepared by management. His proposal is reviewedsubject to review and approvedapproval (with or without modifications) or disapproved by the Committee. Changes to Mr. DeAngelo’sDeAngelo's base rate of pay are initiated and approved by the Committee directly, subject to the review and final approval of Holding’s Board.Holdings' Board of Directors.

      In fiscal 2011,2012, Mr. DeAngelo declined to be considered for a pay increase and Mr. Margolius returned to the Company after annual pay increases had been implemented.increase.

      Increases were recommended and approved by the Committee for Mr. Izganics, Mr. Domanico and Ms. Chaibi.Chaibi to ensure their base salaries remained competitive. Mr. IzganicsDomanico received a 3% increase. Ms. Chaibi received a 5% increase. Mr. Stegeman's salary remained the same since his base pay continued to be competitive. Mr. Fabere received an increase of 20% in fiscal 2011. Thirteen percent of this increase was based on12% upon his offer letter agreement of March 2010 and 7% of the increase was to make his base pay more competitive relativepromotion to the fiscal 2011 market. Mr. Domanico received a 4% increase, which was in line with the market. Ms. Chaibi received an 11.2% increase based on both merit and market considerations.role of Senior Vice President, Operations.

      Annual Cash Incentives

      Annual cash incentives are designed to focus the NEOs on producing superior results against key financial metrics relevant to the Company as a whole or to the individual businessesbusiness units that the NEO leads. By tying a significant portion of the executive’sexecutive's total annual cash compensation to annual variable pay, we reinforce our “pay"pay for performance”performance" culture and focus our executives on critical short-term financial and operational objectives which also support our long-term financial goals.

      Management Incentive Plan

      All of our NEOs participate in the Management Incentive Plan (“MIP”("MIP"), which provides cash-based incentives dependent on annual results against the key financial metricsmetric described below. A committee which includes Human Resources personnel, the CFO and the Controller (the “MIP Committee”"MIP Committee"), monitors the MIP to ensure compliance with its intent and terms and to periodically review and make certain recommendations to the Committee, as discussed below.

      MIP target payouts to our NEOs are expressed as a percentage of base salary. Annually, these percentage targets are reviewed against comparator data and adjusted, if necessary, based on the Committee’sCommittee's estimation of what level of targeted payouts is necessary to retain and motivate our executives. In fiscal 2011, management recommended and2012, the Committee approved no changes to the percentage of base pay targets for Mr. DeAngelo and Ms. Chaibi and Messrs. DeAngelo, Domanico, and Izganics.Chaibi. Ms. Chaibi's target was recommended by the CEO. The percentage of base pay target for Mr. MargoliusDeAngelo was set in the terms of his employment letter and is consistent with hisincreased from 125% to 150%. Ms. Chaibi's percentage of base pay target when he left the Company in March 2010.was increased from 60% to 100%. These increases were provided to ensure total compensation continued to motivate top performance and remain competitive.

      For fiscal 2011,2012, MIP performance targets were based on MIP-adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”("MIP-adjusted EBITDA"). For purposes of the MIP, management fees and related expenses paid to the Equity Sponsors and stock-based compensation costs for stock options are excluded from MIP-adjusted EBITDA, both as to the targets and as to MIP-adjusted EBITDA as ultimately determined. In addition, in accordance with the MIP, from time to time throughout the year, the MIP Committee may request

      Index to Financial Statements

      that the Committee exclude from the MIP-adjusted EBITDA calculation certain non-recurring items, certain items which are beyond the control of management or certain items which may adversely affect current results but contribute to long-term profitability improvement.


      In addition, a working capital charge is added to or subtracted from MIP-adjusted EBITDA to maintain the focus on working capital control. The working capital charge is defined as the difference between the planned and actual rolling twelve months cash gap days converted to dollars and multiplied by one percent (an implied 12% annual rate that approximates our weighted average costTable of capital).Contents

      For fiscal year 2011,2012, we viewed adjustedMIP-adjusted EBITDA as the key operating metric that would drive business profitability and the working capital charge as a key metric that would ensure efficient use of working capital.profitability. The MIP provides a threshold level (at which 25% of the target percentage of base salary is earned)earned, except for Facilities Maintenance where threshold level performance earns 50% of the target percentage), a target (or “plan”"plan") level (at which 100% of the target percentage of base salary is earned), and a maximum level for superior results (at which 200% of the target percentage of base salary may be earned for associatesparticipants in the MIP assigned to one of our specific business units and 150% of the target percentage of base salary for associatesparticipants in the MIP assigned to our Global Support Center).

              

      MIP-Adjusted EBITDA
      Performance RequiredPayout % Earned

      Threshold

      		Achieve 90% of Plan25%

      Plan

      		Achieve 100% of Plan100%

      Maximum

      		Achieve 110% of Plan150% or 200%

      For the NEO's participation in the MIP, the following percentages applied:

       
      		 MIP-Adjusted EBITDA
      Facilities Maintenance      		 MIP-Adjusted EBITDA
      White Cap      		 MIP-Adjusted EBITDA
      Global Support Center      		 
       
      		 Performance
      Required      		 Payout %
      Earned      		 Performance
      Required      		 Payout %
      Earned      		 Performance
      Required      		 Payout %
      Earned      		 

      Threshold

      		 95% of Plan  50%90% of Plan  25%90% of Plan  25%

      Plan

      		 100% of Plan  100%100% of Plan  100%100% of Plan  100%

      150% Payout

      		 104% of Plan  150%110% of Plan  150%107% of Plan  150%

      200% Payout

      		 107% of Plan  200%142% of Plan  200%NA  NA 

      Payout = Salary x× Target % of Salary x× Payout % Earned

      For fiscal 2011,2012, the MIP goal for the Company as a wholeGSC was a MIP-adjusted EBITDA of $512$672 million (which includes the acquisition of Peachtree as part of our Plumbing/HVAC business through its sale in September 2011)Facilities Maintenance line of business). The Committee, in approving thesethe plan goals in March 2011,February 2012 (with an adjustment in November 2012 to account for the acquisition of Peachtree), viewed these levelsthis level as appropriate in order to keep the primary focus on adjusted EBITDA.

      We exceeded our goal for fiscal 2011.2012. Our MIP-adjusted EBITDA was $566$683 million (which includes the results of our Plumbing/HVAC business through its sale in September 2011)Peachtree acquisition). As a result, each of our NEOs earned an incentive award.

              As President of Facilities Maintenance, Ms. Chaibi’sChaibi's MIP payout is based on a combination of the financial performance of Facilities Maintenance and her individual performance.Maintenance. For 2011,2012, Facilities Maintenance’sMaintenance's financial goal was a MIP-adjusted EBITDA of $303$369 million. Facilities Maintenance exceeded its goal with a MIP-adjusted EBITDA of $322$389 million.

              As President of White Cap, Mr. Stegeman's MIP payout is based the financial performance of White Cap. For 2012, White Cap's financial goal was a MIP-adjusted EBITDA of $47 million. White Cap exceeded its goal with a MIP-adjusted EBITDA of $58 million.

      Fiscal 20112012 performance resulted in the following payments being made to our NEOs under the MIP:

        Target % (expressed as a
      % of base salary)      		  MIP-Adjusted EBITDA
      payout % earned      		  Aggregate MIP payment 

      Joseph J. DeAngelo

      		  125%   150.0%  $1,640,625  

      Ronald J. Domanico

      		  75%   150.0%  $614,250  

      Anesa Chaibi

      		  60%   131.6%  $414,927  

      Steven Margolius

      		  60%   150.0%  $259,875  

      Joseph Izganics

      		  60%   150.0%  $405,000  

       
      		 Target %
      (expressed as a
      % of base salary)      		 MIP-Adjusted
      EBITDA
      payout % earned      		 Aggregate MIP
      payment ($)      		 

      Joseph J. DeAngelo

      		  150% 111.4% 1,462,344 

      Ronald J. Domanico

      		  75% 111.4% 469,939 

      John Stegeman

      		  100% 163.4% 1,184,807 

      Anesa Chaibi

      		  100% 171.6% 901,679 

      Mark Fabere(1)

      		  60% 111.4% 152,707 
      (1)
      Mr. Margolius’sFabere's aggregate MIP payment represents prorated target award was prorated based upon his rehire date with the Company.

      levels applicable to him during fiscal 2012.

      20122013 MIP Award

      In 2012,2013, we expect no material changes to the MIP as MIP-adjusted EBITDA will continue to be the sole performance measure to ensure singular focus on the metric that drives company value most directly.


      Table of Contents

      Index to Financial Statements

      Equity Incentive Compensation

      Our NEOs participate in Holding’sthe Stock Incentive Plan (the “Stock Plan”).Plan. The Stock Plan was adopted by Holding’sour Board of Directors shortly following our divestitureseparation from Home Depot. HoldingHoldings established the Stock Plan because it viewed the granting of equity awards under the Stock Plan as the most effective way to align executive performance to our key goal of increasing value for Holding’sHoldings' shareholders. The view of the HoldingHoldings' Board of Directors was that, assuming that our management is successful in increasing the value of the Company,HD Supply, awards under the Stock Plan will have the highest potential value for all participants as a percentage of total compensation.

      Holding’s        Holdings' Board of Directors believed the best way to accomplish these goals was to provide one up-front grant of stock options with a significant vesting period and, at the same time, provide the opportunity to purchase Holding shares.additional shares of Holdings' common stock. Therefore, our NEOs were granted options to purchase shares of HoldingHoldings' common stock and were also offered the opportunity to purchase additional HoldingHoldings common shares. The program makes “founding owners”"founding owners" of our NEOs and is intended to motivate them to increase the value of the Company,Holdings, and therefore Holding’sits share price, over time. The vesting component was intended to maximize the retentive effect of the Stock Plan. The up-front nature of the option grants was intended to position our executives for the highest possible return (because, if the share value of HoldingHoldings increases over time, annual or other periodic grants would have higher strike prices and, therefore, less intrinsic value to our executives).

      While the Committee does not intend tocurrently make routine annual grants to any of our NEOs or other associates,executives, the Committee may, from time to time, determine that an additional grant to one or more of our NEOs or other associates is appropriate in order to retain or reward key talent. In addition, the Committee will consider making grants in the case of new hires or promotions.

      2011 Option Grants

      To ensure that our current leadership team is retained and remains focused on the execution of key initiatives, the Committee awarded key leaders with an equity grant on April 11, 2011. The Committee and Management worked together to determine an appropriate allocation strategy for the        In 2012, we granted Mr. Fabere stock option pool available for grant to all key leaders that was based on EBITDA performance, overall contribution to the Company, and positioning of total compensation relative to the market. The stock options were awarded with a strike price of $4.15 and vest in their entirety on the third anniversary of the grant date. The strike price of the options was based on an independent valuation of the Company’s stock price at the time of grant and approved by the Board. The decision to have the options vest in their entirety after a three year period was intended to enhance the retentive nature of the award. All of our NEOs received stock options. Additional information regarding the Stock Plan and the 2011 option grant can be found in the information accompanying the Summary Compensation Table and related tables below.

      In 2011, in connection with his rehiring, we awardedpromotion as noted in the "Employment of Senior Vice President, Operations" section. Mr. MargoliusFabere also received stock options in an amount equal2012 prior to his promotion. No equity grants were made to the other NEOs since the Committee granted stock options he forfeited when he left the Companyto these executives in March 2010, as previously described in the Employment of Chief Operating Officer, Utilities/Electrical & Chief Commercial Officer section.April 2011.

      Benefits and Perquisites

      The benefits provided to our NEOs are the same as those generally provided to our other salaried associates and include medical, vision and dental insurance, basic life insurance and accidental death and dismemberment insurance, short and long term disability insurance and a 401(k) plan.

      Our executives participate in a limited number of perquisite programs. We maintain these programs because they are valued by our NEOs but impose relatively little cost to us.

      All of the NEOs participate in the Executive Death Benefit OnlyBasic Life Insurance Plan. Under this plan, the beneficiary of a participant who dies while employed by us is entitled to a lump sum payment of $500,000. We have purchased and own life insurance contracts on each of the NEOs for the purpose of funding this benefit.

      Index to Financial Statements

      The NEOs are also offered Supplemental Term Life Insurance. This plan provides participants with 20-year level premium term life insurance, with coverage in $500,000 increments up to $5,000,000. The participant owns the policy, and the Company pays the premium on his or her behalf. The value of the premium is fully taxable. At the end of the year, each participant receives an additional payment equal to the gross amount of taxes paid on the benefit. This additional payment is also fully taxable and is grossed up.

      Other benefits provided to our NEOs include company cars, executive physicals and reimbursement for financial services. The value of providing company cars and reimbursement for financial services is taxable and is grossed up to avoid reducing the value of the benefits.


      Table of Contents

      Tax and accounting considerations

      While the accounting and tax treatment of compensation generally has not been a consideration in determining the amounts of compensation for our executive officers, the Committee and management have taken into account the accounting and tax impact of various program designs to balance the potential cost to the Company with the value to the executive.

      The expenses associated with executive compensation issued to our executive officers and other key associates are reflected in our financial statements. We account for stock-based programs in accordance with the requirements of ASC 718, Compensation-StockCompensation—Stock Compensation, which requires companies to recognize in the income statement the grant date value of equity-based compensation issued to associates over the vesting period of such awards.

      Compensation committee interlocks and insider participation

      The Compensation Committee for each of HoldingHoldings and HD Supply, Inc. currently consists of StevenStephen Zide (Chairman), Betsy S. Atkins, Brian A. Bernasek and NateNathan K. Sleeper. All committeeThree of the four Committee members are representatives from the equity owners of HD Supply.Equity Sponsors. Mr. Zide is an executivea Managing Director of Bain, Capital, Mr. Bernasek is an executive of The Carlyle Group and Mr. Sleeper is an executive of Clayton Dubilier & Rice, Inc.CD&R.

      Compensation committee report

      The Compensation Committee        See "Certain Relationships and Related Party Transactions—Consulting Agreements" for eacha discussion of Holding and HD Supply has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommendedannual fees paid to the Board that the Compensation Discussion and Analysis be included in its annual report on Form 10-K.Equity Sponsors.

      The Compensation Committee:

      Brian Bernasek

      Nathan K. Sleeper

      Stephen M. Zide

      Index to Financial Statements

      Executive compensation

      Summary Compensation Table for Fiscal 20112012

      The following table sets forth the compensation of our Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executive officers.

      Name and Principal Position  

      Fiscal

      Year

      		   

      Salary

      $

      		   

      Bonus

      $(1)

      		   

      Option

      Awards

      $(2)

      		   

      Non-Equity
      Incentive Plan
      Compensation

      $(3)

      		   

      All Other
      Compensation

      $(4)

      		   

      Total

      $

      		 

      Joseph J. DeAngelo

      		   2011     875,000     —       2,267,282     1,640,625     47,170     4,830,077  

      Chief Executive Officer

      		   2010     875,000     —       1,327,625     1,435,054     73,937     3,711,616  
         2009     875,000     —       —       —       22,590     897,590  

      Ronald J. Domanico (5)

      		   2011     541,200     —       944,699     614,250     40,594     2,140,743  

      Senior Vice President and Chief Financial Officer

      		   2010     403,800     300,000     1,268,800     516,619     29,196     2,518,415  

      Anesa Chaibi

      		   2011     509,100     —       1,889,401     414,927     43,546     2,856,974  

      President, Facilities Maintenance

      		   2010     439,100     —       287,653     307,314     43,014     1,077,081  
         2009     414,600     25,000     —       231,000     37,208     707,808  

      Steven Margolius (6)

      		   2011     311,000     75,000     1,158,512     259,875     31,110     1,835,497  

      Chief Operating Officer,

      		   2010     65,100     —       243,398     —       5,325     313,823  

      Utilities/ Electrical and Chief Commercial Officer

      		   2009     341,300     —       —       42,600     31,150     415,050  

      Joseph Izganics (7)

      		   2011     432,700     —       755,761     405,000     40,075     1,633,536  

      Senior Vice President, Creative Touch Interiors, Crown Bolt, Repair & Remodel, & HDS Canada

      		   2010     307,200     100,000     1,030,900     245,911     13,302     1,697,313  

      (1)Bonus amount includes: (a) sign-on bonuses of $300,000, $75,000, and $100,000
      Name and Principal Position
      		 Fiscal
      Year      		 Salary
      $      		 Bonus
      $(1)      		 Option
      Awards
      $(2)      		 Non-Equity
      Incentive Plan
      Compensation
      $(3)      		 All Other
      Compensation
      $(4)      		 Total
      $      		 

      Joseph J. DeAngelo

      		  2012  875,000  —  —  1,462,344  38,127  2,375,471 

      Chief Executive Officer

      		  2011  875,000  —  2,267,282  1,640,625  47,170  4,830,077 

      		  2010  875,000  —  1,327,625  1,435,054  73,937  3,711,616 

      Ronald J. Domanico

      		  
      2012      		  
      558,600      		  
      —      		  
      —      		  
      469,939      		  
      52,835      		  
      1,081,374      		 

      Senior Vice President and

      		  2011  541,200  —  944,699  614,250  40,594  2,140,743 

      Chief Financial Officer

      		  2010  403,800  300,000  1,268,800  516,619  29,196  2,518,415 

      Anesa Chaibi

      		  
      2012      		  
      549,959      		  
      —      		  
      —      		  
      901,679      		  
      50,284      		  
      1,501,922      		 

      President, Facilities

      		  2011  509,100  —  1,889,401  414,927  43,546  2,856,974 

      Maintenance

      		  2010  439,100  —  287,653  307,314  43,014  1,077,081 

      John Stegeman

      		  
      2012      		  
      725,000      		  
      —      		  
      —      		  
      1,184,807      		  
      35,209      		  
      1,945,016      		 

      President, White Cap

      		  2011  725,000  —  188,940  552,864  34,465  1,501,269 

      		  2010  571,600  450,000  1,718,168  362,382  229,080  3,331,230 

      Mark Fabere

      		  
      2012      		  
      277,423      		  
      30,000      		  
      830,300      		  
      290,503      		  
      17,744      		  
      1,445,970      		 

      Senior Vice President,

      		                      

      Operations

      		                      
      (1)
      Bonus amount includes sign-on bonuses of $300,000 and $450,000 paid to Mr. Domanico, Mr. Margolius and Mr. Izganics, respectively, as outlined in their offers of employment; (b) a discretionary bonus of $25,000 paid to Ms. Chaibi for fiscal year 2009.
      (2)The fiscal 2011 amounts represent the grant date fair value of the April 2011 stock option grant as described in “Compensation Discussion and Analysis – Components of Compensation – Equity Incentive Compensation”. The fiscal 2011 amount for Mr. Margolius also includes the grant date fair value of the sign-on stock option award granted as outlined in his offer of employment. The fiscal 2010 amounts for Mr. DeAngelo, Ms. Chaibi, and Mr. Margolius result from an Option Exchange Program and represent the incremental fair value of options granted in fiscal 2010 over the fair value of options exchanged and canceled (Mr. Margolius’s options were subsequently forfeited and cancelled when he left the Company in March 2010). The fiscal 2010 amounts for Mr. Domanico and Mr. Izganics represent the aggregate grant date fair value of option awards granted as outlined in their offers of employment. No option awards were granted in fiscal 2009. Information about the assumptions used to value these awards can be found in “Notes to Audited Consolidated Financial Statements—Note 10—Stock-based Compensation and Employee Benefit Plans.”
      (3)Non-equity incentive plan compensation reflects amounts paid under the MIP for all NEOs for the applicable year. See “Compensation Discussion and Analysis—Components of Compensation—Annual Cash Incentives” for a discussion of the incentive compensation plans in fiscal 2011. The fiscal 2011 amount for Mr. Margolius and the fiscal 2010 amount for Mr. Izganics represent prorated awards based upon their hire date with the Company.

      Index to Financial StatementsMr. Domanico and Mr. Stegeman, respectively, as outlined in their offers of employment. A discretionary bonus amount of $30,000 was provided to Mr. Fabere during fiscal 2012.

      (4)The All Other Compensation column is made up of the following amounts for fiscal 2011:

      Table of Contents

         All Other Compensation 

      Name

      		  Tax Gross Up  on
      Perquisites      		   Use of a
      Company
      Car      		   Supplemental
      Health and
      Welfare
      Benefits      		   Financial
      Planning
      Assistance      		   Relocation
      Assistance      		   Total $ 

      Joseph J. DeAngelo

      		   17,154     12,016     —       18,000     —       47,170  

      Ronald J. Domanico

      		   16,220     16,374     —       8,000     —       40,594  

      Anesa Chaibi

      		   16,331     16,215     3,000     8,000     —       43,546  

      Steven Margolius

      		   3,712     6,472     —       —       20,925     31,109  

      Joseph Izganics

      		   9,411     13,293     17,372     —       —       40,076  
      (2)
      The fiscal 2012 amount for Mr. Fabere represents the aggregate grant date fair value of stock option awards granted in May 2012 and November 2012. Information about the assumptions used to value these awards can be found in Note 9 to our audited consolidated financial statements included elsewhere in this prospectus.

      (3)
      Non-equity incentive plan compensation reflects amounts paid under the MIP to all NEOs for the applicable year. See "—Components of Compensation—Annual Cash Incentives" for a discussion of the MIP in fiscal 2012. The fiscal 2012 amount for Mr. Fabere also includes a prorated portion of the LTIP and FAP in the amount of $137,796.

      (4)
      The All Other Compensation column is made up of the following amounts for fiscal 2012:

      (5)Mr. Domanico joined the Company effective April 19, 2010.
      (6)Mr. Margolius re-joined the Company effective April 4, 2011. Mr. Margolius was previously employed by HD Supply in the role of President, Electrical from April 2006 to March 2010.
      (7)Mr. Izganics joined the Company effective March 31, 2010.
      Name
      		 Tax Gross Up on
      Bonus and
      Perquisites      		 Use of a
      Company Car      		 Financial
      Planning
      Assistance      		 Other
      Perquisites      		 Total
      $      		 

      Joseph J. DeAngelo

      		  12,942  5,805  18,000  1,380  38,127 

      Ronald J. Domanico

      		  20,684  20,772  10,000  1,380  52,835 

      Anesa Chaibi

      		  20,229  19,155  10,000  900  50,284 

      John Stegeman

      		  12,766  11,063  10,000  1,380  35,209 

      Mark Fabere

      		  16,491  1,253  —  —  17,744 

      Grants of Plan-Based Awards for Fiscal Year 20112012

      The following table provides information concerning awards granted to the NEOs in the last fiscal year under any plan.

           Estimated Possible Payouts Under
      Non-Equity Incentive Plan
      Awards(1)      		  

      All Other

      Option
      Awards:
      Number of
      Securities
      Underlying
      Options
      (#)

      		  

      Exercise
      or Base
      Price of
      Option
      Awards
      ($/Sh)

      		  Grant Date
      Fair Value
      of Stock
      and Option
      Awards
      ($)      		 
      Name 

      Grant

      Date

      		  Threshold
      $      		  

      Target

      $

      		  Maximum
      $      		    

      Joseph J. DeAngelo

      		       

      2011 MIP

      		   273,438    1,093,750    1,640,625    —      —      —    

      Stock Plan (2)

      		  4/11/2011    —      —      —      1,105,991    4.15    2,267,282  

      Ronald J. Domanico

      		       

      2011 MIP

      		   102,375    409,500    614,250    —      —      —    

      Stock Plan (2)

      		  4/11/2011    —      —      —      460,829    4.15    944,699  

      Anesa Chaibi

      		       

      2011 MIP

      		   75,060    300,240    600,480    —      —      —    

      Stock Plan

      		  4/11/2011    —      —      —      921,659    4.15    1,889,401  

      Steven Margolius

      		       

      2011 MIP

      		   57,750    231,000    346,500    —      —      —    

      Stock Plan (2)

      		  4/11/2011    —      —      —      138,249    4.15    283,410  

      Stock Plan (3)

      		  4/11/2011    —      —      —      226,417    4.15    464,155  

      Stock Plan (3)

      		  4/11/2011    —      —      —      339,625    10.00    410,946  

      Joseph Izganics

      		       

      2011 MIP

      		   67,500    270,000    405,000    —      —      —    

      Stock Plan (2)

      		  4/11/2011    —      —      —      368,664    4.15    755,761  
       
      		  
      		  
      		  
      		  
      		 All Other
      Option
      Awards:
      Number of
      Securities
      Underlying
      Options
      (#)      		  
      		  
      		 
       
      		  
      		 Estimated Possible Payouts Under
      Non-Equity Incentive Plan
      Awards(1)      		  
      		 Grant Date
      Fair Value
      of Stock and
      Option
      Awards
      ($)      		 
       
      		  
      		 Exercise or
      Base Price
      of Option
      Awards
      ($/Sh)      		 
      Name
      		 Grant
      Date      		 Threshold
      $      		 Target
      $      		 Maximum
      $      		 

      Joseph J. DeAngelo

      		                      

      2012 MIP

      		     328,125  1,312,500  1,968,750  —  —  — 

      Ronald J. Domanico

      		                      

      2012 MIP

      		     105,446  421,785  632,678  —  —  — 

      Anesa Chaibi

      		                      

      2012 MIP

      		     262,710  525,420  1,050,840  —  —  — 

      John Stegeman

      		                      

      2012 MIP

      		     181,250  725,000  1,450,000  —  —  — 

      Mark Fabere

      		                      

      2012 MIP

      		     42,750  171,000  256,500  —  —  — 

      2010-2012 LTIP(2)

      		     21,001  84,003  126,005  —  —  — 

      2010-2012 FAP(2)

      		     18,208  91,042  136,563  —  —  — 

      Stock Plan(3)

      		  5/14/2012  —  —  —  30,000  11.78  169,200 

      Stock Plan(3)

      		  5/14/2012  —  —  —  45,000  20.00  179,100 

      Stock Plan(3)

      		  11/8/2012  —  —  —  40,000  12.40  231,200 

      Stock Plan(3)

      		  11/8/2012  —  —  —  60,000  20.00  250,800 
      (1)
      The MIP sets the threshold payout at 25% of the target payout and the maximum payout at 150% of the target payout for Messrs. DeAngelo, Domanico, and Fabere. The MIP sets the threshold payout at 25% of the target payout and the maximum payout at 200% of the target payout for Mr. Stegeman. The MIP sets the threshold payout at 50% of the target payout and the maximum

      Table of Contents

      (1)The MIP plan sets the threshold payout at 25% of the target payout and the maximum payout at 150% of the target payout for Messrs. DeAngelo, Domanico, Margolius, and Izganics and at 200% of the target payout for Ms. Chaibi. A discussion of the MIP in fiscal 2011 is included in the Components of Compensation discussion.
      (2)Represents the stock option grant to key leaders. These options vest in their entirety on the third anniversary of the grant date.
      (3)Represents the stock option grant outlined in his offer of employment. These options vest in five equal annual installments on each of the first through fifth anniversaries of the grant date.

        payout at 200% of the target payout for Ms. Chaibi. A discussion of the MIP in fiscal 2012 is under "Compensation Discussion and Analysis—Components and Compensation—Annual Cash Incentives."

        Index
      (2)
      The LTIP and the FAP provide an award based on the achievement of certain long-term financial objectives of the Company. For the LTIP and FAP, Mr. Fabere participated in these plans for more than 50% of the three-year cycle of 2010-2012. Therefore, he was entitled to Financial Statementsreceive a prorated portion of these awards.

      (3)
      Mr. Fabere received stock options in May 2012 in connection with his role as Vice President, Sourcing. In November 2012, he received stock options outlined in his offer letter agreement in connection with his promotion to Senior Vice President, Operations. These options vest in five equal annual installments on each of the first through fifth anniversaries of the grant date.

      Narrative disclosure to summary compensation table and grant plan based awards table

      Stock Plan

      The Stock Plan and an Associate Stock Option Agreement govern each option award and provide, among other things, the vesting provisions of the options and the option term. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents. See “Potential"Potential Payments upon Termination or Change in Control”Control" for information regarding the cancellation or acceleration of vesting of stock options upon an option holder’sholder's termination of employment or a change in control of the Company.

      Employment Agreement

      We have entered into an employment offer letter with each of our named executive officersofficers. See “Employment"Employment of Chief Operating Officer, Utilities/Electrical & Chief Commercial Officer”Senior Vice President, Operations" and “Potential"Potential Payments upon Termination or Change in Control”Control" for a summary of the material provisions of these letter agreements.

      Outstanding Equity Awards at Fiscal Year-End 20112012

      The following table sets forth the unexercised and unvested stock options held by named executive officers at fiscal year end. Each equity grant is shown separately for each named executive officer. Options granted on April 11, 2011 vest in their entirety and become exercisable on the third anniversary of the grant date except as noted; all other options vest and become exercisable in equal


      Table of Contents

      annual installments on the first five anniversaries of the grant date. No named executive officer holds any stock awards.

         Option Awards 

      Name

      		  Number of
      Securities
      Underlying
      Unexercised
      Options
      (#)
      Exercisable      		   Number of
      Securities
      Underlying
      Unexercised
      Options
      (#)
      Unexercisable      		   Option Exercise
      Price      		   Option Grant
      Date      		   Option Expiration
      Date      		 

      Joseph J. DeAngelo

      		   370,500     1,482,000    $10.00     2/03/2010     2/3/2020  
         247,000     988,000    $4.15     2/03/2010     2/3/2020  
         —       1,105,991    $4.15     4/11/2011     4/11/2021  
         617,500     3,575,991        

      Ronald J. Domanico

      		   96,000     384,000    $10.00     6/8/2010     6/8/2020  
         64,000     256,000    $4.15     6/8/2010     6/8/2020  
         —       460,829    $4.15     4/11/2011     4/11/2021  
         160,000     1,100,829        

      Anesa Chaibi

      		   80,275     321,100    $10.00     2/03/2010     2/3/2020  
         53,516     214,068    $4.15     2/03/2010     2/3/2020  
         —       921,659    $4.15     4/11/2011     4/11/2021  
         133,791     1,456,827        

      Steven Margolius (1)

      		   —       339,625    $10.00     4/11/2011     4/11/2021  
         —       226,417    $4.15     4/11/2011     4/11/2021  
         —       138,249    $4.15     4/11/2011     4/11/2021  
         —       704,291        

      Joseph Izganics

      		   78,000     312,000    $10.00     6/8/2010     6/8/2020  
         52,000     208,000    $4.15     6/8/2010     6/8/2020  
         —       368,664    $4.15     4/11/2011     4/11/2021  
         130,000     888,664        

      Index to Financial Statements

      (1)The stock options grant to Mr. Margolius outlined in his offer of employment, consisting of 226,417 options having a strike price of $4.15 and 339,625 options having a strike price of $10.00, vest in five equal annual installments on each of the first through fifth anniversaries of the grant date.
       
      		 Option Awards 
      Name
      		 Number of Securities
      Underlying
      Unexercised Options
      (#) Exercisable      		 Number of Securities
      Underlying
      Unexercised Options
      (#) Unexercisable      		 Option
      Exercise
      Price $      		 Option
      Grant
      Date      		 Option
      Expiration
      Date      		 

      Joseph J. DeAngelo

      		  555,750  370,500 $20.00  2/03/2010  2/3/2020 

      		  370,500  247,000 $8.30  2/03/2010  2/3/2020 

      		  —  552,995 $8.30  4/11/2011  4/11/2021 

      		  926,250  1,170,495          

      Ronald J. Domanico

      		  
      96,000      		  
      144,000      		 
      $
      20.00      		  
      6/8/2010      		  
      6/8/2020      		 

      		  64,000  96,000 $8.30  6/8/2010  6/8/2020 

      		  —  230,414 $8.30  4/11/2011  4/11/2021 

      		  160,000  470,414          

      Anesa Chaibi

      		  
      120,412      		  
      80,275      		 
      $
      20.00      		  
      2/03/2010      		  
      2/3/2020      		 

      		  80,275  53,517 $8.30  2/03/2010  2/3/2020 

      		  —  460,829 $8.30  4/11/2011  4/11/2021 

      		  200,687  594,621          

      John Stegeman

      		  
      130,000      		  
      195,000      		 
      $
      20.00      		  
      6/8/2010      		  
      6/8/2020      		 

      		  86,667  130,000 $8.30  6/8/2010  6/8/2020 

      		  —  46,083 $8.30  4/11/2011  4/11/2021 

      		  216,667  371,083          

      Mark Fabere

      		  
      —      		  
      45,000      		 
      $
      20.00      		  
      5/14/2012      		  
      5/14/2022      		 

      		  —  30,000 $11.78  5/14/2012  5/14/2022 

      		  —  60,000 $20.00  11/8/2012  11/8/2022 

      		  —  40,000 $12.40  11/8/2012  11/8/2022 

      		  —  175,000          

      Option Exercises and Stock Vested for Fiscal 20112012

      None of our named executive officers exercised any of their stock options during fiscal 2011.2012. No stock awards have been granted to our named executive officers.

      Pension Benefits and Nonqualified Deferred Compensation for Fiscal 20112012

      We do not provide any defined benefit plans or nonqualified defined contributiondeferred compensation plans to our named executive officers.

      Potential Payments upon Termination or Change in Control

      Pursuant to either their employment arrangements or the Company’sCompany's historical practice, in the event of termination without cause on January 29, 2012,February 3, 2013, the last day of fiscal 2011,2012, all of our NEOs would be entitled to up to 24 months of base pay continuation. For Mr. DeAngelo, Mr. Domanico, Ms. Chaibi, Mr. Stegeman and Mr. Fabere, these amounts would be up to $1,750,000, $1,124,760, $1,050,840, $1,450,000 and $570,000, respectively.

      The employment arrangements do not provide for any payout upon termination as a result of death, retirement, disability, or termination for cause.


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      If there is a change in control, the Stock Plan provides for accelerated vesting of unvested stock options. Had a change in control occurred on January 29, 2012,February 3, 2013, only those options having a strike price of $4.15$8.30 or $11.78 would have provided a benefit as the value of ourHoldings' common stock on such date did not exceed the strike price of other outstanding options. Our most recent independent valuation, completed in November 2011,2012, valued ourHoldings' common stock at $4.58$12.40 per share. Assuming this stock price as of January 29, 2012,February 3, 2013, our NEOs would have received a benefit from the accelerated vesting of unvested stock options in the following amounts: Mr. DeAngelo—$900,416;3,279,982; Mr. Domanico—$308,236;1,338,299; Ms. Chaibi—$488,363;2,108,820; Mr. Margolius—Stegeman—$156,806;721,941; and Mr. Izganics—Fabere—$247,966.18,600.

      Stock Plan

      Under the Stock Plan, an executive’sexecutive's unvested stock options are canceled upon the termination of his or her employment, except for terminations due to death or disability. Upon death or disability, unvested stock options vest and remain exercisable. In the case of a termination for “cause”"cause" (as defined in the Stock Plan), the executive’sexecutive's unvested and vested stock options are canceled as of the effective date of the termination. Following a termination of employment other than for “cause”"cause", vested options are canceled unless the executive exercises them within 90 days (180 days if the termination was due to death, disability or retirement) or, if sooner, prior to the options’options' normal expiration date.

      If theany termination of employment occurs prior to a public offering, the CompanyHoldings and the Equity Sponsors have the right to purchase any shares of HoldingHoldings' common stock that the executive acquired upon the exercise of options. Upon a termination other than for cause (as defined in the Stock Plan), the purchase price per share is equal to the fair market value (as defined in the Stock Plan) of the shares on the later of the date (i)(i) the executive’sexecutive's employment terminated and (ii)(ii) that is six months and one day after the shares were purchased by the executive. Upon termination for cause, the purchase price is equal to the lesser of fair market value and the cost of the shares to the executive.

      If the CompanyHoldings experiences a change in control (as defined in the Stock Plan), stock options will generally accelerate and be canceled in exchange for a cash payment equal to the change in control price per share minus

      Index to Financial Statements

      the exercise price of the applicable option, unless theits Board of Directors of Holding elects to provide for alternative awards in lieu of acceleration and payment. TheHoldings' Board of Directors of Holding also has the discretion to accelerate the vesting of options at any time and from time to time.

      Under the Stock Plan a “change"change in control”control" is defined as:

        •
        the acquisition by any person, entity or “group”"group" (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of 50% or more of the combined voting power of the Company’sHoldings' then outstanding voting securities, other than any such acquisition by the Company,Holdings, any of its subsidiaries, any associate benefit plan of the CompanyHoldings or any of its subsidiaries, or by the Equity Sponsors, or any affiliates of any of the foregoing;



      •
      the merger, consolidation or other similar transaction involving the Company,Holdings, as a result of which persons who were stockholders of the CompanyHoldings immediately prior to such merger, consolidation, or other similar transaction do not, immediately thereafter, own, directly or indirectly, more than 50% of the combined voting power entitled to vote generally in the election of directors of the merged or consolidated Company;Holdings; or



      •
      the sale, transfer or other disposition of all or substantially all of the assets of the CompanyHoldings to one or more persons or entities that are not, immediately prior to such sale, transfer or other disposition, affiliates of the Company.

      Holdings.

      A public offering of ourHoldings' common shares does not constitute a change in control.


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      IndexChanges to Financial Statements
      the Compensation Programs in Connection with Holdings' Initial Public Offering

              The following is a summary of the short- and long-term incentive programs we established in connection with Holdings' initial public offering. The following description of the material terms and conditions of these plans is qualified by reference to the full text of the respective plans, which were filed as exhibits to Holdings' registration statement on Form S-1.

      Omnibus Incentive Plan

              Background.    As described above (see "—Compensation Discussion and Analysis—Equity Incentive Compensation"), since HD Supply's separation from Home Depot, we have provided our officers and other employees with long-term equity incentives under the Stock Plan. Prior to the completion of Holdings' initial public offering, Holdings adopted the HD Supply Holdings, Inc. 2013 Omnibus Incentive Plan (the "Omnibus Incentive Plan") pursuant to which Holdings will make grants of incentive compensation to our directors, officers and other employees. When Holdings adopted the Omnibus Incentive Plan, the Stock Plan terminated and no more awards will be made thereunder. However, awards previously granted under the Stock Plan will be unaffected by the termination of the Stock Plan. The following are the material terms of the Omnibus Incentive Plan.

              Administration.    The Board has the authority to interpret the terms and conditions of the Omnibus Incentive Plan, to determine eligibility for and terms of awards for participants and to make all other determinations necessary or advisable for the administration of the Omnibus Incentive Plan. The Board has delegated its authority to the Compensation Committee (which is referred to below as the "Administrator"). To the extent consistent with applicable law and the listing standards on any national exchange or market system on which Holdings' common stock is listed, the Administrator may further delegate the ability to grant awards to our Chief Executive Office or other of our officers. In addition, subcommittees may be established to the extent necessary to comply with Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), or Rule 16b-3 under the Securities Exchange Act of 1934.

              Eligible Award Recipients.    Our directors, officers, other employees and consultants are eligible to receive awards under the Omnibus Incentive Plan.

              Awards.    Awards under the Omnibus Incentive Plan may be made in the form of stock options, which may be either incentive stock options or non-qualified stock options; stock purchase rights; restricted stock; restricted stock units; performance shares; performance units; stock appreciation rights; dividend equivalents; deferred share units; and other stock-based awards.

              Shares Subject to the Plan.    Subject to adjustment as described below, a total of 12,500,000 shares of Holdings' common stock is available for issuance under the Omnibus Incentive Plan. Shares issued under the Omnibus Incentive Plan may be authorized but unissued shares or shares reacquired by us. During any period that Section 162(m) of the Code is applicable to us and for awards intended to qualify as performance-based awards under Section 162(m) of the Code, (1) the maximum number of stock options, SARs or other awards based solely on the increase in the value of common stock that a participant may receive in any year is 2,500,000; (2) a participant may receive a maximum of 1,500,000 performance shares, shares of performance-based restricted stock, performance-based restricted stock units and any performance-based dividend equivalents in any year; and (3) the maximum dollar amount of cash that may be earned in connection with the grant of performance units during any year may not exceed $5,000,000.

              Any shares covered by an award, or portion of an award, granted under the Omnibus Incentive Plan that terminates, is forfeited, is repurchased, expires or lapses for any reason will again be available for the grant of awards under the Omnibus Incentive Plan. Additionally, any shares that are withheld from issuance to satisfy the grant or exercise price or tax withholding obligations pursuant to any award


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      under the Omnibus Incentive Plan will again be available for issuance. The Omnibus Incentive Plan permits us to issue replacement awards to employees of companies acquired by us, and those replacement awards would not count against the share maximum listed above, but any forfeited replacement awards would not be available for future grant. Shares subject to outstanding awards under the Stock Plan that were forfeited following Holdings' initial public offering also are not be available for future grant.

              Terms and Conditions of Options and Stock Appreciation Rights.    An incentive stock option is an option that meets the requirements of Section 422 of the Code, and a non-qualified stock option is an option that does not meet those requirements. A stock appreciation right ("SAR") is the right of a participant to a payment, in cash, shares of common stock, or a combination of cash and shares equal to the amount by which the market value of a share of common stock exceeds the exercise price of the stock appreciation right. An option or SAR granted under the Omnibus Incentive Plan is exercisable only to the extent that it is vested on the date of exercise. No option or SAR may be exercisable more than ten years from the grant date. SARs may be granted to participants in tandem with options or on their own. Tandem SARs will generally have substantially similar terms and conditions as the options with which they are granted.

              The exercise price per share under each option granted under the Omnibus Incentive Plan may not be less than 100% of the fair market value of Holdings' common stock on the option grant date. For so long as Holdings' common stock is listed on any established exchange or national market system, the fair market value of the common stock will be equal to the closing price of Holdings' common stock on the exchange or system on which it is listed on the option grant date. The Omnibus Incentive Plan prohibits repricing of options and SARs without shareholder approval.

              Terms and Conditions of Restricted Stock and Restricted Stock Units.    Restricted stock is an award of common stock on which certain restrictions are imposed over specified periods that subject the shares to a substantial risk of forfeiture. A restricted stock unit is a unit, equivalent in value to a share of common stock, credited by means of a bookkeeping entry in our books to a participant's account, which is settled in stock or cash upon vesting. Subject to the provisions of the Omnibus Incentive Plan, our Administrator will determine the terms and conditions of each award of restricted stock or restricted stock units, and the restrictions applicable to the award. Restricted stock and restricted stock units granted under the Omnibus Incentive Plan will vest based on a period of service specified by our Administrator or the occurrence of events specified by our Administrator.

              Terms and Conditions of Performance Shares and Performance Units.    A performance share is a right to receive a specified number of shares of common stock after the date of grant subject to the achievement of predetermined performance conditions. A performance unit is a unit, equivalent in value to a share of common stock, that represents the right to receive a share of common stock or the equivalent cash value of a share of common stock if predetermined performance conditions are achieved. Vested performance units may be settled in cash, stock or a combination of cash and stock, at the discretion of the Administrator. Performance shares and performance units will vest based on the achievement of pre-determined performance goals established by the Administrator. The performance goals under the Omnibus Incentive Plan consist of the following: (a) net or operating income (before or after taxes); (b) earnings before taxes, interest, depreciation, and/or amortization ("EBITDA"); (c) EBITDA excluding charges for stock compensation, management fees, restructurings and impairments ("Adjusted EBITDA"); (d) basic or diluted earnings per share or improvement in basic or diluted earnings per share; (e) sales (including, but not limited to, total sales, net sales or revenue growth); (f) net operating profit; (g) financial return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue); (h) cash flow measures (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment); (i) productivity ratios (including but not limited to measuring liquidity, profitability or


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      leverage); (j) share price (including, but not limited to, growth measures and total shareholder return); (k) expense/cost management targets; (l) margins (including, but not limited to, operating margin, net income margin, cash margin, gross, net or operating profit margins, EBITDA margins, Adjusted EBITDA margins); (m) operating efficiency; (n) market share or market penetration; (o) customer targets (including, but not limited to, customer growth or customer satisfaction); (p) working capital targets or improvements; (q) economic value added; (r) balance sheet metrics (including, but not limited to, inventory, inventory turns, receivables turnover, net asset turnover, debt reduction, retained earnings, year-end cash, cash conversion cycle, ratio of debt to equity or to EBITDA); (s) workforce targets (including but not limited to diversity goals, employee engagement or satisfaction, employee retention and workplace health and safety goals); (t) implementation, completion or attainment of measurable objectives with respect to research and development, key products or key projects, lines of business, acquisitions and divestitures and strategic plan development and/or implementation; (u) comparisons with various stock market indices, peer companies or industry groups or classifications with regard to one more of these criteria, or (v) for any period of time in which Section 162(m) of the Code is not applicable to the Company and the Omnibus Incentive Plan, or at any time in the case of (A) persons who are not "covered employees" under Section 162(m) of the Code, or (B) awards (whether or not to "covered employee") not intended to qualify as performance based compensation under Section 162(m) of the Code, such other criteria as may be determined by the Administrator. Performance goals may be established on a Company-wide basis or with respect to one or more business units, divisions, subsidiaries, or products and may be expressed in absolute terms, or relative to (i) current internal targets or budgets, (ii) the past performance of the Company (including the performance of one or more subsidiaries, divisions, or operating units), (iii) the performance of one or more similarly situated companies, (iv) the performance of an index covering a peer group of companies, or (v) other external measures of the selected performance criteria. The Administrator may provide for a threshold level of performance below which no shares or compensation will be granted or paid in respect of performance based awards, and a maximum level of performance above which no additional shares or compensation will be granted or paid in respect of performance-based awards, and it may provide for differing amounts of shares or compensation to be granted or paid in respect of performance-based awards for different levels of performance.

              Terms and Conditions of Deferred Share Units.    A deferred share unit is a unit credited to a participant's account in our books that represents the right to receive a share of common stock or the equivalent cash value of a share of common stock upon a predetermined settlement date. Deferred share units may be granted by the Administrator independent of other awards or compensation. Unless the Administrator determines otherwise, deferred share units would be fully vested when granted.

              Other Stock-Based Awards.    The Administrator may make other equity-based or equity-related awards not otherwise described by the terms of the Omnibus Incentive Plan, including grants to our non-employee directors under our director compensation program.

              Dividend Equivalents.    A dividend equivalent is the right to receive payments in cash or in stock, based on dividends with respect to shares of stock. Dividend equivalents may be granted to participants in tandem with another award or as freestanding awards.

              Termination of Employment.    Except as otherwise determined by the Administrator, in the event a participant's employment terminates for any reason other than "cause" (as defined in the Omnibus Incentive Plan), all unvested awards will be forfeited and all options and SARs that are vested and exercisable will remain exercisable until the (i) 180th day following the date of the participant's termination of employment, in the case of death or disability (ii) in the case of termination due to retirement at normal retirement age (x) for options and SARS that are vested as of the date of retirement, the 180th day following the date of termination and (y) for options or SARS that vest after retirement (if any), the 90th day following the post-retirement vesting date, or (iii) until the three


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      month anniversary of the date of termination in the case of any other termination (or the expiration of the award's term, whichever is earlier). In the event of a participant's termination for cause, all unvested or unpaid awards, and all options and SARs, whether vested or unvested, will immediately be forfeited and canceled. In addition, awards will be subject to any clawback policy adopted by the Administrator, the Board or the Company.

              Other Forfeiture Provisions.    A participant will be required to forfeit and disgorge any awards granted or vested and all gains earned or accrued due to the exercise of stock options or SARs or the sale of any Holdings Common Stock to the extent required by applicable law, including Section 304 of the Sarbanes- Oxley Act of 2002 and Section 10D of the Securities Exchange Act of 1934, or pursuant to such policies as to forfeiture and recoupment as may be adopted by the Administrator and communicated to participants.

              Change in Capitalization or Other Corporate Event.    The number or amount of shares of stock, other property or cash covered by outstanding awards, the number and type of shares of stock that have been authorized for issuance under the Omnibus Incentive Plan, the exercise or purchase price of each outstanding award, and the other terms and conditions of outstanding awards, will be subject to adjustment by the Administrator in the event of any stock dividend, extraordinary dividend, stock split or share combination or any recapitalization, merger, consolidation, exchange of shares, spin-off, liquidation or dissolution of Holdings or other similar transaction affecting Holdings' common stock. Any such adjustment would not be considered repricing for purposes of the prohibition on repricing described above.

              Effect of a Change in Control.    Upon a future change in control of Holdings, all outstanding awards would fully vest and be cancelled for the same per share amount paid to the shareholders in the change in control (less, in the case of options and SARs, the applicable exercise or base price). The Administrator has the ability to prescribe different treatment of awards in the award agreements. In addition, unless prohibited by applicable law (including if such action would trigger adverse tax treatment under Section 409A of the Code), no vesting or cancellation of awards will occur if awards are assumed and/or replaced in the change in control with substitute awards having the same or better terms and conditions, provided that any substitute awards must fully vest on a participant's involuntary termination of employment without "cause" or constructive termination of employment, in each case occurring within two years following the date of the change in control.

              Option Grants Made in Connection with Holdings' Initial Public Offering.    The following option awards were made to NEOs on June 26, 2013 with an exercise price equal to Holdings' initial public offering price of $18.00 per share:


      		Number of Shares
      of Common Stock
      Underlying Options

      Joseph J. DeAngelo

      		148,800

      Ronald J. Domanico

      		57,200

      John Stegeman

      		57,200

      Anesa Chaibi

      		86,800

      Annual Incentive Plan

              Background.    As described above (see "—Compensation Discussion and Analysis—Management Incentive Plan"), prior to Holdings' initial public offering, we maintained the Management Incentive Plan (the "MIP") pursuant to which we provided our executive officers and other key employees with the opportunity to earn performance-based annual cash bonuses. Prior to the completion of Holdings' initial public offering, Holdings adopted the HD Supply Holdings, Inc. Annual Incentive Plan (the


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      "AIP") which replaced and succeeded the MIP. Upon the completion of Holdings' initial public offering, awards granted under the MIP relating to fiscal year 2013 were assumed into the AIP and treated as awards granted under the AIP. The AIP provides annual cash incentives to our executive officers and certain other key employees. The material terms of the AIP are described below.

              Purpose.    The AIP is designed to retain and motivate officers and other key employees Holdings and its subsidiaries who are designated by the Compensation Committee by providing them with an opportunity to earn cash incentives based on Holdings' attainment of certain specified performance goals. The AIP is designed to meet the requirements of the performance-based compensation exemption for purposes of Section 162(m) of the Code, to the extent applicable.

              Administration.    The AIP is administered by the Compensation Committee, which may delegate authority under the AIP to the Chief Executive Officer or any other of the executive officers, except that the Compensation Committee may not delegate its responsibilities with respect to awards to any employee whose compensation is subject to Section 162(m) of the Code.

              Eligible Employees.    All of our officers and other key employees are eligible to participate in the AIP.

              Performance Goals.    The Compensation Committee will select those of our employees who will participate in the AIP for a specified performance period and will establish the applicable performance goals for such performance period no later than 90 days after the beginning of the performance period, or if earlier, the date on which 25% of the performance period has been completed. It is expected that the performance period will be our fiscal year, unless our Compensation Committee determines to use another period. As to any award intended to qualify as performance based compensation under Section 162(m) of the Code, the performance goals must include one or more of the following objective performance measures: (a) net or operating income (before or after taxes); (b) earnings before taxes, interest, depreciation, and/or amortization ("EBITDA"); (c) EBITDA excluding charges for stock compensation, management fees, restructurings and impairments ("Adjusted EBITDA"); (d) basic or diluted earnings per share or improvement in basic or diluted earnings per share; (e) sales (including, but not limited to, total sales, net sales or revenue growth); (f) net operating profit; (g) financial return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue); (h) cash flow measures (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment); (i) productivity ratios (including but not limited to measuring liquidity, profitability or leverage); (j) share price (including, but not limited to, growth measures and total shareholder return); (k) expense/cost management targets; (l) margins (including, but not limited to, operating margin, net income margin, cash margin, gross, net or operating profit margins, EBITDA margins, Adjusted EBITDA margins); (m) operating efficiency; (n) market share or market penetration; (o) customer targets (including, but not limited to, customer growth or customer satisfaction); (p) working capital targets or improvements; (q) economic value added; (r) balance sheet metrics (including, but not limited to, inventory, inventory turns, receivables turnover, net asset turnover, debt reduction, retained earnings, year-end cash, cash conversion cycle, ratio of debt to equity or to EBITDA); (s) workforce targets (including but not limited to diversity goals, employee engagement or satisfaction, employee retention and workplace health and safety goals); (t) implementation, completion or attainment of measurable objectives with respect to research and development, key products or key projects, lines of business, acquisitions and divestitures and strategic plan development and/or implementation; (u) comparisons with various stock market indices, peer companies or industry groups or classifications with regard to one more of these criteria, or (v) for any period of time in which Section 162(m) of the Code is not applicable to the Company and the AIP, or at any time (A) in the case of persons who are not "covered employees" under Section 162(m) of the Code or (B) in the case of awards (whether or not to "covered employees") not intended to qualify as performance based compensation under Section 162(m) of the


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      Code, such other criteria as may be determined by the Administrator. Performance goals may be established on a Company-wide basis or with respect to one or more business units, divisions, subsidiaries, or products and may be expressed in absolute terms, or relative to (i) current internal targets or budgets, (ii) the past performance of the Company (including the performance of one or more subsidiaries, divisions, or operating units), (iii) the performance of one or more similarly situated companies, (iv) the performance of an index covering a peer group of companies, or (v) other external measures of the selected performance criteria. In the case of earnings-based measures, performance goals may include comparisons relating to capital (including, but limited to, the cost of capital), shareholders' equity, shares outstanding, assets or net assets, or any combination thereof. The Compensation Committee may provide for a threshold level of performance below which no amount of compensation will be paid and a maximum level of performance above which no additional amount of compensation will be paid under the AIP, and it may provide for the payment of differing amounts of compensation for different levels of performance. Performance goals may also be subject to such other conditions as the Compensation Committee may determine appropriate.

              Maximum Award; Discretion.    The maximum amount payable to any participant under the AIP during any given performance period is $5,000,000. In all cases, our Compensation Committee has the sole and absolute discretion to reduce the amount of any payment under the AIP that would otherwise be made to any participant or to decide that no payment shall be made.

              Payment.    Payment of awards will be made in cash, and with respect to employees whose compensation is subject to Section 162(m) of the Code, as soon as practicable after our Compensation Committee certifies that one or more of the applicable performance goals have been attained for a performance period. Awards will be paid no later than the 15th day of the third month following the end of the year to which the performance period relates. In order to receive payment of an award, an employee must be employed by us on the date of payment unless the Board or Compensation Committee determines otherwise.

              Clawback.    Holdings may cancel, reduce or require an employee to forfeit any awards granted under the AIP or require an employee to reimburse and disgorge to us any amounts received pursuant to awards granted under the AIP, to the extent permitted or required by applicable law or regulations, or our internal policies, in effect on or after the effective date of the AIP.

              Amendment or Termination.    The Board or the Compensation Committee may at any time amend, suspend, discontinue or terminate the AIP, provided, however, that such action shall not be effective without the approval of the shareholders of the Company to the extent necessary to continue to qualify the amounts payable to employees as performance-based compensation under Section 162(m) of the Code.

      Employee Stock Purchase Plan

              Prior to the completion Holdings' initial public offering, Holdings adopted an Employee Stock Purchase Plan (the "ESPP") as a means of permitting its employees to acquire Holdings' common stock. Two million shares of Holdings' common stock are available for issuance under the ESPP. Under the ESPP, eligible employees of the Company may purchase common stock during pre-specified offering periods at a 5% discount of the fair market value of the common stock at the beginning of the offering period. Offering periods under the ESPP are planned to commence on January 1 and July 1 of each year, with the first offering period scheduled to commence on January 1, 2014. Our executive officers are eligible to participate in the ESPP on the same terms and conditions as all other participating employees.


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      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Equity Compensation Plan Information at Fiscal Year-End 2011

      Plan category

      		  Number of securities
      to be issued upon
      exercise of outstanding
      options, warrants and
      rights
      (a)      		   Weighted-average
      exercise price of
      outstanding options,
      warrants and rights
      ($)
      (b)      		   Number of securities
      remaining available for
      future issuance under  equity
      compensation plans
      (excluding securities
      reflected in column (a))
      (c)      		 

      Equity compensation plans approved by security holders

      		      

      Equity compensation plans not approved by security holders

      		      

      Stock options granted under the HDS Investment Holding, Inc. Stock Incentive Plan (1)

      		   29,536,641     6.44     1,394,081(1) 

      Common stock sold or granted to participants under the HDS Investment Holding, Inc. Stock Incentive Plan (1)

      		   1,114,346     N/A     24,995,524(1) 
        

       

       

      		     

      Deferred Share Units granted to participants under the HDS Investment Holding, Inc. Stock Incentive Plan (1)

      		   —       N/A     24,995,524(1) 
        

       

       

      		   

       

       

      		   

       

       

      		 

      Total

      		   30,650,987     N/A     24,995,524(1) 
        

       

       

      		   

       

       

      		   

       

       

      		 

      (1)Pursuant to the HDS Investment Holding, Inc. Stock Incentive Plan, the board of directors of Holdings is authorized to grant or sell, as the case may be, stock options, common stock and deferred share units up to a total of 55,646,511 shares of common stock, of which 30,930,722 may be issued in the form of stock options. Accordingly, the amounts set forth in column (c) reflect the maximum number of shares of common stock issuable within each category. However, the maximum number of shares remaining available for future issuance in any combination cannot exceed 24,995,524. See “Notes to Audited Consolidated Financial Statements—Note 10—Stock-Based Compensation and Employee Benefit Plans” for a description of the Stock Incentive Plan.

      Security Ownership of Certain Beneficial Owners and Management

      HDS Holding Corporation owns all of our outstanding common stock and HDS Investment Holding,HD Supply Holdings, Inc. (or “Holding”"Holdings") owns all of the outstanding common stock of HDS Holding Corporation. As of November 2, 2012,September 24, 2013, there were 261,157,339192,080,428 shares of common stock of HoldingHoldings outstanding.

              The following table sets forth information as of November 2, 2012September 24, 2013 with respect to the beneficial ownership of the common stock of HoldingHoldings by:

        •
        each person known to own beneficially more than 5% of the common stock of Holding;

      Holdings;

      •
      each director of Holding;

      director;

      •
      each of the named executive officers in the Summary Compensation Table above;officers; and



      •
      all directors and executive officers and directors of HD Supply as a group.

      The amounts and percentages of shares beneficially owned are reported on the basis of SEC regulations governing the determination of beneficial ownership of securities. Under SEC rules, a person is deemed to be a “beneficial owner”"beneficial owner" of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial

      Index to Financial Statements

      owner of any securities of which that person has a right to acquire beneficial ownership within 60 days.days of the determination date, which in the case of the following table is September 24, 2013. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’sperson's ownership percentage, but not for purposes of computing any other person’sperson's percentage. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.

      Except as otherwise indicated in the footnotes to this table, each of the beneficial owners listed has, to our knowledge, sole voting and investment power with respect to the indicated shares of


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      common stock. Unless otherwise indicated, the address for each individual listed below is c/o HD Supply Holdings, Inc., 3100 Cumberland Boulevard, Suite 1480, Atlanta, Georgia 30339.

      Name and address of beneficial owner

      		  Number   Percent  Number Percentage 

      Bain Capital Integral Investors 2006, LLC(1)(9)

      		   72,943,750     27.21   36,471,875 18.99 

      Carlyle Partners V, L.P. and related funds(2)(9)

      		   72,943,750     27.21   36,471,872 18.99 

      Clayton, Dubilier & Rice Fund VII, L.P. and related funds(3)(9)

      		   72,923,750     27.20   36,461,875 18.98 

      THD Holdings, LLC

      		   32,500,000     12.12  

      THD Holdings, LLC(9)(10)

      		 16,250,000 8.46 

      James G. Berges(6)

      		   —       —     — — 

      Joseph J. DeAngelo(4)

      		   1,635,000     *   1,126,250 * 

      Paul B. Edgerley(5)

      		   —       —     — — 

      Vipul Amin(7)

      		   —       —    

      Mitchell Jacobson(8)

      		   8,618,750     3.22  

      Lew Klessel(5)

      		   —       —    

      Brian Bernasek(7)

      		   —       —    

      Charles W. Peffer

      		 2,000 * 

      Betsy S. Atkins

      		 — — 

      Patrick R. McNamee

      		 — — 

      Mitchell Jacobson(8)(9)

      		 4,309,375 2.24 

      Brian A. Bernasek(7)

      		 — — 

      Nathan K. Sleeper(6)

      		   —       —     — — 

      Gregory Ledford(7)

      		   —       —     — — 

      Stephen M. Zide(5)

      		   —       —     — — 

      Ronald J. Domanico(4)

      		   370,000     *   265,000 * 

      Anesa Chaibi(4)

      		   287,583     *   210,687 * 

      Steven Margolius(4)

      		   138,208     *  

      Joseph Izganics(4)

      		   284,096     *  

      All executive officers of HD Supply and directors of Holding as a group (25 persons)

      		   13,468,135     5.02  

      Mark Fabere(4)

      		 35,000 * 

      John A. Stegeman(4)

      		 362,000 * 

      All executive officers and directors as a group (19 persons)

      		 7,015,062 3.56 
      *
      Less than 1%

      (1)
      Bain Capital Investors, LLC ("BCI") is the administrative member of Bain Capital Integral Investors 2006, LLC ("Integral"). Voting and investment determinations with respect to the shares held by Integral are made by an investment committee comprised of the following managing directors of BCI: Andrew Balson, Steven Barnes, Joshua Bekenstein, Louis Bremer, John Connaughton, Todd Cook, Paul Edgerley, Christopher Gordon, Blair Hendrix, Jordan Hitch, David Humphrey, John Kilgallon, Lew Klessel, Matthew Levin, Ian Loring, Philip Loughlin, Seth Meisel, Mark Nunnelly, Stephen Pagliuca, Ian Reynolds, Mark Verdi and Stephen Zide. As a result, and by virtue of the relationships described in this footnote, the investment committee of BCI may be deemed to exercise voting and dispositive power with respect to the shares held by Integral. Each of the members of the investment committee of BCI disclaims beneficial ownership of such shares. The address of each of BCI and Integral is c/o Bain Capital Investors, LLC, John Hancock Tower, 200 Clarendon Street, Boston, MA 02116.

      (2)
      Represents shares held by the following investment funds associated with Carlyle: Carlyle Partners V, L.P., Carlyle Partners V-A, L.P., CP V Coinvestment A, L.P., and CP V Coinvestment B, L.P., which are together referred to as the "Carlyle Funds." Carlyle Partners, V, L.P. holds 34,290,383 shares, Carlyle Partners V-A, L.P. holds 689,531 shares, CP V Coinvestment A, L.P. holds 1,320,767 shares, and CP V Coinvestment B, L.P. holds 171,191 shares.

      Carlyle Group Management L.L.C. is the general partner of The Carlyle Group L.P., which is a publicly traded entity listed on NASDAQ. The Carlyle Group L.P. is the managing member of Carlyle Holdings II GP L.L.C., which is the general partner of

      *Less than 1%

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      (1)Bain Capital Investors, LLC (“BCI”) is the administrative member of Bain Capital Integral Investors 2006, LLC (“Integral”). As a result, BCI may be deemed to be the beneficial owner of the shares held by Integral. BCI disclaims beneficial ownership of such shares, except to the extent of its pecuniary interest therein. The address of each of BCI and Integral is c/o Bain Capital Investors, LLC, John Hancock Tower, 200 Clarendon Street, Boston, MA 02116.

        (2)Represents shares held by the following investment funds associated with The Carlyle Group: Carlyle Partners V, L.P., Carlyle Partners V-A, L.P., CP V Coinvestment A, L.P., and CP V Coinvestment B, L.P., which are together referred to as the “Carlyle Funds.” Carlyle Partners, V, L.P. holds 68,580,768 shares, Carlyle Partners V-A, L.P. holds 1,379,063 shares, CP V Coinvestment A, L.P. holds 2,641,536 shares, and CP V Coinvestment B, L.P. holds 342,383Carlyle Holdings II L.P., which is the general partner of TC Group Cayman Investment Holdings, L.P., which is the general partner of TC Group Cayman Investment Holdings Sub L.P., which is the managing member of TC Group V, L.L.C., which is the general partner of TC Group V, L.P., which is the general partner of each of the Carlyle Funds. Voting and investment determinations with respect to the shares held by the Carlyle Funds are made by an investment committee of TC Group V, L.P. comprised of the following persons: Daniel D'Aniello, William Conway, David Rubenstein, Gregory Summe, Louis Gerstner, Allan Holt, Peter Clare and Thomas Mayrhofer. Each member of the investment committee of TC Group V, L.P. disclaims beneficial ownership of such shares. Investment discretion and control over the shares held by each of the Carlyle Funds is exercised by TCG Holdings, L.L.C. through its indirect subsidiary, TC Group V, L.P., which is the sole general partner of each of the Carlyle Funds. TCG Holdings, L.L.C. is the managing member of TC Group, L.L.C. TC Group, L.L.C. is the sole managing member of TC Group V Managing GP, L.L.C. TC Group V Managing GP, L.L.C is the sole general partner of TC Group V, L.P. TCG Holdings, L.L.C. is managed by a three person managing board, and all board action relating to the voting or disposition of these shares requires approval of a majority of the board. William E. Conway, Jr., Daniel A. D’Aniello and David M. Rubenstein, as the managing members of TCG Holdings, L.L.C., may be deemed to share beneficial ownership of the shares beneficially owned by TCG Holdings, L.L.C. Such persons disclaim such beneficial ownership. The Carlyle Group’s address is 1001 Pennsylvania Avenue, N.W., Suite 220 South, Washington, D.C. 20004.

        IndexThe address of TC Group Cayman Investment Holdings, L.P. and TC Group Cayman Investment Holdings Sub L.P. is c/o Walkers Corporate Services Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9001, Cayman Islands. The address of each of the other persons or entities named in this footnote is c/o The Carlyle Group, 1001 Pennsylvania Ave., N.W., Suite 220 South, Washington, DC 20004.

      (3)
      Represents shares held by the following group of investment funds associated with or designated by Clayton, Dubilier & Rice, LLC: (i) 30,000,000 shares of common stock held by Clayton, Dubilier & Rice Fund VII, L.P., whose general partner is CD&R Associates VII, Ltd., whose sole stockholder is CD&R Associates VII, L.P., whose general partner is CD&R Investment Associates VII, Ltd.; (ii) 213,604 shares of common stock held by CD&R Parallel Fund VII, L.P., whose general partner is CD&R Parallel Fund Associates VII, Ltd.; and (iii) 6,248,271 shares of common stock held by Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P., whose general partner is CD&R Associates VII (Co-Investment), Ltd., whose sole stockholder is CD&R Associates VII, L.P., whose general partner is CD&R Investment Associates VII, Ltd. CD&R Investment Associates VII, Ltd. and CD&R Parallel Fund Associates VII, Ltd. are each managed by a two-person board of directors. Donald J. Gogel and Kevin J. Conway, as the directors of each of CD&R Investment Associates VII, Ltd. and CD&R Parallel Fund Associates VII, Ltd., may be deemed to Financial Statements
      (3)Represents shares held by the following group of investment funds associated with or designated by Clayton, Dubilier & Rice, LLC: (i) 60,000,000 shares of common stock held by Clayton, Dubilier & Rice Fund VII, L.P., whose general partner is CD&R Associates VII, Ltd., whose sole stockholder is CD&R Associates VII, L.P., whose general partner is CD&R Investment Associates VII, Ltd.; (ii) 427,208 shares of common stock held by CD&R Parallel Fund VII, L.P., whose general partner is CD&R Parallel Fund Associates VII, Ltd.; and (iii) 12,496,542 shares of common stock held by Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P., whose general partner is CD&R Associates VII (Co-Investment), Ltd., whose sole stockholder is CD&R Associates VII, L.P., whose general partner is CD&R Investment Associates VII, Ltd. Each of CD&R Investment Associates VII, Ltd. and CD&R Parallel Fund Associates VII, Ltd. is managed by a three-person board of directors, and all board action relating to the voting or disposition of these shares requires approval of a majority of the board. Joseph L. Rice, Donald J. Gogel and Kevin J. Conway, as the directors of CD&R Investment Associates VII, Ltd. and CD&R Parallel Fund Associates VII., Ltd., may be deemed to share beneficial ownership of the shares shown as beneficially owned by the funds associated with Clayton, Dubilier & Rice, LLC. Such persons disclaim such beneficial ownership.
      share beneficial ownership of the shares shown as beneficially owned by Clayton, Dubilier & Rice Fund VII, L.P., CD&R Parallel Fund VII, L.P. and Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P. Such persons expressly disclaim such beneficial ownership.

      Investment and voting decisions with respect to shares held by each of Clayton, Dubilier & Rice Fund VII, L.P., CD&R Parallel Fund VII, L.P. and Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P. are made by an investment committee of limited partners of CD&R Associates VII, L.P., currently consisting of the following individuals: Michael G. Babiarz, Manvinder Singh Banga, James G. Berges, Kevin J. Conway, Thomas C. Franco, Kenneth A. Giuriceo, Donald J. Gogel, Theresa A. Gore, Marco Herbst, George K. Jaquette, Sarah Kim, Manfred Kindle, John Krenicki, Jr., Gregory Lai, Edward M. Liddy, John Malfettone, David A. Novak, Paul S. Pressler, Roberto Quarta, Eric Rahe, Christian P. Rochat, Eric Rouzier, Richard J. Schnall, Stephen Shapiro, Nathan K. Sleeper, Christian Storch, Derek L. Strum, Sonja Terraneo, Robert C. Volpe, David H. Wasserman and Jonathan L. Zrebiec (collectively, the "Investment Committee"). All members of the Investment Committee disclaim beneficial ownership of the shares shown as beneficially owned by the funds associated with Clayton, Dubilier & Rice, LLC.

      Each of CD&R Associates VII, Ltd., CD&R Associates VII, L.P. and CD&R Investment Associates VII, Ltd. expressly disclaims beneficial ownership of the shares held by Clayton, Dubilier & Rice Fund VII, L.P., as well as of the shares held by each of Clayton,


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        Dubilier & Rice Fund VII (Co-Investment) L.P. and CD&R Parallel Fund VII, L.P. CD&R Parallel Fund Associates VII, Ltd. expressly disclaims beneficial ownership of the shares held by each of CD&R Parallel Fund VII, L.P., Clayton, Dubilier & Rice Fund VII, L.P. and Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P.

        The address for each of Clayton Dubilier & Rice Fund VII, L.P., CD&R Parallel Fund VII, L.P., Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P., CD&R Associates VII (Co-Investment), Ltd., CD&R Associates VII, Ltd., CD&R Associates VII, L.P., CD&R Parallel Fund Associates VII, Ltd. and CD&R Investment Associates VII, Ltd. is c/o Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The address for Clayton, Dubilier & Rice, LLC is 375 Park Avenue, 18th Floor, New York, NY 10152.

      (4)
      Includes, with respect to: (i) Joseph DeAngelo, 200,000 shares of common stock and 926,250 vested stock options (or vesting within 60 days of September 24, 2013); (ii) Ronald J. Domanico, 25,000 shares of common stock and 240,000 vested stock options (or vesting within 60 days of September 24, 2013); (iii) Anesa Chaibi, 10,000 shares of common stock and 200,687 vested stock options (or vesting within 60 days of September 24, 2013); (iv) Mark Fabere, 35,000 vested stock options (or vesting within 60 days of September 24, 2013); and (v) John A. Stegeman, 37,000 shares of common stock and 325,000 vested stock options (or vesting within 60 days of September 24, 2013). On or about December 27, 2012, the 200,000 shares of common stock attributed to Mr. DeAngelo in (i) above were transferred by Mr. DeAngelo to a Trust, with respect to which Mr. DeAngelo's wife serves as Trustee. Mr. DeAngelo disclaims any beneficial ownership of such shares held by the Trust.

      (5)
      Does not include shares of common stock held by Integral. Each of Messrs. Edgerley and Zide is a Managing Director and serves on the investment committee of BCI and as a result, and by virtue of the relationships described in footnote (1) above, may be deemed to share beneficial ownership of the shares held by Integral. Each of Messrs. Edgerley and Zide disclaims beneficial ownership of such shares. The address of each of Messrs. Edgerley and Zide is c/o Bain Capital Investors, LLC, John Hancock Tower, 200 Clarendon Street, Boston, MA 02116.

      (6)
      Does not include 36,461,875 shares of common stock held by investment funds associated with or designated by Clayton, Dubilier & Rice, LLC. Messrs. Berges and Sleeper are directors of Holdings and HD Supply and executives of Clayton, Dubilier & Rice, LLC. They disclaim any beneficial ownership of the shares held by investment funds associated with or designated by Clayton, Dubilier & Rice, LLC.

      (7)
      Does not include 36,471,872 shares of common stock held by investment funds associated with or designated by Carlyle. Messrs. Bernasek and Ledford are directors of Holdings and HD Supply and executives of Carlyle. They disclaim any beneficial ownership of the shares held by investment funds associated with or designated by The Carlyle Group.

      (8)
      Includes (i) 4,257,500 shares of common stock held by JFI-HDS, LLC; Mr. Jacobson is the managing member of JFI-HDS Partner, LLC which is the managing member of JFI-HDS, LLC, and (ii) 51,875 shares held by JFI-HDS Affiliates, LLC; Mr. Jacobson is the managing member of JFI-HDS Partner, LLC which is the managing member of JFI-HDS Affiliates, LLC.

      (9)
      Excludes shares of common stock owned by other parties to the Second Amended and Restated Stockholders Agreement of which they may be deemed to share beneficial ownership. Each person disclaims beneficial ownership of such shares.

      (10)
      THD Holdings, LLC, is a wholly-owned subsidiary of Home Depot. Home Depot shares voting and investment power with regard to the shares held by THD Holdings, LLC. The address of THD Holdings, LLC and Home Depot is 2455 Paces Ferry Road, N.W., Atlanta, Georgia 30339.

      (4)Includes, with respect to: (i) Joseph DeAngelo, 400,000 shares of common stock and 1,235,000 vested stock options (or vesting within 60 days of November 2, 2012); (ii) Ronald Domanico, 50,000 shares of common stock and 320,000 vested stock options (or vesting within 60 days of November 2,, 2012); (iii) Anesa Chaibi, 20,000 shares of common stock and 267,583 vested stock options (or vesting within 60 days of November 2, 2012); (iv) Steven Margolius, 25,000 shares of common stock and 113,208 vested stock options (or vesting within 60 days of November 2, 2012); and (v) Joseph Izganics, 24,096 shares of common stock and 260,000 vested stock options (or vesting within 60 days of November 2, 2012).Table of Contents

      (5)Messrs. Edgerley, Klessel and Zide are Managing Directors of BCI, which is the administrative member of Integral. By virtue of these relationships, each of Messrs. Edgerley, Klessel and Zide may be deemed to be the beneficial owner of the shares of Holding held by Integral. Each of Messrs. Edgerley, Klessel and Zide disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

      (6)Does not include 72,923,750 shares of common stock held by investment funds associated with or designated by Clayton, Dubilier & Rice, LLC. Messrs. Berges and Sleeper are directors of Holding and executives of Clayton, Dubilier & Rice, LLC. They disclaim any beneficial ownership of the shares held by investment funds associated with or designated by Clayton, Dubilier & Rice, LLC.

      (7)Does not include 72,943,750 shares of common stock held by investment funds associated with or designated by The Carlyle Group. Messrs. Amin, Bernasek and Ledford are directors of Holding and executives of The Carlyle Group. They disclaim any beneficial ownership of the shares held by investment funds associated with or designated by The Carlyle Group.

      (8)Includes (i) 8,515,000 shares of common stock held by JFI-HDS, LLC; Mr. Jacobson is the managing member of JFI-HDS Partner, LLC which is the managing member of JFI-HDS, LLC, and (ii) 103,750 shares held by JFI-HDS Affiliates, LLC; Mr. Jacobson is the managing member of JFI-HDS Partner, LLC which is the managing member of JFI-HDS Affiliates, LLC.

      Index to Financial Statements


      CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

      Stockholders agreement and stockholder arrangements

      In connection with the closing of the Transactions, Holding,2007 Acquisition, Holdings, the Equity Sponsors and their affiliates and certain other stockholders of HoldingHoldings entered into a stockholders agreement that contains, among other things, provisions relating to Holding’sour governance, transfer restrictions, tag-along rights, drag-along rights, preemptive rightsthe disposition of Holdings' common stock by the parties thereto and certain unanimous approval rights. This stockholders agreement currently provides that affiliates of the Equity Sponsors who are stockholders of HoldingHoldings are entitled to elect (or cause to be elected) allnine of Holding’sHoldings directors, which will includeincludes three designees of each Equity Sponsor. Our Chief Executive Officer also serves as a director of Holding.Holdings. One of the directors designated by the Equity Sponsor associated with CD&R serves as the chairman.

      PursuantRegistration Rights Agreement

              Holdings is a party to an amended and restated registration rights agreement between Clayton, Dubilier & Rice Fund VII, L.P.(the "Registration Rights Agreement") with certain of its stockholders, including the Equity Sponsors. The Registration Rights Agreement grants to the Equity Sponsors certain registration rights and Mitchell Jacobson, the fund appointed Mr. Jacobson to serve as a director of Holding for so long as Mr. Jacobson and his immediate family continue to hold certain minimum investments in Holding and certain other conditions are met.includes customary indemnification provisions.

      Management and consultingConsulting agreements

      In connection with the closing of the Transactions, Holding and        Until Holdings' initial public offering, we entered into managementwere party to consulting agreements with the Equity Sponsors (or their respective affiliates), which we entered into in connection with the 2007 Acquisition, pursuant to which the Equity Sponsors provide Holding,provided Holdings, us and our subsidiaries with financial advisory and management consulting services. Pursuant to the managementconsulting agreements, we paypaid the Equity Sponsors an aggregate annual fee of $5$4.5 million for such services, subject to adjustments from time to time, and we may pay to the Equity Sponsors an aggregate fee equal to a specified percentage of the transaction value of certain types of transactions that Holding or we complete, in each case, plus out-of-pocket expenses and subject to approval by the Equity Sponsors, their permitted transferees or their designated affiliates who are shareholders of Holding.our shareholders. Each Agreement expiresconsulting agreement was to expire by its terms in August 2017.

      Prior As specified in the agreements, we paid the Equity Sponsors a transaction fee of approximately $11 million and an aggregate fee to terminate the Transactions, Clayton, Dubilier & Rice, Inc. entered into a consulting agreement with Mitchell Jacobson for consulting servicesagreements of approximately $18 million in connection with the Transactions. Pursuant to an assumption andconsummation of Holdings' initial public offering. The termination agreement among us, Clayton, Dubilier & Rice, Inc. and Mitchell Jacobson, we assumed responsibility for, among other things,fee represented the indemnificationestimated net present value of Mitchell Jacobson for his services to CD&R as a consultant under that agreement.the payments over the then remaining term of the consulting agreements.

      Indemnification agreements

      In connection with the Transactions,2007 Acquisition, we entered into indemnification agreements with HoldingHoldings and the Equity Sponsors pursuant to which, following the completion of the Transactions, Holding and2007 Acquisition, we agreed to indemnify the Equity Sponsors, their respective managers, administrative members and the administrative members or general partners of any other investment vehicle that is our stockholder and is managed by such manager or its affiliates and their respective successors and assigns, and the respective directors, officers, shareholders, partners, members, employees, agents, advisors, consultants, representatives and controlling persons of each of them, or of their partners, shareholders or members in their capacity as such, against certain liabilities arising out of performance of the Transactions,2007 Acquisition, the performance of the consulting agreement,agreements described above under "—Consulting agreements," securities offerings by us and certain other claims and liabilities. We and Holding also entered into a similar indemnification agreement with Home Depot providing for indemnification of Home Depot, its affiliates, directors, officers, shareholders, partners, members, employees, agents, representatives and controlling persons against certain liabilities arising from securities offerings by us (including this offering).


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              In connection with Holdings' initial public offering, we entered into indemnification agreements with our directors. The indemnification agreements provide the directors with contractual rights to the indemnification and expense advancement rights provided under our amended and restated by-laws, as well as contractual rights to additional indemnification as provided in the indemnification agreement.

      Tax sharing agreementarrangements

              In connection with the 2007 Acquisition, Home Depot has agreed to be responsible for and pay any taxes that were reportable in a tax return that included Home Depot or any subsidiary of Home Depot and also included HD Supply is not responsibleor any of its subsidiaries, except for the payment or indemnification of any consolidated U.S. federal income taxes while it wasrelating to a member of the Home Depot federal consolidated group. However,period before HD Supply is responsible

      or its subsidiary was acquired, directly or indirectly, by Home Depot.

      Index to Financial Statements

      for all U.S. federal income taxes for each member of its current federal consolidated group for any period before such member was part of the Home Depot federal consolidated group. In addition, HD Supply is responsible for all prior-year state and international income taxes of each member of its current consolidated group.

      The Internal Revenue Service has disallowed certain deductions claimed by us and has issued notices of proposed adjustments that propose to disallowa formal Revenue Agent's Report challenging certain of the cash refunds resulting from our deductions and the carryback of certain of our net operating lossesNOLs to taxable years during which we were a member of Home Depot’sDepot's U.S. federal consolidated income tax return.group. The carryback of the net operating lossesNOLs was made in accordance with (and subject to the terms of) the Tax Cooperation Agreement. Pursuant to the Tax Cooperation Agreement, if the IRS is ultimately successful with respect to the proposed adjustments, we would be required to reimburse Home Depot an agreementamount equal to the disallowed refunds plus related interest. See "Risk Factors—Risks Relating to Our Business—Income tax payments may ultimately differ from amounts currently recorded by us. Future tax law changes may materially increase our prospective income tax expense."

      Agreements with Home Depot

              Upon the closing of the 2007 Acquisition, we entered into betweenthe following agreements with Home Depot and/or its affiliates:

        •
        a Strategic Purchase Agreement, as subsequently amended effective February 4, 2013, pursuant to which the parties agreed to terms relating to (i) the purchase by Home Depot U.S.A., Inc. and its affiliates of certain products from Crown Bolt for a term to end no later than January 31, 2020, (ii) related intellectual property matters and (iii) the provision of related services;

        •
        a Supplier Buying Agreement, pursuant to which the parties agree to certain terms and conditions relating to (i) the purchase by Home Depot U.S.A., Inc. and its affiliates of products from Crown Bolt pursuant to the Strategic Purchase Agreement and (ii) the provision of related in-store services and displays; and

        •
        a Trademark License granting Crown Bolt the royalty-free right to use a number of trademarks in connection with its activities under the Strategic Purchase Agreement.

              In addition, certain guarantees, surety bonds and letters of credit that Home Depot and/or its affiliates (other than HD Supply, HD Supply Canada, Inc. and their respective affiliates) entered into prior to the closing of the 2007 Acquisition relate to our ultimate parent corporation, HDS Investment Holding,and our subsidiaries' obligations to landlords, customers and suppliers, and remained in place immediately after the closing of the 2007 Acquisition. Holdings agreed in the purchase and sale agreement to fully indemnify Home Depot and its affiliates from any losses that arise out of these obligations. Holdings also agreed to use reasonable best efforts to cause itself and/or HD Supply, Inc., to be substituted for Home Depot and/or its affiliates and to have Home Depot. See “Notes to Audited Consolidated Financial Statements—Note 14—CommitmentsDepot and Contingencies” and “Notes to Unaudited Consolidated Financial Statements—Note 11—Commitments and Contingencies.”its affiliates released in respect of certain such obligations.


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      ExchangeDebt Securities of 12.0% Senior Notes for April 2012 Senior NotesHD Supply

      Pursuant to one or more exchange and/or purchase agreements, in connection with the Refinancing Transactions, Bain and Carlyle exchanged certain of the 12.0% Senior Notes held by them for a portion of the April 2012 Senior Unsecured Notes, in the Sponsor Exchange, and CD&R purchased a portion of the April 2012 Senior Unsecured Notes from us for cash in the CD&R Purchase.cash. The net proceeds from the offering of the April 2012 First Priority Notes and the Second Priority Notes, together with other sources were used to redeem the 12.0% Senior Notes and fund the other Refinancing Transactions. A portion of the 12.0% Senior Notes redeemed were owned by Bain and Carlyle. See “Description of Other Indebtedness—AprilDuring fiscal 2012, Senior Notes” for a description of the terms ofHD Supply issued and repurchased the April 2012 Senior Notes.

      Debt SecuritiesUnsecured Notes to and from certain affiliates of the CompanyEquity Sponsors.

      The Equity Sponsors hold the entire aggregate principal amount outstanding of the April 2012 Senior Notes. Management        In addition, management of the Company has been informed that, as of October 28, 2012, affiliates of certain of the Equity Sponsors beneficially owned $713 million aggregate principal amount, or 39% of the Company’s 2007 Senior Subordinated Notes and approximately $42 million aggregate principal amount of the Company’s other outstanding indebtedness. The Company redeemed $930 million aggregate principal amount of its 2007 Senior Subordinated Notes on November 8, 2012, and intends to redeem the remaining $889 million aggregate principal amount of such notes on or about February 8, 2013. Affiliates of Equity Sponsors that hold 2007 Senior Subordinated Notes had or will have, as the case may be, such notes redeemed on a pro rata basis.

      Investment funds advised by entities associated with Bain and Carlyle may have purchased Old Notes in the initial offerings of such notes and may have bought or sold Old Notes in open market transactions. Such investment funds will not, however, be able to participate in the exchange offer, which may impair the liquidity of the market for the New Notes following the consummation of the exchange offer.

      Certain Transactions Related to Home Depot

      On August 30, 2007, investment funds associated with the Equity Sponsors formed Holding and entered into a stock purchase agreement with Home Depot pursuant to which Home Depot agreed to sell to Holding or to a wholly owned subsidiary of Holding certain intellectual properties and all the outstanding common stock of HD Supply, Inc. and the Canadian subsidiary CND Holdings, Inc. On August 30, 2007, through a series of transactions, Holding’s direct wholly owned subsidiary, HDS Holding Corporation, acquired direct control of HD Supply through the merger of its wholly owned subsidiary, HDS Acquisition Corp., with and into HD Supply, Inc. and the Canadian subsidiary CND Holdings, Inc. Through these transactions (the “Related Transactions”), Home Depot was paid cash of $8.2 billion and 12.5% of Holding’s common stock worth $325 million for certain intellectual property and all of the outstanding common stock of HD Supply, Inc. and CND Holdings, Inc. including all dividends and interest payable associated with those shares. During fiscal 2009, HD Supply, Inc. and the Canadian subsidiary CND Holdings, Inc. received $22 million from Home Depot for the working capital adjustment and settlement of other items finalizing the purchase price of the Related Transactions.

      Index to Financial Statements

      Home Depot

      Sales and Purchases—HD Supply derived revenue from the sale of products to Home Depot of $275 million, $299 million, and $290 million in fiscal 2011, fiscal 2010, and fiscal 2009, respectively. The revenue was recorded at an amount that generally approximates fair value. Accounts receivable from the sale of products to Home Depot were $45 million and $27 million at January 29, 2012 and January 30, 2011, respectively, and are included within Receivables in the accompanying Consolidated Balance Sheets. In addition to sales, HD Supply purchased product from Home Depot of less than $1 million in each of fiscal 2011, fiscal 2010, and fiscal 2009. All purchases were recorded in Cost of sales when the inventory was sold.

      Strategic Agreement—On the date of the Related Transactions, Home Depot entered into a strategic purchase agreement with Crown Bolt, HD Supply’s distribution services line of business. This agreement provides a guaranteed revenue stream to Crown Bolt through January 31, 2015 by specifying minimum annual purchase requirements from Home Depot. The minimum annual purchase requirements range from $257 million at the outset of the agreement in 2007 to $401 million in the final year. Crown Bolt recorded $20 million and $12 million during fiscal 2011 and fiscal 2010, respectively, in Net sales in accordance with the minimum purchase requirement provisions of this strategic purchase agreement.

      Equity Sponsors

      In conjunction with the closing of the Related Transactions, the Company entered into a management agreement whereby the Company will pay the Equity Sponsors a $5 million annual aggregate management fee (“Sponsor Management Fee”) and related expenses through August 2017. During each of fiscal 2011, fiscal 2010, and fiscal 2009, the Company recorded $5 million of Sponsor Management Fees and related expenses, which are included in Selling, general and administrative expense in the Consolidated Statements of Operations.

      Management of the Company has been informed that, as of January 29, 2012,4, 2013, affiliates of certain of the Equity Sponsors beneficially owned approximately $833$34 million aggregate principal amount or 33%, of HD Supply's outstanding indebtedness. HD Supply redeemed the Company’s 12.0% Senior Notes and $713entire outstanding $889 million aggregate principal amount or 39%, of the Company’s 2007 Senior Subordinated Notes.Notes on February 8, 2013. Affiliates of the Equity Sponsors that held the 2007 Senior Subordinated Notes had such notes redeemed.

      HD SupplyTransactions with Other Related Parties

              In connection with our business, we procure products from thousands of suppliers, some of which may be affiliated with the Equity Sponsors. We estimate that we purchased product from affiliates of the Equity Sponsors for approximately $61$57 million, $46$60 million, and $60$24 million in fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively. In addition, HD Supply sold product to affiliates of the Equity Sponsors for approximately $3 million, $3 million, and $3 million in fiscal 2011, fiscal 2010, and fiscal 2009, respectively. Management believes these transactions were conducted on an arm's-length basis at prices that an unrelated third party would pay.


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      DESCRIPTION OF OTHER INDEBTEDNESS

      Senior Credit Facilities

      Senior Term Facility

      The Senior Term Facility consists of a senior secured Senior Term Loan Facility (the “Term Loan Facility”;"Senior Term Facility," the term loans thereunder, the “Term Loans”"Term Loans") providing for Term Loans in an aggregate principal amount of $1,000.0 million. On April 12, 2012, proceeds of the Term Loans, together with proceeds from the Senior ABL Facility (the "Senior ABL Facility" and, together with the Senior Term Facility, the "Senior Credit Facilities,") were used to (i)(i) repay all amounts outstanding under the Existing2007 Senior Secured Credit Facility, (ii)(ii) repay all amounts outstanding under the Existing2007 ABL Credit Facility (iii)(iii) repurchase all remaining outstanding 12.0% Senior Notes and (iv)(iv) pay related fees and expenses. The Senior Term Loan Facility also permits HD Supply, Inc. to add one or more incremental term loan facilities to be included in the Senior Term Loan Facility, to increase the existing loans by requesting supplemental term loan commitments, or to add one or more revolving credit facility commitments or letter of credit facility commitments to be included in the Senior Term Loan Facility. As of October 28, 2012,August 4, 2013, the outstanding principal balance of the Term Loans was $970$969 million, net of unamortized discount of $27$21 million. On February 15, 2013, HD Supply, Inc. entered into Amendment No. 1 (the "Term Loan Amendment") to the Senior Term Facility, which reduced the interest rates applicable to loans thereunder and modified the optional prepayment provisions obtained therein.

              The Senior ABL Facility provides for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $1,500 million (subject to availability under a borrowing base). Extensions of credit under the Senior ABL Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory and eligible accounts receivables, subject to certain reserves and other adjustments. As of August 4, 2013, the outstanding principal drawn on the Senior ABL Facility was $500 million. A portion of the Senior ABL Facility is available for letters of credit and swingline loans. The Senior ABL Facility also permits HD Supply, Inc. to add one or more incremental term loan facilities to be included in the Senior ABL Facility or one or more revolving credit facility commitments to be included in the Senior ABL Facility.

              On June 28, 2013, HD Supply, Inc. entered into entered into Amendment No. 1 (the "ABL Amendment") to the Senior ABL Facility. The ABL Amendment (i) reduced the applicable margin for borrowings under the ABL Facility by 0.25%; (ii) reduced the commitment fee applicable thereunder; (iii) extended the maturity date of the ABL Facility until June 28, 2018 (or, if earlier, the maturity date under HD Supply Inc.'s cash flow facility); (iv) made certain changes to the borrowing base and (v) reduced the sublimit available for letters of credit under the ABL Facility from $400.0 million to $250.0 million.

      Maturity; Prepayment

      The Senior Term Loan Facility will mature on October 12, 2017 (the “Term"Term Loan Maturity Date”Date"). The Term Loans under the Term Loan Facility will amortize in equal quarterly installments in aggregate annual amounts equal to 1.00%1% of the original principal amount of the Senior Term Loan Facility with the balance payable on the Term Loan Maturity Date; provided that if more than $450 millionDate. The Senior ABL Facility will mature on April 12, 2017.

              On or prior to August 15, 2013, any optional prepayment of Term Loans in connection with certain repricing transactions are subject to a prepayment premium equal to 1% of the aggregate principal amount of our 2007 Senior Subordinated Notes remain outstanding as of the date occurring 90 days prior to the date of the final scheduled maturity of the 2007 Senior Subordinated Notes, the Term Loan Facility will mature, and the balances of any then outstanding Term Loans will be payable, on the date occurring 90 days prior to the final scheduled maturity of the 2007 Senior Subordinated Notes and in the event that more than $450 million aggregate principal amount of any unsecured indebtedness incurred to refinance the 2007 Senior Subordinated Notes remains outstanding on the date (the “Second Springing Maturity Date”) that is 90 days prior to the maturity date of such refinancing indebtedness, the Term Loan Facility will mature on the earlier of the Second Springing Maturity Date and October 12, 2017; provided further that the individual applicable lenders may agree to extend the maturity of their Term Loans upon our request and without the consent of any other applicable lender. We intend to redeem all of the remaining outstanding 2007 Senior Subordinated Notes on or about February 8, 2013.

      Prior to the first anniversary of the closing date of the Term Loan Facility, the loans under the Term Loan Facility may not be optionally prepaid. During the second and third years following the closing date of the Term Loan Facility, the Term Loans may be optionally prepaid at a price of 102% and 101%, respectively, of the principal amount being prepaid. On and after the third anniversary of the closing date of the Term Loan Facility,After August 15, 2013, the Term Loans may be prepaid without premium or penalty. Subject to certain exceptions, the Senior Term Loan Facility will be subject to mandatory prepayment in an amount equal to:

      to 100% of the net proceeds of certain asset sales and certain insurance recovery events; and

      50% of annual excess cash flow for any fiscal year, such percentage to decrease to 0% depending on the attainment of certain leverage ratio targets.


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              The Senior ABL Facility may be prepaid at our option at any time without premium or penalty and will be subject to mandatory prepayment if the outstanding Senior ABL Facility exceeds either the aggregate commitments with respect thereto or the current borrowing base, in an amount equal to such excess. Mandatory prepayments do not result in a permanent reduction of the lenders' commitments under the Senior ABL Facility.

      Guarantee; Security

      HD Supply, Inc. is the borrower under the Senior Term LoanFacility. HD Supply, Inc. and certain of its subsidiaries, including HD Supply Canada, Inc., a Canadian subsidiary (the "Canadian Borrower"), are the borrowers under the Senior ABL Facility. Each of our existing and subsequently acquired or organized direct or indirect wholly-owned domestic restricted subsidiaries, subject to certain exceptions, in each case to the extent otherwise permitted by applicable law, regulation and contractual provision (the “Subsidiary Guarantors”"Subsidiary Guarantors") guarantee our payment obligations under the Term Loan Facility.Senior Credit Facilities (and each direct and indirect wholly-owned Canadian subsidiary, subject to certain exceptions, in each case to the extent otherwise permitted by applicable law, regulation and contractual provision (the "Canadian Guarantors") guarantee the Canadian Borrower's payment obligations under the Senior ABL Facility).

      The Term Loan Facility is not guaranteed by Home Depot.

      The Term Loan Facilityobligations under the Senior Credit Facilities and the guarantees thereof isare secured in favor of the administrative agent and collateral agent or U.S. ABL collateral agent, as applicable, by (i)(i) all of the capital stock of HD Supply, Inc., all capital stock of all domestic subsidiaries

      Index to Financial Statements

      owned by HD Supply, Inc. and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary owned directly by HD Supply, Inc. or any Subsidiary GuarantorsGuarantor (it being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii)(ii) substantially all other tangible and intangible assets owned by HD Supply, Inc. and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Term Loan Facility,Senior Credit Facilities, the First Priority Notes and the Second Priority Notes andNotes. The Canadian obligations under the Senior ABL Facility.Facility are also secured by liens on substantially all assets of the Canadian Borrower and the Canadian Guarantors, subject to certain exceptions.

      InterestInterest; Fees

      The        After giving effect to the Term Loan Amendment, the interest rates applicable to the loans under the Senior Term Loan Facility are based on a fluctuating rate of interest measured by reference to either, at our option, (i)(i) an adjusted London inter-bank offered rate (adjusted for statutory reserve requirements), plus a borrowing margin of 6.00%3.25%, or (ii)(ii) an alternate base rate, plus a borrowing margin of 5.00%2.25%.

      Fees        The interest rates applicable to the loans under the Senior ABL Facility are subject to a pricing grid based on average daily excess availability for the previous fiscal quarter.

      Customary fees were payable in respect of the Term Loan Facility.Senior Credit Facilities.

      Covenants

      The Senior Term Loan Facility contains a number of negative covenants that, among other things, limit or restrict the ability of HD Supply, Inc. and its material restricted subsidiaries to incur other indebtedness (including guarantees of other indebtedness); incur certain liens; pay dividends or make other restricted payments, including investments; prepay or amend the terms of other indebtedness; enter into certain types of transactions with affiliates; sell certain assets; sell or otherwise dispose of all or substantially all of its assets; enter into agreements restricting dividends or other distributions by subsidiaries to HD Supply, Inc. or a Subsidiary Guarantor or, in the case of HD Supply, Inc., consolidate or merge.


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      The Term LoanSenior ABL Facility contains a number of negative covenants that, among other things, limit or restrict our ability and, in certain cases, our subsidiaries to carry out acquisitions, mergers, consolidations, to pay dividends, and to prepay certain indebtedness (including the Notes), in each case to the extent any such transaction would reduce availability under the Senior ABL Facility below a specified amount.

              The Senior Credit Facilities also containscontain certain affirmative covenants, including financial and other reporting requirements.

      Events of Default

      The Term Loan Facility providesSenior Credit Facilities provide for customary events of default, including non-payment of principal, interest or fees, violation of covenants, material inaccuracy of representations or warranties, specified cross payment default and cross acceleration to other material indebtedness, certain bankruptcy events, certain ERISA events, material invalidity of guarantees or security interests and material judgments.

      First Priority Notes and Second Priority Notes

              In connection with the Refinancing Transactions, on April 12, 2012 HD Supply, Inc. issued $950 million aggregate principal amount of 81/8% Senior Secured First Priority Notes due April 15, 2019 (the "April 2012 First Priority Notes") at par. On August 2, 2012, HD Supply, Inc. issued an additional $300 million aggregate principal amount of 81/8% Senior Secured First Priority Notes due 2019 (together with the April 2012 First Priority Notes, the "First Priority Notes"). As of August 4, 2013, the outstanding principal balance of the First Priority Notes was $1,269 million, including unamortized premium of $19 million.

              In connection with the Refinancing Transactions, on April 12, 2012 HD Supply, Inc. issued $675 million aggregate principal amount of 11% Senior Secured Second Priority Notes due April 15, 2020 (the "Second Priority Notes" and, together with the First Priority Notes, the "Secured Notes") at par. As of August 4, 2013, the outstanding principal balance of the Second Priority Notes was $675 million.

      Guarantees; Security

              The Secured Notes are guaranteed by each of our existing and future wholly-owned domestic subsidiaries (subject to certain exceptions) and by each of our other domestic subsidiaries that is a borrower under the Senior ABL Facility or that guarantees payment of indebtedness of HD Supply, Inc. under certain credit facilities or capital markets securities (the "Subsidiary Guarantors").

              The Secured Notes and the guarantees thereof are secured in favor of the collateral agent, by (i) all capital stock of all domestic subsidiaries owned by HD Supply, Inc. and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary owned directly by HD Supply, Inc. or any Subsidiary Guarantors (it being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by HD Supply, Inc. and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Secured Notes and the Senior Credit Facilities.

      Redemption; Offer to Repurchase

              Prior to April 15, 2015, HD Supply, Inc. may redeem some or all of the First Priority Notes by paying the applicable make-whole premium. At any time on or after April 15, 2015, HD Supply, Inc. may redeem some or all of the First Priority Notes at redemption prices specified in the indenture


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      governing the First Priority Notes. Prior to April 15, 2016, HD Supply, Inc. may redeem some or all of the Second Priority Notes by paying the applicable make-whole premium. At any time on or after April 15, 2016, HD Supply, Inc. may redeem some or all of the Second Priority Notes at redemption prices specified in the indenture governing the Second Priority Notes. In addition, in the event of an equity offering prior to April 15, 2015, HD Supply, Inc. may redeem up to 35% of the principal amount of the First Priority Notes and the Second Priority Notes at a redemption price equal to 100% plus the amount of the respective coupon, using the net cash proceeds raised in the equity offering.

              In the event of certain events that constitute a Change of Control (as defined in the applicable indenture), HD Supply, Inc. must offer to repurchase all of the First Priority Notes and the Second Priority Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. If HD Supply, Inc. or any of its restricted subsidiaries sells assets under certain circumstances, HD Supply, Inc. must use the proceeds to make an offer to purchase the First Priority Notes and the Second Priority Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

      Covenants

              The indentures governing the Secured Notes contain restrictive covenants that, among other things, limit the ability of HD Supply, Inc. and its restricted subsidiaries to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of HD Supply, Inc.'s restricted subsidiaries to pay dividends to HD Supply, Inc. or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; and enter into certain transactions with HD Supply, Inc.'s affiliates. Most of these covenants will cease to apply for so long as the applicable Secured Notes have investment grade ratings from both Moody's Investment Services, Inc. and Standard & Poor's.

      Intercreditor Agreements

              On April 12, 2012, the Senior ABL Facility collateral agent, the Senior Term Facility collateral agent, the First Priority Notes collateral agent and the Second Priority Notes collateral agent entered into an intercreditor agreement as to the relative priorities of their respective security interests in the collateral securing such indebtedness and certain other matters relating to the administration of security interests. In addition, the Senior Term Facility collateral agent, the First Priority Notes collateral agent and the Second Priority Notes collateral agent entered into a separate intercreditor agreement as to the relative priorities of their respective security interests in the collateral securing such indebtedness and certain other matters relating to the administration of security interests.

      October 2012 Senior Notes

              On October 15, 2012, HD Supply, Inc. issued $1 billion aggregate principal amount of 11.50% Senior Notes due July 15, 2020 (the "October 2012 Senior Notes") at par. As of August 4, 2013, the outstanding principal balance of the October 2012 Senior Notes was $1 billion.

      Guarantees

              The October 2012 Senior Notes are guaranteed, on a senior unsecured basis, by each of our wholly-owned existing and future domestic subsidiaries (subject to certain exceptions) and by each of our other domestic subsidiaries that is a borrower under the Senior ABL Facility or that guarantees payment of indebtedness of HD Supply, Inc. under certain credit facilities or capital markets securities.


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      Redemption; Offer to Repurchase

              Prior to October 15, 2016, HD Supply, Inc. may redeem some or all of the October 2012 Senior Notes by paying the applicable make-whole premium. At any time on or after October 15, 2016, HD Supply, Inc. may redeem some or all of the October 2012 Senior Notes at redemption prices specified in the indenture governing the October 2012 Senior Notes. In addition, in the event of an equity offering prior to October 15, 2015, HD Supply, Inc. may redeem up to 35% of the principal amount of each of the October 2012 Senior Notes at a redemption price equal to 100% plus the amount of the respective coupon, using the net cash proceeds raised in the equity offering.

              In the event of certain events that constitute a Change of Control (as defined in the indenture governing the October 2012 Senior Notes), HD Supply, Inc. must offer to repurchase all of the October 2012 Senior Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. If HD Supply, Inc. or any of its restricted subsidiaries sells assets under certain circumstances, HD Supply, Inc. must use the proceeds to make an offer to purchase the October 2012 Senior Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

      Covenants

              The indentures governing the October 2012 Senior Notes contain covenants that, among other things, limit the ability of HD Supply, Inc. and its restricted subsidiaries, as described in the indenture governing the October 2012 Senior Notes, to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of HD Supply, Inc.'s restricted subsidiaries to pay dividends to HD Supply, Inc. or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; and enter into certain transactions with HD Supply, Inc.'s affiliates. Most of these covenants will cease to apply for so long as the October 2012 Senior Notes have investment grade ratings from both Moody's Investment Services, Inc. and Standard & Poor's.


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      DESCRIPTION OF NOTES

      General

              The existing 7.50% Senior Notes due July 15, 2020 (the "Old Notes") were issued, and the new 7.50% Senior Notes due July 15, 2020 (the "New Notes") will be issued, under an Indenture, dated as of February 1, 2013 (the "Indenture"), among the Company, as issuer, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as Trustee (the "Trustee").

              The Indenture and the Notes contain provisions that define your rights and govern the obligations of the Company under the Notes. Copies of the Indenture and the form of Notes will be made available to prospective purchasers of the Notes upon request, as set forth under "Where You Can Find More Information."

              The following is a summary of certain provisions of the Indenture and the Notes. It does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture and the Notes, including the definitions of certain terms therein and (in the case of the Indenture) those terms to be made a part thereof by the Trust Indenture Act of 1939, as amended. The term "Company" and the other capitalized terms defined in "—Certain Definitions" below are used in this "Description of Notes" as so defined, except as otherwise provided herein. Any reference to a "Holder" or a "Noteholder" in this "Description of Notes" refers to the Holders of the Notes. The Old Notes and the New Notes, are each considered collectively to be a single class for all purposes under the Indenture, including, without limitations, for the purposes of waivers, amendments, redemptions and offers to purchase. In this "Description of Notes", any reference to (i) "Notes" refers collectively to the Old Notes and the New Notes, unless the context otherwise requires, and (ii) a "class" of Notes refers to the Old Notes and the New Notes collectively as a class, as applicable.

      Brief Description of the Notes

              The Notes are:

        •
        unsecured Senior Indebtedness of the Company;

        •
        effectively subordinated to all secured Indebtedness of the Company to the extent of the value of the assets securing such secured Indebtedness and to all Indebtedness and other liabilities (including Trade Payables) of the Company's Subsidiaries (other than Subsidiaries that become Subsidiary Guarantors pursuant to the provisions described below under "—Subsidiary Guarantees");

        •
        pari passu in right of payment with all existing and future Senior Indebtedness of the Company; and

        •
        senior in right of payment to all existing and future Subordinated Obligations of the Company.

      Brief Description of the Subsidiary Guarantees

              The Subsidiary Guarantees of each Subsidiary Guarantor in respect of the Notes are:

        •
        unsecured Senior Indebtedness of such Subsidiary Guarantor;

        •
        effectively subordinated to all secured Indebtedness of such Subsidiary Guarantor to the extent of the value of the assets securing such secured Indebtedness and to all Indebtedness and other liabilities (including Trade Payables) of such Subsidiary Guarantor's Subsidiaries (other than Subsidiaries that become Subsidiary Guarantors pursuant to the provisions described below under "—Subsidiary Guarantees");

        •
        pari passu in right of payment with all existing and future Senior Indebtedness of such Subsidiary Guarantor; and

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        •
        senior in right of payment to all existing and future Guarantor Subordinated Obligations of such Subsidiary Guarantor.

      Principal, Maturity and Interest

              The Notes will mature on July 15, 2020. Each Note bears interest at the rate of 7.50% per annum from February 1, 2013, or from the most recent date to which interest has been paid or provided for. Interest is payable semiannually in cash to Holders of record at the close of business on April 1 or October 1 immediately preceding the interest payment date on April 15 and October 15 of each year and at maturity, commencing April 15, 2013. Interest will be paid on the basis of a 360-day year consisting of twelve 30-day months.

              An aggregate principal amount of $1,275,000,000 of Notes is currently outstanding. Additional securities may be issued under the Indenture in one or more series from time to time ("Additional Notes"), subject to the limitations set forth under "—Certain Covenants—Limitation on Indebtedness," which will vote as a class with the Notes (except as otherwise provided herein) and otherwise be treated as Notes for purposes of the Indenture. The Indenture permits the Company to designate the maturity date, interest rate and optional redemption provisions applicable to each series of Additional Notes, which may differ from the maturity date, interest rate and optional redemption provisions applicable to the Notes issued on the Issue Date. Additional Notes that differ with respect to maturity date, interest rate or optional redemption provisions from the Notes issued on the Issue Date will constitute a different series of Notes from such initial Notes. Additional Notes that have the same maturity date, interest rate and optional redemption provisions as the Notes issued on the Issue Date will be treated as the same series as such initial Notes unless otherwise designated by the Company. The Company similarly will be entitled to vary the application of certain other provisions to any series of Additional Notes.

      Other Terms

              Principal of, and premium, if any, and interest on, the Notes are payable, and the Notes may be exchanged or transferred, at the office or agency of the Company maintained for such purposes (which initially shall be the corporate trust office of the Trustee), except that, at the option of the Company, payment of interest may be made by wire transfer of immediately available funds to the account designated to the Company by the Person entitled thereto or by check mailed to the address of the registered holders of the Notes as such address appears in the Note Register.

              The New Notes will be issued in the form of global notes that will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company, and purchasers of Notes will not receive or be entitled to receive physical, certificated Notes (except in the very limited circumstances described herein). The Notes will be issued only in fully registered form, without coupons. The Notes will be issued only in minimum denominations of $2,000 (the "Minimum Denomination") and any integral multiple of $1,000 in excess thereof.

      Optional Redemption

              The Notes are redeemable, at the Company's option, at any time prior to maturity at varying redemption prices in accordance with the applicable provisions set forth below.

              The Notes are redeemable, at the Company's option, in whole or in part, at any time and from time to time on and after October 15, 2016, and prior to maturity at the applicable redemption price set forth below. Such redemption may be made upon notice mailed by first class mail to each Holder's registered address, not less than 30 nor (other than in the case of defeasance or satisfaction and discharge) more than 60 days prior to the date of redemption (the "Redemption Date"). The Company may provide in such notice that payment of the redemption price and the performance of the


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      Company's obligations with respect to such redemption may be performed by another Person. Any such redemption and notice may, in the Company's discretion, be subject to the satisfaction of one or more conditions precedent, including but not limited to the occurrence of a Change of Control. The Notes are so redeemable at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on October 15 of the years set forth below:

      Redemption Period
      		 Price 

      2016

      		  103.750%

      2017

      		  101.875%

      2018 and thereafter

      		  100.000%

              In addition, the Indenture provides that at any time and from time to time prior to October 15, 2015, the Company at its option may redeem Notes in an aggregate principal amount equal to up to 35% of the original aggregate principal amount of the Notes (including the principal amount of any Additional Notes of the same series), with funds in an equal aggregate amount (the "Redemption Amount") not exceeding the aggregate proceeds of one or more Equity Offerings (as defined below), at a redemption price (expressed as a percentage of principal amount thereof) of 107.50%, plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date);provided,however, that if Notes are redeemed, an aggregate principal amount of Notes equal to at least 50% of the original aggregate principal amount of Notes (including the principal amount of any Additional Notes of the same series) must remain outstanding immediately after each such redemption of Notes. "Equity Offering" means a sale of Capital Stock (x) that is a sale of Capital Stock of the Company (other than Disqualified Stock) or (y) proceeds of which in an amount equal to or exceeding the Redemption Amount are contributed to the equity capital of the Company or any of its Restricted Subsidiaries. Such redemption may be made upon notice mailed by first class mail to each Holder's registered address, not less than 30 nor more than 60 days prior to the Redemption Date (but in no event more than 180 days after the completion of the related Equity Offering). The Company may provide in such notice that payment of the redemption price and performance of the Company's obligations with respect to such redemption may be performed by another Person. Any such notice may be given prior to the completion of the related Equity Offering, and any such redemption or notice may, at the Company's discretion, be subject to the satisfaction of one or more conditions precedent, including but not limited to the completion of the related Equity Offering.

              At any time prior to October 15, 2016, Notes may also be redeemed in whole or in part, at the Company's option, at a price (the "Redemption Price") equal to 100% of the principal amount thereof plus the Applicable Premium as of, and accrued but unpaid interest, if any, to, the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). Such redemption may be made upon notice mailed by first class mail to each Holder's registered address, not less than 30 nor more than 60 days prior to the Redemption Date. The Company may provide in such notice that payment of the Redemption Price and performance of the Company's obligations with respect to such redemption may be performed by another Person. Any such redemption or notice may, at the Company's discretion, be subject to the satisfaction of one or more conditions precedent, including but not limited to the occurrence of a Change of Control.

              "Applicable Premium" means, with respect to a Note at any Redemption Date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess of (A) the present value at such Redemption Date of (1) the redemption price of such Note on October 15, 2016 (such redemption


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      price being that described in the second paragraph of this "—Optional Redemption" section) plus (2) all required remaining scheduled interest payments due on such Note through such date (excluding accrued and unpaid interest to the Redemption Date), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such Note on such Redemption Date, as calculated by the Company or on behalf of the Company by such Person as the Company shall designate; provided that such calculation shall not be a duty or obligation of the Trustee.

              "Treasury Rate" means, with respect to a Redemption Date, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two Business Days prior to such Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such Redemption Date to October 15, 2016;provided,however, that if the period from the Redemption Date to such date is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to such date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

      Selection

              In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, in integral multiples of $1,000, although no Note of the Minimum Denomination in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note.

      Subsidiary Guarantees

              As of the Issue Date, each Wholly Owned Domestic Subsidiary (other than an Excluded Subsidiary), and each other Domestic Subsidiary that is a borrower under the Senior ABL Facility or that guarantees payment of Indebtedness of the Company under any Credit Facility or Capital Markets Securities, guaranteed payment of the Notes under the Indenture. From and after the Issue Date, the Company will cause each Wholly Owned Domestic Subsidiary (other than an Excluded Subsidiary), and each other Domestic Subsidiary that is a borrower under the Senior ABL Facility or that guarantees payment of Indebtedness of the Company under any Credit Facility or Capital Markets Securities, to execute and deliver to the Trustee a supplemental indenture or other instrument pursuant to which such Domestic Subsidiary will guarantee payment of the Notes, whereupon such Domestic Subsidiary will become a Subsidiary Guarantor for all purposes under the Indenture. In addition, the Company may cause any Subsidiary that is not a Subsidiary Guarantor so to guarantee payment of the Notes and become a Subsidiary Guarantor.

              Each Subsidiary Guarantor, as primary obligor and not merely as surety, jointly and severally, irrevocably and fully and unconditionally Guarantees, on a senior basis, the punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all monetary obligations of the Company under the Indenture and the Notes, whether for principal of or interest on the Notes, expenses, indemnification or otherwise (all such obligations guaranteed by such Subsidiary Guarantors being herein called the "Subsidiary Guaranteed Obligations"). Such Subsidiary Guarantor agrees to pay, in addition to the amount stated above, any and all reasonable out-of-pocket expenses (including


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      reasonable counsel fees and expenses) incurred by the Trustee or the Holders in enforcing any rights under its Subsidiary Guarantee.

              The obligations of each Subsidiary Guarantor are limited to the maximum amount, as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including but not limited to any Guarantee by it of any Credit Facility Indebtedness), result in the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under applicable law, or being void or unenforceable under any law relating to insolvency of debtors.

              Each such Subsidiary Guarantee is a continuing Guarantee and shall (i) remain in full force and effect until payment in full of the principal amount of all outstanding Notes (whether by payment at maturity, purchase, redemption, defeasance, retirement or other acquisition) and all other Subsidiary Guaranteed Obligations then due and owing unless earlier terminated as described below, (ii) be binding upon such Subsidiary Guarantor and (iii) inure to the benefit of and be enforceable by the Trustee, the Holders and their permitted successors, transferees and assigns.

              Notwithstanding the preceding paragraph, any Subsidiary Guarantor will automatically and unconditionally be 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, (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 Indenture (including the covenants described under "—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock" and "—Merger and Consolidation") by the Company or a Restricted Subsidiary, following which such Subsidiary Guarantor is no longer a Restricted Subsidiary of the Company, (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 the Company or any Subsidiary Guarantor under the Senior Credit Facilities and Capital Markets Securities and is not a borrower under the Senior ABL Facility (it being understood that a release subject to contingent reinstatement is still a release, and that if any such Guarantee is so reinstated, such Subsidiary Guarantee shall also be reinstated to the extent that such Subsidiary Guarantor would then be required to provide a Subsidiary Guarantee pursuant to the covenant described under "—Certain Covenants—Future Subsidiary Guarantors"), (iii) upon the merger or consolidation of any Subsidiary Guarantor with and into the Company or another Subsidiary Guarantor that is the surviving Person in such merger or consolidation, or upon the liquidation of such Subsidiary Guarantor following the transfer of all of its assets to the Company or another Subsidiary Guarantor, (iv) concurrently with any Subsidiary Guarantor becoming an Unrestricted Subsidiary, (v) during the Suspension Period, 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 Person 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 the Company's obligations, or satisfaction and discharge of the Indenture, or (vii) subject to customary contingent reinstatement provisions, upon payment in full of the aggregate principal amount of all Notes then outstanding and all other Subsidiary Guaranteed Obligations then due and owing. In addition, the Company has the right, upon 30 days' notice to the Trustee, to cause any Subsidiary Guarantor that has not guaranteed payment of any Indebtedness of the Company or any Subsidiary Guarantor under the Senior Credit Facilities or Capital Markets Securities 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. Upon any such occurrence specified in this paragraph, the Trustee shall execute any documents reasonably requested by the Company in order to evidence such release, discharge and termination in respect of such Subsidiary Guarantee.

              Neither the Company nor any Subsidiary Guarantor shall be required to make a notation on the Notes to reflect any such Subsidiary Guarantee or any such release, termination or discharge.


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      Ranking

              The indebtedness evidenced by the Notes (a) is unsecured Senior Indebtedness of the Company, (b) ranks pari passu in right of payment with all existing and future Senior Indebtedness of the Company and (c) is senior in right of payment to all existing and future Subordinated Obligations of the Company. The Notes are also effectively subordinated to all secured Indebtedness of the Company to the extent of the value of the assets securing such Indebtedness, and to all Indebtedness and other liabilities (including Trade Payables) of its Subsidiaries (other than any Subsidiaries that are or become Subsidiary Guarantors pursuant to the provisions described above under "—Subsidiary Guarantees").

              Each Subsidiary Guarantee in respect of Notes (a) is unsecured Senior Indebtedness of the applicable Subsidiary Guarantor, (b) rankspari passu in right of payment with all existing and future Senior Indebtedness of such Subsidiary Guarantor and (c) is senior in right of payment to all existing and future Guarantor Subordinated Obligations of such Subsidiary Guarantor. Such Subsidiary Guarantee is also effectively subordinated to all secured Indebtedness of such Subsidiary Guarantor to the extent of the value of the assets securing such Indebtedness, and to all Indebtedness and other liabilities (including Trade Payables) of the Subsidiaries of such Subsidiary Guarantor (other than any Subsidiaries that are or become Subsidiary Guarantors pursuant to the provisions described above under "—Subsidiary Guarantees").

              All of the operations of the Company are conducted through its Subsidiaries. Claims of creditors of such Subsidiaries, including trade creditors, and claims of preferred shareholders (if any) of such Subsidiaries will have priority with respect to the assets and earnings of such Subsidiaries over the claims of creditors of the Company, including holders of the Notes, unless such Subsidiary is a Subsidiary Guarantor. The Notes, therefore, are effectively subordinated to creditors (including trade creditors) and preferred shareholders (if any) of other Subsidiaries of the Company (other than Subsidiaries that become Subsidiary Guarantors). In addition, certain of the operations of a Subsidiary Guarantor may be conducted through Subsidiaries thereof that are not also Subsidiary Guarantors. Claims of creditors of such Subsidiaries, including trade creditors, and claims of preferred shareholders (if any) of such Subsidiaries will have priority with respect to the assets and earnings of such Subsidiaries over the claims of creditors of such Subsidiary Guarantor, including claims under its Subsidiary Guarantee. Such Subsidiary Guarantees, therefore, are effectively subordinated to creditors (including trade creditors) and preferred shareholders (if any) of any such Subsidiaries. Although the Indenture limits the incurrence of Indebtedness (including preferred stock) by certain of the Company's Subsidiaries, such limitation is subject to a number of significant qualifications.

      Change of Control

              Upon the occurrence after the Issue Date of a Change of Control (as defined below), each Holder of Notes will have the right to require the Company to repurchase all or any part of such Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date);provided,however, that the Company shall not be obligated to repurchase Notes pursuant to this covenant in the event that it has exercised its right to redeem all of the Notes as described under "—Optional Redemption." The Transactions shall not constitute or give rise to a Change of Control.

              The term "Change of Control" means:

                  (i)  any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders or a Parent, becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company,provided that (x) so long as the Company is a Subsidiary of any Parent, no "person" shall be deemed to be or become a


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        "beneficial owner" of more than 50% of the total voting power of the Voting Stock of the Company unless such "person" shall be or become a "beneficial owner" of more than 50% of the total voting power of the Voting Stock of such Parent and (y) any Voting Stock of which any Permitted Holder is the "beneficial owner" shall not in any case be included in any Voting Stock of which any such "person" is the "beneficial owner";

                 (ii)  the Company merges or consolidates with or into, or sells or transfers (in one or a series of related transactions) all or substantially all of the assets of the Company and its Restricted Subsidiaries to, another Person (other than one or more Permitted Holders) and any "person" (as defined in clause (i) above), other than one or more Permitted Holders or any Parent, is or becomes the "beneficial owner" (as so defined), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the surviving Person in such merger or consolidation, or the transferee Person in such sale or transfer of assets, as the case may be,provided that (x) so long as such surviving or transferee Person is a Subsidiary of a parent Person, no "person" shall be deemed to be or become a "beneficial owner" of more than 50% of the total voting power of the Voting Stock of such surviving or transferee Person unless such "person" shall be or become a "beneficial owner" of more than 50% of the total voting power of the Voting Stock of such parent Person and (y) any Voting Stock of which any Permitted Holder is the "beneficial owner" shall not in any case be included in any Voting Stock of which any such "person" is the "beneficial owner"; or

                (iii)  the adoption by vote of the stockholders of the Company of a plan for the liquidation or dissolution of the Company.

              In the event that, at the time of such Change of Control, the terms of any Credit Facility Indebtedness constituting Designated Senior Indebtedness restrict or prohibit the repurchase of the Notes pursuant to this covenant, then prior to the mailing of the notice to Holders provided for in the immediately following paragraph but in any event not later than 30 days following the date the Company obtains actual knowledge of any Change of Control (unless the Company has exercised its right to redeem all the Notes as described under "—Optional Redemption"), the Company shall, or shall cause one or more of its Subsidiaries to, (i) repay in full all such Credit Facility Indebtedness subject to such terms or offer to repay in full all such Credit Facility Indebtedness and repay the Credit Facility Indebtedness of each lender who has accepted such offer or (ii) obtain the requisite consent under the agreements governing such Credit Facility Indebtedness to permit the repurchase of the Notes as provided for in the immediately following paragraph. The Company shall first comply with the provisions of the immediately preceding sentence before it shall be required to repurchase Notes pursuant to the provisions described below. The Company's failure to comply with such provisions or the provisions of the immediately following paragraph shall constitute an Event of Default described in clause (iv) and not in clause (ii) under "—Defaults" below.

              Unless the Company has exercised its right to redeem all the Notes as described under "—Optional Redemption," the Company shall, not later than 30 days following the date the Company obtains actual knowledge of any Change of Control having occurred, mail a notice (a "Change of Control Offer") to each Holder with a copy to the Trustee stating: (1) that a Change of Control has occurred or may occur and that such Holder has, or upon such occurrence will have, the right to require the Company to purchase such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); (3) the instructions determined by the Company, consistent with this covenant, that a Holder must follow in order to have its Notes purchased; and (4) if such notice is mailed prior to the occurrence of a Change of Control, that such offer is conditioned on the


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      occurrence of such Change of Control. No Note will be repurchased in part if less than the Minimum Denomination in original principal amount of such Note would be left outstanding.

              The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

              The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof.

              The Change of Control purchase feature is a result of negotiations between the Company and the initial purchasers. The Company has no present plans to engage in a transaction involving a Change of Control, although it is possible that the Company could decide to do so in the future. Subject to the limitations discussed below, the Company could, in the future, enter into certain transactions, including acquisitions, refinancings or recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Indebtedness outstanding at such time or otherwise affect the Company's capital structure or credit ratings. Restrictions on the ability of the Company to Incur additional Indebtedness are contained in the covenants described under "—Certain Covenants—Limitation on Indebtedness" and "—Certain Covenants—Limitation on Liens." Such restrictions can only be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture does not contain any covenants or provisions that may afford Holders protection in the event of a highly leveraged transaction.

              The occurrence of a Change of Control would constitute a default under each Senior Credit Agreement. Agreements governing Indebtedness of the Company may contain prohibitions of certain events that would constitute a Change of Control or require such Indebtedness to be repurchased or repaid upon a Change of Control. Agreements governing Indebtedness of the Company may prohibit the Company from repurchasing the Notes upon a Change of Control unless such Indebtedness has been repurchased or repaid (or an offer made to effect such repurchase or repayment has been made and the Indebtedness of those creditors accepting such offer has been repurchased or repaid) and/or other specified requirements have been met. Moreover, the exercise by the Holders of their right to require the Company to repurchase the Notes could cause a default under such agreements, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company and its Subsidiaries. Finally, the Company's ability to pay cash to the Holders upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The provisions under the Indenture relating to the Company's obligation to make an offer to purchase the Notes as a result of a Change of Control may be waived or modified with the written consent of the Holders of a majority in principal amount of the Notes. As described above under "—Optional Redemption," the Company also has the right to redeem the Notes at specified prices, in whole or in part, upon a Change of Control or otherwise. See "Risk Factors—Risks Relating to the New Notes and Our Indebtedness—We may not be able to repurchase the New Notes upon a change of control."

              The definition of Change of Control includes a phrase relating to the sale or other transfer of "all or substantially all" of the assets of the Company and its Restricted Subsidiaries. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise definition of


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      the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the assets of the Company and its Restricted Subsidiaries and therefore it may be unclear as to whether a Change of Control has occurred and whether the Holders of the Notes have the right to require the Company to repurchase such Notes.

      Certain Covenants

              The Indenture contains covenants including, among others, the covenants as described below. If on any day following the Issue Date (a) the Notes have Investment Grade Ratings from both Rating Agencies, and (b) no Default has occurred and is continuing under the Indenture, then, beginning on that day subject to the provisions of the following paragraph, the covenants specifically listed under the following captions in this "Description of Notes" section of this prospectus (collectively, the "Suspended Covenants") will be suspended:

        (i)
        "—Limitation on Indebtedness";

        (ii)
        "—Limitation on Restricted Payments";

        (iii)
        "—Limitation on Restrictions on Distributions from Restricted Subsidiaries";

        (iv)
        "—Limitation on Sales of Assets and Subsidiary Stock";

        (v)
        "—Limitation on Transactions with Affiliates";

        (vi)
        "—Future Subsidiary Guarantors"; and

        (vii)
        clause (iii) of the first paragraph of "—Merger and Consolidation."

              During any period that the foregoing covenants have been suspended, the Board of Directors may not designate any of the Company's Subsidiaries as Unrestricted Subsidiaries unless such designation would have complied with the covenant described under "—Limitation on Restricted Payments" as if such covenant would have been in effect during such period.

              If on any subsequent date one or both of the Rating Agencies downgrade the ratings assigned to the Notes below an Investment Grade Rating, the foregoing covenants will be reinstated as of and from the date of such rating decline (any such date, a "Reversion Date"). The period of time between the suspension of covenants as set forth above and the Reversion Date is referred to as the "Suspension Period." Upon such reinstatement, all Indebtedness Incurred during the Suspension Period will be deemed to have been Incurred under the exception provided by clause (b)(iii) of "—Limitation on Indebtedness." With respect to Restricted Payments made after any such reinstatement, the amount of Restricted Payments will be calculated as if the covenant described under "—Limitation on Restricted Payments" had been in effect prior to, but not during, the Suspension Period. For purposes of the covenant described under "—Limitation on Sales of Assets and Subsidiary Stock," upon the occurrence of a Reversion Date the amount of Excess Proceeds not applied in accordance with such covenant will be deemed to be reset to zero.

              During the Suspension Period, any reference in the definitions of "Permitted Liens" and "Unrestricted Subsidiary" to the covenant described under "—Limitation on Indebtedness" or any provision thereof shall be construed as if such covenant were in effect during the Suspension Period.

              Notwithstanding that the Suspended Covenants may be reinstated, no Default or Event of Default will be deemed to have occurred as a result of any actions taken by the Company or any Subsidiary (including for the avoidance of doubt any failure to comply with the Suspended Covenants) during any Suspension Period and the Company and any Subsidiary will be permitted, without causing a Default or Event of Default or breach of any kind under the Indenture, to honor, comply with or otherwise


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      perform any contractual commitments or obligations entered into during a Suspension Period following a Reversion Date and to consummate the transactions contemplated thereby.

              There can be no assurance that the Notes will ever achieve or maintain Investment Grade Ratings.

              The Indenture contains covenants including, among others, the covenants as described below.

              Limitation on Indebtedness.    The Indenture provides as follows:

                (a)   The Company will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness;provided,however, that the Company or any Restricted Subsidiary may Incur Indebtedness if on the date of the Incurrence of such Indebtedness, after giving effect to the Incurrence thereof, the Consolidated Coverage Ratio would be equal to or greater than 2.00 to 1.00, provided, further, that the aggregate principal amount of Indebtedness that may be Incurred pursuant to the foregoing by Restricted Subsidiaries that are not Subsidiary Guarantors shall not exceed $150.0 million at any one time outstanding.

                (b)   Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness:

                    (i)  Indebtedness Incurred pursuant to any Credit Facility (including but not limited to in respect of letters of credit or bankers' acceptances issued or created thereunder) and Indebtedness Incurred other than under any Credit Facility, and (without limiting the foregoing), in each case, any Refinancing Indebtedness in respect thereof, in a maximum principal amount at any time outstanding not exceeding in the aggregate the amount equal to (A) $2,100 million, plus (B) (x) the greater of $1,700.0 million and the Borrowing Base less (y) the aggregate principal amount of Indebtedness Incurred by Special Purpose Subsidiaries that are Domestic Subsidiaries and then outstanding pursuant to clause (ix) of this paragraph (b), plus (C) in the event of any refinancing of any such Indebtedness, the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing;

                   (ii)  Indebtedness (A) of any Restricted Subsidiary to the Company or (B) of the Company or any Restricted Subsidiary to any Restricted Subsidiary;provided that any such Indebtedness owed to a Restricted Subsidiary that is not a Subsidiary Guarantor shall be expressly subordinated in right of payment to all obligations of the obligor with respect to the Notes and all Subsidiary Guarantees andprovided,further, that any subsequent issuance or transfer of any Capital Stock of such Restricted Subsidiary to which such Indebtedness is owed, or other event, that results in such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of such Indebtedness (except to the Company or a Restricted Subsidiary) will be deemed, in each case, an Incurrence of such Indebtedness by the issuer thereof not permitted by this clause (ii);

                  (iii)  Indebtedness represented by the Notes issued on the Issue Date (or issued in respect thereof or in exchange therefor), any Indebtedness (other than the Indebtedness described in clause (i) or (ii) above) outstanding on the Issue Date (subject to the last sentence of paragraph (c) of this covenant), any Indebtedness represented by April 2012 Senior Unsecured Notes issued in connection with the payment of PIK Interest (as defined in the April 2012 Senior Unsecured Indenture), and any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (iii) or paragraph (a) above;

                  (iv)  Purchase Money Obligations and Capitalized Lease Obligations, and any Refinancing Indebtedness with respect thereto;provided that the aggregate principal amount of such Purchase Money Obligations Incurred to finance the acquisition of Capital Stock of any


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          Person at any time outstanding pursuant to this clause shall not exceed an amount equal to the greater of $150.0 million and 3.0% of Consolidated Tangible Assets;

                   (v)  Indebtedness (A) supported by a letter of credit issued pursuant to any Credit Facility in a principal amount not exceeding the face amount of such letter of credit or (B) consisting of accommodation guarantees for the benefit of trade creditors of the Company or any of its Restricted Subsidiaries;

                  (vi)  (A) Guarantees by the Company or any Restricted Subsidiary of Indebtedness or any other obligation or liability of the Company or any Restricted Subsidiary (other than any Indebtedness Incurred by the Company or such Restricted Subsidiary, as the case may be, in violation of the covenant described under "—Limitation on Indebtedness"), or (B) without limiting the covenant described under "—Limitation on Liens," Indebtedness of the Company or any Restricted Subsidiary arising by reason of any Lien granted by or applicable to such Person securing Indebtedness of the Company or any Restricted Subsidiary (other than any Indebtedness Incurred by the Company or such Restricted Subsidiary, as the case may be, in violation of the covenant described under "—Limitation on Indebtedness");

                 (vii)  Indebtedness of the Company or any Restricted Subsidiary (A) arising from the honoring of a check, draft or similar instrument drawn against insufficient funds,provided that such Indebtedness is extinguished within five Business Days of its Incurrence, or (B) consisting of guarantees, indemnities, obligations in respect of earnouts or other purchase price adjustments, or similar obligations, Incurred in connection with the acquisition or disposition of any business, assets or Person;

                (viii)  Indebtedness of the Company or any Restricted Subsidiary in respect of (A) letters of credit, bankers' acceptances or other similar instruments or obligations issued, or relating to liabilities or obligations incurred, in the ordinary course of business (including those issued to governmental entities in connection with self-insurance under applicable workers' compensation statutes), or (B) completion guarantees, surety, judgment, appeal or performance bonds, or other similar bonds, instruments or obligations, provided, or relating to liabilities or obligations incurred, in the ordinary course of business, or (C) Hedging Obligations, entered into for bona fide hedging purposes, or (D) Management Guarantees or Management Indebtedness, or (E) the financing of insurance premiums in the ordinary course of business, or (F) take-or-pay obligations under supply arrangements incurred in the ordinary course of business, or (G) netting, overdraft protection and other arrangements arising under standard business terms of any bank at which the Company or any Restricted Subsidiary maintains an overdraft, cash pooling or other similar facility or arrangement, or (H) Junior Capital (in an amount not to exceed $100.0 million in the aggregate at any time outstanding), or (I) Bank Products Obligations;

                  (ix)  Indebtedness (A) of a Special Purpose Subsidiary secured by a Lien on all or part of the assets disposed of in, or otherwise Incurred in connection with, a Financing Disposition or (B) otherwise Incurred in connection with a Special Purpose Financing;provided that (1) such Indebtedness is not recourse to the Company or any Restricted Subsidiary that is not a Special Purpose Subsidiary (other than with respect to Special Purpose Financing Undertakings), (2) in the event such Indebtedness shall become recourse to the Company or any Restricted Subsidiary that is not a Special Purpose Subsidiary (other than with respect to Special Purpose Financing Undertakings), such Indebtedness will be deemed to be, and must be classified by the Company as, Incurred at such time (or at the time initially Incurred) under one or more of the other provisions of this covenant for so long as such Indebtedness shall be so recourse, and (3) in the event that at any time thereafter such Indebtedness shall comply with the


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          provisions of the preceding subclause (1), the Company may classify such Indebtedness in whole or in part as Incurred under this clause (b)(ix) of this covenant;

                   (x)  Contribution Indebtedness and any Refinancing Indebtedness with respect thereto;

                  (xi)  Indebtedness of (A) the Company or any Restricted Subsidiary Incurred to finance or refinance, or otherwise Incurred in connection with, any acquisition of any assets (including Capital Stock), business or Person, or any merger or consolidation of any Person with or into the Company or any Restricted Subsidiary, or (B) any Person that is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary (including Indebtedness thereof Incurred in connection with any such acquisition, merger or consolidation),provided that on the date of such acquisition, merger or consolidation, after giving effect thereto, either (1) the Company could Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) above or (2) the Consolidated Coverage Ratio of the Company would equal or exceed the Consolidated Coverage Ratio of the Company immediately prior to giving effect thereto; and any Refinancing Indebtedness with respect to any such Indebtedness;

                 (xii)  Indebtedness of the Company or any Restricted Subsidiary Incurred as consideration in connection with any acquisition of any assets (including Capital Stock), business or Person, or any merger or consolidation of any Person with or into the Company or any Restricted Subsidiary, and any Refinancing Indebtedness with respect thereto, in an aggregate principal amount at any time outstanding not exceeding $100.0 million; and

                (xiii)  Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount at any time outstanding not exceeding an amount equal to the greater of $150.0 million and 3.5% of Consolidated Tangible Assets.

                (c)   For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness Incurred pursuant to and in compliance with, this covenant, (i) any other obligation of the obligor on such Indebtedness (or of any other Person who could have Incurred such Indebtedness under this covenant) arising under any Guarantee, Lien or letter of credit, bankers' acceptance or other similar instrument or obligation supporting such Indebtedness shall be disregarded to the extent that such Guarantee, Lien or letter of credit, bankers' acceptance or other similar instrument or obligation secures the principal amount of such Indebtedness; (ii) in the event that Indebtedness meets the criteria of more than one of the types of Indebtedness described in paragraph (b) above, the Company, in its sole discretion, shall classify such item of Indebtedness and may include the amount and type of such Indebtedness in one or more of such clauses (including in part under one such clause and in part under another such clause);provided that any Indebtedness Incurred pursuant to clause (b)(iv) of this covenant as limited by the proviso thereto, or clause (b)(xiii) of this covenant shall, at the Company's election, cease to be deemed Incurred or outstanding for purposes of such clause but shall be deemed Incurred for the purposes of paragraph (a) of this covenant from and after the first date on which such Restricted Subsidiary could have Incurred such Indebtedness under paragraph (a) of this covenant without reliance on such clause; (iii) the amount of Indebtedness issued at a price that is less than the principal amount thereof shall be equal to the amount of the liability in respect thereof determined in accordance with GAAP; and (iv) the principal amount of Indebtedness outstanding under any clause of paragraph (b) above shall be determined after giving effect to the application of proceeds of any such Indebtedness to refinance any such other Indebtedness. Any Indebtedness Incurred by the Company on April 12, 2012 under the Senior First Priority Notes, the Senior Term Facility or the Senior ABL Facility shall be classified as Incurred under clause (b)(i) of this covenant.

                (d)   For purposes of determining compliance with any dollar denominated restriction on the Incurrence of Indebtedness denominated in a foreign currency, the dollar equivalent principal


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        amount of such Indebtedness Incurred pursuant thereto shall be calculated based on the relevant currency exchange rate in effect on the date that such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of revolving credit Indebtedness,provided that (x) the dollar equivalent principal amount of any such Indebtedness outstanding on the Issue Date shall be calculated based on the relevant currency exchange rate in effect on the Issue Date, (y) if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency (or in a different currency from such Indebtedness so being Incurred), and such refinancing would cause the applicable dollar denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such dollar denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed (i) the outstanding or committed principal amount (whichever is higher) of such Indebtedness being refinanced plus (ii) the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing and (z) the dollar equivalent principal amount of Indebtedness denominated in a foreign currency and Incurred pursuant to a Senior Credit Facility shall be calculated based on the relevant currency exchange rate in effect on, at the Company's option, (i) April 12, 2012, (ii) any date on which any of the respective commitments under such Senior Credit Facility shall be reallocated between or among facilities or subfacilities thereunder, or on which such rate is otherwise calculated for any purpose thereunder, or (iii) the date of such Incurrence. The principal amount of any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such refinancing.

              Limitation on Restricted Payments.    The Indenture provides as follows:

                (a)   The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any such payment in connection with any merger or consolidation to which the Company is a party) except (x) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and (y) dividends or distributions payable to the Company or any Restricted Subsidiary (and, in the case of any such Restricted Subsidiary making such dividend or distribution, to other holders of its Capital Stock on no more than a pro rata basis, measured by value), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company held by Persons other than the Company or a Restricted Subsidiary (other than any acquisition of Capital Stock deemed to occur upon the exercise of options if such Capital Stock represents a portion of the exercise price thereof), (iii) voluntarily purchase, repurchase, redeem, defease or otherwise voluntarily acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than a purchase, repurchase, redemption, defeasance or other acquisition or retirement for value in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such acquisition or retirement, not made by exchange for, or out of the proceeds of, the Incurrence of Secured Indebtedness (as defined below) other than up to $300.0 million of borrowings under the Senior ABL Facility in the aggregate) or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, repurchase, redemption, defeasance, other acquisition or retirement or Investment being herein referred to as a "Restricted Payment"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment and after giving effect thereto:

                  (1)   a Default shall have occurred and be continuing (or would result therefrom);

                  (2)   the Company could not Incur at least an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "—Limitation on Indebtedness"; or


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                    (3)   the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) declared or made subsequent to April 12, 2012 and then outstanding would exceed, without duplication, the sum of:

                      (A)  50% of the Consolidated Net Income accrued during the period (treated as one accounting period) beginning on April 30, 2012 to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment for which consolidated financial statements of the Company are available (or, in case such Consolidated Net Income shall be a negative number, 100% of such negative number);

                      (B)  the aggregate Net Cash Proceeds and the fair value (as determined in good faith by the Company) of property or assets received (x) by the Company as capital contributions to the Company after April 12, 2012 or from the issuance or sale (other than to a Restricted Subsidiary) of its Capital Stock (other than Disqualified Stock or Designated Preferred Stock) after April 12, 2012 (other than Excluded Contributions and Contribution Amounts) or (y) by the Company or any Restricted Subsidiary from the Incurrence by the Company or any Restricted Subsidiary after April 12, 2012 of Indebtedness that shall have been converted into or exchanged for Capital Stock of the Company (other than Disqualified Stock or Designated Preferred Stock) or Capital Stock of any Parent, plus the amount of any cash and the fair value (as determined in good faith by the Company) of any property or assets, received by the Company or any Restricted Subsidiary upon such conversion or exchange;

                      (C)(i)  the aggregate amount of cash and the fair value (as determined in good faith by the Company) of any property or assets received from dividends, distributions, interest payments, return of capital, repayments of Investments or other transfers of assets to the Company or any Restricted Subsidiary from any Unrestricted Subsidiary, including dividends or other distributions related to dividends or other distributions made pursuant to clause (x) of the following paragraph (b), plus (ii) the aggregate amount resulting from the redesignation of any Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as provided in the definition of "Investment"); and

                      (D)  in the case of any disposition or repayment of any Investment constituting a Restricted Payment (without duplication of any amount deducted in calculating the amount of Investments at any time outstanding included in the amount of Restricted Payments or in the calculation of availability under paragraph (b) of this covenant), the aggregate amount of cash and the fair value (as determined in good faith by the Company) of any property or assets received by the Company or a Restricted Subsidiary with respect to all such dispositions and repayments.

                  (b)   The provisions of the foregoing paragraph (a) do not prohibit any of the following (each, a "Permitted Payment"):

                 (i)(x)  any purchase, redemption, repurchase, defeasance or other acquisition or retirement of Capital Stock of the Company ("Treasury Capital Stock") or Subordinated Obligations made by exchange (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares) for, or out of the proceeds of the issuance or sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary) ("Refunding Capital Stock") or a capital contribution to the Company, in each case other than Excluded Contributions and Contribution Amounts;provided that the Net Cash Proceeds from such issuance, sale or capital contribution shall be excluded in subsequent calculations under


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            clause (3)(B) of the preceding paragraph (a) and (y) if immediately prior to such acquisition or retirement of such Treasury Capital Stock, dividends thereon were permitted pursuant to clause (xi) of this paragraph (b), dividends on such Refunding Capital Stock in an aggregate amount per annum not exceeding the aggregate amount per annum of dividends so permitted on such Treasury Capital Stock;

                     (ii)  any purchase, redemption, repurchase, defeasance or other acquisition or retirement of Subordinated Obligations (v) made by exchange for, or out of the proceeds of the Incurrence of, Indebtedness of the Company or Refinancing Indebtedness Incurred in compliance with the covenant described under "—Limitation on Indebtedness" (provided that (x) if such Indebtedness is Incurred pursuant to clause (b)(i) of such covenant and (1) has Senior Lien Priority with respect to the Senior Second Priority Notes, then on the date of such Incurrence after giving effect thereto, the Consolidated Senior Priority Leverage Ratio shall not exceed 3.25 to 1.0, or (2) has Pari Passu Lien Priority with respect to the Senior Second Priority Notes, then on the date of such Incurrence after giving effect thereto, the Consolidated Secured Leverage Ratio shall not exceed 4.5 to 1.0 (any such Indebtedness, "Secured Indebtedness"), and (y) in the case of any purchase, redemption, repurchase, defeasance or other acquisition or retirement of Indebtedness incurred pursuant to clause (b)(viii)(H) of the covenant described under "—Limitation on Indebtedness," such Indebtedness or Refinancing Indebtedness shall be solely comprised of Subordinated Obligations), (w) from Net Available Cash or an equivalent amount to the extent permitted by the covenant described under "—Limitation on Sales of Assets and Subsidiary Stock," (x) following the occurrence of a Change of Control (or other similar event described therein as a "change of control"), but only if the Company shall have complied with the covenant described under "—Change of Control" and, if required, purchased all Notes tendered pursuant to the offer to repurchase all the Notes required thereby, prior to purchasing or repaying such Subordinated Obligations, (y) constituting Acquired Indebtedness or (z) constituting Indebtedness of the Company or any Restricted Subsidiary to a Restricted Subsidiary that is not a Subsidiary Guarantor that has been subordinated pursuant to clause (b)(ii) of the covenant described under "—Limitation on Indebtedness";

                    (iii)  any dividend paid or redemption made within 60 days after the date of declaration thereof or of the giving of notice thereof, as applicable, if at such date of declaration or notice such dividend or redemption would have complied with the preceding paragraph (a);

                    (iv)  Investments or other Restricted Payments in an aggregate amount outstanding at any time not to exceed the amount of Excluded Contributions;

                     (v)  loans, advances, dividends or distributions by the Company to any Parent to permit any Parent to repurchase or otherwise acquire its Capital Stock (including any options, warrants or other rights in respect thereof), or payments by the Company to repurchase or otherwise acquire Capital Stock of any Parent or the Company (including any options, warrants or other rights in respect thereof), in each case from Management Investors (including any repurchase or acquisition by reason of the Company or any Parent retaining any Capital Stock, option, warrant or other right in respect of tax withholding obligations, and any related payment in respect of any such obligation), such payments, loans, advances, dividends or distributions not to exceed an amount (net of repayments of any such loans or advances) equal to (x)(1) $50.0 million, plus (2) $10.0 million multiplied by the number of calendar years that have commenced since April 12, 2012, plus (y) the Net Cash Proceeds received by the Company since April 12, 2012 from, or as a capital contribution from, the issuance or sale to Management Investors of Capital Stock (including any options, warrants or other rights in respect thereof), to the extent such Net Cash Proceeds are not included in any calculation under clause (3)(B)(x) of the preceding paragraph (a), plus (z) the cash proceeds


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            of key man life insurance policies received by the Company or any Restricted Subsidiary (or by any Parent and contributed to the Company) since April 12, 2012 to the extent such cash proceeds are not included in any calculation under clause (3)(A) of the preceding paragraph (a);provided that any cancellation of Indebtedness owing to the Company or any Restricted Subsidiary by any Management Investor in connection with any repurchase or other acquisition of Capital Stock (including any options, warrants or other rights in respect thereof) from any Management Investor shall not constitute a Restricted Payment for purposes of this covenant or any other provision of the Indenture;

                    (vi)  the payment by the Company of, or loans, advances, dividends or distributions by the Company to any Parent to pay, dividends on the common stock or equity of the Company or any Parent following a public offering of such common stock or equity in an amount not to exceed in any fiscal year 6.0% of the aggregate gross proceeds received by the Company (whether directly, or indirectly through a contribution to common equity capital) in or from such public offering;

                   (vii)  Restricted Payments (including loans or advances) in an aggregate amount outstanding at any time not to exceed an amount (net of repayments of any such loans or advances) equal to the greater of $50.0 million and 1.0% of Consolidated Tangible Assets;

                  (viii)  loans, advances, dividends or distributions to any Parent or other payments by the Company or any Restricted Subsidiary (A) to satisfy or permit any Parent to satisfy obligations under the Management Agreements, (B) pursuant to the Tax Sharing Agreement, or (C) to pay or permit any Parent to pay any Parent Expenses or any Related Taxes;

                    (ix)  payments by the Company, or loans, advances, dividends or distributions by the Company to any Parent to make payments, to holders of Capital Stock of the Company or any Parent in lieu of issuance of fractional shares of such Capital Stock, not to exceed $5.0 million in the aggregate outstanding at any time;

                     (x)  dividends or other distributions of, or Investments paid for or made with, Capital Stock, Indebtedness or other securities of Unrestricted Subsidiaries;

                    (xi)  (A) dividends on any Designated Preferred Stock of the Company issued after April 12, 2012, provided that at the time of such issuance and after giving effect thereto on a pro forma basis, the Consolidated Coverage Ratio would be at least 2.00 to 1.00 and, in the case of cash dividends on Designated Preferred Stock, such dividend shall for purposes of the determination of such Consolidated Coverage Ratio be deemed to constitute Consolidated Interest Expense, or (B) any dividend on Refunding Capital Stock that is Preferred Stock in excess of the amount of dividends thereon permitted by clause (i) of this paragraph (b),provided that at the time of the declaration of such dividend and after giving effect thereto on a pro forma basis, the Consolidated Coverage Ratio would be at least 2.00 to 1.00 and, in the case of cash dividends on Refunding Capital Stock, such dividend shall for purposes of the determination of such Consolidated Coverage Ratio be deemed to constitute Consolidated Interest Expense, or (C) loans, advances, dividends or distributions to any Parent to permit dividends on any Designated Preferred Stock of any Parent issued after April 12, 2012, in an amount (net of repayments of any such loans or advances) not exceeding the aggregate cash proceeds received by the Company from the issuance or sale of such Designated Preferred Stock of such Parent;

                   (xii)  Investments in Unrestricted Subsidiaries in an aggregate amount outstanding at any time not exceeding the greater of $75.0 million and 1.5% of Consolidated Tangible Assets;

                  (xiii)  distributions or payments of Special Purpose Financing Fees;


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                  (xiv)  dividends to holders of any class or series of Disqualified Stock, or of any Preferred Stock of a Restricted Subsidiary, Incurred in accordance with the terms of the covenant described under "—Limitation on Indebtedness" above; and

                    (xv)  any Restricted Payment pursuant to or in connection with the Transactions or the 2007 Transactions;

          provided, that (A) in the case of clauses (i)(y), (iii), (vi), (ix) and (xi)(B), the net amount of any such Permitted Payment shall be included in subsequent calculations of the amount of Restricted Payments, (B) in all cases other than pursuant to clause (A) immediately above, the net amount of any such Permitted Payment shall be excluded in subsequent calculations of the amount of Restricted Payments and (C) solely with respect to clause (vii), no Default or Event of Default shall have occurred or be continuing at the time of any such Permitted Payment after giving effect thereto. The Company, in its sole discretion, may classify any Investment or other Restricted Payment as being made in part under one of the provisions of this covenant (or, in the case of any Investment, the clauses of Permitted Investments) and in part under one or more other such provisions (or, as applicable, clauses).

                  (c)   Notwithstanding the foregoing provisions of this covenant, the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay any cash dividend or make any cash distribution on or in respect of the Company's Capital Stock or purchase for cash or otherwise acquire for cash any Capital Stock of the Company or any Parent, for the purpose of paying any cash dividend or making any cash distribution to, or acquiring Capital Stock of the Company or any Parent for cash from, the Investors, or Guarantee any Indebtedness of any Affiliate of the Company for the purpose of paying such dividend, making such distribution or so acquiring such Capital Stock to or from the Investors, in each case by means of utilization of the cumulative Restricted Payment credit provided by clause (3) of the preceding paragraph (a), or the exceptions provided by clause (iii), (vii), (x) or (xii) of the preceding paragraph (b) or clause (xv) or (xviii) of the definition of "Permitted Investments," unless at the time and after giving effect to such payment, (x) the Consolidated Total Leverage Ratio of the Company would have been equal to or less than 6.0 to 1.0 and (y) such payment is otherwise in compliance with this covenant.

                Notwithstanding any other provision of the Indenture, the Indenture shall not restrict any redemption or other payment by the Company or any Restricted Subsidiary made in respect of any "AHYDO saver" provision (including any such provision in any Indebtedness that is Incurred or that becomes subordinated or that otherwise arises in connection with any Extinguishment of Senior Obligations), and the Company's determination in good faith of any such "AHYDO saver" payment shall be conclusive and binding for all purposes under the Indenture.

                Limitation on Restrictions on Distributions from Restricted Subsidiaries.    The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or, in the case of a Restricted Subsidiary that is not a Subsidiary Guarantor, to a Subsidiary Guarantor, (ii) make any loans or advances to the Company or, in the case of a Restricted Subsidiary that is not a Subsidiary Guarantor, to a Subsidiary Guarantor or (iii) transfer any of its property or assets to the Company or, in the case of a Restricted Subsidiary that is not a Subsidiary Guarantor, to a Subsidiary Guarantor (provided that dividend or liquidation priority between classes of Capital Stock, or subordination of any obligation (including the application of any remedy bars thereto) to any other obligation, will not be deemed to constitute such an encumbrance or restriction), except any encumbrance or restriction:

                  (1)   pursuant to an agreement or instrument in effect at or entered into on the Issue Date, any Credit Facility, the Indenture, the Notes, the Note Security Documents, the Intercreditor


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          Agreements, the Senior First Priority Note Documents, the Senior First Priority Notes, the Senior Second Priority Note Documents, the Senior Second Priority Notes, the April 2012 Senior Unsecured Indenture, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Indenture, the October 2012 Senior Unsecured Notes, the January 2013 Senior Subordinated Indenture or the January 2013 Senior Subordinated Notes;

                  (2)   pursuant to any agreement or instrument of a Person, or relating to Indebtedness or Capital Stock of a Person, which Person is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary, or which agreement or instrument is assumed by the Company or any Restricted Subsidiary in connection with an acquisition of assets from such Person, as in effect at the time of such acquisition, merger or consolidation (except to the extent that such Indebtedness was incurred to finance, or otherwise in connection with, such acquisition, merger or consolidation); provided that for purposes of this clause (2), if a Person other than the Company is the Successor Company with respect thereto, any Subsidiary thereof or agreement or instrument of such Person or any such Subsidiary shall be deemed acquired or assumed, as the case may be, by the Company or a Restricted Subsidiary, as the case may be, when such Person becomes such Successor Company;

                  (3)   pursuant to an agreement or instrument (a "Refinancing Agreement") effecting a refinancing of Indebtedness Incurred pursuant to, or that otherwise extends, renews, refunds, refinances or replaces, an agreement or instrument referred to in clause (1) or (2) of this covenant or this clause (3) (an "Initial Agreement") or contained in any amendment, supplement or other modification to an Initial Agreement (an "Amendment");provided,however, that the encumbrances and restrictions contained in any such Refinancing Agreement or Amendment taken as a whole are not materially less favorable to the Holders of the Notes than encumbrances and restrictions contained in the Initial Agreement or Initial Agreements to which such Refinancing Agreement or Amendment relates (as determined in good faith by the Company);

                  (4)   (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or the assignment or transfer of any lease, license or other contract, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture, (C) contained in mortgages, pledges or other security agreements securing Indebtedness of a Restricted Subsidiary to the extent restricting the transfer of the property or assets subject thereto, (D) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary, (E) pursuant to Purchase Money Obligations that impose encumbrances or restrictions on the property or assets so acquired, (F) on cash or other deposits, net worth or inventory imposed by customers or suppliers under agreements entered into in the ordinary course of business, (G) pursuant to customary provisions contained in agreements and instruments entered into in the ordinary course of business (including but not limited to leases and licenses) or in joint venture and other similar agreements, (H) that arises or is agreed to in the ordinary course of business and does not detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or such Restricted Subsidiary, (I) pursuant to Hedging Obligations entered into for bona fide hedging purposes or (J) pursuant to Bank Products Obligations;

                  (5)   with respect to a Restricted Subsidiary (or any of its property or assets), imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition;


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                  (6)   by reason of any applicable law, rule, regulation or order, or required by any regulatory authority having jurisdiction over the Company or any Restricted Subsidiary or any of their businesses; or

                  (7)   pursuant to an agreement or instrument (A) relating to any Indebtedness permitted to be Incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under "—Limitation on Indebtedness" (i) if the encumbrances and restrictions contained in any such agreement or instrument taken as a whole are not materially less favorable to the Holders of the Notes than the encumbrances and restrictions contained in the Initial Agreements (as determined in good faith by the Company), or (ii) if such encumbrance or restriction is not materially more disadvantageous to the Holders of the Notes than is customary in comparable financings (as determined in good faith by the Company) and either (x) the Company determines in good faith that such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Notes or (y) such encumbrance or restriction applies only if a default occurs in respect of a payment or financial covenant relating to such Indebtedness, (B) relating to any sale of receivables by or Indebtedness of a Foreign Subsidiary or (C) relating to Indebtedness of or a Financing Disposition by or to or in favor of any Special Purpose Entity.

                Limitation on Sales of Assets and Subsidiary Stock.    The Indenture provides as follows:

                  (a)   The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless

                      (i)  the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the fair market value of the shares and assets subject to such Asset Disposition, as such fair market value shall be determined in good faith by the Company, which determination shall be conclusive (including as to the value of all noncash consideration),

                     (ii)  in the case of any Asset Disposition (or series of related Asset Dispositions) having a fair market value of $25.0 million or more, at least 75.0% of the consideration therefor (excluding, in the case of an Asset Disposition (or series of related Asset Dispositions), any consideration by way of relief from, or by any other Person assuming responsibility for, any liabilities, contingent or otherwise, that are not Indebtedness) received by the Company or such Restricted Subsidiary is in the form of cash, and

                    (iii)  an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or any Restricted Subsidiary, as the case may be) as follows:

                      (A)  first, either (x) to the extent the Company elects (or is required by the terms of any Secured Indebtedness or any other Indebtedness secured by a Lien (in each case, other than Subordinated Obligations), any Senior Indebtedness of the Company or any Subsidiary Guarantor or any Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor), to prepay, repay or purchase any such Indebtedness or (in the case of letters of credit, bankers' acceptances or other similar instruments) cash collateralize any such Indebtedness (in each case other than Indebtedness owed to the Company or a Restricted Subsidiary) within 450 days after the later of the date of such Asset Disposition and the date of receipt of such Net Available Cash, or (y) to the extent that the Company or such Restricted Subsidiary elects, to invest in Additional Assets (including by means of an investment in Additional Assets by a Restricted Subsidiary with an amount equal to Net Available Cash received by the Company or another Restricted Subsidiary) within 450 days from the later of the date of such Asset Disposition and the date of receipt of such Net Available Cash, or, if such investment in Additional Assets is


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              a project authorized by the Board of Directors that will take longer than such 450 days to complete, the period of time necessary to complete such project;

                      (B)  second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A) above (such balance, the "Excess Proceeds"), to make an offer to purchase Notes and (to the extent the Company or such Restricted Subsidiary elects, or is required by the terms thereof) to purchase, redeem or repay any other Senior Indebtedness of the Company or a Restricted Subsidiary, pursuant and subject to the conditions of the Indenture and the agreements governing such other Indebtedness; and

                      (C)  third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B) above, to fund (to the extent consistent with any other applicable provision of the Indenture) any general corporate purpose (including but not limited to the repurchase, repayment or other acquisition or retirement of any Subordinated Obligations);

          provided,however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (B) above, the Company or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased.

                  Notwithstanding the foregoing provisions of this covenant, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash or equivalent amount in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions or equivalent amount that is not applied in accordance with this covenant exceeds $75.0 million. If the aggregate principal amount of Notes and/or other Indebtedness of the Company or a Restricted Subsidiary validly tendered and not withdrawn (or otherwise subject to purchase, redemption or repayment) in connection with an offer pursuant to clause (B) above exceeds the Excess Proceeds, the Excess Proceeds will be apportioned between such Notes and such other Indebtedness of the Company or a Restricted Subsidiary, with the portion of the Excess Proceeds payable in respect of such Notes to equal the lesser of (x) the Excess Proceeds amount multiplied by a fraction, the numerator of which is the outstanding principal amount of such Notes and the denominator of which is the sum of the outstanding principal amount of the Notes and the outstanding principal amount of the relevant other Indebtedness of the Company or a Restricted Subsidiary, and (y) the aggregate principal amount of Notes validly tendered and not withdrawn.

                  For the purposes of clause (ii) of paragraph (a) above, the following are deemed to be cash: (1) Temporary Cash Investments and Cash Equivalents, (2) the assumption of Indebtedness of the Company (other than Disqualified Stock of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on payment of the principal amount of such Indebtedness in connection with such Asset Disposition, (3) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Disposition, to the extent that the Company and each other Restricted Subsidiary are released from any Guarantee of payment of the principal amount of such Indebtedness in connection with such Asset Disposition, (4) securities received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 180 days, (5) consideration consisting of Indebtedness of the Company or any Restricted Subsidiary, (6) Additional Assets and (7) any Designated Noncash Consideration received by the Company or any of its Restricted Subsidiaries in an Asset Disposition having an aggregate Fair Market Value, taken together with all other Designated Noncash Consideration received pursuant to this clause, not to exceed an aggregate amount at any time outstanding equal to the greater of $125.0 million and 2.5% of Consolidated Tangible Assets (with the Fair Market Value of each item


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          of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value).

                  (b)   In the event of an Asset Disposition that requires the purchase of Notes pursuant to clause (iii)(B) of paragraph (a) above, the Company will be required to purchase Notes tendered pursuant to an offer by the Company for the Notes (the "Offer") at a purchase price of 100% of their principal amount plus accrued and unpaid interest to the date of purchase in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of the Notes tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase of Notes, the remaining Net Available Cash will be available to the Company for use in accordance with clause (iii)(B) of paragraph (a) above (to repay other Indebtedness of the Company or a Restricted Subsidiary) or clause (iii)(C) of paragraph (a) above. The Company shall not be required to make an Offer for Notes pursuant to this covenant if the Net Available Cash available therefor (after application of the proceeds as provided in clause (iii)(A) of paragraph (a) above) is less than $75.0 million for any particular Asset Disposition (which lesser amounts shall be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). No Note will be repurchased in part if less than the Minimum Denomination in original principal amount of such Note would be left outstanding.

                  (c)   The Company shall, not later than 45 days after the Company becomes obligated to make an Offer pursuant to this covenant, mail a notice to each Holder with a copy to the Trustee stating: (1) that an Asset Disposition that requires the purchase of a portion of the Notes has occurred and that such Holder has the right (subject to the prorating described below) to require the Company to purchase a portion of such Holder's Notes at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to provisions in the Indenture regarding the preservation of payment of interest rights); (2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); (3) the instructions determined by the Company, consistent with this covenant, that a Holder must follow in order to have its Notes purchased; and (4) the amount of the Offer. If, upon the expiration of the period for which the Offer remains open, the aggregate principal amount of Notes surrendered by Holders exceeds the amount of the Offer, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of the Minimum Denomination or integral multiples of $1,000 in excess thereof shall be purchased).

                  (d)   The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof.

                Limitation on Transactions with Affiliates.    The Indenture provides as follows:

                  (a)   The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction or series of related transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") involving aggregate consideration in excess of $10.0 million unless (i) the terms of such Affiliate Transaction are not materially less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time in a transaction with a Person who is not such an Affiliate and (ii) if such Affiliate Transaction involves aggregate consideration in excess of $40.0 million, the terms of such Affiliate


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          Transaction have been approved by a majority of the Board of Directors. For purposes of this paragraph, any Affiliate Transaction shall be deemed to have satisfied the requirements set forth in this paragraph if (x) such Affiliate Transaction is approved by a majority of the Disinterested Directors or (y) in the event there are no Disinterested Directors, a fairness opinion is provided by a nationally recognized appraisal or investment banking firm with respect to such Affiliate Transaction.

                  (b)   The provisions of the preceding paragraph (a) do not apply to:

                      (i)  any Restricted Payment Transaction,

                     (ii)  (1) the entering into, maintaining or performance of any employment or consulting contract, collective bargaining agreement, benefit plan, program or arrangement, related trust agreement or any other similar arrangement for or with any current or former employee, officer, director or consultant of or to the Company, any Restricted Subsidiary or any Parent heretofore or hereafter entered into in the ordinary course of business, including vacation, health, insurance, deferred compensation, severance, retirement, savings or other similar plans, programs or arrangements, (2) payments, compensation, performance of indemnification or contribution obligations, the making or cancellation of loans or any issuance, grant or award of stock, options, other equity related interests or other securities, to any such employees, officers, directors or consultants in the ordinary course of business, (3) the payment of reasonable fees to directors of the Company or any of its Subsidiaries or any Parent (as determined in good faith by the Company, such Subsidiary or such Parent), (4) any transaction with an officer or director of the Company or any of its Subsidiaries or any Parent in the ordinary course of business not involving more than $100,000 in any one case or (5) Management Advances and payments in respect thereof (or in reimbursement of any expenses referred to in the definition of such term),

                    (iii)  any transaction between or among any of the Company, one or more Restricted Subsidiaries, and/or one or more Special Purpose Entities,

                    (iv)  any transaction arising out of agreements or instruments in existence on the Issue Date (other than any Tax Sharing Agreement or Management Agreement referred to in clause (b)(vii) of this covenant), and any payments made pursuant thereto,

                     (v)  any transaction in the ordinary course of business on terms that are fair to the Company and its Restricted Subsidiaries in the reasonable determination of the Board of Directors or senior management of the Company, or are not materially less favorable to the Company or the relevant Restricted Subsidiary than those that could be obtained at the time in a transaction with a Person who is not an Affiliate of the Company,

                    (vi)  any transaction in the ordinary course of business, or approved by a majority of the Board of Directors, between the Company or any Restricted Subsidiary and any Affiliate of the Company controlled by the Company that is a joint venture or similar entity,

                   (vii)  (1) the execution, delivery and performance of any Tax Sharing Agreement and any Management Agreement, and (2) payments to CD&R, Bain Capital or Carlyle or any of their respective Affiliates (w) of any and all out-of-pocket expenses in connection with the Transactions, (x) for any management, consulting, financial advisory, financing, underwriting or placement services or in respect of other investment banking activities pursuant to the Management Agreements,provided that payments under this clause (x) shall not exceed $7.5 million per calendar year, (y) in connection with any acquisition, disposition, merger, recapitalization or similar transactions, which payments are made pursuant to the Management Agreements or are approved by a majority of the Board of Directors in good


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            faith, and (z) of all out-of-pocket expenses incurred in connection with such services or activities,

                  (viii)  the Transactions, all transactions in connection therewith (including but not limited to the financing thereof), the execution, delivery and performance of all agreements and instruments in connection with the Transactions, and all fees and expenses paid or payable in connection with the Transactions,

                    (ix)  any issuance or sale of Capital Stock (other than Disqualified Stock) of the Company or Junior Capital or any capital contribution to the Company,

                     (x)  any amendment, supplement, waiver or other modification to or of the April 2012 Senior Unsecured Notes, the April 2012 Senior Unsecured Indenture or any related agreements, documents and instruments, or any of the terms and provisions of any thereof, (1) in connection with any Extinguishment of Senior Obligations or (2) to provide for the payment of interest in cash instead of in additional principal, or in additional principal instead of in cash, in each case in whole or in part (whether or not in connection with any Extinguishment of Senior Obligations), and

                    (xi)  any investment by any Investor in securities of the Company or any of its Restricted Subsidiaries so long as (i) such securities are being offered generally to other investors on the same or more favorable terms and (ii) such investment by all Investors constitutes less than 5% of the proposed or outstanding issue amount of such class of securities.

                Limitation on Liens.    The Indenture provides that the Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or permit to exist any Lien (other than Permitted Liens) on any of its property or assets (including Capital Stock of any other Person), whether owned on the date of the Indenture or thereafter acquired, securing any Indebtedness (the "Initial Lien"), unless contemporaneously therewith effective provision is made to secure the Indebtedness due under the Indenture and the Notes or, in respect of any Initial Lien on any Restricted Subsidiary's property or assets, any Subsidiary Guarantee of such Restricted Subsidiary, equally and ratably with (or on a senior basis to, in the case of Subordinated Obligations or Guarantor Subordinated Obligations) such obligation for so long as such obligation is so secured by such Initial Lien. Any such Lien thereby created in favor of the Notes or any such Subsidiary Guarantee will be automatically and unconditionally released and discharged upon (i) the release and discharge of the Initial Lien to which it relates, (ii) in the case of any such Lien in favor of any such Subsidiary Guarantee, upon the termination and discharge of such Subsidiary Guarantee in accordance with the terms of the Indenture or (iii) any sale, exchange or transfer (other than a transfer constituting a transfer of all or substantially all of the assets of the Company that is governed by the provisions of the covenant described under "—Merger and Consolidation" below) to any Person not an Affiliate of the Company of the property or assets secured by such Initial Lien, or of all of the Capital Stock held by the Company or any Restricted Subsidiary in, or all or substantially all the assets of, any Restricted Subsidiary creating such Initial Lien.

                Future Subsidiary Guarantors.    As set forth more particularly under "—Subsidiary Guarantees," the Indenture provides that from and after the Issue Date, the Company will cause each Person that becomes a Wholly Owned Domestic Subsidiary (other than an Excluded Subsidiary), and each other Domestic Subsidiary that is a borrower under the Senior ABL Facility or that guarantees payment of Indebtedness of the Company under any Credit Facility or Capital Markets Securities, to execute and deliver to the Trustee within 30 days a supplemental indenture or other instrument pursuant to which such Domestic Subsidiary will guarantee payment of the Notes, whereupon such Domestic Subsidiary will become a Subsidiary Guarantor for all purposes under the Indenture;provided, that any such guarantee described above by a Person in effect at the time such Person is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary (and not created with, or in


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        contemplation of, such acquisition, merger or consolidation) shall not trigger an obligation to guarantee the Notes so long as the aggregate principal amount of guaranteed Indebtedness relying on this proviso, together with the aggregate principal amount of Indebtedness incurred by Restricted Subsidiaries that are not Subsidiary Guarantors pursuant to paragraph (a) of the covenant described under "—Limitation on Indebtedness," shall not exceed $300.0 million at any time outstanding. The Company will also have the right to cause any other Subsidiary so to guarantee payment of the Notes. Subsidiary Guarantees will be subject to release and discharge under certain circumstances prior to payment in full of the Notes. See "—Subsidiary Guarantees."

                SEC Reports.    The Indenture provides that, notwithstanding that the Company may not be required to be or remain subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, the Company will file with the SEC (unless such filing is not permitted under the Exchange Act or by the SEC), so long as the Notes are outstanding, the annual reports, information, documents and other reports that the Company is required to file with the SEC pursuant to such Section 13(a) or 15(d) or would be so required to file if the Company were so subject. If, at any time, any audited or reviewed financial statements or information required to be included in any such filing are not reasonably available on a timely basis as a result of the Company's accountants not being "independent" (as defined pursuant to the Exchange Act and the rules and regulations of the SEC thereunder), the Company may, in lieu of making such filing or transmitting or making available the information, documents and reports so required to be filed, elect to make a filing on an alternative form or transmit or make available unaudited or unreviewed financial statements or information substantially similar to such required audited or reviewed financial statements or information,provided that (a) the Company shall in any event be required to make such filing and so transmit or make available such audited or reviewed financial statements or information no later than the first anniversary of the date on which the same was otherwise required pursuant to the preceding provisions of this paragraph (such initial date, the "Reporting Date") and (b) if the Company makes such an election and such filing has not been made, or such information, documents and reports have not been transmitted or made available, as the case may be, within 90 days after such Reporting Date, liquidated damages will accrue on the Notes at a rate of 0.50% per annum from the date that is 90 days after such Reporting Date to the earlier of (x) the date on which such filing has been made, or such information, documents and reports have been transmitted or made available, as the case may be, and (y) the first anniversary of such Reporting Date (provided that not more than 0.50% per annum in liquidated damages shall be payable for any period regardless of the number of such elections by the Company).

                The Company will be deemed to have satisfied the requirements of this covenant if any Parent files and provides reports, documents and information of the types otherwise so required, in each case within the applicable time periods, and the Company is not required to file such reports, documents and information separately under the applicable rules and regulations of the SEC (after giving effect to any exemptive relief) because of the filings by such Parent. The Company also will comply with the other provisions of TIA § 314(a).

        Merger and Consolidation

                The Indenture provides that the Company will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless:

                    (i)  the resulting, surviving or transferee Person (the "Successor Company") will be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) will expressly assume all the obligations of the Company under the Notes and the Indenture by executing and delivering to the Trustee a supplemental indenture or one or more other documents or instruments in form reasonably satisfactory to the Trustee;


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                   (ii)  immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default will have occurred and be continuing;

                  (iii)  immediately after giving effect to such transaction, either (A) the Company (or, if applicable, the Successor Company with respect thereto) could Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of the covenant described under "—Certain Covenants—Limitation on Indebtedness," or (B) the Consolidated Coverage Ratio of the Company (or, if applicable, the Successor Company with respect thereto) would equal or exceed the Consolidated Coverage Ratio of the Company immediately prior to giving effect to such transaction;

                  (iv)  each Subsidiary Guarantor (other than (x) any Subsidiary Guarantor that will be released from its obligations under its Subsidiary Guarantee in connection with such transaction and (y) any party to any such consolidation or merger) shall have delivered a supplemental indenture or other document or instrument in form reasonably satisfactory to the Trustee, confirming its Subsidiary Guarantee (other than any Subsidiary Guarantee that will be discharged or terminated in connection with such transaction); and

                   (v)  the Company will have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each to the effect that such consolidation, merger or transfer complies with the provisions described in this paragraph, provided that (x) in giving such opinion such counsel may rely on an Officer's Certificate as to compliance with the foregoing clauses (ii) and (iii) and as to any matters of fact, and (y) no Opinion of Counsel will be required for a consolidation, merger or transfer described in the last paragraph of this covenant.

                Any Indebtedness that becomes an obligation of the Successor Company or any Restricted Subsidiary (or that is deemed to be Incurred by any Restricted Subsidiary that becomes a Restricted Subsidiary) as a result of any such transaction undertaken in compliance with this covenant, and any Refinancing Indebtedness with respect thereto, shall be deemed to have been Incurred in compliance with the covenant described under "—Certain Covenants—Limitation on Indebtedness."

                The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, and thereafter the predecessor Company shall be relieved of all obligations and covenants under the Indenture, except that the predecessor Company in the case of a lease of all or substantially all its assets will not be released from the obligation to pay the principal of and interest on the Notes.

                Clauses (ii) and (iii) of the first paragraph of this "—Merger and Consolidation" covenant do not apply to any transaction in which the Company consolidates or merges with or into or transfers all or substantially all its properties and assets to (x) an Affiliate incorporated or organized for the purpose of reincorporating or reorganizing the Company in another jurisdiction or changing its legal structure to a corporation or other entity or (y) a Restricted Subsidiary of the Company so long as all assets of the Company and the Restricted Subsidiaries immediately prior to such transaction (other than Capital Stock of such Restricted Subsidiary) are owned by such Restricted Subsidiary and its Restricted Subsidiaries immediately after the consummation thereof. The first paragraph of this "—Merger and Consolidation" covenant do not apply to (1) any transaction in which any Restricted Subsidiary consolidates with, merges into or transfers all or part of its assets to the Company or (2) the Transactions.


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        Defaults

                An Event of Default is defined in the Indenture as:

                    (i)  a default in any payment of interest on any Note when due, continued for a period of 30 days;

                   (ii)  a default in the payment of principal of any Note when due, whether at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration of acceleration or otherwise;

                  (iii)  the failure by the Company to comply with its obligations under the first paragraph of the covenant described under "—Merger and Consolidation" above;

                  (iv)  the failure by the Company to comply for 30 days after notice with any of its obligations under the covenant described under "—Change of Control" above (other than a failure to purchase Notes);

                   (v)  the failure by the Company to comply for 60 days after notice with its other agreements contained in the Notes or the Indenture;

                  (vi)  the failure by any Subsidiary Guarantor to comply for 45 days after notice with its obligations under its Subsidiary Guarantee;

                 (vii)  the failure by the Company or any Restricted Subsidiary to pay any Indebtedness for borrowed money (other than Indebtedness owed to the Company or any Restricted Subsidiary) within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default, if the total amount of such Indebtedness so unpaid or accelerated exceeds $100.0 million or its foreign currency equivalent; provided, that no Default or Event of Default will be deemed to occur with respect to any such Indebtedness that is paid or otherwise acquired or retired (or for which such failure to pay or acceleration is waived or rescinded) within 20 Business Days after such failure to pay or such acceleration (the "cross acceleration provision");

                (viii)  certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the "bankruptcy provisions");

                  (ix)  the rendering of any judgment or decree for the payment of money in an amount (net of any insurance or indemnity payments actually received in respect thereof prior to or within 90 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) in excess of $100.0 million or its foreign currency equivalent against the Company or a Significant Subsidiary that is not discharged, or bonded or insured by a third Person, if such judgment or decree remains outstanding for a period of 90 days following such judgment or decree and is not discharged, waived or stayed (the "judgment default provision");

                   (x)  [reserved]; or

                  (xi)  the failure of any Subsidiary Guarantee by a Subsidiary Guarantor that is a Significant Subsidiary to be in full force and effect (except as contemplated by the terms thereof or of the Indenture) or the denial or disaffirmation in writing by any Subsidiary Guarantor that is a Significant Subsidiary of its obligations under the Indenture or any Subsidiary Guarantee (other than by reason of the termination of the Indenture or such Subsidiary Guarantee or the release of such Subsidiary Guarantee in accordance with such Subsidiary Guarantee or the Indenture), if such Default continues for 10 days.

                In addition, the Notes provided for a specific cross-default that became inapplicable when the debt to which the cross-default referred was repaid.


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                The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.

                However, a Default under clause (iv), (v) or (vi) will not constitute an Event of Default until the Trustee or the Holders of at least 30% in principal amount of the outstanding Notes notify the Company in writing of the Default and the Company does not cure such Default within the time specified in such clause after receipt of such notice.

                If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company) occurs and is continuing, the Trustee by written notice to the Company, or the Holders of at least 30% in principal amount of the outstanding Notes by written notice to the Company and the Trustee, may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon the effectiveness of such a declaration, such principal and interest will be due and payable immediately.

                Notwithstanding the foregoing, if an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and accrued but unpaid interest on all the Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences.

                Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee indemnity or security satisfactory to it against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given the Trustee written notice that an Event of Default is continuing, (ii) Holders of at least 30% in principal amount of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii) such Holders have offered the Trustee security or indemnity satisfactory to it against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.

                The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each Holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of, or premium, if any, or interest on, any Note, the Trustee may withhold notice if and so long as it in good faith determines that withholding notice is in the interests of the Noteholders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default occurring during the previous year. The Company also is required to deliver to the Trustee,


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        within 30 days after the occurrence thereof, written notice of any event that would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof.

        Amendments and Waivers

        Amendments and Waivers With the Consent of Holders

                Subject to certain exceptions, the Indenture and the Notes may be amended with the consent of the Holders of not less than a majority in principal amount of the Notes then outstanding and any past default or compliance with any provisions may be waived with the consent of the Holders of not less than a majority in principal amount of the Notes then outstanding (including in each case, consents obtained in connection with a tender offer or exchange offer for Notes); provided that (x) if any such amendment or waiver will only affect one series of Notes (or less than all series of Notes) then outstanding under the Indenture, then only the consent of the Holders of a majority in principal amount of the Notes of such series then outstanding (including, in each case, consents obtained in connection with a tender offer or exchange offer for Notes) shall be required and (y) if any such amendment or waiver by its terms will affect a series of Notes in a manner different and materially adverse relative to the manner such amendment or waiver affects other series of Notes, then the consent of the Holders of a majority in principal amount of the Notes of such series then outstanding (including, in each case, consents obtained in connection with a tender offer or exchange offer for Notes) shall be required. However, without the consent of each Holder of an outstanding Note affected, no amendment or waiver may (i) reduce the principal amount of Notes whose Holders must consent to an amendment or waiver, (ii) reduce the rate of or extend the time for payment of interest on any Note, (iii) reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the redemption of any Note, or change the date on which any Note may be redeemed as described under "—Optional Redemption" above, (v) make any Note payable in money other than that stated in such Note, (vi) impair the right of any Holder to receive payment of principal of and interest on such Holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any such payment on or with respect to such Holder's Notes, or (vii) make any change in the amendment or waiver provisions described in this sentence.

        Amendments and Waivers Without the Consent of Holders

                Without the consent of any Holder, the Company, the Trustee and (as applicable) any Subsidiary Guarantor may amend the Indenture or the Notes to cure any ambiguity, mistake, omission, defect or inconsistency, to provide for the assumption by a successor of the obligations of the Company or a Subsidiary Guarantor under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes, to add Guarantees with respect to the Notes, to secure the Notes, to evidence a successor Trustee, to confirm and evidence the release, termination or discharge of any Guarantee or Lien with respect to or securing the Notes when such release, termination or discharge is provided for under the Indenture, to add to the covenants of the Company for the benefit of the Noteholders or to surrender any right or power conferred upon the Company, to provide for or confirm the issuance of Additional Notes or Exchange Notes, to conform the text of the Indenture (including any supplemental indenture or other instrument pursuant to which Additional Notes are issued), the Notes (including any Additional Notes) or any Subsidiary Guarantee to any provision of this "Description of Notes" or, with respect to any Additional Notes and any supplemental indenture or other instrument pursuant to which such Additional Notes are issued, to the "Description of Notes" relating to the issuance of such Additional Notes solely to the extent that such "Description of Notes" provides for terms of such Additional Notes that differ from the terms of the Notes, as contemplated by "—Principal, Maturity and Interest" above, to increase the minimum denomination of Notes to equal the dollar equivalent of €1,000 rounded up to the nearest $1,000 (including for purposes of redemption or repurchase of any Note in part), to make any change that does not materially adversely


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        affect the rights of any Holder, or to comply with any requirement of the SEC in connection with the qualification of the Indenture under the TIA or otherwise.

                The consent of the Noteholders is not necessary under the Indenture to approve the particular form of any proposed amendment or waiver. It is sufficient if such consent approves the substance of the proposed amendment or waiver. Until an amendment or waiver becomes effective, a consent to it by a Noteholder is a continuing consent by such Noteholder and every subsequent Holder of all or part of the related Note. Any such Noteholder or subsequent holder may revoke such consent as to its Note by written notice to the Trustee or the Company, received thereby before the date on which the Company certifies to the Trustee that the Holders of the requisite principal amount of Notes have consented to such amendment or waiver. After an amendment or waiver that requires the consent of the Noteholders under the Indenture becomes effective, the Company is required to mail to Noteholders a notice briefly describing such amendment or waiver. However, the failure to give such notice to all Noteholders, or any defect therein, will not impair or affect the validity of the amendment or waiver.

        Defeasance

                The Company at any time may terminate all obligations of the Company under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those relating to the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. The Company at any time may terminate its obligations under certain covenants under the Indenture, including the covenants described under "—Certain Covenants" and "—Change of Control," the operation of the default provisions relating to such covenants described under "—Defaults" above, the operation of the cross acceleration provision, the bankruptcy provisions with respect to Subsidiaries and the judgment default provision described under "—Defaults" above, and the limitations contained in clauses (iii), (iv) and (v) under "—Merger and Consolidation" above ("covenant defeasance"). If the Company exercises its legal defeasance option or its covenant defeasance option, each Subsidiary Guarantor will be released from all of its obligations with respect to its Subsidiary Guarantee.

                The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (iv), (v) (as it relates to the covenants described under "—Certain Covenants" above), (vi), (vii), (viii) (but only with respect to events of bankruptcy, insolvency or reorganization of a Subsidiary), (ix), (xi) or (xii) under "—Defaults" above or because of the failure of the Company to comply with clause (iii), (iv) or (v) under "—Merger and Consolidation" above.

                Either defeasance option may be exercised to any redemption date or to the maturity date for the Notes. In order to exercise either defeasance option, the Company must irrevocably deposit or cause to be deposited in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations, or a combination thereof, sufficient (without reinvestment) to pay principal of, and premium (if any) and interest on, the Notes to redemption or maturity, as the case may be (provided that if such redemption is made pursuant to the provisions described in the fourth paragraph under "—Optional Redemption," (x) the amount of money or U.S. Government Obligations, or a combination thereof, that the Company must irrevocably deposit or cause to be deposited will be determined using an assumed Applicable Premium calculated as of the date of such deposit, and (y) the Company must irrevocably deposit or cause to be deposited additional money in trust on the redemption date as necessary to pay the Applicable Premium as determined on such date), and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such


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        deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel (x) must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law since the Issue Date and (y) need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation have become due and payable, will become due and payable at their Stated Maturity within one year, or have been or are to be called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company).

        Satisfaction and Discharge

                The Indenture will be discharged and cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all Notes previously authenticated and delivered (other than certain lost, stolen or destroyed Notes, and certain Notes for which provision for payment was previously made and thereafter the funds have been released to the Company) have been cancelled or delivered to the Trustee for cancellation or (b) all Notes not previously cancelled or delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable at their Stated Maturity within one year or (z) have been or are to be called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company; (ii) the Company has irrevocably deposited or caused to be deposited with the Trustee money, U.S. Government Obligations or a combination thereof, sufficient (without reinvestment) to pay and discharge the entire Indebtedness on the Notes not previously cancelled or delivered to the Trustee for cancellation, for principal, premium, if any, and interest to the date of such deposit (in the case of Notes that have become due and payable), redemption or their Stated Maturity, as the case may be (provided that if such redemption is made pursuant to the provisions described in the fourth paragraph under "—Optional Redemption," (x) the amount of money or U.S. Government Obligations, or a combination thereof, that the Company must irrevocably deposit or cause to be deposited will be determined using an assumed Applicable Premium calculated as of the date of such deposit, and (y) the Company must irrevocably deposit or cause to be deposited additional money in trust on the redemption date as necessary to pay the Applicable Premium as determined on such date); (iii) the Company has paid or caused to be paid all other sums payable under the Indenture by the Company; and (iv) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel each to the effect that all conditions precedent under the "—Satisfaction and Discharge" section of the Indenture relating to the satisfaction and discharge of the Indenture have been complied with, provided that any such counsel may rely on any Officer's Certificate as to matters of fact (including as to compliance with the foregoing clauses (i), (ii) and (iii)).

        No Personal Liability of Directors, Officers, Employees, Incorporators and Stockholders

                No director, officer, employee, incorporator or stockholder of the Company, any Subsidiary Guarantor or any Subsidiary of any thereof shall have any liability for any obligation of the Company or any Subsidiary Guarantor under the Indenture, the Notes or any Subsidiary Guarantee, or for any claim based on, in respect of, or by reason of, any such obligation or its creation. Each Noteholder, by accepting the Notes, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.

        Concerning the Trustee

                Wells Fargo Bank, National Association is the Trustee under the Indenture and is appointed by the Company as initial Registrar and Paying Agent with regard to the Notes.


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                The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are set forth specifically in the Indenture. During the existence of an Event of Default, the Trustee will exercise such of the rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs.

                The Indenture and the TIA impose certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, that if it acquires any conflicting interest as described in the TIA, it must eliminate such conflict, apply to the SEC for permission to continue as Trustee with such conflict, or resign.

        Transfer and Exchange

                A Noteholder may transfer or exchange Notes in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require such Noteholder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require such Noteholder to pay any taxes or other governmental charges required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption or purchase or to transfer or exchange any Note for a period of 15 Business Days prior to the day of the mailing of the notice of redemption or purchase. No service charge will be made for any registration of transfer or exchange of the Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other governmental charge payable in connection with the transfer or exchange. The Notes will be issued in registered form and the registered holder of a Note will be treated as the owner of such Note for all purposes.

        Governing Law

                The Indenture provides that it and the Notes are governed by, and construed in accordance with, the laws of the State of New York.

        Certain Definitions

        Certain Indenture Definitions

                "2007 Senior Subordinated Indenture" means the Indenture, dated as of August 30, 2007, among the Company, the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, governing the 13.5% Senior Subordinated Notes due 2015 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                "2007 Transactions" means the "Transactions" as defined in the 2007 Senior Subordinated Indenture.

                "ABL Agent" has the meaning assigned to such term in the Base Intercreditor Agreement.

                "Acquired Indebtedness" means Indebtedness of a Person (i) existing at the time such Person becomes a Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case other than Indebtedness Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be Incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary.


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                "Acquisition Indebtedness" means Indebtedness of (i) the Company or any Restricted Subsidiary Incurred to finance or refinance, or otherwise Incurred in connection with, any acquisition of any assets (including Capital Stock), business or Person, or any merger or consolidation of any Person with or into the Company or any Restricted Subsidiary, or (ii) any Person that is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary (including Indebtedness thereof Incurred in connection with any such acquisition, merger or consolidation).

                "Additional Assets" means (i) any property or assets that replace the property or assets that are the subject of an Asset Disposition; (ii) any property or assets (other than Indebtedness and Capital Stock) used or to be used by the Company or a Restricted Subsidiary or otherwise useful in a Related Business (including any capital expenditures on any property or assets already so used); (iii) the Capital Stock of a Person that is engaged in a Related Business and becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iv) Capital Stock of any Person that at such time is a Restricted Subsidiary acquired from a third party.

                "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For the avoidance of doubt, THD and its Affiliates will not be deemed to be Affiliates of the Company or any of its Subsidiaries.

                "April 2012 Senior Unsecured Indenture" means the Indenture, dated as of April 12, 2012, among the Company, the subsidiary guarantors party thereto from time to time and Wilmington Trust, National Association, as trustee, governing the 14.875% Senior Notes due 2020 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                "April 2012 Senior Unsecured Notes" means the "Notes" as such term is defined in the April 2012 Senior Unsecured Indenture.

                "Asset Disposition" means any sale, lease, transfer or other disposition of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares, or (in the case of a Foreign Subsidiary) to the extent required by applicable law), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction), other than (i) a disposition to the Company or a Restricted Subsidiary, (ii) a disposition in the ordinary course of business, (iii) a disposition of Cash Equivalents, Investment Grade Securities or Temporary Cash Investments, (iv) the sale or discount (with or without recourse, and on customary or commercially reasonable terms) of accounts receivable or notes receivable arising in the ordinary course of business, or the conversion or exchange of accounts receivable for notes receivable, (v) any Restricted Payment Transaction, (vi) a disposition that is governed by the provisions described under "—Merger and Consolidation," (vii) any Financing Disposition, (viii) any "fee in lieu" or other disposition of assets to any governmental authority or agency that continue in use by the Company or any Restricted Subsidiary, so long as the Company or any Restricted Subsidiary may obtain title to such assets upon reasonable notice by paying a nominal fee, (ix) any exchange of property pursuant to or intended to qualify under Section 1031 (or any successor section) of the Code, or any exchange of equipment to be leased, rented or otherwise used in a Related Business, (x) any financing transaction with respect to property built or acquired by the Company or any Restricted Subsidiary after April 12, 2012, including without limitation any sale/leaseback transaction or asset securitization, (xi) any disposition arising from foreclosure, condemnation or similar action with respect to any property or other assets, or exercise of termination rights under any lease, license, concession or other agreement, or pursuant to buy/sell arrangements under any joint


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        venture or similar agreement or arrangement, (xii) any disposition of Capital Stock, Indebtedness or other securities of an Unrestricted Subsidiary, (xiii) a disposition of Capital Stock of a Restricted Subsidiary pursuant to an agreement or other obligation with or to a Person (other than the Company or a Restricted Subsidiary) from whom such Restricted Subsidiary was acquired, or from whom such Restricted Subsidiary acquired its business and assets (having been newly formed in connection with such acquisition), entered into in connection with such acquisition, (xiv) a disposition of not more than 5.0% of the outstanding Capital Stock of a Foreign Subsidiary that has been approved by the Board of Directors, (xv) any disposition or series of related dispositions for aggregate consideration not to exceed $30.0 million, (xvi) any Exempt Sale and Leaseback Transaction or (xvii) the abandonment or other disposition of patents, trademarks or other intellectual property that are, in the reasonable judgment of the Company, no longer economically practicable to maintain or useful in the conduct of the business of the Company and its Subsidiaries taken as a whole.

                "Bain Capital" means Bain Capital, LLC.

                "Bain Capital Investors" means, collectively, (i) Bain Capital, (ii) Bain Capital Partners Fund IX, L.P. and any legal successor thereto, and (iii) any Affiliate of any Bain Capital Investor, but not including any portfolio company of any Bain Capital Investor.

                "Bank Products Agreement" means any agreement pursuant to which a bank or other financial institution agrees to provide treasury or cash management services (including, without limitation, controlled disbursements, automated clearinghouse transactions, return items, netting, overdrafts and interstate depository network services).

                "Bank Products Obligations" of any Person means the obligations of such Person pursuant to any Bank Products Agreement.

                "Base Intercreditor Agreement" means the Intercreditor Agreement, dated as of April 12, 2012, among the ABL Agent, the Term Agent, the First Lien Note Agent and the Second Lien Note Agent, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                "Board of Directors" means, for any Person, the board of directors or other governing body of such Person or, if such Person does not have such a board of directors or other governing body and is owned or managed by a single entity, the Board of Directors of such entity, or, in either case, any committee thereof duly authorized to act on behalf of such Board of Directors. Unless otherwise provided, "Board of Directors" means the Board of Directors of the Company.

                "Borrowing Base" means the sum of (1) 65% of the book value of Inventory of the Company and its Restricted Subsidiaries, (2) 85% of the book value of Receivables of the Company and its Restricted Subsidiaries and (3) Unrestricted Cash of the Company and its Restricted Subsidiaries (in each case, determined as of the end of the most recently ended fiscal month of the Company for which internal consolidated financial statements of the Company are available, and, in the case of any determination relating to any Incurrence of Indebtedness, on a pro forma basis including (x) any property or assets of a type described above acquired since the end of such fiscal month and (y) any property or assets of a type described above being acquired in connection therewith). The Borrowing Base, as of any date of determination, shall not include Inventory, the acquisition of which shall have been financed or refinanced by the Incurrence of Purchase Money Obligations pursuant to clause (b)(iv) of the covenant described under "—Certain Covenants—Limitation on Indebtedness," to the extent such Purchase Money Obligations (or any Refinancing Indebtedness in respect thereof) shall then remain outstanding pursuant to such clause (on a pro forma basis after giving effect to an Incurrence of Indebtedness and the application of proceeds therefrom).

                "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banking institutions are authorized or required by law to close in New York City (or any other city in which a Paying Agent maintains its office).


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                "Capital Markets Securities" means bonds, debentures, notes or other similar debt securities of the Company or any Subsidiary Guarantor (other than the Notes) with an aggregate principal amount outstanding in excess of $150.0 million.

                "Capital Stock" of any Person means any and all shares of, rights to purchase, warrants or options for, or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity.

                "Capitalized Lease Obligation" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The Stated Maturity of any Capitalized Lease Obligation shall be the date of the last payment of rent or any other amount due under the related lease.

                "Captive Insurance Subsidiary" means any Subsidiary of the Company that is subject to regulation as an insurance company (or any Subsidiary thereof).

                "Carlyle" means Carlyle Investment Management, LLC.

                "Carlyle Investors" means, collectively, (i) Carlyle, (ii) Carlyle Partners V, L. P. and any legal successor thereto, and (iii) any Affiliate of any Carlyle Investor, but not including any portfolio company of any Carlyle Investor.

                "Cash Equivalents" means any of the following: (a) money, (b) securities issued or fully guaranteed or insured by the United States of America, Canada or a member state of the European Union or any agency or instrumentality of any thereof, (c) time deposits, certificates of deposit or bankers' acceptances of (i) any lender under a Senior Credit Agreement or any affiliate thereof, (ii) JPMorgan Chase Bank, N.A., SunTrust Bank, Wells Fargo Bank, National Association, Bank of America, N.A., Scotiabank, The Toronto-Dominion Bank, Bank of Montreal, or any of their respective affiliates, or (iii) any commercial bank having capital and surplus in excess of $500.0 million (or the foreign currency equivalent thereof as of the date of such investment) and the commercial paper of the holding company of which is rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's (or if at such time neither is issuing ratings, then a comparable rating of another nationally recognized rating agency), (d) money market instruments, commercial paper or other short-term obligations rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's (or if at such time neither is issuing ratings, then a comparable rating of another nationally recognized rating agency), (e) investments in money market funds subject to the risk limiting conditions of Rule 2a-7 or any successor rule of the SEC under the Investment Company Act of 1940, as amended, (f) Canadian dollars, and (g) investments similar to any of the foregoing denominated in Canadian dollars or any other foreign currencies approved by the Board of Directors.

                "Cash Flow Intercreditor Agreement" means the Intercreditor Agreement, dated as of April 12, 2012, among the Term Agent, the First Lien Note Agent and the Second Lien Note Agent, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                "CD&R" means Clayton, Dubilier & Rice, LLC and any successor in interest thereto, or any successor to CD&R's investment management business.

                "CD&R Investors" means, collectively, (i) CD&R, (ii) Clayton, Dubilier & Rice Fund VII, L.P., or any legal successor thereto, (iii) CD&R Parallel Fund VII, L.P., or any legal successor thereto, and (iv) any Affiliate of any CD&R Investor, but not including any portfolio company of any CD&R Investor.

                "Code" means the Internal Revenue Code of 1986, as amended.


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                "Commodities Agreement" means, in respect of a Person, any commodity futures contract, forward contract, option or similar agreement or arrangement (including derivative agreements or arrangements), as to which such Person is a party or beneficiary.

                "Company" means HD Supply, Inc., a Delaware corporation, and any successor in interest thereto.

                "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, that

                  (1)   if since the beginning of such period the Company or any Restricted Subsidiary has Incurred any Indebtedness that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period (except that in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on (A) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period for which such facility was outstanding or (B) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation),

                  (2)   if since the beginning of such period the Company or any Restricted Subsidiary has repaid, repurchased, redeemed, defeased or otherwise acquired, retired or discharged any Indebtedness that is no longer outstanding on such date of determination (each, a "Discharge") or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio involves a Discharge of Indebtedness (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid), Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such Discharge had occurred on the first day of such period,

                  (3)   if since the beginning of such period the Company or any Restricted Subsidiary shall have disposed of any company, any business or any group of assets constituting an operating unit of a business (any such disposition, a "Sale"), the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to (A) the Consolidated Interest Expense attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, redeemed, defeased or otherwise acquired, retired or discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Sale for such period (including but not limited to through the assumption of such Indebtedness by another Person) plus (B) if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such Sale,

                  (4)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made an Investment in any Person that thereby becomes a Restricted Subsidiary, or otherwise acquired any company, any business or any group of


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          assets constituting an operating unit of a business, including any such Investment or acquisition occurring in connection with a transaction causing a calculation to be made hereunder (any such Investment or acquisition, a "Purchase"), Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any related Indebtedness) as if such Purchase occurred on the first day of such period, and

                  (5)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have Discharged any Indebtedness or made any Sale or Purchase that would have required an adjustment pursuant to clause (2), (3) or (4) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Discharge, Sale or Purchase occurred on the first day of such period.

                For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred or repaid, repurchased, redeemed, defeased or otherwise acquired, retired or discharged in connection therewith, the pro forma calculations in respect thereof (including without limitation in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company;provided that such net cost savings or synergies are reasonably identifiable and factually supportable. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness). If any Indebtedness bears, at the option of the Company or a Restricted Subsidiary, a rate of interest based on a prime or similar rate, a eurocurrency interbank offered rate or other fixed or floating rate, and such Indebtedness is being given pro forma effect, the interest expense on such Indebtedness shall be calculated by applying such optional rate as the Company or such Restricted Subsidiary may designate. If any Indebtedness that is being given pro forma effect was Incurred under a revolving credit facility, the interest expense on such Indebtedness shall be computed based upon the average daily balance of such Indebtedness during the applicable period. Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate determined in good faith by a responsible financial or accounting officer of the Company to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.

                "Consolidated EBITDA" means, for any period, the Consolidated Net Income for such period, plus (a) the following to the extent deducted in calculating such Consolidated Net Income, without duplication: (i) provision for all taxes (whether or not paid, estimated or accrued) based on income, profits or capital (including penalties and interest, if any), (ii) Consolidated Interest Expense, all items excluded from the definition of Consolidated Interest Expense pursuant to clause (iii) thereof (other than Special Purpose Financing Expense), any Special Purpose Financing Fees, and (for purposes of the Consolidated Total Leverage Ratio) any Special Purpose Financing Expense, (iii) depreciation, amortization (including but not limited to amortization of intangibles and amortization and write-off of financing costs) and all other non-cash charges or non-cash losses, (iv) any expenses or charges related to any Equity Offering, Investment or Indebtedness permitted by the Indenture (whether or not consummated or incurred, and including any non-consummated sale of Capital Stock to the extent the proceeds thereof were intended to be contributed to the equity capital of the Company or any of its Restricted Subsidiaries), (v) the amount of any loss attributable to non-controlling interests and (vi) any management, monitoring, consulting and advisory fees and related expenses paid to any of CD&R,


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        Bain Capital, Carlyle or any of their respective Affiliates, plus (b) the amount of net cost savings projected by the Company in good faith to be realized as a result of actions taken or to be taken (calculated on a pro forma basis as though such cost savings had been realized on the first day of such period), net of the amount of actual benefits realized during such period from such actions; provided that (x) such cost savings are reasonably identifiable and factually supportable, (y) such net cost savings are reasonably expected to be realized within 18 months of the date of calculation of Consolidated EBITDA as evidenced by an Officer's Certificate prepared as of the date for which Consolidated EBITDA is being calculated and (z) the aggregate amount of cost savings added pursuant to this clause (b) shall not exceed $50.0 million for any four consecutive quarter period (which adjustments may be incremental to (but not duplicative of) pro forma adjustments made pursuant to the proviso to the definition of "Consolidated Coverage Ratio," "Consolidated Secured Leverage Ratio," "Consolidated Senior Priority Leverage Ratio" or "Consolidated Total Leverage Ratio"), plus (c) to the extent deducted in calculating such Consolidated Net Income, (i) the amount of loss on any Financing Disposition, and (ii) any costs or expenses pursuant to any management or employee stock option or other equity-related plan, program or arrangement, or other benefit plan, program or arrangement, or any stock subscription or shareholder agreement, to the extent funded with cash proceeds contributed to the capital of the Company or an issuance of Capital Stock of the Company (other than Disqualified Stock) and excluded from the calculation set forth in clause (a)(3) of the covenant described under "Certain Covenants—Limitation on Restricted Payments."

                "Consolidated Interest Expense" means, for any period, (i) the total interest expense of the Company and its Restricted Subsidiaries to the extent deducted in calculating Consolidated Net Income, net of any interest income of the Company and its Restricted Subsidiaries, including without limitation, any such interest expense consisting of (a) interest expense attributable to Capitalized Lease Obligations, (b) amortization of debt discount, (c) interest in respect of Indebtedness of any other Person that has been Guaranteed by the Company or any Restricted Subsidiary, but only to the extent that such interest is actually paid by the Company or any Restricted Subsidiary, (d) non-cash interest expense, (e) the interest portion of any deferred payment obligation and (f) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, plus (ii) Preferred Stock dividends paid in cash in respect of Disqualified Stock of the Company held by Persons other than the Company or a Restricted Subsidiary and minus (iii) to the extent otherwise included in such interest expense referred to in clause (i) above, amortization or write-off of financing costs, Special Purpose Financing Expense, accretion or accrual of discounted liabilities not constituting Indebtedness, expense resulting from discounting of Indebtedness in conjunction with recapitalization or purchase accounting, and any "additional interest" in respect of registration rights arrangements for any securities (including the Notes), in each case under clauses (i) through (iii) as determined on a Consolidated basis in accordance with GAAP; provided, that gross interest expense shall be determined after giving effect to any net payments made or received by the Company and its Restricted Subsidiaries with respect to Interest Rate Agreements.

                "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its Restricted Subsidiaries, determined on a Consolidated basis in accordance with GAAP and before any reduction in respect of Preferred Stock dividends; provided, that there shall not be included in such Consolidated Net Income:

                    (i)  any net income (loss) of any Person that is not the Company or a Restricted Subsidiary, except that the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (ii) below),


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                   (ii)  solely for purposes of determining the amount available for Restricted Payments under clause (a)(3)(A) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments," any net income (loss) of any Restricted Subsidiary that is not a Subsidiary Guarantor if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of similar distributions by such Restricted Subsidiary, directly or indirectly, to the Company by operation of the terms of such Restricted Subsidiary's charter or any agreement, instrument, judgment, decree, order, statute or governmental rule or regulation applicable to such Restricted Subsidiary or its stockholders (other than (x) restrictions that have been waived or otherwise released, (y) restrictions pursuant to any of the Notes, the Indenture, the Note Security Documents, the Intercreditor Agreements, the Senior First Priority Indenture, the other Senior First Priority Note Documents, the Senior Second Priority Indenture, the other Senior Second Priority Note Documents, the April 2012 Senior Unsecured Indenture, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Indenture, the October 2012 Senior Unsecured Notes, the January 2013 Senior Subordinated Indenture and the January 2013 Senior Subordinated Notes and (z) restrictions in effect on the Issue Date with respect to a Restricted Subsidiary and other restrictions with respect to such Restricted Subsidiary that taken as a whole are not materially less favorable to the Noteholders than such restrictions in effect on the Issue Date), except that the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of any dividend or distribution that was or that could have been made by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause),

                  (iii)  any gain or loss realized upon (x) the sale, abandonment or other disposition of any asset of the Company or any Restricted Subsidiary (including pursuant to any sale/leaseback transaction) that is not sold, abandoned or otherwise disposed of in the ordinary course of business (as determined in good faith by the Board of Directors) or (y) the disposal, abandonment or discontinuation of operations of the Company or any Restricted Subsidiary, and any income (loss) from disposed, abandoned or discontinued operations,

                  (iv)  any item classified or disclosed as an extraordinary, unusual or nonrecurring gain, loss or charge (including fees, expenses and charges associated with the Transactions or any acquisition, merger or consolidation after April 12, 2012),

                   (v)  the cumulative effect of a change in accounting principles,

                  (vi)  all deferred financing costs written off and premiums paid in connection with any early extinguishment of Indebtedness or Hedging Obligations or other derivative instruments,

                 (vii)  any unrealized gains or losses in respect of Currency Agreements,

                (viii)  any unrealized foreign currency transaction gains or losses in respect of Indebtedness of any Person denominated in a currency other than the functional currency of such Person,

                  (ix)  any non-cash compensation charge arising from any grant of stock, stock options or other equity based awards,

                   (x)  to the extent otherwise included in Consolidated Net Income, any unrealized foreign currency translation or transaction gains or losses in respect of Indebtedness or other obligations of the Company or any Restricted Subsidiary owing to the Company or any Restricted Subsidiary,

                  (xi)  any non-cash charge, expense or other impact attributable to application of the purchase or recapitalization method of accounting (including the total amount of depreciation and


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          amortization, cost of sales or other non-cash expense resulting from the write-up of assets to the extent resulting from such purchase or recapitalization accounting adjustments),

                 (xii)  any impairment charge or asset write-off, including any charge or write-off related to intangible assets, long-lived assets or investments in debt and equity securities, and any amortization of intangibles,

                (xiii)  any fees and expenses (or amortization thereof), and any charges or costs, in connection with any acquisition, Investment, Asset Disposition, issuance of Capital Stock, issuance, repayment or refinancing of Indebtedness, or amendment or modification of any agreement or instrument relating to any Indebtedness (in each case, whether or not completed, and including any such transaction consummated prior to the Issue Date),

                (xiv)  any accruals and reserves established or adjusted within twelve months after April 12, 2012 that are established as a result of the Transactions, and any changes as a result of adoption or modification of accounting policies, and

                 (xv)  to the extent covered by insurance and actually reimbursed (or the Company has determined that there exists reasonable evidence that such amount will be reimbursed by the insurer and such amount is not denied by the applicable insurer in writing within 180 days and is reimbursed within 365 days of the date of such evidence (with a deduction in any future calculation of Consolidated Net Income for any amount so added back to the extent not so reimbursed within such 365 day period)), any expenses with respect to liability or casualty events or business interruption.

                Notwithstanding the foregoing, for the purpose of clause (a)(3)(A) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income, without duplication, any income consisting of dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary, and any income consisting of return of capital, repayment or other proceeds from dispositions or repayments of Investments consisting of Restricted Payments, in each case to the extent such income would be included in Consolidated Net Income and such related dividends, repayments, transfers, return of capital or other proceeds are applied by the Company to increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(C) or (D) thereof.

                "Consolidated Secured Indebtedness" means, as of any date of determination, (1) an amount equal to the Consolidated Total Indebtedness (without regard to clause (2) of the definition thereof) as of such date that in each case is then secured by Liens on property or assets of the Company and its Restricted Subsidiaries (other than property or assets held in a defeasance or similar trust or arrangement for the benefit of the Indebtedness secured thereby), minus (2) the amount of Unrestricted Cash held by the Company and its Restricted Subsidiaries as of the most recent date with respect to which a balance sheet is available.

                "Consolidated Secured Leverage Ratio" means, as of any date of determination, the ratio of (i) Consolidated Secured Indebtedness as at such date (after giving effect to any Incurrence or Discharge of Indebtedness on such date) to (ii) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available, provided, that:

                  (1)   if since the beginning of such period the Company or any Restricted Subsidiary shall have made a Sale, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period;


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                  (2)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made a Purchase (including any Purchase occurring in connection with a transaction causing a calculation to be made hereunder), Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Purchase occurred on the first day of such period; and

                  (3)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have made any Sale or Purchase that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Sale or Purchase occurred on the first day of such period.

                For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto, the pro forma calculations in respect thereof (including, without limitation, in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company; provided that such net cost savings or synergies are reasonably identifiable and factually supportable.

                "Consolidated Senior Priority Indebtedness" means, as of any date of determination, an amount equal to (1) the Consolidated Total Indebtedness (without regard to clause (2) of the definition thereof) as of such date that in each case is then secured by Liens on property or assets of the Company and its Restricted Subsidiaries (other than property or assets held in a defeasance or similar trust or arrangement for the benefit of the Indebtedness secured thereby) and consists of Indebtedness having Senior Lien Priority with respect to the Senior Second Priority Notes, minus (2) the amount of Unrestricted Cash held by the Company and its Restricted Subsidiaries as of the most recent date with respect to which a balance sheet is available.

                "Consolidated Senior Priority Leverage Ratio" means, as of any date of determination, the ratio of (i) Consolidated Senior Priority Indebtedness as at such date (after giving effect to any Incurrence or Discharge of Indebtedness on such date) to (ii) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available, provided, that:

                  (1)   if since the beginning of such period the Company or any Restricted Subsidiary shall have made a Sale, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period;

                  (2)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made a Purchase (including any Purchase occurring in connection with a transaction causing a calculation to be made hereunder), Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Purchase occurred on the first day of such period; and

                  (3)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have made any Sale or Purchase that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA for such period


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          shall be calculated after giving pro forma effect thereto as if such Sale or Purchase occurred on the first day of such period.

                For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto, the pro forma calculations in respect thereof (including, without limitation, in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company;provided that such net cost savings or synergies are reasonably identifiable and factually supportable.

                "Consolidated Tangible Assets" means, as of any date of determination, the total assets less the sum of the goodwill, net, and other intangible assets, net, in each case reflected on the consolidated balance sheet of the Company and its Restricted Subsidiaries as at the end of the most recently ended fiscal quarter of the Company for which such a balance sheet is available, determined on a Consolidated basis in accordance with GAAP (and, in the case of any determination relating to any Incurrence of Indebtedness or any Investment, on a pro forma basis including any property or assets being acquired in connection therewith).

                "Consolidated Total Indebtedness" means, as of any date of determination, an amount equal to (1) the aggregate principal amount of outstanding Indebtedness of the Company and its Restricted Subsidiaries as of such date consisting of (without duplication) Indebtedness for borrowed money (including Purchase Money Obligations and unreimbursed outstanding drawn amounts under funded letters of credit (other than letters of credit in respect of trade payables)), Capitalized Lease Obligations, debt obligations evidenced by bonds, debentures, notes or similar instruments, Disqualified Stock, and (in the case of any Restricted Subsidiary that is not a Subsidiary Guarantor) Preferred Stock, determined on a Consolidated basis in accordance with GAAP (excluding items eliminated in Consolidation, and for the avoidance of doubt, excluding Hedging Obligations), minus (2) the amount of Unrestricted Cash held by the Company and its Restricted Subsidiaries as of the most recent date with respect to which a balance sheet is available.

                "Consolidated Total Leverage Ratio" means, as of any date of determination, the ratio of (i) Consolidated Total Indebtedness as at such date (after giving effect to any Incurrence or Discharge of Indebtedness on such date) to (ii) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available, provided that:

                  (1)   if since the beginning of such period the Company or any Restricted Subsidiary shall have made a Sale, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period;

                  (2)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made a Purchase (including any Purchase occurring in connection with a transaction causing a calculation to be made hereunder), Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Purchase occurred on the first day of such period; and

                  (3)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have made any Sale or Purchase that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Sale or Purchase occurred on the first day of such period.


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                For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto, the pro forma calculations in respect thereof (including without limitation in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company;provided that such net cost savings or synergies are reasonably identifiable and factually supportable.

                "Consolidation" means the consolidation of the accounts of each of the Restricted Subsidiaries with those of the Company in accordance with GAAP;provided that "Consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary, but the interest of the Company or any Restricted Subsidiary in any Unrestricted Subsidiary will be accounted for as an investment. The term "Consolidated" has a correlative meaning.

                "Contingent Obligation" means, with respect to any Person, any obligation of such Person guaranteeing any obligation that does not constitute Indebtedness (a "primary obligation") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of such Person, whether or not contingent, (1) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (2) to advance or supply funds (a) for the purchase or payment of any such primary obligation, or (b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, or (3) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.

                "Contractual Obligation" means, as to any Person, any provision of any material security issued by such Person or of any material agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

                "Contribution Amounts" means the aggregate amount of capital contributions applied by the Company to permit the Incurrence of Contribution Indebtedness pursuant to clause (b)(x) of the covenant described under "—Certain Covenants—Limitation on Indebtedness."

                "Contribution Indebtedness" means Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount not greater than twice the aggregate amount of cash contributions (other than Excluded Contributions) made to the capital of the Company or such Restricted Subsidiary after April 12, 2012 (whether through the issuance or sale of Capital Stock or otherwise);provided that such Contribution Indebtedness (a) is incurred within 180 days after the making of the related cash contribution and (b) is so designated as Contribution Indebtedness pursuant to an Officer's Certificate on the date of Incurrence thereof.

                "Credit Facilities" means one or more of (i) the Senior Term Facility, (ii) the Senior ABL Facility and (iii) any other facilities or arrangements designated by the Company, in each case with one or more banks or other lenders or institutions providing for revolving credit loans, term loans, receivables, inventory or real estate financings (including without limitation through the sale of receivables, inventory, real estate and/or other assets to such institutions or to special purpose entities formed to borrow from such institutions against such receivables, inventory, real estate and/or other assets or the creation of any Liens in respect of such receivables, inventory, real estate and/or other assets in favor of such institutions), letters of credit or other Indebtedness, in each case, including all agreements, instruments and documents executed and delivered pursuant to or in connection with any of the foregoing, including but not limited to any notes and letters of credit issued pursuant thereto and any guarantee and collateral agreement, patent and trademark security agreement, mortgages or letter of credit applications and other guarantees, pledge agreements, security agreements and collateral documents, in each case as the same may be amended, supplemented, waived or otherwise modified from time to time, or refunded, refinanced, restructured, replaced, renewed, repaid, increased or


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        extended from time to time (whether in whole or in part, whether with the original banks, lenders or institutions or other banks, lenders or institutions or otherwise, and whether provided under any original Credit Facility or one or more other credit agreements, indentures, financing agreements or other Credit Facilities or otherwise). Without limiting the generality of the foregoing, the term "Credit Facility" shall include any agreement (i) changing the maturity of any Indebtedness Incurred thereunder or contemplated thereby, (ii) adding Subsidiaries as additional borrowers or guarantors thereunder, (iii) increasing the amount of Indebtedness Incurred thereunder or available to be borrowed thereunder or (iv) otherwise altering the terms and conditions thereof.

                "Credit Facility Indebtedness" means any and all amounts, whether outstanding on the Issue Date or thereafter incurred, payable under or in respect of any Credit Facility, including without limitation any principal, premium, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company or any Restricted Subsidiary whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees, other monetary obligations of any nature and all other amounts payable thereunder or in respect thereof.

                "Currency Agreement" means, in respect of a Person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangements (including derivative agreements or arrangements), as to which such Person is a party or a beneficiary.

                "Default" means any event or condition that is, or after notice or passage of time or both would be, an Event of Default.

                "Designated Noncash Consideration" means the Fair Market Value of noncash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Disposition that is so designated as Designated Noncash Consideration pursuant to an Officer's Certificate, setting forth the basis of such valuation.

                "Designated Preferred Stock" means Preferred Stock of the Company (other than Disqualified Stock) or any Parent that is issued for cash (other than to a Restricted Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an Officer's Certificate of the Company.

                "Designated Senior Indebtedness" means with respect to a Person (i) the Credit Facility Indebtedness under or in respect of any Senior Credit Facility and (ii) any other Senior Indebtedness of such Person that, at the date of determination, has an aggregate principal amount equal to or under which, at the date of determination, the holders thereof are committed to lend up to, at least $25.0 million and is specifically designated by such Person in an agreement or instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture.

                "Disinterested Directors" means, with respect to any Affiliate Transaction, one or more members of the Board of Directors of the Company, or one or more members of the Board of Directors of a Parent, having no material direct or indirect financial interest in or with respect to such Affiliate Transaction. A member of any such Board of Directors shall not be deemed to have such a financial interest by reason of such member's holding Capital Stock of the Company or any Parent or any options, warrants or other rights in respect of such Capital Stock.

                "Disqualified Stock" means, with respect to any Person, any Capital Stock (other than Management Stock) that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (other than following the occurrence of a Change of Control or other similar event described under such terms as a "change of control," or an Asset Disposition) (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof (other than following the occurrence of a Change of


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        Control or other similar event described under such terms as a "change of control," or an Asset Disposition), in whole or in part, in each case on or prior to the final Stated Maturity of the Notes;provided that Capital Stock issued to any employee benefit plan, or by any such plan to any employees of the Company or any Subsidiary, shall not constitute Disqualified Stock solely because it may be required to be repurchased or otherwise acquired or retired in order to satisfy applicable statutory or regulatory obligations.

                "Domestic Subsidiary" means any Restricted Subsidiary of the Company other than a Foreign Subsidiary.

                "Dormant Subsidiary" means any Subsidiary of the Company that carries on no operations, had revenues of less than $4.0 million during the most recently completed period of four consecutive fiscal quarters of the Company and has total assets of less than $4.0 million as of the last day of such period; provided that the assets of all Subsidiaries constituting Dormant Subsidiaries shall at no time exceed $20.0 million in the aggregate and the revenues of all Subsidiaries constituting Dormant Subsidiaries for any four consecutive fiscal quarters shall at no time exceed $20.0 million in the aggregate.

                "Exchange Act" means the Securities Exchange Act of 1934, as amended.

                "Excluded Contribution" means Net Cash Proceeds, or the Fair Market Value of property or assets, received by the Company as capital contributions to the Company after April 12, 2012 or from the issuance or sale (other than to a Restricted Subsidiary) of Capital Stock (other than Disqualified Stock or Designated Preferred Stock) of the Company, in each case to the extent designated as an Excluded Contribution pursuant to an Officer's Certificate of the Company and not previously included in the calculation set forth in clause (a)(3)(B)(x) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments" for purposes of determining whether a Restricted Payment may be made.

                "Excluded Subsidiary" means any (a) Special Purpose Subsidiary, (b) Subsidiary of a Foreign Subsidiary, (c) Unrestricted Subsidiary, (d) Immaterial Subsidiary, (e) Dormant Subsidiary, (f) Captive Insurance Subsidiary, (g) Domestic Subsidiary that is prohibited by any applicable Contractual Obligation or Requirement of Law from guaranteeing or granting Liens to secure the Notes at the time such Subsidiary becomes a Restricted Subsidiary (and for so long as such restriction or any replacement or renewal thereof is in effect) or (h) Domestic Subsidiary with respect to which, in the reasonable judgment of the Company, the cost or other consequences (including any adverse tax consequences) of providing a Guarantee of the Notes shall be excessive in view of the benefits to be obtained by the Holders of the Notes therefrom.

                "Exempt Sale and Leaseback Transaction" means any Sale and Leaseback Transaction (a) in which the sale or transfer of property occurs within 90 days of the acquisition of such property by the Company or any of its Subsidiaries or (b) that involves property with a book value of $20.0 million or less and is not part of a series of related Sale and Leaseback Transactions involving property with an aggregate value in excess of such amount and entered into with a single Person or group of Persons. For purposes of the foregoing, "Sale and Leaseback Transaction" means any arrangement with any Person providing for the leasing by the Company or any of its Subsidiaries of real or personal property that has been or is to be sold or transferred by the Company or any such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary.

                "Extinguished Senior Obligations" means, as of any date of determination, all Senior Indebtedness (including any capitalized interest thereon) that after the Issue Date has been, or will be in any transaction giving rise to the need to calculate Extinguished Senior Obligations, (x) refinanced with, exchanged for, or amended, supplemented or otherwise modified into, Subordinated Obligations or (y) repaid other than with the proceeds of other Senior Indebtedness. "Extinguishment of Senior


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        Obligations" means any such refinancing, exchange, amendment, supplement, other modification or repayment of Senior Indebtedness referred to in the previous sentence.

                "Fair Market Value" means, with respect to any asset or property, the fair market value of such asset or property as determined in good faith by the Board of Directors, whose determination will be conclusive.

                "Financing Disposition" means any sale, transfer, conveyance or other disposition of, or creation or incurrence of any Lien on, property or assets (a) by the Company or any Subsidiary thereof to or in favor of any Special Purpose Entity, or by any Special Purpose Subsidiary, in each case in connection with the Incurrence by a Special Purpose Entity of Indebtedness, or obligations to make payments to the obligor on Indebtedness, which may be secured by a Lien in respect of such property or assets or (b) by the Company or any Subsidiary thereof to or in favor of any Special Purpose Entity that is not a Special Purpose Subsidiary.

                "First Lien Note Agent" has the meaning assigned to such term in the Base Intercreditor Agreement or the Cash Flow Intercreditor Agreement, as applicable.

                "Fixed GAAP Date" means April 12, 2012,provided that at any time after April 12, 2012, the Company may by written notice to the Trustee elect to change the Fixed GAAP Date to be the date specified in such notice, and upon such notice, the Fixed GAAP Date shall be such date for all periods beginning on and after the date specified in such notice.

                "Fixed GAAP Terms" means (a) the definitions of the terms "Borrowing Base," "Capitalized Lease Obligation," "Consolidated Coverage Ratio," "Consolidated EBITDA," "Consolidated Interest Expense," "Consolidated Net Income," "Consolidated Secured Indebtedness," "Consolidated Secured Leverage Ratio," "Consolidated Senior Priority Indebtedness," "Consolidated Senior Priority Leverage Ratio," "Consolidated Total Leverage Ratio," "Consolidated Tangible Assets," "Consolidated Total Indebtedness," "Consolidation," "Inventory" or "Receivables," (b) all defined terms in the Indenture to the extent used in or relating to any of the foregoing definitions, and all ratios and computations based on any of the foregoing definitions, and (c) any other term or provision of the Indenture or the Notes that, at the Company's election, may be specified by the Company by written notice to the Trustee from time to time.

                "Foreign Subsidiary" means (a) any Restricted Subsidiary of the Company that is not organized under the laws of the United States of America or any state thereof or the District of Columbia and any Restricted Subsidiary of such Foreign Subsidiary and (b) any Restricted Subsidiary of the Company that has no material assets other than securities or Indebtedness of one or more Foreign Subsidiaries (or Subsidiaries thereof), intellectual property relating to such Foreign Subsidiaries (or Subsidiaries thereof) and other assets relating to an ownership interest in any such securities, Indebtedness, intellectual property or Subsidiaries.

                "GAAP" means generally accepted accounting principles in the United States of America as in effect on the Fixed GAAP Date (for purposes of the Fixed GAAP Terms) and as in effect from time to time (for all other purposes of the Indenture), including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, and subject to the following: If at any time the SEC permits or requires U.S. domiciled companies subject to the reporting requirements of the Exchange Act to use IFRS in lieu of GAAP for financial reporting purposes, the Company may elect by written notice to the Trustee to so use IFRS in lieu of GAAP and, upon any such notice, references herein to GAAP shall thereafter be construed to mean (a) for periods beginning on and after the date specified in such notice, IFRS as in effect on the date specified in such notice (for purposes of the Fixed GAAP Terms) and as in effect from time to


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        time (for all other purposes of the Indenture) and (b) for prior periods, GAAP as defined in the first sentence of this definition. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP.

                "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person; provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning.

                "Guarantor Subordinated Obligations" means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) that is expressly subordinated in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement.

                "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement, Currency Agreement or Commodities Agreement.

                "Holder" or "Noteholder" means the Person in whose name a Note is registered in the Note Register.

                "Holding" means HDS Holding Corporation, a Delaware corporation, and any successor in interest thereto.

                "Holding Parent" means HD Supply Holdings, Inc., a Delaware corporation, and any successor in interest thereto.

                "IFRS" means International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto (or the Financial Accounting Standards Board, the Accounting Principles Board of the American Institute of Certified Public Accountants, or any successor to either such Board, or the SEC, as the case may be), as in effect from time to time.

                "Immaterial Subsidiary" means (i) any Subsidiary of the Company existing on the Issue Date with the consent of the Term Agent and (ii) any Subsidiary of the Company organized or acquired after the Issue Date, in the case of each of (i) and (ii) designated by the Company to the Trustee in writing, that had (a) total consolidated revenues of less than 2.5% of the total consolidated revenues of the Company and its Subsidiaries during the most recently completed period of four consecutive fiscal quarters of the Company and (b) total consolidated assets of less than 2.5% of the total consolidated assets of the Company and its Subsidiaries as of the last day of such period;provided that (x) for purposes of the provisions described under "—Subsidiary Guarantees" and "—Certain Covenants—Future Subsidiary Guarantors", any Special Purpose Subsidiary shall be deemed to be an "Immaterial Subsidiary," and (y) Immaterial Subsidiaries (other than any Special Purpose Subsidiary) shall not, in the aggregate, (1) have had revenues in excess of 10.0% of the total consolidated revenues of the Company and its Subsidiaries during the most recently completed period of four consecutive fiscal quarters or (2) have had total assets in excess of 10.0% of the total consolidated assets of the Company and its Subsidiaries as of the last day of such period. Any Subsidiary so designated as an Immaterial Subsidiary that fails to meet the foregoing as of the last day of any such four consecutive fiscal quarter period shall continue to be deemed an "Immaterial Subsidiary" hereunder until the date that is 60 days following the filing, transmittal or making available of annual or quarterly financial statements pursuant to the covenant described under "—Certain Covenants—SEC Reports" with respect to the last quarter of such four consecutive fiscal quarter period.

                "Incur" means issue, assume, enter into any Guarantee of, incur or otherwise become liable for; and the terms "Incurs," "Incurred" and "Incurrence" shall have a correlative meaning; provided, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary


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        (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. Accrual of interest, the accretion of accreted value, the payment of interest in the form of additional Indebtedness, and the payment of dividends on Capital Stock constituting Indebtedness in the form of additional shares of the same class of Capital Stock, will not be deemed to be an Incurrence of Indebtedness. Any Indebtedness issued at a discount (including Indebtedness on which interest is payable through the issuance of additional Indebtedness) shall be deemed Incurred at the time of original issuance of the Indebtedness at the initial accreted amount thereof.

                "Indebtedness" means, with respect to any Person on any date of determination (without duplication):

                    (i)  the principal of indebtedness of such Person for borrowed money,

                   (ii)  the principal of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments,

                  (iii)  all reimbursement obligations of such Person in respect of letters of credit, bankers' acceptances or other similar instruments (the amount of such obligations being equal at any time to the aggregate then undrawn and unexpired amount of such letters of credit, bankers' acceptances or other instruments plus the aggregate amount of drawings thereunder that have not then been reimbursed),

                  (iv)  all obligations of such Person to pay the deferred and unpaid purchase price of property (except Trade Payables), which purchase price is due more than one year after the date of placing such property in final service or taking final delivery and title thereto,

                   (v)  all Capitalized Lease Obligations of such Person,

                  (vi)  the redemption, repayment or other repurchase amount of such Person with respect to any Disqualified Stock of such Person or (if such Person is a Subsidiary of the Company other than a Subsidiary Guarantor) any Preferred Stock of such Subsidiary, but excluding, in each case, any accrued dividends (the amount of such obligation to be equal at any time to the maximum fixed involuntary redemption, repayment or repurchase price for such Capital Stock, or if less (or if such Capital Stock has no such fixed price), to the involuntary redemption, repayment or repurchase price therefor calculated in accordance with the terms thereof as if then redeemed, repaid or repurchased, and if such price is based upon or measured by the fair market value of such Capital Stock, such fair market value shall be as determined in good faith by the Board of Directors or the board of directors or other governing body of the issuer of such Capital Stock),

                 (vii)  all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person;provided that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination (as determined in good faith by the Company) and (B) the amount of such Indebtedness of such other Persons,

                (viii)  all Guarantees by such Person of Indebtedness of other Persons, to the extent so Guaranteed by such Person, and

                  (ix)  to the extent not otherwise included in this definition, net Hedging Obligations of such Person (the amount of any such obligation to be equal at any time to the termination value of such agreement or arrangement giving rise to such Hedging Obligation that would be payable by such Person at such time);

        provided that Indebtedness shall not include Contingent Obligations Incurred in the ordinary course of business.


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                The amount of Indebtedness of any Person at any date shall be determined as set forth above or otherwise provided in the Indenture, or otherwise shall equal the amount thereof that would appear as a liability on a balance sheet of such Person (excluding any notes thereto) prepared in accordance with GAAP.

                "Intercreditor Agreements" means, collectively, the Base Intercreditor Agreement, the Cash Flow Intercreditor Agreement and any other intercreditor agreement entered into from time to time in accordance with the Senior Second Priority Indenture.

                "Interest Rate Agreement" means, with respect to any Person, any interest rate protection agreement, future agreement, option agreement, swap agreement, cap agreement, collar agreement, hedge agreement or other similar agreement or arrangement (including derivative agreements or arrangements), as to which such Person is party or a beneficiary.

                "Inventory" means goods held for sale, lease or use by a Person in the ordinary course of business, net of any reserve for goods that have been segregated by such Person to be returned to the applicable vendor for credit and net of any applicable unearned vendor rebates, as determined in accordance with GAAP.

                "Investment" in any Person by any other Person means any direct or indirect advance, loan or other extension of credit (other than to customers, dealers, licensees, franchisees, suppliers, directors, officers or employees of any Person in the ordinary course of business) or capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by, such Person. For purposes of the definition of "Unrestricted Subsidiary" and the covenant described under "—Certain Covenants—Limitation on Restricted Payments" only, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary,provided that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation, (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value (as determined in good faith by the Company) at the time of such transfer and (iii) for purposes of clause (3)(C) of paragraph (a) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments," the amount resulting from the redesignation of any Unrestricted Subsidiary as a Restricted Subsidiary shall be the Fair Market Value of the Investment in such Unrestricted Subsidiary at the time of such redesignation (excluding the amount of such Investment then outstanding pursuant to clause (xv) or (xviii) of the definition of the term "Permitted Investments" or clause (vii) or (xii) of paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments"). Guarantees shall not be deemed to be Investments. The amount of any Investment outstanding at any time shall be the original cost of such Investment, reduced (at the Company's option) by any dividend, distribution, interest payment, return of capital, repayment or other amount or value received in respect of such Investment; provided, that to the extent that the amount of Restricted Payments outstanding at any time pursuant to paragraph (a) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments" is so reduced by any portion of any such amount or value that would otherwise be included in the calculation of Consolidated Net Income, such portion of such amount or value shall not be so included for purposes of calculating the amount of Restricted Payments that may be made pursuant to paragraph (a) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments."


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                "Investment Grade Rating" means a rating of Baa3 or better by Moody's and BBB- or better by S&P (or, in either case, the equivalent of such rating by such organization), or an equivalent rating by any other Rating Agency.

                "Investment Grade Securities" means (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Cash Equivalents); (ii) debt securities or debt instruments with an Investment Grade Rating, but excluding any debt securities or instruments constituting loans or advances among the Company and its Subsidiaries; (iii) investments in any fund that invests exclusively in investments of the type described in clauses (i) and (ii), which fund may also hold immaterial amounts of cash pending investment or distribution; and (iv) corresponding instruments in countries other than the United States customarily utilized for high quality investments.

                "Investors" means (i) the CD&R Investors, the Bain Capital Investors and the Carlyle Investors and (ii) any of their respective legal successors.

                "Issue Date" means February 1, 2013.

                "January 2013 Senior Subordinated Indenture" means the Indenture, dated as of January 16, 2013, among the Company, the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, governing the 10.50% Senior Subordinated Notes due 2021 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                "January 2013 Senior Subordinated Notes" means the "Notes" as such term is defined in the January 2013 Senior Subordinated Indenture.

                "Junior Capital" means, collectively, any Indebtedness of any Parent or the Company that (i) is not secured by any asset of the Company or any Restricted Subsidiary, (ii) is expressly subordinated to the prior payment in full of the Notes on terms consistent with, or (taken as a whole) not materially less favorable to the Holders than, those contained in the 2007 Senior Subordinated Indenture (as determined in good faith by the Company), (iii) has a final maturity date that is not earlier than, and provides for no scheduled payments of principal prior to, the date that is 91 days after the maturity of the Notes (other than through conversion or exchange of any such Indebtedness for Capital Stock (other than Disqualified Stock) of the Company, Capital Stock of any Parent or any other Junior Capital), (iv) has no mandatory redemption or prepayment obligations other than obligations that are subject to the prior payment in full in cash of the Notes and (v) does not require the payment of cash interest until the date that is 91 days after the maturity of the Notes.

                "Liabilities" means, collectively, any and all claims, obligations, liabilities, causes of action, actions, suits, proceedings, investigations, judgments, decrees, losses, damages, fees, costs and expenses (including without limitation interest, penalties and fees and disbursements of attorneys, accountants, investment bankers and other professional advisors), in each case whether incurred, arising or existing with respect to third parties or otherwise at any time or from time to time.

                "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof).

                "Management Advances" means (1) loans or advances made to directors, officers, employees or consultants of any Parent, the Company or any Restricted Subsidiary (x) in respect of travel, entertainment or moving related expenses incurred in the ordinary course of business, (y) in respect of moving related expenses incurred in connection with any closing or consolidation of any facility, or (z) in the ordinary course of business and (in the case of this clause (z)) not exceeding $10.0 million in the aggregate outstanding at any time, (2) promissory notes of Management Investors acquired in connection with the issuance of Management Stock to such Management Investors, (3) Management


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        Guarantees, or (4) other Guarantees of borrowings by Management Investors in connection with the purchase of Management Stock, which Guarantees are permitted under the covenant described under "—Certain Covenants—Limitation on Indebtedness."

                "Management Agreements" means, collectively, (i) the Subscription Agreements, each dated as of August 30, 2007, between Holding Parent and each of the Investors party thereto, (ii) the Consulting Agreements, each dated as of August 30, 2007, among Holding Parent, the Company and each of CD&R, Bain Capital and Carlyle, or Affiliates thereof, respectively, (iii) the Indemnification Agreements, each dated as of August 30, 2007, among the Company, Holding Parent and each of (a) CD&R and each CD&R Investor, (b) Bain Capital and each Bain Capital Investor, and (c) Carlyle and each Carlyle Investor, or Affiliates thereof, respectively, (iv) the Registration Rights Agreement, dated as of August 30, 2007, among Holding Parent and the Investors party thereto and any other Person party thereto from time to time, (v) the Stockholders Agreement, dated as of August 30, 2007, by and among Holding Parent and the Investors party thereto and any other Person party thereto from time to time and (vi) any other agreement primarily providing for indemnification and/or contribution for the benefit of any Permitted Holder in respect of Liabilities resulting from, arising out of or in connection with, based upon or relating to (a) any management, consulting, financial advisory, financing, underwriting or placement services or other investment banking activities, (b) any offering of securities or other financing activity or arrangement of or by any Parent or any of its Subsidiaries or (c) any action or failure to act of or by any Parent or any of its Subsidiaries (or any of their respective predecessors); in each case in clauses (i) through (vi) as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof and of the Indenture.

                "Management Guarantees" means guarantees (x) of up to an aggregate principal amount outstanding at any time of $25.0 million of borrowings by Management Investors in connection with their purchase of Management Stock or (y) made on behalf of, or in respect of loans or advances made to, directors, officers, employees or consultants of any Parent, the Company or any Restricted Subsidiary (1) in respect of travel, entertainment and moving related expenses incurred in the ordinary course of business, or (2) in the ordinary course of business and (in the case of this clause (2)) not exceeding $10.0 million in the aggregate outstanding at any time.

                "Management Indebtedness" means Indebtedness Incurred to any Management Investor to finance the repurchase or other acquisition of Capital Stock of the Company or any Parent (including any options, warrants or other rights in respect thereof) from any Management Investor, which repurchase or other acquisition of Capital Stock is permitted by the covenant described under "—Limitation on Restricted Payments."

                "Management Investors" means the officers, directors, employees and other members of the management of any Parent, the Company or any of their respective Subsidiaries, or family members or relatives thereof (provided that, solely for purposes of the definition of "Permitted Holders," such relatives shall include only those Persons who are or become Management Investors in connection with estate planning for or inheritance from other Management Investors, as determined in good faith by the Company, which determination shall be conclusive), or trusts, partnerships or limited liability companies for the benefit of any of the foregoing, or any of their heirs, executors, successors and legal representatives, who at any date beneficially own or have the right to acquire, directly or indirectly, Capital Stock of the Company or any Parent.

                "Management Stock" means Capital Stock of the Company or any Parent (including any options, warrants or other rights in respect thereof) held by any of the Management Investors.

                "Moody's" means Moody's Investors Service, Inc., and its successors.


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                "Net Available Cash" from an Asset Disposition means an amount equal to the cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other non-cash form) therefrom, in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or to be accrued as a liability under GAAP, as a consequence of such Asset Disposition (including as a consequence of any transfer of funds in connection with the application thereof in accordance with the covenant described under "—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock"), (ii) all payments made, and all installment payments required to be made, on any Indebtedness (x) that is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or (y) that must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, including but not limited to any payments required to be made to increase borrowing availability under any revolving credit facility, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition, or to any other Person (other than the Company or a Restricted Subsidiary) owning a beneficial interest in the assets disposed of in such Asset Disposition, (iv) any liabilities or obligations associated with the assets disposed of in such Asset Disposition and retained, indemnified or insured by the Company or any Restricted Subsidiary after such Asset Disposition, including without limitation pension and other post-employment benefit liabilities, liabilities related to environmental matters, and liabilities relating to any indemnification obligations associated with such Asset Disposition, and (v) the amount of any purchase price or similar adjustment (x) claimed by any Person to be owed by the Company or any Restricted Subsidiary, until such time as such claim shall have been settled or otherwise finally resolved, or (y) paid or payable by the Company or any Restricted Subsidiary, in either case in respect of such Asset Disposition.

                "Net Cash Proceeds," with respect to any issuance or sale of any securities or Indebtedness of the Company or any Subsidiary by the Company or any Subsidiary, or any capital contribution, means the cash proceeds of such issuance, sale or contribution net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance, sale or contribution and net of taxes paid or payable as a result thereof.

                "Note Security Documents" means the collateral agreements and any mortgages, security agreements, pledge agreements or other instruments evidencing or creating Liens on the assets of the Company and the Subsidiary Guarantors to secure the obligations under the Senior First Priority Indenture and the Senior First Priority Notes or the Senior Second Priority Indenture and the Senior Second Priority Notes, as amended, restated, supplemented, waived or otherwise modified from time to time.

                "Obligations" means, with respect to any Indebtedness, any principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company or any Restricted Subsidiary whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, Guarantees of such Indebtedness (or of Obligations in respect thereof), other monetary obligations of any nature and all other amounts payable thereunder or in respect thereof.

                "October 2012 Senior Unsecured Indenture" means the Indenture, dated as of October 15, 2012, among the Company, the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, governing the 11.50% Senior Notes Due 2020, as the same may be amended, supplemented, waived or otherwise modified from time to time.


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                "October 2012 Senior Unsecured Notes" means the "Notes" as such term is defined in the October 2012 Senior Unsecured Indenture.

                "Officer" means, with respect to the Company or any other obligor upon the Notes, the Chairman of the Board, the President, the Chief Executive Officer, the Chief Financial Officer, any Vice President, the Controller, the Treasurer or the Secretary (a) of such Person or (b) if such Person is owned or managed by a single entity, of such entity (or any other individual designated as an "Officer" for the purposes of the Indenture by the Board of Directors).

                "Officer's Certificate" means, with respect to the Company or any other obligor upon the Notes, a certificate signed by one Officer of such Person.

                "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee.

                "Parent" means any of Holding, Holding Parent, any Other Parent, and any other Person that is a Subsidiary of Holding, Holding Parent or any Other Parent and of which the Company is a Subsidiary. As used herein, "Other Parent" means a Person of which the Company becomes a Subsidiary after the Issue Date,provided that either (x) immediately after the Company first becomes a Subsidiary of such Person, more than 50% of the Voting Stock of such Person shall be held by one or more Persons that held more than 50% of the Voting Stock of a Parent of the Company immediately prior to the Company first becoming such Subsidiary or (y) such Person shall be deemed not to be an Other Parent for the purpose of determining whether a Change of Control shall have occurred by reason of the Company first becoming a Subsidiary of such Person.

                "Parent Expenses" means (i) costs (including all professional fees and expenses) incurred by any Parent in connection with maintaining its existence or in connection with its reporting obligations under, or in connection with compliance with, applicable laws or applicable rules of any governmental, regulatory or self-regulatory body or stock exchange, the Indenture, the Senior First Priority Indenture, the Senior Second Priority Indenture, the April 2012 Senior Unsecured Indenture, the October 2012 Senior Unsecured Indenture, the 2007 Senior Subordinated Indenture, the January 2013 Senior Subordinated Indenture or any other agreement or instrument relating to Indebtedness of the Company or any Restricted Subsidiary, including in respect of any reports filed with respect to the Securities Act, the Exchange Act or the respective rules and regulations promulgated thereunder, (ii) expenses incurred by any Parent in connection with the acquisition, development, maintenance, ownership, prosecution, protection and defense of its intellectual property and associated rights (including but not limited to trademarks, service marks, trade names, trade dress, patents, copyrights and similar rights, including registrations and registration or renewal applications in respect thereof; inventions, processes, designs, formulae, trade secrets, know-how, confidential information, computer software, data and documentation, and any other intellectual property rights; and licenses of any of the foregoing) to the extent such intellectual property and associated rights relate to the business or businesses of the Company or any Subsidiary thereof, (iii) indemnification obligations of any Parent owing to directors, officers, employees or other Persons under its charter or by-laws or pursuant to written agreements with or for the benefit of any such Person (including the Management Agreements), or obligations in respect of director and officer insurance (including premiums therefor), (iv) other administrative and operational expenses of any Parent incurred in the ordinary course of business, and (v) fees and expenses incurred by any Parent in connection with any offering of Capital Stock or Indebtedness, (w) which offering is not completed, or (x) where the net proceeds of such offering are intended to be received by or contributed or loaned to the Company or a Restricted Subsidiary, or (y) in a prorated amount of such expenses in proportion to the amount of such net proceeds intended to be so received, contributed or loaned, or (z) otherwise on an interim basis prior to completion of such offering so long as any Parent shall cause the amount of such expenses to be repaid to the


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        Company or the relevant Restricted Subsidiary out of the proceeds of such offering promptly if completed.

                "Pari Passu Lien Priority" means "Pari Passu Lien Priority" as such term is defined in the Senior Second Priority Indenture.

                "Permitted Holder" means any of the following: (i) any of the Investors; (ii) any of the Management Investors and their respective Affiliates; (iii) any investment fund or vehicle managed or sponsored by CD&R, Bain Capital, Carlyle or any Affiliate thereof, and any Affiliate of or successor to any such investment fund or vehicle; (iv) any limited or general partners of, or other investors in, any CD&R Investor, Bain Capital Investor or Carlyle Investor or any of their respective Affiliates, or any such investment fund or vehicle (as to any such limited partner or other investor, solely to the extent of any Capital Stock of the Company or any Parent actually received by way of dividend or distribution from any such Investor, Affiliate, or investment fund or vehicle); and (v) any Person acting in the capacity of an underwriter in connection with a public or private offering of Capital Stock of any Parent or the Company. In addition, any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) whose status as a "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) constitutes or results in a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of the Indenture, together with its Affiliates, shall thereafter constitute Permitted Holders.

                "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in, or consisting of, any of the following:

                    (i)  a Restricted Subsidiary, the Company, or a Person that will, upon the making of such Investment, become a Restricted Subsidiary (and any Investment held by such Person that was not acquired by such Person in contemplation of so becoming a Restricted Subsidiary);

                   (ii)  another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, or is liquidated into, the Company or a Restricted Subsidiary (and, in each case, any Investment held by such other Person that was not acquired by such Person in contemplation of such merger, consolidation or transfer);

                  (iii)  Temporary Cash Investments, Investment Grade Securities or Cash Equivalents;

                  (iv)  receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business;

                   (v)  any securities or other Investments received as consideration in, or retained in connection with, sales or other dispositions of property or assets, including Asset Dispositions made in compliance with the covenant described under "—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock";

                  (vi)  securities or other Investments received in settlement of debts created in the ordinary course of business and owing to, or of other claims asserted by, the Company or any Restricted Subsidiary, or as a result of foreclosure, perfection or enforcement of any Lien, or in satisfaction of judgments, including in connection with any bankruptcy proceeding or other reorganization of another Person;

                 (vii)  Investments in existence or made pursuant to legally binding written commitments in existence on the Issue Date;

                (viii)  Currency Agreements, Interest Rate Agreements, Commodities Agreements and related Hedging Obligations, which obligations are Incurred in compliance with the covenant described under "—Certain Covenants—Limitation on Indebtedness";


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                  (ix)  pledges or deposits (x) with respect to leases or utilities provided to third parties in the ordinary course of business or (y) otherwise described in the definition of "Permitted Liens" or made in connection with Liens permitted under the covenant described under "—Certain Covenants—Limitation on Liens";

                   (x)  (1) Investments in or by any Special Purpose Subsidiary, or in connection with a Financing Disposition (described in clause (a) of the definition thereof) by or to or in favor of any Special Purpose Entity, including Investments of funds held in accounts permitted or required by the arrangements governing such Financing Disposition or any related Indebtedness, or (2) any promissory note issued by the Company, or any Parent, provided that if such Parent receives cash from the relevant Special Purpose Entity in exchange for such note, an equal cash amount is contributed by any Parent to the Company;

                  (xi)  bonds secured by assets leased to and operated by the Company or any Restricted Subsidiary that were issued in connection with the financing of such assets so long as the Company or any Restricted Subsidiary may obtain title to such assets at any time by paying a nominal fee, canceling such bonds and terminating the transaction;

                 (xii)  Notes;

                (xiii)  any Investment to the extent made using Capital Stock of the Company (other than Disqualified Stock), or Capital Stock of any Parent or Junior Capital, as consideration;

                (xiv)  Management Advances;

                 (xv)  Investments in Related Businesses in an aggregate amount outstanding at any time not to exceed the greater of $125.0 million and 2.5% of Consolidated Tangible Assets;

                (xvi)  any transaction to the extent it constitutes an Investment that is permitted by and made in accordance with the provisions of paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Transactions with Affiliates" (except transactions described in clauses (i), (v) and (vi) of such paragraph), including any Investment pursuant to any transaction described in clause (ii) of such paragraph (whether or not any Person party thereto is at any time an Affiliate of the Company);

               (xvii)  any Investment by any Captive Insurance Subsidiary in connection with its provision of insurance to the Company or any of its Subsidiaries, which Investment is made in the ordinary course of business of such Captive Insurance Subsidiary, or by reason of applicable law, rule, regulation or order, or that is required or approved by any regulatory authority having jurisdiction over such Captive Insurance Subsidiary or its business, as applicable; and

              (xviii)  other Investments in an aggregate amount outstanding at any time not to exceed the greater of $125.0 million and 2.5% of Consolidated Tangible Assets.

                If any Investment pursuant to clause (xv) or (xviii) above, or clause (vii) of paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments," as applicable, is made in any Person that is not a Restricted Subsidiary and such Person thereafter (A) becomes a Restricted Subsidiary or (B) is merged or consolidated into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary, then such Investment shall thereafter be deemed to have been made pursuant to clause (i) or (ii) above, respectively, and not clause (xv) or (xviii) above, or clause (vii) of paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments," as applicable (and, in the case of the foregoing clause (A), for so long as such Person continues to be a Restricted Subsidiary unless and until such Person is merged or consolidated into or transfers or conveys all or substantially all its assets to, or is liquidated into, the Company or a Restricted Subsidiary).


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                "Permitted Liens" means:

                  (a)   Liens for taxes, assessments or other governmental charges not yet delinquent or the nonpayment of which in the aggregate would not reasonably be expected to have a material adverse effect on the Company and its Restricted Subsidiaries or that are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or a Subsidiary thereof, as the case may be, in accordance with GAAP;

                  (b)   carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business in respect of obligations that are not overdue for a period of more than 60 days or that are bonded or that are being contested in good faith and by appropriate proceedings;

                  (c)   pledges, deposits or Liens in connection with workers' compensation, unemployment insurance and other social security and other similar legislation or other insurance related obligations (including, without limitation, pledges or deposits securing liability to insurance carriers under insurance or self-insurance arrangements);

                  (d)   pledges, deposits or Liens to secure the performance of bids, tenders, trade, government or other contracts (other than for borrowed money), obligations for utilities, leases, licenses, statutory obligations, completion guarantees, surety, judgment, appeal or performance bonds, other similar bonds, instruments or obligations, and other obligations of a like nature incurred in the ordinary course of business;

                  (e)   easements (including reciprocal easement agreements), rights-of-way, building, zoning and similar restrictions, utility agreements, covenants, reservations, restrictions, encroachments, charges, and other similar encumbrances or title defects incurred, or leases or subleases granted to others, which do not in the aggregate materially interfere with the ordinary conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole;

                  (f)    Liens existing on, or provided for under written arrangements existing on, the Issue Date, or (in the case of any such Liens securing Indebtedness of the Company or any of its Subsidiaries existing or arising under written arrangements existing on the Issue Date) securing any Refinancing Indebtedness in respect of such Indebtedness so long as the Lien securing such Refinancing Indebtedness is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or under such written arrangements could secure) the original Indebtedness;

                  (g)   (i) mortgages, liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord or other third party on property over which the Company or any Restricted Subsidiary has easement rights or on any leased property and subordination or similar agreements relating thereto and (ii) any condemnation or eminent domain proceedings affecting any real property;

                  (h)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of Hedging Obligations, Bank Products Obligations, Purchase Money Obligations or Capitalized Lease Obligations Incurred in compliance with the covenant described under "—Certain Covenants—Limitation on Indebtedness";

                  (i)    Liens arising out of judgments, decrees, orders or awards in respect of which the Company or any Restricted Subsidiary shall in good faith be prosecuting an appeal or proceedings for review, which appeal or proceedings shall not have been finally terminated, or if the period within which such appeal or proceedings may be initiated shall not have expired;

                  (j)    leases, subleases, licenses or sublicenses to or from third parties;


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                  (k)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of (1) Indebtedness Incurred in compliance with clause (b)(i), (b)(iv), (b)(v), (b)(vii), (b)(viii) (other than Junior Capital) or (b)(ix) of the covenant described under "—Certain Covenants—Limitation on Indebtedness," or clause (b)(iii) thereof (other than the Notes, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Notes, the January 2013 Senior Subordinated Notes or Refinancing Indebtedness Incurred in respect of Indebtedness under the Notes, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Notes, the January 2013 Senior Subordinated Notes or described in paragraph (a) thereof), (2) (A) Acquisition Indebtedness Incurred in compliance with clause (b)(x) or (b)(xi) of the covenant described under "—Certain Covenants—Limitation on Indebtedness," provided that (x) such Liens are limited to all or part of the same property or assets, including Capital Stock (plus improvements, accessions, proceeds or dividends or distributions in respect thereof, or replacements of any thereof) acquired, or of any Person acquired or merged or consolidated with or into the Company or any Restricted Subsidiary, in any transaction to which such Acquisition Indebtedness relates or (y) on the date of the Incurrence of such Indebtedness after giving effect to such Incurrence, the Consolidated Secured Leverage Ratio would equal or be less than the Consolidated Secured Leverage Ratio immediately prior to giving effect thereto or (B) any Refinancing Indebtedness Incurred in respect thereof, (3) the Notes, (4) Indebtedness of any Restricted Subsidiary that is not a Subsidiary Guarantor (limited, in the case of this clause (4), to Liens on any of the property and assets of any Restricted Subsidiary that is not a Subsidiary Guarantor), (5) Indebtedness or other obligations of any Special Purpose Entity, or (6) obligations in respect of Management Advances or Management Guarantees; in each case including Liens securing any Guarantee of any thereof;

                  (l)    Liens existing on property or assets of a Person at the time such Person becomes a Subsidiary of the Company (or at the time the Company or a Restricted Subsidiary acquires such property or assets, including any acquisition by means of a merger or consolidation with or into the Company or any Restricted Subsidiary); provided, however, that such Liens are not created in connection with, or in contemplation of, such other Person becoming such a Subsidiary (or such acquisition of such property or assets), and that such Liens are limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which such Liens arose, could secure) the obligations to which such Liens relate; provided further, that for purposes of this clause (l), if a Person other than the Company is the Successor Company with respect thereto, any Subsidiary thereof shall be deemed to become a Subsidiary of the Company, and any property or assets of such Person or any such Subsidiary shall be deemed acquired by the Company or a Restricted Subsidiary, as the case may be, when such Person becomes such Successor Company;

                  (m)  Liens on Capital Stock, Indebtedness or other securities of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary;

                  (n)   any encumbrance or restriction (including, but not limited to, pursuant to put and call agreements or buy/sell arrangements) with respect to Capital Stock of any joint venture or similar arrangement pursuant to any joint venture or similar agreement;

                  (o)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of Refinancing Indebtedness Incurred in respect of any Indebtedness secured by, or securing any refinancing, refunding, extension, renewal or replacement (in whole or in part) of any other obligation secured by, any other Permitted Liens, provided that any such new Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the obligations to which such Liens relate;


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                  (p)   Liens (1) arising by operation of law (or by agreement to the same effect) in the ordinary course of business, (2) on property or assets under construction (and related rights) in favor of a contractor or developer or arising from progress or partial payments by a third party relating to such property or assets, (3) on receivables (including related rights), (4) on cash set aside at the time of the Incurrence of any Indebtedness or government securities purchased with such cash, in either case to the extent that such cash or government securities prefund the payment of interest on such Indebtedness and are held in an escrow account or similar arrangement to be applied for such purpose, (5) securing or arising by reason of any netting or set-off arrangement entered into in the ordinary course of banking or other trading activities (including in connection with purchase orders and other agreements with customers), (6) in favor of the Company or any Subsidiary (other than Liens on property or assets of the Company or any Subsidiary Guarantor in favor of any Subsidiary that is not a Subsidiary Guarantor), (7) arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business, (8) on inventory or other goods and proceeds securing obligations in respect of bankers' acceptances issued or created to facilitate the purchase, shipment or storage of such inventory or other goods, (9) relating to pooled deposit or sweep accounts to permit satisfaction of overdraft, cash pooling or similar obligations incurred in the ordinary course of business, (10) attaching to commodity trading or other brokerage accounts incurred in the ordinary course of business, (11) arising in connection with repurchase agreements permitted under the covenant described under "—Certain Covenants—Limitation on Indebtedness" on assets that are the subject of such repurchase agreements or (12) in favor of any Special Purpose Entity in connection with any Financing Disposition;

                  (q)   other Liens securing obligations incurred in the ordinary course of business, which obligations do not exceed $75.0 million at any time outstanding; and

                  (r)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of Indebtedness Incurred in compliance with the covenant described under "—Certain Covenants—Limitation on Indebtedness,"provided that on the date of the Incurrence of such Indebtedness after giving effect to such Incurrence (or on the date of the initial borrowing of such Indebtedness after giving pro forma effect to the Incurrence of the entire committed amount of such Indebtedness, in which case such committed amount may thereafter be borrowed and reborrowed, in whole or in part, from time to time, without further compliance with this clause), (x) in the case of Indebtedness having Senior Lien Priority with respect to the Senior Second Priority Notes, the Consolidated Senior Priority Leverage Ratio shall not exceed 3.25 to 1.0 or (y) in all other cases, the Consolidated Secured Leverage Ratio shall not exceed 4.50 to 1.0.

                For purposes of determining compliance with this definition, (x) a Lien need not be incurred solely by reference to one category of Permitted Liens described in this definition but may be incurred under any combination of such categories (including in part under one such category and in part under any other such category) and (y) in the event that a Lien (or any portion thereof) meets the criteria of one or more of such categories of Permitted Liens, the Company shall, in its sole discretion, classify or reclassify such Lien (or any portion thereof) in any manner that complies with this definition.

                "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

                "Preferred Stock" as applied to the Capital Stock of any corporation means Capital Stock of any class or classes (however designated) that by its terms is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation.


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                "Purchase" has the meaning set forth in paragraph (4) of the definition of "Consolidated Coverage Ratio."

                "Purchase Money Obligations" means any Indebtedness Incurred to finance or refinance the acquisition, leasing, construction or improvement of property (real or personal) or assets, and whether acquired through the direct acquisition of such property or assets or the acquisition of the Capital Stock of any Person owning such property or assets, or otherwise.

                "Rating Agency" means Moody's or S&P or, if Moody's or S&P or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company which shall be substituted for Moody's or S&P or both, as the case may be.

                "Real Property" means land, buildings, structures and other improvements located thereon, fixtures attached thereto, and rights, privileges, easements and appurtenances related thereto, and related property interests.

                "Receivable" means a right to receive payment pursuant to an arrangement with another Person pursuant to which such other Person is obligated to pay, as determined in accordance with GAAP.

                "refinance" means refinance, refund, replace, renew, repay, modify, restate, defer, substitute, supplement, reissue, resell or extend (including pursuant to any defeasance or discharge mechanism); and the terms "refinances," "refinanced" and "refinancing" as used for any purpose in the Indenture shall have a correlative meaning.

                "Refinancing Indebtedness" means Indebtedness that is Incurred to refinance any Indebtedness existing on the date of the Indenture or Incurred in compliance with such Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary (to the extent permitted in such Indenture) and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness;provided, that (1) (x) if the Indebtedness being refinanced is Subordinated Obligations or Guarantor Subordinated Obligations, the Refinancing Indebtedness shall have a final Stated Maturity at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the final Stated Maturity of the Indebtedness being refinanced (or if shorter, the Notes), and (y) if the Indebtedness being refinanced was incurred pursuant to clause (b)(viii)(H) of the covenant described under "—Certain Covenants—Limitation on Indebtedness", the Refinancing Indebtedness shall be Subordinated Obligations or Guarantor Subordinated Obligations, as applicable, (2) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of (x) the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced, plus (y) fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such Refinancing Indebtedness and (3) Refinancing Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor that refinances Indebtedness of the Company or a Subsidiary Guarantor that could not have been initially Incurred by such Restricted Subsidiary pursuant to the covenant described under "—Certain Covenants—Limitation on Indebtedness" or (y) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.

                "Registration Rights Agreement" means the Exchange and Registration Rights Agreement, dated as of the Issue Date, between the Company and the initial purchasers of the Notes, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                "Related Business" means those businesses in which the Company or any of its Subsidiaries is engaged on the date of the Indenture, or that are similar, related, complementary, incidental or ancillary thereto or extensions, developments or expansions thereof.


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                "Related Taxes" means (x) any taxes, charges or assessments, including but not limited to sales, use, transfer, rental, ad valorem, value-added, stamp, property, consumption, franchise, license, capital, net worth, gross receipts, excise, occupancy, intangibles or similar taxes, charges or assessments (other than federal, state, foreign, provincial or local taxes measured by income, and federal, state, foreign, provincial or local withholding imposed by any government or other taxing authority on payments made by any Parent other than to another Parent), required to be paid by any Parent by virtue of its being incorporated or having Capital Stock outstanding (but not by virtue of owning stock or other equity interests of any corporation or other entity other than the Company, any of its Subsidiaries or any Parent), or being a holding company parent of the Company, any of its Subsidiaries or any Parent or receiving dividends from or other distributions in respect of the Capital Stock of the Company, any of its Subsidiaries or any Parent, or having guaranteed any obligations of the Company or any of its Subsidiaries, or having made any payment in respect of any of the items for which the Company or any of its Subsidiaries is permitted to make payments to any Parent pursuant to the covenant described under "—Certain Covenants—Limitation on Restricted Payments," or acquiring, developing, maintaining, owning, prosecuting, protecting or defending its intellectual property and associated rights (including but not limited to receiving or paying royalties for the use thereof) relating to the business or businesses of the Company or any of its Subsidiaries, (y) any taxes of a Parent attributable to any taxable period (or portion thereof) ending on or prior to the Issue Date or incurred in connection with the 2007 Transactions or the Transactions, or attributable to any Parent's receipt of (or entitlement to) any payment in connection with the 2007 Transactions or the Transactions, including any payment received after the Issue Date pursuant to any agreement related to the 2007 Transactions or the Transactions, or (z) any other federal, state, foreign, provincial or local taxes measured by income for which any Parent is liable up to an amount not to exceed, with respect to federal taxes, the amount of any such taxes that the Company and its Subsidiaries would have been required to pay on a separate company basis, or on a consolidated basis as if the Company had filed a consolidated return on behalf of an affiliated group (as defined in Section 1504 of the Code or an analogous provision of state, foreign, provincial or local law) of which it were the common parent, or with respect to state, foreign, provincial or local taxes, the amount of any such taxes that the Company and its Subsidiaries would have been required to pay on a separate company basis, or on a combined basis as if the Company had filed a combined return on behalf of an affiliated group consisting only of the Company and its Subsidiaries (in each case, reduced by any such taxes paid directly by the Company or its Subsidiaries).

                "Requirement of Law" means, as to any Person, the certificate of incorporation and by laws or other organizational or governing documents of such Person, and any law, statute, ordinance, code, decree, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property or to which such Person or any of its material property is subject, including laws, ordinances and regulations pertaining to zoning, occupancy and subdivision of real properties.

                "Restricted Payment Transaction" means any Restricted Payment permitted pursuant to the covenant described under "—Certain Covenants—Limitation on Restricted Payments," any Permitted Payment, any Permitted Investment, or any transaction specifically excluded from the definition of the term "Restricted Payment" (including pursuant to the exception contained in clause (i) and the parenthetical exclusions contained in clauses (ii) and (iii) of such definition).

                "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary.

                "Sale" has the meaning set forth in paragraph (3) of the definition of "Consolidated Coverage Ratio".

                "SEC" means the Securities and Exchange Commission.


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                "Second Lien Note Agent" has the meaning assigned to such term in the Base Intercreditor Agreement or the Cash Flow Intercreditor Agreement, as applicable.

                "Securities Act" means the Securities Act of 1933, as amended.

                "Senior ABL Agreement" means the Credit Agreement, dated as of April 12, 2012, among the Company; the other borrowers party thereto from time to time; the lenders and other financial institutions party thereto from time to time; and General Electric Capital Corporation, as administrative agent and collateral agent, as such agreement may be amended, supplemented, waived or otherwise modified from time to time or refunded, refinanced, restructured, replaced, renewed, repaid, increased or extended from time to time (whether in whole or in part, whether with the original administrative agent and lenders or other agents and lenders or otherwise, and whether provided under the original Senior ABL Agreement or one or more other credit agreements or otherwise, unless such agreement, instrument or document expressly provides that it is not intended to be and is not a Senior ABL Agreement).

                "Senior ABL Facility

        The Senior ABL Facility provides for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $1,500 million (subject to availability under a borrowing base). Extensions of credit under the Senior ABL Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory and eligible accounts receivables, subject to certain reserves and other adjustments. As of October 28, 2012 the outstanding principal drawn on the Senior ABL Facility was $395 million.

        A portion of the Senior ABL Facility is available for letters of credit and swingline loans. The Senior ABL Facility also permits HD Supply, Inc. to add one or more incremental term loan facilities to be included in the Senior ABL Facility or one or more revolving credit facility commitments to be included in the Senior ABL Facility.

        Index to Financial Statements

        Maturity; Prepayments

        The Senior ABL Facility will mature on April 12, 2017; provided that if more than $450 million aggregate principal amount of our 2007 Senior Subordinated Notes remain outstanding as of the date occurring 90 days prior to the date of the final scheduled maturity of the 2007 Senior Subordinated Notes, the Senior ABL Facility will mature, and the balances of any then outstanding loans under the Senior ABL Facility will be payable, on the date occurring 90 days prior to the final scheduled maturity of the 2007 Senior Subordinated Notes and in the event that more than $450 million aggregate principal amount of any unsecured indebtedness incurred to refinance the 2007 Senior Subordinated Notes remains outstanding on the date (the “Second Springing Maturity Date”) that is 90 days prior to the scheduled maturity date of such refinancing indebtedness, the Senior ABL Facility will mature on the earlier of the Second Springing Maturity Date and April 12, 2017; provided further that the individual applicable lenders may agree to extend the maturity of their loans under the Senior ABL Facility upon our request and without the consent of any other applicable lender. We intend to redeem all of the remaining outstanding 2007 Senior Subordinated Notes on or about February 8, 2013.

        The Senior ABL Facility may be prepaid at our option at any time without premium or penalty and will be subject to mandatory prepayment if the outstanding Senior ABL Facility exceeds either the aggregate commitments with respect thereto or the current borrowing base, in an amount equal to such excess. Mandatory prepayments do not result in a permanent reduction of the lenders’ commitments under the Senior ABL Facility.

        Guarantees; Security

        HD Supply, Inc. and certain of its subsidiaries, including HD Supply Canada, Inc., a Canadian subsidiary (the “Canadian Borrower”), are the borrowers under the Senior ABL Facility. Each of HD Supply, Inc.’s existing and subsequently acquired or organized direct or indirect wholly-owned domestic restricted subsidiaries, subject to certain exceptions, in each case to the extent otherwise permitted by applicable law, regulation and contractual provision (the “Subsidiary Guarantors”) guarantee our payment obligations under the Senior ABL Facility (and, in the case of Canadian obligations, each direct and indirect wholly-owned Canadian subsidiary, subject to certain exceptions, in each case to the extent otherwise permitted by applicable law, regulation and contractual provision (the “Canadian Guarantors”) guarantee the Canadian Borrower’s payment obligations under the Senior ABL Facility).

        Our obligations under the Senior ABL Facility and the guarantees thereof, are secured in favor of the administrative agent and U.S. ABL collateral agent, by (i) all of the capital stock of HD Supply, Inc., all capital stock of all domestic subsidiaries owned by HD Supply, Inc. and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary held directly by HD Supply, Inc. or any Subsidiary Guarantor (it being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by HD Supply, Inc. and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Term Loan Facility, the First Priority Notes, the Second Priority Notes and the Senior ABL Facility.

        The Canadian obligations under the Senior ABL Facility are also secured by liens on substantially all assets of the Canadian Borrower and the Canadian Guarantors, subject to certain exceptions.

        Interest

        The interest rates applicable to the loans under the Senior ABL Facility are subject to a pricing grid based on average daily excess availability for the previous fiscal quarter.

        Fees

        Customary fees are payable in respect of the Senior ABL Facility, including letter of credit fees and commitment fees.

        Index to Financial Statements

        Covenants

        The Senior ABL Facility contains a number of covenants that, among other things, limit or restrict our ability and, in certain cases, our subsidiaries to make acquisitions, mergers, consolidations, dividends, and to prepay certain indebtedness (including the Notes), in each case to the extent any such transaction would reduce availability under the Senior ABL Facility below a specified amount.

        The Senior ABL Facility also contains certain affirmative covenants, including financial and other reporting requirements.

        Events of Default

        The Senior ABL Facility also provides for customary events of default, including non-payment of principal, interest or fees, violation of covenants, material inaccuracy of representations or warranties, specified cross default and cross acceleration to other material indebtedness, certain bankruptcy events, certain ERISA events, material invalidity of guarantees or security interest, material judgments and change of control.

        First Priority Notes

        In connection with the Refinancing Transactions, HD Supply, Inc. issued $950 million of 8 1/8% Senior Secured First Priority Notes due April        On October 15, 2019 (the “April 2012 First Priority Notes”). On August 2, 2012, HD Supply, Inc. issued an additional $300 million$1 billion aggregate principal amount of 8 1/8%11.50% Senior Secured First Priority Notes due 2019 (together with the AprilJuly 15, 2020 (the "October 2012 First Priority Notes, the “First Priority Notes”Senior Notes"). at par. As of October 28, 2012,August 4, 2013, the outstanding principal balance of the First Priority Notes was $1,272 million, including unamortized premium of $22 million.

        Interest

        Interest on the First Priority Notes is paid semi-annually, on April 15 and October 15 of each year, at a rate of 8 1/8% per annum.

        Guarantees; Security

        The First Priority Notes are guaranteed by each of our wholly owned domestic subsidiaries (subject to certain exceptions) and by each of our other domestic subsidiaries that is a borrower under the Senior ABL Facility or that guarantees payment of indebtedness of HD Supply, Inc. under certain credit facilities or capital markets securities (the “Subsidiary Guarantors”).

        The First Priority Notes and the guarantees thereof are secured in favor of the collateral agent, by (i) all capital stock of all domestic subsidiaries owned by HD Supply, Inc. and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary owned directly by HD Supply, Inc. or any Subsidiary Guarantors (it being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by HD Supply, Inc. and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the First Priority Notes, the Term Loan Facility, the Second Priority Notes and the Senior ABL Facility.

        Redemption

        HD Supply, Inc. may redeem the First Priority Notes, in whole or in part, at any time (1) prior to April 15, 2015, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus a customary make-whole premium and (2) on and after April 15, 2015, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid

        Index to Financial Statements

        interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 15 of the years set forth below:

        Redemption Period

        		  Redemption Price 

        2015

        		   106.094% 

        2016

        		   104.063% 

        2017

        		   102.031% 

        2018 and thereafter

        		   100.000% 

        In addition, at any time prior to April 15, 2015, HD Supply, Inc. may redeem up to 35% of the aggregate principal amount of the First Priority Notes with the proceeds of certain equity offerings at a redemption price of 108.125% of the principal amount in respect of the First Priority Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the First Priority Notes are redeemed, an aggregate principal amount of First Priority Notes equal to at least 50% of the original aggregate principal amount of First Priority Notes must remain outstanding immediately after each such redemption of First Priority Notes.

        Offer to Repurchase

        In the event of certain events that constitute a Change of Control (as defined in the indenture governing the First Priority Notes), HD Supply, Inc. must offer to repurchase all of the First Priority Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. If HD Supply, Inc. or any of its restricted subsidiaries sells assets under certain circumstances, HD Supply, Inc. must use the proceeds to make an offer to purchase the First Priority Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

        Covenants

        The indenture governing the First Priority Notes contains covenants that, among other things, limit the ability of HD Supply, Inc. and its restricted subsidiaries to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of HD Supply, Inc.’s restricted subsidiaries to pay dividends to HD Supply, Inc. or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; and enter into certain transactions with HD Supply, Inc.’s affiliates. Most of these covenants will cease to apply for so long as the First Priority Notes have investment grade ratings from both Moody’s Investment Services, Inc. and Standard & Poor’s.

        Events of Default

        The indenture governing the First Priority Notes also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and other monetary obligations on all the then outstanding First Priority Notes to be due and payable immediately. It is an event of default if more than $450.0 million aggregate principal amount of (1) the 2007 Senior Subordinated Notes remains outstanding on the date that is 90 days prior to the scheduled maturity date of the 2007 Senior Subordinated Notes or (2) any unsecured indebtedness of HD Supply, Inc. or any restricted subsidiary incurred to refinance the 2007 Senior Subordinated Notes remains outstanding on the date that is 90 days prior to the scheduled maturity date of the such refinancing indebtedness. We intend to redeem all of the remaining outstanding 2007 Senior Subordinated Notes on or about February 8, 2013.

        Second Priority Notes

        In connection with the Refinancing Transactions, HD Supply, Inc. issued $675 million of 11% Senior Secured Second Priority Notes due April 15, 2020 (the “Second Priority Notes”). As of October 28, 2012, the outstanding principal balance of the Second Priority Notes was $675 million.

        Interest

        Interest on the Second Priority Notes is paid semi-annually, on April 15 and October 15 of each year, at a rate of 11% per annum.

        Index to Financial Statements

        Guarantees, Security

        The Second Priority Notes are guaranteed by each of our wholly owned domestic subsidiaries (subject to certain exceptions) and by each of our other domestic subsidiaries that is a borrower under the Senior ABL Facility or that guarantees payment of indebtedness of HD Supply, Inc. under certain credit facilities or capital markets securities (the “Subsidiary Guarantors”).

        The Second Priority Notes and the guarantees thereof are secured in favor of the collateral agent, by (i) all capital stock of all domestic subsidiaries owned by HD Supply, Inc. and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary owned directly by HD Supply, Inc. or any Subsidiary Guarantors (it being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by HD Supply, Inc. and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Second Priority Notes, the Term Loan Facility, the First Priority Notes and the Senior ABL Facility.

        Redemption

        HD Supply, Inc. may redeem the Second Priority Notes, in whole or in part, at any time (1) prior to April 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus a customary make-whole premium and (2) on and after April 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 15 of the years set forth below:

        Redemption Period

        		  Redemption Price 

        2016

        		   105.500% 

        2017

        		   102.750% 

        2018 and thereafter

        		   100.000% 

        In addition, at any time prior to April 15, 2015, HD Supply, Inc. may redeem up to 35% of the aggregate principal amount of the Second Priority Notes with the proceeds of certain equity offerings at a redemption price of 111.000% of the principal amount in respect of the Second Priority Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the Second Priority Notes are redeemed, an aggregate principal amount of Second Priority Notes equal to at least 50% of the original aggregate principal amount of Second Priority Notes must remain outstanding immediately after each such redemption of Second Priority Notes.

        Offer to Repurchase

        In the event of certain events that constitute a Change of Control (as defined in the indenture governing the Second Priority Notes), HD Supply, Inc. must offer to repurchase all of the Second Priority Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. If HD Supply, Inc. or any of its restricted subsidiaries sells assets under certain circumstances, HD Supply, Inc. must use the proceeds to make an offer to purchase the Second Priority Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

        Covenants

        The indenture governing the Second Priority Notes contains covenants that, among other things, limit the ability of HD Supply, Inc. and its restricted subsidiaries to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of HD Supply, Inc.’s restricted subsidiaries to pay dividends to HD Supply, Inc. or make other intercompany transfers; create liens

        Index to Financial Statements

        securing indebtedness; transfer or sell assets; merge or consolidate; and enter into certain transactions with HD Supply, Inc.’s affiliates. Most of these covenants will cease to apply for so long as the Second Priority have investment grade ratings from both Moody’s Investment Services, Inc. and Standard & Poor’s.

        Events of Default

        The indenture governing the Second Priority Notes also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and other monetary obligations on all the then outstanding Second Priority Notes to be due and payable immediately. It is an event of default if more than $450.0 million aggregate principal amount of (1) the 2007 Senior Subordinated Notes remains outstanding on the date that is 45 days prior to the scheduled maturity date of the 2007 Senior Subordinated Notes or (2) any unsecured indebtedness of HD Supply, Inc. or any restricted subsidiary incurred to refinance the 2007 Senior Subordinated Notes remains outstanding on the date that is 45 days prior to the scheduled maturity date of the such refinancing indebtedness. We intend to redeem all of the remaining outstanding 2007 Senior Subordinated Notes on or about February 8, 2013.

        April 2012 Senior Notes

        In connection with the Refinancing Transactions, HD Supply, Inc. issued approximately $757 million of 14.875% Senior Notes due October 12, 2020 (the “April 2012 Senior Notes”). As a result of PIK interest capitalizations, as of October 28, 2012, the outstanding principal balance of the April 2012 Senior Notes was $784 million, net of unamortized discount of $29 million.

        Interest

        Interest on the April 2012 Senior Notes is paid semi-annually, on April 12 and October 12 of each year. Interest payments will be payments in kind (“PIK”) for any semi-annual period ending on or prior to October 12, 2017 at a rate of 14.875% and thereafter will bear cash interest at the same interest rate.$1 billion.

        Guarantees

        The AprilOctober 2012 Senior Notes are guaranteed, on a senior unsecured basis, by each of our wholly ownedwholly-owned existing and future domestic subsidiaries (subject to certain exceptions) and by each of our other domestic subsidiaries that is a borrower under the Senior ABL Facility or that guarantees payment of indebtedness of HD Supply, Inc. under certain credit facilities or capital markets securities.


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        Mandatory RedemptionRedemption; Offer to Repurchase

        On or after the fifth anniversary of the issue date, HD Supply, Inc. will be required        Prior to redeem or pay portions of the April 2012 Senior Notes in amounts intended to ensure the April 2012 Senior Notes are not treated as applicable high yield discount obligations for U.S. federal income tax purposes.

        Optional Redemption

        October 15, 2016, HD Supply, Inc. may redeem some or all of the AprilOctober 2012 Senior Notes in whole or in part, atby paying the applicable make-whole premium. At any time (1)on or after October 15, 2016, HD Supply, Inc. may redeem some or all of the October 2012 Senior Notes at redemption prices specified in the indenture governing the October 2012 Senior Notes. In addition, in the event of an equity offering prior to April 12, 2015, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus a customary make-whole premium and (2) on and after April 12, 2015, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 12 of the years set forth below:

        Redemption Period

        		  Redemption Price 

        2015

        		   111.1563% 

        2016

        		   107.4375% 

        2017

        		   103.7188% 

        2018 and thereafter

        		   100.000% 

        Index to Financial Statements

        In addition, at any time prior to April 12,October 15, 2015, HD Supply, Inc. may redeem up to 35% of the aggregate principal amount of each of the AprilOctober 2012 Senior Notes with the proceeds of certain equity offerings at a redemption price of 114.875%equal to 100% plus the amount of the principal amountrespective coupon, using the net cash proceeds raised in respect of the April 2012 Senior Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the April 2012 Senior Notes are redeemed, an aggregate principal amount of April 2012 Senior Notes equal to at least 50% of the original aggregate principal amount of April 2012 Senior Notes must remain outstanding immediately after each such redemption of April 2012 Senior Notes.equity offering.

        Offer to Repurchase

        In the event of certain events that constitute a Change of Control (as defined in the indenture governing the AprilOctober 2012 Senior Notes), HD Supply, Inc. must offer to repurchase all of the AprilOctober 2012 Senior Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. If HD Supply, Inc. or any of its restricted subsidiaries sells assets under certain circumstances, HD Supply, Inc. must use the proceeds to make an offer to purchase the AprilOctober 2012 Senior Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

        Covenants

        The indentureindentures governing the AprilOctober 2012 Senior Notes includes affirmative and negativecontain covenants that, generally track thoseamong other things, limit the ability of HD Supply, Inc. and its restricted subsidiaries, as described in the indenture governing the Second PriorityOctober 2012 Senior Notes, to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of HD Supply, Inc.'s restricted subsidiaries to pay dividends to HD Supply, Inc. or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; and enter into certain transactions with HD Supply, Inc.'s affiliates. Most of these covenants will cease to apply for so long as the October 2012 Senior Notes have investment grade ratings from both Moody's Investment Services, Inc. and Standard & Poor's.


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        DESCRIPTION OF NOTES

        General

                The existing 7.50% Senior Notes due July 15, 2020 (the "Old Notes") were issued, and the new 7.50% Senior Notes due July 15, 2020 (the "New Notes") will be issued, under an Indenture, dated as of February 1, 2013 (the "Indenture"), among the Company, as issuer, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as Trustee (the "Trustee").

                The Indenture and the Notes contain provisions that define your rights and govern the obligations of the Company under the Notes. Copies of the Indenture and the form of Notes will be made available to prospective purchasers of the Notes upon request, as set forth under "Where You Can Find More Information."

                The following is a summary of certain provisions of the Indenture and the Notes. It does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture and the Notes, including the definitions of certain terms therein and (in the case of the Indenture) those terms to be made a part thereof by the Trust Indenture Act of 1939, as amended. The term "Company" and the other capitalized terms defined in "—Certain Definitions" below are used in this "Description of Notes" as so defined, except as otherwise provided herein. Any reference to a "Holder" or a "Noteholder" in this "Description of Notes" refers to the Holders of the Notes. The Old Notes and the New Notes, are each considered collectively to be a single class for all purposes under the Indenture, including, without limitations, for the purposes of waivers, amendments, redemptions and offers to purchase. In this "Description of Notes", any reference to (i) "Notes" refers collectively to the Old Notes and the New Notes, unless the context otherwise requires, and (ii) a "class" of Notes refers to the Old Notes and the New Notes collectively as a class, as applicable.

        Brief Description of the Notes

                The Notes are:

          •
          unsecured Senior Indebtedness of the Company;

          •
          effectively subordinated to all secured Indebtedness of the Company to the extent applicable.of the value of the assets securing such secured Indebtedness and to all Indebtedness and other liabilities (including Trade Payables) of the Company's Subsidiaries (other than Subsidiaries that become Subsidiary Guarantors pursuant to the provisions described below under "—Subsidiary Guarantees");

          •
          pari passu in right of payment with all existing and future Senior Indebtedness of the Company; and

          •
          senior in right of payment to all existing and future Subordinated Obligations of the Company.

        Brief Description of the Subsidiary Guarantees

                The Subsidiary Guarantees of each Subsidiary Guarantor in respect of the Notes are:

          •
          unsecured Senior Indebtedness of such Subsidiary Guarantor;

          •
          effectively subordinated to all secured Indebtedness of such Subsidiary Guarantor to the extent of the value of the assets securing such secured Indebtedness and to all Indebtedness and other liabilities (including Trade Payables) of such Subsidiary Guarantor's Subsidiaries (other than Subsidiaries that become Subsidiary Guarantors pursuant to the provisions described below under "—Subsidiary Guarantees");

          •
          pari passu in right of payment with all existing and future Senior Indebtedness of such Subsidiary Guarantor; and

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          •
          senior in right of payment to all existing and future Guarantor Subordinated Obligations of such Subsidiary Guarantor.

        Principal, Maturity and Interest

                The Notes will mature on July 15, 2020. Each Note bears interest at the rate of 7.50% per annum from February 1, 2013, or from the most recent date to which interest has been paid or provided for. Interest is payable semiannually in cash to Holders of record at the close of business on April 1 or October 1 immediately preceding the interest payment date on April 15 and October 15 of each year and at maturity, commencing April 15, 2013. Interest will be paid on the basis of a 360-day year consisting of twelve 30-day months.

        Events        An aggregate principal amount of Default$1,275,000,000 of Notes is currently outstanding. Additional securities may be issued under the Indenture in one or more series from time to time ("Additional Notes"), subject to the limitations set forth under "—Certain Covenants—Limitation on Indebtedness," which will vote as a class with the Notes (except as otherwise provided herein) and otherwise be treated as Notes for purposes of the Indenture. The Indenture permits the Company to designate the maturity date, interest rate and optional redemption provisions applicable to each series of Additional Notes, which may differ from the maturity date, interest rate and optional redemption provisions applicable to the Notes issued on the Issue Date. Additional Notes that differ with respect to maturity date, interest rate or optional redemption provisions from the Notes issued on the Issue Date will constitute a different series of Notes from such initial Notes. Additional Notes that have the same maturity date, interest rate and optional redemption provisions as the Notes issued on the Issue Date will be treated as the same series as such initial Notes unless otherwise designated by the Company. The Company similarly will be entitled to vary the application of certain other provisions to any series of Additional Notes.

        Other Terms

                Principal of, and premium, if any, and interest on, the Notes are payable, and the Notes may be exchanged or transferred, at the office or agency of the Company maintained for such purposes (which initially shall be the corporate trust office of the Trustee), except that, at the option of the Company, payment of interest may be made by wire transfer of immediately available funds to the account designated to the Company by the Person entitled thereto or by check mailed to the address of the registered holders of the Notes as such address appears in the Note Register.

        The New Notes will be issued in the form of global notes that will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company, and purchasers of Notes will not receive or be entitled to receive physical, certificated Notes (except in the very limited circumstances described herein). The Notes will be issued only in fully registered form, without coupons. The Notes will be issued only in minimum denominations of $2,000 (the "Minimum Denomination") and any integral multiple of $1,000 in excess thereof.

        Optional Redemption

                The Notes are redeemable, at the Company's option, at any time prior to maturity at varying redemption prices in accordance with the applicable provisions set forth below.

                The Notes are redeemable, at the Company's option, in whole or in part, at any time and from time to time on and after October 15, 2016, and prior to maturity at the applicable redemption price set forth below. Such redemption may be made upon notice mailed by first class mail to each Holder's registered address, not less than 30 nor (other than in the case of defeasance or satisfaction and discharge) more than 60 days prior to the date of redemption (the "Redemption Date"). The Company may provide in such notice that payment of the redemption price and the performance of the


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        Company's obligations with respect to such redemption may be performed by another Person. Any such redemption and notice may, in the Company's discretion, be subject to the satisfaction of one or more conditions precedent, including but not limited to the occurrence of a Change of Control. The Notes are so redeemable at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on October 15 of the years set forth below:

        Redemption Period
        		 Price 

        2016

        		  103.750%

        2017

        		  101.875%

        2018 and thereafter

        		  100.000%

                In addition, the Indenture provides that at any time and from time to time prior to October 15, 2015, the Company at its option may redeem Notes in an aggregate principal amount equal to up to 35% of the original aggregate principal amount of the Notes (including the principal amount of any Additional Notes of the same series), with funds in an equal aggregate amount (the "Redemption Amount") not exceeding the aggregate proceeds of one or more Equity Offerings (as defined below), at a redemption price (expressed as a percentage of principal amount thereof) of 107.50%, plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date);provided,however, that if Notes are redeemed, an aggregate principal amount of Notes equal to at least 50% of the original aggregate principal amount of Notes (including the principal amount of any Additional Notes of the same series) must remain outstanding immediately after each such redemption of Notes. "Equity Offering" means a sale of Capital Stock (x) that is a sale of Capital Stock of the Company (other than Disqualified Stock) or (y) proceeds of which in an amount equal to or exceeding the Redemption Amount are contributed to the equity capital of the Company or any of its Restricted Subsidiaries. Such redemption may be made upon notice mailed by first class mail to each Holder's registered address, not less than 30 nor more than 60 days prior to the Redemption Date (but in no event more than 180 days after the completion of the related Equity Offering). The Company may provide in such notice that payment of the redemption price and performance of the Company's obligations with respect to such redemption may be performed by another Person. Any such notice may be given prior to the completion of the related Equity Offering, and any such redemption or notice may, at the Company's discretion, be subject to the satisfaction of one or more conditions precedent, including but not limited to the completion of the related Equity Offering.

                At any time prior to October 15, 2016, Notes may also be redeemed in whole or in part, at the Company's option, at a price (the "Redemption Price") equal to 100% of the principal amount thereof plus the Applicable Premium as of, and accrued but unpaid interest, if any, to, the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). Such redemption may be made upon notice mailed by first class mail to each Holder's registered address, not less than 30 nor more than 60 days prior to the Redemption Date. The Company may provide in such notice that payment of the Redemption Price and performance of the Company's obligations with respect to such redemption may be performed by another Person. Any such redemption or notice may, at the Company's discretion, be subject to the satisfaction of one or more conditions precedent, including but not limited to the occurrence of a Change of Control.

                "Applicable Premium" means, with respect to a Note at any Redemption Date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess of (A) the present value at such Redemption Date of (1) the redemption price of such Note on October 15, 2016 (such redemption


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        price being that described in the second paragraph of this "—Optional Redemption" section) plus (2) all required remaining scheduled interest payments due on such Note through such date (excluding accrued and unpaid interest to the Redemption Date), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such Note on such Redemption Date, as calculated by the Company or on behalf of the Company by such Person as the Company shall designate; provided that such calculation shall not be a duty or obligation of the Trustee.

                "Treasury Rate" means, with respect to a Redemption Date, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two Business Days prior to such Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such Redemption Date to October 15, 2016;provided,however, that if the period from the Redemption Date to such date is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to such date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

        Selection

                In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, in integral multiples of $1,000, although no Note of the Minimum Denomination in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note.

        Subsidiary Guarantees

                As of the Issue Date, each Wholly Owned Domestic Subsidiary (other than an Excluded Subsidiary), and each other Domestic Subsidiary that is a borrower under the Senior ABL Facility or that guarantees payment of Indebtedness of the Company under any Credit Facility or Capital Markets Securities, guaranteed payment of the Notes under the Indenture. From and after the Issue Date, the Company will cause each Wholly Owned Domestic Subsidiary (other than an Excluded Subsidiary), and each other Domestic Subsidiary that is a borrower under the Senior ABL Facility or that guarantees payment of Indebtedness of the Company under any Credit Facility or Capital Markets Securities, to execute and deliver to the Trustee a supplemental indenture or other instrument pursuant to which such Domestic Subsidiary will guarantee payment of the Notes, whereupon such Domestic Subsidiary will become a Subsidiary Guarantor for all purposes under the Indenture. In addition, the Company may cause any Subsidiary that is not a Subsidiary Guarantor so to guarantee payment of the Notes and become a Subsidiary Guarantor.

                Each Subsidiary Guarantor, as primary obligor and not merely as surety, jointly and severally, irrevocably and fully and unconditionally Guarantees, on a senior basis, the punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all monetary obligations of the Company under the Indenture and the Notes, whether for principal of or interest on the Notes, expenses, indemnification or otherwise (all such obligations guaranteed by such Subsidiary Guarantors being herein called the "Subsidiary Guaranteed Obligations"). Such Subsidiary Guarantor agrees to pay, in addition to the amount stated above, any and all reasonable out-of-pocket expenses (including


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        reasonable counsel fees and expenses) incurred by the Trustee or the Holders in enforcing any rights under its Subsidiary Guarantee.

                The obligations of each Subsidiary Guarantor are limited to the maximum amount, as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including but not limited to any Guarantee by it of any Credit Facility Indebtedness), result in the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under applicable law, or being void or unenforceable under any law relating to insolvency of debtors.

                Each such Subsidiary Guarantee is a continuing Guarantee and shall (i) remain in full force and effect until payment in full of the principal amount of all outstanding Notes (whether by payment at maturity, purchase, redemption, defeasance, retirement or other acquisition) and all other Subsidiary Guaranteed Obligations then due and owing unless earlier terminated as described below, (ii) be binding upon such Subsidiary Guarantor and (iii) inure to the benefit of and be enforceable by the Trustee, the Holders and their permitted successors, transferees and assigns.

                Notwithstanding the preceding paragraph, any Subsidiary Guarantor will automatically and unconditionally be 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, (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 Indenture (including the covenants described under "—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock" and "—Merger and Consolidation") by the Company or a Restricted Subsidiary, following which such Subsidiary Guarantor is no longer a Restricted Subsidiary of the Company, (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 the Company or any Subsidiary Guarantor under the Senior Credit Facilities and Capital Markets Securities and is not a borrower under the Senior ABL Facility (it being understood that a release subject to contingent reinstatement is still a release, and that if any such Guarantee is so reinstated, such Subsidiary Guarantee shall also be reinstated to the extent that such Subsidiary Guarantor would then be required to provide a Subsidiary Guarantee pursuant to the covenant described under "—Certain Covenants—Future Subsidiary Guarantors"), (iii) upon the merger or consolidation of any Subsidiary Guarantor with and into the Company or another Subsidiary Guarantor that is the surviving Person in such merger or consolidation, or upon the liquidation of such Subsidiary Guarantor following the transfer of all of its assets to the Company or another Subsidiary Guarantor, (iv) concurrently with any Subsidiary Guarantor becoming an Unrestricted Subsidiary, (v) during the Suspension Period, 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 Person 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 the Company's obligations, or satisfaction and discharge of the Indenture, or (vii) subject to customary contingent reinstatement provisions, upon payment in full of the aggregate principal amount of all Notes then outstanding and all other Subsidiary Guaranteed Obligations then due and owing. In addition, the Company has the right, upon 30 days' notice to the Trustee, to cause any Subsidiary Guarantor that has not guaranteed payment of any Indebtedness of the Company or any Subsidiary Guarantor under the Senior Credit Facilities or Capital Markets Securities 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. Upon any such occurrence specified in this paragraph, the Trustee shall execute any documents reasonably requested by the Company in order to evidence such release, discharge and termination in respect of such Subsidiary Guarantee.

                Neither the Company nor any Subsidiary Guarantor shall be required to make a notation on the Notes to reflect any such Subsidiary Guarantee or any such release, termination or discharge.


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        Ranking

                The indebtedness evidenced by the Notes (a) is unsecured Senior Indebtedness of the Company, (b) ranks pari passu in right of payment with all existing and future Senior Indebtedness of the Company and (c) is senior in right of payment to all existing and future Subordinated Obligations of the Company. The Notes are also effectively subordinated to all secured Indebtedness of the Company to the extent of the value of the assets securing such Indebtedness, and to all Indebtedness and other liabilities (including Trade Payables) of its Subsidiaries (other than any Subsidiaries that are or become Subsidiary Guarantors pursuant to the provisions described above under "—Subsidiary Guarantees").

                Each Subsidiary Guarantee in respect of Notes (a) is unsecured Senior Indebtedness of the applicable Subsidiary Guarantor, (b) rankspari passu in right of payment with all existing and future Senior Indebtedness of such Subsidiary Guarantor and (c) is senior in right of payment to all existing and future Guarantor Subordinated Obligations of such Subsidiary Guarantor. Such Subsidiary Guarantee is also effectively subordinated to all secured Indebtedness of such Subsidiary Guarantor to the extent of the value of the assets securing such Indebtedness, and to all Indebtedness and other liabilities (including Trade Payables) of the Subsidiaries of such Subsidiary Guarantor (other than any Subsidiaries that are or become Subsidiary Guarantors pursuant to the provisions described above under "—Subsidiary Guarantees").

                All of the operations of the Company are conducted through its Subsidiaries. Claims of creditors of such Subsidiaries, including trade creditors, and claims of preferred shareholders (if any) of such Subsidiaries will have priority with respect to the assets and earnings of such Subsidiaries over the claims of creditors of the Company, including holders of the Notes, unless such Subsidiary is a Subsidiary Guarantor. The Notes, therefore, are effectively subordinated to creditors (including trade creditors) and preferred shareholders (if any) of other Subsidiaries of the Company (other than Subsidiaries that become Subsidiary Guarantors). In addition, certain of the operations of a Subsidiary Guarantor may be conducted through Subsidiaries thereof that are not also Subsidiary Guarantors. Claims of creditors of such Subsidiaries, including trade creditors, and claims of preferred shareholders (if any) of such Subsidiaries will have priority with respect to the assets and earnings of such Subsidiaries over the claims of creditors of such Subsidiary Guarantor, including claims under its Subsidiary Guarantee. Such Subsidiary Guarantees, therefore, are effectively subordinated to creditors (including trade creditors) and preferred shareholders (if any) of any such Subsidiaries. Although the Indenture limits the incurrence of Indebtedness (including preferred stock) by certain of the Company's Subsidiaries, such limitation is subject to a number of significant qualifications.

        Change of Control

                Upon the occurrence after the Issue Date of a Change of Control (as defined below), each Holder of Notes will have the right to require the Company to repurchase all or any part of such Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date);provided,however, that the Company shall not be obligated to repurchase Notes pursuant to this covenant in the event that it has exercised its right to redeem all of the Notes as described under "—Optional Redemption." The Transactions shall not constitute or give rise to a Change of Control.

                The term "Change of Control" means:

                    (i)  any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders or a Parent, becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company,provided that (x) so long as the Company is a Subsidiary of any Parent, no "person" shall be deemed to be or become a


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          "beneficial owner" of more than 50% of the total voting power of the Voting Stock of the Company unless such "person" shall be or become a "beneficial owner" of more than 50% of the total voting power of the Voting Stock of such Parent and (y) any Voting Stock of which any Permitted Holder is the "beneficial owner" shall not in any case be included in any Voting Stock of which any such "person" is the "beneficial owner";

                   (ii)  the Company merges or consolidates with or into, or sells or transfers (in one or a series of related transactions) all or substantially all of the assets of the Company and its Restricted Subsidiaries to, another Person (other than one or more Permitted Holders) and any "person" (as defined in clause (i) above), other than one or more Permitted Holders or any Parent, is or becomes the "beneficial owner" (as so defined), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the surviving Person in such merger or consolidation, or the transferee Person in such sale or transfer of assets, as the case may be,provided that (x) so long as such surviving or transferee Person is a Subsidiary of a parent Person, no "person" shall be deemed to be or become a "beneficial owner" of more than 50% of the total voting power of the Voting Stock of such surviving or transferee Person unless such "person" shall be or become a "beneficial owner" of more than 50% of the total voting power of the Voting Stock of such parent Person and (y) any Voting Stock of which any Permitted Holder is the "beneficial owner" shall not in any case be included in any Voting Stock of which any such "person" is the "beneficial owner"; or

                  (iii)  the adoption by vote of the stockholders of the Company of a plan for the liquidation or dissolution of the Company.

                In the event that, at the time of such Change of Control, the terms of any Credit Facility Indebtedness constituting Designated Senior Indebtedness restrict or prohibit the repurchase of the Notes pursuant to this covenant, then prior to the mailing of the notice to Holders provided for in the immediately following paragraph but in any event not later than 30 days following the date the Company obtains actual knowledge of any Change of Control (unless the Company has exercised its right to redeem all the Notes as described under "—Optional Redemption"), the Company shall, or shall cause one or more of its Subsidiaries to, (i) repay in full all such Credit Facility Indebtedness subject to such terms or offer to repay in full all such Credit Facility Indebtedness and repay the Credit Facility Indebtedness of each lender who has accepted such offer or (ii) obtain the requisite consent under the agreements governing such Credit Facility Indebtedness to permit the repurchase of the Notes as provided for in the immediately following paragraph. The Company shall first comply with the provisions of the immediately preceding sentence before it shall be required to repurchase Notes pursuant to the provisions described below. The Company's failure to comply with such provisions or the provisions of the immediately following paragraph shall constitute an Event of Default described in clause (iv) and not in clause (ii) under "—Defaults" below.

                Unless the Company has exercised its right to redeem all the Notes as described under "—Optional Redemption," the Company shall, not later than 30 days following the date the Company obtains actual knowledge of any Change of Control having occurred, mail a notice (a "Change of Control Offer") to each Holder with a copy to the Trustee stating: (1) that a Change of Control has occurred or may occur and that such Holder has, or upon such occurrence will have, the right to require the Company to purchase such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); (3) the instructions determined by the Company, consistent with this covenant, that a Holder must follow in order to have its Notes purchased; and (4) if such notice is mailed prior to the occurrence of a Change of Control, that such offer is conditioned on the


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        occurrence of such Change of Control. No Note will be repurchased in part if less than the Minimum Denomination in original principal amount of such Note would be left outstanding.

                The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

                The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof.

                The Change of Control purchase feature is a result of negotiations between the Company and the initial purchasers. The Company has no present plans to engage in a transaction involving a Change of Control, although it is possible that the Company could decide to do so in the future. Subject to the limitations discussed below, the Company could, in the future, enter into certain transactions, including acquisitions, refinancings or recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Indebtedness outstanding at such time or otherwise affect the Company's capital structure or credit ratings. Restrictions on the ability of the Company to Incur additional Indebtedness are contained in the covenants described under "—Certain Covenants—Limitation on Indebtedness" and "—Certain Covenants—Limitation on Liens." Such restrictions can only be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture does not contain any covenants or provisions that may afford Holders protection in the event of a highly leveraged transaction.

                The occurrence of a Change of Control would constitute a default under each Senior Credit Agreement. Agreements governing Indebtedness of the Company may contain prohibitions of certain events that would constitute a Change of Control or require such Indebtedness to be repurchased or repaid upon a Change of Control. Agreements governing Indebtedness of the Company may prohibit the Company from repurchasing the Notes upon a Change of Control unless such Indebtedness has been repurchased or repaid (or an offer made to effect such repurchase or repayment has been made and the Indebtedness of those creditors accepting such offer has been repurchased or repaid) and/or other specified requirements have been met. Moreover, the exercise by the Holders of their right to require the Company to repurchase the Notes could cause a default under such agreements, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company and its Subsidiaries. Finally, the Company's ability to pay cash to the Holders upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The provisions under the Indenture relating to the Company's obligation to make an offer to purchase the Notes as a result of a Change of Control may be waived or modified with the written consent of the Holders of a majority in principal amount of the Notes. As described above under "—Optional Redemption," the Company also has the right to redeem the Notes at specified prices, in whole or in part, upon a Change of Control or otherwise. See "Risk Factors—Risks Relating to the New Notes and Our Indebtedness—We may not be able to repurchase the New Notes upon a change of control."

                The definition of Change of Control includes a phrase relating to the sale or other transfer of "all or substantially all" of the assets of the Company and its Restricted Subsidiaries. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise definition of


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        the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the assets of the Company and its Restricted Subsidiaries and therefore it may be unclear as to whether a Change of Control has occurred and whether the Holders of the Notes have the right to require the Company to repurchase such Notes.

        Certain Covenants

                The Indenture contains covenants including, among others, the covenants as described below. If on any day following the Issue Date (a) the Notes have Investment Grade Ratings from both Rating Agencies, and (b) no Default has occurred and is continuing under the Indenture, then, beginning on that day subject to the provisions of the following paragraph, the covenants specifically listed under the following captions in this "Description of Notes" section of this prospectus (collectively, the "Suspended Covenants") will be suspended:

          (i)
          "—Limitation on Indebtedness";

          (ii)
          "—Limitation on Restricted Payments";

          (iii)
          "—Limitation on Restrictions on Distributions from Restricted Subsidiaries";

          (iv)
          "—Limitation on Sales of Assets and Subsidiary Stock";

          (v)
          "—Limitation on Transactions with Affiliates";

          (vi)
          "—Future Subsidiary Guarantors"; and

          (vii)
          clause (iii) of the first paragraph of "—Merger and Consolidation."

                During any period that the foregoing covenants have been suspended, the Board of Directors may not designate any of the Company's Subsidiaries as Unrestricted Subsidiaries unless such designation would have complied with the covenant described under "—Limitation on Restricted Payments" as if such covenant would have been in effect during such period.

                If on any subsequent date one or both of the Rating Agencies downgrade the ratings assigned to the Notes below an Investment Grade Rating, the foregoing covenants will be reinstated as of and from the date of such rating decline (any such date, a "Reversion Date"). The period of time between the suspension of covenants as set forth above and the Reversion Date is referred to as the "Suspension Period." Upon such reinstatement, all Indebtedness Incurred during the Suspension Period will be deemed to have been Incurred under the exception provided by clause (b)(iii) of "—Limitation on Indebtedness." With respect to Restricted Payments made after any such reinstatement, the amount of Restricted Payments will be calculated as if the covenant described under "—Limitation on Restricted Payments" had been in effect prior to, but not during, the Suspension Period. For purposes of the covenant described under "—Limitation on Sales of Assets and Subsidiary Stock," upon the occurrence of a Reversion Date the amount of Excess Proceeds not applied in accordance with such covenant will be deemed to be reset to zero.

                During the Suspension Period, any reference in the definitions of "Permitted Liens" and "Unrestricted Subsidiary" to the covenant described under "—Limitation on Indebtedness" or any provision thereof shall be construed as if such covenant were in effect during the Suspension Period.

                Notwithstanding that the Suspended Covenants may be reinstated, no Default or Event of Default will be deemed to have occurred as a result of any actions taken by the Company or any Subsidiary (including for the avoidance of doubt any failure to comply with the Suspended Covenants) during any Suspension Period and the Company and any Subsidiary will be permitted, without causing a Default or Event of Default or breach of any kind under the Indenture, to honor, comply with or otherwise


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        perform any contractual commitments or obligations entered into during a Suspension Period following a Reversion Date and to consummate the transactions contemplated thereby.

                There can be no assurance that the Notes will ever achieve or maintain Investment Grade Ratings.

                The Indenture contains covenants including, among others, the covenants as described below.

                Limitation on Indebtedness.    The Indenture provides as follows:

                  (a)   The Company will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness;provided,however, that the Company or any Restricted Subsidiary may Incur Indebtedness if on the date of the Incurrence of such Indebtedness, after giving effect to the Incurrence thereof, the Consolidated Coverage Ratio would be equal to or greater than 2.00 to 1.00, provided, further, that the aggregate principal amount of Indebtedness that may be Incurred pursuant to the foregoing by Restricted Subsidiaries that are not Subsidiary Guarantors shall not exceed $150.0 million at any one time outstanding.

                  (b)   Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness:

                      (i)  Indebtedness Incurred pursuant to any Credit Facility (including but not limited to in respect of letters of credit or bankers' acceptances issued or created thereunder) and Indebtedness Incurred other than under any Credit Facility, and (without limiting the foregoing), in each case, any Refinancing Indebtedness in respect thereof, in a maximum principal amount at any time outstanding not exceeding in the aggregate the amount equal to (A) $2,100 million, plus (B) (x) the greater of $1,700.0 million and the Borrowing Base less (y) the aggregate principal amount of Indebtedness Incurred by Special Purpose Subsidiaries that are Domestic Subsidiaries and then outstanding pursuant to clause (ix) of this paragraph (b), plus (C) in the event of any refinancing of any such Indebtedness, the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing;

                     (ii)  Indebtedness (A) of any Restricted Subsidiary to the Company or (B) of the Company or any Restricted Subsidiary to any Restricted Subsidiary;provided that any such Indebtedness owed to a Restricted Subsidiary that is not a Subsidiary Guarantor shall be expressly subordinated in right of payment to all obligations of the obligor with respect to the Notes and all Subsidiary Guarantees andprovided,further, that any subsequent issuance or transfer of any Capital Stock of such Restricted Subsidiary to which such Indebtedness is owed, or other event, that results in such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of such Indebtedness (except to the Company or a Restricted Subsidiary) will be deemed, in each case, an Incurrence of such Indebtedness by the issuer thereof not permitted by this clause (ii);

                    (iii)  Indebtedness represented by the Notes issued on the Issue Date (or issued in respect thereof or in exchange therefor), any Indebtedness (other than the Indebtedness described in clause (i) or (ii) above) outstanding on the Issue Date (subject to the last sentence of paragraph (c) of this covenant), any Indebtedness represented by April 2012 Senior Unsecured Notes issued in connection with the payment of PIK Interest (as defined in the April 2012 Senior Unsecured Indenture), and any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (iii) or paragraph (a) above;

                    (iv)  Purchase Money Obligations and Capitalized Lease Obligations, and any Refinancing Indebtedness with respect thereto;provided that the aggregate principal amount of such Purchase Money Obligations Incurred to finance the acquisition of Capital Stock of any


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            Person at any time outstanding pursuant to this clause shall not exceed an amount equal to the greater of $150.0 million and 3.0% of Consolidated Tangible Assets;

                     (v)  Indebtedness (A) supported by a letter of credit issued pursuant to any Credit Facility in a principal amount not exceeding the face amount of such letter of credit or (B) consisting of accommodation guarantees for the benefit of trade creditors of the Company or any of its Restricted Subsidiaries;

                    (vi)  (A) Guarantees by the Company or any Restricted Subsidiary of Indebtedness or any other obligation or liability of the Company or any Restricted Subsidiary (other than any Indebtedness Incurred by the Company or such Restricted Subsidiary, as the case may be, in violation of the covenant described under "—Limitation on Indebtedness"), or (B) without limiting the covenant described under "—Limitation on Liens," Indebtedness of the Company or any Restricted Subsidiary arising by reason of any Lien granted by or applicable to such Person securing Indebtedness of the Company or any Restricted Subsidiary (other than any Indebtedness Incurred by the Company or such Restricted Subsidiary, as the case may be, in violation of the covenant described under "—Limitation on Indebtedness");

                   (vii)  Indebtedness of the Company or any Restricted Subsidiary (A) arising from the honoring of a check, draft or similar instrument drawn against insufficient funds,provided that such Indebtedness is extinguished within five Business Days of its Incurrence, or (B) consisting of guarantees, indemnities, obligations in respect of earnouts or other purchase price adjustments, or similar obligations, Incurred in connection with the acquisition or disposition of any business, assets or Person;

                  (viii)  Indebtedness of the Company or any Restricted Subsidiary in respect of (A) letters of credit, bankers' acceptances or other similar instruments or obligations issued, or relating to liabilities or obligations incurred, in the ordinary course of business (including those issued to governmental entities in connection with self-insurance under applicable workers' compensation statutes), or (B) completion guarantees, surety, judgment, appeal or performance bonds, or other similar bonds, instruments or obligations, provided, or relating to liabilities or obligations incurred, in the ordinary course of business, or (C) Hedging Obligations, entered into for bona fide hedging purposes, or (D) Management Guarantees or Management Indebtedness, or (E) the financing of insurance premiums in the ordinary course of business, or (F) take-or-pay obligations under supply arrangements incurred in the ordinary course of business, or (G) netting, overdraft protection and other arrangements arising under standard business terms of any bank at which the Company or any Restricted Subsidiary maintains an overdraft, cash pooling or other similar facility or arrangement, or (H) Junior Capital (in an amount not to exceed $100.0 million in the aggregate at any time outstanding), or (I) Bank Products Obligations;

                    (ix)  Indebtedness (A) of a Special Purpose Subsidiary secured by a Lien on all or part of the assets disposed of in, or otherwise Incurred in connection with, a Financing Disposition or (B) otherwise Incurred in connection with a Special Purpose Financing;provided that (1) such Indebtedness is not recourse to the Company or any Restricted Subsidiary that is not a Special Purpose Subsidiary (other than with respect to Special Purpose Financing Undertakings), (2) in the event such Indebtedness shall become recourse to the Company or any Restricted Subsidiary that is not a Special Purpose Subsidiary (other than with respect to Special Purpose Financing Undertakings), such Indebtedness will be deemed to be, and must be classified by the Company as, Incurred at such time (or at the time initially Incurred) under one or more of the other provisions of this covenant for so long as such Indebtedness shall be so recourse, and (3) in the event that at any time thereafter such Indebtedness shall comply with the


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            provisions of the preceding subclause (1), the Company may classify such Indebtedness in whole or in part as Incurred under this clause (b)(ix) of this covenant;

                     (x)  Contribution Indebtedness and any Refinancing Indebtedness with respect thereto;

                    (xi)  Indebtedness of (A) the Company or any Restricted Subsidiary Incurred to finance or refinance, or otherwise Incurred in connection with, any acquisition of any assets (including Capital Stock), business or Person, or any merger or consolidation of any Person with or into the Company or any Restricted Subsidiary, or (B) any Person that is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary (including Indebtedness thereof Incurred in connection with any such acquisition, merger or consolidation),provided that on the date of such acquisition, merger or consolidation, after giving effect thereto, either (1) the Company could Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) above or (2) the Consolidated Coverage Ratio of the Company would equal or exceed the Consolidated Coverage Ratio of the Company immediately prior to giving effect thereto; and any Refinancing Indebtedness with respect to any such Indebtedness;

                   (xii)  Indebtedness of the Company or any Restricted Subsidiary Incurred as consideration in connection with any acquisition of any assets (including Capital Stock), business or Person, or any merger or consolidation of any Person with or into the Company or any Restricted Subsidiary, and any Refinancing Indebtedness with respect thereto, in an aggregate principal amount at any time outstanding not exceeding $100.0 million; and

                  (xiii)  Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount at any time outstanding not exceeding an amount equal to the greater of $150.0 million and 3.5% of Consolidated Tangible Assets.

                  (c)   For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness Incurred pursuant to and in compliance with, this covenant, (i) any other obligation of the obligor on such Indebtedness (or of any other Person who could have Incurred such Indebtedness under this covenant) arising under any Guarantee, Lien or letter of credit, bankers' acceptance or other similar instrument or obligation supporting such Indebtedness shall be disregarded to the extent that such Guarantee, Lien or letter of credit, bankers' acceptance or other similar instrument or obligation secures the principal amount of such Indebtedness; (ii) in the event that Indebtedness meets the criteria of more than one of the types of Indebtedness described in paragraph (b) above, the Company, in its sole discretion, shall classify such item of Indebtedness and may include the amount and type of such Indebtedness in one or more of such clauses (including in part under one such clause and in part under another such clause);provided that any Indebtedness Incurred pursuant to clause (b)(iv) of this covenant as limited by the proviso thereto, or clause (b)(xiii) of this covenant shall, at the Company's election, cease to be deemed Incurred or outstanding for purposes of such clause but shall be deemed Incurred for the purposes of paragraph (a) of this covenant from and after the first date on which such Restricted Subsidiary could have Incurred such Indebtedness under paragraph (a) of this covenant without reliance on such clause; (iii) the amount of Indebtedness issued at a price that is less than the principal amount thereof shall be equal to the amount of the liability in respect thereof determined in accordance with GAAP; and (iv) the principal amount of Indebtedness outstanding under any clause of paragraph (b) above shall be determined after giving effect to the application of proceeds of any such Indebtedness to refinance any such other Indebtedness. Any Indebtedness Incurred by the Company on April 12, 2012 under the Senior First Priority Notes, the Senior Term Facility or the Senior ABL Facility shall be classified as Incurred under clause (b)(i) of this covenant.

                  (d)   For purposes of determining compliance with any dollar denominated restriction on the Incurrence of Indebtedness denominated in a foreign currency, the dollar equivalent principal


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          amount of such Indebtedness Incurred pursuant thereto shall be calculated based on the relevant currency exchange rate in effect on the date that such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of revolving credit Indebtedness,provided that (x) the dollar equivalent principal amount of any such Indebtedness outstanding on the Issue Date shall be calculated based on the relevant currency exchange rate in effect on the Issue Date, (y) if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency (or in a different currency from such Indebtedness so being Incurred), and such refinancing would cause the applicable dollar denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such dollar denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed (i) the outstanding or committed principal amount (whichever is higher) of such Indebtedness being refinanced plus (ii) the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing and (z) the dollar equivalent principal amount of Indebtedness denominated in a foreign currency and Incurred pursuant to a Senior Credit Facility shall be calculated based on the relevant currency exchange rate in effect on, at the Company's option, (i) April 12, 2012, (ii) any date on which any of the respective commitments under such Senior Credit Facility shall be reallocated between or among facilities or subfacilities thereunder, or on which such rate is otherwise calculated for any purpose thereunder, or (iii) the date of such Incurrence. The principal amount of any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such refinancing.

                Limitation on Restricted Payments.    The Indenture provides as follows:

                  (a)   The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any such payment in connection with any merger or consolidation to which the Company is a party) except (x) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and (y) dividends or distributions payable to the Company or any Restricted Subsidiary (and, in the case of any such Restricted Subsidiary making such dividend or distribution, to other holders of its Capital Stock on no more than a pro rata basis, measured by value), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company held by Persons other than the Company or a Restricted Subsidiary (other than any acquisition of Capital Stock deemed to occur upon the exercise of options if such Capital Stock represents a portion of the exercise price thereof), (iii) voluntarily purchase, repurchase, redeem, defease or otherwise voluntarily acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than a purchase, repurchase, redemption, defeasance or other acquisition or retirement for value in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such acquisition or retirement, not made by exchange for, or out of the proceeds of, the Incurrence of Secured Indebtedness (as defined below) other than up to $300.0 million of borrowings under the Senior ABL Facility in the aggregate) or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, repurchase, redemption, defeasance, other acquisition or retirement or Investment being herein referred to as a "Restricted Payment"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment and after giving effect thereto:

                    (1)   a Default shall have occurred and be continuing (or would result therefrom);

                    (2)   the Company could not Incur at least an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "—Limitation on Indebtedness"; or


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                      (3)   the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) declared or made subsequent to April 12, 2012 and then outstanding would exceed, without duplication, the sum of:

                        (A)  50% of the Consolidated Net Income accrued during the period (treated as one accounting period) beginning on April 30, 2012 to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment for which consolidated financial statements of the Company are available (or, in case such Consolidated Net Income shall be a negative number, 100% of such negative number);

                        (B)  the aggregate Net Cash Proceeds and the fair value (as determined in good faith by the Company) of property or assets received (x) by the Company as capital contributions to the Company after April 12, 2012 or from the issuance or sale (other than to a Restricted Subsidiary) of its Capital Stock (other than Disqualified Stock or Designated Preferred Stock) after April 12, 2012 (other than Excluded Contributions and Contribution Amounts) or (y) by the Company or any Restricted Subsidiary from the Incurrence by the Company or any Restricted Subsidiary after April 12, 2012 of Indebtedness that shall have been converted into or exchanged for Capital Stock of the Company (other than Disqualified Stock or Designated Preferred Stock) or Capital Stock of any Parent, plus the amount of any cash and the fair value (as determined in good faith by the Company) of any property or assets, received by the Company or any Restricted Subsidiary upon such conversion or exchange;

                        (C)(i)  the aggregate amount of cash and the fair value (as determined in good faith by the Company) of any property or assets received from dividends, distributions, interest payments, return of capital, repayments of Investments or other transfers of assets to the Company or any Restricted Subsidiary from any Unrestricted Subsidiary, including dividends or other distributions related to dividends or other distributions made pursuant to clause (x) of the following paragraph (b), plus (ii) the aggregate amount resulting from the redesignation of any Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as provided in the definition of "Investment"); and

                        (D)  in the case of any disposition or repayment of any Investment constituting a Restricted Payment (without duplication of any amount deducted in calculating the amount of Investments at any time outstanding included in the amount of Restricted Payments or in the calculation of availability under paragraph (b) of this covenant), the aggregate amount of cash and the fair value (as determined in good faith by the Company) of any property or assets received by the Company or a Restricted Subsidiary with respect to all such dispositions and repayments.

                    (b)   The provisions of the foregoing paragraph (a) do not prohibit any of the following (each, a "Permitted Payment"):

                   (i)(x)  any purchase, redemption, repurchase, defeasance or other acquisition or retirement of Capital Stock of the Company ("Treasury Capital Stock") or Subordinated Obligations made by exchange (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares) for, or out of the proceeds of the issuance or sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary) ("Refunding Capital Stock") or a capital contribution to the Company, in each case other than Excluded Contributions and Contribution Amounts;provided that the Net Cash Proceeds from such issuance, sale or capital contribution shall be excluded in subsequent calculations under


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              clause (3)(B) of the preceding paragraph (a) and (y) if immediately prior to such acquisition or retirement of such Treasury Capital Stock, dividends thereon were permitted pursuant to clause (xi) of this paragraph (b), dividends on such Refunding Capital Stock in an aggregate amount per annum not exceeding the aggregate amount per annum of dividends so permitted on such Treasury Capital Stock;

                       (ii)  any purchase, redemption, repurchase, defeasance or other acquisition or retirement of Subordinated Obligations (v) made by exchange for, or out of the proceeds of the Incurrence of, Indebtedness of the Company or Refinancing Indebtedness Incurred in compliance with the covenant described under "—Limitation on Indebtedness" (provided that (x) if such Indebtedness is Incurred pursuant to clause (b)(i) of such covenant and (1) has Senior Lien Priority with respect to the Senior Second Priority Notes, then on the date of such Incurrence after giving effect thereto, the Consolidated Senior Priority Leverage Ratio shall not exceed 3.25 to 1.0, or (2) has Pari Passu Lien Priority with respect to the Senior Second Priority Notes, then on the date of such Incurrence after giving effect thereto, the Consolidated Secured Leverage Ratio shall not exceed 4.5 to 1.0 (any such Indebtedness, "Secured Indebtedness"), and (y) in the case of any purchase, redemption, repurchase, defeasance or other acquisition or retirement of Indebtedness incurred pursuant to clause (b)(viii)(H) of the covenant described under "—Limitation on Indebtedness," such Indebtedness or Refinancing Indebtedness shall be solely comprised of Subordinated Obligations), (w) from Net Available Cash or an equivalent amount to the extent permitted by the covenant described under "—Limitation on Sales of Assets and Subsidiary Stock," (x) following the occurrence of a Change of Control (or other similar event described therein as a "change of control"), but only if the Company shall have complied with the covenant described under "—Change of Control" and, if required, purchased all Notes tendered pursuant to the offer to repurchase all the Notes required thereby, prior to purchasing or repaying such Subordinated Obligations, (y) constituting Acquired Indebtedness or (z) constituting Indebtedness of the Company or any Restricted Subsidiary to a Restricted Subsidiary that is not a Subsidiary Guarantor that has been subordinated pursuant to clause (b)(ii) of the covenant described under "—Limitation on Indebtedness";

                      (iii)  any dividend paid or redemption made within 60 days after the date of declaration thereof or of the giving of notice thereof, as applicable, if at such date of declaration or notice such dividend or redemption would have complied with the preceding paragraph (a);

                      (iv)  Investments or other Restricted Payments in an aggregate amount outstanding at any time not to exceed the amount of Excluded Contributions;

                       (v)  loans, advances, dividends or distributions by the Company to any Parent to permit any Parent to repurchase or otherwise acquire its Capital Stock (including any options, warrants or other rights in respect thereof), or payments by the Company to repurchase or otherwise acquire Capital Stock of any Parent or the Company (including any options, warrants or other rights in respect thereof), in each case from Management Investors (including any repurchase or acquisition by reason of the Company or any Parent retaining any Capital Stock, option, warrant or other right in respect of tax withholding obligations, and any related payment in respect of any such obligation), such payments, loans, advances, dividends or distributions not to exceed an amount (net of repayments of any such loans or advances) equal to (x)(1) $50.0 million, plus (2) $10.0 million multiplied by the number of calendar years that have commenced since April 12, 2012, plus (y) the Net Cash Proceeds received by the Company since April 12, 2012 from, or as a capital contribution from, the issuance or sale to Management Investors of Capital Stock (including any options, warrants or other rights in respect thereof), to the extent such Net Cash Proceeds are not included in any calculation under clause (3)(B)(x) of the preceding paragraph (a), plus (z) the cash proceeds


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              of key man life insurance policies received by the Company or any Restricted Subsidiary (or by any Parent and contributed to the Company) since April 12, 2012 to the extent such cash proceeds are not included in any calculation under clause (3)(A) of the preceding paragraph (a);provided that any cancellation of Indebtedness owing to the Company or any Restricted Subsidiary by any Management Investor in connection with any repurchase or other acquisition of Capital Stock (including any options, warrants or other rights in respect thereof) from any Management Investor shall not constitute a Restricted Payment for purposes of this covenant or any other provision of the Indenture;

                      (vi)  the payment by the Company of, or loans, advances, dividends or distributions by the Company to any Parent to pay, dividends on the common stock or equity of the Company or any Parent following a public offering of such common stock or equity in an amount not to exceed in any fiscal year 6.0% of the aggregate gross proceeds received by the Company (whether directly, or indirectly through a contribution to common equity capital) in or from such public offering;

                     (vii)  Restricted Payments (including loans or advances) in an aggregate amount outstanding at any time not to exceed an amount (net of repayments of any such loans or advances) equal to the greater of $50.0 million and 1.0% of Consolidated Tangible Assets;

                    (viii)  loans, advances, dividends or distributions to any Parent or other payments by the Company or any Restricted Subsidiary (A) to satisfy or permit any Parent to satisfy obligations under the Management Agreements, (B) pursuant to the Tax Sharing Agreement, or (C) to pay or permit any Parent to pay any Parent Expenses or any Related Taxes;

                      (ix)  payments by the Company, or loans, advances, dividends or distributions by the Company to any Parent to make payments, to holders of Capital Stock of the Company or any Parent in lieu of issuance of fractional shares of such Capital Stock, not to exceed $5.0 million in the aggregate outstanding at any time;

                       (x)  dividends or other distributions of, or Investments paid for or made with, Capital Stock, Indebtedness or other securities of Unrestricted Subsidiaries;

                      (xi)  (A) dividends on any Designated Preferred Stock of the Company issued after April 12, 2012, provided that at the time of such issuance and after giving effect thereto on a pro forma basis, the Consolidated Coverage Ratio would be at least 2.00 to 1.00 and, in the case of cash dividends on Designated Preferred Stock, such dividend shall for purposes of the determination of such Consolidated Coverage Ratio be deemed to constitute Consolidated Interest Expense, or (B) any dividend on Refunding Capital Stock that is Preferred Stock in excess of the amount of dividends thereon permitted by clause (i) of this paragraph (b),provided that at the time of the declaration of such dividend and after giving effect thereto on a pro forma basis, the Consolidated Coverage Ratio would be at least 2.00 to 1.00 and, in the case of cash dividends on Refunding Capital Stock, such dividend shall for purposes of the determination of such Consolidated Coverage Ratio be deemed to constitute Consolidated Interest Expense, or (C) loans, advances, dividends or distributions to any Parent to permit dividends on any Designated Preferred Stock of any Parent issued after April 12, 2012, in an amount (net of repayments of any such loans or advances) not exceeding the aggregate cash proceeds received by the Company from the issuance or sale of such Designated Preferred Stock of such Parent;

                     (xii)  Investments in Unrestricted Subsidiaries in an aggregate amount outstanding at any time not exceeding the greater of $75.0 million and 1.5% of Consolidated Tangible Assets;

                    (xiii)  distributions or payments of Special Purpose Financing Fees;


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                    (xiv)  dividends to holders of any class or series of Disqualified Stock, or of any Preferred Stock of a Restricted Subsidiary, Incurred in accordance with the terms of the covenant described under "—Limitation on Indebtedness" above; and

                      (xv)  any Restricted Payment pursuant to or in connection with the Transactions or the 2007 Transactions;

            provided, that (A) in the case of clauses (i)(y), (iii), (vi), (ix) and (xi)(B), the net amount of any such Permitted Payment shall be included in subsequent calculations of the amount of Restricted Payments, (B) in all cases other than pursuant to clause (A) immediately above, the net amount of any such Permitted Payment shall be excluded in subsequent calculations of the amount of Restricted Payments and (C) solely with respect to clause (vii), no Default or Event of Default shall have occurred or be continuing at the time of any such Permitted Payment after giving effect thereto. The Company, in its sole discretion, may classify any Investment or other Restricted Payment as being made in part under one of the provisions of this covenant (or, in the case of any Investment, the clauses of Permitted Investments) and in part under one or more other such provisions (or, as applicable, clauses).

                    (c)   Notwithstanding the foregoing provisions of this covenant, the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay any cash dividend or make any cash distribution on or in respect of the Company's Capital Stock or purchase for cash or otherwise acquire for cash any Capital Stock of the Company or any Parent, for the purpose of paying any cash dividend or making any cash distribution to, or acquiring Capital Stock of the Company or any Parent for cash from, the Investors, or Guarantee any Indebtedness of any Affiliate of the Company for the purpose of paying such dividend, making such distribution or so acquiring such Capital Stock to or from the Investors, in each case by means of utilization of the cumulative Restricted Payment credit provided by clause (3) of the preceding paragraph (a), or the exceptions provided by clause (iii), (vii), (x) or (xii) of the preceding paragraph (b) or clause (xv) or (xviii) of the definition of "Permitted Investments," unless at the time and after giving effect to such payment, (x) the Consolidated Total Leverage Ratio of the Company would have been equal to or less than 6.0 to 1.0 and (y) such payment is otherwise in compliance with this covenant.

                  Notwithstanding any other provision of the Indenture, the Indenture shall not restrict any redemption or other payment by the Company or any Restricted Subsidiary made in respect of any "AHYDO saver" provision (including any such provision in any Indebtedness that is Incurred or that becomes subordinated or that otherwise arises in connection with any Extinguishment of Senior Obligations), and the Company's determination in good faith of any such "AHYDO saver" payment shall be conclusive and binding for all purposes under the Indenture.

                  Limitation on Restrictions on Distributions from Restricted Subsidiaries.    The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or, in the case of a Restricted Subsidiary that is not a Subsidiary Guarantor, to a Subsidiary Guarantor, (ii) make any loans or advances to the Company or, in the case of a Restricted Subsidiary that is not a Subsidiary Guarantor, to a Subsidiary Guarantor or (iii) transfer any of its property or assets to the Company or, in the case of a Restricted Subsidiary that is not a Subsidiary Guarantor, to a Subsidiary Guarantor (provided that dividend or liquidation priority between classes of Capital Stock, or subordination of any obligation (including the application of any remedy bars thereto) to any other obligation, will not be deemed to constitute such an encumbrance or restriction), except any encumbrance or restriction:

                    (1)   pursuant to an agreement or instrument in effect at or entered into on the Issue Date, any Credit Facility, the Indenture, the Notes, the Note Security Documents, the Intercreditor


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            Agreements, the Senior First Priority Note Documents, the Senior First Priority Notes, the Senior Second Priority Note Documents, the Senior Second Priority Notes, the April 2012 Senior Unsecured Indenture, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Indenture, the October 2012 Senior Unsecured Notes, the January 2013 Senior Subordinated Indenture or the January 2013 Senior Subordinated Notes;

                    (2)   pursuant to any agreement or instrument of a Person, or relating to Indebtedness or Capital Stock of a Person, which Person is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary, or which agreement or instrument is assumed by the Company or any Restricted Subsidiary in connection with an acquisition of assets from such Person, as in effect at the time of such acquisition, merger or consolidation (except to the extent that such Indebtedness was incurred to finance, or otherwise in connection with, such acquisition, merger or consolidation); provided that for purposes of this clause (2), if a Person other than the Company is the Successor Company with respect thereto, any Subsidiary thereof or agreement or instrument of such Person or any such Subsidiary shall be deemed acquired or assumed, as the case may be, by the Company or a Restricted Subsidiary, as the case may be, when such Person becomes such Successor Company;

                    (3)   pursuant to an agreement or instrument (a "Refinancing Agreement") effecting a refinancing of Indebtedness Incurred pursuant to, or that otherwise extends, renews, refunds, refinances or replaces, an agreement or instrument referred to in clause (1) or (2) of this covenant or this clause (3) (an "Initial Agreement") or contained in any amendment, supplement or other modification to an Initial Agreement (an "Amendment");provided,however, that the encumbrances and restrictions contained in any such Refinancing Agreement or Amendment taken as a whole are not materially less favorable to the Holders of the Notes than encumbrances and restrictions contained in the Initial Agreement or Initial Agreements to which such Refinancing Agreement or Amendment relates (as determined in good faith by the Company);

                    (4)   (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or the assignment or transfer of any lease, license or other contract, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture, (C) contained in mortgages, pledges or other security agreements securing Indebtedness of a Restricted Subsidiary to the extent restricting the transfer of the property or assets subject thereto, (D) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary, (E) pursuant to Purchase Money Obligations that impose encumbrances or restrictions on the property or assets so acquired, (F) on cash or other deposits, net worth or inventory imposed by customers or suppliers under agreements entered into in the ordinary course of business, (G) pursuant to customary provisions contained in agreements and instruments entered into in the ordinary course of business (including but not limited to leases and licenses) or in joint venture and other similar agreements, (H) that arises or is agreed to in the ordinary course of business and does not detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or such Restricted Subsidiary, (I) pursuant to Hedging Obligations entered into for bona fide hedging purposes or (J) pursuant to Bank Products Obligations;

                    (5)   with respect to a Restricted Subsidiary (or any of its property or assets), imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition;


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                    (6)   by reason of any applicable law, rule, regulation or order, or required by any regulatory authority having jurisdiction over the Company or any Restricted Subsidiary or any of their businesses; or

                    (7)   pursuant to an agreement or instrument (A) relating to any Indebtedness permitted to be Incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under "—Limitation on Indebtedness" (i) if the encumbrances and restrictions contained in any such agreement or instrument taken as a whole are not materially less favorable to the Holders of the Notes than the encumbrances and restrictions contained in the Initial Agreements (as determined in good faith by the Company), or (ii) if such encumbrance or restriction is not materially more disadvantageous to the Holders of the Notes than is customary in comparable financings (as determined in good faith by the Company) and either (x) the Company determines in good faith that such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Notes or (y) such encumbrance or restriction applies only if a default occurs in respect of a payment or financial covenant relating to such Indebtedness, (B) relating to any sale of receivables by or Indebtedness of a Foreign Subsidiary or (C) relating to Indebtedness of or a Financing Disposition by or to or in favor of any Special Purpose Entity.

                  Limitation on Sales of Assets and Subsidiary Stock.    The Indenture provides as follows:

                    (a)   The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless

                        (i)  the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the fair market value of the shares and assets subject to such Asset Disposition, as such fair market value shall be determined in good faith by the Company, which determination shall be conclusive (including as to the value of all noncash consideration),

                       (ii)  in the case of any Asset Disposition (or series of related Asset Dispositions) having a fair market value of $25.0 million or more, at least 75.0% of the consideration therefor (excluding, in the case of an Asset Disposition (or series of related Asset Dispositions), any consideration by way of relief from, or by any other Person assuming responsibility for, any liabilities, contingent or otherwise, that are not Indebtedness) received by the Company or such Restricted Subsidiary is in the form of cash, and

                      (iii)  an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or any Restricted Subsidiary, as the case may be) as follows:

                        (A)  first, either (x) to the extent the Company elects (or is required by the terms of any Secured Indebtedness or any other Indebtedness secured by a Lien (in each case, other than Subordinated Obligations), any Senior Indebtedness of the Company or any Subsidiary Guarantor or any Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor), to prepay, repay or purchase any such Indebtedness or (in the case of letters of credit, bankers' acceptances or other similar instruments) cash collateralize any such Indebtedness (in each case other than Indebtedness owed to the Company or a Restricted Subsidiary) within 450 days after the later of the date of such Asset Disposition and the date of receipt of such Net Available Cash, or (y) to the extent that the Company or such Restricted Subsidiary elects, to invest in Additional Assets (including by means of an investment in Additional Assets by a Restricted Subsidiary with an amount equal to Net Available Cash received by the Company or another Restricted Subsidiary) within 450 days from the later of the date of such Asset Disposition and the date of receipt of such Net Available Cash, or, if such investment in Additional Assets is


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                a project authorized by the Board of Directors that will take longer than such 450 days to complete, the period of time necessary to complete such project;

                        (B)  second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A) above (such balance, the "Excess Proceeds"), to make an offer to purchase Notes and (to the extent the Company or such Restricted Subsidiary elects, or is required by the terms thereof) to purchase, redeem or repay any other Senior Indebtedness of the Company or a Restricted Subsidiary, pursuant and subject to the conditions of the Indenture and the agreements governing such other Indebtedness; and

                        (C)  third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B) above, to fund (to the extent consistent with any other applicable provision of the Indenture) any general corporate purpose (including but not limited to the repurchase, repayment or other acquisition or retirement of any Subordinated Obligations);

            provided,however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (B) above, the Company or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased.

                    Notwithstanding the foregoing provisions of this covenant, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash or equivalent amount in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions or equivalent amount that is not applied in accordance with this covenant exceeds $75.0 million. If the aggregate principal amount of Notes and/or other Indebtedness of the Company or a Restricted Subsidiary validly tendered and not withdrawn (or otherwise subject to purchase, redemption or repayment) in connection with an offer pursuant to clause (B) above exceeds the Excess Proceeds, the Excess Proceeds will be apportioned between such Notes and such other Indebtedness of the Company or a Restricted Subsidiary, with the portion of the Excess Proceeds payable in respect of such Notes to equal the lesser of (x) the Excess Proceeds amount multiplied by a fraction, the numerator of which is the outstanding principal amount of such Notes and the denominator of which is the sum of the outstanding principal amount of the Notes and the outstanding principal amount of the relevant other Indebtedness of the Company or a Restricted Subsidiary, and (y) the aggregate principal amount of Notes validly tendered and not withdrawn.

                    For the purposes of clause (ii) of paragraph (a) above, the following are deemed to be cash: (1) Temporary Cash Investments and Cash Equivalents, (2) the assumption of Indebtedness of the Company (other than Disqualified Stock of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on payment of the principal amount of such Indebtedness in connection with such Asset Disposition, (3) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Disposition, to the extent that the Company and each other Restricted Subsidiary are released from any Guarantee of payment of the principal amount of such Indebtedness in connection with such Asset Disposition, (4) securities received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 180 days, (5) consideration consisting of Indebtedness of the Company or any Restricted Subsidiary, (6) Additional Assets and (7) any Designated Noncash Consideration received by the Company or any of its Restricted Subsidiaries in an Asset Disposition having an aggregate Fair Market Value, taken together with all other Designated Noncash Consideration received pursuant to this clause, not to exceed an aggregate amount at any time outstanding equal to the greater of $125.0 million and 2.5% of Consolidated Tangible Assets (with the Fair Market Value of each item


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            of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value).

                    (b)   In the event of an Asset Disposition that requires the purchase of Notes pursuant to clause (iii)(B) of paragraph (a) above, the Company will be required to purchase Notes tendered pursuant to an offer by the Company for the Notes (the "Offer") at a purchase price of 100% of their principal amount plus accrued and unpaid interest to the date of purchase in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of the Notes tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase of Notes, the remaining Net Available Cash will be available to the Company for use in accordance with clause (iii)(B) of paragraph (a) above (to repay other Indebtedness of the Company or a Restricted Subsidiary) or clause (iii)(C) of paragraph (a) above. The Company shall not be required to make an Offer for Notes pursuant to this covenant if the Net Available Cash available therefor (after application of the proceeds as provided in clause (iii)(A) of paragraph (a) above) is less than $75.0 million for any particular Asset Disposition (which lesser amounts shall be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). No Note will be repurchased in part if less than the Minimum Denomination in original principal amount of such Note would be left outstanding.

                    (c)   The Company shall, not later than 45 days after the Company becomes obligated to make an Offer pursuant to this covenant, mail a notice to each Holder with a copy to the Trustee stating: (1) that an Asset Disposition that requires the purchase of a portion of the Notes has occurred and that such Holder has the right (subject to the prorating described below) to require the Company to purchase a portion of such Holder's Notes at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to provisions in the Indenture regarding the preservation of payment of interest rights); (2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); (3) the instructions determined by the Company, consistent with this covenant, that a Holder must follow in order to have its Notes purchased; and (4) the amount of the Offer. If, upon the expiration of the period for which the Offer remains open, the aggregate principal amount of Notes surrendered by Holders exceeds the amount of the Offer, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of the Minimum Denomination or integral multiples of $1,000 in excess thereof shall be purchased).

                    (d)   The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof.

                  Limitation on Transactions with Affiliates.    The Indenture provides as follows:

                    (a)   The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction or series of related transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") involving aggregate consideration in excess of $10.0 million unless (i) the terms of such Affiliate Transaction are not materially less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time in a transaction with a Person who is not such an Affiliate and (ii) if such Affiliate Transaction involves aggregate consideration in excess of $40.0 million, the terms of such Affiliate


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            Transaction have been approved by a majority of the Board of Directors. For purposes of this paragraph, any Affiliate Transaction shall be deemed to have satisfied the requirements set forth in this paragraph if (x) such Affiliate Transaction is approved by a majority of the Disinterested Directors or (y) in the event there are no Disinterested Directors, a fairness opinion is provided by a nationally recognized appraisal or investment banking firm with respect to such Affiliate Transaction.

                    (b)   The provisions of the preceding paragraph (a) do not apply to:

                        (i)  any Restricted Payment Transaction,

                       (ii)  (1) the entering into, maintaining or performance of any employment or consulting contract, collective bargaining agreement, benefit plan, program or arrangement, related trust agreement or any other similar arrangement for or with any current or former employee, officer, director or consultant of or to the Company, any Restricted Subsidiary or any Parent heretofore or hereafter entered into in the ordinary course of business, including vacation, health, insurance, deferred compensation, severance, retirement, savings or other similar plans, programs or arrangements, (2) payments, compensation, performance of indemnification or contribution obligations, the making or cancellation of loans or any issuance, grant or award of stock, options, other equity related interests or other securities, to any such employees, officers, directors or consultants in the ordinary course of business, (3) the payment of reasonable fees to directors of the Company or any of its Subsidiaries or any Parent (as determined in good faith by the Company, such Subsidiary or such Parent), (4) any transaction with an officer or director of the Company or any of its Subsidiaries or any Parent in the ordinary course of business not involving more than $100,000 in any one case or (5) Management Advances and payments in respect thereof (or in reimbursement of any expenses referred to in the definition of such term),

                      (iii)  any transaction between or among any of the Company, one or more Restricted Subsidiaries, and/or one or more Special Purpose Entities,

                      (iv)  any transaction arising out of agreements or instruments in existence on the Issue Date (other than any Tax Sharing Agreement or Management Agreement referred to in clause (b)(vii) of this covenant), and any payments made pursuant thereto,

                       (v)  any transaction in the ordinary course of business on terms that are fair to the Company and its Restricted Subsidiaries in the reasonable determination of the Board of Directors or senior management of the Company, or are not materially less favorable to the Company or the relevant Restricted Subsidiary than those that could be obtained at the time in a transaction with a Person who is not an Affiliate of the Company,

                      (vi)  any transaction in the ordinary course of business, or approved by a majority of the Board of Directors, between the Company or any Restricted Subsidiary and any Affiliate of the Company controlled by the Company that is a joint venture or similar entity,

                     (vii)  (1) the execution, delivery and performance of any Tax Sharing Agreement and any Management Agreement, and (2) payments to CD&R, Bain Capital or Carlyle or any of their respective Affiliates (w) of any and all out-of-pocket expenses in connection with the Transactions, (x) for any management, consulting, financial advisory, financing, underwriting or placement services or in respect of other investment banking activities pursuant to the Management Agreements,provided that payments under this clause (x) shall not exceed $7.5 million per calendar year, (y) in connection with any acquisition, disposition, merger, recapitalization or similar transactions, which payments are made pursuant to the Management Agreements or are approved by a majority of the Board of Directors in good


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              faith, and (z) of all out-of-pocket expenses incurred in connection with such services or activities,

                    (viii)  the Transactions, all transactions in connection therewith (including but not limited to the financing thereof), the execution, delivery and performance of all agreements and instruments in connection with the Transactions, and all fees and expenses paid or payable in connection with the Transactions,

                      (ix)  any issuance or sale of Capital Stock (other than Disqualified Stock) of the Company or Junior Capital or any capital contribution to the Company,

                       (x)  any amendment, supplement, waiver or other modification to or of the April 2012 Senior Unsecured Notes, the April 2012 Senior Unsecured Indenture or any related agreements, documents and instruments, or any of the terms and provisions of any thereof, (1) in connection with any Extinguishment of Senior Obligations or (2) to provide for the payment of interest in cash instead of in additional principal, or in additional principal instead of in cash, in each case in whole or in part (whether or not in connection with any Extinguishment of Senior Obligations), and

                      (xi)  any investment by any Investor in securities of the Company or any of its Restricted Subsidiaries so long as (i) such securities are being offered generally to other investors on the same or more favorable terms and (ii) such investment by all Investors constitutes less than 5% of the proposed or outstanding issue amount of such class of securities.

                  Limitation on Liens.    The Indenture provides that the Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or permit to exist any Lien (other than Permitted Liens) on any of its property or assets (including Capital Stock of any other Person), whether owned on the date of the Indenture or thereafter acquired, securing any Indebtedness (the "Initial Lien"), unless contemporaneously therewith effective provision is made to secure the Indebtedness due under the Indenture and the Notes or, in respect of any Initial Lien on any Restricted Subsidiary's property or assets, any Subsidiary Guarantee of such Restricted Subsidiary, equally and ratably with (or on a senior basis to, in the case of Subordinated Obligations or Guarantor Subordinated Obligations) such obligation for so long as such obligation is so secured by such Initial Lien. Any such Lien thereby created in favor of the Notes or any such Subsidiary Guarantee will be automatically and unconditionally released and discharged upon (i) the release and discharge of the Initial Lien to which it relates, (ii) in the case of any such Lien in favor of any such Subsidiary Guarantee, upon the termination and discharge of such Subsidiary Guarantee in accordance with the terms of the Indenture or (iii) any sale, exchange or transfer (other than a transfer constituting a transfer of all or substantially all of the assets of the Company that is governed by the provisions of the covenant described under "—Merger and Consolidation" below) to any Person not an Affiliate of the Company of the property or assets secured by such Initial Lien, or of all of the Capital Stock held by the Company or any Restricted Subsidiary in, or all or substantially all the assets of, any Restricted Subsidiary creating such Initial Lien.

                  Future Subsidiary Guarantors.    As set forth more particularly under "—Subsidiary Guarantees," the Indenture provides that from and after the Issue Date, the Company will cause each Person that becomes a Wholly Owned Domestic Subsidiary (other than an Excluded Subsidiary), and each other Domestic Subsidiary that is a borrower under the Senior ABL Facility or that guarantees payment of Indebtedness of the Company under any Credit Facility or Capital Markets Securities, to execute and deliver to the Trustee within 30 days a supplemental indenture or other instrument pursuant to which such Domestic Subsidiary will guarantee payment of the Notes, whereupon such Domestic Subsidiary will become a Subsidiary Guarantor for all purposes under the Indenture;provided, that any such guarantee described above by a Person in effect at the time such Person is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary (and not created with, or in


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          contemplation of, such acquisition, merger or consolidation) shall not trigger an obligation to guarantee the Notes so long as the aggregate principal amount of guaranteed Indebtedness relying on this proviso, together with the aggregate principal amount of Indebtedness incurred by Restricted Subsidiaries that are not Subsidiary Guarantors pursuant to paragraph (a) of the covenant described under "—Limitation on Indebtedness," shall not exceed $300.0 million at any time outstanding. The Company will also have the right to cause any other Subsidiary so to guarantee payment of the Notes. Subsidiary Guarantees will be subject to release and discharge under certain circumstances prior to payment in full of the Notes. See "—Subsidiary Guarantees."

                  SEC Reports.    The Indenture provides that, notwithstanding that the Company may not be required to be or remain subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, the Company will file with the SEC (unless such filing is not permitted under the Exchange Act or by the SEC), so long as the Notes are outstanding, the annual reports, information, documents and other reports that the Company is required to file with the SEC pursuant to such Section 13(a) or 15(d) or would be so required to file if the Company were so subject. If, at any time, any audited or reviewed financial statements or information required to be included in any such filing are not reasonably available on a timely basis as a result of the Company's accountants not being "independent" (as defined pursuant to the Exchange Act and the rules and regulations of the SEC thereunder), the Company may, in lieu of making such filing or transmitting or making available the information, documents and reports so required to be filed, elect to make a filing on an alternative form or transmit or make available unaudited or unreviewed financial statements or information substantially similar to such required audited or reviewed financial statements or information,provided that (a) the Company shall in any event be required to make such filing and so transmit or make available such audited or reviewed financial statements or information no later than the first anniversary of the date on which the same was otherwise required pursuant to the preceding provisions of this paragraph (such initial date, the "Reporting Date") and (b) if the Company makes such an election and such filing has not been made, or such information, documents and reports have not been transmitted or made available, as the case may be, within 90 days after such Reporting Date, liquidated damages will accrue on the Notes at a rate of 0.50% per annum from the date that is 90 days after such Reporting Date to the earlier of (x) the date on which such filing has been made, or such information, documents and reports have been transmitted or made available, as the case may be, and (y) the first anniversary of such Reporting Date (provided that not more than 0.50% per annum in liquidated damages shall be payable for any period regardless of the number of such elections by the Company).

                  The Company will be deemed to have satisfied the requirements of this covenant if any Parent files and provides reports, documents and information of the types otherwise so required, in each case within the applicable time periods, and the Company is not required to file such reports, documents and information separately under the applicable rules and regulations of the SEC (after giving effect to any exemptive relief) because of the filings by such Parent. The Company also will comply with the other provisions of TIA § 314(a).

          Merger and Consolidation

                  The Indenture provides that the Company will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless:

                      (i)  the resulting, surviving or transferee Person (the "Successor Company") will be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) will expressly assume all the obligations of the Company under the Notes and the Indenture by executing and delivering to the Trustee a supplemental indenture or one or more other documents or instruments in form reasonably satisfactory to the Trustee;


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                     (ii)  immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default will have occurred and be continuing;

                    (iii)  immediately after giving effect to such transaction, either (A) the Company (or, if applicable, the Successor Company with respect thereto) could Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of the covenant described under "—Certain Covenants—Limitation on Indebtedness," or (B) the Consolidated Coverage Ratio of the Company (or, if applicable, the Successor Company with respect thereto) would equal or exceed the Consolidated Coverage Ratio of the Company immediately prior to giving effect to such transaction;

                    (iv)  each Subsidiary Guarantor (other than (x) any Subsidiary Guarantor that will be released from its obligations under its Subsidiary Guarantee in connection with such transaction and (y) any party to any such consolidation or merger) shall have delivered a supplemental indenture or other document or instrument in form reasonably satisfactory to the Trustee, confirming its Subsidiary Guarantee (other than any Subsidiary Guarantee that will be discharged or terminated in connection with such transaction); and

                     (v)  the Company will have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each to the effect that such consolidation, merger or transfer complies with the provisions described in this paragraph, provided that (x) in giving such opinion such counsel may rely on an Officer's Certificate as to compliance with the foregoing clauses (ii) and (iii) and as to any matters of fact, and (y) no Opinion of Counsel will be required for a consolidation, merger or transfer described in the last paragraph of this covenant.

                  Any Indebtedness that becomes an obligation of the Successor Company or any Restricted Subsidiary (or that is deemed to be Incurred by any Restricted Subsidiary that becomes a Restricted Subsidiary) as a result of any such transaction undertaken in compliance with this covenant, and any Refinancing Indebtedness with respect thereto, shall be deemed to have been Incurred in compliance with the covenant described under "—Certain Covenants—Limitation on Indebtedness."

                  The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, and thereafter the predecessor Company shall be relieved of all obligations and covenants under the Indenture, except that the predecessor Company in the case of a lease of all or substantially all its assets will not be released from the obligation to pay the principal of and interest on the Notes.

                  Clauses (ii) and (iii) of the first paragraph of this "—Merger and Consolidation" covenant do not apply to any transaction in which the Company consolidates or merges with or into or transfers all or substantially all its properties and assets to (x) an Affiliate incorporated or organized for the purpose of reincorporating or reorganizing the Company in another jurisdiction or changing its legal structure to a corporation or other entity or (y) a Restricted Subsidiary of the Company so long as all assets of the Company and the Restricted Subsidiaries immediately prior to such transaction (other than Capital Stock of such Restricted Subsidiary) are owned by such Restricted Subsidiary and its Restricted Subsidiaries immediately after the consummation thereof. The first paragraph of this "—Merger and Consolidation" covenant do not apply to (1) any transaction in which any Restricted Subsidiary consolidates with, merges into or transfers all or part of its assets to the Company or (2) the Transactions.


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          Defaults

                  An Event of Default is defined in the Indenture as:

                      (i)  a default in any payment of interest on any Note when due, continued for a period of 30 days;

                     (ii)  a default in the payment of principal of any Note when due, whether at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration of acceleration or otherwise;

                    (iii)  the failure by the Company to comply with its obligations under the first paragraph of the covenant described under "—Merger and Consolidation" above;

                    (iv)  the failure by the Company to comply for 30 days after notice with any of its obligations under the covenant described under "—Change of Control" above (other than a failure to purchase Notes);

                     (v)  the failure by the Company to comply for 60 days after notice with its other agreements contained in the Notes or the Indenture;

                    (vi)  the failure by any Subsidiary Guarantor to comply for 45 days after notice with its obligations under its Subsidiary Guarantee;

                   (vii)  the failure by the Company or any Restricted Subsidiary to pay any Indebtedness for borrowed money (other than Indebtedness owed to the Company or any Restricted Subsidiary) within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default, if the total amount of such Indebtedness so unpaid or accelerated exceeds $100.0 million or its foreign currency equivalent; provided, that no Default or Event of Default will be deemed to occur with respect to any such Indebtedness that is paid or otherwise acquired or retired (or for which such failure to pay or acceleration is waived or rescinded) within 20 Business Days after such failure to pay or such acceleration (the "cross acceleration provision");

                  (viii)  certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the "bankruptcy provisions");

                    (ix)  the rendering of any judgment or decree for the payment of money in an amount (net of any insurance or indemnity payments actually received in respect thereof prior to or within 90 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) in excess of $100.0 million or its foreign currency equivalent against the Company or a Significant Subsidiary that is not discharged, or bonded or insured by a third Person, if such judgment or decree remains outstanding for a period of 90 days following such judgment or decree and is not discharged, waived or stayed (the "judgment default provision");

                     (x)  [reserved]; or

                    (xi)  the failure of any Subsidiary Guarantee by a Subsidiary Guarantor that is a Significant Subsidiary to be in full force and effect (except as contemplated by the terms thereof or of the Indenture) or the denial or disaffirmation in writing by any Subsidiary Guarantor that is a Significant Subsidiary of its obligations under the Indenture or any Subsidiary Guarantee (other than by reason of the termination of the Indenture or such Subsidiary Guarantee or the release of such Subsidiary Guarantee in accordance with such Subsidiary Guarantee or the Indenture), if such Default continues for 10 days.

                  In addition, the Notes provided for a specific cross-default that became inapplicable when the debt to which ifthe cross-default referred was repaid.


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                  The foregoing will constitute Events of Default whatever the reason for any such Event of themDefault and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.

                  However, a Default under clause (iv), (v) or (vi) will not constitute an Event of Default until the Trustee or the Holders of at least 30% in principal amount of the outstanding Notes notify the Company in writing of the Default and the Company does not cure such Default within the time specified in such clause after receipt of such notice.

                  If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company) occurs would permitand is continuing, the Trustee by written notice to the Company, or requirethe Holders of at least 30% in principal amount of the outstanding Notes by written notice to the Company and the Trustee, may declare the principal premium, if any,of and accrued but unpaid interest and other monetary obligations on all the then outstanding April 2012 Senior Notes to be due and payable. Upon the effectiveness of such a declaration, such principal and interest will be due and payable immediately.

                  Notwithstanding the foregoing, if an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and accrued but unpaid interest on all the Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences.

                  Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee indemnity or security satisfactory to it against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given the Trustee written notice that an Event of Default is continuing, (ii) Holders of at least 30% in principal amount of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii) such Holders have offered the Trustee security or indemnity satisfactory to it against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.

                  The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each Holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of, or premium, if any, or interest on, any Note, the Trustee may withhold notice if and so long as it in good faith determines that withholding notice is in the interests of the Noteholders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default occurring during the previous year. The Company also is required to deliver to the Trustee,


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          within 30 days after the occurrence thereof, written notice of any event that would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof.

          Amendments and Waivers

          Amendments and Waivers With the Consent of Holders

                  Subject to certain exceptions, the Indenture and the Notes may be amended with the consent of the Holders of not less than a majority in principal amount of the Notes then outstanding and any past default or compliance with any provisions may be waived with the consent of the Holders of not less than a majority in principal amount of the Notes then outstanding (including in each case, consents obtained in connection with a tender offer or exchange offer for Notes); provided that (x) if any such amendment or waiver will only affect one series of Notes (or less than all series of Notes) then outstanding under the Indenture, then only the consent of the Holders of a majority in principal amount of the Notes of such series then outstanding (including, in each case, consents obtained in connection with a tender offer or exchange offer for Notes) shall be required and (y) if any such amendment or waiver by its terms will affect a series of Notes in a manner different and materially adverse relative to the manner such amendment or waiver affects other series of Notes, then the consent of the Holders of a majority in principal amount of the Notes of such series then outstanding (including, in each case, consents obtained in connection with a tender offer or exchange offer for Notes) shall be required. However, without the consent of each Holder of an outstanding Note affected, no amendment or waiver may (i) reduce the principal amount of Notes whose Holders must consent to an amendment or waiver, (ii) reduce the rate of or extend the time for payment of interest on any Note, (iii) reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the redemption of any Note, or change the date on which any Note may be redeemed as described under "—Optional Redemption" above, (v) make any Note payable in money other than that stated in such Note, (vi) impair the right of any Holder to receive payment of principal of and interest on such Holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any such payment on or with respect to such Holder's Notes, or (vii) make any change in the amendment or waiver provisions described in this sentence.

          Amendments and Waivers Without the Consent of Holders

                  Without the consent of any Holder, the Company, the Trustee and (as applicable) any Subsidiary Guarantor may amend the Indenture or the Notes to cure any ambiguity, mistake, omission, defect or inconsistency, to provide for the assumption by a successor of the obligations of the Company or a Subsidiary Guarantor under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes, to add Guarantees with respect to the Notes, to secure the Notes, to evidence a successor Trustee, to confirm and evidence the release, termination or discharge of any Guarantee or Lien with respect to or securing the Notes when such release, termination or discharge is provided for under the Indenture, to add to the covenants of the Company for the benefit of the Noteholders or to surrender any right or power conferred upon the Company, to provide for or confirm the issuance of Additional Notes or Exchange Notes, to conform the text of the Indenture (including any supplemental indenture or other instrument pursuant to which Additional Notes are issued), the Notes (including any Additional Notes) or any Subsidiary Guarantee to any provision of this "Description of Notes" or, with respect to any Additional Notes and any supplemental indenture or other instrument pursuant to which such Additional Notes are issued, to the "Description of Notes" relating to the issuance of such Additional Notes solely to the extent that such "Description of Notes" provides for terms of such Additional Notes that differ from the terms of the Notes, as contemplated by "—Principal, Maturity and Interest" above, to increase the minimum denomination of Notes to equal the dollar equivalent of €1,000 rounded up to the nearest $1,000 (including for purposes of redemption or repurchase of any Note in part), to make any change that does not materially adversely


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          affect the rights of any Holder, or to comply with any requirement of the SEC in connection with the qualification of the Indenture under the TIA or otherwise.

                  The consent of the Noteholders is not necessary under the Indenture to approve the particular form of any proposed amendment or waiver. It is sufficient if such consent approves the substance of the proposed amendment or waiver. Until an eventamendment or waiver becomes effective, a consent to it by a Noteholder is a continuing consent by such Noteholder and every subsequent Holder of all or part of the related Note. Any such Noteholder or subsequent holder may revoke such consent as to its Note by written notice to the Trustee or the Company, received thereby before the date on which the Company certifies to the Trustee that the Holders of the requisite principal amount of Notes have consented to such amendment or waiver. After an amendment or waiver that requires the consent of the Noteholders under the Indenture becomes effective, the Company is required to mail to Noteholders a notice briefly describing such amendment or waiver. However, the failure to give such notice to all Noteholders, or any defect therein, will not impair or affect the validity of the amendment or waiver.

          Defeasance

                  The Company at any time may terminate all obligations of the Company under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those relating to the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. The Company at any time may terminate its obligations under certain covenants under the Indenture, including the covenants described under "—Certain Covenants" and "—Change of Control," the operation of the default provisions relating to such covenants described under "—Defaults" above, the operation of the cross acceleration provision, the bankruptcy provisions with respect to Subsidiaries and the judgment default provision described under "—Defaults" above, and the limitations contained in clauses (iii), (iv) and (v) under "—Merger and Consolidation" above ("covenant defeasance"). If the Company exercises its legal defeasance option or its covenant defeasance option, each Subsidiary Guarantor will be released from all of its obligations with respect to its Subsidiary Guarantee.

                  The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (iv), (v) (as it relates to the covenants described under "—Certain Covenants" above), (vi), (vii), (viii) (but only with respect to events of bankruptcy, insolvency or reorganization of a Subsidiary), (ix), (xi) or (xii) under "—Defaults" above or because of the failure of the Company to comply with clause (iii), (iv) or (v) under "—Merger and Consolidation" above.

                  Either defeasance option may be exercised to any redemption date or to the maturity date for the Notes. In order to exercise either defeasance option, the Company must irrevocably deposit or cause to be deposited in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations, or a combination thereof, sufficient (without reinvestment) to pay principal of, and premium (if any) and interest on, the Notes to redemption or maturity, as the case may be (provided that if such redemption is made pursuant to the provisions described in the fourth paragraph under "—Optional Redemption," (x) the amount of money or U.S. Government Obligations, or a combination thereof, that the Company must irrevocably deposit or cause to be deposited will be determined using an assumed Applicable Premium calculated as of the date of such deposit, and (y) the Company must irrevocably deposit or cause to be deposited additional money in trust on the redemption date as necessary to pay the Applicable Premium as determined on such date), and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such


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          deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel (x) must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law since the Issue Date and (y) need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation have become due and payable, will become due and payable at their Stated Maturity within one year, or have been or are to be called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company).

          Satisfaction and Discharge

                  The Indenture will be discharged and cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all Notes previously authenticated and delivered (other than certain lost, stolen or destroyed Notes, and certain Notes for which provision for payment was previously made and thereafter the funds have been released to the Company) have been cancelled or delivered to the Trustee for cancellation or (b) all Notes not previously cancelled or delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable at their Stated Maturity within one year or (z) have been or are to be called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company; (ii) the Company has irrevocably deposited or caused to be deposited with the Trustee money, U.S. Government Obligations or a combination thereof, sufficient (without reinvestment) to pay and discharge the entire Indebtedness on the Notes not previously cancelled or delivered to the Trustee for cancellation, for principal, premium, if any, and interest to the date of such deposit (in the case of Notes that have become due and payable), redemption or their Stated Maturity, as the case may be (provided that if such redemption is made pursuant to the provisions described in the fourth paragraph under "—Optional Redemption," (x) the amount of money or U.S. Government Obligations, or a combination thereof, that the Company must irrevocably deposit or cause to be deposited will be determined using an assumed Applicable Premium calculated as of the date of such deposit, and (y) the Company must irrevocably deposit or cause to be deposited additional money in trust on the redemption date as necessary to pay the Applicable Premium as determined on such date); (iii) the Company has paid or caused to be paid all other sums payable under the Indenture by the Company; and (iv) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel each to the effect that all conditions precedent under the "—Satisfaction and Discharge" section of the Indenture relating to the satisfaction and discharge of the Indenture have been complied with, provided that any such counsel may rely on any Officer's Certificate as to matters of fact (including as to compliance with the foregoing clauses (i), (ii) and (iii)).

          No Personal Liability of Directors, Officers, Employees, Incorporators and Stockholders

                  No director, officer, employee, incorporator or stockholder of the Company, any Subsidiary Guarantor or any Subsidiary of any thereof shall have any liability for any obligation of the Company or any Subsidiary Guarantor under the Indenture, the Notes or any Subsidiary Guarantee, or for any claim based on, in respect of, or by reason of, any such obligation or its creation. Each Noteholder, by accepting the Notes, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.

          Concerning the Trustee

                  Wells Fargo Bank, National Association is the Trustee under the Indenture and is appointed by the Company as initial Registrar and Paying Agent with regard to the Notes.


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                  The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are set forth specifically in the Indenture. During the existence of an Event of Default, the Trustee will exercise such of the rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs.

                  The Indenture and the TIA impose certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, that if it acquires any conflicting interest as described in the TIA, it must eliminate such conflict, apply to the SEC for permission to continue as Trustee with such conflict, or resign.

          Transfer and Exchange

                  A Noteholder may transfer or exchange Notes in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require such Noteholder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require such Noteholder to pay any taxes or other governmental charges required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption or purchase or to transfer or exchange any Note for a period of 15 Business Days prior to the day of the mailing of the notice of redemption or purchase. No service charge will be made for any registration of transfer or exchange of the Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other governmental charge payable in connection with the transfer or exchange. The Notes will be issued in registered form and the registered holder of a Note will be treated as the owner of such Note for all purposes.

          Governing Law

                  The Indenture provides that it and the Notes are governed by, and construed in accordance with, the laws of the State of New York.

          Certain Definitions

          Certain Indenture Definitions

                  "2007 Senior Subordinated Indenture" means the Indenture, dated as of August 30, 2007, among the Company, the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, governing the 13.5% Senior Subordinated Notes due 2015 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                  "2007 Transactions" means the "Transactions" as defined in the 2007 Senior Subordinated Indenture.

                  "ABL Agent" has the meaning assigned to such term in the Base Intercreditor Agreement.

                  "Acquired Indebtedness" means Indebtedness of a Person (i) existing at the time such Person becomes a Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case other than Indebtedness Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be Incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary.


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                  "Acquisition Indebtedness" means Indebtedness of (i) the Company or any Restricted Subsidiary Incurred to finance or refinance, or otherwise Incurred in connection with, any acquisition of any assets (including Capital Stock), business or Person, or any merger or consolidation of any Person with or into the Company or any Restricted Subsidiary, or (ii) any Person that is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary (including Indebtedness thereof Incurred in connection with any such acquisition, merger or consolidation).

                  "Additional Assets" means (i) any property or assets that replace the property or assets that are the subject of an Asset Disposition; (ii) any property or assets (other than Indebtedness and Capital Stock) used or to be used by the Company or a Restricted Subsidiary or otherwise useful in a Related Business (including any capital expenditures on any property or assets already so used); (iii) the Capital Stock of a Person that is engaged in a Related Business and becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iv) Capital Stock of any Person that at such time is a Restricted Subsidiary acquired from a third party.

                  "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For the avoidance of doubt, THD and its Affiliates will not be deemed to be Affiliates of the Company or any of its Subsidiaries.

                  "April 2012 Senior Unsecured Indenture" means the Indenture, dated as of April 12, 2012, among the Company, the subsidiary guarantors party thereto from time to time and Wilmington Trust, National Association, as trustee, governing the 14.875% Senior Notes due 2020 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                  "April 2012 Senior Unsecured Notes" means the "Notes" as such term is defined in the April 2012 Senior Unsecured Indenture.

                  "Asset Disposition" means any sale, lease, transfer or other disposition of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares, or (in the case of a Foreign Subsidiary) to the extent required by applicable law), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction), other than (i) a disposition to the Company or a Restricted Subsidiary, (ii) a disposition in the ordinary course of business, (iii) a disposition of Cash Equivalents, Investment Grade Securities or Temporary Cash Investments, (iv) the sale or discount (with or without recourse, and on customary or commercially reasonable terms) of accounts receivable or notes receivable arising in the ordinary course of business, or the conversion or exchange of accounts receivable for notes receivable, (v) any Restricted Payment Transaction, (vi) a disposition that is governed by the provisions described under "—Merger and Consolidation," (vii) any Financing Disposition, (viii) any "fee in lieu" or other disposition of assets to any governmental authority or agency that continue in use by the Company or any Restricted Subsidiary, so long as the Company or any Restricted Subsidiary may obtain title to such assets upon reasonable notice by paying a nominal fee, (ix) any exchange of property pursuant to or intended to qualify under Section 1031 (or any successor section) of the Code, or any exchange of equipment to be leased, rented or otherwise used in a Related Business, (x) any financing transaction with respect to property built or acquired by the Company or any Restricted Subsidiary after April 12, 2012, including without limitation any sale/leaseback transaction or asset securitization, (xi) any disposition arising from foreclosure, condemnation or similar action with respect to any property or other assets, or exercise of termination rights under any lease, license, concession or other agreement, or pursuant to buy/sell arrangements under any joint


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          venture or similar agreement or arrangement, (xii) any disposition of Capital Stock, Indebtedness or other securities of an Unrestricted Subsidiary, (xiii) a disposition of Capital Stock of a Restricted Subsidiary pursuant to an agreement or other obligation with or to a Person (other than the Company or a Restricted Subsidiary) from whom such Restricted Subsidiary was acquired, or from whom such Restricted Subsidiary acquired its business and assets (having been newly formed in connection with such acquisition), entered into in connection with such acquisition, (xiv) a disposition of not more than $450.05.0% of the outstanding Capital Stock of a Foreign Subsidiary that has been approved by the Board of Directors, (xv) any disposition or series of related dispositions for aggregate consideration not to exceed $30.0 million, (xvi) any Exempt Sale and Leaseback Transaction or (xvii) the abandonment or other disposition of patents, trademarks or other intellectual property that are, in the reasonable judgment of the Company, no longer economically practicable to maintain or useful in the conduct of the business of the Company and its Subsidiaries taken as a whole.

                  "Bain Capital" means Bain Capital, LLC.

                  "Bain Capital Investors" means, collectively, (i) Bain Capital, (ii) Bain Capital Partners Fund IX, L.P. and any legal successor thereto, and (iii) any Affiliate of any Bain Capital Investor, but not including any portfolio company of any Bain Capital Investor.

                  "Bank Products Agreement" means any agreement pursuant to which a bank or other financial institution agrees to provide treasury or cash management services (including, without limitation, controlled disbursements, automated clearinghouse transactions, return items, netting, overdrafts and interstate depository network services).

                  "Bank Products Obligations" of any Person means the obligations of such Person pursuant to any Bank Products Agreement.

                  "Base Intercreditor Agreement" means the Intercreditor Agreement, dated as of April 12, 2012, among the ABL Agent, the Term Agent, the First Lien Note Agent and the Second Lien Note Agent, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                  "Board of Directors" means, for any Person, the board of directors or other governing body of such Person or, if such Person does not have such a board of directors or other governing body and is owned or managed by a single entity, the Board of Directors of such entity, or, in either case, any committee thereof duly authorized to act on behalf of such Board of Directors. Unless otherwise provided, "Board of Directors" means the Board of Directors of the Company.

                  "Borrowing Base" means the sum of (1) 65% of the book value of Inventory of the Company and its Restricted Subsidiaries, (2) 85% of the book value of Receivables of the Company and its Restricted Subsidiaries and (3) Unrestricted Cash of the Company and its Restricted Subsidiaries (in each case, determined as of the end of the most recently ended fiscal month of the Company for which internal consolidated financial statements of the Company are available, and, in the case of any determination relating to any Incurrence of Indebtedness, on a pro forma basis including (x) any property or assets of a type described above acquired since the end of such fiscal month and (y) any property or assets of a type described above being acquired in connection therewith). The Borrowing Base, as of any date of determination, shall not include Inventory, the acquisition of which shall have been financed or refinanced by the Incurrence of Purchase Money Obligations pursuant to clause (b)(iv) of the covenant described under "—Certain Covenants—Limitation on Indebtedness," to the extent such Purchase Money Obligations (or any Refinancing Indebtedness in respect thereof) shall then remain outstanding pursuant to such clause (on a pro forma basis after giving effect to an Incurrence of Indebtedness and the application of proceeds therefrom).

                  "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banking institutions are authorized or required by law to close in New York City (or any other city in which a Paying Agent maintains its office).


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                  "Capital Markets Securities" means bonds, debentures, notes or other similar debt securities of the Company or any Subsidiary Guarantor (other than the Notes) with an aggregate principal amount outstanding in excess of $150.0 million.

                  "Capital Stock" of any Person means any and all shares of, rights to purchase, warrants or options for, or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity.

                  "Capitalized Lease Obligation" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The Stated Maturity of any Capitalized Lease Obligation shall be the date of the last payment of rent or any other amount due under the related lease.

                  "Captive Insurance Subsidiary" means any Subsidiary of the Company that is subject to regulation as an insurance company (or any Subsidiary thereof).

                  "Carlyle" means Carlyle Investment Management, LLC.

                  "Carlyle Investors" means, collectively, (i) Carlyle, (ii) Carlyle Partners V, L. P. and any legal successor thereto, and (iii) any Affiliate of any Carlyle Investor, but not including any portfolio company of any Carlyle Investor.

                  "Cash Equivalents" means any of the following: (a) money, (b) securities issued or fully guaranteed or insured by the United States of America, Canada or a member state of the European Union or any agency or instrumentality of any thereof, (c) time deposits, certificates of deposit or bankers' acceptances of (i) any lender under a Senior Credit Agreement or any affiliate thereof, (ii) JPMorgan Chase Bank, N.A., SunTrust Bank, Wells Fargo Bank, National Association, Bank of America, N.A., Scotiabank, The Toronto-Dominion Bank, Bank of Montreal, or any of their respective affiliates, or (iii) any commercial bank having capital and surplus in excess of $500.0 million (or the foreign currency equivalent thereof as of the date of such investment) and the commercial paper of the holding company of which is rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's (or if at such time neither is issuing ratings, then a comparable rating of another nationally recognized rating agency), (d) money market instruments, commercial paper or other short-term obligations rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's (or if at such time neither is issuing ratings, then a comparable rating of another nationally recognized rating agency), (e) investments in money market funds subject to the risk limiting conditions of Rule 2a-7 or any successor rule of the SEC under the Investment Company Act of 1940, as amended, (f) Canadian dollars, and (g) investments similar to any of the foregoing denominated in Canadian dollars or any other foreign currencies approved by the Board of Directors.

                  "Cash Flow Intercreditor Agreement" means the Intercreditor Agreement, dated as of April 12, 2012, among the Term Agent, the First Lien Note Agent and the Second Lien Note Agent, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                  "CD&R" means Clayton, Dubilier & Rice, LLC and any successor in interest thereto, or any successor to CD&R's investment management business.

                  "CD&R Investors" means, collectively, (i) CD&R, (ii) Clayton, Dubilier & Rice Fund VII, L.P., or any legal successor thereto, (iii) CD&R Parallel Fund VII, L.P., or any legal successor thereto, and (iv) any Affiliate of any CD&R Investor, but not including any portfolio company of any CD&R Investor.

                  "Code" means the Internal Revenue Code of 1986, as amended.


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                  "Commodities Agreement" means, in respect of a Person, any commodity futures contract, forward contract, option or similar agreement or arrangement (including derivative agreements or arrangements), as to which such Person is a party or beneficiary.

                  "Company" means HD Supply, Inc., a Delaware corporation, and any successor in interest thereto.

                  "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, that

                    (1)   if since the beginning of such period the Company or any Restricted Subsidiary has Incurred any Indebtedness that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period (except that in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on (A) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period for which such facility was outstanding or (B) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation),

                    (2)   if since the beginning of such period the Company or any Restricted Subsidiary has repaid, repurchased, redeemed, defeased or otherwise acquired, retired or discharged any Indebtedness that is no longer outstanding on such date of determination (each, a "Discharge") or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio involves a Discharge of Indebtedness (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid), Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such Discharge had occurred on the first day of such period,

                    (3)   if since the beginning of such period the Company or any Restricted Subsidiary shall have disposed of any company, any business or any group of assets constituting an operating unit of a business (any such disposition, a "Sale"), the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to (A) the Consolidated Interest Expense attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, redeemed, defeased or otherwise acquired, retired or discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Sale for such period (including but not limited to through the assumption of such Indebtedness by another Person) plus (B) if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such Sale,

                    (4)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made an Investment in any Person that thereby becomes a Restricted Subsidiary, or otherwise acquired any company, any business or any group of


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            assets constituting an operating unit of a business, including any such Investment or acquisition occurring in connection with a transaction causing a calculation to be made hereunder (any such Investment or acquisition, a "Purchase"), Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any related Indebtedness) as if such Purchase occurred on the first day of such period, and

                    (5)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have Discharged any Indebtedness or made any Sale or Purchase that would have required an adjustment pursuant to clause (2), (3) or (4) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Discharge, Sale or Purchase occurred on the first day of such period.

                  For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred or repaid, repurchased, redeemed, defeased or otherwise acquired, retired or discharged in connection therewith, the pro forma calculations in respect thereof (including without limitation in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company;provided that such net cost savings or synergies are reasonably identifiable and factually supportable. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness). If any Indebtedness bears, at the option of the Company or a Restricted Subsidiary, a rate of interest based on a prime or similar rate, a eurocurrency interbank offered rate or other fixed or floating rate, and such Indebtedness is being given pro forma effect, the interest expense on such Indebtedness shall be calculated by applying such optional rate as the Company or such Restricted Subsidiary may designate. If any Indebtedness that is being given pro forma effect was Incurred under a revolving credit facility, the interest expense on such Indebtedness shall be computed based upon the average daily balance of such Indebtedness during the applicable period. Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate determined in good faith by a responsible financial or accounting officer of the Company to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.

                  "Consolidated EBITDA" means, for any period, the Consolidated Net Income for such period, plus (a) the following to the extent deducted in calculating such Consolidated Net Income, without duplication: (i) provision for all taxes (whether or not paid, estimated or accrued) based on income, profits or capital (including penalties and interest, if any), (ii) Consolidated Interest Expense, all items excluded from the definition of Consolidated Interest Expense pursuant to clause (iii) thereof (other than Special Purpose Financing Expense), any Special Purpose Financing Fees, and (for purposes of the Consolidated Total Leverage Ratio) any Special Purpose Financing Expense, (iii) depreciation, amortization (including but not limited to amortization of intangibles and amortization and write-off of financing costs) and all other non-cash charges or non-cash losses, (iv) any expenses or charges related to any Equity Offering, Investment or Indebtedness permitted by the Indenture (whether or not consummated or incurred, and including any non-consummated sale of Capital Stock to the extent the proceeds thereof were intended to be contributed to the equity capital of the Company or any of its Restricted Subsidiaries), (v) the amount of any loss attributable to non-controlling interests and (vi) any management, monitoring, consulting and advisory fees and related expenses paid to any of CD&R,


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          Bain Capital, Carlyle or any of their respective Affiliates, plus (b) the amount of net cost savings projected by the Company in good faith to be realized as a result of actions taken or to be taken (calculated on a pro forma basis as though such cost savings had been realized on the first day of such period), net of the amount of actual benefits realized during such period from such actions; provided that (x) such cost savings are reasonably identifiable and factually supportable, (y) such net cost savings are reasonably expected to be realized within 18 months of the date of calculation of Consolidated EBITDA as evidenced by an Officer's Certificate prepared as of the date for which Consolidated EBITDA is being calculated and (z) the aggregate amount of cost savings added pursuant to this clause (b) shall not exceed $50.0 million for any four consecutive quarter period (which adjustments may be incremental to (but not duplicative of) pro forma adjustments made pursuant to the proviso to the definition of "Consolidated Coverage Ratio," "Consolidated Secured Leverage Ratio," "Consolidated Senior Priority Leverage Ratio" or "Consolidated Total Leverage Ratio"), plus (c) to the extent deducted in calculating such Consolidated Net Income, (i) the amount of loss on any Financing Disposition, and (ii) any costs or expenses pursuant to any management or employee stock option or other equity-related plan, program or arrangement, or other benefit plan, program or arrangement, or any stock subscription or shareholder agreement, to the extent funded with cash proceeds contributed to the capital of the Company or an issuance of Capital Stock of the Company (other than Disqualified Stock) and excluded from the calculation set forth in clause (a)(3) of the covenant described under "Certain Covenants—Limitation on Restricted Payments."

                  "Consolidated Interest Expense" means, for any period, (i) the total interest expense of the Company and its Restricted Subsidiaries to the extent deducted in calculating Consolidated Net Income, net of any interest income of the Company and its Restricted Subsidiaries, including without limitation, any such interest expense consisting of (a) interest expense attributable to Capitalized Lease Obligations, (b) amortization of debt discount, (c) interest in respect of Indebtedness of any other Person that has been Guaranteed by the Company or any Restricted Subsidiary, but only to the extent that such interest is actually paid by the Company or any Restricted Subsidiary, (d) non-cash interest expense, (e) the interest portion of any deferred payment obligation and (f) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, plus (ii) Preferred Stock dividends paid in cash in respect of Disqualified Stock of the Company held by Persons other than the Company or a Restricted Subsidiary and minus (iii) to the extent otherwise included in such interest expense referred to in clause (i) above, amortization or write-off of financing costs, Special Purpose Financing Expense, accretion or accrual of discounted liabilities not constituting Indebtedness, expense resulting from discounting of Indebtedness in conjunction with recapitalization or purchase accounting, and any "additional interest" in respect of registration rights arrangements for any securities (including the Notes), in each case under clauses (i) through (iii) as determined on a Consolidated basis in accordance with GAAP; provided, that gross interest expense shall be determined after giving effect to any net payments made or received by the Company and its Restricted Subsidiaries with respect to Interest Rate Agreements.

                  "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its Restricted Subsidiaries, determined on a Consolidated basis in accordance with GAAP and before any reduction in respect of Preferred Stock dividends; provided, that there shall not be included in such Consolidated Net Income:

                      (i)  any net income (loss) of any Person that is not the Company or a Restricted Subsidiary, except that the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (ii) below),


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                     (ii)  solely for purposes of determining the amount available for Restricted Payments under clause (a)(3)(A) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments," any net income (loss) of any Restricted Subsidiary that is not a Subsidiary Guarantor if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of similar distributions by such Restricted Subsidiary, directly or indirectly, to the Company by operation of the terms of such Restricted Subsidiary's charter or any agreement, instrument, judgment, decree, order, statute or governmental rule or regulation applicable to such Restricted Subsidiary or its stockholders (other than (x) restrictions that have been waived or otherwise released, (y) restrictions pursuant to any of the Notes, the Indenture, the Note Security Documents, the Intercreditor Agreements, the Senior First Priority Indenture, the other Senior First Priority Note Documents, the Senior Second Priority Indenture, the other Senior Second Priority Note Documents, the April 2012 Senior Unsecured Indenture, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Indenture, the October 2012 Senior Unsecured Notes, the January 2013 Senior Subordinated Indenture and the January 2013 Senior Subordinated Notes and (z) restrictions in effect on the Issue Date with respect to a Restricted Subsidiary and other restrictions with respect to such Restricted Subsidiary that taken as a whole are not materially less favorable to the Noteholders than such restrictions in effect on the Issue Date), except that the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of any dividend or distribution that was or that could have been made by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause),

                    (iii)  any gain or loss realized upon (x) the sale, abandonment or other disposition of any asset of the Company or any Restricted Subsidiary (including pursuant to any sale/leaseback transaction) that is not sold, abandoned or otherwise disposed of in the ordinary course of business (as determined in good faith by the Board of Directors) or (y) the disposal, abandonment or discontinuation of operations of the Company or any Restricted Subsidiary, and any income (loss) from disposed, abandoned or discontinued operations,

                    (iv)  any item classified or disclosed as an extraordinary, unusual or nonrecurring gain, loss or charge (including fees, expenses and charges associated with the Transactions or any acquisition, merger or consolidation after April 12, 2012),

                     (v)  the cumulative effect of a change in accounting principles,

                    (vi)  all deferred financing costs written off and premiums paid in connection with any early extinguishment of Indebtedness or Hedging Obligations or other derivative instruments,

                   (vii)  any unrealized gains or losses in respect of Currency Agreements,

                  (viii)  any unrealized foreign currency transaction gains or losses in respect of Indebtedness of any Person denominated in a currency other than the functional currency of such Person,

                    (ix)  any non-cash compensation charge arising from any grant of stock, stock options or other equity based awards,

                     (x)  to the extent otherwise included in Consolidated Net Income, any unrealized foreign currency translation or transaction gains or losses in respect of Indebtedness or other obligations of the Company or any Restricted Subsidiary owing to the Company or any Restricted Subsidiary,

                    (xi)  any non-cash charge, expense or other impact attributable to application of the purchase or recapitalization method of accounting (including the total amount of depreciation and


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            amortization, cost of sales or other non-cash expense resulting from the write-up of assets to the extent resulting from such purchase or recapitalization accounting adjustments),

                   (xii)  any impairment charge or asset write-off, including any charge or write-off related to intangible assets, long-lived assets or investments in debt and equity securities, and any amortization of intangibles,

                  (xiii)  any fees and expenses (or amortization thereof), and any charges or costs, in connection with any acquisition, Investment, Asset Disposition, issuance of Capital Stock, issuance, repayment or refinancing of Indebtedness, or amendment or modification of any agreement or instrument relating to any Indebtedness (in each case, whether or not completed, and including any such transaction consummated prior to the Issue Date),

                  (xiv)  any accruals and reserves established or adjusted within twelve months after April 12, 2012 that are established as a result of the Transactions, and any changes as a result of adoption or modification of accounting policies, and

                   (xv)  to the extent covered by insurance and actually reimbursed (or the Company has determined that there exists reasonable evidence that such amount will be reimbursed by the insurer and such amount is not denied by the applicable insurer in writing within 180 days and is reimbursed within 365 days of the date of such evidence (with a deduction in any future calculation of Consolidated Net Income for any amount so added back to the extent not so reimbursed within such 365 day period)), any expenses with respect to liability or casualty events or business interruption.

                  Notwithstanding the foregoing, for the purpose of clause (a)(3)(A) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income, without duplication, any income consisting of dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary, and any income consisting of return of capital, repayment or other proceeds from dispositions or repayments of Investments consisting of Restricted Payments, in each case to the extent such income would be included in Consolidated Net Income and such related dividends, repayments, transfers, return of capital or other proceeds are applied by the Company to increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(C) or (D) thereof.

                  "Consolidated Secured Indebtedness" means, as of any date of determination, (1) an amount equal to the Consolidated Total Indebtedness (without regard to clause (2) of the definition thereof) as of such date that in each case is then secured by Liens on property or assets of the Company and its Restricted Subsidiaries (other than property or assets held in a defeasance or similar trust or arrangement for the benefit of the Indebtedness secured thereby), minus (2) the amount of Unrestricted Cash held by the Company and its Restricted Subsidiaries as of the most recent date with respect to which a balance sheet is available.

                  "Consolidated Secured Leverage Ratio" means, as of any date of determination, the ratio of (i) Consolidated Secured Indebtedness as at such date (after giving effect to any Incurrence or Discharge of Indebtedness on such date) to (ii) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available, provided, that:

                    (1)   if since the beginning of such period the Company or any Restricted Subsidiary shall have made a Sale, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period;


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                    (2)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made a Purchase (including any Purchase occurring in connection with a transaction causing a calculation to be made hereunder), Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Purchase occurred on the first day of such period; and

                    (3)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have made any Sale or Purchase that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Sale or Purchase occurred on the first day of such period.

                  For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto, the pro forma calculations in respect thereof (including, without limitation, in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company; provided that such net cost savings or synergies are reasonably identifiable and factually supportable.

                  "Consolidated Senior Priority Indebtedness" means, as of any date of determination, an amount equal to (1) the Consolidated Total Indebtedness (without regard to clause (2) of the definition thereof) as of such date that in each case is then secured by Liens on property or assets of the Company and its Restricted Subsidiaries (other than property or assets held in a defeasance or similar trust or arrangement for the benefit of the Indebtedness secured thereby) and consists of Indebtedness having Senior Lien Priority with respect to the Senior Second Priority Notes, minus (2) the amount of Unrestricted Cash held by the Company and its Restricted Subsidiaries as of the most recent date with respect to which a balance sheet is available.

                  "Consolidated Senior Priority Leverage Ratio" means, as of any date of determination, the ratio of (i) Consolidated Senior Priority Indebtedness as at such date (after giving effect to any Incurrence or Discharge of Indebtedness on such date) to (ii) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available, provided, that:

                    (1)   if since the beginning of such period the Company or any Restricted Subsidiary shall have made a Sale, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period;

                    (2)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made a Purchase (including any Purchase occurring in connection with a transaction causing a calculation to be made hereunder), Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Purchase occurred on the first day of such period; and

                    (3)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have made any Sale or Purchase that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA for such period


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            shall be calculated after giving pro forma effect thereto as if such Sale or Purchase occurred on the first day of such period.

                  For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto, the pro forma calculations in respect thereof (including, without limitation, in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company;provided that such net cost savings or synergies are reasonably identifiable and factually supportable.

                  "Consolidated Tangible Assets" means, as of any date of determination, the total assets less the sum of the goodwill, net, and other intangible assets, net, in each case reflected on the consolidated balance sheet of the Company and its Restricted Subsidiaries as at the end of the most recently ended fiscal quarter of the Company for which such a balance sheet is available, determined on a Consolidated basis in accordance with GAAP (and, in the case of any determination relating to any Incurrence of Indebtedness or any Investment, on a pro forma basis including any property or assets being acquired in connection therewith).

                  "Consolidated Total Indebtedness" means, as of any date of determination, an amount equal to (1) the aggregate principal amount of outstanding Indebtedness of the Company and its Restricted Subsidiaries as of such date consisting of (without duplication) Indebtedness for borrowed money (including Purchase Money Obligations and unreimbursed outstanding drawn amounts under funded letters of credit (other than letters of credit in respect of trade payables)), Capitalized Lease Obligations, debt obligations evidenced by bonds, debentures, notes or similar instruments, Disqualified Stock, and (in the case of any Restricted Subsidiary that is not a Subsidiary Guarantor) Preferred Stock, determined on a Consolidated basis in accordance with GAAP (excluding items eliminated in Consolidation, and for the avoidance of doubt, excluding Hedging Obligations), minus (2) the amount of Unrestricted Cash held by the Company and its Restricted Subsidiaries as of the most recent date with respect to which a balance sheet is available.

                  "Consolidated Total Leverage Ratio" means, as of any date of determination, the ratio of (i) Consolidated Total Indebtedness as at such date (after giving effect to any Incurrence or Discharge of Indebtedness on such date) to (ii) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available, provided that:

                    (1)   if since the beginning of such period the Company or any Restricted Subsidiary shall have made a Sale, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period;

                    (2)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made a Purchase (including any Purchase occurring in connection with a transaction causing a calculation to be made hereunder), Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Purchase occurred on the first day of such period; and

                    (3)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have made any Sale or Purchase that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Sale or Purchase occurred on the first day of such period.


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                  For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto, the pro forma calculations in respect thereof (including without limitation in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company;provided that such net cost savings or synergies are reasonably identifiable and factually supportable.

                  "Consolidation" means the consolidation of the accounts of each of the Restricted Subsidiaries with those of the Company in accordance with GAAP;provided that "Consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary, but the interest of the Company or any Restricted Subsidiary in any Unrestricted Subsidiary will be accounted for as an investment. The term "Consolidated" has a correlative meaning.

                  "Contingent Obligation" means, with respect to any Person, any obligation of such Person guaranteeing any obligation that does not constitute Indebtedness (a "primary obligation") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of such Person, whether or not contingent, (1) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (2) to advance or supply funds (a) for the purchase or payment of any such primary obligation, or (b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, or (3) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.

                  "Contractual Obligation" means, as to any Person, any provision of any material security issued by such Person or of any material agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

                  "Contribution Amounts" means the aggregate amount of capital contributions applied by the Company to permit the Incurrence of Contribution Indebtedness pursuant to clause (b)(x) of the covenant described under "—Certain Covenants—Limitation on Indebtedness."

                  "Contribution Indebtedness" means Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount not greater than twice the aggregate amount of cash contributions (other than Excluded Contributions) made to the capital of the Company or such Restricted Subsidiary after April 12, 2012 (whether through the issuance or sale of Capital Stock or otherwise);provided that such Contribution Indebtedness (a) is incurred within 180 days after the making of the related cash contribution and (b) is so designated as Contribution Indebtedness pursuant to an Officer's Certificate on the date of Incurrence thereof.

                  "Credit Facilities" means one or more of (i) the Senior Term Facility, (ii) the Senior ABL Facility and (iii) any other facilities or arrangements designated by the Company, in each case with one or more banks or other lenders or institutions providing for revolving credit loans, term loans, receivables, inventory or real estate financings (including without limitation through the sale of receivables, inventory, real estate and/or other assets to such institutions or to special purpose entities formed to borrow from such institutions against such receivables, inventory, real estate and/or other assets or the creation of any Liens in respect of such receivables, inventory, real estate and/or other assets in favor of such institutions), letters of credit or other Indebtedness, in each case, including all agreements, instruments and documents executed and delivered pursuant to or in connection with any of the foregoing, including but not limited to any notes and letters of credit issued pursuant thereto and any guarantee and collateral agreement, patent and trademark security agreement, mortgages or letter of credit applications and other guarantees, pledge agreements, security agreements and collateral documents, in each case as the same may be amended, supplemented, waived or otherwise modified from time to time, or refunded, refinanced, restructured, replaced, renewed, repaid, increased or


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          extended from time to time (whether in whole or in part, whether with the original banks, lenders or institutions or other banks, lenders or institutions or otherwise, and whether provided under any original Credit Facility or one or more other credit agreements, indentures, financing agreements or other Credit Facilities or otherwise). Without limiting the generality of the foregoing, the term "Credit Facility" shall include any agreement (i) changing the maturity of any Indebtedness Incurred thereunder or contemplated thereby, (ii) adding Subsidiaries as additional borrowers or guarantors thereunder, (iii) increasing the amount of Indebtedness Incurred thereunder or available to be borrowed thereunder or (iv) otherwise altering the terms and conditions thereof.

                  "Credit Facility Indebtedness" means any and all amounts, whether outstanding on the Issue Date or thereafter incurred, payable under or in respect of any Credit Facility, including without limitation any principal, premium, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company or any Restricted Subsidiary whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees, other monetary obligations of any nature and all other amounts payable thereunder or in respect thereof.

                  "Currency Agreement" means, in respect of a Person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangements (including derivative agreements or arrangements), as to which such Person is a party or a beneficiary.

                  "Default" means any event or condition that is, or after notice or passage of time or both would be, an Event of Default.

                  "Designated Noncash Consideration" means the Fair Market Value of noncash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Disposition that is so designated as Designated Noncash Consideration pursuant to an Officer's Certificate, setting forth the basis of such valuation.

                  "Designated Preferred Stock" means Preferred Stock of the Company (other than Disqualified Stock) or any Parent that is issued for cash (other than to a Restricted Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an Officer's Certificate of the Company.

                  "Designated Senior Indebtedness" means with respect to a Person (i) the Credit Facility Indebtedness under or in respect of any Senior Credit Facility and (ii) any other Senior Indebtedness of such Person that, at the date of determination, has an aggregate principal amount equal to or under which, at the date of determination, the holders thereof are committed to lend up to, at least $25.0 million and is specifically designated by such Person in an agreement or instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture.

                  "Disinterested Directors" means, with respect to any Affiliate Transaction, one or more members of the Board of Directors of the Company, or one or more members of the Board of Directors of a Parent, having no material direct or indirect financial interest in or with respect to such Affiliate Transaction. A member of any such Board of Directors shall not be deemed to have such a financial interest by reason of such member's holding Capital Stock of the Company or any Parent or any options, warrants or other rights in respect of such Capital Stock.

                  "Disqualified Stock" means, with respect to any Person, any Capital Stock (other than Management Stock) that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (other than following the occurrence of a Change of Control or other similar event described under such terms as a "change of control," or an Asset Disposition) (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof (other than following the occurrence of a Change of


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          Control or other similar event described under such terms as a "change of control," or an Asset Disposition), in whole or in part, in each case on or prior to the final Stated Maturity of the Notes;provided that Capital Stock issued to any employee benefit plan, or by any such plan to any employees of the Company or any Subsidiary, shall not constitute Disqualified Stock solely because it may be required to be repurchased or otherwise acquired or retired in order to satisfy applicable statutory or regulatory obligations.

                  "Domestic Subsidiary" means any Restricted Subsidiary of the Company other than a Foreign Subsidiary.

                  "Dormant Subsidiary" means any Subsidiary of the Company that carries on no operations, had revenues of less than $4.0 million during the most recently completed period of four consecutive fiscal quarters of the Company and has total assets of less than $4.0 million as of the last day of such period; provided that the assets of all Subsidiaries constituting Dormant Subsidiaries shall at no time exceed $20.0 million in the aggregate and the revenues of all Subsidiaries constituting Dormant Subsidiaries for any four consecutive fiscal quarters shall at no time exceed $20.0 million in the aggregate.

                  "Exchange Act" means the Securities Exchange Act of 1934, as amended.

                  "Excluded Contribution" means Net Cash Proceeds, or the Fair Market Value of property or assets, received by the Company as capital contributions to the Company after April 12, 2012 or from the issuance or sale (other than to a Restricted Subsidiary) of Capital Stock (other than Disqualified Stock or Designated Preferred Stock) of the Company, in each case to the extent designated as an Excluded Contribution pursuant to an Officer's Certificate of the Company and not previously included in the calculation set forth in clause (a)(3)(B)(x) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments" for purposes of determining whether a Restricted Payment may be made.

                  "Excluded Subsidiary" means any (a) Special Purpose Subsidiary, (b) Subsidiary of a Foreign Subsidiary, (c) Unrestricted Subsidiary, (d) Immaterial Subsidiary, (e) Dormant Subsidiary, (f) Captive Insurance Subsidiary, (g) Domestic Subsidiary that is prohibited by any applicable Contractual Obligation or Requirement of Law from guaranteeing or granting Liens to secure the Notes at the time such Subsidiary becomes a Restricted Subsidiary (and for so long as such restriction or any replacement or renewal thereof is in effect) or (h) Domestic Subsidiary with respect to which, in the reasonable judgment of the Company, the cost or other consequences (including any adverse tax consequences) of providing a Guarantee of the Notes shall be excessive in view of the benefits to be obtained by the Holders of the Notes therefrom.

                  "Exempt Sale and Leaseback Transaction" means any Sale and Leaseback Transaction (a) in which the sale or transfer of property occurs within 90 days of the acquisition of such property by the Company or any of its Subsidiaries or (b) that involves property with a book value of $20.0 million or less and is not part of a series of related Sale and Leaseback Transactions involving property with an aggregate value in excess of such amount and entered into with a single Person or group of Persons. For purposes of the foregoing, "Sale and Leaseback Transaction" means any arrangement with any Person providing for the leasing by the Company or any of its Subsidiaries of real or personal property that has been or is to be sold or transferred by the Company or any such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary.

                  "Extinguished Senior Obligations" means, as of any date of determination, all Senior Indebtedness (including any capitalized interest thereon) that after the Issue Date has been, or will be in any transaction giving rise to the need to calculate Extinguished Senior Obligations, (x) refinanced with, exchanged for, or amended, supplemented or otherwise modified into, Subordinated Obligations or (y) repaid other than with the proceeds of other Senior Indebtedness. "Extinguishment of Senior


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          Obligations" means any such refinancing, exchange, amendment, supplement, other modification or repayment of Senior Indebtedness referred to in the previous sentence.

                  "Fair Market Value" means, with respect to any asset or property, the fair market value of such asset or property as determined in good faith by the Board of Directors, whose determination will be conclusive.

                  "Financing Disposition" means any sale, transfer, conveyance or other disposition of, or creation or incurrence of any Lien on, property or assets (a) by the Company or any Subsidiary thereof to or in favor of any Special Purpose Entity, or by any Special Purpose Subsidiary, in each case in connection with the Incurrence by a Special Purpose Entity of Indebtedness, or obligations to make payments to the obligor on Indebtedness, which may be secured by a Lien in respect of such property or assets or (b) by the Company or any Subsidiary thereof to or in favor of any Special Purpose Entity that is not a Special Purpose Subsidiary.

                  "First Lien Note Agent" has the meaning assigned to such term in the Base Intercreditor Agreement or the Cash Flow Intercreditor Agreement, as applicable.

                  "Fixed GAAP Date" means April 12, 2012,provided that at any time after April 12, 2012, the Company may by written notice to the Trustee elect to change the Fixed GAAP Date to be the date specified in such notice, and upon such notice, the Fixed GAAP Date shall be such date for all periods beginning on and after the date specified in such notice.

                  "Fixed GAAP Terms" means (a) the definitions of the terms "Borrowing Base," "Capitalized Lease Obligation," "Consolidated Coverage Ratio," "Consolidated EBITDA," "Consolidated Interest Expense," "Consolidated Net Income," "Consolidated Secured Indebtedness," "Consolidated Secured Leverage Ratio," "Consolidated Senior Priority Indebtedness," "Consolidated Senior Priority Leverage Ratio," "Consolidated Total Leverage Ratio," "Consolidated Tangible Assets," "Consolidated Total Indebtedness," "Consolidation," "Inventory" or "Receivables," (b) all defined terms in the Indenture to the extent used in or relating to any of the foregoing definitions, and all ratios and computations based on any of the foregoing definitions, and (c) any other term or provision of the Indenture or the Notes that, at the Company's election, may be specified by the Company by written notice to the Trustee from time to time.

                  "Foreign Subsidiary" means (a) any Restricted Subsidiary of the Company that is not organized under the laws of the United States of America or any state thereof or the District of Columbia and any Restricted Subsidiary of such Foreign Subsidiary and (b) any Restricted Subsidiary of the Company that has no material assets other than securities or Indebtedness of one or more Foreign Subsidiaries (or Subsidiaries thereof), intellectual property relating to such Foreign Subsidiaries (or Subsidiaries thereof) and other assets relating to an ownership interest in any such securities, Indebtedness, intellectual property or Subsidiaries.

                  "GAAP" means generally accepted accounting principles in the United States of America as in effect on the Fixed GAAP Date (for purposes of the Fixed GAAP Terms) and as in effect from time to time (for all other purposes of the Indenture), including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, and subject to the following: If at any time the SEC permits or requires U.S. domiciled companies subject to the reporting requirements of the Exchange Act to use IFRS in lieu of GAAP for financial reporting purposes, the Company may elect by written notice to the Trustee to so use IFRS in lieu of GAAP and, upon any such notice, references herein to GAAP shall thereafter be construed to mean (a) for periods beginning on and after the date specified in such notice, IFRS as in effect on the date specified in such notice (for purposes of the Fixed GAAP Terms) and as in effect from time to


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          time (for all other purposes of the Indenture) and (b) for prior periods, GAAP as defined in the first sentence of this definition. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP.

                  "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person; provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning.

                  "Guarantor Subordinated Obligations" means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) that is expressly subordinated in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement.

                  "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement, Currency Agreement or Commodities Agreement.

                  "Holder" or "Noteholder" means the Person in whose name a Note is registered in the Note Register.

                  "Holding" means HDS Holding Corporation, a Delaware corporation, and any successor in interest thereto.

                  "Holding Parent" means HD Supply Holdings, Inc., a Delaware corporation, and any successor in interest thereto.

                  "IFRS" means International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto (or the Financial Accounting Standards Board, the Accounting Principles Board of the American Institute of Certified Public Accountants, or any successor to either such Board, or the SEC, as the case may be), as in effect from time to time.

                  "Immaterial Subsidiary" means (i) any Subsidiary of the Company existing on the Issue Date with the consent of the Term Agent and (ii) any Subsidiary of the Company organized or acquired after the Issue Date, in the case of each of (i) and (ii) designated by the Company to the Trustee in writing, that had (a) total consolidated revenues of less than 2.5% of the total consolidated revenues of the Company and its Subsidiaries during the most recently completed period of four consecutive fiscal quarters of the Company and (b) total consolidated assets of less than 2.5% of the total consolidated assets of the Company and its Subsidiaries as of the last day of such period;provided that (x) for purposes of the provisions described under "—Subsidiary Guarantees" and "—Certain Covenants—Future Subsidiary Guarantors", any Special Purpose Subsidiary shall be deemed to be an "Immaterial Subsidiary," and (y) Immaterial Subsidiaries (other than any Special Purpose Subsidiary) shall not, in the aggregate, (1) have had revenues in excess of 10.0% of the total consolidated revenues of the Company and its Subsidiaries during the most recently completed period of four consecutive fiscal quarters or (2) have had total assets in excess of 10.0% of the total consolidated assets of the Company and its Subsidiaries as of the last day of such period. Any Subsidiary so designated as an Immaterial Subsidiary that fails to meet the foregoing as of the last day of any such four consecutive fiscal quarter period shall continue to be deemed an "Immaterial Subsidiary" hereunder until the date that is 60 days following the filing, transmittal or making available of annual or quarterly financial statements pursuant to the covenant described under "—Certain Covenants—SEC Reports" with respect to the last quarter of such four consecutive fiscal quarter period.

                  "Incur" means issue, assume, enter into any Guarantee of, incur or otherwise become liable for; and the terms "Incurs," "Incurred" and "Incurrence" shall have a correlative meaning; provided, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary


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          (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. Accrual of interest, the accretion of accreted value, the payment of interest in the form of additional Indebtedness, and the payment of dividends on Capital Stock constituting Indebtedness in the form of additional shares of the same class of Capital Stock, will not be deemed to be an Incurrence of Indebtedness. Any Indebtedness issued at a discount (including Indebtedness on which interest is payable through the issuance of additional Indebtedness) shall be deemed Incurred at the time of original issuance of the Indebtedness at the initial accreted amount thereof.

                  "Indebtedness" means, with respect to any Person on any date of determination (without duplication):

                      (i)  the principal of indebtedness of such Person for borrowed money,

                     (ii)  the principal of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments,

                    (iii)  all reimbursement obligations of such Person in respect of letters of credit, bankers' acceptances or other similar instruments (the amount of such obligations being equal at any time to the aggregate then undrawn and unexpired amount of such letters of credit, bankers' acceptances or other instruments plus the aggregate amount of drawings thereunder that have not then been reimbursed),

                    (iv)  all obligations of such Person to pay the deferred and unpaid purchase price of property (except Trade Payables), which purchase price is due more than one year after the date of placing such property in final service or taking final delivery and title thereto,

                     (v)  all Capitalized Lease Obligations of such Person,

                    (vi)  the redemption, repayment or other repurchase amount of such Person with respect to any Disqualified Stock of such Person or (if such Person is a Subsidiary of the Company other than a Subsidiary Guarantor) any Preferred Stock of such Subsidiary, but excluding, in each case, any accrued dividends (the amount of such obligation to be equal at any time to the maximum fixed involuntary redemption, repayment or repurchase price for such Capital Stock, or if less (or if such Capital Stock has no such fixed price), to the involuntary redemption, repayment or repurchase price therefor calculated in accordance with the terms thereof as if then redeemed, repaid or repurchased, and if such price is based upon or measured by the fair market value of such Capital Stock, such fair market value shall be as determined in good faith by the Board of Directors or the board of directors or other governing body of the issuer of such Capital Stock),

                   (vii)  all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person;provided that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination (as determined in good faith by the Company) and (B) the amount of such Indebtedness of such other Persons,

                  (viii)  all Guarantees by such Person of Indebtedness of other Persons, to the extent so Guaranteed by such Person, and

                    (ix)  to the extent not otherwise included in this definition, net Hedging Obligations of such Person (the amount of any such obligation to be equal at any time to the termination value of such agreement or arrangement giving rise to such Hedging Obligation that would be payable by such Person at such time);

          provided that Indebtedness shall not include Contingent Obligations Incurred in the ordinary course of business.


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                  The amount of Indebtedness of any Person at any date shall be determined as set forth above or otherwise provided in the Indenture, or otherwise shall equal the amount thereof that would appear as a liability on a balance sheet of such Person (excluding any notes thereto) prepared in accordance with GAAP.

                  "Intercreditor Agreements" means, collectively, the Base Intercreditor Agreement, the Cash Flow Intercreditor Agreement and any other intercreditor agreement entered into from time to time in accordance with the Senior Second Priority Indenture.

                  "Interest Rate Agreement" means, with respect to any Person, any interest rate protection agreement, future agreement, option agreement, swap agreement, cap agreement, collar agreement, hedge agreement or other similar agreement or arrangement (including derivative agreements or arrangements), as to which such Person is party or a beneficiary.

                  "Inventory" means goods held for sale, lease or use by a Person in the ordinary course of business, net of any reserve for goods that have been segregated by such Person to be returned to the applicable vendor for credit and net of any applicable unearned vendor rebates, as determined in accordance with GAAP.

                  "Investment" in any Person by any other Person means any direct or indirect advance, loan or other extension of credit (other than to customers, dealers, licensees, franchisees, suppliers, directors, officers or employees of any Person in the ordinary course of business) or capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by, such Person. For purposes of the definition of "Unrestricted Subsidiary" and the covenant described under "—Certain Covenants—Limitation on Restricted Payments" only, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary,provided that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation, (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value (as determined in good faith by the Company) at the time of such transfer and (iii) for purposes of clause (3)(C) of paragraph (a) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments," the amount resulting from the redesignation of any Unrestricted Subsidiary as a Restricted Subsidiary shall be the Fair Market Value of the Investment in such Unrestricted Subsidiary at the time of such redesignation (excluding the amount of such Investment then outstanding pursuant to clause (xv) or (xviii) of the definition of the term "Permitted Investments" or clause (vii) or (xii) of paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments"). Guarantees shall not be deemed to be Investments. The amount of any Investment outstanding at any time shall be the original cost of such Investment, reduced (at the Company's option) by any dividend, distribution, interest payment, return of capital, repayment or other amount or value received in respect of such Investment; provided, that to the extent that the amount of Restricted Payments outstanding at any time pursuant to paragraph (a) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments" is so reduced by any portion of any such amount or value that would otherwise be included in the calculation of Consolidated Net Income, such portion of such amount or value shall not be so included for purposes of calculating the amount of Restricted Payments that may be made pursuant to paragraph (a) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments."


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                  "Investment Grade Rating" means a rating of Baa3 or better by Moody's and BBB- or better by S&P (or, in either case, the equivalent of such rating by such organization), or an equivalent rating by any other Rating Agency.

                  "Investment Grade Securities" means (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Cash Equivalents); (ii) debt securities or debt instruments with an Investment Grade Rating, but excluding any debt securities or instruments constituting loans or advances among the Company and its Subsidiaries; (iii) investments in any fund that invests exclusively in investments of the type described in clauses (i) and (ii), which fund may also hold immaterial amounts of cash pending investment or distribution; and (iv) corresponding instruments in countries other than the United States customarily utilized for high quality investments.

                  "Investors" means (i) the CD&R Investors, the Bain Capital Investors and the Carlyle Investors and (ii) any of their respective legal successors.

                  "Issue Date" means February 1,) 2013.

                  "January 2013 Senior Subordinated Indenture" means the Indenture, dated as of January 16, 2013, among the Company, the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, governing the 10.50% Senior Subordinated Notes due 2021 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                  "January 2013 Senior Subordinated Notes" means the "Notes" as such term is defined in the January 2013 Senior Subordinated Indenture.

                  "Junior Capital" means, collectively, any Indebtedness of any Parent or the Company that (i) is not secured by any asset of the Company or any Restricted Subsidiary, (ii) is expressly subordinated to the prior payment in full of the Notes on terms consistent with, or (taken as a whole) not materially less favorable to the Holders than, those contained in the 2007 Senior Subordinated Notes remains outstanding onIndenture (as determined in good faith by the Company), (iii) has a final maturity date that is not earlier than, and provides for no scheduled payments of principal prior to, the date that is 4591 days after the maturity of the Notes (other than through conversion or exchange of any such Indebtedness for Capital Stock (other than Disqualified Stock) of the Company, Capital Stock of any Parent or any other Junior Capital), (iv) has no mandatory redemption or prepayment obligations other than obligations that are subject to the prior payment in full in cash of the Notes and (v) does not require the payment of cash interest until the date that is 91 days after the maturity of the Notes.

                  "Liabilities" means, collectively, any and all claims, obligations, liabilities, causes of action, actions, suits, proceedings, investigations, judgments, decrees, losses, damages, fees, costs and expenses (including without limitation interest, penalties and fees and disbursements of attorneys, accountants, investment bankers and other professional advisors), in each case whether incurred, arising or existing with respect to third parties or otherwise at any time or from time to time.

                  "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof).

                  "Management Advances" means (1) loans or advances made to directors, officers, employees or consultants of any Parent, the Company or any Restricted Subsidiary (x) in respect of travel, entertainment or moving related expenses incurred in the ordinary course of business, (y) in respect of moving related expenses incurred in connection with any closing or consolidation of any facility, or (z) in the ordinary course of business and (in the case of this clause (z)) not exceeding $10.0 million in the aggregate outstanding at any time, (2) promissory notes of Management Investors acquired in connection with the issuance of Management Stock to such Management Investors, (3) Management


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          Guarantees, or (4) other Guarantees of borrowings by Management Investors in connection with the purchase of Management Stock, which Guarantees are permitted under the covenant described under "—Certain Covenants—Limitation on Indebtedness."

                  "Management Agreements" means, collectively, (i) the Subscription Agreements, each dated as of August 30, 2007, between Holding Parent and each of the Investors party thereto, (ii) the Consulting Agreements, each dated as of August 30, 2007, among Holding Parent, the Company and each of CD&R, Bain Capital and Carlyle, or Affiliates thereof, respectively, (iii) the Indemnification Agreements, each dated as of August 30, 2007, among the Company, Holding Parent and each of (a) CD&R and each CD&R Investor, (b) Bain Capital and each Bain Capital Investor, and (c) Carlyle and each Carlyle Investor, or Affiliates thereof, respectively, (iv) the Registration Rights Agreement, dated as of August 30, 2007, among Holding Parent and the Investors party thereto and any other Person party thereto from time to time, (v) the Stockholders Agreement, dated as of August 30, 2007, by and among Holding Parent and the Investors party thereto and any other Person party thereto from time to time and (vi) any other agreement primarily providing for indemnification and/or contribution for the benefit of any Permitted Holder in respect of Liabilities resulting from, arising out of or in connection with, based upon or relating to (a) any management, consulting, financial advisory, financing, underwriting or placement services or other investment banking activities, (b) any offering of securities or other financing activity or arrangement of or by any Parent or any of its Subsidiaries or (c) any action or failure to act of or by any Parent or any of its Subsidiaries (or any of their respective predecessors); in each case in clauses (i) through (vi) as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof and of the Indenture.

                  "Management Guarantees" means guarantees (x) of up to an aggregate principal amount outstanding at any time of $25.0 million of borrowings by Management Investors in connection with their purchase of Management Stock or (y) made on behalf of, or in respect of loans or advances made to, directors, officers, employees or consultants of any Parent, the Company or any Restricted Subsidiary (1) in respect of travel, entertainment and moving related expenses incurred in the ordinary course of business, or (2) in the ordinary course of business and (in the case of this clause (2)) not exceeding $10.0 million in the aggregate outstanding at any time.

                  "Management Indebtedness" means Indebtedness Incurred to any Management Investor to finance the repurchase or other acquisition of Capital Stock of the Company or any Parent (including any options, warrants or other rights in respect thereof) from any Management Investor, which repurchase or other acquisition of Capital Stock is permitted by the covenant described under "—Limitation on Restricted Payments."

                  "Management Investors" means the officers, directors, employees and other members of the management of any Parent, the Company or any of their respective Subsidiaries, or family members or relatives thereof (provided that, solely for purposes of the definition of "Permitted Holders," such relatives shall include only those Persons who are or become Management Investors in connection with estate planning for or inheritance from other Management Investors, as determined in good faith by the Company, which determination shall be conclusive), or trusts, partnerships or limited liability companies for the benefit of any of the foregoing, or any of their heirs, executors, successors and legal representatives, who at any date beneficially own or have the right to acquire, directly or indirectly, Capital Stock of the Company or any Parent.

                  "Management Stock" means Capital Stock of the Company or any Parent (including any options, warrants or other rights in respect thereof) held by any of the Management Investors.

                  "Moody's" means Moody's Investors Service, Inc., and its successors.


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                  "Net Available Cash" from an Asset Disposition means an amount equal to the cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other non-cash form) therefrom, in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or to be accrued as a liability under GAAP, as a consequence of such Asset Disposition (including as a consequence of any transfer of funds in connection with the application thereof in accordance with the covenant described under "—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock"), (ii) all payments made, and all installment payments required to be made, on any Indebtedness (x) that is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or (y) that must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, including but not limited to any payments required to be made to increase borrowing availability under any revolving credit facility, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition, or to any other Person (other than the Company or a Restricted Subsidiary) owning a beneficial interest in the assets disposed of in such Asset Disposition, (iv) any liabilities or obligations associated with the assets disposed of in such Asset Disposition and retained, indemnified or insured by the Company or any Restricted Subsidiary after such Asset Disposition, including without limitation pension and other post-employment benefit liabilities, liabilities related to environmental matters, and liabilities relating to any indemnification obligations associated with such Asset Disposition, and (v) the amount of any purchase price or similar adjustment (x) claimed by any Person to be owed by the Company or any Restricted Subsidiary, until such time as such claim shall have been settled or otherwise finally resolved, or (y) paid or payable by the Company or any Restricted Subsidiary, in either case in respect of such Asset Disposition.

                  "Net Cash Proceeds," with respect to any issuance or sale of any securities or Indebtedness of the Company or any Subsidiary by the Company or any Subsidiary, or any capital contribution, means the cash proceeds of such issuance, sale or contribution net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance, sale or contribution and net of taxes paid or payable as a result thereof.

                  "Note Security Documents" means the collateral agreements and any mortgages, security agreements, pledge agreements or other instruments evidencing or creating Liens on the assets of the Company and the Subsidiary Guarantors to secure the obligations under the Senior First Priority Indenture and the Senior First Priority Notes or the Senior Second Priority Indenture and the Senior Second Priority Notes, as amended, restated, supplemented, waived or otherwise modified from time to time.

                  "Obligations" means, with respect to any Indebtedness, any principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company or any Restricted Subsidiary whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, Guarantees of such Indebtedness (or of Obligations in respect thereof), other monetary obligations of any nature and all other amounts payable thereunder or in respect thereof.

                  "October 2012 Senior Unsecured Indenture" means the Indenture, dated as of October 15, 2012, among the Company, the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, governing the 11.50% Senior Notes Due 2020, as the same may be amended, supplemented, waived or otherwise modified from time to time.


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                  "October 2012 Senior Unsecured Notes" means the "Notes" as such term is defined in the October 2012 Senior Unsecured Indenture.

                  "Officer" means, with respect to the Company or any other obligor upon the Notes, the Chairman of the Board, the President, the Chief Executive Officer, the Chief Financial Officer, any Vice President, the Controller, the Treasurer or the Secretary (a) of such Person or (b) if such Person is owned or managed by a single entity, of such entity (or any other individual designated as an "Officer" for the purposes of the Indenture by the Board of Directors).

                  "Officer's Certificate" means, with respect to the Company or any other obligor upon the Notes, a certificate signed by one Officer of such Person.

                  "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee.

                  "Parent" means any of Holding, Holding Parent, any Other Parent, and any other Person that is a Subsidiary of Holding, Holding Parent or any Other Parent and of which the Company is a Subsidiary. As used herein, "Other Parent" means a Person of which the Company becomes a Subsidiary after the Issue Date,provided that either (x) immediately after the Company first becomes a Subsidiary of such Person, more than 50% of the Voting Stock of such Person shall be held by one or more Persons that held more than 50% of the Voting Stock of a Parent of the Company immediately prior to the scheduled maturity dateCompany first becoming such Subsidiary or (y) such Person shall be deemed not to be an Other Parent for the purpose of determining whether a Change of Control shall have occurred by reason of the Company first becoming a Subsidiary of such Person.

                  "Parent Expenses" means (i) costs (including all professional fees and expenses) incurred by any Parent in connection with maintaining its existence or in connection with its reporting obligations under, or in connection with compliance with, applicable laws or applicable rules of any governmental, regulatory or self-regulatory body or stock exchange, the Indenture, the Senior First Priority Indenture, the Senior Second Priority Indenture, the April 2012 Senior Unsecured Indenture, the October 2012 Senior Unsecured Indenture, the 2007 Senior Subordinated Notes or (2) any unsecured indebtedness of HD Supply, Inc.Indenture, the January 2013 Senior Subordinated Indenture or any restricted subsidiaryother agreement or instrument relating to Indebtedness of the Company or any Restricted Subsidiary, including in respect of any reports filed with respect to the Securities Act, the Exchange Act or the respective rules and regulations promulgated thereunder, (ii) expenses incurred by any Parent in connection with the acquisition, development, maintenance, ownership, prosecution, protection and defense of its intellectual property and associated rights (including but not limited to refinancetrademarks, service marks, trade names, trade dress, patents, copyrights and similar rights, including registrations and registration or renewal applications in respect thereof; inventions, processes, designs, formulae, trade secrets, know-how, confidential information, computer software, data and documentation, and any other intellectual property rights; and licenses of any of the 2007foregoing) to the extent such intellectual property and associated rights relate to the business or businesses of the Company or any Subsidiary thereof, (iii) indemnification obligations of any Parent owing to directors, officers, employees or other Persons under its charter or by-laws or pursuant to written agreements with or for the benefit of any such Person (including the Management Agreements), or obligations in respect of director and officer insurance (including premiums therefor), (iv) other administrative and operational expenses of any Parent incurred in the ordinary course of business, and (v) fees and expenses incurred by any Parent in connection with any offering of Capital Stock or Indebtedness, (w) which offering is not completed, or (x) where the net proceeds of such offering are intended to be received by or contributed or loaned to the Company or a Restricted Subsidiary, or (y) in a prorated amount of such expenses in proportion to the amount of such net proceeds intended to be so received, contributed or loaned, or (z) otherwise on an interim basis prior to completion of such offering so long as any Parent shall cause the amount of such expenses to be repaid to the


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          Company or the relevant Restricted Subsidiary out of the proceeds of such offering promptly if completed.

                  "Pari Passu Lien Priority" means "Pari Passu Lien Priority" as such term is defined in the Senior Second Priority Indenture.

                  "Permitted Holder" means any of the following: (i) any of the Investors; (ii) any of the Management Investors and their respective Affiliates; (iii) any investment fund or vehicle managed or sponsored by CD&R, Bain Capital, Carlyle or any Affiliate thereof, and any Affiliate of or successor to any such investment fund or vehicle; (iv) any limited or general partners of, or other investors in, any CD&R Investor, Bain Capital Investor or Carlyle Investor or any of their respective Affiliates, or any such investment fund or vehicle (as to any such limited partner or other investor, solely to the extent of any Capital Stock of the Company or any Parent actually received by way of dividend or distribution from any such Investor, Affiliate, or investment fund or vehicle); and (v) any Person acting in the capacity of an underwriter in connection with a public or private offering of Capital Stock of any Parent or the Company. In addition, any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) whose status as a "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) constitutes or results in a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of the Indenture, together with its Affiliates, shall thereafter constitute Permitted Holders.

                  "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in, or consisting of, any of the following:

                      (i)  a Restricted Subsidiary, the Company, or a Person that will, upon the making of such Investment, become a Restricted Subsidiary (and any Investment held by such Person that was not acquired by such Person in contemplation of so becoming a Restricted Subsidiary);

                     (ii)  another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, or is liquidated into, the Company or a Restricted Subsidiary (and, in each case, any Investment held by such other Person that was not acquired by such Person in contemplation of such merger, consolidation or transfer);

                    (iii)  Temporary Cash Investments, Investment Grade Securities or Cash Equivalents;

                    (iv)  receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business;

                     (v)  any securities or other Investments received as consideration in, or retained in connection with, sales or other dispositions of property or assets, including Asset Dispositions made in compliance with the covenant described under "—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock";

                    (vi)  securities or other Investments received in settlement of debts created in the ordinary course of business and owing to, or of other claims asserted by, the Company or any Restricted Subsidiary, or as a result of foreclosure, perfection or enforcement of any Lien, or in satisfaction of judgments, including in connection with any bankruptcy proceeding or other reorganization of another Person;

                   (vii)  Investments in existence or made pursuant to legally binding written commitments in existence on the Issue Date;

                  (viii)  Currency Agreements, Interest Rate Agreements, Commodities Agreements and related Hedging Obligations, which obligations are Incurred in compliance with the covenant described under "—Certain Covenants—Limitation on Indebtedness";


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                    (ix)  pledges or deposits (x) with respect to leases or utilities provided to third parties in the ordinary course of business or (y) otherwise described in the definition of "Permitted Liens" or made in connection with Liens permitted under the covenant described under "—Certain Covenants—Limitation on Liens";

                     (x)  (1) Investments in or by any Special Purpose Subsidiary, or in connection with a Financing Disposition (described in clause (a) of the definition thereof) by or to or in favor of any Special Purpose Entity, including Investments of funds held in accounts permitted or required by the arrangements governing such Financing Disposition or any related Indebtedness, or (2) any promissory note issued by the Company, or any Parent, provided that if such Parent receives cash from the relevant Special Purpose Entity in exchange for such note, an equal cash amount is contributed by any Parent to the Company;

                    (xi)  bonds secured by assets leased to and operated by the Company or any Restricted Subsidiary that were issued in connection with the financing of such assets so long as the Company or any Restricted Subsidiary may obtain title to such assets at any time by paying a nominal fee, canceling such bonds and terminating the transaction;

                   (xii)  Notes;

                  (xiii)  any Investment to the extent made using Capital Stock of the Company (other than Disqualified Stock), or Capital Stock of any Parent or Junior Capital, as consideration;

                  (xiv)  Management Advances;

                   (xv)  Investments in Related Businesses in an aggregate amount outstanding at any time not to exceed the greater of $125.0 million and 2.5% of Consolidated Tangible Assets;

                  (xvi)  any transaction to the extent it constitutes an Investment that is permitted by and made in accordance with the provisions of paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Transactions with Affiliates" (except transactions described in clauses (i), (v) and (vi) of such paragraph), including any Investment pursuant to any transaction described in clause (ii) of such paragraph (whether or not any Person party thereto is at any time an Affiliate of the Company);

                 (xvii)  any Investment by any Captive Insurance Subsidiary in connection with its provision of insurance to the Company or any of its Subsidiaries, which Investment is made in the ordinary course of business of such Captive Insurance Subsidiary, or by reason of applicable law, rule, regulation or order, or that is required or approved by any regulatory authority having jurisdiction over such Captive Insurance Subsidiary or its business, as applicable; and

                (xviii)  other Investments in an aggregate amount outstanding at any time not to exceed the greater of $125.0 million and 2.5% of Consolidated Tangible Assets.

                  If any Investment pursuant to clause (xv) or (xviii) above, or clause (vii) of paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments," as applicable, is made in any Person that is not a Restricted Subsidiary and such Person thereafter (A) becomes a Restricted Subsidiary or (B) is merged or consolidated into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary, then such Investment shall thereafter be deemed to have been made pursuant to clause (i) or (ii) above, respectively, and not clause (xv) or (xviii) above, or clause (vii) of paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Restricted Payments," as applicable (and, in the case of the foregoing clause (A), for so long as such Person continues to be a Restricted Subsidiary unless and until such Person is merged or consolidated into or transfers or conveys all or substantially all its assets to, or is liquidated into, the Company or a Restricted Subsidiary).


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                  "Permitted Liens" means:

                    (a)   Liens for taxes, assessments or other governmental charges not yet delinquent or the nonpayment of which in the aggregate would not reasonably be expected to have a material adverse effect on the Company and its Restricted Subsidiaries or that are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or a Subsidiary thereof, as the case may be, in accordance with GAAP;

                    (b)   carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business in respect of obligations that are not overdue for a period of more than 60 days or that are bonded or that are being contested in good faith and by appropriate proceedings;

                    (c)   pledges, deposits or Liens in connection with workers' compensation, unemployment insurance and other social security and other similar legislation or other insurance related obligations (including, without limitation, pledges or deposits securing liability to insurance carriers under insurance or self-insurance arrangements);

                    (d)   pledges, deposits or Liens to secure the performance of bids, tenders, trade, government or other contracts (other than for borrowed money), obligations for utilities, leases, licenses, statutory obligations, completion guarantees, surety, judgment, appeal or performance bonds, other similar bonds, instruments or obligations, and other obligations of a like nature incurred in the ordinary course of business;

                    (e)   easements (including reciprocal easement agreements), rights-of-way, building, zoning and similar restrictions, utility agreements, covenants, reservations, restrictions, encroachments, charges, and other similar encumbrances or title defects incurred, or leases or subleases granted to others, which do not in the aggregate materially interfere with the ordinary conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole;

                    (f)    Liens existing on, or provided for under written arrangements existing on, the Issue Date, or (in the case of any such Liens securing Indebtedness of the Company or any of its Subsidiaries existing or arising under written arrangements existing on the Issue Date) securing any Refinancing Indebtedness in respect of such Indebtedness so long as the Lien securing such Refinancing Indebtedness is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or under such written arrangements could secure) the original Indebtedness;

                    (g)   (i) mortgages, liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord or other third party on property over which the Company or any Restricted Subsidiary has easement rights or on any leased property and subordination or similar agreements relating thereto and (ii) any condemnation or eminent domain proceedings affecting any real property;

                    (h)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of Hedging Obligations, Bank Products Obligations, Purchase Money Obligations or Capitalized Lease Obligations Incurred in compliance with the covenant described under "—Certain Covenants—Limitation on Indebtedness";

                    (i)    Liens arising out of judgments, decrees, orders or awards in respect of which the Company or any Restricted Subsidiary shall in good faith be prosecuting an appeal or proceedings for review, which appeal or proceedings shall not have been finally terminated, or if the period within which such appeal or proceedings may be initiated shall not have expired;

                    (j)    leases, subleases, licenses or sublicenses to or from third parties;


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                    (k)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of (1) Indebtedness Incurred in compliance with clause (b)(i), (b)(iv), (b)(v), (b)(vii), (b)(viii) (other than Junior Capital) or (b)(ix) of the covenant described under "—Certain Covenants—Limitation on Indebtedness," or clause (b)(iii) thereof (other than the Notes, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Notes, the January 2013 Senior Subordinated Notes remains outstandingor Refinancing Indebtedness Incurred in respect of Indebtedness under the Notes, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Notes, the January 2013 Senior Subordinated Notes or described in paragraph (a) thereof), (2) (A) Acquisition Indebtedness Incurred in compliance with clause (b)(x) or (b)(xi) of the covenant described under "—Certain Covenants—Limitation on Indebtedness," provided that (x) such Liens are limited to all or part of the same property or assets, including Capital Stock (plus improvements, accessions, proceeds or dividends or distributions in respect thereof, or replacements of any thereof) acquired, or of any Person acquired or merged or consolidated with or into the Company or any Restricted Subsidiary, in any transaction to which such Acquisition Indebtedness relates or (y) on the date of the Incurrence of such Indebtedness after giving effect to such Incurrence, the Consolidated Secured Leverage Ratio would equal or be less than the Consolidated Secured Leverage Ratio immediately prior to giving effect thereto or (B) any Refinancing Indebtedness Incurred in respect thereof, (3) the Notes, (4) Indebtedness of any Restricted Subsidiary that is 45 daysnot a Subsidiary Guarantor (limited, in the case of this clause (4), to Liens on any of the property and assets of any Restricted Subsidiary that is not a Subsidiary Guarantor), (5) Indebtedness or other obligations of any Special Purpose Entity, or (6) obligations in respect of Management Advances or Management Guarantees; in each case including Liens securing any Guarantee of any thereof;

                    (l)    Liens existing on property or assets of a Person at the time such Person becomes a Subsidiary of the Company (or at the time the Company or a Restricted Subsidiary acquires such property or assets, including any acquisition by means of a merger or consolidation with or into the Company or any Restricted Subsidiary); provided, however, that such Liens are not created in connection with, or in contemplation of, such other Person becoming such a Subsidiary (or such acquisition of such property or assets), and that such Liens are limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which such Liens arose, could secure) the obligations to which such Liens relate; provided further, that for purposes of this clause (l), if a Person other than the Company is the Successor Company with respect thereto, any Subsidiary thereof shall be deemed to become a Subsidiary of the Company, and any property or assets of such Person or any such Subsidiary shall be deemed acquired by the Company or a Restricted Subsidiary, as the case may be, when such Person becomes such Successor Company;

                    (m)  Liens on Capital Stock, Indebtedness or other securities of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary;

                    (n)   any encumbrance or restriction (including, but not limited to, pursuant to put and call agreements or buy/sell arrangements) with respect to Capital Stock of any joint venture or similar arrangement pursuant to any joint venture or similar agreement;

                    (o)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of Refinancing Indebtedness Incurred in respect of any Indebtedness secured by, or securing any refinancing, refunding, extension, renewal or replacement (in whole or in part) of any other obligation secured by, any other Permitted Liens, provided that any such new Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the obligations to which such Liens relate;


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                    (p)   Liens (1) arising by operation of law (or by agreement to the same effect) in the ordinary course of business, (2) on property or assets under construction (and related rights) in favor of a contractor or developer or arising from progress or partial payments by a third party relating to such property or assets, (3) on receivables (including related rights), (4) on cash set aside at the time of the Incurrence of any Indebtedness or government securities purchased with such cash, in either case to the extent that such cash or government securities prefund the payment of interest on such Indebtedness and are held in an escrow account or similar arrangement to be applied for such purpose, (5) securing or arising by reason of any netting or set-off arrangement entered into in the ordinary course of banking or other trading activities (including in connection with purchase orders and other agreements with customers), (6) in favor of the Company or any Subsidiary (other than Liens on property or assets of the Company or any Subsidiary Guarantor in favor of any Subsidiary that is not a Subsidiary Guarantor), (7) arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business, (8) on inventory or other goods and proceeds securing obligations in respect of bankers' acceptances issued or created to facilitate the purchase, shipment or storage of such inventory or other goods, (9) relating to pooled deposit or sweep accounts to permit satisfaction of overdraft, cash pooling or similar obligations incurred in the ordinary course of business, (10) attaching to commodity trading or other brokerage accounts incurred in the ordinary course of business, (11) arising in connection with repurchase agreements permitted under the covenant described under "—Certain Covenants—Limitation on Indebtedness" on assets that are the subject of such repurchase agreements or (12) in favor of any Special Purpose Entity in connection with any Financing Disposition;

                    (q)   other Liens securing obligations incurred in the ordinary course of business, which obligations do not exceed $75.0 million at any time outstanding; and

                    (r)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of Indebtedness Incurred in compliance with the covenant described under "—Certain Covenants—Limitation on Indebtedness,"provided that on the date of the Incurrence of such Indebtedness after giving effect to such Incurrence (or on the date of the initial borrowing of such Indebtedness after giving pro forma effect to the Incurrence of the entire committed amount of such Indebtedness, in which case such committed amount may thereafter be borrowed and reborrowed, in whole or in part, from time to time, without further compliance with this clause), (x) in the case of Indebtedness having Senior Lien Priority with respect to the Senior Second Priority Notes, the Consolidated Senior Priority Leverage Ratio shall not exceed 3.25 to 1.0 or (y) in all other cases, the Consolidated Secured Leverage Ratio shall not exceed 4.50 to 1.0.

                  For purposes of determining compliance with this definition, (x) a Lien need not be incurred solely by reference to one category of Permitted Liens described in this definition but may be incurred under any combination of such categories (including in part under one such category and in part under any other such category) and (y) in the event that a Lien (or any portion thereof) meets the criteria of one or more of such categories of Permitted Liens, the Company shall, in its sole discretion, classify or reclassify such Lien (or any portion thereof) in any manner that complies with this definition.

                  "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

                  "Preferred Stock" as applied to the Capital Stock of any corporation means Capital Stock of any class or classes (however designated) that by its terms is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation.


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                  "Purchase" has the meaning set forth in paragraph (4) of the definition of "Consolidated Coverage Ratio."

                  "Purchase Money Obligations" means any Indebtedness Incurred to finance or refinance the acquisition, leasing, construction or improvement of property (real or personal) or assets, and whether acquired through the direct acquisition of such property or assets or the acquisition of the Capital Stock of any Person owning such property or assets, or otherwise.

                  "Rating Agency" means Moody's or S&P or, if Moody's or S&P or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company which shall be substituted for Moody's or S&P or both, as the case may be.

                  "Real Property" means land, buildings, structures and other improvements located thereon, fixtures attached thereto, and rights, privileges, easements and appurtenances related thereto, and related property interests.

                  "Receivable" means a right to receive payment pursuant to an arrangement with another Person pursuant to which such other Person is obligated to pay, as determined in accordance with GAAP.

                  "refinance" means refinance, refund, replace, renew, repay, modify, restate, defer, substitute, supplement, reissue, resell or extend (including pursuant to any defeasance or discharge mechanism); and the terms "refinances," "refinanced" and "refinancing" as used for any purpose in the Indenture shall have a correlative meaning.

                  "Refinancing Indebtedness" means Indebtedness that is Incurred to refinance any Indebtedness existing on the date of the Indenture or Incurred in compliance with such Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary (to the extent permitted in such Indenture) and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness;provided, that (1) (x) if the Indebtedness being refinanced is Subordinated Obligations or Guarantor Subordinated Obligations, the Refinancing Indebtedness shall have a final Stated Maturity at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the final Stated Maturity of the Indebtedness being refinanced (or if shorter, the Notes), and (y) if the Indebtedness being refinanced was incurred pursuant to clause (b)(viii)(H) of the covenant described under "—Certain Covenants—Limitation on Indebtedness", the Refinancing Indebtedness shall be Subordinated Obligations or Guarantor Subordinated Obligations, as applicable, (2) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of (x) the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced, plus (y) fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such Refinancing Indebtedness and (3) Refinancing Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor that refinances Indebtedness of the Company or a Subsidiary Guarantor that could not have been initially Incurred by such Restricted Subsidiary pursuant to the covenant described under "—Certain Covenants—Limitation on Indebtedness" or (y) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.

                  "Registration Rights Agreement" means the Exchange and Registration Rights Agreement, dated as of the Issue Date, between the Company and the initial purchasers of the Notes, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                  "Related Business" means those businesses in which the Company or any of its Subsidiaries is engaged on the date of the Indenture, or that are similar, related, complementary, incidental or ancillary thereto or extensions, developments or expansions thereof.


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                  "Related Taxes" means (x) any taxes, charges or assessments, including but not limited to sales, use, transfer, rental, ad valorem, value-added, stamp, property, consumption, franchise, license, capital, net worth, gross receipts, excise, occupancy, intangibles or similar taxes, charges or assessments (other than federal, state, foreign, provincial or local taxes measured by income, and federal, state, foreign, provincial or local withholding imposed by any government or other taxing authority on payments made by any Parent other than to another Parent), required to be paid by any Parent by virtue of its being incorporated or having Capital Stock outstanding (but not by virtue of owning stock or other equity interests of any corporation or other entity other than the Company, any of its Subsidiaries or any Parent), or being a holding company parent of the Company, any of its Subsidiaries or any Parent or receiving dividends from or other distributions in respect of the Capital Stock of the Company, any of its Subsidiaries or any Parent, or having guaranteed any obligations of the Company or any of its Subsidiaries, or having made any payment in respect of any of the items for which the Company or any of its Subsidiaries is permitted to make payments to any Parent pursuant to the covenant described under "—Certain Covenants—Limitation on Restricted Payments," or acquiring, developing, maintaining, owning, prosecuting, protecting or defending its intellectual property and associated rights (including but not limited to receiving or paying royalties for the use thereof) relating to the business or businesses of the Company or any of its Subsidiaries, (y) any taxes of a Parent attributable to any taxable period (or portion thereof) ending on or prior to the scheduled maturity dateIssue Date or incurred in connection with the 2007 Transactions or the Transactions, or attributable to any Parent's receipt of (or entitlement to) any payment in connection with the 2007 Transactions or the Transactions, including any payment received after the Issue Date pursuant to any agreement related to the 2007 Transactions or the Transactions, or (z) any other federal, state, foreign, provincial or local taxes measured by income for which any Parent is liable up to an amount not to exceed, with respect to federal taxes, the amount of any such taxes that the Company and its Subsidiaries would have been required to pay on a separate company basis, or on a consolidated basis as if the Company had filed a consolidated return on behalf of an affiliated group (as defined in Section 1504 of the Code or an analogous provision of state, foreign, provincial or local law) of which it were the common parent, or with respect to state, foreign, provincial or local taxes, the amount of any such refinancing indebtedness.taxes that the Company and its Subsidiaries would have been required to pay on a separate company basis, or on a combined basis as if the Company had filed a combined return on behalf of an affiliated group consisting only of the Company and its Subsidiaries (in each case, reduced by any such taxes paid directly by the Company or its Subsidiaries).

                  "Requirement of Law" means, as to any Person, the certificate of incorporation and by laws or other organizational or governing documents of such Person, and any law, statute, ordinance, code, decree, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property or to which such Person or any of its material property is subject, including laws, ordinances and regulations pertaining to zoning, occupancy and subdivision of real properties.

                  "Restricted Payment Transaction" means any Restricted Payment permitted pursuant to the covenant described under "—Certain Covenants—Limitation on Restricted Payments," any Permitted Payment, any Permitted Investment, or any transaction specifically excluded from the definition of the term "Restricted Payment" (including pursuant to the exception contained in clause (i) and the parenthetical exclusions contained in clauses (ii) and (iii) of such definition).

                  "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary.

                  "Sale" has the meaning set forth in paragraph (3) of the definition of "Consolidated Coverage Ratio".

                  "SEC" means the Securities and Exchange Commission.


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                  "Second Lien Note Agent" has the meaning assigned to such term in the Base Intercreditor Agreement or the Cash Flow Intercreditor Agreement, as applicable.

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Senior ABL Agreement" means the Credit Agreement, dated as of April 12, 2012, among the Company; the other borrowers party thereto from time to time; the lenders and other financial institutions party thereto from time to time; and General Electric Capital Corporation, as administrative agent and collateral agent, as such agreement may be amended, supplemented, waived or otherwise modified from time to time or refunded, refinanced, restructured, replaced, renewed, repaid, increased or extended from time to time (whether in whole or in part, whether with the original administrative agent and lenders or other agents and lenders or otherwise, and whether provided under the original Senior ABL Agreement or one or more other credit agreements or otherwise, unless such agreement, instrument or document expressly provides that it is not intended to be and is not a Senior ABL Agreement).

                  "

          October 2012 Senior Notes

          On October 15, 2012, HD Supply, Inc. issued $1 billion aggregate principal amount of 11.50% Senior Notes due July 15, 2020 (the “October"October 2012 Senior Notes”Notes"). at par. As of October 28, 2012,August 4, 2013, the outstanding principal balance of the October 2012 Senior Notes was $1 billion.

          Interest

          Interest on the October 2012 Senior Notes is paid semi-annually, on April 15 and October 15 of each year and at maturity at a rate of 11.5% per annum.

          Guarantees

          The October 2012 Senior Notes are guaranteed, on a senior unsecured basis, by each of our wholly ownedwholly-owned existing and future domestic subsidiaries (subject to certain exceptions) and by each of our other domestic subsidiaries that is a borrower under the Senior ABL Facility or that guarantees payment of indebtedness of HD Supply, Inc. under certain credit facilities or capital markets securities.


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          Index to Financial Statements

          Optional RedemptionRedemption; Offer to Repurchase

                  Prior to October 15, 2016, HD Supply, Inc. may redeem some or all of the October 2012 Senior Notes in whole or in part, atby paying the applicable make-whole premium. At any time (1) prior to October 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus a customary make-whole premium and (2) on andor after October 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on October 15HD Supply, Inc. may redeem some or all of the years set forth below:

          Redemption Period

          		  Redemption Price 

          2016

          		   105.750% 

          2017

          		   102.875% 

          2018 and thereafter

          		   100.000% 

          October 2012 Senior Notes at redemption prices specified in the indenture governing the October 2012 Senior Notes. In addition, at any timein the event of an equity offering prior to October 15, 2015, HD Supply, Inc. may redeem up to 35% of the aggregate principal amount of each of the October 2012 Senior Notes with the proceeds of certain equity offerings at a redemption price of 111.50%equal to 100% plus the amount of the principal amountrespective coupon, using the net cash proceeds raised in respect of the October 2012 Senior Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the October 2012 Senior Notes are redeemed, an aggregate principal amount of October 2012 Senior Notes equal to at least 50% of the original aggregate principal amount of October 2012 Senior Notes must remain outstanding immediately after each such redemption of October 2012 Senior Notes.equity offering.

          Offer to Repurchase

          In the event of certain events that constitute a Change of Control (as defined in the indenture governing the October 2012 Senior Notes), HD Supply, Inc. must offer to repurchase all of the October 2012 Senior Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. If HD Supply, Inc. or any of its restricted subsidiaries sells assets under certain circumstances, HD Supply, Inc. must use the proceeds to make an offer to purchase the October 2012 Senior Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

          Covenants

          The indentureindentures governing the October 2012 Senior Notes includes affirmative and negative covenants that generally track those in the indenture governing the April 2012 Senior Notes, to the extent applicable.

          Events of Default

          The indenture governing the October 2012 Senior Notes also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and other monetary obligations on all the then outstanding October 2012 Senior Notes to be due and payable immediately. It is an event of default if more than $450.0 million aggregate principal amount of (1) the 2007 Senior Subordinated Notes remains outstanding on the date that is 45 days prior to the scheduled maturity date of the 2007 Senior Subordinated Notes or (2) any unsecured indebtedness of HD Supply, Inc. or any restricted subsidiary incurred to refinance the 2007 Senior Subordinated Notes remains outstanding on the date that is 45 days prior to the scheduled maturity date of the such refinancing indebtedness. We intend to redeem all of the remaining outstanding 2007 Senior Subordinated Notes on or about February 8, 2013.

          Index to Financial Statements

          2007 Senior Subordinated Notes

          On August 30, 2007, HD Supply, Inc. issued $1.3 billion of Senior Subordinated PIK Notes (the “2007 Senior Subordinated Notes”). During fiscal 2009, the Company repurchased $252 million principal amount, plus accrued interest of $15 million, of the 2007 Senior Subordinated Notes for $62 million. As a result, we recognized a $200 million pre-tax gain for the extinguishment of this portion of the 2007 Senior Subordinated Notes, net of the write-off of unamortized deferred debt issuance costs. In addition, during the second quarter of fiscal 2012, we repurchased $1 million aggregate principal amount of the 2007 Senior Subordinated Notes at a 3% discount. As a result of PIK interest capitalizations and the extinguishment of a portion of the principal, as of October 28, 2012, the outstanding principal balance of the 2007 Senior Subordinated Notes was $1.8 billion.

          On November 8, 2012, HD Supply, Inc. redeemed $930 million of its outstanding 2007 Senior Subordinated Notes at a premium of 103.375% plus $23 million of accrued interest. As a result, in the fourth quarter of fiscal 2012, the Company will report a $37 million loss on extinguishment, which includes a $31 million premium payment to redeem the 2007 Senior Subordinated Notes and $5 million to write-off the pro-rata portion of the unamortized deferred debt costs. Subsequent to the November 8, 2012 redemption, $889 million of the Company’s 2007 Senior Subordinated Notes remains outstanding. No 2007 Senior Subordinated Notes will remain outstanding after the application on February 8, 2013 of the proceeds of the offering of the Old Notes.

          Interest

          Interest on the 2007 Senior Subordinated Notes is paid semi-annually, on March 1 and September 1 of each year. The first eight payment periods through September 2011 were payments in kind (“PIK”) and therefore increased the balance of the outstanding indebtedness rather than paid in cash.

          Guarantees

          The 2007 Senior Subordinated Notes are guaranteed by each of our domestic subsidiaries that is a borrower under the Senior ABL Facility or that guarantees payment of indebtedness of HD Supply, Inc. or a Subsidiary Guarantor under certain credit facilities and is a wholly-owned domestic subsidiary or that guarantees capital markets securities (the “Subsidiary Guarantors”).

          Redemption

          HD Supply, Inc. may redeem the 2007 Senior Subordinated Notes, in whole or in part, at any time (1) prior to September 1, 2011, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus a customary make-whole premium and (2) on and after September 1, 2011, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on September 1 of the years set forth below:

          Redemption Period

          		  Redemption Price 

          2011

          		   106.750% 

          2012

          		   103.375% 

          2013 and thereafter

          		   100.000% 

          Offer to Repurchase

          In the event of certain events that constitute a Change of Control (as defined in the indenture governing the 2007 Senior Subordinated Notes), HD Supply, Inc. must offer to repurchase all of the 2007 Senior Subordinated Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. If HD Supply, Inc. or any of its restricted subsidiaries sells assets under

          Index to Financial Statements

          certain circumstances, HD Supply, Inc. must use the proceeds to make an offer to purchase the 2007 Senior Subordinated Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

          Covenants

          The indenture governing the 2007 Senior Subordinated Notes containscontain covenants that, among other things, limit the ability of HD Supply, Inc. and its restricted subsidiaries, as described in the indenture governing the October 2012 Senior Notes, to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of HD Supply, Inc.’s's restricted subsidiaries to pay dividends to HD Supply, Inc. or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; and enter into certain transactions with HD Supply, Inc.’s's affiliates. Most of these covenants will cease to apply for so long as the October 2012 Senior Notes have investment grade ratings from both Moody's Investment Services, Inc. and Standard & Poor's.


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          Events of Default

          The indenture governing the 2007 Senior Subordinated Notes also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and other monetary obligations on all the then outstanding 2007 Senior Subordinated Notes to be due and payable immediately.

          Index to Financial Statements

          DESCRIPTION OF NOTES

          General

          The old 10.50%existing 7.50% Senior Subordinated Notes due 2021July 15, 2020 (the “"Old Notes”") were issued, and the new 10.50%7.50% Senior Subordinated Notes due 2021July 15, 2020 (the “"New Notes”") will be issued, under an Indenture, dated as of January 16,February 1, 2013 (as amended by the First Supplemental (the "Indenture dated as of January 16, 2013, the “Indenture”"), among the Company, as issuer, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as Trustee (the “"Trustee”").

          The Indenture and the Notes contain provisions that define your rights and govern the obligations of the Company under the Notes. Copies of the forms of the Indenture and the form of Notes will be made available to prospective purchasers of the Notes upon request, when available. See “Whereas set forth under "Where You Can Find More Information.”"

          The following is a summary of certain provisions of the Indenture and the Notes. It does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture and the Notes, including the definitions of certain terms therein and (in the case of the Indenture) those terms to be made a part thereof by the Trust Indenture Act of 1939, as amended. The term “Company”"Company" and the other capitalized terms defined in “—"—Certain Definitions”Definitions" below are used in this “Description"Description of Notes”Notes" as so defined, except as otherwise provided herein. Any reference to a “Holder”"Holder" or a “Noteholder”"Noteholder" in this “Description"Description of Notes”Notes" refers to the Holders of the Notes. The Old Notes and the New Notes, are each considered collectively to be a single class for all purposes under the Indenture, including, without limitations, for the purposes of waivers, amendments, redemptions and offers to purchase. In this “Description"Description of Notes”Notes", any reference to (i) “Notes”"Notes" refers collectively to the Old Notes and the New Notes, unless the context otherwise requires, and (ii) a “class”"class" of Notes refers to the Old Notes and the New Notes collectively as a class, as applicable.

          Brief Description of the Notes

          The Notes are:

            •
            unsecured Senior Subordinated Indebtedness of the Company;

          subordinated in right of payment, as set forth in the Indenture, to the payment when due of all existing and future Senior Indebtedness of the Company, including the Company’s obligations under the Senior Credit Facilities, the Senior First Priority Notes, the Senior Second Priority Notes, the April 2012 Senior Unsecured Notes and the October 2012 Senior Unsecured Notes;



          •
          effectively subordinated to all secured Indebtedness of the Company to the extent of the value of the assets securing such secured Indebtedness and to all Indebtedness and other liabilities (including Trade Payables) of the Company’sCompany's Subsidiaries (other than Subsidiaries that are or become Subsidiary Guarantors pursuant to the provisions described below under “—"—Subsidiary Guarantees”Guarantees");

          •

          pari passu in right of payment with all existing and future Senior Subordinated Indebtedness of the Company, including the Existing Senior Subordinated Notes; and



          •
          pari passu in right of payment with all existing and future Senior Indebtedness of the Company; and

          •
          senior in right of payment to all existing and future Subordinated Obligations of the Company.

          Brief Description of the Subsidiary Guarantees

          The Subsidiary Guarantees of each Subsidiary Guarantor in respect of the Notes are:

            •
            unsecured Senior Subordinated Indebtedness of such Subsidiary Guarantor;

          Index to Financial Statements

          subordinated in right of payment, as set forth in the Indenture, to the payment when due of all existing and future Senior Indebtedness of such Subsidiary Guarantor, including such Subsidiary Guarantor’s obligations, if any, under the Senior Credit Facilities, the Senior First Priority Notes, the Senior Second Priority Notes, the April 2012 Senior Unsecured Notes and the October 2012 Senior Unsecured Notes;



          •
          effectively subordinated to all secured Indebtedness of such Subsidiary Guarantor to the extent of the value of the assets securing such secured Indebtedness and to all Indebtedness and other liabilities (including Trade Payables) of such Subsidiary Guarantor’sGuarantor's Subsidiaries (other than Subsidiaries that are or become Subsidiary Guarantors pursuant to the provisions described below under “—"—Subsidiary Guarantees”Guarantees");

          •
          pari passu in right of payment with all existing and future Senior Indebtedness of such Subsidiary Guarantor; and

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          •

          pari passu in right of payment with all existing and future Senior Subordinated Indebtedness of such Subsidiary Guarantor, including such Subsidiary Guarantor’s obligations, if any, under the Existing Senior Subordinated Notes; and

            •
            senior in right of payment to all existing and future Guarantor Subordinated Obligations of such Subsidiary Guarantor.

          Principal, Maturity and Interest

          The Notes will mature on JanuaryJuly 15, 2021.2020. Each Note bears interest at the rate of 10.50%7.50% per annum shown on the front cover of this prospectus from January 16,February 1, 2013, or from the most recent date to which interest has been paid or provided for. Interest is payable semiannually in cash to Holders of record at the close of business on April 1 or October 1 immediately preceding the interest payment date on April 15 and October 15 of each year and at maturity, commencing April 15, 2013. Interest will be paid on the basis of a 360-day year consisting of twelve 30-day months.

          An aggregate principal amount of $950,000,000$1,275,000,000 of Notes is currently outstanding. Additional securities may be issued under the Indenture in one or more series from time to time (“("Additional Notes”"), subject to the limitations set forth under “—"—Certain Covenants—Limitation on Indebtedness,”" which will vote as a class with the Notes (except as otherwise provided herein) and otherwise be treated as Notes for purposes of the Indenture. The Indenture permits the Company to designate the maturity date, interest rate and optional redemption provisions applicable to each series of Additional Notes, which may differ from the maturity date, interest rate and optional redemption provisions applicable to the Notes issued on the Issue Date. Additional Notes that differ with respect to maturity date, interest rate or optional redemption provisions from the Notes issued on the Issue Date will constitute a different series of Notes from such initial Notes. Additional Notes that have the same maturity date, interest rate and optional redemption provisions as the Notes issued on the Issue Date will be treated as the same series as such initial Notes unless otherwise designated by the Company. The Company similarly will be entitled to vary the application of certain other provisions to any series of Additional Notes.

          Other Terms

          Principal of, and premium, if any, and interest on, the Notes are payable, and the Notes may be exchanged or transferred, at the office or agency of the Company maintained for such purposes (which initially shall be the corporate trust office of the Trustee), except that, at the option of the Company, payment of interest may be made by wire transfer of immediately available funds to the account designated to the Company by the Person entitled thereto or by check mailed to the address of the registered holders of the Notes as such address appears in the Note Register.

          The New Notes will be issued in the form of global notes that will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company, and purchasers of Notes will not receive or be entitled to receive physical, certificated Notes (except in the very limited circumstances described herein). The Notes will be issued only in fully registered form, without coupons. The Notes will be issued only in minimum denominations of $2,000 (the “"Minimum Denomination”") and any integral multiple of $1,000 in excess thereof.

          Index to Financial Statements

          Optional Redemption

          The Notes are redeemable, at the Company’sCompany's option, at any time prior to maturity at varying redemption prices in accordance with the applicable provisions set forth below.

          The Notes are redeemable, at the Company’sCompany's option, in whole or in part, at any time and from time to time on and after JanuaryOctober 15, 2016, and prior to maturity at the applicable redemption price set forth below. Such redemption may be made upon notice mailed by first class mail to each Holder’sHolder's registered address, not less than 30 nor (other than in the case of defeasance or satisfaction and discharge) more than 60 days prior to the date of redemption (the “"Redemption Date”"). The Company may provide in such notice that payment of the redemption price and the performance of the Company’s


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          Company's obligations with respect to such redemption may be performed by another Person. Any such redemption and notice may, in the Company’sCompany's discretion, be subject to the satisfaction of one or more conditions precedent, including but not limited to the occurrence of a Change of Control. The Notes are so redeemable at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on JanuaryOctober 15 of the years set forth below:

          Redemption Period

          		  Price 

          2016

          		   107.875% 

          2017

          		   105.250% 

          2018

          		   102.625% 

          2019 and thereafter

          		   100.000% 
          Redemption Period
          		 Price 

          2016

          		  103.750%

          2017

          		  101.875%

          2018 and thereafter

          		  100.000%

          In addition, the Indenture provides that at any time and from time to time prior to JanuaryOctober 15, 2016,2015, the Company at its option may redeem Notes in an aggregate principal amount equal to up to 35% of the original aggregate principal amount of the Notes (including the principal amount of any Additional Notes of the same series), with funds in an equal aggregate amount (the “"Redemption Amount”") not exceeding the aggregate proceeds of one or more Equity Offerings (as defined below), at a redemption price (expressed as a percentage of principal amount thereof) of 110.50%107.50%, plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date);provided,however, that if Notes are redeemed, an aggregate principal amount of Notes equal to at least 50% (or, if any Qualified Public Offering Redemption (as defined below) shall have been consummated, 35%) of the original aggregate principal amount of Notes (including the principal amount of any Additional Notes of the same series) must remain outstanding immediately after each such redemption of Notes. “"Equity Offering”" means a sale of Capital Stock (x)(x) that is a sale of Capital Stock of the Company (other than Disqualified Stock) or (y)(y) proceeds of which in an amount equal to or exceeding the Redemption Amount are contributed to the equity capital of the Company or any of its Restricted Subsidiaries.

          In addition to the foregoing, the Indenture provides that at any time and from time to time after July 31, 2013 and on or before July 31, 2014, the Company may at its option redeem (a “Qualified Public Offering Redemption”) Notes in an aggregate principal amount equal to up to 100% of the Notes (including any Additional Notes of the same series) with funds in an equal aggregate amount (the “Public Offering Redemption Amount”) not exceeding the aggregate proceeds of any one or more Qualified Public Offering (as defined below), at a Such redemption price (expressed as a percentage of principal amount thereof) of (x) if such redemption occurs on or prior to January 31, 2014, 103% and (y) if such redemption occurs after January 31, 2014 and on or prior to July 31, 2014, 102%, in each case plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date);provided,however, that if less than 100% of the Notes are to be redeemed in any Qualified Public Offering Redemption, at least 33.33% of the original aggregate principal amount of the Notes (including the principal amount of any Additional Notes of the same series) must remain outstanding immediately after giving effect to such Qualified Public Offering Redemption. “Qualified Public Offering”

          Index to Financial Statements

          means the issuance by the Company or any direct or indirect parent of the Company of its Capital Stock constituting common stock, in an underwritten primary public offering (other than a public offering pursuant to a registration statement on Form S-8) pursuant to an effective registration statement filed with the U.S. Securities and Exchange Commission in accordance with the Securities Act (whether alone or in connection with a secondary public offering) yielding gross proceeds to the Company, or any direct or indirect parent of the Company, of at least $100.0 million;provided that proceeds in an amount equal to or exceeding the Public Offering Redemption Amount be received by, or contributed to the equity capital of, the Company or any Restricted Subsidiary.

          Any such redemption in accordance with the immediately preceding two paragraphs may be made upon notice mailed by first class mail to each Holder’sHolder's registered address, not less than 30 nor more than 60 days prior to the Redemption Date (but in no event more than 180 days after the completion of the related Equity Offering or Qualified Public Offering, as applicable)Offering). The Company may provide in such notice that payment of the redemption price and performance of the Company’sCompany's obligations with respect to such redemption may be performed by another Person. Any such notice may be given prior to the completion of the related Equity Offering, or Qualified Public Offering, as applicable, and any such redemption or notice may, at the Company’sCompany's discretion, be subject to the satisfaction of one or more conditions precedent, including but not limited to the completion of the related Equity Offering or Qualified Public Offering, as applicable.Offering.

          At any time prior to JanuaryOctober 15, 2016, Notes may also be redeemed in whole or in part, at the Company’sCompany's option, at a price (the “"Redemption Price”") equal to 100% of the principal amount thereof plus the Applicable Premium as of, and accrued but unpaid interest, if any, to, the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). Such redemption may be made upon notice mailed by first class mail to each Holder’sHolder's registered address, not less than 30 nor more than 60 days prior to the Redemption Date. The Company may provide in such notice that payment of the Redemption Price and performance of the Company’sCompany's obligations with respect to such redemption may be performed by another Person. Any such redemption or notice may, at the Company’sCompany's discretion, be subject to the satisfaction of one or more conditions precedent, including but not limited to the occurrence of a Change of Control.

          “        "Applicable Premium”" means, with respect to a Note at any Redemption Date, the greater of (i)(i) 1.0% of the principal amount of such Note and (ii)(ii) the excess of (A)(A) the present value at such Redemption Date of (1)(1) the redemption price of such Note on JanuaryOctober 15, 2016 (such redemption


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          price being that described in the second paragraph of this “—"—Optional Redemption”Redemption" section) plus (2)(2) all required remaining scheduled interest payments due on such Note through such date (excluding accrued and unpaid interest to the Redemption Date), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B)(B) the principal amount of such Note on such Redemption Date, as calculated by the Company or on behalf of the Company by such Person as the Company shall designate;provided that such calculation shall not be a duty or obligation of the Trustee.

          “        "Treasury Rate”" means, with respect to a Redemption Date, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two Business Days prior to such Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such Redemption Date to JanuaryOctober 15, 2016;provided,however, that if the period from the Redemption Date to such date is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to such date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

          Index to Financial Statements

          Selection

          In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, in integral multiples of $1,000, although no Note of the Minimum Denomination in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note.

          Subsidiary Guarantees

          As of the Issue Date, each Wholly Owned Domestic Subsidiary (other than an Excluded Subsidiary), and each other Domestic Subsidiary that is a borrower under the Senior ABL Facility or that guarantees payment of Indebtedness of the Company under any Credit Facility or Capital Markets Securities, guaranteed payment of the Notes under the Indenture. From and after the Issue Date, the Company will cause each Wholly Owned Domestic Subsidiary (other than an Excluded Subsidiary), and each other Domestic Subsidiary that is a borrower under the Senior ABL Facility or that guarantees payment of Indebtedness of the Company under any Credit Facility or Capital Markets Securities, to execute and deliver to the Trustee a supplemental indenture or other instrument pursuant to which such Domestic Subsidiary will guarantee payment of the Notes, whereupon such Domestic Subsidiary will become a Subsidiary Guarantor for all purposes under the Indenture. In addition, the Company may cause any Subsidiary that is not a Subsidiary Guarantor so to guarantee payment of the Notes and become a Subsidiary Guarantor.

          Each Subsidiary Guarantor, as primary obligor and not merely as surety, jointly and severally, irrevocably and fully and unconditionally Guarantees, on an unsecureda senior subordinated basis, the punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all monetary obligations of the Company under the Indenture and the Notes, whether for principal of or interest on the Notes, expenses, indemnification or otherwise (all such obligations guaranteed by such Subsidiary Guarantors being herein called the “"Subsidiary Guaranteed Obligations”"). Such Subsidiary Guarantor agrees to pay, in addition to the amount stated above, any and all reasonable out-of-pocket expenses (including


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          reasonable counsel fees and expenses) incurred by the Trustee or the Holders in enforcing any rights under its Subsidiary Guarantee.

          The obligations of each Subsidiary Guarantor are limited to the maximum amount, as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including but not limited to any Guarantee by it of any Credit Facility Indebtedness), result in the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under applicable law, or being void or unenforceable under any law relating to insolvency of debtors.

          Each such Subsidiary Guarantee is a continuing Guarantee and shall (i)(i) remain in full force and effect until payment in full of the principal amount of all outstanding Notes (whether by payment at maturity, purchase, redemption, defeasance, retirement or other acquisition) and all other Subsidiary Guaranteed Obligations then due and owing unless earlier terminated as described below, (ii)(ii) be binding upon such Subsidiary Guarantor and (iii)(iii) inure to the benefit of and be enforceable by the Trustee, the Holders and their permitted successors, transferees and assigns.

          Notwithstanding the preceding paragraph, any Subsidiary Guarantor will automatically and unconditionally be 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, (i)(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 Indenture (including the covenants described under “—"—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock”Stock" and “—"—Merger and Consolidation”Consolidation") by the Company or a Restricted Subsidiary, following which such Subsidiary Guarantor is no longer a Restricted Subsidiary of the Company, (ii)(ii) at any time

          Index to Financial Statements

          that such Subsidiary Guarantor is released from all of its obligations under all of its Guarantees of payment of any Indebtedness of the Company or any Subsidiary Guarantor under the Senior Credit Facilities and Capital Markets Securities and is not a borrower under the Senior ABL Facility (it being understood that a release subject to contingent reinstatement is still a release, and that if any such Guarantee is so reinstated, such Subsidiary Guarantee shall also be reinstated to the extent that such Subsidiary Guarantor would then be required to provide a Subsidiary Guarantee pursuant to the covenant described under “—"—Certain Covenants—Future Subsidiary Guarantors”Guarantors"), (iii)(iii) upon the merger or consolidation of any Subsidiary Guarantor with and into the Company or another Subsidiary Guarantor that is the surviving Person in such merger or consolidation, or upon the liquidation of such Subsidiary Guarantor following the transfer of all of its assets to the Company or another Subsidiary Guarantor, (iv)(iv) concurrently with any Subsidiary Guarantor becoming an Unrestricted Subsidiary, (v)(v) during the Suspension Period, 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 Person 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)(vi) upon legal or covenant defeasance of the Company’sCompany's obligations, or satisfaction and discharge of the Indenture, or (vii)(vii) subject to customary contingent reinstatement provisions, upon payment in full of the aggregate principal amount of all Notes then outstanding and all other Subsidiary Guaranteed Obligations then due and owing. In addition, the Company has the right, upon 30 days’days' notice to the Trustee, to cause any Subsidiary Guarantor that has not guaranteed payment of any Indebtedness of the Company or any Subsidiary Guarantor under the Senior Credit Facilities or Capital Markets Securities 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. Upon any such occurrence specified in this paragraph, the Trustee shall execute any documents reasonably requested by the Company in order to evidence such release, discharge and termination in respect of such Subsidiary Guarantee.

          Neither the Company nor any Subsidiary Guarantor shall be required to make a notation on the Notes to reflect any such Subsidiary Guarantee or any such release, termination or discharge.


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          Ranking

          The indebtedness evidenced by the Notes (a)(a) is unsecured Senior Subordinated Indebtedness of the Company, (b) is subordinated in right of payment, as set forth in the Indenture, to the payment when due of all existing and future Senior Indebtedness of the Company, including the Company’s obligations under the Senior Credit Facilities, the Senior First Priority Notes, the Senior Second Priority Notes, the April 2012 Senior Unsecured Notes and the October 2012 Senior Unsecured Notes, (c)(b) rankspari passu in right of payment with all existing and future Senior Subordinated Indebtedness of the Company including the Existing Senior Subordinated Notes, and (d)(c) is senior in right of payment to all existing and future Subordinated Obligations of the Company. The Notes are also effectively subordinated to all secured Indebtedness of the Company to the extent of the value of the assets securing such Indebtedness, and to all Indebtedness and other liabilities (including Trade Payables) of its Subsidiaries (other than any Subsidiaries that are or become Subsidiary Guarantors pursuant to the provisions described above under “—"—Subsidiary Guarantees”Guarantees").

          Each Subsidiary Guarantee in respect of Notes (a)(a) is unsecured Senior Subordinated Indebtedness of the applicable Subsidiary Guarantor, (b) is subordinated(b) rankspari passu in right of payment as set forth in the Indenture, to the payment when due ofwith all existing and future Senior Indebtedness of such Subsidiary Guarantor including such Subsidiary Guarantor’s obligations, if any, under the Senior Credit Facilities, the Senior First Priority Notes, the Senior Second Priority Notes, the April 2012 Senior Unsecured Notes and the October 2012 Senior Unsecured Notes, (c) rankspari passu in right of payment with all existing and future Senior Subordinated Indebtedness of such Subsidiary Guarantor, including such Subsidiary Guarantor’s obligations, if any, under the Existing Senior Subordinated Notes, and (d)(c) is senior in right of payment to all existing and future Guarantor Subordinated Obligations of such Subsidiary Guarantor. Such Subsidiary Guarantee is also effectively subordinated to all secured Indebtedness of such Subsidiary Guarantor to the extent of the value of the assets securing such

          Index to Financial Statements

          Indebtedness, and to all Indebtedness and other liabilities (including Trade Payables) of the Subsidiaries of such Subsidiary Guarantor (other than any Subsidiaries that are or become Subsidiary Guarantors pursuant to the provisions described above under “—"—Subsidiary Guarantees”Guarantees").

          However, payment from the money or the proceeds of U.S. Government Obligations held in any defeasance trust described under “—Defeasance” below is not subordinated to any Senior Indebtedness or subject to the restrictions described herein, so long as the deposit of money or U.S. Government Obligations into such trust was made in accordance with the provisions of the Indenture described under “—Defeasance” below, and did not violate the subordination provisions of the Indenture at the time such deposit was made.

          All of the operations of the Company are conducted through its Subsidiaries. Claims of creditors of such Subsidiaries, including trade creditors, and claims of preferred shareholders (if any) of such Subsidiaries will have priority with respect to the assets and earnings of such Subsidiaries over the claims of creditors of the Company, including holders of the Notes, unless such Subsidiary is a Subsidiary Guarantor. The Notes, therefore, are effectively subordinated to creditors (including trade creditors) and preferred shareholders (if any) of other Subsidiaries of the Company (other than Subsidiaries that become Subsidiary Guarantors). In addition, certain of the operations of a Subsidiary Guarantor may be conducted through Subsidiaries thereof that are not also Subsidiary Guarantors. Claims of creditors of such Subsidiaries, including trade creditors, and claims of preferred shareholders (if any) of such Subsidiaries will have priority with respect to the assets and earnings of such Subsidiaries over the claims of creditors of such Subsidiary Guarantor, including claims under its Subsidiary Guarantee. Such Subsidiary Guarantees, therefore, are effectively subordinated to creditors (including trade creditors) and preferred shareholders (if any) of any such Subsidiaries. Although the Indenture limits the incurrence of Indebtedness (including preferred stock) by certain of the Company’sCompany's Subsidiaries, such limitation is subject to a number of significant qualifications.

          Subordination of Notes

          Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior Indebtedness ranks senior in right of payment to such Person’s obligations with respect to the Notes or its Subsidiary Guarantee thereof, as the case may be, in accordance with the provisions of the Indenture. Such Person’s obligations with respect to the Notes or such Person’s Subsidiary Guarantee, as the case may be, rankpari passu in right of payment with all other Senior Subordinated Indebtedness of such Person. The Indenture provides that the Company will not Incur, and will not permit any Subsidiary Guarantor to Incur, directly or indirectly, any Indebtedness that is expressly subordinated in right of payment to Senior Indebtedness of the Company or such Subsidiary Guarantor, as the case may be, unless such Indebtedness ispari passu in right of payment with, or subordinated in right of payment to, the Notes or the relevant Subsidiary Guarantee, as the case may be. Indebtedness that is unsecured or secured by a junior Lien is not deemed to be subordinate or junior to secured Indebtedness merely because it is unsecured or secured by a junior Lien, and Indebtedness that is not guaranteed by a particular Person is not deemed to be subordinate or junior to Indebtedness that is so guaranteed merely because it is not so guaranteed. See “—Certain Covenants—Limitation on Layering” below.

          The Company may not pay principal of, or premium (if any) or interest on, the Notes or make any deposit pursuant to the provisions described under “—Defeasance” below and may not otherwise purchase, redeem or otherwise retire any Notes (collectively, “pay the Notes”) if (i) any Designated Senior Indebtedness of the Company is not paid in full in cash or Cash Equivalents when due (after giving effect to any applicable grace periods) or (ii) any other default on Designated Senior Indebtedness of the Company occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms (either such event, a “Payment Default”) unless, in either case, (x) the Payment Default has been cured or waived and any such acceleration has been rescinded in writing or (y) such Designated Senior Indebtedness has been paid in full in cash or Cash Equivalents. However, the Company may pay the Notes without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative for the Designated Senior Indebtedness with respect to which the Payment Default has occurred and is continuing.

          Index to Financial Statements

          In addition, during the continuance of any default (other than a Payment Default) with respect to any Designated Senior Indebtedness of the Company pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace period (a “Non-payment Default”), the Company may not pay the Notes for the period specified as follows (a “Payment Blockage Period”). The Payment Blockage Period shall commence upon the receipt by the Trustee (with a copy to the Company) of written notice (a “Blockage Notice”) of such Non-payment Default from the Representative for such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and shall end on the earliest to occur of the following events:

          (1) 179 days shall have elapsed since such receipt of such Blockage Notice,

          (2) the Non-payment Default giving rise to such Blockage Notice is no longer continuing (and no other Payment Default or Non-payment Default is then continuing),

          (3) such Designated Senior Indebtedness shall have been discharged or repaid in full in cash or Cash Equivalents, or

          (4) such Payment Blockage Period shall have been terminated by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice.

          The Company shall promptly resume payments on the Notes, including any missed payments, after such Payment Blockage Period ends, unless the holders of such Designated Senior Indebtedness have or the Representative of such holders has accelerated the maturity of such Designated Senior Indebtedness, or any Payment Default otherwise exists. Not more than one Blockage Notice to the Company may be given in any 360 consecutive day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period, except that if any Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness other than Credit Facility Indebtedness, a Representative of holders of Credit Facility Indebtedness may give another Blockage Notice within such period. In no event may the total number of days during which any Payment Blockage Period is in effect extend beyond 179 days from the date of receipt by the Trustee of the relevant Blockage Notice, and there must be a 181 consecutive day period during any 360 consecutive day period during which no Payment Blockage Period is in effect.

          Upon any payment or distribution of the assets of the Company upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to the Company or its property, or in a bankruptcy, insolvency, receivership or similar proceeding relating to the Company or its property, the holders of Senior Indebtedness of the Company will be entitled to receive payment in full of such Senior Indebtedness in cash or Cash Equivalents before the Noteholders are entitled to receive any payment from the Company and until the Senior Indebtedness of the Company is paid in full in cash or Cash Equivalents, any payment or distribution from the Company to which Noteholders would be entitled but for the subordination provisions of the Indenture will be made to holders of such Senior Indebtedness as their interests may appear, except that Noteholders may receive shares of stock and any debt securities that are subordinated to such Senior Indebtedness to at least the same extent as the Notes. If a distribution from the Company is made to Noteholders that due to the subordination provisions should not have been made to them, such Noteholders are required to hold it in trust for the holders of Senior Indebtedness of the Company and pay it over to them as their interests may appear.

          If the Company fails to make any payment on the Notes when due or within any applicable grace period, whether or not on account of the payment blockage provisions referred to above, such failure would constitute an Event of Default under the Indenture and would enable the Holders of the Notes to accelerate the maturity thereof. See “—Defaults.” If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness of the Company or the Representative of such holders of the acceleration. Such acceleration will not be effective with respect to the Company until such time as specified in the Indenture, and the Company may not pay the Notes until five Business Days after such holders receive or the Representative of such holders receives notice of such acceleration and, thereafter, the Company may pay the Notes only if the subordination provisions of the Indenture otherwise permit payment at that time.

          Index to Financial Statements

          By reason of such subordination provisions contained in the Indenture, in the event of liquidation, receivership, reorganization or insolvency, creditors of the Company who are holders of Senior Indebtedness of the Company may recover more, ratably, from the Company than the holders of the Notes. In addition, as described above, the Notes are effectively subordinated, with respect to the Company’s Subsidiaries that are not Subsidiary Guarantors with respect to such Notes, to the claims of creditors of those Subsidiaries.

          The terms on which each Subsidiary Guarantee in respect of the Notes is subordinated to the prior payment in full of Senior Indebtedness of the relevant Subsidiary Guarantor, are substantially identical to those described above governing the subordination of the Notes to the prior payment in full of Senior Indebtedness of the Company.

          Change of Control

          Upon the occurrence after the Issue Date of a Change of Control (as defined below), each Holder of Notes will have the right to require the Company to repurchase all or any part of such Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date);provided,however, that the Company shall not be obligated to repurchase Notes pursuant to this covenant in the event that it has exercised its right to redeem all of the Notes as described under “—"—Optional Redemption.”" The Transactions shall not constitute or give rise to a Change of Control.

          The term “"Change of Control”" means:

            (i)  any “person”"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders or a Parent, becomes the “beneficial owner”"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company,provided that (x)(x) so long as the Company is a Subsidiary of any Parent, no “person”"person" shall be deemed to be or become a “beneficial owner”


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            "beneficial owner" of more than 50% of the total voting power of the Voting Stock of the Company unless such “person”"person" shall be or become a “beneficial owner”"beneficial owner" of more than 50% of the total voting power of the Voting Stock of such Parent and (y)(y) any Voting Stock of which any Permitted Holder is the “beneficial owner”"beneficial owner" shall not in any case be included in any Voting Stock of which any such “person”"person" is the “beneficial owner”"beneficial owner";

            (ii)  the Company merges or consolidates with or into, or sells or transfers (in one or a series of related transactions) all or substantially all of the assets of the Company and its Restricted Subsidiaries to, another Person (other than one or more Permitted Holders) and any “person”"person" (as defined in clause (i) above), other than one or more Permitted Holders or any Parent, is or becomes the “beneficial owner”"beneficial owner" (as so defined), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the surviving Person in such merger or consolidation, or the transferee Person in such sale or transfer of assets, as the case may be,provided that (x)(x) so long as such surviving or transferee Person is a Subsidiary of a parent Person, no “person”"person" shall be deemed to be or become a “beneficial owner”"beneficial owner" of more than 50% of the total voting power of the Voting Stock of such surviving or transferee Person unless such “person”"person" shall be or become a “beneficial owner”"beneficial owner" of more than 50% of the total voting power of the Voting Stock of such parent Person and (y)(y) any Voting Stock of which any Permitted Holder is the “beneficial owner”"beneficial owner" shall not in any case be included in any Voting Stock of which any such “person”"person" is the “beneficial owner”"beneficial owner"; or

            (iii)  the adoption by vote of the stockholders of the Company of a plan for the liquidation or dissolution of the Company.

          In the event that, at the time of such Change of Control, the terms of any Credit Facility Indebtedness constituting Designated Senior Indebtedness restrict or prohibit the repurchase of the Notes pursuant to this covenant, then prior to the mailing of the notice to Holders provided for in the immediately following paragraph but in any event not later than 30 days following the date the Company obtains actual knowledge of any Change of Control (unless the Company has exercised its right to redeem all the Notes as described under “—"—Optional Redemption”Redemption"), the Company shall, or shall cause one or more of its Subsidiaries to, (i)(i) repay in full all such

          Index to Financial Statements

          Credit Facility Indebtedness subject to such terms or offer to repay in full all such Credit Facility Indebtedness and repay the Credit Facility Indebtedness of each lender who has accepted such offer or (ii)(ii) obtain the requisite consent under the agreements governing such Credit Facility Indebtedness to permit the repurchase of the Notes as provided for in the immediately following paragraph. The Company shall first comply with the provisions of the immediately preceding sentence before it shall be required to repurchase Notes pursuant to the provisions described below. The Company’sCompany's failure to comply with such provisions or the provisions of the immediately following paragraph shall constitute an Event of Default described in clause (iv) and not in clause (ii) under “—Defaults”"—Defaults" below.

          Unless the Company has exercised its right to redeem all the Notes as described under “—"—Optional Redemption,”" the Company shall, not later than 30 days following the date the Company obtains actual knowledge of any Change of Control having occurred, mail a notice (a “"Change of Control Offer”") to each Holder with a copy to the Trustee stating: (1)(1) that a Change of Control has occurred or may occur and that such Holder has, or upon such occurrence will have, the right to require the Company to purchase such Holder’sHolder's Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (2)(2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); (3)(3) the instructions determined by the Company, consistent with this covenant, that a Holder must follow in order to have its Notes purchased; and (4)(4) if such notice is mailed prior to the occurrence of a Change of Control, that such offer is conditioned on the


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          occurrence of such Change of Control. No Note will be repurchased in part if less than the Minimum Denomination in original principal amount of such Note would be left outstanding.

          The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

          The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof.

          The Change of Control purchase feature is a result of negotiations between the Company and the initial purchasers. The Company has no present plans to engage in a transaction involving a Change of Control, although it is possible that the Company could decide to do so in the future. Subject to the limitations discussed below, the Company could, in the future, enter into certain transactions, including acquisitions, refinancings or recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Indebtedness outstanding at such time or otherwise affect the Company’sCompany's capital structure or credit ratings. Restrictions on the ability of the Company to Incur additional Indebtedness are contained in the covenants described under “—"—Certain Covenants—Limitation on Indebtedness”Indebtedness" and “—"—Certain Covenants—Limitation on Liens.”" Such restrictions can only be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture does not contain any covenants or provisions that may afford Holders protection in the event of a highly leveraged transaction.

          The occurrence of a Change of Control would constitute a default under each Senior Credit Agreement. Agreements governing Indebtedness of the Company may contain prohibitions of certain events that would constitute a Change of Control or require such Indebtedness to be repurchased or repaid upon a Change of Control. Agreements governing Indebtedness of the Company may prohibit the Company from repurchasing the Notes upon a Change of Control unless such Indebtedness has been repurchased or repaid (or an offer made to

          Index to Financial Statements

          effect such repurchase or repayment has been made and the Indebtedness of those creditors accepting such offer has been repurchased or repaid) and/or other specified requirements have been met. Moreover, the exercise by the Holders of their right to require the Company to repurchase the Notes could cause a default under such agreements, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company and its Subsidiaries. Finally, the Company’sCompany's ability to pay cash to the Holders upon a repurchase may be limited by the Company’sCompany's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The provisions under the Indenture relating to the Company’sCompany's obligation to make an offer to purchase the Notes as a result of a Change of Control may be waived or modified with the written consent of the Holders of a majority in principal amount of the Notes. As described above under “—"—Optional Redemption,”" the Company also has the right to redeem the Notes at specified prices, in whole or in part, upon a Change of Control or otherwise. See “Risk"Risk Factors—Risks Relating to the New Notes and Our Indebtedness—We may not be able to repurchase the New Notes upon a change of control.”"

          The definition of Change of Control includes a phrase relating to the sale or other transfer of “all"all or substantially all”all" of the assets of the Company and its Restricted Subsidiaries. Although there is a developing body of case law interpreting the phrase “substantially"substantially all,”" there is no precise definition of


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          the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of “all"all or substantially all”all" of the assets of the Company and its Restricted Subsidiaries and therefore it may be unclear as to whether a Change of Control has occurred and whether the Holders of the Notes have the right to require the Company to repurchase such Notes.

          Certain Covenants

          The Indenture contains covenants including, among others, the covenants as described below. If on any day following the Issue Date (a)(a) the Notes have Investment Grade Ratings from both Rating Agencies, and (b)(b) no Default has occurred and is continuing under the Indenture, then, beginning on that day subject to the provisions of the following paragraph, the covenants specifically listed under the following captions in this “Description"Description of Notes”Notes" section of this prospectus (collectively, the “"Suspended Covenants”") will be suspended:

            (i)
            "—Limitation on Indebtedness";

            (ii)
            "—Limitation on Restricted Payments";

            (iii)
            "—Limitation on Restrictions on Distributions from Restricted Subsidiaries";

            (iv)
            "—Limitation on Sales of Assets and Subsidiary Stock";

            (v)
            "—Limitation on Transactions with Affiliates";

            (vi)
            "—Future Subsidiary Guarantors"; and

            (vii)
            clause (iii) of the first paragraph of "—Merger and Consolidation."

                  

          (i)“—Limitation on Indebtedness”;

          (ii)“—Limitation on Restricted Payments”;

          (iii)“—Limitation on Restrictions on Distributions from Restricted Subsidiaries”;

          (iv)“—Limitation on Sales of Assets and Subsidiary Stock”;

          (v)“—Limitation on Transactions with Affiliates”;

          (vi)“—Future Subsidiary Guarantors”; and

          (vii)clause (iii) of the first paragraph of “—Merger and Consolidation.”

          During any period that the foregoing covenants have been suspended, the Board of Directors may not designate any of the Company’sCompany's Subsidiaries as Unrestricted Subsidiaries unless such designation would have complied with the covenant described under “—"—Limitation on Restricted Payments”Payments" as if such covenant would have been in effect during such period.

          If on any subsequent date one or both of the Rating Agencies downgrade the ratings assigned to the Notes below an Investment Grade Rating, the foregoing covenants will be reinstated as of and from the date of such rating decline (any such date, a “Reversion Date”"Reversion Date"). The period of time between the suspension of covenants as set forth above and the Reversion Date is referred to as the “Suspension Period.”"Suspension Period." Upon such reinstatement, all Indebtedness Incurred during the Suspension Period will be deemed to have been Incurred under the exception provided by clause (b)(iii) of “—"—Limitation on Indebtedness.”" With respect to Restricted Payments made after any such reinstatement, the amount of Restricted Payments will be calculated as if the covenant described under

          Index to Financial Statements

          “— "—Limitation on Restricted Payments”Payments" had been in effect prior to, but not during, the Suspension Period. For purposes of the covenant described under “—"—Limitation on Sales of Assets and Subsidiary Stock,”" upon the occurrence of a Reversion Date the amount of Excess Proceeds not applied in accordance with such covenant will be deemed to be reset to zero.

          During the Suspension Period, any reference in the definitions of “Permitted Liens”"Permitted Liens" and “Unrestricted Subsidiary”"Unrestricted Subsidiary" to the covenant described under “—"—Limitation on Indebtedness”Indebtedness" or any provision thereof shall be construed as if such covenant were in effect during the Suspension Period.

          Notwithstanding that the Suspended Covenants may be reinstated, no Default or Event of Default will be deemed to have occurred as a result of any actions taken by the Company or any Subsidiary (including for the avoidance of doubt any failure to comply with the Suspended Covenants) during any Suspension Period and the Company and any Subsidiary will be permitted, without causing a Default or Event of Default or breach of any kind under the Indenture, to honor, comply with or otherwise


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          perform any contractual commitments or obligations entered into during a Suspension Period following a Reversion Date and to consummate the transactions contemplated thereby.

          There can be no assurance that the Notes will ever achieve or maintain Investment Grade Ratings.

          The Indenture contains covenants including, among others, the covenants as described below.

          Limitation on Indebtedness.Indebtedness.The Indenture provides as follows:

            (a)   The Company will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness;provided,however, that the Company or any Restricted Subsidiary may Incur Indebtedness if on the date of the Incurrence of such Indebtedness, after giving effect to the Incurrence thereof, the Consolidated Coverage Ratio would be equal to or greater than 2.00 to 1.00,provided,further, that the aggregate principal amount of Indebtedness that may be Incurred pursuant to the foregoing by Restricted Subsidiaries that are not Subsidiary Guarantors shall not exceed $150.0 million at any one time outstanding.

            (b)   Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness:

              (i)  Indebtedness Incurred pursuant to any Credit Facility (including but not limited to in respect of letters of credit or bankers’bankers' acceptances issued or created thereunder) and Indebtedness Incurred other than under any Credit Facility, and (without limiting the foregoing), in each case, any Refinancing Indebtedness in respect thereof, in a maximum principal amount at any time outstanding not exceeding in the aggregate the amount equal to (A)(A) $2,100 million, plus (B) (x)(B) (x) the greater of $1,700.0 million and the Borrowing Base less (y)(y) the aggregate principal amount of Indebtedness Incurred by Special Purpose Subsidiaries that are Domestic Subsidiaries and then outstanding pursuant to clause (ix) of this paragraph (b), plus (C)(C) in the event of any refinancing of any such Indebtedness, the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing;

              (ii)  Indebtedness (A)(A) of any Restricted Subsidiary to the Company or (B)(B) of the Company or any Restricted Subsidiary to any Restricted Subsidiary;provided that any such Indebtedness owed to a Restricted Subsidiary that is not a Subsidiary Guarantor shall be expressly subordinated in right of payment to all obligations of the obligor with respect to the Notes and all Subsidiary Guarantees andprovided,further, that any subsequent issuance or transfer of any Capital Stock of such Restricted Subsidiary to which such Indebtedness is owed, or other event, that results in such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of such Indebtedness (except to the Company or a Restricted Subsidiary) will be deemed, in each case, an Incurrence of such Indebtedness by the issuer thereof not permitted by this clause (ii);

              Index to Financial Statements

              (iii)  Indebtedness represented by the Notes issued on the Issue Date (or issued in respect thereof or in exchange therefor), any Indebtedness (other than the Indebtedness described in clause (i) or (ii) above) outstanding on the Issue Date (subject to the last sentence of paragraph (c) of this covenant), any Indebtedness represented by April 2012 Senior Unsecured Notes issued in connection with the payment of PIK Interest (as defined in the April 2012 Senior Unsecured Indenture), and any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (iii) or paragraph (a) above;

              (iv)  Purchase Money Obligations and Capitalized Lease Obligations, and any Refinancing Indebtedness with respect thereto;provided that the aggregate principal amount of such Purchase Money Obligations Incurred to finance the acquisition of Capital Stock of any


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              Person at any time outstanding pursuant to this clause shall not exceed an amount equal to the greater of $150.0 million and 3.0% of Consolidated Tangible Assets;

              (v)  Indebtedness (A)(A) supported by a letter of credit issued pursuant to any Credit Facility in a principal amount not exceeding the face amount of such letter of credit or (B)(B) consisting of accommodation guarantees for the benefit of trade creditors of the Company or any of its Restricted Subsidiaries;

              (vi)  (A)(A) Guarantees by the Company or any Restricted Subsidiary of Indebtedness or any other obligation or liability of the Company or any Restricted Subsidiary (other than any Indebtedness Incurred by the Company or such Restricted Subsidiary, as the case may be, in violation of the covenant described under “—"—Limitation on Indebtedness”Indebtedness"), or (B)(B) without limiting the covenant described under “—"—Limitation on Liens,”" Indebtedness of the Company or any Restricted Subsidiary arising by reason of any Lien granted by or applicable to such Person securing Indebtedness of the Company or any Restricted Subsidiary (other than any Indebtedness Incurred by the Company or such Restricted Subsidiary, as the case may be, in violation of the covenant described under “—"—Limitation on Indebtedness”Indebtedness");

              (vii)  Indebtedness of the Company or any Restricted Subsidiary (A)(A) arising from the honoring of a check, draft or similar instrument drawn against insufficient funds,provided that such Indebtedness is extinguished within five Business Days of its Incurrence, or (B)(B) consisting of guarantees, indemnities, obligations in respect of earnouts or other purchase price adjustments, or similar obligations, Incurred in connection with the acquisition or disposition of any business, assets or Person;

              (viii)  Indebtedness of the Company or any Restricted Subsidiary in respect of (A)(A) letters of credit, bankers’bankers' acceptances or other similar instruments or obligations issued, or relating to liabilities or obligations incurred, in the ordinary course of business (including those issued to governmental entities in connection with self-insurance under applicable workers’workers' compensation statutes), or (B)(B) completion guarantees, surety, judgment, appeal or performance bonds, or other similar bonds, instruments or obligations, provided, or relating to liabilities or obligations incurred, in the ordinary course of business, or (C)(C) Hedging Obligations, entered into for bona fide hedging purposes, or (D)(D) Management Guarantees or Management Indebtedness, or (E)(E) the financing of insurance premiums in the ordinary course of business, or (F)(F) take-or-pay obligations under supply arrangements incurred in the ordinary course of business, or (G)(G) netting, overdraft protection and other arrangements arising under standard business terms of any bank at which the Company or any Restricted Subsidiary maintains an overdraft, cash pooling or other similar facility or arrangement, or (H)(H) Junior Capital (in an amount not to exceed $100.0 million in the aggregate at any time outstanding), or (I)(I) Bank Products Obligations;

              (ix)  Indebtedness (A)(A) of a Special Purpose Subsidiary secured by a Lien on all or part of the assets disposed of in, or otherwise Incurred in connection with, a Financing Disposition or (B)(B) otherwise Incurred in connection with a Special Purpose Financing;provided that (1)(1) such Indebtedness is not recourse to the Company or any Restricted Subsidiary that is not a Special Purpose Subsidiary (other than with respect to Special Purpose Financing Undertakings), (2)(2) in the event such Indebtedness shall become recourse to the Company or any Restricted Subsidiary that is not a Special Purpose Subsidiary

              Index to Financial Statements

              (other (other than with respect to Special Purpose Financing Undertakings), such Indebtedness will be deemed to be, and must be classified by the Company as, Incurred at such time (or at the time initially Incurred) under one or more of the other provisions of this covenant for so long as such Indebtedness shall be so recourse, and (3)(3) in the event that at any time thereafter such Indebtedness shall comply with the


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              provisions of the preceding subclause (1), the Company may classify such Indebtedness in whole or in part as Incurred under this clause (b)(ix) of this covenant;

              (x)  Contribution Indebtedness and any Refinancing Indebtedness with respect thereto;

              (xi)  Indebtedness of (A)(A) the Company or any Restricted Subsidiary Incurred to finance or refinance, or otherwise Incurred in connection with, any acquisition of any assets (including Capital Stock), business or Person, or any merger or consolidation of any Person with or into the Company or any Restricted Subsidiary, or (B)(B) any Person that is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary (including Indebtedness thereof Incurred in connection with any such acquisition, merger or consolidation),provided that on the date of such acquisition, merger or consolidation, after giving effect thereto, either (1)(1) the Company could Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) above or (2)(2) the Consolidated Coverage Ratio of the Company would equal or exceed the Consolidated Coverage Ratio of the Company immediately prior to giving effect thereto; and any Refinancing Indebtedness with respect to any such Indebtedness;

              (xii)  Indebtedness of the Company or any Restricted Subsidiary Incurred as consideration in connection with any acquisition of any assets (including Capital Stock), business or Person, or any merger or consolidation of any Person with or into the Company or any Restricted Subsidiary, and any Refinancing Indebtedness with respect thereto, in an aggregate principal amount at any time outstanding not exceeding $100.0 million; and

              (xiii)  Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount at any time outstanding not exceeding an amount equal to the greater of $150.0 million and 3.5% of Consolidated Tangible Assets.

            (c)   For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness Incurred pursuant to and in compliance with, this covenant, (i)(i) any other obligation of the obligor on such Indebtedness (or of any other Person who could have Incurred such Indebtedness under this covenant) arising under any Guarantee, Lien or letter of credit, bankers’bankers' acceptance or other similar instrument or obligation supporting such Indebtedness shall be disregarded to the extent that such Guarantee, Lien or letter of credit, bankers’bankers' acceptance or other similar instrument or obligation secures the principal amount of such Indebtedness; (ii)(ii) in the event that Indebtedness meets the criteria of more than one of the types of Indebtedness described in paragraph (b) above, the Company, in its sole discretion, shall classify such item of Indebtedness and may include the amount and type of such Indebtedness in one or more of such clauses (including in part under one such clause and in part under another such clause);provided that any Indebtedness Incurred pursuant to clause (b)(iv) of this covenant as limited by the proviso thereto, or clause (b)(xiii) of this covenant shall, at the Company’sCompany's election, cease to be deemed Incurred or outstanding for purposes of such clause but shall be deemed Incurred for the purposes of paragraph (a) of this covenant from and after the first date on which such Restricted Subsidiary could have Incurred such Indebtedness under paragraph (a) of this covenant without reliance on such clause; (iii)(iii) the amount of Indebtedness issued at a price that is less than the principal amount thereof shall be equal to the amount of the liability in respect thereof determined in accordance with GAAP; and (iv)(iv) the principal amount of Indebtedness outstanding under any clause of paragraph (b) above shall be determined after giving effect to the application of proceeds of any such Indebtedness to refinance any such other Indebtedness. Any Indebtedness Incurred by the Company on April 12, 2012 under the Senior First Priority Notes, the Senior Term Facility or the Senior ABL Facility shall be classified as Incurred under clause (b)(i) of this covenant.

            (d)   For purposes of determining compliance with any dollar denominated restriction on the Incurrence of Indebtedness denominated in a foreign currency, the dollar equivalent principal


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            amount of such Indebtedness Incurred pursuant thereto shall be calculated based on the relevant currency exchange rate in

            Index to Financial Statements

            effect on the date that such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of revolving credit Indebtedness,provided that (x)(x) the dollar equivalent principal amount of any such Indebtedness outstanding on the Issue Date shall be calculated based on the relevant currency exchange rate in effect on the Issue Date, (y)(y) if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency (or in a different currency from such Indebtedness so being Incurred), and such refinancing would cause the applicable dollar denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such dollar denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed (i)(i) the outstanding or committed principal amount (whichever is higher) of such Indebtedness being refinanced plus (ii)(ii) the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing and (z)(z) the dollar equivalent principal amount of Indebtedness denominated in a foreign currency and Incurred pursuant to a Senior Credit Facility shall be calculated based on the relevant currency exchange rate in effect on, at the Company’sCompany's option, (i)(i) April 12, 2012, (ii)(ii) any date on which any of the respective commitments under such Senior Credit Facility shall be reallocated between or among facilities or subfacilities thereunder, or on which such rate is otherwise calculated for any purpose thereunder, or (iii)(iii) the date of such Incurrence. The principal amount of any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such refinancing.

          Limitation on Layering. The Indenture provides as follows: The Company will not Incur any Indebtedness that is expressly subordinated in right of payment to any Senior Indebtedness of the Company, unless such Indebtedness so Incurred rankspari passu in right of payment with, or is subordinated in right of payment to, the Company’s Indebtedness with respect to the Notes. The Company will not permit any Subsidiary Guarantor to Incur any Indebtedness that is expressly subordinated in right of payment to any Senior Indebtedness of such Subsidiary Guarantor, unless such Indebtedness so Incurred rankspari passu in right of payment with such Subsidiary Guarantor’s Subsidiary Guarantee with respect to the Notes, or is subordinated in right of payment to such Subsidiary Guarantee. Indebtedness that is unsecured or secured by a junior Lien is not deemed to be subordinate or junior to secured Indebtedness merely because it is unsecured or secured by a junior Lien, and Indebtedness that is not guaranteed by a particular Person is not deemed to be subordinate or junior to Indebtedness that is so guaranteed merely because it is not so guaranteed.

          Limitation on Restricted Payments.Payments.The Indenture provides as follows:

            (a)   The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i)(i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any such payment in connection with any merger or consolidation to which the Company is a party) except (x)(x) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and (y)(y) dividends or distributions payable to the Company or any Restricted Subsidiary (and, in the case of any such Restricted Subsidiary making such dividend or distribution, to other holders of its Capital Stock on no more than a pro rata basis, measured by value), (ii)(ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company held by Persons other than the Company or a Restricted Subsidiary (other than any acquisition of Capital Stock deemed to occur upon the exercise of options if such Capital Stock represents a portion of the exercise price thereof), (iii)(iii) voluntarily purchase, repurchase, redeem, defease or otherwise voluntarily acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than a purchase, repurchase, redemption, defeasance or other acquisition or retirement for value in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such acquisition or retirement)retirement, not made by exchange for, or (iv)out of the proceeds of, the Incurrence of Secured Indebtedness (as defined below) other than up to $300.0 million of borrowings under the Senior ABL Facility in the aggregate) or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, repurchase, redemption, defeasance, other acquisition or retirement or Investment being herein referred to as a “"Restricted Payment”"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment and after giving effect thereto:

              Index to Financial Statements

              (1)   a Default shall have occurred and be continuing (or would result therefrom);

              (2)   the Company could not Incur at least an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under “—"—Limitation on Indebtedness”Indebtedness"; or


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                (3)   the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) declared or made subsequent to April 12, 2012 and then outstanding would exceed, without duplication, the sum of:

                  (A)  50% of the Consolidated Net Income accrued during the period (treated as one accounting period) beginning on April 30, 2012 to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment for which consolidated financial statements of the Company are available (or, in case such Consolidated Net Income shall be a negative number, 100% of such negative number);

                  (B)  the aggregate Net Cash Proceeds and the fair value (as determined in good faith by the Company) of property or assets received (x)(x) by the Company as capital contributions to the Company after April 12, 2012 or from the issuance or sale (other than to a Restricted Subsidiary) of its Capital Stock (other than Disqualified Stock or Designated Preferred Stock) after April 12, 2012 (other than Excluded Contributions and Contribution Amounts) or (y)(y) by the Company or any Restricted Subsidiary from the Incurrence by the Company or any Restricted Subsidiary after April 12, 2012 of Indebtedness that shall have been converted into or exchanged for Capital Stock of the Company (other than Disqualified Stock or Designated Preferred Stock) or Capital Stock of any Parent, plus the amount of any cash and the fair value (as determined in good faith by the Company) of any property or assets, received by the Company or any Restricted Subsidiary upon such conversion or exchange;

                  (C) (i)(i)  the aggregate amount of cash and the fair value (as determined in good faith by the Company) of any property or assets received from dividends, distributions, interest payments, return of capital, repayments of Investments or other transfers of assets to the Company or any Restricted Subsidiary from any Unrestricted Subsidiary, including dividends or other distributions related to dividends or other distributions made pursuant to clause (x) of the following paragraph (b), plus (ii)(ii) the aggregate amount resulting from the redesignation of any Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as provided in the definition of “Investment”"Investment"); and

                  (D)  in the case of any disposition or repayment of any Investment constituting a Restricted Payment (without duplication of any amount deducted in calculating the amount of Investments at any time outstanding included in the amount of Restricted Payments or in the calculation of availability under paragraph (b) of this covenant), the aggregate amount of cash and the fair value (as determined in good faith by the Company) of any property or assets received by the Company or a Restricted Subsidiary with respect to all such dispositions and repayments.

              (b)   The provisions of the foregoing paragraph (a) do not prohibit any of the following (each, a “"Permitted Payment”"):

                (i)(x)(x)  any purchase, redemption, repurchase, defeasance or other acquisition or retirement of Capital Stock of the Company (“("Treasury Capital Stock”") or Subordinated Obligations made by exchange (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares) for, or out of the proceeds of the issuance or sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary) (“("Refunding Capital Stock”") or a capital contribution to the Company, in each case other than Excluded Contributions and Contribution Amounts;provided that the Net Cash Proceeds from such issuance, sale or capital contribution shall be excluded in subsequent calculations under


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                clause (3)(B) of the preceding paragraph (a) and (y)(y) if

                Index to Financial Statements

                immediately prior to such acquisition or retirement of such Treasury Capital Stock, dividends thereon were permitted pursuant to clause (xi) of this paragraph (b), dividends on such Refunding Capital Stock in an aggregate amount per annum not exceeding the aggregate amount per annum of dividends so permitted on such Treasury Capital Stock;

                (ii)  any purchase, redemption, repurchase, defeasance or other acquisition or retirement of Subordinated Obligations (v)(v) made by exchange for, or out of the proceeds of the Incurrence of, Indebtedness of the Company or Refinancing Indebtedness Incurred in compliance with the covenant described under “—"—Limitation on Indebtedness”Indebtedness" (provided that (x) if such Indebtedness is Incurred pursuant to clause (b)(i) of such covenant and (1) has Senior Lien Priority with respect to the Senior Second Priority Notes, then on the date of such Incurrence after giving effect thereto, the Consolidated Senior Priority Leverage Ratio shall not exceed 3.25 to 1.0, or (2) has Pari Passu Lien Priority with respect to the Senior Second Priority Notes, then on the date of such Incurrence after giving effect thereto, the Consolidated Secured Leverage Ratio shall not exceed 4.5 to 1.0 (any such Indebtedness, "Secured Indebtedness"), and (y) in the case of any purchase, redemption, repurchase, defeasance or other acquisition or retirement of Indebtedness incurred pursuant to clause (b)(viii)(H) of the covenant described under “—"—Limitation on Indebtedness,”" such Indebtedness or Refinancing Indebtedness shall be solely comprised of Subordinated Obligations), (w)(w) from Net Available Cash or an equivalent amount to the extent permitted by the covenant described under “—"—Limitation on Sales of Assets and Subsidiary Stock,” (x)" (x) following the occurrence of a Change of Control (or other similar event described therein as a “change"change of control”control"), but only if the Company shall have complied with the covenant described under “—"—Change of Control”Control" and, if required, purchased all Notes tendered pursuant to the offer to repurchase all the Notes required thereby, prior to purchasing or repaying such Subordinated Obligations, (y)(y) constituting Acquired Indebtedness or (z)(z) constituting Indebtedness of the Company or any Restricted Subsidiary to a Restricted Subsidiary that is not a Subsidiary Guarantor that has been subordinated pursuant to clause (b)(ii) of the covenant described under “—"—Limitation on Indebtedness”Indebtedness";

                (iii)  any dividend paid or redemption made within 60 days after the date of declaration thereof or of the giving of notice thereof, as applicable, if at such date of declaration or notice such dividend or redemption would have complied with the preceding paragraph (a);

                (iv)  Investments or other Restricted Payments in an aggregate amount outstanding at any time not to exceed the amount of Excluded Contributions;

                (v)  loans, advances, dividends or distributions by the Company to any Parent to permit any Parent to repurchase or otherwise acquire its Capital Stock (including any options, warrants or other rights in respect thereof), or payments by the Company to repurchase or otherwise acquire Capital Stock of any Parent or the Company (including any options, warrants or other rights in respect thereof), in each case from Management Investors (including any repurchase or acquisition by reason of the Company or any Parent retaining any Capital Stock, option, warrant or other right in respect of tax withholding obligations, and any related payment in respect of any such obligation), such payments, loans, advances, dividends or distributions not to exceed an amount (net of repayments of any such loans or advances) equal to (x)(1)(x)(1) $50.0 million, plus (2)(2) $10.0 million multiplied by the number of calendar years that have commenced since April 12, 2012, plus (y)(y) the Net Cash Proceeds received by the Company since April 12, 2012 from, or as a capital contribution from, the issuance or sale to Management Investors of Capital Stock (including any options, warrants or other rights in respect thereof), to the extent such Net Cash Proceeds are not included in any calculation under clause (3)(B)(x) of the preceding paragraph (a), plus (z)(z) the cash proceeds


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                of key man life insurance policies received by the Company or any Restricted Subsidiary (or by any Parent and contributed to the Company) since April 12, 2012 to the extent such cash proceeds are not included in any calculation under clause (3)(A) of the preceding paragraph (a);provided that any cancellation of Indebtedness owing to the Company or any Restricted Subsidiary by any Management Investor in connection with any repurchase or other acquisition of Capital Stock (including any options, warrants or other rights in respect thereof) from any Management Investor shall not constitute a Restricted Payment for purposes of this covenant or any other provision of the Indenture;

                (vi)  the payment by the Company of, or loans, advances, dividends or distributions by the Company to any Parent to pay, dividends on the common stock or equity of the Company or any Parent following a public offering of such common stock or equity in an amount not to exceed in any fiscal

                Index to Financial Statements

                year 6.0% of the aggregate gross proceeds received by the Company (whether directly, or indirectly through a contribution to common equity capital) in or from such public offering;

                (vii)  Restricted Payments (including loans or advances) in an aggregate amount outstanding at any time not to exceed an amount (net of repayments of any such loans or advances) equal to the greater of $50.0 million and 1.0% of Consolidated Tangible Assets;

                (viii)  loans, advances, dividends or distributions to any Parent or other payments by the Company or any Restricted Subsidiary (A)(A) to satisfy or permit any Parent to satisfy obligations under the Management Agreements, (B)(B) pursuant to the Tax Sharing Agreement, or (C)(C) to pay or permit any Parent to pay any Parent Expenses or any Related Taxes;

                (ix)  payments by the Company, or loans, advances, dividends or distributions by the Company to any Parent to make payments, to holders of Capital Stock of the Company or any Parent in lieu of issuance of fractional shares of such Capital Stock, not to exceed $5.0 million in the aggregate outstanding at any time;

                (x)  dividends or other distributions of, or Investments paid for or made with, Capital Stock, Indebtedness or other securities of Unrestricted Subsidiaries;

                (xi)  (A)(A) dividends on any Designated Preferred Stock of the Company issued after April 12, 2012,provided that at the time of such issuance and after giving effect thereto on a pro forma basis, the Consolidated Coverage Ratio would be at least 2.00 to 1.00 and, in the case of cash dividends on Designated Preferred Stock, such dividend shall for purposes of the determination of such Consolidated Coverage Ratio be deemed to constitute Consolidated Interest Expense, or (B)(B) any dividend on Refunding Capital Stock that is Preferred Stock in excess of the amount of dividends thereon permitted by clause (i) of this paragraph (b),provided that at the time of the declaration of such dividend and after giving effect thereto on a pro forma basis, the Consolidated Coverage Ratio would be at least 2.00 to 1.00 and, in the case of cash dividends on Refunding Capital Stock, such dividend shall for purposes of the determination of such Consolidated Coverage Ratio be deemed to constitute Consolidated Interest Expense, or (C)(C) loans, advances, dividends or distributions to any Parent to permit dividends on any Designated Preferred Stock of any Parent issued after April 12, 2012, in an amount (net of repayments of any such loans or advances) not exceeding the aggregate cash proceeds received by the Company from the issuance or sale of such Designated Preferred Stock of such Parent;

                (xii)  Investments in Unrestricted Subsidiaries in an aggregate amount outstanding at any time not exceeding the greater of $75.0 million and 1.5% of Consolidated Tangible Assets;

                (xiii)  distributions or payments of Special Purpose Financing Fees;


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                (xiv)  dividends to holders of any class or series of Disqualified Stock, or of any Preferred Stock of a Restricted Subsidiary, Incurred in accordance with the terms of the covenant described under “—"—Limitation on Indebtedness”Indebtedness" above; and

                (xv)  any Restricted Payment pursuant to or in connection with the Transactions or the 2007 Transactions;

              provided, that (A)(A) in the case of clauses (i)(y), (iii), (vi), (ix) and (xi)(B), the net amount of any such Permitted Payment shall be included in subsequent calculations of the amount of Restricted Payments, (B)(B) in all cases other than pursuant to clause (A) immediately above, the net amount of any such Permitted Payment shall be excluded in subsequent calculations of the amount of Restricted Payments and (C)(C) solely with respect to clause (vii), no Default or Event of Default shall have occurred or be continuing at the time of any such Permitted Payment after giving effect thereto. The Company, in its sole discretion, may classify any Investment or other Restricted Payment as being made in part under one of the provisions of this covenant (or, in the case of any Investment, the clauses of Permitted Investments) and in part under one or more other such provisions (or, as applicable, clauses).

              Index to Financial Statements

              (c)   Notwithstanding the foregoing provisions of this covenant, the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay any cash dividend or make any cash distribution on or in respect of the Company’sCompany's Capital Stock or purchase for cash or otherwise acquire for cash any Capital Stock of the Company or any Parent, for the purpose of paying any cash dividend or making any cash distribution to, or acquiring Capital Stock of the Company or any Parent for cash from, the Investors, or Guarantee any Indebtedness of any Affiliate of the Company for the purpose of paying such dividend, making such distribution or so acquiring such Capital Stock to or from the Investors, in each case by means of utilization of the cumulative Restricted Payment credit provided by clause (3) of the preceding paragraph (a), or the exceptions provided by clause (iii), (vii), (x) or (xii) of the preceding paragraph (b) or clause (xv) or (xviii) of the definition of “Permitted"Permitted Investments,”" unless at the time and after giving effect to such payment, (x)(x) the Consolidated Total Leverage Ratio of the Company would have been equal to or less than 6.0 to 1.0 and (y)(y) such payment is otherwise in compliance with this covenant.

            Notwithstanding any other provision of the Indenture, the Indenture shall not restrict any redemption or other payment by the Company or any Restricted Subsidiary made in respect of any “AHYDO saver”"AHYDO saver" provision (including any such provision in any Indebtedness that is Incurred or that becomes subordinated or that otherwise arises in connection with any Extinguishment of Senior Obligations), and the Company’sCompany's determination in good faith of any such “AHYDO saver”"AHYDO saver" payment shall be conclusive and binding for all purposes under the Indenture.

            Limitation on Restrictions on Distributions from Restricted Subsidiaries.Subsidiaries.The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or, in the case of a Restricted Subsidiary that is not a Subsidiary Guarantor, to a Subsidiary Guarantor, (ii)(ii) make any loans or advances to the Company or, in the case of a Restricted Subsidiary that is not a Subsidiary Guarantor, to a Subsidiary Guarantor or (iii)(iii) transfer any of its property or assets to the Company or, in the case of a Restricted Subsidiary that is not a Subsidiary Guarantor, to a Subsidiary Guarantor (provided that dividend or liquidation priority between classes of Capital Stock, or subordination of any obligation (including the application of any remedy bars thereto) to any other obligation, will not be deemed to constitute such an encumbrance or restriction), except any encumbrance or restriction:

              (1)   pursuant to an agreement or instrument in effect at or entered into on the Issue Date, any Credit Facility, the Indenture, the Notes, the Note Security Documents, the Intercreditor


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              Agreements, the Senior First Priority Note Documents, the Senior First Priority Notes, the Senior Second Priority Note Documents, the Senior Second Priority Notes, the April 2012 Senior Unsecured Indenture, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Indenture, the October 2012 Senior Unsecured Notes, the ExistingJanuary 2013 Senior Subordinated Indenture or the ExistingJanuary 2013 Senior Subordinated Notes;

              (2)   pursuant to any agreement or instrument of a Person, or relating to Indebtedness or Capital Stock of a Person, which Person is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary, or which agreement or instrument is assumed by the Company or any Restricted Subsidiary in connection with an acquisition of assets from such Person, as in effect at the time of such acquisition, merger or consolidation (except to the extent that such Indebtedness was incurred to finance, or otherwise in connection with, such acquisition, merger or consolidation);provided that for purposes of this clause (2), if a Person other than the Company is the Successor Company with respect thereto, any Subsidiary thereof or agreement or instrument of such Person or any such Subsidiary shall be deemed acquired or assumed, as the case may be, by the Company or a Restricted Subsidiary, as the case may be, when such Person becomes such Successor Company;

              (3)   pursuant to an agreement or instrument (a “"Refinancing Agreement”") effecting a refinancing of Indebtedness Incurred pursuant to, or that otherwise extends, renews, refunds, refinances or replaces, an agreement or instrument referred to in clause (1) or (2) of this covenant or this clause (3) (an “"Initial Agreement”") or contained in any amendment, supplement or other modification to an Initial Agreement (an "

              Index to Financial Statements

              “Amendment”");provided,however, that the encumbrances and restrictions contained in any such Refinancing Agreement or Amendment taken as a whole are not materially less favorable to the Holders of the Notes than encumbrances and restrictions contained in the Initial Agreement or Initial Agreements to which such Refinancing Agreement or Amendment relates (as determined in good faith by the Company);

              (4)   (A)(A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or the assignment or transfer of any lease, license or other contract, (B)(B) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture, (C)(C) contained in mortgages, pledges or other security agreements securing Indebtedness of a Restricted Subsidiary to the extent restricting the transfer of the property or assets subject thereto, (D)(D) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary, (E)(E) pursuant to Purchase Money Obligations that impose encumbrances or restrictions on the property or assets so acquired, (F)(F) on cash or other deposits, net worth or inventory imposed by customers or suppliers under agreements entered into in the ordinary course of business, (G)(G) pursuant to customary provisions contained in agreements and instruments entered into in the ordinary course of business (including but not limited to leases and licenses) or in joint venture and other similar agreements, (H)(H) that arises or is agreed to in the ordinary course of business and does not detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or such Restricted Subsidiary, (I)(I) pursuant to Hedging Obligations entered into for bona fide hedging purposes or (J)(J) pursuant to Bank Products Obligations;

              (5)   with respect to a Restricted Subsidiary (or any of its property or assets), imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition;


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              (6)   by reason of any applicable law, rule, regulation or order, or required by any regulatory authority having jurisdiction over the Company or any Restricted Subsidiary or any of their businesses; or

              (7)   pursuant to an agreement or instrument (A)(A) relating to any Indebtedness permitted to be Incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under “—"—Limitation on Indebtedness” (i)Indebtedness" (i) if the encumbrances and restrictions contained in any such agreement or instrument taken as a whole are not materially less favorable to the Holders of the Notes than the encumbrances and restrictions contained in the Initial Agreements (as determined in good faith by the Company), or (ii)(ii) if such encumbrance or restriction is not materially more disadvantageous to the Holders of the Notes than is customary in comparable financings (as determined in good faith by the Company) and either (x)(x) the Company determines in good faith that such encumbrance or restriction will not materially affect the Company’sCompany's ability to make principal or interest payments on the Notes or (y)(y) such encumbrance or restriction applies only if a default occurs in respect of a payment or financial covenant relating to such Indebtedness, (B)(B) relating to any sale of receivables by or Indebtedness of a Foreign Subsidiary or (C)(C) relating to Indebtedness of or a Financing Disposition by or to or in favor of any Special Purpose Entity.

            Limitation on Sales of Assets and Subsidiary Stock.The Indenture provides as follows:

              (a)   The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless

                (i)  the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the fair market value of the shares and assets subject to such Asset Disposition, as such fair market value shall be determined in good faith by the Company, which determination shall be conclusive (including as to the value of all noncash consideration),

                Index to Financial Statements

                (ii)  in the case of any Asset Disposition (or series of related Asset Dispositions) having a fair market value of $25.0 million or more, at least 75.0% of the consideration therefor (excluding, in the case of an Asset Disposition (or series of related Asset Dispositions), any consideration by way of relief from, or by any other Person assuming responsibility for, any liabilities, contingent or otherwise, that are not Indebtedness) received by the Company or such Restricted Subsidiary is in the form of cash, and

                (iii)  an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or any Restricted Subsidiary, as the case may be) as follows:

                  (A)  first, either (x)(x) to the extent the Company elects (or is required by the terms of any Secured Indebtedness or any other Indebtedness secured by a Lien (other(in each case, other than Subordinated Obligations), any Senior Indebtedness of the Company or any Subsidiary Guarantor or any Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor), to prepay, repay or purchase any such Indebtedness or (in the case of letters of credit, bankers’bankers' acceptances or other similar instruments) cash collateralize any such Indebtedness (in each case other than Indebtedness owed to the Company or a Restricted Subsidiary) within 450 days after the later of the date of such Asset Disposition and the date of receipt of such Net Available Cash, or (y)(y) to the extent that the Company or such Restricted Subsidiary elects, to invest in Additional Assets (including by means of an investment in Additional Assets by a Restricted Subsidiary with an amount equal to Net Available Cash received by the Company or another Restricted Subsidiary) within 450 days from the later of the date of such Asset Disposition and the date of receipt of such Net Available Cash, or, if such investment in Additional Assets is


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                  a project authorized by the Board of Directors that will take longer than such 450 days to complete, the period of time necessary to complete such project;

                  (B)  second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A) above (such balance, the “"Excess Proceeds”"), to make an offer to purchase Notes and (to the extent the Company or such Restricted Subsidiary elects, or is required by the terms thereof) to purchase, redeem or repay any other Senior Subordinated Indebtedness of the Company or a Restricted Subsidiary, pursuant and subject to the conditions of the Indenture and the agreements governing such other Indebtedness; and

                  (C)  third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B) above, to fund (to the extent consistent with any other applicable provision of the Indenture) any general corporate purpose (including but not limited to the repurchase, repayment or other acquisition or retirement of any Subordinated Obligations);

              provided,however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (B) above, the Company or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased.

              Notwithstanding the foregoing provisions of this covenant, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash or equivalent amount in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions or equivalent amount that is not applied in accordance with this covenant exceeds $75.0 million. If the aggregate principal amount of Notes and/or other Indebtedness of the Company or a Restricted Subsidiary validly tendered and not withdrawn (or otherwise subject to purchase, redemption or repayment) in connection with an offer pursuant to clause (B) above exceeds the Excess Proceeds, the Excess Proceeds will be apportioned between such Notes and such other Indebtedness of the Company or a Restricted Subsidiary, with the portion of the Excess Proceeds payable in respect of such Notes to equal the lesser of (x)(x) the Excess Proceeds amount multiplied by a fraction, the numerator of which is the outstanding principal amount of such Notes and the denominator of which is the sum of the outstanding principal amount of the Notes and the outstanding principal amount of the relevant other Indebtedness of the Company or a Restricted Subsidiary, and (y)(y) the aggregate principal amount of Notes validly tendered and not withdrawn.

              Index to Financial Statements

              For the purposes of clause (ii) of paragraph (a) above, the following are deemed to be cash: (1)(1) Temporary Cash Investments and Cash Equivalents, (2)(2) the assumption of Indebtedness of the Company (other than Disqualified Stock of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on payment of the principal amount of such Indebtedness in connection with such Asset Disposition, (3)(3) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Disposition, to the extent that the Company and each other Restricted Subsidiary are released from any Guarantee of payment of the principal amount of such Indebtedness in connection with such Asset Disposition, (4)(4) securities received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 180 days, (5)(5) consideration consisting of Indebtedness of the Company or any Restricted Subsidiary, (6)(6) Additional Assets and (7)(7) any Designated Noncash Consideration received by the Company or any of its Restricted Subsidiaries in an Asset Disposition having an aggregate Fair Market Value, taken together with all other Designated Noncash Consideration received pursuant to this clause, not to exceed an aggregate amount at any time outstanding equal to the greater of $125.0 million and 2.5% of Consolidated Tangible Assets (with the Fair Market Value of each item


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              of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value).

              (b)   In the event of an Asset Disposition that requires the purchase of Notes pursuant to clause (iii)(B) of paragraph (a) above, the Company will be required to purchase Notes tendered pursuant to an offer by the Company for the Notes (the “"Offer”") at a purchase price of 100% of their principal amount plus accrued and unpaid interest to the date of purchase in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of the Notes tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase of Notes, the remaining Net Available Cash will be available to the Company for use in accordance with clause (iii)(B) of paragraph (a) above (to repay other Indebtedness of the Company or a Restricted Subsidiary) or clause (iii)(C) of paragraph (a) above. The Company shall not be required to make an Offer for Notes pursuant to this covenant if the Net Available Cash available therefor (after application of the proceeds as provided in clause (iii)(A) of paragraph (a) above) is less than $75.0 million for any particular Asset Disposition (which lesser amounts shall be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). No Note will be repurchased in part if less than the Minimum Denomination in original principal amount of such Note would be left outstanding.

              (c)   The Company shall, not later than 45 days after the Company becomes obligated to make an Offer pursuant to this covenant, mail a notice to each Holder with a copy to the Trustee stating: (1)(1) that an Asset Disposition that requires the purchase of a portion of the Notes has occurred and that such Holder has the right (subject to the prorating described below) to require the Company to purchase a portion of such Holder’sHolder's Notes at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to provisions in the Indenture regarding the preservation of payment of interest rights); (2)(2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); (3)(3) the instructions determined by the Company, consistent with this covenant, that a Holder must follow in order to have its Notes purchased; and (4)(4) the amount of the Offer. If, upon the expiration of the period for which the Offer remains open, the aggregate principal amount of Notes surrendered by Holders exceeds the amount of the Offer, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of the Minimum Denomination or integral multiples of $1,000 in excess thereof shall be purchased).

              (d)   The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof.

              Index to Financial Statements

            Limitation on Transactions with Affiliates.Affiliates.The Indenture provides as follows:

              (a)   The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction or series of related transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an “"Affiliate Transaction”") involving aggregate consideration in excess of $10.0 million unless (i)(i) the terms of such Affiliate Transaction are not materially less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time in a transaction with a Person who is not such an Affiliate and (ii)(ii) if such Affiliate Transaction involves aggregate consideration in excess of $40.0 million, the terms of such Affiliate


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              Transaction have been approved by a majority of the Board of Directors. For purposes of this paragraph, any Affiliate Transaction shall be deemed to have satisfied the requirements set forth in this paragraph if (x)(x) such Affiliate Transaction is approved by a majority of the Disinterested Directors or (y)(y) in the event there are no Disinterested Directors, a fairness opinion is provided by a nationally recognized appraisal or investment banking firm with respect to such Affiliate Transaction.

              (b)   The provisions of the preceding paragraph (a) do not apply to:

                (i)  any Restricted Payment Transaction,

                (ii)  (1)(1) the entering into, maintaining or performance of any employment or consulting contract, collective bargaining agreement, benefit plan, program or arrangement, related trust agreement or any other similar arrangement for or with any current or former employee, officer, director or consultant of or to the Company, any Restricted Subsidiary or any Parent heretofore or hereafter entered into in the ordinary course of business, including vacation, health, insurance, deferred compensation, severance, retirement, savings or other similar plans, programs or arrangements, (2)(2) payments, compensation, performance of indemnification or contribution obligations, the making or cancellation of loans or any issuance, grant or award of stock, options, other equity related interests or other securities, to any such employees, officers, directors or consultants in the ordinary course of business, (3)(3) the payment of reasonable fees to directors of the Company or any of its Subsidiaries or any Parent (as determined in good faith by the Company, such Subsidiary or such Parent), (4)(4) any transaction with an officer or director of the Company or any of its Subsidiaries or any Parent in the ordinary course of business not involving more than $100,000 in any one case or (5)(5) Management Advances and payments in respect thereof (or in reimbursement of any expenses referred to in the definition of such term),

                (iii)  any transaction between or among any of the Company, one or more Restricted Subsidiaries, and/or one or more Special Purpose Entities,

                (iv)  any transaction arising out of agreements or instruments in existence on the Issue Date (other than any Tax Sharing Agreement or Management Agreement referred to in clause (b)(vii) of this covenant), and any payments made pursuant thereto,

                (v)  any transaction in the ordinary course of business on terms that are fair to the Company and its Restricted Subsidiaries in the reasonable determination of the Board of Directors or senior management of the Company, or are not materially less favorable to the Company or the relevant Restricted Subsidiary than those that could be obtained at the time in a transaction with a Person who is not an Affiliate of the Company,

                (vi)  any transaction in the ordinary course of business, or approved by a majority of the Board of Directors, between the Company or any Restricted Subsidiary and any Affiliate of the Company controlled by the Company that is a joint venture or similar entity,

                (vii)  (1)(1) the execution, delivery and performance of any Tax Sharing Agreement and any Management Agreement, and (2)(2) payments to CD&R, Bain Capital or Carlyle or any of their respective Affiliates (w)(w) of any and all out-of-pocket expenses in connection with the Transactions, (x)(x) for any management, consulting, financial advisory, financing, underwriting or placement services or in respect of other investment banking activities pursuant to the Management Agreements,provided that payments under this clause (x) shall not exceed $7.5 million per calendar year, (y)(y) in connection with

                Index to Financial Statements

                any acquisition, disposition, merger, recapitalization or similar transactions, which payments are made pursuant to the Management Agreements or are approved by a majority of the Board of Directors in good


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                faith, and (z)(z) of all out-of-pocket expenses incurred in connection with such services or activities,

                (viii)  the Transactions, all transactions in connection therewith (including but not limited to the financing thereof), the execution, delivery and performance of all agreements and instruments in connection with the Transactions, and all fees and expenses paid or payable in connection with the Transactions,

                (ix)  any issuance or sale of Capital Stock (other than Disqualified Stock) of the Company or Junior Capital or any capital contribution to the Company,

                (x)  any amendment, supplement, waiver or other modification to or of the April 2012 Senior Unsecured Notes, the April 2012 Senior Unsecured Indenture or any related agreements, documents and instruments, or any of the terms and provisions of any thereof, (1)(1) in connection with any Extinguishment of Senior Obligations or (2)(2) to provide for the payment of interest in cash instead of in additional principal, or in additional principal instead of in cash, in each case in whole or in part (whether or not in connection with any Extinguishment of Senior Obligations), and

                (xi)  any investment by any Investor in securities of the Company or any of its Restricted Subsidiaries so long as (i)(i) such securities are being offered generally to other investors on the same or more favorable terms and (ii)(ii) such investment by all Investors constitutes less than 5% of the proposed or outstanding issue amount of such class of securities.

            Limitation on Liens.Liens.The Indenture provides that the Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or permit to exist any Lien (other than Permitted Liens) on any of its property or assets (including Capital Stock of any other Person), whether owned on the date of the Indenture or thereafter acquired, securing any Indebtedness of the Company or any Subsidiary Guarantor that by its terms is expressly subordinated in right of payment to or rankspari passu in right of payment with the Notes or such Subsidiary Guarantor’s Subsidiary Guarantee thereof (the “"Initial Lien”"), unless contemporaneously therewith effective provision is made to secure the Indebtedness due under the Indenture and the Notes or, in respect of any Initial Lien on any Restricted Subsidiary’sSubsidiary's property or assets, any Subsidiary Guarantee of such Restricted Subsidiary, equally and ratably with (or on a senior basis to, in the case of Subordinated Obligations or Guarantor Subordinated Obligations) such obligation for so long as such obligation is so secured by such Initial Lien. Any such Lien thereby created in favor of the Notes or any such Subsidiary Guarantee will be automatically and unconditionally released and discharged upon (i)(i) the release and discharge of the Initial Lien to which it relates, (ii)(ii) in the case of any such Lien in favor of any such Subsidiary Guarantee, upon the termination and discharge of such Subsidiary Guarantee in accordance with the terms of the Indenture or (iii)(iii) any sale, exchange or transfer (other than a transfer constituting a transfer of all or substantially all of the assets of the Company that is governed by the provisions of the covenant described under “—"—Merger and Consolidation”Consolidation" below) to any Person not an Affiliate of the Company of the property or assets secured by such Initial Lien, or of all of the Capital Stock held by the Company or any Restricted Subsidiary in, or all or substantially all the assets of, any Restricted Subsidiary creating such Initial Lien.

            Future Subsidiary Guarantors.Guarantors.As set forth more particularly under “—"—Subsidiary Guarantees,”" the Indenture provides that from and after the Issue Date, the Company will cause each Person that becomes a Wholly Owned Domestic Subsidiary (other than an Excluded Subsidiary), and each other Domestic Subsidiary that is a borrower under the Senior ABL Facility or that guarantees payment of Indebtedness of the Company under any Credit Facility or Capital Markets Securities, to execute and deliver to the Trustee within 30 days a supplemental indenture or other instrument pursuant to which such Domestic Subsidiary will guarantee payment of the Notes, whereupon such Domestic Subsidiary will become a Subsidiary Guarantor for all purposes under the Indenture;provided, that any such guarantee described above by a Person in effect at the time such Person is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary (and not created with, or in


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            contemplation of, such acquisition, merger or consolidation) shall not trigger an obligation to

            Index to Financial Statements

            guarantee the Notes so long as the aggregate principal amount of guaranteed Indebtedness relying on this proviso, together with the aggregate principal amount of Indebtedness incurred by Restricted Subsidiaries that are not Subsidiary Guarantors pursuant to paragraph (a) of the covenant described under “—"—Limitation on Indebtedness,”" shall not exceed $300.0 million at any time outstanding. The Company will also have the right to cause any other Subsidiary so to guarantee payment of the Notes. Subsidiary Guarantees will be subject to release and discharge under certain circumstances prior to payment in full of the Notes. See “—"—Subsidiary Guarantees.”"

            SEC Reports.Reports.    The Indenture provides that, notwithstanding that the Company may not be required to be or remain subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, the Company will file with the SEC (unless such filing is not permitted under the Exchange Act or by the SEC), so long as the Notes are outstanding, the annual reports, information, documents and other reports that the Company is required to file with the SEC pursuant to such Section 13(a) or 15(d) or would be so required to file if the Company were so subject. If, at any time, any audited or reviewed financial statements or information required to be included in any such filing are not reasonably available on a timely basis as a result of the Company’sCompany's accountants not being “independent”"independent" (as defined pursuant to the Exchange Act and the rules and regulations of the SEC thereunder), the Company may, in lieu of making such filing or transmitting or making available the information, documents and reports so required to be filed, elect to make a filing on an alternative form or transmit or make available unaudited or unreviewed financial statements or information substantially similar to such required audited or reviewed financial statements or information,provided that (a)(a) the Company shall in any event be required to make such filing and so transmit or make available such audited or reviewed financial statements or information no later than the first anniversary of the date on which the same was otherwise required pursuant to the preceding provisions of this paragraph (such initial date, the “"Reporting Date”") and (b)(b) if the Company makes such an election and such filing has not been made, or such information, documents and reports have not been transmitted or made available, as the case may be, within 90 days after such Reporting Date, liquidated damages will accrue on the Notes at a rate of 0.50% per annum from the date that is 90 days after such Reporting Date to the earlier of (x)(x) the date on which such filing has been made, or such information, documents and reports have been transmitted or made available, as the case may be, and (y)(y) the first anniversary of such Reporting Date (provided(provided that not more than 0.50% per annum in liquidated damages shall be payable for any period regardless of the number of such elections by the Company).

            The Company will be deemed to have satisfied the requirements of this covenant if any Parent files and provides reports, documents and information of the types otherwise so required, in each case within the applicable time periods, and the Company is not required to file such reports, documents and information separately under the applicable rules and regulations of the SEC (after giving effect to any exemptive relief) because of the filings by such Parent. The Company also will comply with the other provisions of TIA § 314(a).

            Merger and Consolidation

            The Indenture provides that the Company will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless:

              (i)  the resulting, surviving or transferee Person (the “"Successor Company”") will be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) will expressly assume all the obligations of the Company under the Notes and the Indenture by executing and delivering to the Trustee a supplemental indenture or one or more other documents or instruments in form reasonably satisfactory to the Trustee;


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              (ii)  immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default will have occurred and be continuing;

              Index to Financial Statements

              (iii)  immediately after giving effect to such transaction, either (A)(A) the Company (or, if applicable, the Successor Company with respect thereto) could Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of the covenant described under “—"—Certain Covenants—Limitation on Indebtedness,”" or (B)(B) the Consolidated Coverage Ratio of the Company (or, if applicable, the Successor Company with respect thereto) would equal or exceed the Consolidated Coverage Ratio of the Company immediately prior to giving effect to such transaction;

              (iv)  each Subsidiary Guarantor (other than (x)(x) any Subsidiary Guarantor that will be released from its obligations under its Subsidiary Guarantee in connection with such transaction and (y)(y) any party to any such consolidation or merger) shall have delivered a supplemental indenture or other document or instrument in form reasonably satisfactory to the Trustee, confirming its Subsidiary Guarantee (other than any Subsidiary Guarantee that will be discharged or terminated in connection with such transaction); and

              (v)  the Company will have delivered to the Trustee an Officer’sOfficer's Certificate and an Opinion of Counsel, each to the effect that such consolidation, merger or transfer complies with the provisions described in this paragraph,provided that (x)(x) in giving such opinion such counsel may rely on an Officer’sOfficer's Certificate as to compliance with the foregoing clauses (ii) and (iii) and as to any matters of fact, and (y)(y) no Opinion of Counsel will be required for a consolidation, merger or transfer described in the last paragraph of this covenant.

            Any Indebtedness that becomes an obligation of the Successor Company or any Restricted Subsidiary (or that is deemed to be Incurred by any Restricted Subsidiary that becomes a Restricted Subsidiary) as a result of any such transaction undertaken in compliance with this covenant, and any Refinancing Indebtedness with respect thereto, shall be deemed to have been Incurred in compliance with the covenant described under “—"—Certain Covenants—Limitation on Indebtedness.”"

            The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, and thereafter the predecessor Company shall be relieved of all obligations and covenants under the Indenture, except that the predecessor Company in the case of a lease of all or substantially all its assets will not be released from the obligation to pay the principal of and interest on the Notes.

            Clauses (ii) and (iii) of the first paragraph of this “—"—Merger and Consolidation”Consolidation" covenant willdo not apply to any transaction in which the Company consolidates or merges with or into or transfers all or substantially all its properties and assets to (x)(x) an Affiliate incorporated or organized for the purpose of reincorporating or reorganizing the Company in another jurisdiction or changing its legal structure to a corporation or other entity or (y)(y) a Restricted Subsidiary of the Company so long as all assets of the Company and the Restricted Subsidiaries immediately prior to such transaction (other than Capital Stock of such Restricted Subsidiary) are owned by such Restricted Subsidiary and its Restricted Subsidiaries immediately after the consummation thereof. The first paragraph of this “—"—Merger and Consolidation”Consolidation" covenant willdo not apply to (1)(1) any transaction in which any Restricted Subsidiary consolidates with, merges into or transfers all or part of its assets to the Company or (2)(2) the Transactions.


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            Defaults

            An Event of Default is defined in the Indenture as:

              (i)  a default in any payment of interest on any Note when due, continued for a period of 30 days;

              (ii)  a default in the payment of principal of any Note when due, whether at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration of acceleration or otherwise;

              (iii)  the failure by the Company to comply with its obligations under the first paragraph of the covenant described under “—"—Merger and Consolidation”Consolidation" above;

              Index to Financial Statements

              (iv)  the failure by the Company to comply for 30 days after notice with any of its obligations under the covenant described under “—"—Change of Control”Control" above (other than a failure to purchase Notes);

              (v)  the failure by the Company to comply for 60 days after notice with its other agreements contained in the Notes or the Indenture;

              (vi)  the failure by any Subsidiary Guarantor to comply for 45 days after notice with its obligations under its Subsidiary Guarantee;

              (vii)  the failure by the Company or any Restricted Subsidiary to pay any Indebtedness for borrowed money (other than Indebtedness owed to the Company or any Restricted Subsidiary) within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default, if the total amount of such Indebtedness so unpaid or accelerated exceeds $100.0 million or its foreign currency equivalent;provided,, that no Default or Event of Default will be deemed to occur with respect to any such Indebtedness that is paid or otherwise acquired or retired (or for which such failure to pay or acceleration is waived or rescinded) within 20 Business Days after such failure to pay or such acceleration (the “cross"cross acceleration provision”provision");

              (viii)  certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the “"bankruptcy provisions”");

              (ix)  the rendering of any judgment or decree for the payment of money in an amount (net of any insurance or indemnity payments actually received in respect thereof prior to or within 90 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) in excess of $100.0 million or its foreign currency equivalent against the Company or a Significant Subsidiary that is not discharged, or bonded or insured by a third Person, if such judgment or decree remains outstanding for a period of 90 days following such judgment or decree and is not discharged, waived or stayed (the “"judgment default provision”");

              (x)  [reserved]; or

              (xi)  the failure of any Subsidiary Guarantee by a Subsidiary Guarantor that is a Significant Subsidiary to be in full force and effect (except as contemplated by the terms thereof or of the Indenture) or the denial or disaffirmation in writing by any Subsidiary Guarantor that is a Significant Subsidiary of its obligations under the Indenture or any Subsidiary Guarantee (other than by reason of the termination of the Indenture or such Subsidiary Guarantee or the release of such Subsidiary Guarantee in accordance with such Subsidiary Guarantee or the Indenture), if such Default continues for 10 days.

                    In addition, the Notes provided for a specific cross-default that became inapplicable when the debt to which the cross-default referred was repaid.


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            The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.

            However, a Default under clause (iv), (v) or (vi) will not constitute an Event of Default until the Trustee or the Holders of at least 30% in principal amount of the outstanding Notes notify the Company in writing of the Default and the Company does not cure such Default within the time specified in such clause after receipt of such notice.

            If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company) occurs and is continuing, the Trustee by written notice to the Company, or the Holders of at least 30% in principal amount of the outstanding Notes by written notice to the Company and the Trustee, may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable;provided that so long as any Designated Senior Indebtedness of the Company shall be outstanding, such acceleration shall not be effective until the earlier to occur of (x) five Business Days following delivery of a written notice of such acceleration of the Notes to the Company and the holders of all such Designated Senior Indebtedness or each Representative thereof and (y) the acceleration of any such Designated Senior Indebtedness.payable. Upon the effectiveness of such a declaration, such principal and interest will be due and payable immediately.

            Index to Financial Statements

            Notwithstanding the foregoing, in the event of a declaration of acceleration in respect of the Notes because an Event of Default specified in clause (vii) above shall have occurred and be continuing, such declaration of acceleration of the Notes and such Event of Default and all consequences thereof (including any acceleration or resulting payment default) shall be annulled, waived and rescinded, automatically and without any action by the applicable Trustee or the Holders, and be of no further effect, if within 60 days after such Event of Default arose (x) the Indebtedness that is the basis for such Event of Default has been discharged, or (y) the holders thereof have rescinded or waived the acceleration or other event or condition (as the case may be) giving rise to such Event of Default, or (z) the default in respect of such Indebtedness that is the basis for such Event of Default has been cured.

            Notwithstanding the foregoing, if an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and accrued but unpaid interest on all the Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences.

            Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee indemnity or security satisfactory to it against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i)(i) such Holder has previously given the Trustee written notice that an Event of Default is continuing, (ii)(ii) Holders of at least 30% in principal amount of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii)(iii) such Holders have offered the Trustee security or indemnity satisfactory to it against any loss, liability or expense, (iv)(iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v)(v) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.

            The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each Holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of, or premium, if any, or interest on, any Note, the Trustee may withhold notice if and so long as it in good faith determines that withholding notice is in the interests of the Noteholders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default occurring during the previous year. The Company also is required to deliver to the Trustee,


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            within 30 days after the occurrence thereof, written notice of any event that would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof.

            Amendments and Waivers

            Amendments and Waivers With the Consent of Holders

            Subject to certain exceptions, the Indenture and the Notes may be amended with the consent of the Holders of not less than a majority in principal amount of the Notes then outstanding and any past default or compliance with any provisions may be waived with the consent of the Holders of not less than a majority in principal amount of the Notes then outstanding (including in each case, consents obtained in connection with a tender offer

            Index to Financial Statements

            or exchange offer for Notes);provided that (x)(x) if any such amendment or waiver will only affect one series of Notes (or less than all series of Notes) then outstanding under the Indenture, then only the consent of the Holders of a majority in principal amount of the Notes of such series then outstanding (including, in each case, consents obtained in connection with a tender offer or exchange offer for Notes) shall be required and (y)(y) if any such amendment or waiver by its terms will affect a series of Notes in a manner different and materially adverse relative to the manner such amendment or waiver affects other series of Notes, then the consent of the Holders of a majority in principal amount of the Notes of such series then outstanding (including, in each case, consents obtained in connection with a tender offer or exchange offer for Notes) shall be required. However, without the consent of each Holder of an outstanding Note affected, no amendment or waiver may (i)(i) reduce the principal amount of Notes whose Holders must consent to an amendment or waiver, (ii)(ii) reduce the rate of or extend the time for payment of interest on any Note, (iii)(iii) reduce the principal of or extend the Stated Maturity of any Note, (iv)(iv) reduce the premium payable upon the redemption of any Note, or change the date on which any Note may be redeemed as described under “—"—Optional Redemption”Redemption" above, (v)(v) make any Note payable in money other than that stated in such Note, (vi)(vi) impair the right of any Holder to receive payment of principal of and interest on such Holder’sHolder's Notes on or after the due dates therefor or to institute suit for the enforcement of any such payment on or with respect to such Holder’sHolder's Notes, (vii)or (vii) make any change in the amendment or waiver provisions described in this sentence, or (viii) make any change to the subordination provisions of the Indenture that adversely affects the rights of any Holder of Notes in any material respect.sentence.

            Amendments and Waivers Without the Consent of Holders

            Without the consent of any Holder, the Company, the Trustee and (as applicable) any Subsidiary Guarantor may amend the Indenture or the Notes to cure any ambiguity, mistake, omission, defect or inconsistency, to provide for the assumption by a successor of the obligations of the Company or a Subsidiary Guarantor under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes, to add Guarantees with respect to the Notes, to secure the Notes, to evidence a successor Trustee, to confirm and evidence the release, termination or discharge of any Guarantee or Lien with respect to or securing the Notes when such release, termination or discharge is provided for under the Indenture, to make any change in the subordination provisions of the Indenture that would limit or terminate the benefits available to any holder of Senior Indebtedness (or any Representative thereof) under such subordination provisions, to add to the covenants of the Company for the benefit of the Noteholders or to surrender any right or power conferred upon the Company, to provide for or confirm the issuance of Additional Notes or Exchange Notes, to provide that any Indebtedness that becomes or will become an obligation of a Successor Company or a Subsidiary Guarantor pursuant to a transaction governed by the provisions described under “—Merger and Consolidation” (and that is not a Subordinated Obligation) is Senior Subordinated Indebtedness for purposes of the Indenture, to conform the text of the Indenture (including any supplemental indenture or other instrument pursuant to which Additional Notes are issued), the Notes (including any Additional Notes) or any Subsidiary Guarantee to any provision of this “Description"Description of Notes”Notes" or, with respect to any Additional Notes and any supplemental indenture or other instrument pursuant to which such Additional Notes are issued, to the “Description"Description of Notes”Notes" relating to the issuance of such Additional Notes solely to the extent that such “Description"Description of Notes”Notes" provides for terms of such Additional Notes that differ from the terms of the Notes, as contemplated by “—"—Principal, Maturity and Interest”Interest" above, to increase the minimum denomination of Notes to equal the dollar equivalent of €1,000 rounded up to the nearest $1,000 (including for purposes of redemption or repurchase of any Note in part), to make any change that does not materially adversely


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            affect the rights of any Holder, or to comply with any requirement of the SEC in connection with the qualification of the Indenture under the TIA or otherwise.

            However, the Indenture provides that no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Indebtedness then outstanding (which Senior Indebtedness has been previously designated in writing by the Company to the Trustee for this purpose) unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent in writing to such amendment.

            Index to Financial Statements

            The consent of the Noteholders is not necessary under the Indenture to approve the particular form of any proposed amendment or waiver. It is sufficient if such consent approves the substance of the proposed amendment or waiver. Until an amendment or waiver becomes effective, a consent to it by a Noteholder is a continuing consent by such Noteholder and every subsequent Holder of all or part of the related Note. Any such Noteholder or subsequent holder may revoke such consent as to its Note by written notice to the Trustee or the Company, received thereby before the date on which the Company certifies to the Trustee that the Holders of the requisite principal amount of Notes have consented to such amendment or waiver. After an amendment or waiver that requires the consent of the Noteholders under the Indenture becomes effective, the Company is required to mail to Noteholders a notice briefly describing such amendment or waiver. However, the failure to give such notice to all Noteholders, or any defect therein, will not impair or affect the validity of the amendment or waiver.

            Defeasance

            The Company at any time may terminate all obligations of the Company under the Notes and the Indenture (“("legal defeasance”"), except for certain obligations, including those relating to the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. The Company at any time may terminate its obligations under certain covenants under the Indenture, including the covenants described under “—"—Certain Covenants”Covenants" and “—"—Change of Control,”" the operation of the default provisions relating to such covenants described under “—Defaults”"—Defaults" above, the operation of the cross acceleration provision, the bankruptcy provisions with respect to Subsidiaries and the judgment default provision described under “—Defaults”"—Defaults" above, and the limitations contained in clauses (iii), (iv) and (v) under “—"—Merger and Consolidation”Consolidation" above (“("covenant defeasance”"). If the Company exercises its legal defeasance option or its covenant defeasance option, each Subsidiary Guarantor will be released from all of its obligations with respect to its Subsidiary Guarantee.

            The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (iv), (v) (as it relates to the covenants described under “—"—Certain Covenants”Covenants" above), (vi), (vii), (viii) (but only with respect to events of bankruptcy, insolvency or reorganization of a Subsidiary), (ix), (xi) or (xi)(xii) under “—Defaults”"—Defaults" above or because of the failure of the Company to comply with clause (iii), (iv) or (v) under “—"—Merger and Consolidation”Consolidation" above.

            Either defeasance option may be exercised to any redemption date or to the maturity date for the Notes. In order to exercise either defeasance option, the Company must irrevocably deposit or cause to be deposited in trust (the “"defeasance trust”") with the Trustee money or U.S. Government Obligations, or a combination thereof, sufficient (without reinvestment) to pay principal of, and premium (if any) and interest on, the Notes to redemption or maturity, as the case may be (provided that if such redemption is made pursuant to the provisions described in the sixthfourth paragraph under “—"—Optional Redemption,” (x)" (x) the amount of money or U.S. Government Obligations, or a combination thereof, that the Company must irrevocably deposit or cause to be deposited will be determined using an assumed Applicable Premium calculated as of the date of such deposit, and (y)(y) the Company must irrevocably deposit or cause to be deposited additional money in trust on the redemption date as necessary to pay the Applicable Premium as determined on such date), and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such


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            deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel (x)(x) must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law since the Issue Date and (y)(y) need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation have become due and payable, will become due and payable at their

            Index to Financial Statements

            Stated Maturity within one year, or have been or are to be called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company).

            Satisfaction and Discharge

            The Indenture will be discharged and cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i)(i) either (a)(a) all Notes previously authenticated and delivered (other than certain lost, stolen or destroyed Notes, and certain Notes for which provision for payment was previously made and thereafter the funds have been released to the Company) have been cancelled or delivered to the Trustee for cancellation or (b)(b) all Notes not previously cancelled or delivered to the Trustee for cancellation (x)(x) have become due and payable, (y)(y) will become due and payable at their Stated Maturity within one year or (z)(z) have been or are to be called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company; (ii)(ii) the Company has irrevocably deposited or caused to be deposited with the Trustee money, U.S. Government Obligations or a combination thereof, sufficient (without reinvestment) to pay and discharge the entire Indebtedness on the Notes not previously cancelled or delivered to the Trustee for cancellation, for principal, premium, if any, and interest to the date of such deposit (in the case of Notes that have become due and payable), redemption or their Stated Maturity, as the case may be (provided(provided that if such redemption is made pursuant to the provisions described in the sixthfourth paragraph under “—"—Optional Redemption,” (x)" (x) the amount of money or U.S. Government Obligations, or a combination thereof, that the Company must irrevocably deposit or cause to be deposited will be determined using an assumed Applicable Premium calculated as of the date of such deposit, and (y)(y) the Company must irrevocably deposit or cause to be deposited additional money in trust on the redemption date as necessary to pay the Applicable Premium as determined on such date); (iii)(iii) the Company has paid or caused to be paid all other sums payable under the Indenture by the Company; and (iv)(iv) the Company has delivered to the Trustee an Officer’sOfficer's Certificate and an Opinion of Counsel each to the effect that all conditions precedent under the “—"—Satisfaction and Discharge”Discharge" section of the Indenture relating to the satisfaction and discharge of the Indenture have been complied with,provided that any such counsel may rely on any Officer’sOfficer's Certificate as to matters of fact (including as to compliance with the foregoing clauses (i), (ii) and (iii)).

            No Personal Liability of Directors, Officers, Employees, Incorporators and Stockholders

            No director, officer, employee, incorporator or stockholder of the Company, any Subsidiary Guarantor or any Subsidiary of any thereof shall have any liability for any obligation of the Company or any Subsidiary Guarantor under the Indenture, the Notes or any Subsidiary Guarantee, or for any claim based on, in respect of, or by reason of, any such obligation or its creation. Each Noteholder, by accepting the Notes, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.

            Concerning the Trustee

            Wells Fargo Bank, National Association is the Trustee under the Indenture and is appointed by the Company as initial Registrar and Paying Agent with regard to the Notes.


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            The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are set forth specifically in the Indenture. During the existence of an Event of Default, the Trustee will exercise such of the rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person’sperson's own affairs.

            The Indenture and the TIA impose certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received

            Index to Financial Statements

            by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions;provided,, that if it acquires any conflicting interest as described in the TIA, it must eliminate such conflict, apply to the SEC for permission to continue as Trustee with such conflict, or resign.

            Transfer and Exchange

            A Noteholder may transfer or exchange Notes in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require such Noteholder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require such Noteholder to pay any taxes or other governmental charges required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption or purchase or to transfer or exchange any Note for a period of 15 Business Days prior to the day of the mailing of the notice of redemption or purchase. No service charge will be made for any registration of transfer or exchange of the Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other governmental charge payable in connection with the transfer or exchange. The Notes will be issued in registered form and the registered holder of a Note will be treated as the owner of such Note for all purposes.

            Governing Law

            The Indenture provides that it and the Notes are governed by, and construed in accordance with, the laws of the State of New York.

            Certain Definitions

            Certain Indenture Definitions

            “        "2007 Transactions”Senior Subordinated Indenture" means the “Transactions”Indenture, dated as of August 30, 2007, among the Company, the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, governing the 13.5% Senior Subordinated Notes due 2015 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

                    "2007 Transactions" means the "Transactions" as defined in the Existing2007 Senior Subordinated Indenture.

            “        "ABL Agent”" has the meaning assigned to such term in the Base Intercreditor Agreement.

            “        "Acquired Indebtedness”" means Indebtedness of a Person (i)(i) existing at the time such Person becomes a Subsidiary or (ii)(ii) assumed in connection with the acquisition of assets from such Person, in each case other than Indebtedness Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be Incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary.


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                    "Acquisition Indebtedness”" means Indebtedness of (i)(i) the Company or any Restricted Subsidiary Incurred to finance or refinance, or otherwise Incurred in connection with, any acquisition of any assets (including Capital Stock), business or Person, or any merger or consolidation of any Person with or into the Company or any Restricted Subsidiary, or (ii)(ii) any Person that is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary (including Indebtedness thereof Incurred in connection with any such acquisition, merger or consolidation).

            “        "Additional Assets”" means (i)(i) any property or assets that replace the property or assets that are the subject of an Asset Disposition; (ii)(ii) any property or assets (other than Indebtedness and Capital Stock) used or to be used by the Company or a Restricted Subsidiary or otherwise useful in a Related Business (including any capital expenditures on any property or assets already so used); (iii)(iii) the Capital Stock of a Person that is engaged in a Related Business and becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iv)(iv) Capital Stock of any Person that at such time is a Restricted Subsidiary acquired from a third party.

            “        "Affiliate”" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control”"control" when used with respect to any Person means the power to direct the management and policies of such

            Index to Financial Statements

            Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling”"controlling" and “controlled”"controlled" have meanings correlative to the foregoing. For the avoidance of doubt, THD and its Affiliates will not be deemed to be Affiliates of the Company or any of its Subsidiaries.

            “        "April 2012 Senior Unsecured Indenture”" means the Indenture, dated as of April 12, 2012, among the Company, the subsidiary guarantors party thereto from time to time and Wilmington Trust, National Association, as trustee, governing the 14.875% Senior Notes due 2020 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

            “        "April 2012 Senior Unsecured Notes”" means the “Notes”"Notes" as such term is defined in the April 2012 Senior Unsecured Indenture.

            “        "Asset Disposition”" means any sale, lease, transfer or other disposition of shares of Capital Stock of a Restricted Subsidiary (other than directors’directors' qualifying shares, or (in the case of a Foreign Subsidiary) to the extent required by applicable law), property or other assets (each referred to for the purposes of this definition as a “"disposition”") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction), other than (i)(i) a disposition to the Company or a Restricted Subsidiary, (ii)(ii) a disposition in the ordinary course of business, (iii)(iii) a disposition of Cash Equivalents, Investment Grade Securities or Temporary Cash Investments, (iv)(iv) the sale or discount (with or without recourse, and on customary or commercially reasonable terms) of accounts receivable or notes receivable arising in the ordinary course of business, or the conversion or exchange of accounts receivable for notes receivable, (v)(v) any Restricted Payment Transaction, (vi)(vi) a disposition that is governed by the provisions described under “—"—Merger and Consolidation,” (vii)" (vii) any Financing Disposition, (viii)(viii) any “fee"fee in lieu”lieu" or other disposition of assets to any governmental authority or agency that continue in use by the Company or any Restricted Subsidiary, so long as the Company or any Restricted Subsidiary may obtain title to such assets upon reasonable notice by paying a nominal fee, (ix)(ix) any exchange of property pursuant to or intended to qualify under Section 1031 (or any successor section) of the Code, or any exchange of equipment to be leased, rented or otherwise used in a Related Business, (x)(x) any financing transaction with respect to property built or acquired by the Company or any Restricted Subsidiary after April 12, 2012, including without limitation any sale/leaseback transaction or asset securitization, (xi)(xi) any disposition arising from foreclosure, condemnation or similar action with respect to any property or other assets, or exercise of termination rights under any lease, license, concession or other agreement, or pursuant to buy/sell arrangements under any joint


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            venture or similar agreement or arrangement, (xii)(xii) any disposition of Capital Stock, Indebtedness or other securities of an Unrestricted Subsidiary, (xiii)(xiii) a disposition of Capital Stock of a Restricted Subsidiary pursuant to an agreement or other obligation with or to a Person (other than the Company or a Restricted Subsidiary) from whom such Restricted Subsidiary was acquired, or from whom such Restricted Subsidiary acquired its business and assets (having been newly formed in connection with such acquisition), entered into in connection with such acquisition, (xiv)(xiv) a disposition of not more than 5.0% of the outstanding Capital Stock of a Foreign Subsidiary that has been approved by the Board of Directors, (xv)(xv) any disposition or series of related dispositions for aggregate consideration not to exceed $30.0 million, (xvi)(xvi) any Exempt Sale and Leaseback Transaction or (xvii)(xvii) the abandonment or other disposition of patents, trademarks or other intellectual property that are, in the reasonable judgment of the Company, no longer economically practicable to maintain or useful in the conduct of the business of the Company and its Subsidiaries taken as a whole.

            “        "Bain Capital”" means Bain Capital, LLC.

            “        "Bain Capital Investors”" means, collectively, (i)(i) Bain Capital, (ii)(ii) Bain Capital Partners Fund IX, L.P. and any legal successor thereto, and (iii)(iii) any Affiliate of any Bain Capital Investor, but not including any portfolio company of any Bain Capital Investor.

            “        "Bank Products Agreement”" means any agreement pursuant to which a bank or other financial institution agrees to provide treasury or cash management services (including, without limitation, controlled disbursements, automated clearinghouse transactions, return items, netting, overdrafts and interstate depository network services).

            Index to Financial Statements

            “        "Bank Products Obligations”" of any Person means the obligations of such Person pursuant to any Bank Products Agreement.

            “        "Base Intercreditor Agreement”" means the Intercreditor Agreement, dated as of April 12, 2012, among the ABL Agent, the Term Agent, the First Lien Note Agent and the Second Lien Note Agent, as the same may be amended, supplemented, waived or otherwise modified from time to time.

            “        "Board of Directors”" means, for any Person, the board of directors or other governing body of such Person or, if such Person does not have such a board of directors or other governing body and is owned or managed by a single entity, the Board of Directors of such entity, or, in either case, any committee thereof duly authorized to act on behalf of such Board of Directors. Unless otherwise provided, “Board"Board of Directors”Directors" means the Board of Directors of the Company.

            “        "Borrowing Base”" means the sum of (1)(1) 65% of the book value of Inventory of the Company and its Restricted Subsidiaries, (2)(2) 85% of the book value of Receivables of the Company and its Restricted Subsidiaries and (3)(3) Unrestricted Cash of the Company and its Restricted Subsidiaries (in each case, determined as of the end of the most recently ended fiscal month of the Company for which internal consolidated financial statements of the Company are available, and, in the case of any determination relating to any Incurrence of Indebtedness, on a pro forma basis including (x)(x) any property or assets of a type described above acquired since the end of such fiscal month and (y)(y) any property or assets of a type described above being acquired in connection therewith). The Borrowing Base, as of any date of determination, shall not include Inventory, the acquisition of which shall have been financed or refinanced by the Incurrence of Purchase Money Obligations pursuant to clause (b)(iv) of the covenant described under “—"—Certain Covenants—Limitation on Indebtedness,”" to the extent such Purchase Money Obligations (or any Refinancing Indebtedness in respect thereof) shall then remain outstanding pursuant to such clause (on a pro forma basis after giving effect to an Incurrence of Indebtedness and the application of proceeds therefrom).

            “        "Business Day”" means a day other than a Saturday, Sunday or other day on which commercial banking institutions are authorized or required by law to close in New York City (or any other city in which a Paying Agent maintains its office).


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                    "Capital Markets Securities”" means bonds, debentures, notes or other similar debt securities of the Company or any Subsidiary Guarantor (other than the Notes) with an aggregate principal amount outstanding in excess of $150.0 million.

            “        "Capital Stock”" of any Person means any and all shares of, rights to purchase, warrants or options for, or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity.

            “        "Capitalized Lease Obligation”" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The Stated Maturity of any Capitalized Lease Obligation shall be the date of the last payment of rent or any other amount due under the related lease.

            “        "Captive Insurance Subsidiary”" means any Subsidiary of the Company that is subject to regulation as an insurance company (or any Subsidiary thereof).

            “        "Carlyle”" means Carlyle Investment Management, LLC.

            “        "Carlyle Investors”" means, collectively, (i)(i) Carlyle, (ii)(ii) Carlyle Partners V, L. P. and any legal successor thereto, and (iii)(iii) any Affiliate of any Carlyle Investor, but not including any portfolio company of any Carlyle Investor.

            Index to Financial Statements

            “        "Cash Equivalents”" means any of the following: (a)(a) money, (b)(b) securities issued or fully guaranteed or insured by the United States of America, Canada or a member state of the European Union or any agency or instrumentality of any thereof, (c)(c) time deposits, certificates of deposit or bankers’bankers' acceptances of (i)(i) any lender under a Senior Credit Agreement or any affiliate thereof, (ii)(ii) JPMorgan Chase Bank, N.A., SunTrust Bank, Wells Fargo Bank, National Association, Bank of America, N.A., Scotiabank, The Toronto-Dominion Bank, Bank of Montreal, or any of their respective affiliates, or (iii)(iii) any commercial bank having capital and surplus in excess of $500.0 million (or the foreign currency equivalent thereof as of the date of such investment) and the commercial paper of the holding company of which is rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody’sMoody's (or if at such time neither is issuing ratings, then a comparable rating of another nationally recognized rating agency), (d)(d) money market instruments, commercial paper or other short-term obligations rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody’sMoody's (or if at such time neither is issuing ratings, then a comparable rating of another nationally recognized rating agency), (e)(e) investments in money market funds subject to the risk limiting conditions of Rule 2a-7 or any successor rule of the SEC under the Investment Company Act of 1940, as amended, (f)(f) Canadian dollars, and (g)(g) investments similar to any of the foregoing denominated in Canadian dollars or any other foreign currencies approved by the Board of Directors. Notwithstanding anything to the contrary in the foregoing, the items described in clauses (c)(i) and (g) of this definition shall not constitute “Cash Equivalents” in determining whether Senior Indebtedness has been paid in Cash Equivalents for purposes of the subordination provisions of the Indenture.

            “        "Cash Flow Intercreditor Agreement”" means the Intercreditor Agreement, dated as of April 12, 2012, among the Term Agent, the First Lien Note Agent and the Second Lien Note Agent, as the same may be amended, supplemented, waived or otherwise modified from time to time.

            “        "CD&R”" means Clayton, Dubilier & Rice, LLC and any successor in interest thereto, or any successor to CD&R’s&R's investment management business.

            “        "CD&R Investors”" means, collectively, (i)(i) CD&R, (ii)(ii) Clayton, Dubilier & Rice Fund VII, L.P., or any legal successor thereto, (iii)(iii) CD&R Parallel Fund VII, L.P., or any legal successor thereto, and (iv)(iv) any Affiliate of any CD&R Investor, but not including any portfolio company of any CD&R Investor.

            “        "Code”" means the Internal Revenue Code of 1986, as amended.


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                    "Commodities Agreement”" means, in respect of a Person, any commodity futures contract, forward contract, option or similar agreement or arrangement (including derivative agreements or arrangements), as to which such Person is a party or beneficiary.

            “        "Company”" means HD Supply, Inc., a Delaware corporation, and any successor in interest thereto.

            “        "Consolidated Coverage Ratio”" as of any date of determination means the ratio of (i)(i) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available to (ii)(ii) Consolidated Interest Expense for such four fiscal quarters;provided,, that

              (1)   if since the beginning of such period the Company or any Restricted Subsidiary has Incurred any Indebtedness that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period (except that in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on (A)(A) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period for which such facility was outstanding or (B)(B) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation),

              Index to Financial Statements

              (2)   if since the beginning of such period the Company or any Restricted Subsidiary has repaid, repurchased, redeemed, defeased or otherwise acquired, retired or discharged any Indebtedness that is no longer outstanding on such date of determination (each, a “"Discharge”") or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio involves a Discharge of Indebtedness (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid), Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such Discharge had occurred on the first day of such period,

              (3)   if since the beginning of such period the Company or any Restricted Subsidiary shall have disposed of any company, any business or any group of assets constituting an operating unit of a business (any such disposition, a “"Sale”"), the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to (A)(A) the Consolidated Interest Expense attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, redeemed, defeased or otherwise acquired, retired or discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Sale for such period (including but not limited to through the assumption of such Indebtedness by another Person) plus (B)(B) if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such Sale,

              (4)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made an Investment in any Person that thereby becomes a Restricted Subsidiary, or otherwise acquired any company, any business or any group of


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              assets constituting an operating unit of a business, including any such Investment or acquisition occurring in connection with a transaction causing a calculation to be made hereunder (any such Investment or acquisition, a “"Purchase”"), Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any related Indebtedness) as if such Purchase occurred on the first day of such period, and

              (5)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have Discharged any Indebtedness or made any Sale or Purchase that would have required an adjustment pursuant to clause (2), (3) or (4) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Discharge, Sale or Purchase occurred on the first day of such period.

            For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred or repaid, repurchased, redeemed, defeased or otherwise acquired, retired or discharged in connection therewith, the pro forma calculations in respect thereof (including without limitation in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company;provided that such net cost savings or synergies are reasonably identifiable and factually supportable. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness). If any Indebtedness bears, at the option of the Company or a Restricted Subsidiary, a rate of interest based on a prime or similar rate, a eurocurrency interbank offered rate or other fixed or floating rate, and such Indebtedness is being given pro forma effect, the interest expense on such Indebtedness shall be calculated

            Index to Financial Statements

            by applying such optional rate as the Company or such Restricted Subsidiary may designate. If any Indebtedness that is being given pro forma effect was Incurred under a revolving credit facility, the interest expense on such Indebtedness shall be computed based upon the average daily balance of such Indebtedness during the applicable period. Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate determined in good faith by a responsible financial or accounting officer of the Company to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.

            “        "Consolidated EBITDA”" means, for any period, the Consolidated Net Income for such period, plus (a)(a) the following to the extent deducted in calculating such Consolidated Net Income, without duplication: (i)(i) provision for all taxes (whether or not paid, estimated or accrued) based on income, profits or capital (including penalties and interest, if any), (ii)(ii) Consolidated Interest Expense, all items excluded from the definition of Consolidated Interest Expense pursuant to clause (iii) thereof (other than Special Purpose Financing Expense), any Special Purpose Financing Fees, and (for purposes of the Consolidated Total Leverage Ratio) any Special Purpose Financing Expense, (iii)(iii) depreciation, amortization (including but not limited to amortization of intangibles and amortization and write-off of financing costs) and all other non-cash charges or non-cash losses, (iv)(iv) any expenses or charges related to any Equity Offering, Investment or Indebtedness permitted by the Indenture (whether or not consummated or incurred, and including any non-consummated sale of Capital Stock to the extent the proceeds thereof were intended to be contributed to the equity capital of the Company or any of its Restricted Subsidiaries), (v)(v) the amount of any loss attributable to non-controlling interests and (vi)(vi) any management, monitoring, consulting and advisory fees and related expenses paid to any of CD&R,


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            Bain Capital, Carlyle or any of their respective Affiliates, plus (b)(b) the amount of net cost savings projected by the Company in good faith to be realized as a result of actions taken or to be taken (calculated on a pro forma basis as though such cost savings had been realized on the first day of such period), net of the amount of actual benefits realized during such period from such actions;provided that (x)(x) such cost savings are reasonably identifiable and factually supportable, (y)(y) such net cost savings are reasonably expected to be realized within 18 months of the date of calculation of Consolidated EBITDA as evidenced by an Officer’sOfficer's Certificate prepared as of the date for which Consolidated EBITDA is being calculated and (z)(z) the aggregate amount of cost savings added pursuant to this clause (b) shall not exceed $50.0 million for any four consecutive quarter period (which adjustments may be incremental to (but not duplicative of) pro forma adjustments made pursuant to the proviso to the definition of “Consolidated"Consolidated Coverage Ratio,” “Consolidated" "Consolidated Secured Leverage Ratio,” “Consolidated" "Consolidated Senior Priority Leverage Ratio”Ratio" or “Consolidated"Consolidated Total Leverage Ratio”Ratio"), plus (c)(c) to the extent deducted in calculating such Consolidated Net Income, (i)(i) the amount of loss on any Financing Disposition, and (ii)(ii) any costs or expenses pursuant to any management or employee stock option or other equity-related plan, program or arrangement, or other benefit plan, program or arrangement, or any stock subscription or shareholder agreement, to the extent funded with cash proceeds contributed to the capital of the Company or an issuance of Capital Stock of the Company (other than Disqualified Stock) and excluded from the calculation set forth in clause (a)(3) of the covenant described under “Certain"Certain Covenants—Limitation on Restricted Payments.”"

            “        "Consolidated Interest Expense”" means, for any period, (i)(i) the total interest expense of the Company and its Restricted Subsidiaries to the extent deducted in calculating Consolidated Net Income, net of any interest income of the Company and its Restricted Subsidiaries, including without limitation, any such interest expense consisting of (a)(a) interest expense attributable to Capitalized Lease Obligations, (b)(b) amortization of debt discount, (c)(c) interest in respect of Indebtedness of any other Person that has been Guaranteed by the Company or any Restricted Subsidiary, but only to the extent that such interest is actually paid by the Company or any Restricted Subsidiary, (d)(d) non-cash interest expense, (e)(e) the interest portion of any deferred payment obligation and (f)(f) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’bankers' acceptance financing, plus (ii)(ii) Preferred Stock dividends paid in cash in respect of Disqualified Stock of the Company held by Persons other than the Company or a Restricted Subsidiary and minus (iii)(iii) to the extent otherwise included in such interest expense referred to in clause (i) above, amortization or write-off of financing costs, Special Purpose Financing Expense, accretion or accrual of discounted liabilities not constituting Indebtedness, expense resulting from discounting of Indebtedness in conjunction with recapitalization or purchase accounting, and any “additional interest”"additional interest" in respect of registration rights arrangements for any securities (including the Notes), in each

            Index to Financial Statements

            case under clauses (i) through (iii) as determined on a Consolidated basis in accordance with GAAP;provided,, that gross interest expense shall be determined after giving effect to any net payments made or received by the Company and its Restricted Subsidiaries with respect to Interest Rate Agreements.

            “        "Consolidated Net Income”" means, for any period, the net income (loss) of the Company and its Restricted Subsidiaries, determined on a Consolidated basis in accordance with GAAP and before any reduction in respect of Preferred Stock dividends;provided,, that there shall not be included in such Consolidated Net Income:

              (i)  any net income (loss) of any Person that is not the Company or a Restricted Subsidiary, except that the Company’sCompany's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (ii) below),


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              (ii)  solely for purposes of determining the amount available for Restricted Payments under clause (a)(3)(A) of the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments,”" any net income (loss) of any Restricted Subsidiary that is not a Subsidiary Guarantor if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of similar distributions by such Restricted Subsidiary, directly or indirectly, to the Company by operation of the terms of such Restricted Subsidiary’sSubsidiary's charter or any agreement, instrument, judgment, decree, order, statute or governmental rule or regulation applicable to such Restricted Subsidiary or its stockholders (other than (x)(x) restrictions that have been waived or otherwise released, (y)(y) restrictions pursuant to any of the Notes, the Indenture, the Note Security Documents, the Intercreditor Agreements, the Senior First Priority Indenture, the other Senior First Priority Note Documents, the Senior Second Priority Indenture, the other Senior Second Priority Note Documents, the April 2012 Senior Unsecured Indenture, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Indenture, the October 2012 Senior Unsecured Notes, the ExistingJanuary 2013 Senior Subordinated Indenture and the ExistingJanuary 2013 Senior Subordinated Notes and (z)(z) restrictions in effect on the Issue Date with respect to a Restricted Subsidiary and other restrictions with respect to such Restricted Subsidiary that taken as a whole are not materially less favorable to the Noteholders than such restrictions in effect on the Issue Date), except that the Company’sCompany's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of any dividend or distribution that was or that could have been made by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause),

              (iii)  any gain or loss realized upon (x)(x) the sale, abandonment or other disposition of any asset of the Company or any Restricted Subsidiary (including pursuant to any sale/leaseback transaction) that is not sold, abandoned or otherwise disposed of in the ordinary course of business (as determined in good faith by the Board of Directors) or (y)(y) the disposal, abandonment or discontinuation of operations of the Company or any Restricted Subsidiary, and any income (loss) from disposed, abandoned or discontinued operations,

              (iv)  any item classified or disclosed as an extraordinary, unusual or nonrecurring gain, loss or charge (including fees, expenses and charges associated with the Transactions or any acquisition, merger or consolidation after April 12, 2012),

              (v)  the cumulative effect of a change in accounting principles,

              (vi)  all deferred financing costs written off and premiums paid in connection with any early extinguishment of Indebtedness or Hedging Obligations or other derivative instruments,

              (vii)  any unrealized gains or losses in respect of Currency Agreements,

              (viii)  any unrealized foreign currency transaction gains or losses in respect of Indebtedness of any Person denominated in a currency other than the functional currency of such Person,

              (ix)  any non-cash compensation charge arising from any grant of stock, stock options or other equity based awards,

              Index to Financial Statements

              (x)  to the extent otherwise included in Consolidated Net Income, any unrealized foreign currency translation or transaction gains or losses in respect of Indebtedness or other obligations of the Company or any Restricted Subsidiary owing to the Company or any Restricted Subsidiary,

              (xi)  any non-cash charge, expense or other impact attributable to application of the purchase or recapitalization method of accounting (including the total amount of depreciation and


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              amortization, cost of sales or other non-cash expense resulting from the write-up of assets to the extent resulting from such purchase or recapitalization accounting adjustments),

              (xii)  any impairment charge or asset write-off, including any charge or write-off related to intangible assets, long-lived assets or investments in debt and equity securities, and any amortization of intangibles,

              (xiii)  any fees and expenses (or amortization thereof), and any charges or costs, in connection with any acquisition, Investment, Asset Disposition, issuance of Capital Stock, issuance, repayment or refinancing of Indebtedness, or amendment or modification of any agreement or instrument relating to any Indebtedness (in each case, whether or not completed, and including any such transaction consummated prior to the Issue Date),

              (xiv)  any accruals and reserves established or adjusted within twelve months after April 12, 2012 that are established as a result of the Transactions, and any changes as a result of adoption or modification of accounting policies, and

              (xv)  to the extent covered by insurance and actually reimbursed (or the Company has determined that there exists reasonable evidence that such amount will be reimbursed by the insurer and such amount is not denied by the applicable insurer in writing within 180 days and is reimbursed within 365 days of the date of such evidence (with a deduction in any future calculation of Consolidated Net Income for any amount so added back to the extent not so reimbursed within such 365 day period)), any expenses with respect to liability or casualty events or business interruption.

            Notwithstanding the foregoing, for the purpose of clause (a)(3)(A) of the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments”Payments" only, there shall be excluded from Consolidated Net Income, without duplication, any income consisting of dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary, and any income consisting of return of capital, repayment or other proceeds from dispositions or repayments of Investments consisting of Restricted Payments, in each case to the extent such income would be included in Consolidated Net Income and such related dividends, repayments, transfers, return of capital or other proceeds are applied by the Company to increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(C) or (D) thereof.

            “        "Consolidated Secured Indebtedness”" means, as of any date of determination, (1)(1) an amount equal to the Consolidated Total Indebtedness (without regard to clause (2) of the definition thereof) as of such date that in each case is then secured by Liens on property or assets of the Company and its Restricted Subsidiaries (other than property or assets held in a defeasance or similar trust or arrangement for the benefit of the Indebtedness secured thereby), minus (2)(2) the amount of Unrestricted Cash held by the Company and its Restricted Subsidiaries as of the most recent date with respect to which a balance sheet is available.

            “        "Consolidated Secured Leverage Ratio”" means, as of any date of determination, the ratio of (i)(i) Consolidated Secured Indebtedness as at such date (after giving effect to any Incurrence or Discharge of Indebtedness on such date) to (ii)(ii) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available,provided,, that:

              (1)   if since the beginning of such period the Company or any Restricted Subsidiary shall have made a Sale, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period;


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              Index to Financial Statements

              (2)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made a Purchase (including any Purchase occurring in connection with a transaction causing a calculation to be made hereunder), Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Purchase occurred on the first day of such period; and

              (3)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have made any Sale or Purchase that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Sale or Purchase occurred on the first day of such period.

            For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto, the pro forma calculations in respect thereof (including, without limitation, in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company;provided that such net cost savings or synergies are reasonably identifiable and factually supportable.

            “        "Consolidated Senior Priority Indebtedness”" means, as of any date of determination, an amount equal to (1)(1) the Consolidated Total Indebtedness (without regard to clause (2) of the definition thereof) as of such date that in each case is then secured by Liens on property or assets of the Company and its Restricted Subsidiaries (other than property or assets held in a defeasance or similar trust or arrangement for the benefit of the Indebtedness secured thereby) and consists of Indebtedness having Senior Lien Priority with respect to the Senior Second Priority Notes, minus (2)(2) the amount of Unrestricted Cash held by the Company and its Restricted Subsidiaries as of the most recent date with respect to which a balance sheet is available.

            “        "Consolidated Senior Priority Leverage Ratio”" means, as of any date of determination, the ratio of (i)(i) Consolidated Senior Priority Indebtedness as at such date (after giving effect to any Incurrence or Discharge of Indebtedness on such date) to (ii)(ii) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available,provided,, that:

              (1)   if since the beginning of such period the Company or any Restricted Subsidiary shall have made a Sale, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period;

              (2)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made a Purchase (including any Purchase occurring in connection with a transaction causing a calculation to be made hereunder), Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Purchase occurred on the first day of such period; and

              (3)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have made any Sale or Purchase that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA for such period


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              shall be calculated after giving pro forma effect thereto as if such Sale or Purchase occurred on the first day of such period.

            For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto, the pro forma calculations in respect thereof

            Index to Financial Statements

            (including, (including, without limitation, in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company;provided that such net cost savings or synergies are reasonably identifiable and factually supportable.

            “        "Consolidated Tangible Assets”" means, as of any date of determination, the total assets less the sum of the goodwill, net, and other intangible assets, net, in each case reflected on the consolidated balance sheet of the Company and its Restricted Subsidiaries as at the end of the most recently ended fiscal quarter of the Company for which such a balance sheet is available, determined on a Consolidated basis in accordance with GAAP (and, in the case of any determination relating to any Incurrence of Indebtedness or any Investment, on a pro forma basis including any property or assets being acquired in connection therewith).

            “        "Consolidated Total Indebtedness”" means, as of any date of determination, an amount equal to (1)(1) the aggregate principal amount of outstanding Indebtedness of the Company and its Restricted Subsidiaries as of such date consisting of (without duplication) Indebtedness for borrowed money (including Purchase Money Obligations and unreimbursed outstanding drawn amounts under funded letters of credit (other than letters of credit in respect of trade payables)), Capitalized Lease Obligations, debt obligations evidenced by bonds, debentures, notes or similar instruments, Disqualified Stock, and (in the case of any Restricted Subsidiary that is not a Subsidiary Guarantor) Preferred Stock, determined on a Consolidated basis in accordance with GAAP (excluding items eliminated in Consolidation, and for the avoidance of doubt, excluding Hedging Obligations), minus (2)(2) the amount of Unrestricted Cash held by the Company and its Restricted Subsidiaries as of the most recent date with respect to which a balance sheet is available.

            “        "Consolidated Total Leverage Ratio”" means, as of any date of determination, the ratio of (i)(i) Consolidated Total Indebtedness as at such date (after giving effect to any Incurrence or Discharge of Indebtedness on such date) to (ii)(ii) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available,provided that:

              (1)   if since the beginning of such period the Company or any Restricted Subsidiary shall have made a Sale, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the assets that are the subject of such Sale for such period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such period;

              (2)   if since the beginning of such period the Company or any Restricted Subsidiary (by merger, consolidation or otherwise) shall have made a Purchase (including any Purchase occurring in connection with a transaction causing a calculation to be made hereunder), Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Purchase occurred on the first day of such period; and

              (3)   if since the beginning of such period any Person became a Restricted Subsidiary or was merged or consolidated with or into the Company or any Restricted Subsidiary, and since the beginning of such period such Person shall have made any Sale or Purchase that would have required an adjustment pursuant to clause (1) or (2) above if made by the Company or a Restricted Subsidiary since the beginning of such period, Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such Sale or Purchase occurred on the first day of such period.


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            For purposes of this definition, whenever pro forma effect is to be given to any Sale, Purchase or other transaction, or the amount of income or earnings relating thereto, the pro forma calculations in respect thereof (including without limitation in respect of anticipated net cost savings or synergies relating to any such Sale, Purchase or other transaction) shall be as determined in good faith by the Chief Financial Officer or an authorized Officer of the Company;provided that such net cost savings or synergies are reasonably identifiable and factually supportable.

            Index to Financial Statements

            “        "Consolidation”" means the consolidation of the accounts of each of the Restricted Subsidiaries with those of the Company in accordance with GAAP;provided that “Consolidation”"Consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary, but the interest of the Company or any Restricted Subsidiary in any Unrestricted Subsidiary will be accounted for as an investment. The term “"Consolidated”" has a correlative meaning.

            “        "Contingent Obligation”" means, with respect to any Person, any obligation of such Person guaranteeing any obligation that does not constitute Indebtedness (a “primary obligation”"primary obligation") of any other Person (the “primary obligor”"primary obligor") in any manner, whether directly or indirectly, including any obligation of such Person, whether or not contingent, (1)(1) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (2)(2) to advance or supply funds (a)(a) for the purchase or payment of any such primary obligation, or (b)(b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, or (3)(3) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.

            “        "Contractual Obligation”" means, as to any Person, any provision of any material security issued by such Person or of any material agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

            “        "Contribution Amounts”" means the aggregate amount of capital contributions applied by the Company to permit the Incurrence of Contribution Indebtedness pursuant to clause (b)(x) of the covenant described under “—"—Certain Covenants—Limitation on Indebtedness.”"

            “        "Contribution Indebtedness”" means Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount not greater than twice the aggregate amount of cash contributions (other than Excluded Contributions) made to the capital of the Company or such Restricted Subsidiary after April 12, 2012 (whether through the issuance or sale of Capital Stock or otherwise);provided that such Contribution Indebtedness (a)(a) is incurred within 180 days after the making of the related cash contribution and (b)(b) is so designated as Contribution Indebtedness pursuant to an Officer’sOfficer's Certificate on the date of Incurrence thereof.

            “        "Credit Facilities”" means one or more of (i)(i) the Senior Term Facility, (ii)(ii) the Senior ABL Facility and (iii)(iii) any other facilities or arrangements designated by the Company, in each case with one or more banks or other lenders or institutions providing for revolving credit loans, term loans, receivables, inventory or real estate financings (including without limitation through the sale of receivables, inventory, real estate and/or other assets to such institutions or to special purpose entities formed to borrow from such institutions against such receivables, inventory, real estate and/or other assets or the creation of any Liens in respect of such receivables, inventory, real estate and/or other assets in favor of such institutions), letters of credit or other Indebtedness, in each case, including all agreements, instruments and documents executed and delivered pursuant to or in connection with any of the foregoing, including but not limited to any notes and letters of credit issued pursuant thereto and any guarantee and collateral agreement, patent and trademark security agreement, mortgages or letter of credit applications and other guarantees, pledge agreements, security agreements and collateral documents, in each case as the same may be amended, supplemented, waived or otherwise modified from time to time, or refunded, refinanced, restructured, replaced, renewed, repaid, increased or


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            extended from time to time (whether in whole or in part, whether with the original banks, lenders or institutions or other banks, lenders or institutions or otherwise, and whether provided under any original Credit Facility or one or more other credit agreements, indentures, financing agreements or other Credit Facilities or otherwise). Without limiting the generality of the foregoing, the term “Credit Facility”"Credit Facility" shall include any agreement (i)(i) changing the maturity of any Indebtedness Incurred thereunder or contemplated thereby, (ii)(ii) adding Subsidiaries as additional borrowers or guarantors thereunder, (iii)(iii) increasing the amount of Indebtedness Incurred thereunder or available to be borrowed thereunder or (iv)(iv) otherwise altering the terms and conditions thereof.

            Index to Financial Statements

            “        "Credit Facility Indebtedness”" means any and all amounts, whether outstanding on the Issue Date or thereafter incurred, payable under or in respect of any Credit Facility, including without limitation any principal, premium, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company or any Restricted Subsidiary whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees, other monetary obligations of any nature and all other amounts payable thereunder or in respect thereof.

            “        "Currency Agreement”" means, in respect of a Person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangements (including derivative agreements or arrangements), as to which such Person is a party or a beneficiary.

            “        "Default”" means any event or condition that is, or after notice or passage of time or both would be, an Event of Default.

            “        "Designated Noncash Consideration”" means the Fair Market Value of noncash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Disposition that is so designated as Designated Noncash Consideration pursuant to an Officer’sOfficer's Certificate, setting forth the basis of such valuation.

            “        "Designated Preferred Stock”" means Preferred Stock of the Company (other than Disqualified Stock) or any Parent that is issued for cash (other than to a Restricted Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an Officer’sOfficer's Certificate of the Company.

            “        "Designated Senior Indebtedness”" means with respect to a Person (i)(i) the Credit Facility Indebtedness under or in respect of any Senior Credit Facility and (ii)(ii) any other Senior Indebtedness of such Person that, at the date of determination, has an aggregate principal amount equal to or under which, at the date of determination, the holders thereof are committed to lend up to, at least $25.0 million and is specifically designated by such Person in an agreement or instrument evidencing or governing such Senior Indebtedness as “Designated"Designated Senior Indebtedness”Indebtedness" for purposes of the Indenture.

            “        "Disinterested Directors”" means, with respect to any Affiliate Transaction, one or more members of the Board of Directors of the Company, or one or more members of the Board of Directors of a Parent, having no material direct or indirect financial interest in or with respect to such Affiliate Transaction. A member of any such Board of Directors shall not be deemed to have such a financial interest by reason of such member’smember's holding Capital Stock of the Company or any Parent or any options, warrants or other rights in respect of such Capital Stock.

            “        "Disqualified Stock”" means, with respect to any Person, any Capital Stock (other than Management Stock) that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (other than following the occurrence of a Change of Control or other similar event described under such terms as a “change"change of control,”" or an Asset Disposition) (i)(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii)(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii)(iii) is redeemable at the option of the holder thereof (other than following the occurrence of a Change of


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            Control or other similar event described under such terms as a “change"change of control,”" or an Asset Disposition), in whole or in part, in each case on or prior to the final Stated Maturity of the Notes;provided that Capital Stock issued to any employee benefit plan, or by any such plan to any employees of the Company or any Subsidiary, shall not constitute Disqualified Stock solely because it may be required to be repurchased or otherwise acquired or retired in order to satisfy applicable statutory or regulatory obligations.

            “        "Domestic Subsidiary”" means any Restricted Subsidiary of the Company other than a Foreign Subsidiary.

            “        "Dormant Subsidiary”" means any Subsidiary of the Company that carries on no operations, had revenues of less than $4.0 million during the most recently completed period of four consecutive fiscal quarters of the Company and has total assets of less than $4.0 million as of the last day of such period;provided that the assets

            Index to Financial Statements

            of all Subsidiaries constituting Dormant Subsidiaries shall at no time exceed $20.0 million in the aggregate and the revenues of all Subsidiaries constituting Dormant Subsidiaries for any four consecutive fiscal quarters shall at no time exceed $20.0 million in the aggregate.

            “        "Exchange Act”" means the Securities Exchange Act of 1934, as amended.

            “        "Excluded Contribution”" means Net Cash Proceeds, or the Fair Market Value of property or assets, received by the Company as capital contributions to the Company after April 12, 2012 or from the issuance or sale (other than to a Restricted Subsidiary) of Capital Stock (other than Disqualified Stock or Designated Preferred Stock) of the Company, in each case to the extent designated as an Excluded Contribution pursuant to an Officer’sOfficer's Certificate of the Company and not previously included in the calculation set forth in clause (a)(3)(B)(x) of the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments”Payments" for purposes of determining whether a Restricted Payment may be made.

            “        "Excluded Subsidiary”" means any (a)(a) Special Purpose Subsidiary, (b)(b) Subsidiary of a Foreign Subsidiary, (c)(c) Unrestricted Subsidiary, (d)(d) Immaterial Subsidiary, (e)(e) Dormant Subsidiary, (f)(f) Captive Insurance Subsidiary, (g)(g) Domestic Subsidiary that is prohibited by any applicable Contractual Obligation or Requirement of Law from guaranteeing or granting Liens to secure the Notes at the time such Subsidiary becomes a Restricted Subsidiary (and for so long as such restriction or any replacement or renewal thereof is in effect) or (h)(h) Domestic Subsidiary with respect to which, in the reasonable judgment of the Company, the cost or other consequences (including any adverse tax consequences) of providing a Guarantee of the Notes shall be excessive in view of the benefits to be obtained by the Holders of the Notes therefrom.

            “        "Exempt Sale and Leaseback Transaction”" means any Sale and Leaseback Transaction (a)(a) in which the sale or transfer of property occurs within 90 days of the acquisition of such property by the Company or any of its Subsidiaries or (b)(b) that involves property with a book value of $20.0 million or less and is not part of a series of related Sale and Leaseback Transactions involving property with an aggregate value in excess of such amount and entered into with a single Person or group of Persons. For purposes of the foregoing, “Sale"Sale and Leaseback Transaction”Transaction" means any arrangement with any Person providing for the leasing by the Company or any of its Subsidiaries of real or personal property that has been or is to be sold or transferred by the Company or any such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary.

            “Existing Senior Subordinated Indenture” means the Indenture, dated as of August 30, 2007, among the Company, the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, governing the 13.5% Senior Subordinated Notes due 2015 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.        "

            “Existing Senior Subordinated Notes” means the “Notes” as such term is defined in the Existing Senior Subordinated Indenture.

            “Extinguished Senior Obligations”" means, as of any date of determination, all Senior Indebtedness (including any capitalized interest thereon) that after the Issue Date has been, or will be in any transaction giving rise to the need to calculate Extinguished Senior Obligations, (x)(x) refinanced with, exchanged for, or amended, supplemented or otherwise modified into, Subordinated Obligations or (y)(y) repaid other than with the proceeds of other Senior Indebtedness. “"Extinguishment of Senior


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            Obligations”" means any such refinancing, exchange, amendment, supplement, other modification or repayment of Senior Indebtedness referred to in the previous sentence.

            “        "Fair Market Value”" means, with respect to any asset or property, the fair market value of such asset or property as determined in good faith by the Board of Directors, whose determination will be conclusive.

            Index to Financial Statements

            “        "Financing Disposition”" means any sale, transfer, conveyance or other disposition of, or creation or incurrence of any Lien on, property or assets (a)(a) by the Company or any Subsidiary thereof to or in favor of any Special Purpose Entity, or by any Special Purpose Subsidiary, in each case in connection with the Incurrence by a Special Purpose Entity of Indebtedness, or obligations to make payments to the obligor on Indebtedness, which may be secured by a Lien in respect of such property or assets or (b)(b) by the Company or any Subsidiary thereof to or in favor of any Special Purpose Entity that is not a Special Purpose Subsidiary.

            “        "First Lien Note Agent”" has the meaning assigned to such term in the Base Intercreditor Agreement or the Cash Flow Intercreditor Agreement, as applicable.

            “        "Fixed GAAP Date”" means April 12, 2012,provided that at any time after April 12, 2012, the Company may by written notice to the Trustee elect to change the Fixed GAAP Date to be the date specified in such notice, and upon such notice, the Fixed GAAP Date shall be such date for all periods beginning on and after the date specified in such notice.

            “        "Fixed GAAP Terms”" means (a)(a) the definitions of the terms “Borrowing"Borrowing Base,” “Capitalized" "Capitalized Lease Obligation,” “Consolidated" "Consolidated Coverage Ratio,” “Consolidated" "Consolidated EBITDA,” “Consolidated" "Consolidated Interest Expense,” “Consolidated" "Consolidated Net Income,” “Consolidated" "Consolidated Secured Indebtedness,” “Consolidated" "Consolidated Secured Leverage Ratio,” “Consolidated" "Consolidated Senior Priority Indebtedness,” “Consolidated" "Consolidated Senior Priority Leverage Ratio,” “Consolidated" "Consolidated Total Leverage Ratio,” “Consolidated" "Consolidated Tangible Assets,” “Consolidated" "Consolidated Total Indebtedness,” “Consolidation,” “Inventory”" "Consolidation," "Inventory" or “Receivables,” (b)"Receivables," (b) all defined terms in the Indenture to the extent used in or relating to any of the foregoing definitions, and all ratios and computations based on any of the foregoing definitions, and (c)(c) any other term or provision of the Indenture or the Notes that, at the Company’sCompany's election, may be specified by the Company by written notice to the Trustee from time to time.

            “        "Foreign Subsidiary”" means (a)(a) any Restricted Subsidiary of the Company that is not organized under the laws of the United States of America or any state thereof or the District of Columbia and any Restricted Subsidiary of such Foreign Subsidiary and (b)(b) any Restricted Subsidiary of the Company that has no material assets other than securities or Indebtedness of one or more Foreign Subsidiaries (or Subsidiaries thereof), intellectual property relating to such Foreign Subsidiaries (or Subsidiaries thereof) and other assets relating to an ownership interest in any such securities, Indebtedness, intellectual property or Subsidiaries.

            “        "GAAP”" means generally accepted accounting principles in the United States of America as in effect on the Fixed GAAP Date (for purposes of the Fixed GAAP Terms) and as in effect from time to time (for all other purposes of the Indenture), including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, and subject to the following: If at any time the SEC permits or requires U.S. domiciled companies subject to the reporting requirements of the Exchange Act to use IFRS in lieu of GAAP for financial reporting purposes, the Company may elect by written notice to the Trustee to so use IFRS in lieu of GAAP and, upon any such notice, references herein to GAAP shall thereafter be construed to mean (a)(a) for periods beginning on and after the date specified in such notice, IFRS as in effect on the date specified in such notice (for purposes of the Fixed GAAP Terms) and as in effect from time to


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            time (for all other purposes of the Indenture) and (b)(b) for prior periods, GAAP as defined in the first sentence of this definition. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP.

            “        "Guarantee”" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person;provided that the term “Guarantee”"Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term “Guarantee”"Guarantee" used as a verb has a corresponding meaning.

            Index to Financial Statements

            “        "Guarantor Subordinated Obligations”" means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) that is expressly subordinated in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement.

            “        "Hedging Obligations”" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement, Currency Agreement or Commodities Agreement.

            “        "Holder”" or “"Noteholder”" means the Person in whose name a Note is registered in the Note Register.

            “        "Holding”" means HDS Holding Corporation, a Delaware corporation, and any successor in interest thereto.

            “        "Holding Parent”" means HDS Investment Holding,HD Supply Holdings, Inc., a Delaware corporation, and any successor in interest thereto.

            “        "IFRS”" means International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto (or the Financial Accounting Standards Board, the Accounting Principles Board of the American Institute of Certified Public Accountants, or any successor to either such Board, or the SEC, as the case may be), as in effect from time to time.

            “        "Immaterial Subsidiary”" means (i)(i) any Subsidiary of the Company existing on the Issue Date with the consent of the Term Agent and (ii)(ii) any Subsidiary of the Company organized or acquired after the Issue Date, in the case of each of (i) and (ii) designated by the Company to the Trustee in writing, that had (a)(a) total consolidated revenues of less than 2.5% of the total consolidated revenues of the Company and its Subsidiaries during the most recently completed period of four consecutive fiscal quarters of the Company and (b)(b) total consolidated assets of less than 2.5% of the total consolidated assets of the Company and its Subsidiaries as of the last day of such period;provided that (x)(x) for purposes of the provisions described under “—"—Subsidiary Guarantees”Guarantees" and “—"—Certain Covenants—Future Subsidiary Guarantors”Guarantors", any Special Purpose Subsidiary shall be deemed to be an “Immaterial"Immaterial Subsidiary,”" and (y)(y) Immaterial Subsidiaries (other than any Special Purpose Subsidiary) shall not, in the aggregate, (1)(1) have had revenues in excess of 10.0% of the total consolidated revenues of the Company and its Subsidiaries during the most recently completed period of four consecutive fiscal quarters or (2)(2) have had total assets in excess of 10.0% of the total consolidated assets of the Company and its Subsidiaries as of the last day of such period. Any Subsidiary so designated as an Immaterial Subsidiary that fails to meet the foregoing as of the last day of any such four consecutive fiscal quarter period shall continue to be deemed an “Immaterial Subsidiary”"Immaterial Subsidiary" hereunder until the date that is 60 days following the filing, transmittal or making available of annual or quarterly financial statements pursuant to the covenant described under “—"—Certain Covenants—SEC Reports”Reports" with respect to the last quarter of such four consecutive fiscal quarter period.

            “        "Incur”" means issue, assume, enter into any Guarantee of, incur or otherwise become liable for; and the terms “"Incurs,” “" "Incurred”" and “"Incurrence”" shall have a correlative meaning;provided,, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether


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            (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. Accrual of interest, the accretion of accreted value, the payment of interest in the form of additional Indebtedness, and the payment of dividends on Capital Stock constituting Indebtedness in the form of additional shares of the same class of Capital Stock, will not be deemed to be an Incurrence of Indebtedness. Any Indebtedness issued at a discount (including Indebtedness on which interest is payable through the issuance of additional Indebtedness) shall be deemed Incurred at the time of original issuance of the Indebtedness at the initial accreted amount thereof.

            “        "Indebtedness”" means, with respect to any Person on any date of determination (without duplication):

              (i)  the principal of indebtedness of such Person for borrowed money,

              (ii)  the principal of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments,

              Index to Financial Statements

              (iii)  all reimbursement obligations of such Person in respect of letters of credit, bankers’bankers' acceptances or other similar instruments (the amount of such obligations being equal at any time to the aggregate then undrawn and unexpired amount of such letters of credit, bankers’bankers' acceptances or other instruments plus the aggregate amount of drawings thereunder that have not then been reimbursed),

              (iv)  all obligations of such Person to pay the deferred and unpaid purchase price of property (except Trade Payables), which purchase price is due more than one year after the date of placing such property in final service or taking final delivery and title thereto,

              (v)  all Capitalized Lease Obligations of such Person,

              (vi)  the redemption, repayment or other repurchase amount of such Person with respect to any Disqualified Stock of such Person or (if such Person is a Subsidiary of the Company other than a Subsidiary Guarantor) any Preferred Stock of such Subsidiary, but excluding, in each case, any accrued dividends (the amount of such obligation to be equal at any time to the maximum fixed involuntary redemption, repayment or repurchase price for such Capital Stock, or if less (or if such Capital Stock has no such fixed price), to the involuntary redemption, repayment or repurchase price therefor calculated in accordance with the terms thereof as if then redeemed, repaid or repurchased, and if such price is based upon or measured by the fair market value of such Capital Stock, such fair market value shall be as determined in good faith by the Board of Directors or the board of directors or other governing body of the issuer of such Capital Stock),

              (vii)  all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person;provided that the amount of Indebtedness of such Person shall be the lesser of (A)(A) the fair market value of such asset at such date of determination (as determined in good faith by the Company) and (B)(B) the amount of such Indebtedness of such other Persons,

              (viii)  all Guarantees by such Person of Indebtedness of other Persons, to the extent so Guaranteed by such Person, and

              (ix)  to the extent not otherwise included in this definition, net Hedging Obligations of such Person (the amount of any such obligation to be equal at any time to the termination value of such agreement or arrangement giving rise to such Hedging Obligation that would be payable by such Person at such time);

            provided that Indebtedness shall not include Contingent Obligations Incurred in the ordinary course of business.


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            The amount of Indebtedness of any Person at any date shall be determined as set forth above or otherwise provided in the Indenture, or otherwise shall equal the amount thereof that would appear as a liability on a balance sheet of such Person (excluding any notes thereto) prepared in accordance with GAAP.

            “        "Intercreditor Agreements”" means, collectively, the Base Intercreditor Agreement, the Cash Flow Intercreditor Agreement and any other intercreditor agreement entered into from time to time in accordance with the Senior Second Priority Indenture.

            “        "Interest Rate Agreement”" means, with respect to any Person, any interest rate protection agreement, future agreement, option agreement, swap agreement, cap agreement, collar agreement, hedge agreement or other similar agreement or arrangement (including derivative agreements or arrangements), as to which such Person is party or a beneficiary.

            “        "Inventory”" means goods held for sale, lease or use by a Person in the ordinary course of business, net of any reserve for goods that have been segregated by such Person to be returned to the applicable vendor for credit and net of any applicable unearned vendor rebates, as determined in accordance with GAAP.

            “        "Investment”" in any Person by any other Person means any direct or indirect advance, loan or other extension of credit (other than to customers, dealers, licensees, franchisees, suppliers, directors, officers or employees of any Person in the ordinary course of business) or capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by, such Person.

            Index to Financial Statements

            For purposes of the definition of “Unrestricted Subsidiary”"Unrestricted Subsidiary" and the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments”Payments" only, (i) “Investment”(i) "Investment" shall include the portion (proportionate to the Company’sCompany's equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary,provided that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent “Investment”"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x)(x) the Company’s “Investment”Company's "Investment" in such Subsidiary at the time of such redesignation less (y)(y) the portion (proportionate to the Company’sCompany's equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation, (ii)(ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value (as determined in good faith by the Company) at the time of such transfer and (iii)(iii) for purposes of clause (3)(C) of paragraph (a) of the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments,”" the amount resulting from the redesignation of any Unrestricted Subsidiary as a Restricted Subsidiary shall be the Fair Market Value of the Investment in such Unrestricted Subsidiary at the time of such redesignation (excluding the amount of such Investment then outstanding pursuant to clause (xv) or (xviii) of the definition of the term “Permitted Investments”"Permitted Investments" or clause (vii) or (xii) of paragraph (b) of the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments”Payments"). Guarantees shall not be deemed to be Investments. The amount of any Investment outstanding at any time shall be the original cost of such Investment, reduced (at the Company’sCompany's option) by any dividend, distribution, interest payment, return of capital, repayment or other amount or value received in respect of such Investment;provided,, that to the extent that the amount of Restricted Payments outstanding at any time pursuant to paragraph (a) of the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments”Payments" is so reduced by any portion of any such amount or value that would otherwise be included in the calculation of Consolidated Net Income, such portion of such amount or value shall not be so included for purposes of calculating the amount of Restricted Payments that may be made pursuant to paragraph (a) of the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments.”"


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            “        "Investment Grade Rating”" means a rating of Baa3 or better by Moody’sMoody's and BBB- or better by S&P (or, in either case, the equivalent of such rating by such organization), or an equivalent rating by any other Rating Agency.

            “        "Investment Grade Securities”" means (i)(i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Cash Equivalents); (ii)(ii) debt securities or debt instruments with an Investment Grade Rating, but excluding any debt securities or instruments constituting loans or advances among the Company and its Subsidiaries; (iii)(iii) investments in any fund that invests exclusively in investments of the type described in clauses (i) and (ii), which fund may also hold immaterial amounts of cash pending investment or distribution; and (iv)(iv) corresponding instruments in countries other than the United States customarily utilized for high quality investments.

            “        "Investors”" means (i)(i) the CD&R Investors, the Bain Capital Investors and the Carlyle Investors and (ii)(ii) any of their respective legal successors.

            “        "Issue Date”" means February 1, 2013.

                    "January 2013 Senior Subordinated Indenture" means the Indenture, dated as of January 16, 2013.2013, among the Company, the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, governing the 10.50% Senior Subordinated Notes due 2021 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

            “        "January 2013 Senior Subordinated Notes" means the "Notes" as such term is defined in the January 2013 Senior Subordinated Indenture.

                    "Junior Capital”" means, collectively, any Indebtedness of any Parent or the Company that (i)(i) is not secured by any asset of the Company or any Restricted Subsidiary, (ii)(ii) is expressly subordinated to the prior payment in full of the Notes on terms consistent with, or (taken as a whole) not materially less favorable to the Holders than, those contained in the Existing2007 Senior Subordinated Indenture (as determined in good faith by the Company), (iii)(iii) has a final maturity date that is not earlier than, and provides for no scheduled payments of principal prior to, the date that is 91 days after the maturity of the Notes (other than through conversion or exchange of any such Indebtedness for Capital Stock (other than Disqualified Stock) of the Company, Capital Stock of any Parent or any other Junior Capital), (iv)(iv) has no mandatory redemption or prepayment obligations other than obligations that are subject to the prior payment in full in cash of the Notes and (v)(v) does not require the payment of cash interest until the date that is 91 days after the maturity of the Notes.

            Index to Financial Statements

            “        "Liabilities”" means, collectively, any and all claims, obligations, liabilities, causes of action, actions, suits, proceedings, investigations, judgments, decrees, losses, damages, fees, costs and expenses (including without limitation interest, penalties and fees and disbursements of attorneys, accountants, investment bankers and other professional advisors), in each case whether incurred, arising or existing with respect to third parties or otherwise at any time or from time to time.

            “        "Lien”" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof).

            “        "Management Advances”" means (1)(1) loans or advances made to directors, officers, employees or consultants of any Parent, the Company or any Restricted Subsidiary (x)(x) in respect of travel, entertainment or moving related expenses incurred in the ordinary course of business, (y)(y) in respect of moving related expenses incurred in connection with any closing or consolidation of any facility, or (z)(z) in the ordinary course of business and (in the case of this clause (z)) not exceeding $10.0 million in the aggregate outstanding at any time, (2)(2) promissory notes of Management Investors acquired in connection with the issuance of Management Stock to such Management Investors, (3)(3) Management


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            Guarantees, or (4)(4) other Guarantees of borrowings by Management Investors in connection with the purchase of Management Stock, which Guarantees are permitted under the covenant described under “—"—Certain Covenants—Limitation on Indebtedness.”"

            “        "Management Agreements”" means, collectively, (i)(i) the Subscription Agreements, each dated as of August 30, 2007, between Holding Parent and each of the Investors party thereto, (ii)(ii) the Consulting Agreements, each dated as of August 30, 2007, among Holding Parent, the Company and each of CD&R, Bain Capital and Carlyle, or Affiliates thereof, respectively, (iii)(iii) the Indemnification Agreements, each dated as of August 30, 2007, among the Company, Holding Parent and each of (a)(a) CD&R and each CD&R Investor, (b)(b) Bain Capital and each Bain Capital Investor, and (c)(c) Carlyle and each Carlyle Investor, or Affiliates thereof, respectively, (iv)(iv) the Registration Rights Agreement, dated as of August 30, 2007, among Holding Parent and the Investors party thereto and any other Person party thereto from time to time, (v)(v) the Stockholders Agreement, dated as of August 30, 2007, by and among Holding Parent and the Investors party thereto and any other Person party thereto from time to time and (vi)(vi) any other agreement primarily providing for indemnification and/or contribution for the benefit of any Permitted Holder in respect of Liabilities resulting from, arising out of or in connection with, based upon or relating to (a)(a) any management, consulting, financial advisory, financing, underwriting or placement services or other investment banking activities, (b)(b) any offering of securities or other financing activity or arrangement of or by any Parent or any of its Subsidiaries or (c)(c) any action or failure to act of or by any Parent or any of its Subsidiaries (or any of their respective predecessors); in each case in clauses (i) through (vi) as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof and of the Indenture.

            “        "Management Guarantees”" means guarantees (x)(x) of up to an aggregate principal amount outstanding at any time of $25.0 million of borrowings by Management Investors in connection with their purchase of Management Stock or (y)(y) made on behalf of, or in respect of loans or advances made to, directors, officers, employees or consultants of any Parent, the Company or any Restricted Subsidiary (1)(1) in respect of travel, entertainment and moving related expenses incurred in the ordinary course of business, or (2)(2) in the ordinary course of business and (in the case of this clause (2)) not exceeding $10.0 million in the aggregate outstanding at any time.

            “        "Management Indebtedness”" means Indebtedness Incurred to any Management Investor to finance the repurchase or other acquisition of Capital Stock of the Company or any Parent (including any options, warrants or other rights in respect thereof) from any Management Investor, which repurchase or other acquisition of Capital Stock is permitted by the covenant described under “—"—Limitation on Restricted Payments.”"

            “        "Management Investors”" means the officers, directors, employees and other members of the management of any Parent, the Company or any of their respective Subsidiaries, or family members or relatives thereof (provided(provided that, solely for purposes of the definition of “Permitted"Permitted Holders,”" such relatives shall include only

            Index to Financial Statements

            those Persons who are or become Management Investors in connection with estate planning for or inheritance from other Management Investors, as determined in good faith by the Company, which determination shall be conclusive), or trusts, partnerships or limited liability companies for the benefit of any of the foregoing, or any of their heirs, executors, successors and legal representatives, who at any date beneficially own or have the right to acquire, directly or indirectly, Capital Stock of the Company or any Parent.

            “        "Management Stock”" means Capital Stock of the Company or any Parent (including any options, warrants or other rights in respect thereof) held by any of the Management Investors.

            “Moody’s”        "Moody's" means Moody’sMoody's Investors Service, Inc., and its successors.


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                    "Net Available Cash”" from an Asset Disposition means an amount equal to the cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other non-cash form) therefrom, in each case net of (i)(i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or to be accrued as a liability under GAAP, as a consequence of such Asset Disposition (including as a consequence of any transfer of funds in connection with the application thereof in accordance with the covenant described under “—"—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock”Stock"), (ii)(ii) all payments made, and all installment payments required to be made, on any Indebtedness (x)(x) that is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or (y)(y) that must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, including but not limited to any payments required to be made to increase borrowing availability under any revolving credit facility, (iii)(iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition, or to any other Person (other than the Company or a Restricted Subsidiary) owning a beneficial interest in the assets disposed of in such Asset Disposition, (iv)(iv) any liabilities or obligations associated with the assets disposed of in such Asset Disposition and retained, indemnified or insured by the Company or any Restricted Subsidiary after such Asset Disposition, including without limitation pension and other post-employment benefit liabilities, liabilities related to environmental matters, and liabilities relating to any indemnification obligations associated with such Asset Disposition, and (v)(v) the amount of any purchase price or similar adjustment (x)(x) claimed by any Person to be owed by the Company or any Restricted Subsidiary, until such time as such claim shall have been settled or otherwise finally resolved, or (y)(y) paid or payable by the Company or any Restricted Subsidiary, in either case in respect of such Asset Disposition.

            “        "Net Cash Proceeds,”" with respect to any issuance or sale of any securities or Indebtedness of the Company or any Subsidiary by the Company or any Subsidiary, or any capital contribution, means the cash proceeds of such issuance, sale or contribution net of attorneys’attorneys' fees, accountants’accountants' fees, underwriters’underwriters' or placement agents’agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance, sale or contribution and net of taxes paid or payable as a result thereof.

            “        "Note Security Documents”" means the collateral agreements and any mortgages, security agreements, pledge agreements or other instruments evidencing or creating Liens on the assets of the Company and the Subsidiary Guarantors to secure the obligations under the Senior First Priority Indenture and the Senior First Priority Notes or the Senior Second Priority Indenture and the Senior Second Priority Notes, as amended, restated, supplemented, waived or otherwise modified from time to time.

            “        "Obligations”" means, with respect to any Indebtedness, any principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company or any Restricted Subsidiary whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, Guarantees of such Indebtedness (or of Obligations in respect thereof), other monetary obligations of any nature and all other amounts payable thereunder or in respect thereof.

            Index to Financial Statements

            “        "October 2012 Senior Unsecured Indenture”" means the Indenture, dated as of October 15, 2012, among the Company, the subsidiary guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, governing the 11.50% Senior Notes Due 2020, as the same may be amended, supplemented, waived or otherwise modified from time to time.


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                    "October 2012 Senior Unsecured Notes”" means the “Notes”"Notes" as such term is defined in the October 2012 Senior Unsecured Indenture.

            “        "Officer”" means, with respect to the Company or any other obligor upon the Notes, the Chairman of the Board, the President, the Chief Executive Officer, the Chief Financial Officer, any Vice President, the Controller, the Treasurer or the Secretary (a)(a) of such Person or (b)(b) if such Person is owned or managed by a single entity, of such entity (or any other individual designated as an “Officer”"Officer" for the purposes of the Indenture by the Board of Directors).

            “Officer’s        "Officer's Certificate”" means, with respect to the Company or any other obligor upon the Notes, a certificate signed by one Officer of such Person.

            “        "Opinion of Counsel”" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee.

            “        "Parent”" means any of Holding, Holding Parent, any Other Parent, and any other Person that is a Subsidiary of Holding, Holding Parent or any Other Parent and of which the Company is a Subsidiary. As used herein, “Other Parent”"Other Parent" means a Person of which the Company becomes a Subsidiary after the Issue Date,provided that either (x)(x) immediately after the Company first becomes a Subsidiary of such Person, more than 50% of the Voting Stock of such Person shall be held by one or more Persons that held more than 50% of the Voting Stock of a Parent of the Company immediately prior to the Company first becoming such Subsidiary or (y)(y) such Person shall be deemed not to be an Other Parent for the purpose of determining whether a Change of Control shall have occurred by reason of the Company first becoming a Subsidiary of such Person.

            “        "Parent Expenses”" means (i)(i) costs (including all professional fees and expenses) incurred by any Parent in connection with maintaining its existence or in connection with its reporting obligations under, or in connection with compliance with, applicable laws or applicable rules of any governmental, regulatory or self-regulatory body or stock exchange, the Indenture, the Senior First Priority Indenture, the Senior Second Priority Indenture, the April 2012 Senior Unsecured Indenture, the October 2012 Senior Unsecured Indenture, the Existing2007 Senior Subordinated Indenture, the January 2013 Senior Subordinated Indenture or any other agreement or instrument relating to Indebtedness of the Company or any Restricted Subsidiary, including in respect of any reports filed with respect to the Securities Act, the Exchange Act or the respective rules and regulations promulgated thereunder, (ii)(ii) expenses incurred by any Parent in connection with the acquisition, development, maintenance, ownership, prosecution, protection and defense of its intellectual property and associated rights (including but not limited to trademarks, service marks, trade names, trade dress, patents, copyrights and similar rights, including registrations and registration or renewal applications in respect thereof; inventions, processes, designs, formulae, trade secrets, know-how, confidential information, computer software, data and documentation, and any other intellectual property rights; and licenses of any of the foregoing) to the extent such intellectual property and associated rights relate to the business or businesses of the Company or any Subsidiary thereof, (iii)(iii) indemnification obligations of any Parent owing to directors, officers, employees or other Persons under its charter or by-laws or pursuant to written agreements with or for the benefit of any such Person (including the Management Agreements), or obligations in respect of director and officer insurance (including premiums therefor), (iv)(iv) other administrative and operational expenses of any Parent incurred in the ordinary course of business, and (v)(v) fees and expenses incurred by any Parent in connection with any offering of Capital Stock or Indebtedness, (w)(w) which offering is not completed, or (x)(x) where the net proceeds of such offering are intended to be received by or contributed or loaned to the Company or a Restricted Subsidiary, or (y)(y) in a prorated amount of such expenses in proportion to the amount of such net proceeds intended to be so received, contributed or loaned, or (z)(z) otherwise on an interim basis prior to completion of such offering so long as any Parent shall cause the amount of such expenses to be repaid to the


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            Company or the relevant Restricted Subsidiary out of the proceeds of such offering promptly if completed.

                    "Pari Passu Lien Priority" means "Pari Passu Lien Priority" as such term is defined in the Senior Second Priority Indenture.

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            “        "Permitted Holder”" means any of the following: (i)(i) any of the Investors; (ii)(ii) any of the Management Investors and their respective Affiliates; (iii)(iii) any investment fund or vehicle managed or sponsored by CD&R, Bain Capital, Carlyle or any Affiliate thereof, and any Affiliate of or successor to any such investment fund or vehicle; (iv)(iv) any limited or general partners of, or other investors in, any CD&R Investor, Bain Capital Investor or Carlyle Investor or any of their respective Affiliates, or any such investment fund or vehicle (as to any such limited partner or other investor, solely to the extent of any Capital Stock of the Company or any Parent actually received by way of dividend or distribution from any such Investor, Affiliate, or investment fund or vehicle); and (v)(v) any Person acting in the capacity of an underwriter in connection with a public or private offering of Capital Stock of any Parent or the Company. In addition, any “person”"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) whose status as a “beneficial owner”"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) constitutes or results in a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of the Indenture, together with its Affiliates, shall thereafter constitute Permitted Holders.

            “        "Permitted Investment”" means an Investment by the Company or any Restricted Subsidiary in, or consisting of, any of the following:

              (i)  a Restricted Subsidiary, the Company, or a Person that will, upon the making of such Investment, become a Restricted Subsidiary (and any Investment held by such Person that was not acquired by such Person in contemplation of so becoming a Restricted Subsidiary);

              (ii)  another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, or is liquidated into, the Company or a Restricted Subsidiary (and, in each case, any Investment held by such other Person that was not acquired by such Person in contemplation of such merger, consolidation or transfer);

              (iii)  Temporary Cash Investments, Investment Grade Securities or Cash Equivalents;

              (iv)  receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business;

              (v)  any securities or other Investments received as consideration in, or retained in connection with, sales or other dispositions of property or assets, including Asset Dispositions made in compliance with the covenant described under “—"—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock”Stock";

              (vi)  securities or other Investments received in settlement of debts created in the ordinary course of business and owing to, or of other claims asserted by, the Company or any Restricted Subsidiary, or as a result of foreclosure, perfection or enforcement of any Lien, or in satisfaction of judgments, including in connection with any bankruptcy proceeding or other reorganization of another Person;

              (vii)  Investments in existence or made pursuant to legally binding written commitments in existence on the Issue Date;

              (viii)  Currency Agreements, Interest Rate Agreements, Commodities Agreements and related Hedging Obligations, which obligations are Incurred in compliance with the covenant described under “—"—Certain Covenants—Limitation on Indebtedness”Indebtedness";


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              (ix)  pledges or deposits (x)(x) with respect to leases or utilities provided to third parties in the ordinary course of business or (y)(y) otherwise described in the definition of “Permitted Liens”"Permitted Liens" or made in connection with Liens permitted under the covenant described under “—"—Certain Covenants—Limitation on Liens”Liens";

              (x)  (1)(1) Investments in or by any Special Purpose Subsidiary, or in connection with a Financing Disposition (described in clause (a) of the definition thereof) by or to or in favor of any Special Purpose Entity, including Investments of funds held in accounts permitted or required by the arrangements governing such Financing Disposition or any related Indebtedness, or (2)(2) any promissory note issued by the Company, or any Parent,provided that if such Parent receives cash from the relevant Special Purpose Entity in exchange for such note, an equal cash amount is contributed by any Parent to the Company;

              Index to Financial Statements

              (xi)  bonds secured by assets leased to and operated by the Company or any Restricted Subsidiary that were issued in connection with the financing of such assets so long as the Company or any Restricted Subsidiary may obtain title to such assets at any time by paying a nominal fee, canceling such bonds and terminating the transaction;

              (xii)  Notes;

              (xiii)  any Investment to the extent made using Capital Stock of the Company (other than Disqualified Stock), or Capital Stock of any Parent or Junior Capital, as consideration;

              (xiv)  Management Advances;

              (xv)  Investments in Related Businesses in an aggregate amount outstanding at any time not to exceed the greater of $125.0 million and 2.5% of Consolidated Tangible Assets;

              (xvi)  any transaction to the extent it constitutes an Investment that is permitted by and made in accordance with the provisions of paragraph (b) of the covenant described under “—"—Certain Covenants—Limitation on Transactions with Affiliates”Affiliates" (except transactions described in clauses (i), (v) and (vi) of such paragraph), including any Investment pursuant to any transaction described in clause (ii) of such paragraph (whether or not any Person party thereto is at any time an Affiliate of the Company);

              (xvii)  any Investment by any Captive Insurance Subsidiary in connection with its provision of insurance to the Company or any of its Subsidiaries, which Investment is made in the ordinary course of business of such Captive Insurance Subsidiary, or by reason of applicable law, rule, regulation or order, or that is required or approved by any regulatory authority having jurisdiction over such Captive Insurance Subsidiary or its business, as applicable; and

              (xviii)  other Investments in an aggregate amount outstanding at any time not to exceed the greater of $125.0 million and 2.5% of Consolidated Tangible Assets.

            If any Investment pursuant to clause (xv) or (xviii) above, or clause (vii) of paragraph (b) of the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments,”" as applicable, is made in any Person that is not a Restricted Subsidiary and such Person thereafter (A)(A) becomes a Restricted Subsidiary or (B)(B) is merged or consolidated into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary, then such Investment shall thereafter be deemed to have been made pursuant to clause (i) or (ii) above, respectively, and not clause (xv) or (xviii) above, or clause (vii) of paragraph (b) of the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments,”" as applicable (and, in the case of the foregoing clause (A), for so long as such Person continues to be a Restricted Subsidiary unless and until such Person is merged or consolidated into or transfers or conveys all or substantially all its assets to, or is liquidated into, the Company or a Restricted Subsidiary).


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            “        "Permitted Liens”" means:

              (a)   Liens for taxes, assessments or other governmental charges not yet delinquent or the nonpayment of which in the aggregate would not reasonably be expected to have a material adverse effect on the Company and its Restricted Subsidiaries or that are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or a Subsidiary thereof, as the case may be, in accordance with GAAP;

              (b)   carriers’carriers', warehousemen’s, mechanics’warehousemen's, mechanics', landlords’landlords', materialmen’s, repairmen’smaterialmen's, repairmen's or other like Liens arising in the ordinary course of business in respect of obligations that are not overdue for a period of more than 60 days or that are bonded or that are being contested in good faith and by appropriate proceedings;

              (c)   pledges, deposits or Liens in connection with workers’workers' compensation, unemployment insurance and other social security and other similar legislation or other insurance related obligations (including, without limitation, pledges or deposits securing liability to insurance carriers under insurance or self-insurance arrangements);

              Index to Financial Statements

              (d)   pledges, deposits or Liens to secure the performance of bids, tenders, trade, government or other contracts (other than for borrowed money), obligations for utilities, leases, licenses, statutory obligations, completion guarantees, surety, judgment, appeal or performance bonds, other similar bonds, instruments or obligations, and other obligations of a like nature incurred in the ordinary course of business;

              (e)   easements (including reciprocal easement agreements), rights-of-way, building, zoning and similar restrictions, utility agreements, covenants, reservations, restrictions, encroachments, charges, and other similar encumbrances or title defects incurred, or leases or subleases granted to others, which do not in the aggregate materially interfere with the ordinary conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole;

              (f)    Liens existing on, or provided for under written arrangements existing on, the Issue Date, or (in the case of any such Liens securing Indebtedness of the Company or any of its Subsidiaries existing or arising under written arrangements existing on the Issue Date) securing any Refinancing Indebtedness in respect of such Indebtedness so long as the Lien securing such Refinancing Indebtedness is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or under such written arrangements could secure) the original Indebtedness;

              (g)   (i)(i) mortgages, liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord or other third party on property over which the Company or any Restricted Subsidiary has easement rights or on any leased property and subordination or similar agreements relating thereto and (ii)(ii) any condemnation or eminent domain proceedings affecting any real property;

              (h)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of Hedging Obligations, Bank Products Obligations, Purchase Money Obligations or Capitalized Lease Obligations Incurred in compliance with the covenant described under “—"—Certain Covenants—Limitation on Indebtedness”Indebtedness";

              (i)    Liens arising out of judgments, decrees, orders or awards in respect of which the Company or any Restricted Subsidiary shall in good faith be prosecuting an appeal or proceedings for review, which appeal or proceedings shall not have been finally terminated, or if the period within which such appeal or proceedings may be initiated shall not have expired;

              (j)    leases, subleases, licenses or sublicenses to or from third parties;


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              (k)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of (1)(1) Indebtedness Incurred in compliance with clause (b)(i), (b)(iv), (b)(v), (b)(vii), (b)(viii) (other than Junior Capital) or (b)(ix) of the covenant described under “—"—Certain Covenants—Limitation on Indebtedness,”" or clause (b)(iii) thereof (other than the Notes, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Notes, the ExistingJanuary 2013 Senior Subordinated Notes or Refinancing Indebtedness Incurred in respect of Indebtedness under the Notes, the April 2012 Senior Unsecured Notes, the October 2012 Senior Unsecured Notes, the ExistingJanuary 2013 Senior Subordinated Notes or described in paragraph (a) thereof), (2) (A)(2) (A) Acquisition Indebtedness Incurred in compliance with clause (b)(x) or (b)(xi) of the covenant described under “—"—Certain Covenants—Limitation on Indebtedness,”" provided that (x)(x) such Liens are limited to all or part of the same property or assets, including Capital Stock (plus improvements, accessions, proceeds or dividends or distributions in respect thereof, or replacements of any thereof) acquired, or of any Person acquired or merged or consolidated with or into the Company or any Restricted Subsidiary, in any transaction to which such Acquisition Indebtedness relates or (y)(y) on the date of the Incurrence of such Indebtedness after giving effect to such Incurrence, the Consolidated Secured Leverage Ratio would equal or be less than the Consolidated Secured Leverage Ratio immediately prior to giving effect thereto or (B)(B) any Refinancing Indebtedness Incurred in respect thereof, (3)(3) the Notes, (4)(4) Indebtedness of any Restricted Subsidiary that is not a Subsidiary Guarantor (limited, in the case of this clause (4), to Liens on any of the property and assets of any Restricted Subsidiary that is not a Subsidiary Guarantor), (5)(5) Indebtedness or other obligations of any Special Purpose Entity, or (6)(6) obligations in respect of Management Advances or Management Guarantees; in each case including Liens securing any Guarantee of any thereof;

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              (l)    Liens existing on property or assets of a Person at the time such Person becomes a Subsidiary of the Company (or at the time the Company or a Restricted Subsidiary acquires such property or assets, including any acquisition by means of a merger or consolidation with or into the Company or any Restricted Subsidiary);provided,,however,, that such Liens are not created in connection with, or in contemplation of, such other Person becoming such a Subsidiary (or such acquisition of such property or assets), and that such Liens are limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which such Liens arose, could secure) the obligations to which such Liens relate;providedfurther,, that for purposes of this clause (l), if a Person other than the Company is the Successor Company with respect thereto, any Subsidiary thereof shall be deemed to become a Subsidiary of the Company, and any property or assets of such Person or any such Subsidiary shall be deemed acquired by the Company or a Restricted Subsidiary, as the case may be, when such Person becomes such Successor Company;

              (m)  Liens on Capital Stock, Indebtedness or other securities of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary;

              (n)   any encumbrance or restriction (including, but not limited to, pursuant to put and call agreements or buy/sell arrangements) with respect to Capital Stock of any joint venture or similar arrangement pursuant to any joint venture or similar agreement;

              (o)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of Refinancing Indebtedness Incurred in respect of any Indebtedness secured by, or securing any refinancing, refunding, extension, renewal or replacement (in whole or in part) of any other obligation secured by, any other Permitted Liens,provided that any such new Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the obligations to which such Liens relate;


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              (p)   Liens (1)(1) arising by operation of law (or by agreement to the same effect) in the ordinary course of business, (2)(2) on property or assets under construction (and related rights) in favor of a contractor or developer or arising from progress or partial payments by a third party relating to such property or assets, (3)(3) on receivables (including related rights), (4)(4) on cash set aside at the time of the Incurrence of any Indebtedness or government securities purchased with such cash, in either case to the extent that such cash or government securities prefund the payment of interest on such Indebtedness and are held in an escrow account or similar arrangement to be applied for such purpose, (5)(5) securing or arising by reason of any netting or set-off arrangement entered into in the ordinary course of banking or other trading activities (including in connection with purchase orders and other agreements with customers), (6)(6) in favor of the Company or any Subsidiary (other than Liens on property or assets of the Company or any Subsidiary Guarantor in favor of any Subsidiary that is not a Subsidiary Guarantor), (7)(7) arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business, (8)(8) on inventory or other goods and proceeds securing obligations in respect of bankers’bankers' acceptances issued or created to facilitate the purchase, shipment or storage of such inventory or other goods, (9)(9) relating to pooled deposit or sweep accounts to permit satisfaction of overdraft, cash pooling or similar obligations incurred in the ordinary course of business, (10)(10) attaching to commodity trading or other brokerage accounts incurred in the ordinary course of business, (11)(11) arising in connection with repurchase agreements permitted under the covenant described under “—"—Certain Covenants—Limitation on Indebtedness”Indebtedness" on assets that are the subject of such repurchase agreements or (12)(12) in favor of any Special Purpose Entity in connection with any Financing Disposition;

              (q)   other Liens securing obligations incurred in the ordinary course of business, which obligations do not exceed $75.0 million at any time outstanding; and

              (r)   Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) consisting of Indebtedness Incurred in compliance with the covenant described under “—"—Certain Covenants—Limitation on Indebtedness,”"provided that on the date of the Incurrence of such Indebtedness after giving

              Index to Financial Statements

              effect to such Incurrence (or on the date of the initial borrowing of such Indebtedness after giving pro forma effect to the Incurrence of the entire committed amount of such Indebtedness, in which case such committed amount may thereafter be borrowed and reborrowed, in whole or in part, from time to time, without further compliance with this clause), (x)(x) in the case of Indebtedness having Senior Lien Priority with respect to the Senior Second Priority Notes, the Consolidated Senior Priority Leverage Ratio shall not exceed 3.25 to 1.0 or (y)(y) in all other cases, the Consolidated Secured Leverage Ratio shall not exceed 4.50 to 1.0.

            For purposes of determining compliance with this definition, (x)(x) a Lien need not be incurred solely by reference to one category of Permitted Liens described in this definition but may be incurred under any combination of such categories (including in part under one such category and in part under any other such category) and (y)(y) in the event that a Lien (or any portion thereof) meets the criteria of one or more of such categories of Permitted Liens, the Company shall, in its sole discretion, classify or reclassify such Lien (or any portion thereof) in any manner that complies with this definition.

            “        "Person”" means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

            “        "Preferred Stock”" as applied to the Capital Stock of any corporation means Capital Stock of any class or classes (however designated) that by its terms is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation.


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                    "Purchase”" has the meaning set forth in paragraph (4) of the definition of “Consolidated"Consolidated Coverage Ratio.”"

            “        "Purchase Money Obligations”" means any Indebtedness Incurred to finance or refinance the acquisition, leasing, construction or improvement of property (real or personal) or assets, and whether acquired through the direct acquisition of such property or assets or the acquisition of the Capital Stock of any Person owning such property or assets, or otherwise.

            “        "Rating Agency”" means Moody’sMoody's or S&P or, if Moody’sMoody's or S&P or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company which shall be substituted for Moody’sMoody's or S&P or both, as the case may be.

            “        "Real Property”" means land, buildings, structures and other improvements located thereon, fixtures attached thereto, and rights, privileges, easements and appurtenances related thereto, and related property interests.

            “        "Receivable”" means a right to receive payment pursuant to an arrangement with another Person pursuant to which such other Person is obligated to pay, as determined in accordance with GAAP.

            “        "refinance”" means refinance, refund, replace, renew, repay, modify, restate, defer, substitute, supplement, reissue, resell or extend (including pursuant to any defeasance or discharge mechanism); and the terms “"refinances,” “" "refinanced”" and “"refinancing”" as used for any purpose in the Indenture shall have a correlative meaning.

            “        "Refinancing Indebtedness”" means Indebtedness that is Incurred to refinance any Indebtedness existing on the date of the Indenture or Incurred in compliance with such Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary (to the extent permitted in such Indenture) and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness;provided, that (1) (x)(1) (x) if the Indebtedness being refinanced is Subordinated Obligations or Guarantor Subordinated Obligations, the Refinancing Indebtedness shall have a final Stated Maturity at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the final Stated Maturity of the Indebtedness being refinanced (or if shorter, the Notes), and (y)(y) if the

            Index to Financial Statements

            Indebtedness being refinanced was incurred pursuant to clause (b)(viii)(H) of the covenant described under “—"—Certain Covenants—Limitation on Indebtedness”Indebtedness", the Refinancing Indebtedness shall be Subordinated Obligations or Guarantor Subordinated Obligations, as applicable, (2)(2) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of (x)(x) the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced, plus (y)(y) fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such Refinancing Indebtedness and (3)(3) Refinancing Indebtedness shall not include (x)(x) Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor that refinances Indebtedness of the Company or a Subsidiary Guarantor that could not have been initially Incurred by such Restricted Subsidiary pursuant to the covenant described under “—"—Certain Covenants—Limitation on Indebtedness”Indebtedness" or (y)(y) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.

            “        "Registration Rights Agreement”" means the Exchange and Registration Rights Agreement, dated as of the Issue Date, between the Company and the initial purchasers of the Notes, as the same may be amended, supplemented, waived or otherwise modified from time to time.

            “        "Related Business”" means those businesses in which the Company or any of its Subsidiaries is engaged on the date of the Indenture, or that are similar, related, complementary, incidental or ancillary thereto or extensions, developments or expansions thereof.


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                    "Related Taxes”" means (x)(x) any taxes, charges or assessments, including but not limited to sales, use, transfer, rental, ad valorem, value-added, stamp, property, consumption, franchise, license, capital, net worth, gross receipts, excise, occupancy, intangibles or similar taxes, charges or assessments (other than federal, state, foreign, provincial or local taxes measured by income, and federal, state, foreign, provincial or local withholding imposed by any government or other taxing authority on payments made by any Parent other than to another Parent), required to be paid by any Parent by virtue of its being incorporated or having Capital Stock outstanding (but not by virtue of owning stock or other equity interests of any corporation or other entity other than the Company, any of its Subsidiaries or any Parent), or being a holding company parent of the Company, any of its Subsidiaries or any Parent or receiving dividends from or other distributions in respect of the Capital Stock of the Company, any of its Subsidiaries or any Parent, or having guaranteed any obligations of the Company or any of its Subsidiaries, or having made any payment in respect of any of the items for which the Company or any of its Subsidiaries is permitted to make payments to any Parent pursuant to the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments,”" or acquiring, developing, maintaining, owning, prosecuting, protecting or defending its intellectual property and associated rights (including but not limited to receiving or paying royalties for the use thereof) relating to the business or businesses of the Company or any of its Subsidiaries, (y)(y) any taxes of a Parent attributable to any taxable period (or portion thereof) ending on or prior to the Issue Date or incurred in connection with the 2007 Transactions or the Transactions, or attributable to any Parent’sParent's receipt of (or entitlement to) any payment in connection with the 2007 Transactions or the Transactions, including any payment received after the Issue Date pursuant to any agreement related to the 2007 Transactions or the Transactions, or (z)(z) any other federal, state, foreign, provincial or local taxes measured by income for which any Parent is liable up to an amount not to exceed, with respect to federal taxes, the amount of any such taxes that the Company and its Subsidiaries would have been required to pay on a separate company basis, or on a consolidated basis as if the Company had filed a consolidated return on behalf of an affiliated group (as defined in Section 1504 of the Code or an analogous provision of state, foreign, provincial or local law) of which it were the common parent, or with respect to state, foreign, provincial or local taxes, the amount of any such taxes that the Company and its Subsidiaries would have been required to pay on a separate company basis, or on a combined basis as if the Company had filed a combined return on behalf of an affiliated group consisting only of the Company and its Subsidiaries (in each case, reduced by any such taxes paid directly by the Company or its Subsidiaries).

            “Representative” means the trustee, agent or representative (if any) for an issue of Senior Indebtedness.        "

            Index to Financial Statements

            “Requirement of Law”" means, as to any Person, the certificate of incorporation and by laws or other organizational or governing documents of such Person, and any law, statute, ordinance, code, decree, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property or to which such Person or any of its material property is subject, including laws, ordinances and regulations pertaining to zoning, occupancy and subdivision of real properties.

            “        "Restricted Payment Transaction”" means any Restricted Payment permitted pursuant to the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments,”" any Permitted Payment, any Permitted Investment, or any transaction specifically excluded from the definition of the term “Restricted Payment”"Restricted Payment" (including pursuant to the exception contained in clause (i) and the parenthetical exclusions contained in clauses (ii) and (iii) of such definition).

            “        "Restricted Subsidiary”" means any Subsidiary of the Company other than an Unrestricted Subsidiary.

            “        "Sale”" has the meaning set forth in paragraph (3) of the definition of “Consolidated"Consolidated Coverage Ratio”Ratio".

            “        "SEC”" means the Securities and Exchange Commission.


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                    "Second Lien Note Agent”" has the meaning assigned to such term in the Base Intercreditor Agreement or the Cash Flow Intercreditor Agreement, as applicable.

            “        "Securities Act”" means the Securities Act of 1933, as amended.

            “        "Senior ABL Agreement”" means the Credit Agreement, dated as of April 12, 2012, among the Company; the other borrowers party thereto from time to time; the lenders and other financial institutions party thereto from time to time; and General Electric Capital Corporation, as administrative agent and collateral agent, as such agreement may be amended, supplemented, waived or otherwise modified from time to time or refunded, refinanced, restructured, replaced, renewed, repaid, increased or extended from time to time (whether in whole or in part, whether with the original administrative agent and lenders or other agents and lenders or otherwise, and whether provided under the original Senior ABL Agreement or one or more other credit agreements or otherwise, unless such agreement, instrument or document expressly provides that it is not intended to be and is not a Senior ABL Agreement).

            “        "Senior ABL Facility”" means the collective reference to the Senior ABL Agreement, any Loan Documents (as defined therein), any notes and letters of credit issued pursuant thereto and any guarantee and collateral agreement, patent and trademark security agreement, mortgages, letter of credit applications and other guarantees, pledge agreements, security agreements and collateral documents, and other instruments and documents, executed and delivered pursuant to or in connection with any of the foregoing, in each case as the same may be amended, supplemented, waived or otherwise modified from time to time, or refunded, refinanced, restructured, replaced, renewed, repaid, increased or extended from time to time (whether in whole or in part, whether with the original agent and lenders or other agents and lenders or otherwise, and whether provided under the original Senior ABL Agreement or one or more other credit agreements, indentures (including the Indenture) or financing agreements or otherwise, unless such agreement, instrument or document expressly provides that it is not intended to be and is not a Senior ABL Facility). Without limiting the generality of the foregoing, the term “Senior"Senior ABL Facility”Facility" shall include any agreement (i)(i) changing the maturity of any Indebtedness Incurred thereunder or contemplated thereby, (ii)(ii) adding Subsidiaries of the Company as additional borrowers or guarantors thereunder, (iii)(iii) increasing the amount of Indebtedness Incurred thereunder or available to be borrowed thereunder or (iv)(iv) otherwise altering the terms and conditions thereof.

            “        "Senior Credit Agreements”" means, collectively, the Senior ABL Agreement and the Senior Term Agreement.

            “        "Senior Credit Facilities”" means, collectively, the Senior ABL Facility and the Senior Term Facility.

            Index to Financial Statements

            “        "Senior First Priority Indenture”" means the Indenture, dated as of April 12, 2012, among the Company, the subsidiary guarantors party thereto from time to time and Wilmington Trust, National Association, as trustee, governing the 81/8%8% Senior Secured First Priority Notes due 2019 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

            “        "Senior First Priority Note Documents”" means, collectively, the Senior First Priority Indenture and the “Note"Note Security Documents”Documents" as such term is defined in the Senior First Priority Indenture.

            “        "Senior First Priority Notes”" means the “Notes”"Notes" as such term is defined in the Senior First Priority Indenture.

            “        "Senior Indebtedness”" means with respect toany Indebtedness of the Company or any Restricted Subsidiary Guarantor, (i) all Credit Facility Indebtedness, (ii) all of its obligations in respect of any Special Purpose Financing and (iii) the principal of and premium, if any, and accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such Person regardless of whether post-filing interest is allowed in such proceeding) on, and all fees and other amounts owing in respect of, all other Indebtedness of such Person, other than (x) in the case of the Company, Subordinated Obligations and (y) in the case of any Subsidiary Guarantor, Guarantor Subordinated Obligations;provided,however, that Senior Indebtedness shall not include (1) any obligationObligations.


            Table of such Person to any Restricted Subsidiary of such Person, (2) any liability for Federal, state, foreign, local or other taxes owed or owing by such Person, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof (other than by way of letter of credit, bank guarantee, performance or other bond, or other similar obligation) or instruments evidencing such liabilities), (4) any obligation of such Person described in any of clauses (i), (ii) or (iii) above that is expressly subordinated in right of payment to any other Indebtedness of such Person, (5) any Capital Stock of such Person or (6) that portion of any Indebtedness of such Person that is Incurred by such Person in violation of the covenant described under “—Certain Covenants—Limitation on Indebtedness” (but no such violation shall be deemed to exist for purposes of this clause (6) if any holder of such Indebtedness or such holder’s representative shall have received an Officer’s Certificate to the effect that such Incurrence of such Indebtedness does not (or that the Incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such covenant). If any Senior Indebtedness is disallowed, avoided or subordinated pursuant to the provisions of Section 548 of Title 11 of the United States Code or any applicable state fraudulent conveyance law, such Senior Indebtedness nevertheless will constitute Senior Indebtedness.Contents

            “        "Senior Lien Priority”" means “Senior"Senior Lien Priority”Priority" as such term is defined in the Senior Second Priority Indenture.

            “        "Senior Second Priority Indenture”" means the Indenture, dated as of April 12, 2012, among the Company, the subsidiary guarantors party thereto from time to time and Wilmington Trust, National Association, as trustee, governing the 11% Senior Secured Second Priority Notes due 2020 of the Company, as the same may be amended, supplemented, waived or otherwise modified from time to time.

            “        "Senior Second Priority Note Documents”" means, collectively, the Senior Second Priority Indenture and the “Note"Note Security Documents”Documents" as such term is defined in the Senior Second Priority Indenture.

            “        "Senior Second Priority Notes”" means the “Notes”"Notes" as such term is defined in the Senior Second Priority Indenture.

            “Senior Subordinated Indebtedness” means, with respect to the Company or any Subsidiary Guarantor, the Notes and the Existing Senior Subordinated Notes (in the case of the Company) or the Subsidiary Guarantee of such Person in respect of the Notes and the obligations of such Person, if any, in respect of the Existing Senior Subordinated Notes (in the case of such Subsidiary Guarantor) and any other Indebtedness of such Person that ranks        "pari passu with the Notes or such Subsidiary Guarantee, as the case may be.

            Index to Financial Statements

            “Senior Term Agreement”" means the Credit Agreement, dated as of April 12, 2012, among the Company; the lenders and other financial institutions party thereto from time to time; and Bank of America, N.A., as administrative agent and collateral agent, as such agreement may be amended, supplemented, waived or otherwise modified from time to time or refunded, refinanced, restructured, replaced, renewed, repaid, increased or extended from time to time (whether in whole or in part, whether with the original administrative agent and lenders or other agents and lenders or otherwise, and whether provided under the original Senior Term Agreement or one or more other credit agreements or otherwise, unless such agreement, instrument or document expressly provides that it is not intended to be and is not a Senior Term Agreement).

            “        "Senior Term Facility”" means the collective reference to the Senior Term Agreement, any Loan Documents (as defined therein), any notes and letters of credit issued pursuant thereto and any guarantee and collateral agreement, patent and trademark security agreement, mortgages, letter of credit applications and other guarantees, pledge agreements, security agreements and collateral documents, and other instruments and documents, executed and delivered pursuant to or in connection with any of the foregoing, in each case as the same may be amended, supplemented, waived or otherwise modified from time to time, or refunded, refinanced, restructured, replaced, renewed, repaid, increased or extended from time to time (whether in whole or in part, whether with the original agent and lenders or other agents and lenders or otherwise, and whether provided under the original Senior Term Agreement or one or more other credit agreements, indentures (including the Indenture) or financing agreements or otherwise, unless such agreement, instrument or document expressly provides that it is not intended to be and is not a Senior Term Facility). Without limiting the generality of the foregoing, the term “Senior"Senior Term Facility”Facility" shall include any agreement (i)(i) changing the maturity of any Indebtedness Incurred thereunder or contemplated thereby, (ii)(ii) adding Subsidiaries of the Company as additional borrowers or guarantors thereunder, (iii)(iii) increasing the amount of Indebtedness Incurred thereunder or available to be borrowed thereunder or (iv)(iv) otherwise altering the terms and conditions thereof.

            “        "Significant Subsidiary”" means any Restricted Subsidiary that would be a “significant subsidiary”"significant subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC, as such Regulation was in effect on April 12, 2012.

            “        "Special Purpose Entity”" means (x)(x) any Special Purpose Subsidiary or (y)(y) any other Person that is engaged in the business of (i)(i) acquiring, selling, collecting, financing or refinancing Receivables, accounts (as defined in the Uniform Commercial Code as in effect in any jurisdiction from time to time), other accounts and/or other receivables, and/or related assets and/or (ii)(ii) acquiring, selling, leasing, financing or refinancing Real Property acquired after April 12, 2012 and/or related rights (including under leases and insurance policies) and/or assets (including managing, exercising and


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            disposing of any such rights and/or assets) and/or (iii)(iii) financing or refinancing in respect of Capital Stock of any Special Purpose Subsidiary.

            “        "Special Purpose Financing”" means any financing or refinancing of assets consisting of or including Receivables and/or Real Property (in the case of Real Property acquired after April 12, 2012) of the Company or any Restricted Subsidiary that have been transferred to a Special Purpose Entity or made subject to a Lien in a Financing Disposition (including any financing or refinancing in respect of Capital Stock of a Special Purpose Subsidiary held by another Special Purpose Subsidiary).

            “        "Special Purpose Financing Expense”" means for any period, (a) the aggregate interest expense for such period on any Indebtedness of any Special Purpose Subsidiary that is a Restricted Subsidiary, which Indebtedness is not recourse to the Company or any Restricted Subsidiary that is not a Special Purpose Subsidiary (other than with respect to Special Purpose Financing Undertakings), and (b) Special Purpose Financing Fees.

            “        "Special Purpose Financing Fees”" means distributions or payments made directly or by means of discounts with respect to any participation interest issued or sold in connection with, and other fees paid to a Person that is not a Restricted Subsidiary in connection with, any Special Purpose Financing.

            Index to Financial Statements

            “        "Special Purpose Financing Undertakings”" means representations, warranties, covenants, indemnities, guarantees of performance and (subject to clause (y) of the proviso below) other agreements and undertakings entered into or provided by the Company or any of its Restricted Subsidiaries that the Company determines in good faith (which determination shall be conclusive) are customary or otherwise necessary or advisable in connection with a Special Purpose Financing or a Financing Disposition;provided that (x)(x) it is understood that Special Purpose Financing Undertakings may consist of or include (i)(i) reimbursement and other obligations in respect of notes, letters of credit, surety bonds and similar instruments provided for credit enhancement purposes, (ii)(ii) Hedging Obligations, or other obligations relating to Interest Rate Agreements, Currency Agreements or Commodities Agreements entered into by the Company or any Restricted Subsidiary, in respect of any Special Purpose Financing or Financing Disposition, or (iii)(iii) any Guarantee in respect of customary recourse obligations (as determined in good faith by the Company) in connection with any collateralized mortgage-backed securitization or any other Special Purpose Financing or Financing Disposition in respect of Real Property, including in respect of Liabilities in the event of any involuntary case commenced with the collusion of any Special Purpose Subsidiary or any Affiliate thereof, or any voluntary case commenced by any Special Purpose Subsidiary, under any applicable Bankruptcy Law, and (y)(y) subject to the preceding clause (x), any such other agreements and undertakings shall not include any Guarantee of Indebtedness of a Special Purpose Subsidiary by the Company or a Restricted Subsidiary that is not a Special Purpose Subsidiary.

            “        "Special Purpose Subsidiary”" means a Subsidiary of the Company that (a)(a) is engaged solely in (x)(x) the business of (i)(i) acquiring, selling, collecting, financing or refinancing Receivables, accounts (as defined in the Uniform Commercial Code as in effect in any jurisdiction from time to time) and other accounts and receivables (including any thereof constituting or evidenced by chattel paper, instruments or general intangibles), all proceeds thereof and all rights (contractual and other), collateral and other assets relating thereto, and/or (ii)(ii) acquiring, selling, leasing, financing or refinancing Real Property acquired after April 12, 2012 and/or related rights (including under leases and insurance policies) and/or assets (including managing, exercising and disposing of any such rights and/or assets), all proceeds thereof and all rights (contractual and other), collateral and/or other assets relating thereto, and/or (iii)(iii) owning or holding Capital Stock of any Special Purpose Subsidiary and/or engaging in any financing or refinancing in respect thereof, and (y)(y) any business or activities incidental or related to such business, and (b)(b) is designated as a “Special"Special Purpose Subsidiary”Subsidiary" by the Company.

            “        "S&P”" means Standard & Poor’sPoor's Ratings Group, a division of The McGraw-Hill Companies, Inc., and its successors.


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                    "Stated Maturity”" means, with respect to any Indebtedness, the date specified in such Indebtedness as the fixed date on which the payment of principal of such Indebtedness is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase or repayment of such Indebtedness at the option of the holder thereof upon the happening of any contingency).

            “        "Subordinated Obligations”" means any Indebtedness of the Company (whether outstanding on the date of the Indenture or thereafter Incurred) that is expressly subordinated in right of payment to the Notes pursuant to a written agreement.

            “        "Subsidiary”" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other equity interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i)(i) such Person or (ii)(ii) one or more Subsidiaries of such Person.

            “        "Subsidiary Guarantee”" means any guarantee of the Notes that may from time to time be entered into by a Restricted Subsidiary of the Company on the Issue Date or after the Issue Date pursuant to the covenant described under “—"—Certain Covenants—Future Subsidiary Guarantors.”" As used in the Indenture, “Subsidiary Guarantee”"Subsidiary Guarantee" refers to a Subsidiary Guarantee of the Notes.

            Index to Financial Statements

            “        "Subsidiary Guarantor”" means any Restricted Subsidiary of the Company that enters into a Subsidiary Guarantee. As used in the Indenture, “Subsidiary Guarantor”"Subsidiary Guarantor" refers to a Subsidiary Guarantor of the Notes.

            “        "Successor Company”" shall have the meaning assigned thereto in clause (i) under “—"—Merger and Consolidation.”"

            “        "Tax Sharing Agreement”" means the Tax Sharing Agreement, dated as of August 30, 2007, among the Company, Holding and Holding Parent, as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof and of the Indenture.

            “        "Temporary Cash Investments”" means any of the following: (i)(i) any investment in (x)(x) direct obligations of the United States of America, Canada, a member state of the European Union or any country in whose currency funds are being held pending their application in the making of an investment or capital expenditure by the Company or a Restricted Subsidiary in that country or with such funds, or any agency or instrumentality of any thereof, or obligations Guaranteed by the United States of America, Canada, or a member state of the European Union or any country in whose currency funds are being held pending their application in the making of an investment or capital expenditure by the Company or a Restricted Subsidiary in that country or with such funds, or any agency or instrumentality of any of the foregoing, or obligations guaranteed by any of the foregoing or (y)(y) direct obligations of any foreign country recognized by the United States of America rated at least “A”"A" by S&P or “A-1”"A-1" by Moody’sMoody's (or, in either case, the equivalent of such rating by such organization or, if no rating of S&P or Moody’sMoody's then exists, the equivalent of such rating by any nationally recognized rating organization), (ii)(ii) overnight bank deposits, and investments in time deposit accounts, certificates of deposit, bankers’bankers' acceptances and money market deposits (or, with respect to foreign banks, similar instruments) maturing not more than one year after the date of acquisition thereof issued by (x)(x) any bank or other institutional lender under a Credit Facility or any affiliate thereof, (y)(y) JPMorgan Chase Bank, N.A., SunTrust Bank, Wells Fargo Bank, National Association, Bank of America, N.A., Scotiabank, The Toronto-Dominion Bank, Bank of Montreal or any of their respective affiliates, or (z)(z) a bank or trust company that is organized under the laws of the United States of America, any state thereof, Canada, any province thereof, or any foreign country recognized by the United States of America having capital and surplus aggregating in excess of $250.0 million (or the foreign currency equivalent thereof) and whose long term debt is rated at least “A”"A" by S&P or “A-1”"A-1" by Moody’s


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            Moody's (or, in either case, the equivalent of such rating by such organization or, if no rating of S&P or Moody’sMoody's then exists, the equivalent of such rating by any nationally recognized rating organization) at the time such Investment is made, (iii)(iii) repurchase obligations for underlying securities or instruments of the types described in clause (i) or (ii) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv)(iv) Investments in commercial paper, maturing not more than 24 months after the date of acquisition, issued by a Person (other than that of the Company or any of its Subsidiaries), with a rating at the time as of which any Investment therein is made of “P-2”"P-2" (or higher) according to Moody’sMoody's or “A-2”"A-2" (or higher) according to S&P (or, in either case, the equivalent of such rating by such organization or, if no rating of S&P or Moody’sMoody's then exists, the equivalent of such rating by any nationally recognized rating organization), (v)(v) Investments in securities maturing not more than 24 months after the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America or any province of Canada, or by any political subdivision or taxing authority of any thereof, and rated at least “BBB-”"BBB-" by S&P or “Baa3”"Baa3" by Moody’sMoody's (or, in either case, the equivalent of such rating by such organization or, if no rating of S&P or Moody’sMoody's then exists, the equivalent of such rating by any nationally recognized rating organization), (vi)(vi) Indebtedness or Preferred Stock (other than of the Company or any of its Subsidiaries) having a rating of “A”"A" or higher by S&P or “A2”"A2" or higher by Moody’sMoody's (or, in either case, the equivalent of such rating by such organization or, if no rating of S&P or Moody’sMoody's then exists, the equivalent of such rating by any nationally recognized rating organization), (vii)(vii) investment funds investing 95% of their assets in securities of the type described in clauses (i) through (vi) above (which funds may also hold reasonable amounts of cash pending investment and/or distribution), (viii)(viii) any money market deposit accounts issued or offered by a domestic commercial bank or a commercial bank organized and located in a country recognized by the United States of America or Canada, in each case, having capital and surplus in excess of $250.0 million (or the foreign currency equivalent thereof), or investments in money market funds subject to the

            Index to Financial Statements

            risk limiting conditions of Rule 2a-7 (or any successor rule) of the SEC under the Investment Company Act of 1940, as amended, and (ix)(ix) similar investments approved by the Board of Directors in the ordinary course of business.

            “        "Term Agent”" has the meaning assigned to such term in the Base Intercreditor Agreement or the Cash Flow Intercreditor Agreement, as applicable.

            “        "THD”" means The Home Depot, Inc., and any successor in interest thereto.

            “        "TIA”" means the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa—77bbbb) as in effect on the date of the Indenture, except as otherwise provided therein.

            “        "Trade Payables”" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or guaranteed by such Person arising in the ordinary course of business in connection with the acquisition of goods or services.

            “        "Transactions”" means, collectively, any or all of the following: (i)(i) the entry into the Indenture and the Registration Rights Agreement, and the offer and issuance of the Notes, (ii)(ii) the entry into the Senior First Priority Indenture, the other Senior First Priority Note Documents, and any related exchange and registration rights agreement, and the offer and issuance of the Senior First Priority Notes, (iii)(iii) the entry into the Senior Credit Facilities and Incurrence of Indebtedness thereunder by one or more of the Company and its Subsidiaries, (iv)(iv) the entry into the Senior Second Priority Indenture, the other Senior Second Priority Note Documents, and any related exchange and registration rights agreement, and the offer and issuance of the Senior Second Priority Notes, (v)(v) the entry into the Base Intercreditor Agreement, the Cash Flow Intercreditor Agreement and the Note Security Documents, (vi)(vi) the entry into the April 2012 Senior Unsecured Indenture and any related exchange and registration rights agreement, and the offer and issuance of the April 2012 Senior Unsecured Notes, (vii)(vii) the entry into the October 2012 Senior Unsecured Indenture and any related exchange and registration rights agreement, and the offer and issuance of the October 2012 Senior


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            Unsecured Notes, (viii)(viii) the entry into the January 2013 Senior Subordinated Indenture and any related exchange and registration rights agreement, and the offer and issuance of the January 2013 Senior Subordinated Notes, (ix) the repayment of certain Indebtedness of the Company and its Subsidiaries in connection with the foregoing, (ix)(x) the exchange of certain Indebtedness of the Company and its Subsidiaries for April 2012 Senior Unsecured Notes, and (x)(xi) all other transactions relating to any of the foregoing (including payment of fees and expenses related to any of the foregoing).

            “        "Trustee”" means the party named as such in the Indenture until a successor replaces it and, thereafter, means the successor.

            “        "Trust Officer”" means any officer within the Corporate Trust Administration department of the Trustee (or any successor group of the Trustee) with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

            “        "Uniform Commercial Code”" means, unless the context requires otherwise, the Uniform Commercial Code as in effect in the state of New York from time to time.

            “        "Unrestricted Cash”" means cash, Cash Equivalents and Temporary Cash Investments, other than (i)(i) as disclosed in the consolidated financial statements of the Company as a line item on the balance sheet as “restricted cash”"restricted cash" and (ii)(ii) cash, Cash Equivalents and Temporary Cash Investments of a Captive Insurance Subsidiary to the extent such cash, Cash Equivalents and Temporary Cash Investments are not permitted by applicable law or regulation to be dividended, distributed or otherwise transferred to the Company or any Restricted Subsidiary that is not a Captive Insurance Subsidiary.

            “        "Unrestricted Subsidiary”" means (i)(i) any Subsidiary of the Company that at the time of determination is an Unrestricted Subsidiary, as designated by the Board of Directors in the manner provided below and (ii)(ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company

            Index to Financial Statements

            (including (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any other Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated;provided,, that (A)(A) such designation was made at or prior to the Issue Date, or (B)(B) the Subsidiary to be so designated has total consolidated assets of $1,000 or less or (C)(C) if such Subsidiary has consolidated assets greater than $1,000, then such designation would be permitted under the covenant described under “—"—Certain Covenants—Limitation on Restricted Payments.”" The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;provided,, that immediately after giving effect to such designation (x)(x) the Company could Incur at least $1.00 of additional Indebtedness under paragraph (a) in the covenant described under “—"—Certain Covenants—Limitation on Indebtedness”Indebtedness" or (y)(y) the Consolidated Coverage Ratio would be greater than it was immediately prior to giving effect to such designation or (z)(z) such Subsidiary shall be a Special Purpose Subsidiary with no Indebtedness outstanding other than Indebtedness that can be Incurred (and upon such designation shall be deemed to be Incurred and outstanding) pursuant to paragraph (b) of the covenant described under “—"—Certain Covenants—Limitation on Indebtedness.”" Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Company’sCompany's Board of Directors giving effect to such designation and an Officer’sOfficer's Certificate of the Company certifying that such designation complied with the foregoing provisions.

            “        "U.S. Government Obligation”" means (x)(x) any security that is (i)(i) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (ii)(ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as


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            a full faith and credit obligation by the United States of America, which, in either case under the preceding clause (i) or (ii) is not callable or redeemable at the option of the issuer thereof, and (y)(y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any U.S. Government Obligation that is specified in clause (x) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any U.S. Government Obligation that is so specified and held,provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt.

            “        "Voting Stock”" of an entity means all classes of Capital Stock of such entity then outstanding and normally entitled to vote in the election of directors or all interests in such entity with the ability to control the management or actions of such entity.

            “        "Wholly Owned Domestic Subsidiary”" means as to any Person, any Domestic Subsidiary of such Person that is a Subsidiary of such Person, and of which such Person owns, directly or indirectly through one or more Wholly Owned Domestic Subsidiaries, all of the Capital Stock of such Domestic Subsidiary.

            Registration Rights; Exchange Offer

            The Company entered into the Exchange and Registration Rights Agreement with respect to the Notes, pursuant to which we agreed, for the benefit of the Holders of the Notes, to use our commercially reasonable efforts:

              (1)   to file with the SEC one or more registration statements, which we refer to as the Exchange Offer Registration Statement, under the Securities Act relating to an exchange offer, which we refer to as the Exchange Offer, pursuant to which new notes substantially identical to the Notes (except that such new notes will not contain terms with respect to the payment of additional interest described below or transfer restrictions), which we refer to as the Exchange Notes, would be offered in exchange for the then outstanding Notes tendered at the option of the Holders thereof; and

              (2)   to cause the Exchange Offer Registration Statement to become effective within 270 days following the Issue Date.

            Index to Financial Statements

            We further agreed to use commercially reasonable efforts to commence the Exchange Offer promptly after the Exchange Offer Registration Statement has become effective, hold the offer open for the period required by applicable law (including pursuant to any applicable interpretation by the staff of the SEC), but in any event for at least 10 business days, and exchange the Exchange Notes for all Notes validly tendered and not withdrawn before the expiration of the offer.

            Under existing SEC interpretations contained in several no action letters to third parties, the Exchange Notes would in general be freely transferable by Holders thereof (other than affiliates of the Company) after the Exchange Offer without further registration under the Securities Act (subject to certain representations required to be made by each Holder of Notes participating in the Exchange Offer, as set forth below). However, any purchaser of Notes who is an “affiliate”"affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes (1)(1) will not be able to rely on such SEC interpretations, (2)(2) will not be able to tender its Notes in the Exchange Offer and (3)(3) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes unless such sale or transfer is made pursuant to an exemption from such requirements. In addition, in connection with any resales of Exchange Notes, broker dealers, which we refer to as Participating Broker Dealers, receiving Exchange


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            Notes in the Exchange Offer will be subject to a prospectus delivery requirement with respect to resales of those Exchange Notes. The SEC has taken the position that Participating Broker Dealers may fulfill their prospectus delivery requirements with respect to the Exchange Notes (other than a resale of an unsold allotment from the original sale of the Notes) by delivery of the prospectus contained in the Exchange Offer Registration Statement. Under the Exchange and Registration Rights Agreement, we are required to allow Participating Broker Dealers to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such Exchange Notes for a period of 90 days after the consummation of the Exchange Offer. Each beneficial holder of Notes who wishes to exchange such Notes for Exchange Notes in the Exchange Offer will be required to represent (1)(1) that any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (2)(2) that at the time of the commencement of the Exchange Offer it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes, (3)(3) that it is not an affiliate of ours, as defined in Rule 405 of the Securities Act, (4)(4) if it is not a broker dealer, that it is not engaged in, and does not intend to engage in, the distribution of Exchange Notes, (5)(5) if it is a Participating Broker Dealer, that it will deliver a prospectus in connection with any resale of such Exchange Notes, and (6)(6) that it is not acting on behalf of any person who could not truthfully make the foregoing representations.

            However, if:

              (1)   on or before the date of consummation of the Exchange Offer, the existing SEC interpretations are changed such that the Exchange Notes would not in general be freely transferable in such manner on such date;

              (2)   the Exchange Offer has not been completed within 360 days following the Issue Date;

              (3)   under certain circumstances, the initial purchasers so request with respect to Notes not eligible to be exchanged for Exchange Notes in the Exchange Offer; or

              (4)   any Holder of the Notes (other than an initial purchaser)Initial Purchaser) is not permitted by applicable law to participate in the Exchange Offer, or if any Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not available for such resales by such Holder (other than, in either case, due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act or due to such Holder’sHolder's inability to make the representations referred to above),

            we will use our commercially reasonable efforts to file, as promptly as reasonably practicable, one or more registration statements under the Securities Act relating to a shelf registration, which we refer to as the Shelf Registration Statement, of the Notes or Exchange Notes, as the case may be, for resale by Holders or, in the case of clause (3), of the Notes held by the initial purchasers for resale by the initial purchasers, which we refer to as

            Index to Financial Statements

            the Resale Registration, and will use our commercially reasonable efforts to cause the Shelf Registration Statement to become effective within 90 days following the date on which the obligation to file the Shelf Registration Statement arises. We will use our commercially reasonable efforts to cause the Shelf Registration Statement to remain effective until the earlier of one year following the effective date of such registration statement or such shorter period that will terminate when all the securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or are distributed to the public pursuant to Rule 144 or would be eligible to be sold by a Person that is not an “affiliate”"affiliate" (as defined in Rule 144) of us pursuant to Rule 144 without volume restriction. Under certain circumstances, we may suspend the availability of the Shelf Registration Statement for certain periods of time.

            We will, in the event of the Resale Registration, provide to the Holder or Holders of the applicable Notes copies of the prospectus that is a part of the Shelf Registration Statement, notify such


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            Holder or Holders when the Resale Registration for the applicable Notes has become effective and take certain other actions as are required to permit unrestricted resales of the applicable Notes. A Holder of Notes that sells such Notes pursuant to the Resale Registration generally would be required to be named as a selling securityholder in the prospectus related to the Shelf Registration Statement and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Exchange and Registration Rights Agreement that are applicable to such a Holder (including certain indemnification obligations). In addition, each such Holder of Notes will be required, among other things, to deliver information to be used in connection with the Shelf Registration Statement within the time periods set forth in the Exchange and Registration Rights Agreement in order to benefit from the provisions regarding additional interest set forth below.

            Although we intend to file one or more registration statements as previously described, we cannot assure you that any such registration statement will be filed or, if filed, that it will become effective.

            In the event that:

              (1)   the Exchange Offer has not been consummated within 360 days following the Issue Date; or

              (2)   if a Shelf Registration Statement is required to be filed under the Exchange and Registration Rights Agreement, the Shelf Registration Statement is not declared effective within 90 days following the date on which the obligation to file the Shelf Registration Statement arises; or

              (3)   any Shelf Registration Statement required by the Exchange and Registration Rights Agreement is filed and declared effective, and during the period the Company is required to use its commercially reasonable efforts to cause the Shelf Registration Statement to remain effective (i)(i) the Company shall have suspended and be continuing to suspend the availability of the Shelf Registration Statement for more than 60 days in the aggregate in any consecutive twelve month period, or (ii)(ii) such Shelf Registration Statement ceases to be effective and such Shelf Registration Statement is not replaced within 90 days by a Shelf Registration Statement that is filed and declared effectiveeffective.

            (any such event referred to in clauses (1) through (3) we refer to as a Registration Default), then additional interest will accrue on the Transfer Restricted Notes (as defined below), for the period from the occurrence of a Registration Default (but only with respect to one Registration Default at any particular time) until such time as all Registration Defaults have been cured at a rate per annum equal to 0.25% during the first 90-day period following the occurrence of such Registration Default which rate shall increase by an additional 0.25% during each subsequent 90-day period, up to a maximum of 0.50% regardless of the number of Registration Defaults that shall have occurred and be continuing. Any such additional interest will be paid in the same manner and on the same dates as interest payments in respect of Transfer Restricted Notes. Following the cure of all Registration Defaults, the accrual of such additional interest will cease. A Registration Default with respect to a failure to file, cause to become effective or maintain the effectiveness of a Shelf Registration Statement will be deemed cured upon consummation of the Exchange Offer in the case of a Shelf Registration Statement required to be filed due to a failure to consummate the Exchange Offer within the required time period. References in this “Description"Description of Notes,”" except for provisions described above under the caption “—"—Amendments and Waivers,”" to interest on the Notes shall include additional interest, if any.

            Index to Financial Statements

            For purposes of the foregoing, Transfer Restricted Notes means each Note until (1)(1) the date on which such Note has been exchanged for a freely transferable Exchange Note in the Exchange Offer, (2)(2) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with a Shelf Registration Statement, (3)(3) the date on which such Note is distributed to


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            the public pursuant to Rule 144 of the Securities Act or (4)(4) the earliest date that is no less than 480 days after the Issue Date and on which such Note would be eligible to be sold by a Person that is not an “affiliate”"affiliate" (as defined in Rule 144) of us pursuant to Rule 144 without volume restriction.

            Notes not tendered in the Exchange Offer will bear interest at the applicable rate set forth on the cover page of this prospectus and will be subject to all the terms and conditions specified in the Indenture, including transfer restrictions. The Exchange Notes will be accepted for clearance through DTC.

            The summary herein of certain provisions of the Exchange and Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Exchange and Registration Rights Agreement, a copy of which will be available upon request to us.

            The Notes and the Exchange Notes will be respectively considered collectively to be a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase, and for purposes of this “Description"Description of Notes”Notes" (except under this caption “"Registration Rights; Exchange Offer”") all references herein to Notes shall be deemed to refer collectively to Notes and any Exchange Notes, unless the context otherwise requires.

            Book Entry, Delivery and Form

            The Global Notes

            The New Notes to be issued in exchange for Old Notes will be issued in the form of several registered notes in global form, without interest coupons, which we refer to as the global notes, as follows:

              •
              Notes sold to qualified institutional buyers under Rule 144A will be represented by the Rule 144A global note; and



            •
            Notes sold in offshore transactions to non-U.S. persons in reliance on Regulation S will initially be represented by the temporary Regulation S global note and, after completion of the global note exchange described below, by the permanent Regulation S global note.

            Upon issuance, each of the global notes was deposited with the trustee as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC. Ownership of beneficial interests in each global note will be limited to persons who have accounts with DTC, which we refer to as DTC participants, or persons who hold beneficial interests through DTC participants.

            We expect that under procedures established by DTC:

              •
              upon deposit of each global note with DTC’sDTC's custodian, DTC will credit portions of the principal amount of the global note to the accounts of the DTC participants designated by the initial purchasers; and



            •
            ownership of beneficial interests in each global note will be shown on, and transfer of ownership of those interests will be effected only through, records maintained by DTC (with respect to interests of DTC participants) and the records of DTC participants (with respect to other owners of beneficial interests in the global note).

            Beneficial interests in the Regulation S global note will initially be credited within DTC to Euroclear Bank S.A./N.V., or Euroclear, and Clearstream Luxembourg, société anonyme, or Clearstream, on behalf of the owners of these interests.


            Index to Financial StatementsTable of Contents

            Investors may hold their interests in the Regulation S global note directly through Euroclear or Clearstream, if they are participants in those systems, or indirectly through organizations that are participants in those systems.

                    Investors may also hold their interests in the Regulation S global note through organizations other than Euroclear or Clearstream that are DTC participants. Each of Euroclear and Clearstream will appoint a DTC participant to act as its depositary for the interests in the Regulation S global note that are held within DTC for the account of each settlement system on behalf of its participants.

            Beneficial interests in the global notes may not be exchanged for notes in physical, certificated form except in the limited circumstances described below.

            Each global note and beneficial interests in each global note is subject to restrictions on transfer as described under “Notice"Notice to Investors.”"

            These restrictions on transfer will apply from the closing date of the offering until the date that is one year, in the case of Rule 144A notes, or 40 days, in the case of Regulation S notes, after the later of the closing date of the offering and the last date that we or any of our affiliates was the owner of the Notes or any predecessor of the Notes, which period we refer to as the Resale Restriction Period, and will not apply after the Resale Restriction Period ends.

            Exchanges Among the Global Notes

            Beneficial interests in one global note of a series may generally be exchanged for interests in another global note of the same series. Depending on whether the transfer is being made during or after the Resale Restriction Period, and to which global note the transfer is being made, the trustee may require the seller to provide certain written certifications in the form provided in the Indenture.

            A beneficial interest in a global note that is transferred to a person who takes delivery through another global note will, upon transfer, become subject to any transfer restrictions and other procedures applicable to beneficial interests in the other global note.

            Book-Entry Procedures for the Global Notes

            All interests in the global notes are subject to the operations and procedures of DTC, Euroclear and Clearstream. We provide the following summaries of those operations and procedures solely for the convenience of investors. The operations and procedures of each settlement system are controlled by that settlement system and may be changed at any time. None of the Company, the Trustee or the initial purchasers are responsible for those operations or procedures.

            DTC has advised us that it is:

              •
              a limited purpose trust company organized under the laws of the State of New York;



            •
            a “banking organization”"banking organization" within the meaning of the New York State Banking Law;



            •
            a member of the Federal Reserve System;



            •
            a “clearing corporation”"clearing corporation" within the meaning of the Uniform Commercial Code; and



            •
            a “clearing agency”"clearing agency" registered under Section 17A of the Exchange Act.

            DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes to the accounts of its participants. DTC’sDTC's participants include securities brokers and dealers, including the initial purchasers; banks and trust companies; clearing corporations and other organizations. Indirect access to DTC’sDTC's system is also available to others such as banks, brokers, dealers and trust companies; these indirect participants clear through or maintain a custodial relationship with a DTC participant,


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            either directly or indirectly. Investors who are not DTC participants may beneficially own securities held by or on behalf of DTC only through DTC participants or indirect participants in DTC.

            Index to Financial Statements

            So long as DTC’sDTC's nominee is the registered owner of a global note, that nominee will be considered the sole owner or holder of the Notes represented by that global note for all purposes under the Indenture.

            Except as provided below, owners of beneficial interests in a global note:

              •
              will not be entitled to have Notes represented by the global note registered in their names;



            •
            will not receive or be entitled to receive physical, certificated notes; and



            •
            will not be considered the owners or holders of the Notes under the Indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the Trustee under the Indenture.

            As a result, each investor who owns a beneficial interest in a global note must rely on the procedures of DTC to exercise any rights of a holder of Notes under the Indenture (and, if the investor is not a participant or an indirect participant in DTC, on the procedures of the DTC participant through which the investor owns its interest).

            Payments of principal, premium (if any) and interest with respect to the Notes represented by a global note will be made by the paying agent to DTC’sDTC's nominee as the registered holder of the global note. Neither we nor the Trustee will have any responsibility or liability for the payment of amounts to owners of beneficial interests in a global note, for any aspect of the records relating to or payments made on account of those interests by DTC, or for maintaining, supervising or reviewing any records of DTC relating to those interests.

            Payments by participants and indirect participants in DTC to the owners of beneficial interests in a global note will be governed by standing instructions and customary industry practice and will be the responsibility of those participants or indirect participants and DTC.

            Transfers between participants in DTC will be effected under DTC’sDTC's procedures and will be settled in same-day funds. Transfers between participants in Euroclear or Clearstream will be effected in the ordinary way under the rules and operating procedures of those systems.

            Cross market transfers between DTC participants, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected within DTC through the DTC participants that are acting as depositaries for Euroclear and Clearstream. To deliver or receive an interest in a global note held in a Euroclear or Clearstream account, an investor must send transfer instructions to Euroclear or Clearstream, as the case may be, under the rules and procedures of that system and within the established deadlines of that system. If the transaction meets its settlement requirements, Euroclear or Clearstream, as the case may be, will send instructions to its DTC depositary to take action to effect final settlement by delivering or receiving interests in the relevant global notes in DTC, and making or receiving payment under normal procedures for same-day funds settlement applicable to DTC. Euroclear and Clearstream participants may not deliver instructions directly to the DTC depositaries that are acting for Euroclear or Clearstream.

            Because of time zone differences, the securities account of a Euroclear or Clearstream participant that purchases an interest in a global note from a DTC participant will be credited on the business day for Euroclear or Clearstream immediately following the DTC settlement date. Cash received in Euroclear or Clearstream from the sale of an interest in a global note to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream cash account as of the business day for Euroclear or Clearstream following the DTC settlement date.


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            DTC, Euroclear and Clearstream have agreed to the above procedures to facilitate transfers of interests in the global notes among participants in those settlement systems. However, the settlement systems are not obligated to perform these procedures and may discontinue or change these procedures at any time. Neither we nor the Trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream or their participants or indirect participants of their obligations under the rules and procedures governing their operations.

            Index to Financial Statements

            Certificated Notes

            Notes in physical, certificated form will be issued and delivered to each person that DTC identifies as a beneficial owner of the related Notes only if:

              •
              DTC notifies us at any time that it is unwilling or unable to continue as depositary for the global notes and a successor depositary is not appointed within 120 days;



            •
            DTC ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is not appointed within 120 days;



            •
            we, at our option, notify the trustee that we elect to cause the issuance of certificated notes; or



            •
            certain other events provided in the Indenture should occur.


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            Index to Financial Statements


            PLAN OF DISTRIBUTION

            Each broker-dealer that receives New Notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with the resale of New Notes received in exchange for Old Notes, where such Old Notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of up to 90 days after the exchange offer is consummated, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale.

            We will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time, in one or more transactions, through the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at prevailing market prices at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or, alternatively, to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an “underwriter”"underwriter" within the meaning of the Securities Act, and any profit on any such resale of New Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter”"underwriter" within the meaning of the Securities Act.

            We have agreed to pay all expenses incident to the exchange offer, other than underwriting discounts and commissions, brokerage commissions and applicable transfer taxes, and will indemnify certain Holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.

            Based on interpretations by the Staff of the SEC as set forth in no-action letters issued to third parties (including Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), K-111 Communications Corporation (available May 14, 1993) and Shearman & Sterling (available July 2, 1993)), we believe that the New Notes issued pursuant to the exchange offer may be offered for resale, resold and otherwise transferred by any holder of such New Notes, other than any such holder that is a broker-dealer or an “affiliate”"affiliate" of us within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that:

              •
              such New Notes are acquired in the ordinary course of business;



            •
            at the time of the commencement of the exchange offer such holder has no arrangement or understanding with any person to participate in a distribution of such New Notes; and



            •
            such holder is not engaged in and does not intend to engage in a distribution of such New Notes.

            We have not sought and do not intend to seek a no-action letter from the SEC, with respect to the effects of the exchange offer, and there can be no assurance that the Staff would make a similar determination with respect to the New Notes as it has in such no-action letters.


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            Index to Financial Statements


            UNITED STATESU.S. FEDERAL INCOME TAX CONSIDERATIONS

            The following is a discussion of certain U.S. federal income tax considerations relating to the exchange offer (as described under the heading “The"The Exchange Offer”Offer"). This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, U.S. Treasury regulations promulgated or proposed thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect, or to different interpretation. This discussion does not address all of the U.S. federal income tax considerations that may be relevant to specific Holders (as defined below) in light of their particular circumstances or to Holders subject to special treatment under U.S. federal income tax law (such as banks, insurance companies, dealers in securities or other Holders that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, Holders that hold a Note as part of a straddle, hedge, conversion or other integrated transaction or Holders that are U.S. persons thatand have a “functional currency”"functional currency" other than the U.S. dollar). This discussion does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations. As used in this discussion, the term “Holder”"Holder" means a beneficial owner of a Note.

            The exchange of an Old Note for a New Note pursuant to the exchange offer will not be treated as a sale or exchange of the Old Note by a Holder for U.S. federal income tax purposes. Accordingly, a Holder of an Old Note will not recognize any gain or loss upon the exchange of such Old Note for a New Note pursuant to the exchange offer. Such Holder’sHolder's holding period for such New Note will include thesuch Holder's holding period for such Old Note, and such Holder’sHolder's adjusted tax basis in such New Note will be the same as such Holder’sHolder's adjusted tax basis in such Old Note. There will be no U.S. federal income tax consequences to a Holder of an Old Note that does not participate in the exchange offer.

            INVESTORSHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSIDERATIONS RELATING TO THE EXCHANGE OFFER IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.


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            Index to Financial Statements


            CERTAIN ERISA CONSIDERATIONS

            The following is a summary of certain considerations associated with the exchange of Old Notes for New Notes by employee benefit plans that are subject to Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”("ERISA"), plans, individual retirement accounts and other arrangements that are subject to Section 4975 of the Code (“("ERISA Plans”Plans") or provisions under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of ERISA or the Code (collectively, “Similar Laws”"Similar Laws"), and entities whose underlying assets are considered to include “plan assets”"plan assets" of any such plan, account or arrangement (each arrangement or ERISA Plan, a “Plan”"Plan").

            Prohibited transaction issues

            Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans from engaging in specified transactions involving plan assets with persons or entities who are “parties"parties in interest,”" within the meaning of ERISA, or “disqualified"disqualified persons,”" within the meaning of Section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of the ERISA Plan that engages in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and the Code. The acquisition, exchange or holding of Notes by an ERISA Plan with respect to which the Issuer or the Guarantors are considered a party in interest or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless the investment is acquired, exchanged and is held in accordance with an applicable statutory, class or individual prohibited transaction exemption.

            Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) or ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA) are not subject to these “prohibited transaction”"prohibited transaction" rules of ERISA or Section 4975 of the Code, but may be subject to similar rules under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of ERISA or Section 4975 of the Code.

            Because of the foregoing, the Notes should not be purchased, exchanged or held by any person investing “plan assets”"plan assets" of any Plan, unless such purchase, exchange and holding will not constitute a non-exempt prohibited transaction under ERISA and the Code or similar violation of any applicable Similar Laws.

            Representation

            Accordingly, by exchange of a Note, each holder, or in the case of a transfer of thea Note, subsequent transferee will be deemed to have represented and warranted that either (a)(a) no portion of the assets used by such holder or transferee to acquire, exchange or hold the Notes constitutes assets of any Plan or (b)(b) the acquisition, exchange and holding, as applicable, of the Notes by such holder or transferee will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar violation under any applicable Similar Laws.

            The foregoing discussion is general in nature and is not intended to be all-inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons considering purchasing or exchanging the Notes (and holding the Notes) on behalf of, or with the assets of, any Plan, consult with their counsel regarding the potential applicability of ERISA, Section 4975 of the Code and any Similar Laws to such investment and whether an exemption would be applicable to the purchase and holding of the Notes.


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            Index to Financial Statements


            VALIDITY OF THE NOTESLEGAL MATTERS

            Debevoise & Plimpton LLP, New York, New York will pass upon the validity of the New Notes and the guarantees. Debevoise & Plimpton LLP will rely upon the opinions of Richards, Layton & Finger, P.A. as to certain matters of Delaware law, upon the opinions of Holland & Knight LLP as to certain matters of Florida and Maryland law, upon the opinions of Clark Hill PLC as to certain matters of Michigan law and upon the opinions of Holland & Hart LLP as to certain matters of Nevada law. Debevoise & Plimpton LLP has in the past provided, and continues to provide, legal services to CD&R and its affiliates.


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            WHERE YOU CAN FIND MORE INFORMATION

            In connection with the exchange offer, we have filed with the SEC a registration statement on Form S-4 under the Securities Act relating to the New Notes to be issued in the exchange offer. As permitted by SEC rules, this prospectus omits information included in the registration statement. For a more complete understanding of the exchange offer, you should refer to the registration statement, including its exhibits.

            Following effectiveness of the registration statement relating to the exchange offer, we will be required to file annual reports, information, documents and other reports with the SEC. The Indenture requires us to transmit to the holders of the Notes and the Trustee the annual reports, information, documents and reports that we are required to file with the SEC under Section 13(a) or 15(d) of the Securities Exchange Act of 1934 within 15 days after the date on which we are required to file or would be required to file if we were so subject.

            The public may read and copy any reports or other information that we file with the SEC. Such filings are available to the public over the internet at the SEC’sSEC's website at http://www.sec.gov. The SEC’sSEC's website is included in this prospectus as an inactive textual reference only. You may also read and copy any document that we file with the SEC at its public reference room at 100 F Street, NE, Washington DC 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. You may also obtain a copy of the exchange offer’soffer's registration statement and other information that we file with the SEC at no cost by calling us or writing to us at the following address:

            HD Supply, Inc.


            3100 Cumberland Boulevard, Suite 1480


            Atlanta, Georgia 30339


            Attn: General Counsel


            (770) 852-9000

            In order to obtain timely delivery of such materials, you must request documents from us no later than five business days before you make your investment decision or at the latest by             , 2013.


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            EXPERTS

            The consolidated financial statements as of February 3, 2013 and January 29, 2012 and January 30, 2011 and for each of the three years in the period ended January 29, 2012February 3, 2013 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.


            Index to Financial StatementsTable of Contents


            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


            		Page

            Audited Consolidated Financial StatementsUnaudited interim consolidated financial statements

            		 

            Consolidated statements of operations and comprehensive income (loss) for the three and six months ended August 4, 2013 and July 29, 2012 (unaudited)

            		F-2

            Consolidated balance sheets as of August 4, 2013 and February 3, 2013 (unaudited)

            		F-3

            Consolidated statements of cash flows for the six months ended August 4, 2013 and July 29, 2012 (unaudited)

            		F-4

            Notes to consolidated financial statements

            		F-5

            Audited consolidated financial statements

            Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm

            		  F-2F-29 

            Consolidated Statementsstatements of Operationsoperations and comprehensive income (loss) for (i) the fiscal yearsyear ended February 3, 2013, (ii) the fiscal year ended January 29, 2012, and (iii) the fiscal year ended January 30, 2011 and January 31, 2010

            		  F-3F-30 

            Consolidated Balance Sheetsbalance sheets as of February 3, 2013 and January 29, 2012 and January 30, 2011

            		  F-4F-31 

            Consolidated Statementsstatements of Shareholder’s Equity and Comprehensive Incomestockholder's equity (deficit) for (i) the fiscal yearsyear ended February 3, 2013, (ii) the fiscal year ended January 29, 2012, and (iii) the fiscal year ended January 30, 2011 January 31, 2010 and February 1, 2009

            		  F-5F-32 

            Consolidated Statementsstatements of Cash Flowscash flows for (i) the fiscal yearsyear ended February 3, 2013, (ii) the fiscal year ended January 29, 2012, and (iii) the fiscal year ended January 30, 2011 and January 31, 2010

            		  F-6F-33 

            Notes to Audited Consolidated Financial Statementsconsolidated financial statements

            		  F-7F-34 

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            HD SUPPLY, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

            Amounts in millions, unaudited

             
            		 Three Months Ended Six Months Ended 
             
            		 August 4,
            2013            		 July 29,
            2012            		 August 4,
            2013            		 July 29,
            2012            		 

            Net Sales

            		 $2,257 $2,059 $4,325 $3,895 

            Cost of sales

            		  1,596  1,465  3,066  2,778 
                      

            Gross Profit

            		  661  594  1,259  1,117 

            Operating expenses:

            		             

            Selling, general and administrative

            		  450  408  889  805 

            Depreciation and amortization

            		  61  83  120  166 
                      

            Total operating expenses

            		  511  491  1,009  971 

            Operating Income

            		  150  103  250  146 

            Interest expense

            		  144  158  291  324 

            Loss on extinguishment & modification of debt

            		  46  —  87  220 

            Other (income) expense, net

            		  20  —  20  — 
                      

            Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

            		  (60) (55) (148) (398)

            Provision (benefit) for income taxes

            		  12  1  55  34 
                      

            Income (Loss) from Continuing Operations

            		  (72) (56) (203) (432)

            Income from discontinued operations, net of tax

            		  —  —  —  16 
                      

            Net Income (Loss)

            		 $(72)$(56)$(203)$(416)
                      

            Other comprehensive income—foreign currency translation adjustment

            		  (3) (3) (4) — 
                      

            Total Comprehensive Income (Loss)

            		 $(75)$(59)$(207)$(416)
                      

            The accompanying notes are an integral part of these consolidated financial statements.


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            HD SUPPLY, INC. AND SUBSIDIARIES

            CONSOLIDATED BALANCE SHEETS

            Amounts in millions, except share and per share data, unaudited

             
            		 August 4,
            2013            		 February 3,
            2013            		 

            ASSETS

            		       

            Current assets:

            		       

            Cash and cash equivalents

            		 $109 $141 

            Cash equivalents restricted for debt redemption

            		  —  936 

            Receivables, less allowance for doubtful accounts of $22 and $23

            		  1,221  1,008 

            Inventories

            		  1,108  987 

            Deferred tax asset

            		  3  42 

            Other current assets

            		  47  49 
                  

            Total current assets

            		  2,488  3,163 
                  

            Property and equipment, net

            		  401  395 

            Goodwill

            		  3,139  3,138 

            Intangible assets, net

            		  406  473 

            Other assets

            		  153  165 
                  

            Total assets

            		 $6,587 $7,334 
                  

            LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

            		       

            Current liabilities:

            		       

            Accounts payable

            		 $815 $693 

            Accrued compensation and benefits

            		  116  160 

            Current installments of long-term debt

            		  10  899 

            Other current liabilities

            		  266  291 
                  

            Total current liabilities

            		  1,207  2,043 
                  

            Long-term debt, excluding current installments

            		  5,678  6,430 

            Deferred tax liabilities

            		  111  104 

            Other liabilities

            		  344  348 
                  

            Total liabilities

            		  7,340  8,925 
                  

            Stockholder's equity (deficit):

            		       

            Common stock, par value $0.01; 1,000 shares authorized; 1,000 shares issued and outstanding at August 4, 2013 and February 3, 2013

            		  —  — 

            Paid-in capital

            		  3,741  2,696 

            Accumulated deficit

            		  (4,488) (4,285)

            Accumulated other comprehensive loss

            		  (6) (2)
                  

            Total stockholder's equity (deficit)

            		  (753) (1,591)
                  

            Total liabilities and stockholder's equity (deficit)

            		 $6,587 $7,334 
                  

            The accompanying notes are an integral part of these consolidated financial statements.


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            HD SUPPLY, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF CASH FLOWS

            Amounts in millions, unaudited

             
            		 Six Months Ended 
             
            		 August 4,
            2013            		 July 29,
            2012            		 

            CASH FLOWS FROM OPERATING ACTIVITIES:

            		       

            Net income (loss)

            		 $(203)$(416)

            Reconciliation of net income (loss) to net cash provided by (used in) operating activities:

            		       

            Depreciation and amortization

            		  122  170 

            Provision for uncollectibles

            		  2  3 

            Non-cash interest expense

            		  16  51 

            Payment of PIK interest & discounts upon extinguishment of debt

            		  (364) — 

            Loss on extinguishment & modification of debt

            		  87  220 

            Stock-based compensation expense

            		  8  10 

            Deferred income taxes

            		  45  26 

            Gain on sale of a business

            		  —  (9)

            Changes in assets and liabilities:

            		       

            (Increase) decrease in receivables

            		  (221) (200)

            (Increase) decrease in inventories

            		  (125) (200)

            (Increase) decrease in other current assets

            		  (2) (2)

            (Increase) decrease in other assets

            		  —  2 

            Increase (decrease) in accounts payable and accrued liabilities

            		  52  17 

            Increase (decrease) in other long-term liabilities

            		  6  4 
                  

            Net cash provided by (used in) operating activities

            		  (577) (324)
                  

            CASH FLOWS FROM INVESTING ACTIVITIES:

            		       

            Capital expenditures

            		  (64) (52)

            Proceeds from sales of property and equipment

            		  5  2 

            Proceeds from sale of investments

            		  936  — 

            Proceeds from sale of a business

            		  —  464 

            (Payment) settlement for acquisition of a business, net of cash acquired

            		  2  (196)

            Other investing activities

            		  —  (3)
                  

            Net cash provided by (used in) investing activities

            		  879  215 
                  

            CASH FLOWS FROM FINANCING ACTIVITIES:

            		       

            Equity contribution from parent

            		  1,038  — 

            Borrowings of long-term debt

            		  79  2,817 

            Repayments of long-term debt

            		  (1,619) (3,288)

            Borrowings on long-term revolver debt

            		  520  1,004 

            Repayments on long-term revolver debt

            		  (320) (372)

            Debt issuance and modification fees

            		  (34) (73)

            Other financing activities

            		  3  — 
                  

            Net cash provided by (used in) financing activities

            		  (333) 88 
                  

            Effect of exchange rates on cash and cash equivalents

            		  (1) — 
                  

            Increase (decrease) in cash and cash equivalents

            		 $(32)$(21)

            Cash and cash equivalents at beginning of period

            		  141  111 
                  

            Cash and cash equivalents at end of period

            		 $109 $90 
                  

            The accompanying notes are an integral part of these consolidated financial statements.


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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (Unaudited)

            NOTE 1—NATURE OF BUSINESS AND BASIS OF PRESENTATION

            Nature of Business

                    HD Supply Holdings, Inc. ("Holdings") indirectly owns all of the outstanding common stock of HD Supply, Inc. ("HDS", "HD Supply" or the "Company").

                    HD Supply is one of the largest industrial distribution companies in North America. The Company specializes in three distinct market sectors: Maintenance, Repair & Operations; Infrastructure & Power; and Specialty Construction. Through over 600 locations across 46 U.S. states and 9 Canadian provinces, the Company serves these markets with an integrated go-to-market strategy. HD Supply has approximately 15,000 associates delivering localized, customer-tailored products, services and expertise. The Company serves approximately 500,000 customers, which include contractors, government entities, maintenance professionals, home builders and industrial businesses. HD Supply's broad range of end-to-end product lines and services include over one million stock-keeping units ("SKUs") of quality, name-brand and proprietary-brand products as well as value-add services supporting the entire life-cycle of a project from infrastructure and construction to maintenance, repair and operations.

                    HD Supply is managed primarily on a product line basis and reports results of operations in four reportable segments. The reportable segments are Facilities Maintenance, Waterworks, Power Solutions, and White Cap. Other operating segments include Crown Bolt, Repair & Remodel, Creative Touch Interiors ("CTI"), and HD Supply Canada. In addition, the consolidated financial statements include Corporate, which is comprised of enterprise-wide functional departments.

            Initial Public Offering

                    On June 26, 2013, Holdings' Registration Statement (File No. 333-187872) was declared effective by the U.S. Securities and Exchange Commission (the "SEC") for an initial public offering of its common stock, par value $0.01 per share ("Common Stock"). Holdings registered the offering and sale of 53,191,489 shares of Common Stock and an additional 7,978,723 shares of Common Stock to be sold to the underwriters pursuant to their over-allotment option at a price of $18.00 per share. On July 2, 2013, Holdings completed the offering of 61,170,212 shares of Common Stock at a price of $18.00 per share, for an aggregate offering price of $1,038 million, net of underwriters' discounts and commissions and paid and unpaid offering expenses of approximately $17 million (including the payment to the Equity Sponsors, as defined below, of a transaction fee of approximately $11 million). As of August 4, 2013, approximately $14 million of offering expenses have been paid. The net proceeds of $1,038 million were contributed by Holdings to HDS as an equity contribution.

                    The net proceeds from the initial public offering were used to (1) redeem all $950 million of HDS's outstanding 10.50% Senior Subordinated Notes due 2021 (the "January 2013 Senior Subordinated Notes"), including the payment of a $29 million redemption premium and $29 million of accrued interest through the redemption date (See Note 4, Debt), and (2) pay related fees and expenses, including the payment to the Equity Sponsors, as defined below, of an aggregate fee to terminate the consulting agreements of approximately $18 million (See Note 3, Related Parties). The remaining net proceeds were used for general corporate purposes.


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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 1—NATURE OF BUSINESS AND BASIS OF PRESENTATION (Continued)

            Basis of Presentation

                    The consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC that permit reduced disclosure for interim periods. The consolidated balance sheet as of February 3, 2013 was derived from audited financial statements, but does not include all necessary disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). Certain amounts in prior-period financial statements have been reclassified to conform to the current period's presentation.

                    In management's opinion, the unaudited financial information for the interim periods presented includes all adjustments necessary for a fair statement of the results of operations, financial position, and cash flows. All adjustments are of a normal recurring nature unless otherwise disclosed. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. For a more complete discussion of the Company's significant accounting policies and other information, you should read this report in conjunction with HD Supply's financial statements for the year ended February 3, 2013, which includes all disclosures required by GAAP, included in the Company's prospectus filed with the SEC pursuant to Rule 424(b) on June 28, 2013, relating to its initial public offering.

            Fiscal Year

                    HD Supply's fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. Fiscal year ending February 2, 2014 ("fiscal 2013") includes 52 weeks and fiscal year ending February 3, 2013 ("fiscal 2012") included 53 weeks. The three months ended August 4, 2013 and July 29, 2012 both included 13 weeks and the six months ended August 4, 2013 and July 29, 2012 both included 26 weeks.

            Principles of Consolidation

                    The consolidated financial statements of HD Supply, Inc. present the results of operations, financial position and cash flows of HD Supply, Inc. and its wholly-owned subsidiaries. All material intercompany balances and transactions are eliminated. Results of operations of businesses acquired are included from their respective dates of acquisition. The results of operations of all discontinued operations have been separately reported as discontinued operations for all periods presented.

            Estimates

                    Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reported amounts of revenues and expenses in preparing these consolidated financial statements in conformity with GAAP. Actual results could differ from these estimates.

            Self-Insurance

                    HD Supply has a high deductible insurance program for most losses related to general liability, product liability, environmental liability, automobile, workers' compensation, and is self-insured for medical claims and certain legal claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Self-insurance losses for claims


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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 1—NATURE OF BUSINESS AND BASIS OF PRESENTATION (Continued)

            filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience. At August 4, 2013 and February 3, 2013, self-insurance reserves totaled approximately $93 million and $94 million, respectively.

            NOTE 2—DISCONTINUED OPERATIONS

                    On March 26, 2012, the Company sold all of the issued and outstanding equity interests in its Industrial Pipes, Valves and Fittings ("IPVF") business to Shale-Inland Holdings, LLC for approximately $477 million. Upon closing, the Company received cash proceeds of approximately $464 million, net of $5 million of transaction costs. As a result of the sale, the Company recorded a $9 million pre-tax gain in the first quarter of fiscal 2012. During the third quarter of fiscal 2012, the Company received cash proceeds of $13 million in accordance with the final working capital settlement, and, as a result, recorded an additional $3 million pre-tax gain.

            Summary Financial Information

                    In accordance with Accounting Standards Codification ("ASC") 205-20, Discontinued Operations, the results of the IPVF operations and the gain on sale of the business are classified as discontinued operations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations and gain on the sale of business, net of tax, as one line item on the Consolidated Statements of Operations and Comprehensive Income (Loss).

                    The following table provides additional detail related to the results of operations of the discontinued operations (amounts in millions):

             
            		 Three Months
            Ended            		 Six Months Ended 
             
            		 August 4,
            2013            		 July 29,
            2012            		 August 4,
            2013            		 July 29,
            2012            		 

            Net sales

            		 $— $— $— $127 

            Gain on sale of discontinued operations

            		  —  —  —  9 

            Income (loss) before provision for income taxes

            		  —  —  —  16 

            Provision for income taxes

            		  —  —  —  — 
                      

            Income (loss) from discontinued operations, net of tax

            		 $— $— $— $16 
                      

            NOTE 3—RELATED PARTIES

                    On August 30, 2007, investment funds associated with Clayton, Dubilier & Rice, Inc., The Carlyle Group and Bain Capital Partners, LLC (collectively the "Equity Sponsors") formed Holdings (previously named HD Supply Investment Holding, Inc.) and entered into a stock purchase agreement with The Home Depot, Inc. ("Home Depot") pursuant to which Home Depot agreed to sell to Holdings, or to a wholly-owned subsidiary of Holdings, certain intellectual property and all the outstanding common stock of HDS and the Canadian subsidiary CND Holdings, Inc. On August 30,


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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 3—RELATED PARTIES (Continued)

            2007, through a series of transactions, Holdings' direct wholly-owned subsidiary, HDS Holding Corporation, acquired direct control of HDS through the merger of its wholly-owned subsidiary, HDS Acquisition Corp., with and into HDS and CND Holdings, Inc. Through these transactions (the "Transactions"), Home Depot was paid cash of $8.2 billion and 12.5% of Holdings' common stock valued at $325 million.

                    After completion of Holdings' initial public offering on July 2, 2013, the Equity Sponsors continue to hold more than 50% of Holdings' common stock and Home Depot holds less than 10% of Holdings' common stock.

            Equity Sponsors

                    Consulting Agreements—In connection with the closing of the Transactions, HD Supply entered into consulting agreements with the Equity Sponsors, pursuant to which the Equity Sponsors provided HD Supply with financial advisory and management consulting services and HD Supply paid the Equity Sponsors a $5 million annual aggregate fee ("Sponsor Management Fee") and an aggregate fee equal to a specified percentage of the transaction value of certain types of transactions that HD Supply completes ("Sponsor Transaction Fee"), plus out-of-pocket expenses. The original term of these agreements ran through August 2017.

                    As specified in the agreements, HD Supply paid the Equity Sponsors a Sponsor Transaction Fee of approximately $11 million as a result of Holdings' initial public offering on July 2, 2013. The Sponsor Transaction Fee was considered an offering expense and, therefore, is presented as a reduction of proceeds from the initial public offering in the consolidated financial statements of Holdings.

                    On July 2, 2013, in connection with the initial public offering, HD Supply paid the Equity Sponsors an aggregate fee of approximately $18 million to terminate the consulting agreements. The termination fee represents the estimated net present value of the Sponsor Management Fee payments over the remaining term of the consulting agreements. This charge is included in Other (income) expense, net in the Consolidated Statements of Operations and Comprehensive Income (Loss).

                    The Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended August 4, 2013 include $1 million and $2 million, respectively, in Sponsor Management Fees and related expenses. The Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended July 29, 2012 include $2 million and $3 million, respectively, in Sponsor Management Fees and related expenses. These fees and expenses are included in Selling, general and administrative expense.

                    Debt—Management of the Company has been informed that, as of August 4, 2013, affiliates of certain of the Equity Sponsors beneficially owned approximately $34 million aggregate principal amount of the Company's outstanding indebtedness. On February 8, 2013, HDS redeemed its outstanding 13.5% Senior Subordinated Notes due 2015 ("2007 Senior Subordinated Notes") at a redemption price equal to 103.375% of the principal amount thereof and paid accrued and unpaid interest thereon through the redemption date. Affiliates of certain of the Equity Sponsors owned approximately $348 million aggregate principal amount, or 39%, of the 2007 Senior Subordinated Notes that were redeemed and had such notes redeemed.


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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 4—DEBT

                    HDS's long-term debt as of August 4, 2013 and February 3, 2013 consisted of the following (dollars in millions):

             
            		 August 4, 2013 February 3, 2013 
             
            		 Outstanding
            Principal            		 Interest
            Rate %(1)            		 Outstanding
            Principal            		 Interest
            Rate %(1)            		 

            Senior ABL Facility due 2017

            		 $500  1.69 $300  1.96 

            Term Loans due 2017, net of unamortized discount of $21 million and $26 million as of August 4, 2013 and February 3, 2013, respectively

            		  969  4.50  969  7.25 

            First Priority Notes due 2019, including unamortized premium of $19 million and $21 million as of August 4, 2013 and February 3, 2013, respectively

            		  1,269  8.125  1,271  8.125 

            Second Priority Notes due 2020

            		  675  11.00  675  11.00 

            October 2012 Senior Unsecured Notes due 2020

            		  1,000  11.50  1,000  11.50 

            February 2013 Senior Unsecured Notes due 2020

            		  1,275  7.50  1,275  7.50 

            January 2013 Senior Subordinated Notes due 2021

            		  —  —  950  10.50 

            2007 Senior Subordinated Notes due 2015

            		  —  —  889  13.50 
                        

            Total long-term debt

            		 $5,688    $7,329    

            Less current installments

            		  (10)    (899)   
                        

            Long-term debt, excluding current installments

            		 $5,678    $6,430    
                        
            (1)
            Represents the stated rate of interest, without including the effect of discounts or premiums.

                    On August 1, 2013, HDS redeemed all $950 million outstanding aggregate principal amount of its January 2013 Senior Subordinated Notes due 2021 at a redemption price equal to 103% of the principal amount thereof and paid accrued and unpaid interest thereon through the redemption date. As a result, in the second quarter of fiscal 2013 and in accordance with ASC 470-50, Debt-Modifications and Extinguishments, HDS incurred a $44 million loss on extinguishment, which included a $29 million premium payment to redeem the January 2013 Senior Subordinated Notes and approximately $15 million to write off the unamortized deferred debt cost.

                    On June 28, 2013, HDS amended its Senior ABL Facility to (i) reduce the applicable margin for borrowings under the Senior ABL Facility by 0.25%; (ii) reduce the commitment fee applicable thereunder by 0.125%; (iii) extend the maturity date of the Senior ABL Facility to June 28, 2018 (or the maturity date under HDS's Term Loan Facility, if earlier); (iv) make certain changes to the borrowing base and (v) reduce the sublimit available for letters of credit under the Senior ABL Facility from $400 million to $250 million. In connection with the amendment, HDS paid approximately $2 million in financing fees which will be amortized into interest expense over the remaining term of the amended facility in accordance with ASC 470-50. A portion of the amendment was considered an extinguishment, resulting in an approximately $3 million loss on extinguishment of debt for the write-off of pro-rata unamortized deferred debt costs.


            Table of Contents


            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 4—DEBT (Continued)

                    On February 15, 2013, HDS amended its Term Loan Facility (as defined below) to lower the borrowing margin by 275 basis points. The Term Loans (as defined below) are subject to an interest rate equal to LIBOR (subject to a floor of 1.25%) plus a borrowing margin of 3.25% or Prime plus a borrowing margin of 2.25% at HDS's election. The amendment also replaced the hard call provision applicable to optional prepayment of Term Loans thereunder with a soft call option. The soft call option provides for a premium equal to 1.0% of the aggregate principal amount of Term Loans being prepaid if, on or prior to August 15, 2013, HDS enters into certain repricing transactions. In connection with the amendment, HDS paid approximately $30 million in financing fees, of which approximately $27 million will be amortized into interest expense over the remaining term of the amended facility in accordance with ASC 470-50. A portion of the amendment was considered an extinguishment, resulting in a $5 million loss on extinguishment of debt, which included approximately $2 million of fees, $2 million to write off the pro-rata portion of unamortized original issue discount, and $1 million to write off the pro-rata portion of unamortized deferred debt cost. The portion of the amendment considered a modification resulted in a charge of $1 million.

                    On February 8, 2013, HDS redeemed its remaining $889 million outstanding aggregate principal amount of 2007 Senior Subordinated Notes at a redemption price equal to 103.375% of the principal amount thereof and paid accrued and unpaid interest thereon through the redemption date. As a result, in the first quarter of fiscal 2013, HDS incurred a $34 million loss on extinguishment of debt, which included a $30 million premium payment to redeem the 2007 Senior Subordinated Notes and approximately $4 million to write off the unamortized deferred debt cost.

            Senior Credit Facilities

                    HDS's Senior Term Facility consists of a senior secured Term Loan Facility (the "Term Loan Facility," the term loans thereunder, the "Term Loans") providing for Term Loans in an aggregate principal amount of $1,000 million. The Term Loan Facility will mature on October 12, 2017 (the "Term Loan Maturity Date"). The Term Loans will amortize in equal quarterly installments in aggregate annual amounts equal to 1% of the original principal amount of the Term Loan Facility with the balance payable on the Term Loan Maturity Date.

                    HDS's Senior Asset Based Lending Facility ("Senior ABL Facility") provides for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $1,500 million (subject to availability under a borrowing base). Extensions of credit under the Senior ABL Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory and eligible accounts receivable, subject to certain reserves and other adjustments. A portion of the Senior ABL Facility is available for letters of credit and swingline loans. As of August 4, 2013, HDS has $888 million of additional available borrowings under the Senior ABL Facility (after giving effect to the borrowing base limitations and approximately $56 million in letters of credit issued and including $51 million of borrowings available on qualifying cash balances).

                    The Senior ABL Facility also permits HDS to add one or more incremental term loan facilities to be included in the Senior ABL Facility or one or more revolving credit facility commitments to be included in the Senior ABL Facility. The Senior ABL Facility will mature on June 28, 2018 (or the maturity date under HDS's Term Loan Facility, if earlier).


            Table of Contents


            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 4—DEBT (Continued)

            Secured Notes

                    HDS's 81/8% Senior Secured First Priority Notes due 2019 (the "First Priority Notes"), bear interest at a rate of 81/8% per annum and will mature on April 15, 2019. Interest is paid semi-annually in arrears on April 15th and October 15th of each year.

                    HDS's 11% Senior Secured Second Priority Notes due 2020 (the "Second Priority Notes") bear interest at a rate of 11% per annum and will mature on April 15, 2020. Interest is paid semi-annually in arrears on April 15th and October 15th of each year.

            Unsecured Notes

                    HDS's 11.5% Senior Notes due 2020 (the "October 2012 Senior Unsecured Notes") bear interest at 11.5% per annum and will mature on July 15, 2020. Interest is paid semi-annually in arrears on April 15th and October 15th of each year.

                    HDS's 7.5% Senior Notes due 2020 (the "February 2013 Senior Unsecured Notes") bear interest at 7.5% per annum and will mature on July 15, 2020. Interest is paid semi-annually in arrears on April 15th and October 15th of each year.

            Debt covenants

                    HDS's outstanding debt agreements contain various restrictive covenants including, but not limited to, limitations on additional indebtedness and dividend payments and stipulations regarding the use of proceeds from asset dispositions. As of August 4, 2013, HDS is in compliance with all such covenants that were in effect on such date.

            First Quarter 2012 Refinancing Transactions

                    On April 12, 2012, HDS consummated the following transactions (the "Refinancing Transactions") in connection with the refinancing of the senior portion of its debt structure:

              •
              the issuance of $950 million of its First Priority Notes;

              •
              the issuance of $675 million of its Second Priority Notes;

              •
              the issuance of approximately $757 million of 14.875% Senior Notes due 2020 (the "April 2012 Senior Notes");

              •
              entry into the Term Loan Facility; and

              •
              entry into the Senior ABL Facility.

                    The proceeds of the First Priority Notes, the Second Priority Notes, the April 2012 Senior Notes, the Term Loan Facility and the Senior ABL Facility were used to (i) repay all amounts outstanding under the 2007 Senior Secured Credit Facility (Senior Secured Credit Facility dated as of August 30, 2007), (ii) repay all amounts outstanding under the 2007 ABL Credit Facility (ABL Credit Facility dated as of August 30, 2007), (iii) repurchase all remaining outstanding 2007 Senior Notes (12.0% Senior Notes dated as of August 30, 2007) and (iv) pay related fees and expenses.


            Table of Contents


            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 4—DEBT (Continued)

                    Affiliates of certain of the Equity Sponsors owned an aggregate principal amount of approximately $484 million of the 2007 Senior Notes which they exchanged in a non-cash transaction for their investment in the April 2012 Senior Notes.

                    As a result of the Refinancing Transactions, HDS incurred $75 million in debt issuance costs and recorded a $220 million loss on extinguishment of debt, which included a $150 million premium payment to redeem the 2007 Senior Notes, $46 million to write off the pro-rata portion of the unamortized deferred debt costs, and $24 million to write off the remaining unamortized asset associated with Home Depot's guarantee of HDS's payment obligations for principal and interest under the Term Loan under the 2007 Senior Secured Credit Facility that was terminated in the Refinancing Transactions.

                    On February 1, 2013, HDS repurchased and cancelled all of its April 2012 Senior Notes at 100% of the aggregate principal balance, including capitalized paid-in kind ("PIK") interest, plus a $422 million make-whole premium, plus $37 million of un-capitalized PIK interest thereon through February 1, 2013.

            NOTE 5—FAIR VALUE MEASUREMENTS

                    The fair value measurements and disclosure principles of GAAP (ASC 820, Fair Value Measurements and Disclosures) define fair value, establish a framework for measuring fair value and provide disclosure requirements about fair value measurements. These principles define a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

            Unaudited Consolidated Financial StatementsLevel 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities;

            Consolidated Statements of OperationsLevel 2—Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and Comprehensive Incomeinputs (other than quoted prices) that are observable for three months and nine months ended October 28, 2012 and October 30, 2011the asset or liability, either directly or indirectly;

            		F-46

            Consolidated Balance Sheets as of October 28, 2012 and January 29, 2012Level 3—Unobservable inputs in which little or no market activity exists.

            		F-47

            Consolidated Statements of Cash Flows for nine months ended October 28, 2012 and October�� 30, 2011

            		F-48

            Notes to Unaudited Consolidated Financial Statements

            		F-49

                    The Company's financial instruments that are not reflected at fair value on the balance sheet were as follows as of August 4, 2013 and February 3, 2013 (amounts in millions):

             
            		 As of August 4, 2013 As of February 3, 2013 
             
            		 Recorded
            Amount(1)            		 Estimated
            Fair Value            		 Recorded
            Amount(1)            		 Estimated
            Fair Value            		 

            Senior ABL Facility

            		 $500 $488 $300 $292 

            Term Loans and Notes

            		  5,190  5,737  7,034  7,573 
                      

            Total

            		 $5,690 $6,225 $7,334 $7,865 
                      
            (1)
            These amounts do not include accrued interest; accrued interest is classified as Other current liabilities in the accompanying Consolidated Balance Sheets. These amounts do not include any related discounts or premiums.

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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 5—FAIR VALUE MEASUREMENTS (Continued)

                    The Company utilized Level 2 inputs, as defined in the fair value hierarchy, to measure the fair value of the long-term debt. Management's fair value estimates were based on quoted prices for recent trades of HDS's long-term debt, recent similar credit facilities initiated by companies with like credit quality in similar industries, quoted prices for similar instruments, and inquiries with certain investment communities.

            NOTE 6—STOCK-BASED COMPENSATION

                    On June 26, 2013, the Board of Directors and shareholders of Holdings approved the HD Supply Holdings, Inc. 2013 Omnibus Incentive Plan (the "Plan"). The Plan provides for stock-based awards to employees, consultants and directors, including stock options, stock purchase rights, restricted stock, restricted stock units, deferred stock units, performance shares, performance units, stock appreciation rights, dividend equivalents and other stock-based awards. The Plan replaces and succeeds the HDS Investment Holding, Inc. Stock Incentive Plan, as amended effective April 11, 2011 (the "Stock Incentive Plan"), and, from and after June 26, 2013, no further awards will be made under the Stock Incentive Plan. On July 2, 2013, Holdings registered 12.5 million shares for issuance pursuant to awards under the Plan and registered 14,818,000 shares for issuance pursuant to outstanding awards under the Stock Incentive Plan as of June 26, 2013.

                    In connection with Holdings' initial public offering, HD Supply granted an aggregate 929,900 options to its senior management. The options have an exercise price of $18.00, vest on the third anniversary of the June 26, 2013 grant date, and have an estimated fair value of $10.25 per option. The Company expects to record approximately $9 million of stock-based compensation for the options over the options' vesting period.

                    On June 26, 2013, HD Supply granted an aggregate 331,431 shares of restricted stock to certain employees. The restricted stock vests in five equal annual installments on each of the first through fifth anniversaries of May 9, 2013. The Company expects to record approximately $6 million of stock-based compensation for the restricted stock over the restricted stock's vesting period.

                    On July 2, 2013, HD Supply's non-employee directors were awarded an aggregate 41,031 restricted stock units ("RSUs") pursuant to HD Supply's Board of Director Compensation Policy that became effective on the consummation of Holdings' initial public offering on July 2, 2013. The RSUs vest on the earlier of (i) the first anniversary of the grant date or (ii) the date of the Company's next annual meeting after the grant date. On a date selected by the Company that is within thirty days following the vesting date, vested RSUs will be settled into an equal number of shares of the Company's common stock, unless the director has elected to defer settlement of the RSU until termination of board service, in which case the award will be settled at service termination. The Company expects to record less than $1 million of stock-based compensation for the RSUs over the RSU's vesting period.

            NOTE 7—INCOME TAXES

                    As of August 4, 2013, the Company's combined federal, state and foreign effective tax rate for continuing operations for fiscal 2013 is a 36.8% provision, reflecting the impact of increasing the U.S. valuation allowance, increasing the deferred tax liability for U.S. goodwill amortization for tax purposes, and the accrual of income taxes for foreign and certain state jurisdictions. The Company's effective tax


            Index

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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 7—INCOME TAXES (Continued)

            rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and the related tax rates in the jurisdictions where it operates, restructuring and other charges, as well as discrete events, such as acquisitions and settlements of audits. The Company is subject to audits and examinations of its tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service (the "IRS"). Management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of provisions for income taxes.

                    With regard to the increase in the valuation allowance and the impact the valuation allowance had on income tax expense, the valuation allowance was directly impacted by the increasing of the deferred tax liability for U.S. goodwill amortization for tax purposes. The deferred tax liability related to the Company's U.S. tax deductible goodwill is considered a liability related to an asset with an indefinite life. Therefore, the deferred tax liability does not amortize and is not available as a source of taxable income to support the realization of deferred tax assets created by other deductible temporary timing differences. The Company does not believe it is "more likely than not" it will realize its U.S. deferred tax assets equal to the deferred liability created by tax deductible goodwill and therefore, the Company was required to record an additional tax expense to increase its deferred tax asset valuation allowance. During the three and six months ended August 4, 2013, the impact of the tax amortization of the indefinite lived intangibles increased income tax expense by $9 million and $46 million, respectively.

                    As of February 3, 2013, the Company's unrecognized tax benefits in accordance with the income taxes principles of U.S. GAAP (ASC 740, Income Taxes) were $193 million. During the six months ended August 4, 2013, the balance for unrecognized tax benefits decreased $1 million as result of state audit settlements for tax positions in a prior period. As of August 4, 2013, the Company's unrecognized tax benefits were $192 million. During the three and six months ended August 4, 2013, the gross accrual for interest related to unrecognized tax benefits increased $3 million and $5 million, respectively, as a result of interest accruals on tax positions in a prior period. The Company's ending net accrual for interest related to unrecognized tax benefits as of February 3, 2013 was $22 million and increased to $24 million as of August 4, 2013.

                    During fiscal year 2010, the Company determined that it did not meet the "more likely than not" standard that substantially all of its net U.S. deferred tax assets would be realized and therefore, the Company established a valuation allowance for its net U.S. deferred tax assets. With regard to the U.S., the Company continues to believe that a full valuation allowance is needed against the majority of its net deferred tax assets. As of August 4, 2013, the Company's U.S. valuation allowance was $1,030 million and the Company expects to continue to add to its gross deferred tax assets for anticipated net operating losses.

                    See Note 9, Commitments and Contingencies, for discussion of the Internal Revenue Service audit of the Company's U.S. federal income tax returns.


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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 8—SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

            Receivables

                    Receivables as of August 4, 2013 and February 3, 2013 consisted of the following (amounts in millions):

             
            		 August 4,
            2013            		 February 3,
            2013            		 

            Trade receivables, net of allowance for doubtful accounts

            		 $1,136 $926 

            Vendor rebate receivables

            		  67  66 

            Other receivables

            		  18  16 
                  

            Total receivables, net

            		 $1,221 $1,008 
                  

            Other Current Liabilities

                    Other current liabilities as of August 4, 2013 and February 3, 2013 consisted of the following (amounts in millions):

             
            		 August 4,
            2013            		 February 3,
            2013            		 

            Accrued interest

            		 $118 $147 

            Accrued non-income taxes

            		  38  34 

            Other

            		  110  110 
                  

            Total other current liabilities

            		 $266 $291 
                  

            Supplemental Cash Flow Information

                    Cash paid for interest in the six months ended August 4, 2013 and July 29, 2012 was $304 million and $351 million, respectively. Additionally, during first quarter 2013, the Company paid $364 million of original issue discounts and paid-in-kind ("PIK") interest related to the extinguishments of $889 million of 2007 Senior Subordinated Notes and a portion of the Term Loans.

                    Cash paid for income taxes, net of refunds, in the six months ended August 4, 2013 and July 29, 2012 was approximately $5 million and $2 million, respectively.

            NOTE 9—COMMITMENTS AND CONTINGENCIES

            Internal Revenue Service

                    HD Supply carried back tax net operating losses ("NOL") from its tax years ended on February 3, 2008 and February 1, 2009 to tax years during which it was a member of Home Depot's U.S. federal consolidated tax group. As a result of those NOL carrybacks, Home Depot received cash refunds from the IRS in the amount of approximately $354 million. Under an agreement (the "Agreement") between HD Supply and Home Depot, Home Depot paid HD Supply the refund proceeds resulting from the NOL carrybacks.


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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 9—COMMITMENTS AND CONTINGENCIES (Continued)

                    In connection with an audit of the Company's U.S. federal income tax returns filed for the tax years ended on February 3, 2008 and February 1, 2009, the IRS has disallowed certain deductions claimed by the Company. In May 2012, the IRS issued a formal Revenue Agent's Report ("RAR") challenging approximately $299 million (excluding interest) of the cash refunds resulting from HD Supply's NOL carrybacks. In January 2013, the IRS issued a revised RAR reducing the challenge to approximately $131 million (excluding interest) of cash refunds from HD Supply's carrybacks. The issuance of the January 2013 revised RAR formally revoked the original May 2012 RAR and reduced the amount of cash refunds the IRS is currently challenging by $168 million. As of August 4, 2013, the Company estimates the interest to which the IRS would be entitled, if successful in all claims, to be approximately $18 million. If the IRS is ultimately successful with respect to the proposed adjustments, pursuant to the terms of the Agreement, the Company would be required to reimburse Home Depot an amount equal to the disallowed refunds plus related interest. If the IRS is successful in defending its positions with respect to the disallowed deductions, certain of those disallowed deductions may be available to the Company in the form of increases in its deferred tax assets by approximately $63 million before any valuation allowance.

                    The Company believes that its positions with respect to the deductions and the corresponding NOL carrybacks are supported by, and consistent with, applicable tax law. In collaboration with Home Depot, HD Supply has challenged the proposed adjustments by filing a formal protest with the Office of Appeals Division within the IRS. During the administrative appeal period and as allowed under statute, the Company intends to vigorously defend its positions rather than pay any amount related to the proposed adjustments. In the event of an unfavorable outcome at the Office of Appeals, the Company will strongly consider litigating the matter in U.S. Tax Court. The unpaid assessment would continue to accrue interest at the statutory rate until resolved. If the Company is ultimately required to pay a significant amount related to the proposed adjustments to Home Depot pursuant to the terms of the Agreement (or to the IRS), the Company's cash flows, future results of operations and financial positions could be affected in a significant and adverse manner.

                    See Note 7, Income Taxes, for further disclosures on the Company's income taxes.

            Legal Matters

                    HD Supply is involved in various legal proceedings arising in the normal course of its business. The Company establishes reserves for litigation and similar matters when those matters present loss contingencies that it determines to be both probable and reasonably estimable in accordance with ASC 450, Contingencies. In the opinion of management, based on current knowledge, all reasonably estimable and probable matters are believed to be adequately reserved for or covered by insurance. For all such other matters, management believes the possibility of losses from such matters are remote or such matters are of such kind or involve such amounts that would not have a material adverse effect on the financial position, results of operations or cash flows of the Company if disposed of unfavorably.

                    The Company has been informed that the Office of the United States Attorney for the Northern District of New York is conducting an investigation related to the activities of certain disadvantaged business enterprises. In May 2011, in connection with that investigation, the government executed a search of an entity from which Waterworks purchased assets shortly before the search was executed. On June 20, 2012, in connection with that same investigation, the government executed search warrants at


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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 9—COMMITMENTS AND CONTINGENCIES (Continued)

            two Waterworks branches. The Company is updated by the government on its investigation periodically and continues to cooperate with the investigation. While the Company cannot predict the outcome, it believes a potential loss on this matter is reasonably possible but due to the current state of the investigation it is not able to estimate a range of potential loss.

            NOTE 10—SEGMENT INFORMATION

                    HD Supply's operating segments are based on management structure and internal reporting. Each segment offers different products and services to the end customer, except for HD Supply Canada, which is organized based on geographic location and Corporate, which provides general corporate overhead support. Both HD Supply Canada and Corporate are included within "Corporate and Other." The Company determines the reportable segments in accordance with the principles of segment reporting within ASC 280, Segment Reporting. For purposes of evaluation under these segment reporting principles, the Chief Operating Decision Maker for HD Supply assesses HD Supply's ongoing performance, based on the periodic review and evaluation of Net sales, Adjusted EBITDA, and certain other measures for each of the operating segments.

                    HD Supply has four reportable segments, each of which is presented below:

              •
              Facilities Maintenance—Facilities Maintenance distributes maintenance, repair and operations ("MRO") products, provides value-add services and fabricates custom products to multifamily, hospitality, healthcare and institutional facilities.

              •
              Waterworks—Waterworks distributes complete lines of water and wastewater transmission products, serving contractors and municipalities in the water and wastewater industries for non-residential and residential uses.

              •
              Power Solutions—Power Solutions distributes electrical transmission and distribution products, power plant MRO supplies and smart-grid products, and arranges materials management and procurement outsourcing for the power generation and distribution industries.

              •
              White Cap—White Cap distributes specialized hardware, tools, engineered materials and safety products to non-residential and residential contractors.

                    In addition to the reportable segments, the Company's consolidated financial results include "Corporate & Other." Corporate & Other is comprised of the following operating segments: Crown Bolt, Creative Touch Interiors ("CTI"), Repair & Remodel and HD Supply Canada. Crown Bolt is a retail distribution operator providing program and packaging solutions, sourcing, distribution, and in-store service, fasteners, builders' hardware, rope and chain and plumbing accessories, primarily serving Home Depot and other hardware stores. CTI offers turnkey supply and installation services for multiple interior finish options, including flooring, cabinets, countertops, and window coverings, along with comprehensive design center services for residential, commercial and senior living projects. Repair & Remodel offers light remodeling and construction supplies, kitchen and bath cabinets, windows, plumbing materials, electrical equipment and other products, primarily to small remodeling contractors and trade professionals. HD Supply Canada is an industrial distributor that primarily focuses on servicing fasteners/industrial supplies and specialty lighting markets which operates across nine provinces. Corporate & Other also includes costs related to our centralized support functions,


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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 10—SEGMENT INFORMATION (Continued)

            which are comprised of finance, information technology, human resources, legal, supply chain and other support services, and removes inter-segment transactions.

                    The following tables present Net sales, Adjusted EBITDA, and other measures for each of the reportable segments, Corporate & Other and total continuing operations for the periods indicated (amounts in millions):

             
            		 Facilities
            Maintenance            		 Waterworks Power
            Solutions            		 White
            Cap            		 Corporate
            & Other            		 Total
            Continuing
            Operations            		 

            Three Months Ended August 4, 2013

            		                   

            Net Sales

            		 $638 $601 $456 $336 $226 $2,257 

            Adjusted EBITDA

            		  125  50  18  24  1  218 

            Depreciation(1) & Software Amortization

            		  11  3  2  4  9  29 

            Other Intangible Amortization

            		  20  1  4  5  3  33 

            Three Months Ended July 29, 2012

            		                   

            Net Sales

            		 $571 $527 $440 $307 $214 $2,059 

            Adjusted EBITDA

            		  109  39  20  18  6  192 

            Depreciation(1) & Software Amortization

            		  10  2  2  3  7  24 

            Other Intangible Amortization

            		  19  24  4  5  8  60 


             
            		 Facilities
            Maintenance            		 Waterworks Power
            Solutions            		 White
            Cap            		 Corporate
            & Other            		 Total
            Continuing
            Operations            		 

            Six Months Ended August 4, 2013

            		                   

            Net Sales

            		 $1,199 $1,124 $918 $646 $438 $4,325 

            Adjusted EBITDA

            		  225  88  36  38  (5) 382 

            Depreciation(1) & Software Amortization

            		  22  5  3  8  17  55 

            Other Intangible Amortization

            		  40  2  9  10  6  67 

            Six Months Ended July 29, 2012

            		                   

            Net Sales

            		 $1,068 $988 $855 $573 $411 $3,895 

            Adjusted EBITDA

            		  194  67  34  26  4  325 

            Depreciation(1) & Software Amortization

            		  19  4  3  6  15  47 

            Other Intangible Amortization

            		  38  48  9  10  15  120 
            (1)
            Depreciation includes amounts recorded within Cost of sales in the Consolidated Statements of Operations and Comprehensive Income (Loss).

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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 10—SEGMENT INFORMATION (Continued)

            Reconciliation to Consolidated Financial Statements

             
            		 Three Months Ended Six Months Ended 
             
            		 August 4,
            2013            		 July 29,
            2012            		 August 4,
            2013            		 July 29,
            2012            		 

            Total Adjusted EBITDA

            		 $218 $192 $382 $325 

            Depreciation and amortization

            		  62  84  122  167 

            Stock-based compensation

            		  5  5  8  10 

            Management fees and expenses

            		  1  2  2  3 

            Other

            		  —  (2) —  (1)
                      

            Operating income (loss)

            		  150  103  250  146 

            Interest expense

            		  144  158  291  324 

            Loss on extinguishment & modification of debt

            		  46  —  87  220 

            Other (income) expense, net

            		  20  —  20  — 
                      

            Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

            		  (60) (55) (148) (398)

            Provision (benefit) for income taxes

            		  12  1  55  34 
                      

            Income (loss) from continuing operations

            		 $(72)$(56)$(203)$(432)
                      

            NOTE 11—SUBSIDIARY GUARANTORS

                    HD Supply, Inc. (the "Debt Issuer" or "HDS") has issued First Priority Notes, Second Priority Notes, October 2012 Senior Notes, and February 2013 Senior Unsecured 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 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 and a non-operating subsidiary in the United States that previously held an investment of HDS's 2007 Senior Subordinated Notes, which was eliminated in consolidation. During fiscal 2012, the investment in the 2007 Senior Subordinated Notes was contributed to the Debt Issuer in a non-cash transaction. The Debt Issuer retired this portion of the 2007 Senior Subordinated Notes. These transactions had no impact on the consolidated results of operations or financial position.

                    In connection with the Notes, HDS 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, 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, 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 Notes, HD Supply, Inc., for the Guarantor Subsidiaries and for the Non-guarantor Subsidiaries and total consolidated HD Supply, Inc. and subsidiaries (amounts in millions):


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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 11—SUBSIDIARY GUARANTORS (Continued)

            CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

             
            		 Three Months Ended August 4, 2013 
             
            		 Debt
            Issuer            		 Guarantor
            Subsidiaries            		 Non-Guarantor
            Subsidiaries            		 Eliminations Total HDS 

            Net Sales

            		 $— $2,136 $122 $(1)$2,257 

            Cost of sales

            		  —  1,504  92  —  1,596 
                        

            Gross Profit

            		  —  632  30  (1) 661 

            Operating expenses:

            		                

            Selling, general and administrative

            		  22  407  22  (1) 450 

            Depreciation and amortization

            		  4  56  1  —  61 
                        

            Total operating expenses

            		  26  463  23  (1) 511 

            Operating Income (Loss)

            		  (26) 169  7  —  150 

            Interest expense

            		  145  73  1  (75) 144 

            Interest (income)

            		  (75) —  —  75  — 

            Net (earnings) loss of equity affiliates

            		  (127) —  —  127  — 

            Loss on extinguishment & modification of debt

            		  46  —  —  —  46 

            Other (income) expense, net

            		  20  —  —  —  20 
                        

            Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes

            		  (35) 96  6  (127) (60)

            Provision (benefit) for income taxes

            		  37  (25) —  —  12 
                        

            Income (Loss) from Continuing Operations

            		  (72) 121  6  (127) (72)

            Income (loss) from discontinued operations, net of tax

            		  —  —  —  —  — 
                        

            Net Income (Loss)

            		  (72) 121  6  (127) (72)

            Other comprehensive income (loss)—foreign currency translation adjustment

            		  (3) —  (3) 3  (3)
                        

            Total Comprehensive Income (Loss)          

            		 $(75)$121 $3 $(124)$(75)
                        

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            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 11—SUBSIDIARY GUARANTORS (Continued)


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

             
            		 Three Months Ended July 29, 2012 
             
            		 Debt
            Issuer            		 Guarantor
            Subsidiaries            		 Non-Guarantor
            Subsidiaries            		 Eliminations Total HDS 

            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)
                        

            Table of Contents


            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 11—SUBSIDIARY GUARANTORS (Continued)


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

             
            		 Six Months Ended August 4, 2013 
             
            		 Debt
            Issuer            		 Guarantor
            Subsidiaries            		 Non-Guarantor
            Subsidiaries            		 Eliminations Total HDS 

            Net Sales

            		 $— $4,102 $224 $(1)$4,325 

            Cost of sales

            		  —  2,900  166  —  3,066 
                        

            Gross Profit

            		  —  1,202  58  (1) 1,259 

            Operating expenses:

            		                

            Selling, general and administrative

            		  41  805  44  (1) 889 

            Depreciation and amortization

            		  8  111  1  —  120 
                        

            Total operating expenses

            		  49  916  45  (1) 1,009 

            Operating Income (Loss)

            		  (49) 286  13  —  250 

            Interest expense

            		  292  148  1  (150) 291 

            Interest (income)

            		  (149) (1) —  150  — 

            Net (earnings) loss of equity affiliates

            		  (196) —  —  196  — 

            Loss on extinguishment & modification of debt

            		  87  —  —  —  87 

            Other (income) expense, net

            		  20  —  —  —  20 
                        

            Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes

            		  (103) 139  12  (196) (148)

            Provision (benefit) for income taxes

            		  100  (46) 1  —  55 
                        

            Income (Loss) from Continuing Operations

            		  (203) 185  11  (196) (203)

            Income (loss) from discontinued operations, net of tax

            		  —  —  —  —  — 
                        

            Net Income (Loss)

            		  (203) 185  11  (196) (203)

            Other comprehensive income (loss)—foreign currency translation adjustment

            		  (4) —  (4) 4  (4)
                        

            Total Comprehensive Income (Loss)          

            		 $(207)$185 $7 $(192)$(207)
                        

            Table of Contents


            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 11—SUBSIDIARY GUARANTORS (Continued)


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

             
            		 Six Months Ended July 29, 2012 
             
            		 Debt
            Issuer            		 Guarantor
            Subsidiaries            		 Non-Guarantor
            Subsidiaries            		 Eliminations Total HDS 

            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  — 

            Loss on extinguishment & modification of debt

            		  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)
                        

            Table of Contents


            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 11—SUBSIDIARY GUARANTORS (Continued)

            CONDENSED CONSOLIDATING BALANCE SHEETS

             
            		 As of August 4, 2013 
             
            		 Debt
            Issuer            		 Guarantor
            Subsidiaries            		 Non-
            Guarantor
            Subsidiaries            		 Eliminations Total HDS 

            ASSETS

            		                

            Current assets:

            		                

            Cash and cash equivalents

            		 $59 $18 $32 $— $109 

            Receivables, net

            		  4  1,138  79  —  1,221 

            Inventories

            		  —  1,047  61  —  1,108 

            Deferred tax asset

            		  —  48  1  (46) 3 

            Intercompany receivable

            		  —  1  —  (1) — 

            Other current assets

            		  10  33  4  —  47 
                        

            Total current assets

            		  73  2,285  177  (47) 2,488 
                        

            Property and equipment, net

            		  64  332  5  —  401 

            Goodwill

            		  —  3,133  6  —  3,139 

            Intangible assets, net

            		  —  402  4  —  406 

            Deferred tax asset

            		  40  —  6  (40) 6 

            Investment in subsidiaries

            		  2,955  —  —  (2,955) — 

            Intercompany notes receivable

            		  2,774  558  —  (3,332) — 

            Other assets

            		  141  5  1  —  147 
                        

            Total assets

            		 $6,047 $6,715 $199 $(6,374)$6,587 
                        

            LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

            		                

            Current liabilities:

            		                

            Accounts payable

            		 $13 $755 $47 $— $815 

            Accrued compensation and benefits

            		  30  82  4  —  116 

            Current installments of long-term debt

            		  10  —  —  —  10 

            Deferred tax liabilities

            		  46  —  —  (46) — 

            Intercompany payable

            		  —  —  1  (1) — 

            Other current liabilities

            		  151  103  12  —  266 
                        

            Total current liabilities

            		  250  940  64  (47) 1,207 
                        

            Long-term debt, excluding current installments

            		  5,678  —  —  —  5,678 

            Deferred tax liabilities

            		  —  151  —  (40) 111 

            Intercompany notes payable

            		  558  2,774  —  (3,332) — 

            Other liabilities

            		  314  24  6  —  344 
                        

            Total liabilities

            		  6,800  3,889  70  (3,419) 7,340 
                        

            Stockholder's equity (deficit)

            		  (753) 2,826  129  (2,955) (753)
                        

            Total liabilities and stockholder's equity (deficit)

            		 $6,047 $6,715 $199 $(6,374)$6,587 
                        

            Table of Contents


            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 11—SUBSIDIARY GUARANTORS (Continued)


            CONDENSED CONSOLIDATING BALANCE SHEETS (Continued)

             
            		 As of February 3, 2013 
             
            		 Debt
            Issuer            		 Guarantor
            Subsidiaries            		 Non-
            Guarantor
            Subsidiaries            		 Eliminations Total HDS 

            ASSETS

            		                

            Current assets:

            		                

            Cash and cash equivalents

            		 $91 $15 $35 $— $141 

            Cash equivalents restricted for debt redemption

            		  936  —  —  —  936 

            Receivables, net

            		  4  937  67  —  1,008 

            Inventories

            		  —  928  59  —  987 

            Deferred tax asset

            		  —  48  1  (7) 42 

            Intercompany receivable

            		  —  1  —  (1) — 

            Other current assets

            		  9  37  3  —  49 
                        

            Total current assets

            		  1,040  1,966  165  (8) 3,163 
                        

            Property and equipment, net

            		  66  323  6  —  395 

            Goodwill

            		  —  3,132  6  —  3,138 

            Intangible assets, net

            		  —  469  4  —  473 

            Deferred tax asset

            		  48  —  6  (48) 6 

            Investment in subsidiaries

            		  2,854  —  —  (2,854) — 

            Intercompany notes receivable

            		  2,774  634  —  (3,408) — 

            Other assets

            		  153  6  —  —  159 
                        

            Total assets

            		 $6,935 $6,530 $187 $(6,318)$7,334 
                        

            LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

            		                

            Current liabilities:

            		                

            Accounts payable

            		 $14 $638 $41 $— $693 

            Accrued compensation and benefits

            		  46  108  6  —  160 

            Current installments of long-term debt

            		  899  —  —  —  899 

            Deferred tax liabilities

            		  7  —  —  (7) — 

            Intercompany payable

            		  —  —  1  (1) — 

            Other current liabilities

            		  183  98  10  —  291 
                        

            Total current liabilities

            		  1,149  844  58  (8) 2,043 
                        

            Long-term debt, excluding current installments

            		  6,430  —  —  —  6,430 

            Deferred tax liabilities

            		  —  152  —  (48) 104 

            Intercompany notes payable

            		  634  2,774  —  (3,408) — 

            Other liabilities

            		  313  28  7  —  348 
                        

            Total liabilities

            		  8,526  3,798  65  (3,464) 8,925 
                        

            Stockholder's equity (deficit)

            		  (1,591) 2,732  122  (2,854) (1,591)
                        

            Total liabilities and stockholder's equity (deficit)

            		 $6,935 $6,530 $187 $(6,318)$7,334 
                        

            Table of Contents


            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 11—SUBSIDIARY GUARANTORS (Continued)

            CONDENSED CONSOLIDATING CASH FLOW STATEMENTS

             
            		 Six Months Ended August 4, 2013 
             
            		 Debt
            Issuer            		 Guarantor
            Subsidiaries            		 Non-Guarantor
            Subsidiaries            		 Eliminations Total HDS 

            Net cash flows from operating activities

            		 $(550)$(26)$(1)$— $(577)
                        

            Cash flows from investing activities

            		                

            Capital expenditures

            		  (11) (52) (1) —  (64)

            Proceeds from sale of property and equipment

            		  —  5  —  —  5 

            Settlement of acquisition of a business

            		  —  2  —  —  2 

            Proceeds from sale of investments

            		  936  —  —  —  936 

            (Investments in) return of capital of equity affiliates

            		  2  —  —  (2) — 

            Proceeds from (payments of) intercompany notes

            		  —  76  —  (76) — 
                        

            Net cash flows from investing activities

            		  927  31  (1) (78) 879 
                        

            Cash flows from financing activities

            		                

            Equity contribution (return of capital)

            		  1,038  (2) —  2  1,038 

            Borrowings (repayments) of intercompany notes          

            		  (76) —  —  76  — 

            Borrowings of long-term debt

            		  79  —  —  —  79 

            Repayments of long-term debt

            		  (1,619) —  —  —  (1,619)

            Borrowings on long-term revolver

            		  520  —  —  —  520 

            Repayments of long-term revolver

            		  (320) —  —  —  (320)

            Debt issuance and modification fees

            		  (34) —  —  —  (34)

            Other financing activities

            		  3  —  —  —  3 
                        

            Net cash flows from financing activities

            		  (409) (2) —  78  (333)
                        

            Effect of exchange rates on cash

            		  —  —  (1) —  (1)
                        

            Net increase (decrease) in cash & cash equivalents

            		 $(32)$3 $(3)$— $(32)

            Cash and cash equivalents at beginning of period

            		  91  15  35  —  141 
                        

            Cash and cash equivalents at end of period

            		 $59 $18 $32 $— $109 
                        

            Table of Contents


            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 11—SUBSIDIARY GUARANTORS (Continued)


            CONDENSED CONSOLIDATING CASH FLOW STATEMENTS (Continued)

             
            		 Six Months Ended July 29, 2012 
             
            		 Debt
            Issuer            		 Guarantor
            Subsidiaries            		 Non-Guarantor
            Subsidiaries            		 Eliminations Total HDS 

            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 in) return of capital of 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 
                        

            NOTE 12—RECENT ACCOUNTING PRONOUNCEMENTS

                    Comprehensive income: reclassifications—In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), to supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU 2011-05, which were deferred indefinitely under ASU No. 2011-12, "Deferral of the


            Table of Contents


            HD SUPPLY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            (Unaudited)

            NOTE 12—RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

            Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05" ("ASU 2011-12"), issued in December 2011. The amendments in ASU 2013-02 require an entity to provide additional information about significant reclassifications out of accumulated other comprehensive income by the respective line items of net income. The Company adopted the provisions of ASU 2013-02 on February 4, 2013. The adoption of ASU 2013-02 did not have an impact on the Company's financial position or results of operations.

                    Release of cumulative translation adjustment—In March 2013, the FASB issued ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity" ("ASU 2013-05"), which resolves diversity in practice regarding the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-05 will not have a material impact on the Company's financial position or results of operations.

                    Presentation of an unrecognized tax benefit—In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11"), which resolves diversity in practice on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except in certain situations, as defined in ASU 2013-11. The amendments in ASU 2013-11 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2013-11.


            Table of Contents


            Report of Independent Registered Public Accounting Firm

            TotheTo the Board of Directors and Stockholder of HD Supply, Inc.:

            In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations stockholder’s equity (deficit) and comprehensive income (loss), stockholder's equity (deficit) and cash flows present fairly, in all material respects, the financial position of HD Supply, Inc. and its subsidiariesatsubsidiaries at February 3, 2013 and January 29, 2012, and January 30, 2011, and the results of theirits operations and theirits cash flows for each of the three years in the period ended January 29, 2012February 3, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 21(b) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

            /s/ PricewaterhouseCoopers LLP

            PricewaterhouseCoopers LLP


            Atlanta, Georgia
            April 16, 2013


            March 23, 2012, except with respect to our opinion on the consolidated financial statements insofar as it relates to the effectsTable of discontinued operations discussed in Note 18, as to which the date is July 20, 2012

            Contents

            Index to Financial Statements


            HD SUPPLY, INC.



            CONSOLIDATED STATEMENTS OF OPERATIONS

            AND

            COMPREHENSIVE INCOME (LOSS)

            Amounts in millions

             
            		 Fiscal Year Ended 
             
            		 February 3,
            2013            		 January 29,
            2012            		 January 30,
            2011            		 

            Net Sales

            		 $8,035 $7,028 $6,449 

            Cost of sales

            		  5,715  5,014  4,608 
                    

            Gross Profit

            		  2,320  2,014  1,841 

            Operating expenses:

            		          

            Selling, general and administrative

            		  1,661  1,532  1,455 

            Depreciation and amortization

            		  336  327  341 

            Restructuring

            		  —  —  8 

            Goodwill and other intangible asset impairment

            		  152  —  — 
                    

            Total operating expenses

            		  2,149  1,859  1,804 
                    

            Operating Income (Loss)

            		  171  155  37 

            Interest expense

            		  658  639  623 

            Loss on extinguishment and modification of debt

            		  709  —  5 

            Other (income) expense, net

            		  —  —  (6)
                    

            Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

            		  (1,196) (484) (585)

            Provision (benefit) for income taxes

            		  3  79  28 
                    

            Income (Loss) from Continuing Operations

            		  (1,199) (563) (613)

            Income (loss) from discontinued operations, net of tax

            		  20  20  (6)
                    

            Net Income (Loss)

            		 $(1,179)$(543)$(619)
                    

            Other comprehensive income (loss):

            		          

            Foreign currency translation adjustment

            		  —  (1) 9 

            Unrealized gains on derivatives

            		  —  —  1 
                    

            Total Comprehensive Income (Loss)

            		 $(1,179)$(544)$(609)
                    

               Fiscal Year Ended 
               January 29,
            2012            		  January 30,
            2011            		  January 31,
            2010            		 

            Net Sales

            		  $7,028   $6,449   $6,313  

            Cost of sales

            		   5,014    4,608    4,545  
              

             

             

            		  

             

             

            		  

             

             

            		 

            Gross Profit

            		   2,014    1,841    1,768  

            Operating expenses:

            		    

            Selling, general and administrative

            		   1,532    1,455    1,453  

            Depreciation and amortization

            		   327    341    359  

            Restructuring

            		   —      8    21  

            Goodwill impairment

            		   —      —      219  
              

             

             

            		  

             

             

            		  

             

             

            		 

            Total operating expenses

            		   1,859    1,804    2,052  
              

             

             

            		  

             

             

            		  

             

             

            		 

            Operating Income (Loss)

            		   155    37    (284) 

            Interest expense

            		   639    623    602  

            Other (income) expense, net

            		   —      (1)   (208) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

            		   (484)   (585)   (678) 

            Provision (benefit) for income taxes

            		   79    28    (198) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            Income (Loss) from Continuing Operations

            		   (563)   (613)   (480) 

            Loss from discontinued operations, net of tax

            		   20    (6)   (34) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            Net Income (Loss)

            		  $(543)  $(619)  $(514) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            The accompanying notes are an integral part of these consolidated financial statements.

            Index to Financial Statements

            HD SUPPLY, INC.

            Table of Contents


            HD SUPPLY,��INC.

            CONSOLIDATED BALANCE SHEETS



            Amounts in millions, except share data

             
            		 February 3,
            2013            		 January 29,
            2012            		 

            ASSETS

            		       

            Current assets:

            		       

            Cash and cash equivalents

            		 $141 $111 

            Cash equivalents restricted for debt redemption

            		  936  — 

            Receivables, less allowance for doubtful accounts of $23 and $32

            		  1,008  1,002 

            Inventories

            		  987  1,108 

            Deferred tax asset

            		  42  58 

            Other current assets

            		  49  47 
                  

            Total current assets

            		  3,163  2,326 
                  

            Property and equipment, net

            		  395  398 

            Goodwill

            		  3,138  3,151 

            Intangible assets, net

            		  473  735 

            Other assets

            		  165  128 
                  

            Total assets

            		 $7,334 $6,738 
                  

            LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

            		       

            Current liabilities:

            		       

            Accounts payable

            		 $693 $714 

            Accrued compensation and benefits

            		  160  140 

            Current installments of long-term debt

            		  899  82 

            Other current liabilities

            		  291  378 
                  

            Total current liabilities

            		  2,043  1,314 
                  

            Long-term debt, excluding current installments

            		  6,430  5,380 

            Deferred tax liabilities

            		  104  111 

            Other liabilities

            		  348  361 
                  

            Total liabilities

            		  8,925  7,166 
                  

            Stockholder's equity (deficit):

            		       

            Common stock, par value $0.01; authorized 1,000 shares; issued and outstanding 1,000 shares at February 3, 2013 and January 29, 2012

            		  —  — 

            Paid-in capital

            		  2,696  2,680 

            Accumulated deficit

            		  (4,285) (3,106)

            Accumulated other comprehensive loss

            		  (2) (2)
                  

            Total stockholder's equity (deficit)

            		  (1,591) (428)
                  

            Total liabilities and stockholder's equity (deficit)

            		 $7,334 $6,738 
                  

               January 29,
            2012            		  January 30,
            2011            		 

            ASSETS

            		   

            Current assets:

            		   

            Cash and cash equivalents

            		  $111   $292  

            Receivables, less allowance for doubtful accounts of $32 and $36

            		   1,002    907  

            Inventories

            		   1,108    1,035  

            Deferred tax asset

            		   58    102  

            Other current assets

            		   47    45  
              

             

             

            		  

             

             

            		 

            Total current assets

            		   2,326    2,381  
              

             

             

            		  

             

             

            		 

            Property and equipment, net

            		   398    390  

            Goodwill

            		   3,151    3,150  

            Intangible assets, net

            		   735    992  

            Other assets

            		   128    176  
              

             

             

            		  

             

             

            		 

            Total assets

            		  $6,738   $7,089  
              

             

             

            		  

             

             

            		 

            LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)

            		   

            Current liabilities:

            		   

            Accounts payable

            		  $714   $805  

            Accrued compensation and benefits

            		   140    118  

            Current installments of long-term debt

            		   82    10  

            Other current liabilities

            		   378    272  
              

             

             

            		  

             

             

            		 

            Total current liabilities

            		   1,314    1,205  
              

             

             

            		  

             

             

            		 

            Long term debt, excluding current installments

            		   5,380    5,239  

            Deferred tax liabilities

            		   111    101  

            Other liabilities

            		   361    448  
              

             

             

            		  

             

             

            		 

            Total liabilities

            		   7,166    6,993  
              

             

             

            		  

             

             

            		 

            Stockholder’s equity (deficit):

            		   

            Common stock, par value $0.01; authorized 1,000 shares; issued 1,000 shares at January 29, 2012 and January 30, 2011

            		   —      —    

            Paid-in capital

            		   2,680    2,660  

            Accumulated deficit

            		   (3,106)   (2,563) 

            Accumulated other comprehensive loss

            		   (2)   (1) 
              

             

             

            		  

             

             

            		 

            Total stockholder’s equity (deficit)

            		   (428)   96  
              

             

             

            		  

             

             

            		 

            Total liabilities and stockholder’s equity (deficit)

            		  $6,738   $7,089  
              

             

             

            		  

             

             

            		 

            The accompanying notes are an integral part of these consolidated financial statements.


            Index to Financial StatementsTable of Contents


            HD SUPPLY, INC.



            CONSOLIDATED STATEMENTS OF STOCKHOLDER’SSTOCKHOLDER'S EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)



            Amounts in millions

             
            		 Common
            Stock            		 Paid-in
            Capital            		 Accumulated
            Deficit            		 Accumulated
            Other
            Comprehensive
            Income
            (Loss)            		 Total
            Equity            		 

            Balance at January 31, 2010

            		 $— $2,643 $(1,944)$(11)$688 
                        

            Equity contribution

            		     1        1 

            Net loss

            		        (619)    (619)

            Other comprehensive income (loss):

            		                

            Foreign currency translation adjustment

            		           9  9 

            Unrealized gains on derivatives, net of tax of $(1)

            		           1  1 

            Stock-based compensation

            		     17        17 

            Other

            		     (1)       (1)
                        

            Balance at January 30, 2011

            		 $— $2,660 $(2,563)$(1)$96 
                        

            Net loss

            		        (543)    (543)

            Other comprehensive income (loss):

            		                

            Foreign currency translation adjustment

            		           (1) (1)

            Stock-based compensation

            		     20        20 
                        

            Balance at January 29, 2012

            		 $— $2,680 $(3,106)$(2)$(428)
                        

            Net loss

            		        (1,179)    (1,179)

            Other comprehensive income (loss):

            		                

            Foreign currency translation adjustment

            		           —  — 

            Stock-based compensation

            		     16        16 
                        

            Balance at February 3, 2013

            		 $— $2,696 $(4,285)$(2)$(1,591)
                        

               Common
            Stock            		   Paid-in
            Capital            		  Accumulated
            Deficit            		  Accumulated
            Other
            Comprehensive
            Income (Loss)            		  Total Equity 

            Balance at February 1, 2009

            		  $—      $2,625   $(1,418)  $(32)  $1,175  

            Net loss

            		      (514)    (514) 

            Other comprehensive income (loss):

            		       

            Unrealized gains on derivatives, net of tax of $(1)

            		       2    2  

            Foreign currency translation adjustment

            		       19    19  
                   

             

             

            		 

            Total comprehensive income (loss)

            		        (493) 

            Stock-based compensation

            		     18      18  

            Change in fiscal year end of subsidiary

            		      (13)    (13) 

            Other

            		      1     1  
              

             

             

            		   

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Balance at January 31, 2010

            		  $—      $2,643   $(1,944)  $(11)  $688  
              

             

             

            		   

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Equity contribution

            		     1      1  

            Net loss

            		      (619)    (619) 

            Other comprehensive income (loss):

            		       

            Unrealized gains on derivatives, net of tax of $(1)

            		       1    1  

            Foreign currency translation adjustment

            		       9    9  
                   

             

             

            		 

            Total comprehensive income (loss)

            		        (609) 

            Stock-based compensation

            		     17      17  

            Other

            		     (1)     (1) 
              

             

             

            		   

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Balance at January 30, 2011

            		  $—      $2,660   $(2,563)  $(1)  $96  
              

             

             

            		   

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Net loss

            		      (543)    (543) 

            Other comprehensive income (loss):

            		       

            Foreign currency translation adjustment

            		       (1)   (1) 
                   

             

             

            		 

            Total comprehensive income (loss)

            		        (544) 

            Stock-based compensation

            		     20      20  
              

             

             

            		   

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Balance at January 29, 2012

            		  $—      $2,680   $(3,106)  $(2)  $(428) 
              

             

             

            		   

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            The accompanying notes are an integral part of these consolidated financial statements.


            Index to Financial StatementsTable of Contents


            HD SUPPLY, INC.



            CONSOLIDATED STATEMENTS OF CASH FLOWS



            Amounts in millions

             
            		 Fiscal Year Ended 
             
            		 February 3,
            2013            		 January 29,
            2012            		 January 30,
            2011            		 

            CASH FLOWS FROM OPERATING ACTIVITIES:

            		          

            Net income (loss)

            		 $(1,179)$(543)$(619)

            Reconciliation of net income (loss) to net cash provided by (used in) operating activities:

            		          

            Depreciation and amortization

            		  342  350  369 

            Provision for uncollectibles

            		  4  13  12 

            Non-cash interest expense

            		  123  183  259 

            Payment of interest and discounts upon extinguishment of PIK notes

            		  (502) —  — 

            Loss on extinguishment of debt

            		  709  —  2 

            Stock-based compensation expense

            		  16  20  17 

            Deferred income taxes

            		  (2) 76  20 

            Goodwill & other intangible asset impairment

            		  152  —  — 

            Gain on sale of businesses

            		  (12) (9) — 

            Other

            		  (1) 6  (3)

            Changes in assets and liabilities, net of the effects of acquisitions & dispositions:

            		          

            (Increase) decrease in receivables

            		  (102) (170) (61)

            (Increase) decrease in inventories

            		  (177) (149) 2 

            (Increase) decrease in other current assets

            		  (11) (3) 231 

            (Increase) decrease in other assets

            		  1  —  1 

            Increase (decrease) in accounts payable and accrued
            liabilities                

            		  (46) 58  312 

            Increase (decrease) in other long-term liabilities

            		  4  3  9 
                    

            Net cash provided by (used in) operating activities

            		  (681) (165) 551 
                    

            CASH FLOWS FROM INVESTING ACTIVITIES:

            		          

            Capital expenditures

            		  (115) (115) (49)

            Proceeds from sales of property and equipment

            		  17  4  4 

            Payments for businesses acquired, net of cash acquired

            		  (248) (21) — 

            Proceeds from sales of businesses

            		  481  128  — 

            Purchase of investments

            		  (1,921) (23) — 

            Proceeds from sale of investments

            		  985  21  — 

            Other investing activities

            		  1  —  — 
                    

            Net cash provided by (used in) investing activities

            		  (800) (6) (45)
                    

            CASH FLOWS FROM FINANCING ACTIVITIES:

            		          

            Equity contribution

            		  —  —  1 

            Borrowings of long-term debt

            		  6,365  —  — 

            Repayments of long-term debt

            		  (5,024) (10) (40)

            Borrowings on long-term revolver debt

            		  1,301  1,053  178 

            Repayments on long-term revolver debt

            		  (1,001) (1,053) (860)

            Debt issuance and modification fees

            		  (132) —  (34)

            Other financing activities

            		  2  —  — 
                    

            Net cash provided by (used in) financing activities

            		  1,511  (10) (755)
                    

            Effect of exchange rates on cash and cash equivalents

            		  —  —  2 
                    

            Increase (decrease) in cash and cash equivalents

            		  30  (181) (247)

            Cash and cash equivalents at beginning of period

            		  111  292  539 
                    

            Cash and cash equivalents at end of period

            		 $141 $111 $292 
                    

               Fiscal Year Ended 
               January 29,
            2012            		  January 30,
            2011            		  January 31,
            2010            		 

            CASH FLOWS FROM OPERATING ACTIVITIES:

            		    

            Net income (loss)

            		  $(543)  $(619)  $(514) 

            Reconciliation of net income (loss) to net cash provided by (used in) operating activities:

            		    

            Depreciation and amortization

            		   350    369    392  

            Provision for uncollectibles

            		   13    12    23  

            Non-cash interest expense

            		   183    259    239  

            Stock-based compensation expense

            		   20    17    18  

            Deferred income taxes

            		   76    20    (221) 

            Unrealized derivative (gain) loss

            		   (1)   (6)   (11) 

            Loss (gain) on extinguishment of debt

            		   —      2    (200) 

            Goodwill and other asset impairments

            		   8    1    256  

            Gain on sale of businesses

            		   (9)   —      —    

            Other

            		   (1)   2    2  

            Changes in assets and liabilities, net of the effects of acquisitions:

            		    

            (Increase) decrease in receivables

            		   (170)   (61)   221  

            (Increase) decrease in inventories

            		   (149)   2    186  

            (Increase) decrease in other current assets

            		   (3)   231    147  

            (Increase) decrease in other assets

            		   —      1    1  

            Increase (decrease) in accounts payable and accrued liabilities

            		   58    312    (481) 

            Increase (decrease) in other long term liabilities

            		   3    9    11  
              

             

             

            		  

             

             

            		  

             

             

            		 

            Net cash provided by (used in) operating activities

            		   (165)   551    69  
              

             

             

            		  

             

             

            		  

             

             

            		 

            CASH FLOWS FROM INVESTING ACTIVITIES:

            		    

            Capital expenditures

            		   (115)   (49)   (58) 

            Proceeds from sales of property and equipment

            		   4    4    8  

            Refunds (payments) for businesses acquired, net of cash acquired

            		   (21)   —      6  

            Proceeds from sales of businesses

            		   128    —      3  

            Purchase of investments

            		   (23)   —      —    

            Proceeds from sale of investments

            		   21    —      —    
              

             

             

            		  

             

             

            		  

             

             

            		 

            Net cash provided by (used in) investing activities

            		   (6)   (45)   (41) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            CASH FLOWS FROM FINANCING ACTIVITIES:

            		    

            Equity contribution

            		   —      1    —    

            Repayments of long-term debt

            		   (10)   (40)   (72) 

            Borrowings on long-term revolver debt

            		   1,053    178    5  

            Repayments on long-term revolver debt

            		   (1,053)   (860)   (196) 

            Debt modification and issuance costs

            		   —      (34)   —    
              

             

             

            		  

             

             

            		  

             

             

            		 

            Net cash provided by (used in) financing activities

            		   (10)   (755)   (263) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            Effect of exchange rates on cash and cash equivalents

            		   —      2    3  
              

             

             

            		  

             

             

            		  

             

             

            		 

            Increase (decrease) in cash and cash equivalents

            		   (181)   (247)   (232) 

            Cash and cash equivalents at beginning of period

            		   292    539    771  
              

             

             

            		  

             

             

            		  

             

             

            		 

            Cash and cash equivalents at end of period

            		  $111   $292   $539  
              

             

             

            		  

             

             

            		  

             

             

            		 

            The accompanying notes are an integral part of these consolidated financial statements.


            Index to Financial StatementsTable of Contents


            HD SUPPLY, INC.



            NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            Nature of Business

            HD Supply, Inc. (the “Company”"Company" or “HD Supply”"HD Supply"), a wholly-owned subsidiary of HDS Investment Holding,HD Supply Holdings, Inc. (“Holding”), is one of the largest industrial distribution companies in North America. With a diverse portfolio of industry-leading businesses, the Company provides a broad range of products and services to approximately 440,000more than 500,000 professional customers in the infrastructure and energy, maintenance, repair and improvement, and specialty construction markets.

            The Company provides an expansive offering of approximately one million stock-keeping units (“SKUs”("SKUs") of quality, name-brand and propriety-brand products at competitive prices. Through 640approximately 635 locations across 4546 states and 9 Canadian provinces, HD Supply provides localized, customer-driven services including jobsite delivery, will call or direct-ship options, diversified logistics and innovative solutions that contribute to its customers’customers' success.

            HD Supply is managed primarily on a product line basis and reports results of operations in four reportable segments. The reportable segments are Facilities Maintenance, Waterworks, Power Solutions, (formerly Utilities/Electrical), and White Cap. Other operating segments include Crown Bolt, Repair & Remodel, Creative Touch Interiors (“CTI”("CTI"), and HD Supply Canada. In addition, the consolidated financial statements include Corporate, which includes enterprise-wide functional departments.

            Principles of Consolidation

            The consolidated financial statements present the results of operations, financial position and cash flows of HD Supply, Inc. and its wholly-owned subsidiaries. All material intercompany balances and transactions are eliminated. Results of operations of companiesbusinesses acquired are included from their respective dates of acquisition. The assets, liabilities, and results of operations of all discontinued operations have been separately reported as discontinued operations for all periods presented. Certain amounts in prior-period financial statements have been reclassified to conform to the current period’speriod's presentation.

            Prior to February 2, 2009, CTI’s results were reported using a December year-end and therefore were consolidated one month in arrears into the consolidated financial statements of HD Supply, Inc. Effective February 2, 2009, CTI’s results are being consolidated on a January fiscal year-end, eliminating the lag period. The effect of eliminating the lag period for CTI’s results of operations was recorded directly to beginning Accumulated Deficit in the Statement of Stockholders’ Equity as of February 2, 2009.

            Fiscal Year

            HD Supply’sSupply's fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. Fiscal year ended February 3, 2013 ("fiscal 2012") includes 53 weeks. Fiscal years ended January 29, 2012 (“("fiscal 2011”2011"), and January 30, 2011 (“("fiscal 2010”), and January 31, 2010 (“fiscal 2009”2010") allboth include 52 weeks.

            Estimates

            Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reported amounts of revenues and expenses in preparing these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“("U.S. GAAP”GAAP"). Actual results could differ from these estimates.

            Index to Financial Statements

            Cash and Cash Equivalents

            HD Supply considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Allowance for Doubtful Accounts

            Accounts receivable are evaluated for collectability based on numerous factors, including past transaction history with customers, their credit worthiness, and an assessment of lien and bond rights. An allowance for doubtful accounts is estimated as a percentage of aged receivables. This estimate is periodically adjusted when management becomes aware of a specific customer’scustomer's inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in historical collection patterns.

            Inventories

            Inventories consist primarily of finished goods and are carried at the lower of cost or market. The cost of substantially all inventories is determined by the moving or weighted average cost method. Inventory value is evaluated at each balance sheet date to ensure that it is carried at the lower of cost or market. This evaluation includes an analysis of historical physical inventory results, a review of excess and obsolete inventories based on inventory aging, and anticipated future demand. Periodically, perpetual inventory records are adjusted to reflect declines in net realizable value below inventory carrying cost.

            Consideration Received From Vendors

            At the beginning of each calendar year,        HD Supply enters into agreements with many of its vendors providing for inventory purchase rebates (“("vendor rebates”rebates") upon achievement of specified volume purchasing levels. Vendor rebates are accrued as part of cost of sales for products sold based on progress towards earning the vendor rebates, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the year. An estimate of unearned vendor rebates is included in the carrying value of inventory at each period end for vendor rebates recognized on products not yet sold. At February 3, 2013 and January 29, 2012, and January 30, 2011, vendor rebates due to HD Supply were $71$66 million and $60$71 million, respectively. These receivables are included in Receivables in the accompanying Consolidated Balance Sheets.

            Property and Equipment

            Property and equipment are recorded at cost and depreciated using the straight-line method based on the following estimated useful lives of the assets:

            Buildings and improvements

            		 5 –- 45 years

            Transportation equipment

            		 5 –- 7 years

            Furniture, fixtures and equipment

            		 2 –- 10 years

            Capitalized Software Costs

            HD Supply capitalizes certain software costs, which are being amortized on a straight-line basis over the estimated useful lives of the software, ranging from three to six years. At February 3, 2013 and January 29, 2012, and January 30, 2011, capitalized software costs totaled $71$82 million and $85$71 million, respectively, net of accumulated amortization of $114$126 million and $92$114 million, respectively. Amortization of capitalized software costs totaled $30 million, $28 million, $31 million, and $29$31 million, in fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Goodwill

            Goodwill represents the excess of purchase price over fair value of net assets acquired. HD Supply does not amortize goodwill, but does assess the recoverability of goodwill in the third quarter of each fiscal year or

            Index to Financial Statements

            whenever events or circumstances indicate that it is “more"more likely than not”not" that the fair value of a reporting unit has dropped below its carrying value. For the fiscal 2012, fiscal 2011 and fiscal 2010 annual impairment tests, the fair values of HD Supply’sSupply's identified reporting units were estimated using a discounted cash flow (“DCF”("DCF") analysis and a market comparable method, with each method being equally weighted in the calculation. During fiscal 2012, the Company recorded a $150 million goodwill impairment charge. There waswere no indication of impairment in any of the Company’s reporting units during either the fiscal 2011 or fiscal 2010 annual testing. HD Supply recorded $224 million in non-cash goodwill impairment charges duringrecorded in fiscal 2009.2011 and fiscal 2010. See Note 5, Goodwill and Intangible Assets, for a complete description of the Company’sCompany's goodwill.

            Impairment of Long-Lived Assets

            Long-lived assets, including property and equipment, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. To analyze recoverability, undiscounted future cash flows over the remaining life of the asset are projected. If these projected cash flows are less than the carrying amount, an impairment loss is recognized to the extent the fair value of the asset less any costs of disposition is less than the carrying amount of the asset. Judgments regarding the existence of impairment indicators are based on market and operational performance. Evaluating potential impairment also requires estimates of future operating results and cash flows.

            Self-Insurance

            HD Supply has a high deductible insurance program for most losses related to general liability, product liability, environmental liability, automobile liability, workers’workers' compensation, and is self-insured for medical claims and certain legal claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience. At bothFebruary 3, 2013 and January 29, 2012, and January 30, 2011, reserves totaled approximately $94 million and $101 million.million, respectively.

            Fair Value of Financial Instruments

            The carrying amounts of restricted and unrestricted cash and cash equivalents, accounts receivable and accounts payable, accrued compensation and benefits and other current liabilities approximate fair value due to the short-term nature of these financial instruments. The Company’sCompany's long-term financial assets and liabilities are recorded at historical costs. See Note 8,7, Fair Value Measurements, for information on the fair value of long-term financial instruments.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Revenue Recognition

            HD Supply recognizes revenue when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and collectability is reasonably assured.

            HD Supply ships products to customers predominantly by internal fleet and to a lesser extent by third party carriers. Revenues, net of sales tax and allowances for returns and discounts, are recognized from product sales when title to the products is passed to the customer, which generally occurs at the point of destination for products shipped by internal fleet and at the point of shipping for products shipped by third party carriers. Revenues related to services are recognized in the period the services are performed and totaled $73$134 million, $56$115 million, and $56$98 million in fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively.

            Shipping and Handling Fees and Costs

            HD Supply includes shipping and handling fees billed to customers in Net sales. Shipping and handling costs associated with inbound freight are capitalized to inventories and relieved through Cost of sales as inventories are

            Index to Financial Statements

            sold. Shipping and handling costs associated with outbound freight are included in Selling, general and administrative expenses and totaled $116 million, $96 million, $91 million, and $84$91 million in fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively.

            Concentration of Credit Risk

            The majority of HD Supply’sSupply's sales are credit sales which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the construction industry inindustries and the areas where they operate. Concentration of credit risk with respect to trade accounts receivable is limited by the large number of customers comprising HD Supply’sSupply's customer base. HD Supply performs ongoing credit evaluations of its customers.

            Leases

            Leases are reviewed for capital or operating classification at their inception under the guidance of Accounting Standard Codification (“ASC”)("ASC ") 840, Leases. The Company uses its incremental borrowing rate in the assessment of lease classification and assumes the initial lease term includes renewal options that are reasonably assured. HD Supply conducts operations primarily under operating leases. For leases classified as operating leases, the Company records rent expense on a straight-line basis, over the lease term beginning with the date the Company has access to the property which in some cases is prior to commencement of lease payments. Accordingly, the amount of rental expense recognized in excess of lease payments is recorded as a deferred rent liability and is amortized to rental expense over the remaining term of the lease. Capital leases currently in effect are not material.

            Advertising

            Advertising costs are charged to expense as incurred except for the costs of producing and distributing certain direct response sales catalogs, which are capitalized and charged to expense over the life of the related catalog. Advertising expenses were approximately $34 million, $24 million, $21 million, and $20


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            $21 million in fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively. Capitalized advertising costs related to direct response advertising were not material.

            Income Taxes

            The Company provides for federal, state and foreign income taxes currently payable, as well as for those deferred due to temporary differences between reporting income and expenses for financial statement purposes versus tax purposes. Federal, state and foreign tax benefits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date.

            The Company consists of corporations, limited liability companies and partnerships. All income tax expense (benefit) of the Company is recorded in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss) with the offset recorded through the Company’sCompany's current tax accounts, deferred tax accounts, or stockholder’sstockholder's equity account as appropriate.

            Comprehensive Income (Loss)

            Comprehensive income (loss) includes Net income (loss) adjusted for certain revenues, expenses, gains and losses that are excluded from net income under U.S. GAAP. Adjustments to net income are for foreign currency translation adjustments and unrealized gains or losses on derivatives, to the extent they are accounted for as an effective hedge under ASC 815, Derivatives and Hedging.

            Index to Financial Statements

            Foreign Currency Translation

            Assets and liabilities of foreign subsidiaries with a functional currency ofother than the U. S. dollar, primarily Canadian dollars, are translated into U.S. dollars at the current rate of exchange on the last day of the reporting period. Revenues and expenses are translated at a monthly average exchange rate and equity transactions are translated using either the actual exchange rate on the day of the transaction or a monthly average exchange rate.

            Derivative Financial Instruments

            When the Company enters into derivative financial instruments, it is for hedging purposes. In hedging the exposure to variable cash flows on forecasted transactions, deferral accounting is applied when the derivative reduces the risk of the underlying hedged item effectively as a result of high inverse correlation with the value of the underlying exposure. If a derivative instrument either initially fails or later ceases to meet the criteria for deferral accounting, any subsequent gains or losses are recognized currently in income. Cash flows resulting from derivative financial instruments are classified in the same category as the cash flows from the items being hedged.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Stock-Based Compensation

            HDS Investment Holding,        HD Supply Holdings, Inc. (“Holding”("Holding") established an Incentive Stock Plan (the “HDS Plan”"HDS Plan") for associates of HD Supply, a wholly-owned subsidiary. The HDS Plan provides for the award of non-qualified stock options and deferred share units of the common stock of Holding. The maximum number of shares of common stock that may be issued under the HDS Plan may not exceed 55.6 million, of which a maximum of 30.9 million shares may be issued in respect of options granted under the HDS Plan. Holding will issue new shares of common stock to satisfy options exercised. The HDS Plan is accounted for under ASC 718, Compensation – Compensation—Stock Compensation, which requires the recognition of share-based compensation costs in the financial statements.

            Recent Accounting Pronouncements

            Multiple-deliverable revenue arrangements        Fair value measurement– —In October 2009,May 2011, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update (“ASU”) No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”). This ASU addresses how to separate deliverables under multiple-deliverable arrangements and how to measure and allocate arrangement consideration to one or more units of accounting. In addition, ASU 2009-13 expands the disclosures related to a company’s multiple-deliverable revenue arrangements. The Company adopted the provisions of ASU 2009-13 on January 31, 2011. The adoption did not have an impact on the consolidated financial statements or results of operations.

            Fair value measurement – In May 2011, the FASB issued ASU No. 2011-04, “Amendments"Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“IFRSs" ("ASU 2011-04”2011-04"). The amendments in this ASU are intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”)("IFRS"s). The amendments in this ASU explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments in this ASU are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011. The Company does not expectadopted the adoptionprovisions of ASU 2011-04 toon January 30, 2012. The adoption did not have a materialan impact on the Company’sCompany's financial position or results of operations.

            Comprehensive incomeincome: Presentation – —In June 2011, the FASB issued ASU No. 2011-05, “Presentation"Presentation of Comprehensive Income” (“Income" ("ASU 2011-05”2011-05"), to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’stockholders' equity and requires that all

            Index to Financial Statements

            non-owner changes in stockholders’stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The Company adopted the provisions of ASU 2011-05 on January 30, 2012. The adoption of ASU 2011-05 did not have an impact on the Company's financial position or results of operations.

                    Comprehensive income: Reclassifications—In December 2011,February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), to supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU 2011-05, which were deferred indefinitely under ASU No. 2011-12, “Deferral""Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“2011-05" ("ASU 2011-12”2011-12"), which deferred the requirementissued in December 2011. The amendments in ASU 2013-02 would require an entity to present on the faceprovide additional information about reclassifications out of the financial statements reclassification adjustments for items that are reclassified fromaccumulated other comprehensive income to net income whileby the FASB further deliberates this aspectrespective line items of the proposal. The amendments contained in ASU 2011-05 do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. For public entities, the


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.2012. The adoption of ASU 2011-05, as amended by ASU 2011-12,2013-02 will not have an impact on the Company’sCompany's financial position or results of operations. However, adopting the guidance will affect the presentation of components of comprehensive income by eliminating the historical practice of showing these items within the Consolidated Statements of Stockholder’s Equity.

            Goodwill impairment testing – —In September 2011, the FASB issued ASU No. 2011-08, “Testing"Testing Goodwill for Impairment” (“Impairment" ("ASU 2011-08”2011-08"), which simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company adopted the provisions of ASU 2011-08 will beon January 30, 2012. The adoption of ASU 2011-08 did not have an impact on the Company's financial position or results of operations.

                    Release of Cumulative Translation Adjustment—In March 2013, the FASB issued ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity" ("ASU 2013-05"), which resolves diversity in practice regarding the release of the cumulative translation adjustment into net income when a parent either sells a part of all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011, although early2013. Early adoption is permitted. The adoption of ASU 2011-082013-05 will not have ana material impact on the Company’sCompany's financial position or results of operations.

            NOTE 2—ACQUISITIONS

            HD Supply enters into strategic acquisitions to expand into new markets, new platforms, and new geographies in an effort to better service existing customers and attract new ones. In accordance with the acquisition method of accounting under ASC 805, Business Combinations, the results of the acquisitions completed by HD Supply are reflected in the Company’sCompany's consolidated financial statements from the date of acquisition forward.

                    On December 3, 2012, the Company purchased substantially all of the assets of Water Products of Oklahoma, Inc., Arkansas Water Products, LLC, and Municipal Water Works Supply, LP (collectively "Water Products") for approximately $52 million. These businesses distribute water, sewer, gas and related products, such as pipes, valves, fittings, hydrants, pumps and meters, and offer maintenance products and repair services primarily to municipalities and contractors. The businesses are operated as part of the Waterworks segment.

            On June 29, 2012, the Company purchased Peachtree Business Products LLC (“Peachtree”("Peachtree") for approximately $196 million, which is subject to a customary working capital adjustment.million. Headquartered in Marietta, Georgia, Peachtree Business Products specializes in customizable business and property marketing supplies, serving residential and commercial property managers, medical facilities, schools and universities, churches and funeral homes. Peachtree Business Products LLC is operated as part of the Facilities Maintenance segment.

                    In accordance with ASC 805, Business Combinations, the Company recorded the following assets and liabilities at fair value on the date of the Peachtree acquisition: $129 million in goodwill, $53 million in definite-lived intangible assets, $12 million in property & equipment, $8 million in net


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 2—ACQUISITIONS (Continued)

            working capital assets and liabilities, and $6 million in deferred tax liabilities. The total amount of goodwill expected to be deductible for tax purposes is $47 million. The definite-lived intangible assets are primarily $50 million in customer relationships that will be amortized over a weighted-average period of 10.9 years.

            On May 2, 2011, the Company closed on a transaction to acquirepurchased substantially all of the assets of Rexford Albany Municipal Supply Company, Inc. (“RAMSCO”("RAMSCO") for approximately $21 million. RAMSCO specializes in distributing water, sanitary and storm sewer materials primarily to municipalities and contractors through four locations in upstate New York. These locations are operated as part of the HD Supply Waterworks business.segment.

            On June 1, 2009, HD Supply acquired substantially all of the assets of ORCO Construction Supply, a former competitor of the White Cap business, out of bankruptcy, for approximately $16 million. The total estimated fair value of the net assets acquired, net of liabilities assumed, at the date of the acquisition was $18 million, resulting in a $2 million bargain purchase gain, which is included in Other (income) expense, net in the Consolidated Statements of Operations.

            Index to Financial Statements

            NOTE 3—DISCONTINUED OPERATIONS

                    On March 26, 2012, the Company sold all of the issued and outstanding equity interests in its Industrial Pipes, Valves and Fittings ("IPVF") business to Shale-Inland Holdings, LLC. The Company received cash proceeds of approximately $477 million, net of $5 million of transaction costs. As a result of the sale, the Company recorded a $12 million pre-tax gain in fiscal 2012.

            On September 9, 2011, the Company sold all of the issued and outstanding equity interests in its Plumbing/HVAC (“Plumbing”) business to Hajoca Corporation. The Company received cash proceeds of approximately $116 million, net of $8 million remaining in escrow and $4 million of transaction costs. As a result of the sale, the Company recorded a $7 million pre-tax gain in fiscal 2011. During the fiscal 2012, the Company paid an additional $1 million in transaction costs and received $4 million from escrow.

            On February 28, 2011, HD Supply Canada sold substantially all of the assets of SESCO/QUESCO, (“SESCO”), an electrical products division of HD Supply Canada, to Sonepar Canada, and received proceeds of approximately $11 million, less $1 million remaining in escrow. As a result of the sale, the Company recorded a $2 million pre-tax gain in fiscal 2011.

            Subsequent Event

            On March 26, During fiscal 2012, the Company sold all of the issued and outstanding equity interests in its Industrial Pipes, Valves and Fittings (“IPVF”) business to Shale-Inland Holdings, LLC for proceeds of approximately $469received $1 million which is subject to a customary working capital adjustment.from escrow.

            Summary Financial Information

            In accordance with ASC 205-20, Discontinued Operations, the results of the IPVF, Plumbing/HVAC and SESCO/QUESCO operations and the gains on sales of the businesses are classified as discontinued operations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations and gain on the sale of businesses, net of tax, as one line item on the Consolidated Statements of Operations.Operations and Comprehensive Income (Loss). All Consolidated Statements of Operations and Comprehensive Income (Loss) presented have been revised to reflect


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 3—DISCONTINUED OPERATIONS (Continued)

            this presentation. The following tables provide additional detail related to the results of operations of the discontinued operations (amounts in millions):

               Fiscal
            2011            		   Fiscal
            2010            		  Fiscal
            2009            		 

            Net sales

            		  $969    $1,028   $1,105  

            Gains on sales of discontinued operations

            		   9     —      —    

            Income (loss) before provision for income taxes

            		   20     (6)   (53) 

            Provision for income taxes

            		   —       —      (19) 
              

             

             

            		   

             

             

            		  

             

             

            		 

            Income (loss) from discontinued operations, net of tax

            		  $20    $(6)  $(34) 
              

             

             

            		   

             

             

            		  

             

             

            		 
             
            		 Fiscal
            2012            		 Fiscal
            2011            		 Fiscal
            2010            		 

            Net sales

            		 $127 $969 $1,028 

            Gain on sales of discontinued operations

            		  12  9  — 

            Income (loss) before provision for income taxes

            		  20  20  (6)

            Provision for income taxes

            		  —  —  — 
                    

            Income (loss) from discontinued operations, net of tax

            		 $20 $20 $(6)
                    

            NOTE 4—RELATED PARTIES

            On August 30, 2007, investment funds associated with Clayton, Dubilier & Rice, Inc., The Carlyle Group and Bain Capital Partners, LLC (collectively the “Equity Sponsors”"Equity Sponsors") formed Holding and entered into a stock purchase agreement with The Home Depot, Inc. (“("Home Depot”Depot" or “THD”"THD") pursuant to which Home Depot agreed to sell to Holding or to a wholly owned subsidiary of Holding certain intellectual properties and all the outstanding common stock of HD Supply, Inc. and the Canadian subsidiary CND Holdings, Inc. On August 30, 2007, through a series of transactions, Holding’sHolding's direct wholly owned subsidiary, HDS Holding Corporation, acquired direct control of HD Supply through the merger of its wholly owned subsidiary, HDS Acquisition Corp., with and into HD Supply, Inc. and the Canadian subsidiary CND Holdings, Inc. Through these transactions (the “Transactions”"Transactions"), Home Depot was paid cash of approximately $8.2 billion and 12.5% of Holding’sHolding's common stock worth $325 million for certain intellectual property and all of the outstanding common stock of HD Supply, Inc. and CND Holdings, Inc. including all dividends and interest payable associated with those shares. During fiscal 2009, HD Supply, Inc. and the Canadian subsidiary CND Holdings, Inc. received $22 million from Home Depot for the working capital adjustment and settlement of other items finalizing the purchase price of the Transactions.million.

            Index to Financial Statements

            Home Depot

            Sales and Purchases—HD Supply derived revenue from the sale of products to Home Depot of $296 million, $275 million, $299 million, and $290$299 million in fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively. The revenue was recorded at an amount that generally approximates fair value. Accounts receivable from the sale of products to Home Depot were $44 million and $45 million at February 3, 2013 and $27 million at January 29, 2012, and January 30, 2011, respectively, and are included within Receivables in the accompanying Consolidated Balance Sheets. In addition to sales, HD Supply purchased product from Home Depot of less than $1 million in each of fiscal 2011, fiscal 2010, and fiscal 2009. All purchases were recorded in Cost of sales when the inventory was sold.

            Strategic Agreement—On the date of the Transactions, Home Depot entered into a strategic purchase agreement with Crown Bolt, HD Supply’sSupply's distribution services line of business. This agreement providesprovided a guaranteed revenue stream to Crown Bolt through January 31, 2015 by specifying minimum annual purchase requirements from Home Depot. The minimum annual purchase requirements range from $257 million at the outset of the agreement in 2007 to $401 million in the final year. Crown Bolt recorded $19 million, $20 million and $12 million during fiscal 2012, fiscal 2011 and fiscal 2010, respectively, in Net sales in accordance with the minimum purchase requirement provisions of this strategic purchase agreement. On February 1, 2013, Crown Bolt and Home Depot agreed to an amendment and five-year extension of the strategic purchase agreement, which eliminated the minimum purchase requirement beginning in fiscal 2013, but retains Crown Bolt as the exclusive supplier of products purchased by Home Depot from Crown Bolt through January 31, 2020. Because the amendment was considered a triggering event, HD Supply performed an impairment analysis of goodwill and other intangible assets at Crown Bolt. As a result of the analysis, Crown Bolt recorded a $152 million non-cash impairment charge in fiscal 2012. For more information on this charge, see Note 5, Goodwill and Intangible Assets.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 4—RELATED PARTIES (Continued)

            Equity Sponsors

                    Sponsor Management Fee—In conjunction with the closing of the Transactions, the Company entered into a management agreement whereby the Company will paypays the Equity Sponsors a $5 million annual aggregate management fee (“("Sponsor Management Fee”Fee") and related expenses through August 2017. During each of fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, the Company recorded $5 million of Sponsor Management Fees and related expenses, which are included in Selling, general and administrative expense in the Consolidated Statements of Operations.Operations and Comprehensive Income (Loss).

                    Notes—Management of the Company has been informed that, as of January 29, 2012,February 3, 2013, affiliates of certain of the Equity Sponsors beneficially owned approximately $833 million aggregate principal amount, or 33%, of the Company’s 12.0% Senior Notes due 2014 and $713$348 million aggregate principal amount, or 39%, of the Company’s 13.5%Company's Old Senior Subordinated Notes due 2015.(as defined in Note 6, Debt) and approximately $49 million aggregate principal amount of the Company's other outstanding indebtedness. During fiscal 2012, the Company issued and repurchased the 14.875% Senior Notes (as defined in Note 6, Debt) to and from certain affiliates of the Equity Sponsors. See Note 6, Debt, for information on the issuance and repurchase of the 14.875% Senior Notes and Note 17, Subsequent Event—Debt Redemption, for information on the redemption of the Company's Old Senior Subordinated Notes.

                    Purchases—HD Supply purchased product from affiliates of the Equity Sponsors for approximately $61$57 million, $46$60 million, and $60$24 million in fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively. In addition, HD Supply sold product to affiliates of the Equity Sponsors for approximately $3 million, $3 million, and $3 million in fiscal 2011, fiscal 2010, and fiscal 2009, respectively. Management believes these transactions were conducted at prices that an unrelated third party would pay.

            Other Related Parties

            HD Supply leases several buildings and properties from an executive officer of the Company. The leases generally provide that all expenses related to the properties are to be paid by HD Supply. Rents paid under these leases were minimal in fiscal 2011, less than $1 million in fiscal 2010, and $1 million in fiscal 2009. The fiscal 2010 payment included less than $1 million of a prepayment for fiscal 2011 and the fiscal 2009 payment included less than $1 million of a prepayment for fiscal 2010. The Company received a discount for making such prepayments.

            Index to Financial Statements

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS

            Goodwill

            The carrying amount of goodwill by reporting unit as of January 29, 2012 and January 30, 2011 is as follows (amounts in millions):

             
            		 As of February 3, 2013 As of January 29, 2012 
             
            		 Gross Goodwill Accumulated
            Impairments            		 Net
            Goodwill            		 Gross
            Goodwill            		 Accumulated
            Impairments            		 Net
            Goodwill            		 

            Waterworks

            		 $1,876 $(815)$1,061 $1,867 $(815)$1,052 

            Facilities Maintenance

            		  1,603  —  1,603  1,474  —  1,474 

            White Cap

            		  183  (74) 109  183  (74) 109 

            Utilities(1)

            		  284  (99) 185  285  (99) 186 

            Crown Bolt

            		  215  (150) 65  215  —  215 

            Repair & Remodel

            		  125  (30) 95  125  (30) 95 

            Electrical(1)

            		  20  —  20  20  —  20 

            CTI

            		  67  (67) —  67  (67) — 

            IPVF

            		  —  —  —  82  (82) — 
                          

            Total goodwill

            		 $4,373 $(1,235)$3,138 $4,318 $(1,167)$3,151 
                          
            (1)
            Utilities and Electrical are reporting units that, combined, comprise the Power Solutions segment.

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS (Continued)

                    

               January 29, 2012   January 30, 2011 
               Gross
            Goodwill            		   Accumulated
            Impairments            		  Net
            Goodwill            		   Gross
            Goodwill            		   Accumulated
            Impairments            		  Net
            Goodwill            		 

            Waterworks

            		  $1,867    $(815)  $1,052    $1,855    $(815)  $1,040  

            Facilities Maintenance

            		   1,474     —      1,474     1,474     —      1,474  

            White Cap

            		   183     (74)   109     183     (74)   109  

            Utilities

            		   285     (99)   186     296     (99)   197  

            Crown Bolt

            		   215     —      215     215     —      215  

            Repair & Remodel

            		   125     (30)   95     125     (30)   95  

            Electrical

            		   20     —      20     20     —      20  

            IPVF

            		   82     (82)   —       82     (82)   —    

            CTI

            		   67     (67)   —       67     (67)   —    

            Plumbing

            		   —       —      —       111     (111)   —    
              

             

             

            		   

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		  

             

             

            		 

            Total goodwill

            		  $4,318    $(1,167)  $3,151    $4,428    $(1,278)  $3,150  
              

             

             

            		   

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		  

             

             

            		 

            Goodwill represents the excess of purchase price over fair value of net assets acquired. HD Supply does not amortize goodwill, but does assess the recoverability of goodwill in the third quarter of each fiscal year. If an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value, an interim impairment test would be performed between annual tests. Goodwill impairment testing is performed at the reporting unit level. There are nine reporting units within

                    On January 30, 2012, the Company adopted the provisions of Accounting Standard Update No. 2011-08, "Testing Goodwill for Impairment" ("ASU 2011-08"), which simplifies how entities test goodwill for impairment and permits an entity to which goodwill was originally assigned, excludingfirst assess qualitative factors to determine whether it is more likely than not that the Plumbing/HVAC business, which was divested infair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the third quarter of fiscal 2011.

            Under U.S. GAAP (ASC 350, Intangibles – Goodwill and Other),two-step goodwill impairment analysis is a two-step test.

                    The first step used to identify potentialof the impairment test involves comparing each reporting unit’sunit's fair value to its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying value, applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of impairment.

            The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill in the “pro forma”"pro forma" business combination accounting as described above, exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted under U.S. GAAP.

            HD Supply performed the annual goodwill impairment testing during the third quarter of fiscal 20112012 for the seven reporting units with goodwill balances (goodwill balances at twoone reporting units wereunit was zero prior to the annual testing). In accordance with ASU 2011-08, the Company elected to first assess qualitative factors on two reporting units, Facilities Maintenance and White Cap, to determine whether it is more likely than not that the fair value of each of these reporting units is less than its carrying amount. Based on this assessment, the Company determined that it was not necessary to perform the two-step goodwill impairment test for these two reporting units. The Company bypassed the qualitative analysis on the remaining five reporting units and proceeded with the first step of the two-step goodwill impairment test.

                    The Company determines the fair value of a reporting unit using a discounted cash flow (“DCF”("DCF") analysis and a market comparable method, with each method being equally weighted in the calculation.

            Index to Financial Statements

            Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, the amount and timing of expected future cash flows, as well as relevant comparable company earnings multiples for the market comparable approach. The cash flows employed in the DCF analyses are based on the Company’sCompany's most recent long-range forecast and, for years beyond the forecast, the Company’sCompany's estimates, which are based on estimated exit multiples ranging from six to seven times the final forecasted year earnings before interest, taxes, depreciation and amortization. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units and range from 13%11.5% to 17%14.0%. For the market comparable


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS (Continued)

            approach, the Company evaluated comparable company public trading values, using earnings multiples and sales multiples that are used to value the reporting units.

            There was no indication of impairment in any of the Company’sCompany's reporting units during either the annual testing for fiscal 2012, fiscal 2011, or theand fiscal 2010 annual testing and accordingly, the second step of the goodwill impairment analysis was not performed. At the time of our fiscal 20112012 annual testing, the fair value of the reporting units for which step one of the goodwill impairment test was completed exceeded their carrying value by the following percentages: 17%47% for Waterworks, 50% for Facilities Maintenance, 68% for White Cap, 32%31% for Utilities, 4%6% for Crown Bolt, 24%40% for Repair & Remodel, and 166%116% for Electrical.

            There        During the fourth quarter of fiscal 2012, Crown Bolt reached an agreement to amend and extend its strategic purchasing agreement with Home Depot. While the amendment extends the agreement five years through fiscal 2019, retaining Crown Bolt as the exclusive supplier of certain products to Home Depot, it eliminated the minimum purchase guarantee and adjusts future pricing. These changes resulted in a reduction of expected future cash proceeds from Home Depot. HD Supply, therefore, considered this amendment a triggering event and, as such, the Company performed an additional goodwill impairment analysis for Crown Bolt. During step one of the additional goodwill impairment analysis, there was an indication of impairment, in four of the Company’s reporting units during the third quarter fiscal 2009 impairment test and, accordingly, the second step of the goodwill impairment analysis was performed for thesethis reporting units. Based onunit. As a result of step two, the results of the second step, HD SupplyCompany recorded a $224$150 million non-cash pre-tax, goodwill impairment charge in the thirdfourth quarter of fiscal 2009 on four reporting units.

            Total non-cash, pre-tax, goodwill impairment charges for fiscal 2009 were as follows (amounts in millions):2012.

                    

               Fiscal Year Ended January 31, 2010 
               Beginning
            Goodwill            		   Impairment
            Charge            		  Remaining
            Goodwill            		 

            Waterworks

            		  $1,174    $(134)  $1,040  

            Utilities

            		   250     (54)   196  

            Repair & Remodel

            		   125     (30)   95  

            Other

            		   1,818     —      1,818  
              

             

             

            		   

             

             

            		  

             

             

            		 

            Total continuing operations*

            		  $3,367     (219)  $3,149  

            IPVF

            		   6     (6)   —    
              

             

             

            		   

             

             

            		  

             

             

            		 

            Total*

            		  $3,373    $(224)  $3,149  
              

             

             

            		   

             

             

            		  

             

             

            		 

            *Does not sum due to rounding

            The primary cause of impairment of the goodwill in the reporting units for fiscal 2009 was a reduction in expected future cash flows for these businesses as a result of the decline in the residential and commercial construction markets.

            The following table presents the changes in goodwill for the fiscal years ended January 29, 2012, January 30, 2011, and January 31, 2010presented (amounts in millions).

             
            		 Fiscal 2012 Fiscal 2011 Fiscal 2010 

            Beginning Balance

            		 $3,151 $3,150 $3,149 

            Acquisitions

            		  138  12  — 

            Realization of tax deductible goodwill from a prior
            acquisition

            		  (2) (11) — 

            Impairment

            		  (150) —  — 

            Translation & other adjustments

            		  1  —  1 
                    

            Ending Balance

            		 $3,138 $3,151 $3,150 
                    

                    

               Fiscal
            2011            		  Fiscal
            2010            		   Fiscal
            2009            		 

            Beginning Balance

            		  $3,150   $3,149    $3,368  

            Acquisition

            		   12    —       —    

            Realization of tax deductible goodwill from a prior acquisition

            		   (11)   —       —    

            Impairment

            		   —      —       (224) 

            Translation adjustment

            		   —      1     5  
              

             

             

            		  

             

             

            		   

             

             

            		 

            Ending Balance

            		  $3,151   $3,150    $3,149  
              

             

             

            		  

             

             

            		   

             

             

            		 

            Index to Financial Statements

            During fiscal 2011, the Company recorded $12 million of goodwill as a result of the RAMSCO business acquisition.

            The Company’sCompany's discounted cash flow model is based on HD Supply’sSupply's expectation of future market conditions for each of the reporting units, as well as discount rates that would be used by market participants in an arms-lengtharm's-length transaction. Future events could cause the Company to conclude that market conditions have declined or discount rates have increased to the extent that the Company’sCompany's goodwill could be further impaired. It is not possible at this time to determine if any such future impairment charge would result.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS (Continued)

            Intangible Assets

            HD Supply’sSupply's intangible assets as of February 3, 2013 and January 29, 2012 consisted of the following (amounts in millions):

             
            		 As of February 3, 2013 As of January 29, 2012 
             
            		 Gross
            Intangible            		 Accumulated
            Amortization            		 Net
            Intangible            		 Gross
            Intangible            		 Accumulated
            Amortization            		 Net
            Intangible            		 

            Customer relationships

            		 $929 $(614)$315 $1,532 $(983)$549 

            Strategic purchase agreement

            		  166  (122) 44  166  (99) 67 

            Trade names

            		  153  (41) 112  152  (34) 118 

            Other

            		  2  —  2  1  —  1 
                          

            Total

            		 $1,250 $(777)$473 $1,851 $(1,116)$735 
                          

                    During fiscal 2012, the Company recorded $71 million of intangible assets, primarily $66 million in customer relationship intangibles, as a result of the Peachtree and Water Products business acquisitions. The customer relationship intangible assets will be amortized over a weighted-average period of 10.9 years. The remaining intangible assets recorded will be amortized over a weighted-average period of 3.6 years. In addition, during fiscal 2012, $516 million of customer relationship intangible assets became fully amortized and, therefore, were removed from the balance sheet.

               January 29, 2012   January 30, 2011 
               Gross
            Intangible            		   Accumulated
            Amortization            		  Net
            Intangible            		   Gross
            Intangible            		   Accumulated
            Amortization            		  Net
            Intangible            		 

            Customer relationships

            		  $1,532    $(983)  $549    $1,548    $(774)  $774  

            Strategic purchase agreement

            		   166     (99)   67     166     (77)   89  

            Trade names

            		   152     (34)   118     151     (26)   125  

            Other

            		   1     —      1     17     (13)   4  
              

             

             

            		   

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		  

             

             

            		 

            Total

            		  $1,851    $(1,116)  $735    $1,882    $(890)  $992  
              

             

             

            		   

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		  

             

             

            		 

            During fiscal 2011, the Company recorded $4 million of intangible assets, primarily customer relationship intangibles, as a result of the RAMSCO business acquisition. These intangibles will be amortized over three to sevena weighted-average amortization period of 5.6 years.

            During fiscal 2009, the Company recorded $2 million of customer relationship intangibles as        As a result of business acquisitions, primarily the transaction tostrategic purchase substantially allagreement amendment and extension with Home Depot, HD Supply performed an impairment analysis of the assetsintangible asset assigned to the strategic purchase agreement. The analysis showed no indication of ORCO Construction Supply outimpairment of bankruptcy. These intangiblesthe intangible asset assigned to the strategic purchase agreement. The unamortized net book value of the intangible asset will be amortized over five tothe remainder of the agreement, which is seven years.

            On the date of the Transactions, Home Depot entered into a strategic purchase agreement with Crown Bolt. This agreement provides a guaranteed revenue stream to Additionally, Crown Bolt through January 31, 2015 by specifying minimum annual purchase requirements from Home Depot.discontinued the use of a certain tradename. As a result, the related unamortized tradename intangible asset was written off, resulting in a $2 million impairment charge.

            Amortization expense for continuing operations related to intangible assets was $244$243 million, $244 million, and $243$244 million, in fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively. Estimated future amortization expense for continuing operations for intangible assets recorded as of January 29, 2012February 3, 2013 is $239$135 million, $143$105 million, $113$40 million, $27$39 million and $26$38 million for fiscal years 20122013 through 2016,2017, respectively.

            NOTE 6—DEBT

                    On February 1, 2013, HD Supply, Inc. issued $1,275 million aggregate principal amount of 7.5% Senior Notes due 2020 (the "7.5% Senior Notes") at par. As a result of the issuance, the Company incurred $21 million in debt issuance costs, of which $19 million was paid as of February 3, 2013. The net proceeds from the 7.5% Senior Notes issuance were used to repurchase all of the Company's outstanding 14.875% Senior Notes (issued in April 2012 to the Equity Sponsors), plus a $422 million make-whole premium calculated in accordance with the 14.875% Senior Notes Indenture (as defined below), plus $37 million of un-capitalized PIK interest thereon through February 1, 2013. Also on


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            February 1, 2013, the trustee for the 14.875% Senior Notes cancelled all of the outstanding 14.875% Senior Notes. As a result of these transactions, the Company incurred a $452 million loss on extinguishment, which included the make-whole premium, a $28 million write-off of unamortized original issue discount, and $2 million write-off of unamortized deferred debt costs.

                    On January 16, 2013, HD Supply, Inc. issued $950 million aggregate principal amount of 10.5% Senior Subordinated Notes due 2021 (the "Senior Subordinated Notes") at par. As a result of the issuance, the Company incurred $16 million in debt issuance costs, of which $15 million was paid as of February 3, 2013. The Company committed to use the net proceeds from the Senior Subordinated Notes issuance to redeem all of its remaining $889 million outstanding Old Senior Subordinated Notes (as defined below), subject to the required thirty-day notification period.

                    As of February 3, 2013, the Company held $936 million in cash equivalents classified as Cash equivalents restricted for debt redemption in the Consolidated Balance Sheet for the redemption of $889 million of the Old Senior Subordinated Notes on February 8, 2013. The $936 million was used to redeem the Old Senior Subordinated Notes at a price equal to 103.375% of the principal amount thereof and to pay (together with $36 million of cash on hand) accrued and unpaid interest thereon through the redemption date. See Note 17, Subsequent Events—Debt Redemption.

                    On October 15, 2012, HD Supply, Inc. issued $1,000 million aggregate principal amount of 11.5% Senior Notes due 2020 (the "11.5% Senior Notes") at par. As a result of the issuance, the Company incurred and paid $17 million in debt issuance costs. On November 8, 2012, the Company used the net proceeds from the 11.5% Senior Notes issuance to redeem $930 million of its outstanding Old Senior Subordinated Notes at a redemption price equal to 103.375% of the principal amount thereof and to pay $23 million of accrued interest. As a result, the Company incurred a $37 million loss on extinguishment, which included a $31 million premium payment to redeem the Old Senior Subordinated Notes prior to maturity and $5 million to write-off the pro-rata portion of unamortized deferred debt costs.

            Refinancing Transactions and Additional Notes

                    On April 12, 2012, HD Supply, Inc. consummated the following transactions (the "Refinancing Transactions") in connection with the refinancing of the senior portion of its debt structure:

              •
              the issuance of $950 million of its 81/8% Senior Secured First Priority Notes due 2019 (the "First Priority Notes");

              •
              the issuance of $675 million of its 11% Senior Secured Second Priority Notes due 2020 (the "Second Priority Notes");

              •
              the issuance of approximately $757 million of 14.875% Senior Notes due 2020 (the "14.875% Senior Notes");

              •
              entry into a new senior term facility (the "Term Loan Facility") maturing in 2017 and providing for term loans in an aggregate principal amount of $1,000 million; and

              •
              entry into a new senior asset based lending facility (the "ABL Facility") maturing in 2017 and providing for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $1,500 million (subject to availability under the borrowing base).

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

                    The proceeds of the First Priority Notes, the Second Priority Notes, the 14.875% Senior Notes, the Term Loan Facility and the ABL Facility were used to (i) repay all amounts outstanding under the Old Senior Secured Credit Facility (Senior Secured Credit Facility dated as of August 30, 2007), (ii) repay all amounts outstanding under the Old ABL Credit Facility (ABL Credit Facility dated as of August 30, 2007), (iii) repurchase all remaining outstanding Old Senior Notes (12.0% Senior Notes dated as of August 30, 2007) and (iv) pay related fees and expenses.

                    Affiliates of certain of the Equity Sponsors owned an aggregate principal amount of approximately $484 million of the Old Senior Notes which they exchanged in a non-cash transaction for their investment in the 14.875% Senior Notes.

                    On August 2, 2012, the Company issued $300 million additional aggregate principal amount of its 81/8% First Priority Notes due 2019 (the "Additional Notes") at a premium of 107.5%. At closing, the Company received approximately $317 million, net of transaction fees. The Additional Notes were issued under the indenture pursuant to which HD Supply previously issued $950 million aggregate principal amount of 81/8% First Priority Notes due 2019, all of which remains outstanding. The net proceeds from the sale of the Additional Notes were applied to reduce outstanding borrowings under the Company's ABL Facility.

                    As a result of the Refinancing Transactions and the issuance of the Additional Notes, the Company incurred $80 million in debt issuance costs and recorded a $220 million loss on extinguishment, which included a $150 million premium payment to redeem the Old Senior Notes, $46 million to write-off the pro-rata portion of the unamortized deferred debt costs, and $24 million to write-off the remaining unamortized Other asset associated with Home Depot's guarantee of the Company's payment obligations for principal and interest under the Old Term Loan under the Old Senior Secured Credit Facility that was terminated in the Refinancing Transactions.

            Unamortized deferred debt costs

                    In accordance with ASC 470, Debt, the Company determined that all of the redemption of Old Senior Notes was an extinguishment as either the original note holders were unknown or the refinancing was considered a "substantial" change. As a result of the extinguishment, the Company wrote-off approximately $24 million in unamortized deferred financing charges associated with the Old Senior Notes. Similarly, under ASC 470, approximately $834 million of the Old ABL Credit Facility and approximately $1,169 million of the Old Senior Secured Credit Facility were deemed extinguishments, with the remaining portions considered modifications. As a result of the extinguishment, the Company wrote-off approximately $22 million of $42 million in unamortized deferred financing charges associated with these credit agreements.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Long-term debt as of February 3, 2013 and January 29, 2012 and January 30, 2011 consisted of the following (dollars in millions):

               January 29, 2012   January 30, 2011 
               Outstanding
            Principal            		  Interest
            Rate %            		   Outstanding
            Principal            		  Interest
            Rate %            		 

            Term Loan due August 30, 2012

            		  $73    1.53    $74    1.56  

            Term Loan due April 1, 2014

            		   855    3.03     864    3.06  

            ABL Term Loan due April 1, 2014

            		   214    3.56     214    3.53  

            12.0% Senior Notes due September 1, 2014

            		   2,500    12.00     2,500    12.00  

            13.5% Senior Subordinated Notes due September 1, 2015

            		   1,820    13.50     1,597    13.50  
              

             

             

            		    

             

             

            		  

            Total long-term debt

            		   5,462      5,249   

            Less current installments

            		   (82)     (10)  
              

             

             

            		    

             

             

            		  

            Long-term debt, excluding current installments

            		  $5,380     $5,239   
              

             

             

            		    

             

             

            		  

            Index to Financial Statements
             
            		 February 3, 2013 January 29, 2012 
             
            		 Outstanding
            Principal            		 Interest
            Rate %(1)            		 Outstanding
            Principal            		 Interest
            Rate %(1)            		 

            ABL Facility due 2017

            		 $300  1.96 $—  — 

            Old Term Loan due August 30, 2012

            		  —  —  73  1.53 

            Old Term Loan due April 1, 2014

            		  —  —  855  3.03 

            Old ABL Term Loan due April 1, 2014

            		  —  —  214  3.56 

            Term Loan due 2017, net of unamortized discount of $26 million as of February 3, 2013

            		  969  7.25  —  — 

            First Priority Notes due 2019, including unamortized premium of $21 million as of February 3, 2013

            		  1,271  8.125  —  — 

            Second Priority Notes due 2020

            		  675  11.00  —  — 

            Old Senior Notes due 2014

            		  —  —  2,500  12.00 

            11.5% Senior Notes due 2020

            		  1,000  11.50  —  — 

            7.5% Senior Notes due 2020

            		  1,275  7.50  —  — 

            Senior Subordinated Notes due 2021

            		  950  10.50  —  — 

            Old Senior Subordinated Notes due 2015

            		  889  13.50  1,820  13.50 
                        

            Total long-term debt

            		 $7,329     5,462    

            Less current installments

            		  (899)    (82)   
                        

            Long-term debt, excluding current installments

            		 $6,430    $5,380    
                        
            (1)
            Represents the stated rate of interest, without including the effect of discounts or premiums.

            Senior Secured Credit Facilities

            Asset Based Lending Facility

            The Company maintains aABL Facility provides for senior secured revolving loans and letters of credit facility (the “Senior Secured Credit Facility”) comprised of up to a $928 million term loan (the “Term Loan”) and a $200 million revolving credit facility (the “Revolving Credit Facility”). On March 19, 2010, the Company entered into Amendment No. 3 (the “Cash Flow Amendment”) to its Senior Secured Credit Facility, dated as of August 30, 2007, by and among the Company, Merrill Lynch Capital Corporation, as administrative agent and collateral agent, and the other lenders and financial institutions from time to time party thereto. The Cash Flow Amendment extended the maturity date from August 30, 2012 to April 1, 2014 of approximately $874 million inmaximum aggregate principal amount of outstanding Term Loan$1,500 million (subject to availability under a borrowing base). Extensions of credit under the Senior Secured Credit Facility. Home Depot, which guarantees paymentABL Facility will be limited by a borrowing base calculated periodically based on specified percentages of the Term Loanvalue of eligible inventory and eligible accounts receivable, subject to certain reserves and other adjustments. As of February 3, 2013, the Company had $910 million of available borrowings under the Senior Secured CreditABL Facility (“THD Guarantee”), consented(after giving effect to the Cash Flow Amendment. Concurrently, Home Depotborrowing base limitations and approximately $61 million in letters of credit issued and including $70 million of borrowings available on qualifying cash balances).

                    A portion of the ABL Facility is available for letters of credit and swingline loans. The ABL Facility also includes a sub-facility for loans and letters of credit in Canadian dollars. The ABL Facility also permits the Company entered intoto add one or more incremental term loans, revolving or letter of credit facilities to be included in the ABL Facility up to an agreement pursuant to which Home Depot consented to any later amendmentaggregate maximum amount of $1,900 million for the total commitments under the ABL Facility (including all incremental commitments).


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

                    Until the date that was three months after the closing date of the ABL Facility, at the option of the applicable borrower, the interest rates applicable to the Senior Secured Creditloans under the ABL Facility were based, (i) in the case of U.S. dollar denominated loans, either at LIBOR plus 2.00% or Prime Rate plus 1.00% and (ii) in the case of Canadian dollar denominated loans, either the BA Rate plus 2.00% or the Canadian Prime Rate plus 1.00%. From and after the date that was three months after the closing date of the ABL Facility, the foregoing interest margins are subject to a pricing grid, as amended, (similarincluded in form and substancethe ABL Facility agreement, based on average excess availability for the previous fiscal quarter. The ABL Facility also contains a letter of credit fee computed at a rate per annum equal to the Cash Flow Amendment) that wouldApplicable Margin (as defined in the agreement) then in effect for LIBOR Loans and an unused commitment fee subject to a pricing grid, as included in the ABL Facility agreement, based on the Average Daily Used Percentage (as defined in the agreement).

                    The ABL Facility will mature on April 12, 2017; unless the individual applicable lenders agree to extend the maturity of the remaining approximately $104 million of outstanding Term Loan to a date that is not later than the maturity date in effect from time to timetheir respective loans under the Cash Flow Amendment. In addition,ABL Facility upon the Company's request and without the consent of any other applicable lender.

                    The ABL Facility is senior secured indebtedness of the Company entered intoand ranks equal in right of payment with all of the Company's existing and future senior indebtedness and senior in right of payment to all of the Company's existing and future subordinated indebtedness.

                    The ABL Facility is guaranteed, on a letter agreement with Home Depot, pursuant to whichsenior secured basis, by the Company agreed that, while the THD Guarantee is outstanding, the Company would not voluntarily repurchase any 12.0% Senior Notes or 13.5% Senior Subordinated Notes, directly or indirectly, without Home Depot’s prior written consent,Subsidiary Guarantors. These guarantees are subject to certain exceptions, including debt repurchases with equity orrelease under customary circumstances as stipulated in the agreement.

                    The ABL Facility is secured by a first-priority security interest in the ABL Priority Collateral, subject to permitted refinancings.liens.

            Prepayments

                    The Company also agreed to prepay $30 million in aggregate principal amount of non-extending Term Loan under the Senior Secured Credit Facility. This prepayment was completed during the first quarter of fiscal 2010. The maturity date of the extended outstanding Term LoanABL Facility may be further extended to a date not later than June 1, 2014, without further consent byprepaid at the lenders, if Home Depot provides a notice electing to extend its guarantee of the Term Loan to such later date. However, Home Depot is under no obligation to provide such notice or make such election to further extend its guarantee, and the Company cannot provide any assurance that Home Depot will provide such notice or make such election or on what terms it might do so. The remaining outstanding non-extended Term Loan will mature on the original maturity date of such loan, i.e. August 30, 2012. The Senior Secured Credit Facility can be repaidCompany's option at any time without premium or penalty or premium.

            The Cash Flow Amendment increasedand will be subject to mandatory prepayment if the borrowing margins applicable tooutstanding ABL Facility exceeds either the extended portion of the Term Loan by 150 basis points, such that the extended Term Loan bears interest at Prime plus 1.75% or LIBOR plus 2.75% at the Company’s election. The remaining non-extended Term Loan continues to bear interest at Prime plus 0.25% or LIBOR plus 1.25% at the Company’s election. Interest on the Term Loan is due at the end of each calendar quarteraggregate commitments with respect to Prime rate drawsthereto or at the maturity of each LIBOR draw (unless said draw is for a six-, nine-, or twelve-month period, then interest shall be paid quarterly). During fiscal 2011, the Term Loan due August 30, 2012 had an average outstanding balance of $73 million at a weighted average interest rate of 1.56% and the Term Loan due April 1, 2014 had an average outstanding balance of $860 million at a weighted average interest rate of 3.06%. During fiscal 2010, the Term Loan due August 30, 2012 had an average outstanding balance of $149 million at a weighted average interest rate of 1.54% and the Term Loan due April 1, 2014 had an average outstanding balance of $869 million at a weighted average interest rate of 3.11%.

            The extended and non-extended portions of the Terms Loan outstanding under the Senior Secured Credit Facility, as amended, amortize in nominal quarterly installments equal to 0.25% of the original aggregate principal amount of the Term Loan. Additionally, beginning in fiscal 2009, the Company is required to pay down the Term Loancurrent borrowing base, in an amount equal to 50%such excess. Mandatory prepayments do not result in a permanent reduction of Excess Cash Flow from the preceding fiscal year, as definedlenders' commitments under the ABL Facility.

            Guarantees

                    The Company, and at the Company's option, certain of the Company's subsidiaries, including HD Supply Canada, Inc., a Canadian subsidiary (the "Canadian Borrower"), are the borrowers under the ABL Facility. The Subsidiary Guarantors guarantee the Company's payment obligations under the ABL Facility (and, in the Term Loan agreement, such percentage is reducedcase of Canadian obligations, each direct and indirect wholly-owned Canadian subsidiary, subject to 0% uponcertain exceptions, in each case to the attainment of certain leverage ratio targets. Underextent otherwise permitted by applicable law, regulation and contractual provision (the "Canadian Guarantors") guarantee the Excess Cash Flow provisionsCanadian Borrower's payment obligations under the ABL Facility).

                    The Company's obligations under the ABL Facility and the guarantees thereof, are secured in favor of the Senior Secured Credit Facility, the Company is not required to repay a portion of the Term Loan during fiscal 2012 and was not required to repay a portion of the Term Loan during fiscal 2011, fiscal 2010 or fiscal 2009.

            The THD Guarantee was valued at $106 million at the issuance of the Senior Secured Credit Facility in August 2007 and was being amortized to interest expense over the original five-year life of the Term Loan on a straight-line basis which approximates the effective interest method. As a result of the extension of the THD Guarantee

            Index to Financial Statements

            on the extended Term Loan, the amortization period of a pro-rata portion of the unamortized THD Guarantee has also been extended, on a straight-line basis, until April 1, 2014. During fiscal 2011, fiscal 2010, and fiscal 2009 the Company recorded amortization of the guarantee of $13 million, $14 million, and $21 million, respectively, which is reflected in Interest Expense in the Consolidated Statements of Operations. In connection with the $30 million prepayment of the non-extending portion of the Term Loan under the Senior Secured Credit Facility, the Company wrote-off the unamortized pro-rata portion of the THD Guarantee and the unamortized pro-rata portion of deferred debt costs, resulting in a pre-tax charge of $2 million in fiscal 2010. This charge is reflected in Other (income) expense, net in the Consolidated Statements of Operations.

            The Revolving Credit Facility is due August 30, 2013 and bears interest at Prime plus 3.0% or LIBOR plus 4.0% at the Company’s election. The Revolving Credit Facility also has a 0.5% unused commitment fee and a Letter of Credit fee of 4.0% per annum. There were no amounts outstanding under the Revolving Credit Facility as of January 29, 2012 or January 30, 2011. During fiscal 2011, the Revolving Credit Facility had an average outstanding balance of zero. During fiscal 2010, the Revolving Credit Facility had an average outstanding balance of $125 million at a weighted average interest rate of 4.28%. As of January 29, 2012 and January 30, 2011, there were no outstanding Letters of Credit under the Revolving Credit Facility. Interest on the Revolving Credit Facility is due at the end of each calendar quarter with respect to Prime rate draws or at the maturity of each LIBOR draw (unless said draw is for a six-, nine-, or twelve-month period, then interest shall be paid quarterly).

            In addition to Home Depot’s guarantee of the Term Loan payments, the Senior Secured Credit Facility is further collateralizedU.S. ABL collateral agent, by (i) all of the capital stock of HD Supply, Inc.the Company, all capital stock of all domestic subsidiaries directly owned by the Company and its subsidiary guarantorsthe Subsidiary Guarantors and by 65% of the capital stock of itsany foreign subsidiaries as well assubsidiary held directly by the Company or any Subsidiary Guarantor (it


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by the Company and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens described inbetween the guarantee and collateral agreement dated as of August 30, 2007. The Senior Secured CreditTerm Loan Facility, contains various restrictive covenants including limitations on additional indebtedness and dividend payments and stipulations regarding the use of proceeds from asset dispositions. The Company is in compliance with all such covenants. The Senior Secured Credit Facility is subject to an acceleration clause under an Event of Default, as defined inFirst Priority Notes, the Senior Secured Credit Facility agreement. Management believes the likelihood of such acceleration to be remote.

            Asset Based Lending Credit Agreement

            The Company maintains a $2.1 billion asset based lending credit agreement (the “ABL Credit Facility”) subject to borrowing base limitations. On March 19, 2010, the Company entered into the Limited Consent and Amendment No. 3 (the “ABL Amendment”) to its ABL Credit Facility, dated as of August 30, 2007, by and among the Company, certain subsidiaries of the Company, GE Business Financial Services Inc. (formerly known as Merrill Lynch Business Financial Services Inc.), as administrative agent and collateral agent, GE Canada Finance Holding Company, as Canadian administrative agent and Canadian collateral agent,Second Priority Notes and the several lenders and financial institutions from time to time parties thereto. Pursuant to the ABL Amendment, the Company (i) converted approximately $214 million of commitmentsFacility.

                    The Canadian obligations under the ABL Credit Facility into a term loan (the “ABL Term Loan”), (ii) extended the maturity date of approximately $1,537 millionare also secured by liens on substantially all assets of the commitmentsCanadian Borrower and the Canadian Guarantors, subject to certain exceptions.

            Covenants

                    The ABL Facility contains a number of covenants that, among other things, limit or restrict the Company's ability and, in certain cases, the Company's subsidiaries to make acquisitions, mergers, consolidations, dividends, and to prepay certain indebtedness (including the First Priority Notes, the Second Priority Notes, the 11.5% Senior Notes, the 7.5% Senior Notes, and the Senior Subordinated Notes), in each case to the extent any such transaction would reduce availability under the ABL Credit Facility (the “ABL Revolving Credit Facility”) from August 30, 2012 to the later of April 1, 2014 and the maturity date of the extended Term Loan under the Cash Flow Amendment, and (iii) reduced the total commitments under the ABL Credit Facility by approximately $45 million. The ABL Term Loan does not amortize and the entire principal amount thereof is due and payable on the later of April 1, 2014 and the maturity date of the extended Term Loan under the Senior Secured Credit Facility, as amended. The remaining approximately $304 million of commitments under the ABL Credit Facility mature on the original maturity date of such commitments, i.e. August 30, 2012. The ABL Credit Facility can be repaid at any time without penalty or premium.below a specified amount.

            The ABL Amendment provided for a borrowing rate of Prime plus 2.25% or LIBOR plus 3.25% per annum applicable to the ABL Term Loan and increased the borrowing margins applicable to the extended portion of the ABL Revolving Credit Facility by 175 basis points and the commitment fee applicable to such portion by 50

            Index to Financial Statements

            basis points, such that the extended ABL Revolving Credit Facility bears interest at Prime plus 2.25% or LIBOR plus 3.25% per annum at the Company’s election and contains an unused commitment fee of 0.75%. The non-extended ABL Revolving Credit Facility continues to bear interest at Prime plus 0.5% or LIBOR plus 1.5% per annum at the Company’s election and contain an unused commitment fee of 0.25%.

            As of January 29, 2012, there were no amounts outstanding under the ABL Revolving Credit Facility due August 30, 2012 or the ABL Revolving Credit Facility due April 1, 2014. During fiscal 2011, the ABL Term Loan had an average outstanding balance of $214 million at a weighted average interest rate of 3.50%, the ABL Revolving Credit Facility due August 30, 2012 had an average outstanding balance of $12 million at a weighted average interest rate of 1.76%, and the ABL Revolving Credit Facility due April 1, 2014 had an average outstanding balance of $77 million at a weighted average interest rate of 3.51%. During fiscal 2010, the ABL Term Loan had an average outstanding balance of $214 million at a weighted average interest rate of 3.60%, the ABL Revolving Credit Facility due August 30, 2012 had an average outstanding balance of $59 million at a weighted average interest rate of 2.01%, and the ABL Revolving Credit Facility due April 1, 2014 had an average outstanding balance of $57 million at a weighted average interest rate of 3.58%.

            As of January 29, 2012, the Company had available borrowings under the ABL Credit Facility of $993 million, after giving effect to the borrowing base limitations and letters of credit issued and including $57 million of borrowings available on qualifying cash balances. The Company can use up to $400 million of its available borrowing under the ABL Credit Facility for Letters of Credit which are charged a fee of 1.5% per annum for amounts borrowed under the non-extended portion and 3.25% per annum for amounts borrowed under the extended portion. As of January 29, 2012, there were approximately $9 million and $57 million, respectively, of Letters of Credit outstanding under the ABL Credit Facility due August 30, 2012 and April 1, 2014, respectively. As of January 30, 2011, there were approximately $11 million and $60 million, respectively, of Letters of Credit outstanding under the ABL Credit Facility due August 30, 2012 and April 1, 2014, respectively.

            The ABL Credit Facility contains various restrictive covenants including a limitation on the amount of dividends to be paid.        In addition, if the Company’sCompany's specified excess availability (including an amount by which the Company's borrowing base exceeds the existing commitments) under the ABL Credit Facility falls below $210the greater of $150 million and 10% of the aggregate commitments (a “Liquidity Event”"Liquidity Event"), the Company will be required to maintain a Fixed Charge Coverage Ratio of at least 1.0:1.0, as defined in the ABL Credit Facility. The Company is in compliance with all such covenants.

                    The ABL Credit Facility is collateralized by all of the capital stock of HD Supply, Inc. and its subsidiary guarantors and by 65% of the capital stock of its foreign subsidiaries as well as by other tangible and intangible assets owned by the Company subject to the priority of liens described in the guarantee and collateral agreement dated as of August 30, 2007. The ABL Credit Facility is subject to an acceleration clause in a Liquidity Event or an Event of Default, as defined in the ABL Credit Facility agreement. Under such acceleration, the administrative agent can direct payments from the Company’s depository accounts to directly pay down the outstanding balance under the ABL Credit Facility. Management believes the likelihood of such acceleration to be remote.

            In connection with the Cash Flow Amendment and ABL Amendment, the Company incurred financing fees of approximately $34 million, of which approximately $31 million were deferred and is being amortized into interest expense over the term of the amended facilities in accordance with U.S. GAAP for debt modifications (ASC 470-50, Debt-Modifications and Extinguishments). The non-deferred financing fees are reported in Other (income) expense, net in the Consolidated Statements of Operations.

            Lehman Brothers and Woodlands Commercial Bank

            Lehman Brothers Special Financing Inc. and Lehman Commercial Paper, Inc. (together “Lehman Brothers”) is committed to fund up to $95 million of the non-extended portion of the Company’s $2.1 billion ABL Credit Facility, maturing August 30, 2012, and Woodlands Commercial Bank (“Woodlands,” f/k/a Lehman Commercial Bank, an affiliate of Lehman Brothers) is committed to fund $100 million of the Company’s $300 million original availability under the Revolving Credit Facility.

            Index to Financial Statements

            On September 15, 2008, Lehman Brothers filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (“Lehman’s bankruptcy”). Subsequent to Lehman’s bankruptcy, the Company drew down on the ABL Credit Facility and Lehman Brothers failed to fund their portion of the ABL Credit Facility commitment. Lehman is currently in the process of emerging from bankruptcy and is expected to cure their default on the ABL Credit Facility commitment. As of January 29, 2012, there were no outstanding borrowings under the ABL Credit Facility from Lehman Brothers.

            On April 21, 2011, the Company drew down the entire $300 million Revolving Credit Facility and Woodlands failed to fund their $100 million Revolving Credit Facility commitment. The following day, the Company repaid the entire Revolving Credit Facility balance. As a result of Woodlands’ default, the Company no longer pays the 0.5% unused commitment fee on Woodlands’ $100 million Revolving Credit Facility commitment and the Revolving Credit Facility is effectively reduced to $200 million.

            12.0% Senior Notes

            On August 30, 2007, the Company issued $2.5 billion of Senior Notes bearing interest at a rate of 12.0% (the “12.0% Senior Notes”). Interest payments are due each March 1st and September 1st through maturity. The 12.0% Senior Notes mature on September 1, 2014 and can be redeemed by the Company as follows:

            Redemption Period

            Redemption Price

            September 1, 2011 – August 31, 2012

            		106% plus accrued interest

            September 1, 2012 – August 31, 2013

            		103% plus accrued interest

            September 1, 2013 – Thereafter

            		100% plus accrued interest

            The 12.0% Senior Notes contain various restrictivealso contains certain affirmative covenants, including limitations on additional indebtednessfinancial and dividend payments and stipulations regarding the use of proceeds from asset dispositions.other reporting requirements. The Company is in compliance with all such covenants.

            13.5%Senior Secured Term Loan Facility

                    The Term Loan Facility consists of a senior secured Term Loan Facility (the "Term Loan Facility"; the term loan thereunder, the "Term Loan") providing for a Term Loan in an aggregate principal amount of $1,000 million (net of $30 million of original issue discount). The Term Loan Facility also permits the Company to add one or more incremental term loans, revolving or letter of credit facilities of up to $250 million plus a certain amount depending on a secured first lien leverage ratio test included in the Term Loan Facility. The Term Loan bears interest at LIBOR (subject to a floor of 1.25%) plus a borrowing margin of 6.00% or Prime plus a borrowing margin of 5.00% at the Company's election, payable at the end of each calendar quarter with respect to Prime rate draws or at the maturity of each LIBOR draw (unless a draw is for a six-, nine-, or twelve-month period, then interest shall be paid quarterly). The Term Loan amortizes in nominal quarterly installments, beginning September 30, 2012, equal to 0.25% of the original aggregate principal amount of the Term Loan and matures on October 12, 2017; provided that the individual applicable lenders may agree to extend the maturity of their respective Term Loans upon the Company's request and without the consent of any other applicable lender. See Note 17, Subsequent Events—Debt Modification, for information about an amendment to the Term Loan Facility.

                    The Term Loan Facility is senior secured indebtedness of the Company and ranks equal in right of payment with all of the Company's existing and future senior indebtedness and senior in right of payment to all of the Company's existing and future subordinated indebtedness.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

                    The Term Loan Facility is guaranteed, on a senior secured basis, by the Subsidiary Guarantors. These guarantees are subject to release under customary circumstances. The guarantee of each Subsidiary Guarantor is a senior secured obligation of that Subsidiary Guarantor and ranks equal in right of payment with all existing and future senior indebtedness of that Subsidiary Guarantor and senior in right of payment to all existing and future subordinated indebtedness of such Subsidiary Guarantor.

            Collateral

                    The Term Loan Facility and the related guarantees are secured by a first-priority security interest in the Cash Flow Priority Collateral, subject to permitted liens. In addition, the Term Loan Facility and the related guarantees are secured by a second-priority security interest in the ABL Priority Collateral, subject to permitted liens.

            Prepayment

                    Prior to the first anniversary of the closing date of the Term Loan Facility, the loans under the Term Loan Facility may not be optionally prepaid. During the second and third years following the closing date of the Term Loan Facility, the Term Loans may be optionally prepaid at a price of 102% and 101%, respectively, of the principal amount being prepaid. On and after the third anniversary of the closing date of the Term Loan Facility, the Term Loans may be prepaid without premium or penalty. Under certain circumstances and subject to certain exceptions, the Term Loan Facility will be subject to mandatory prepayment in an amount equal to:

              •
              100% of the net proceeds (other than those that are used to purchase certain assets or to repay certain other indebtedness) of certain asset sales and certain insurance recovery events; and

              •
              50% of annual excess cash flow for any fiscal year, such percentage to decrease to 0% depending on the attainment of certain secured leverage ratio targets.

                    In addition, upon the incurrence of certain events constituting a Change of Control (as defined in the credit agreement governing the Term Loan Facility (the "Term Loan Credit Agreement")), the Company must offer to prepay the Term Loans (unless otherwise repaid) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repayment date.

            Guarantee

                    The Company is the borrower under the Term Loan Facility. The Subsidiary Guarantors guarantee the Company's payment obligations under the Term Loan Facility.

                    The Company's obligations under the Term Loan Facility and the guarantees thereof are secured in favor of the collateral agent by (i) all of the capital stock of the Company, all capital stock of all domestic subsidiaries directly owned by the Company and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary owned directly by the Company or any Subsidiary Guarantors (it being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by the Company and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Term Loan Facility, the First Priority Notes, the Second Priority Notes and the ABL Facility.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Covenants

                    The Term Loan Facility contains a number of covenants that, among other things, limit the ability of the Company and its restricted subsidiaries, as described in the Term Loan Credit Agreement, to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of the Company's restricted subsidiaries to pay dividends to the Company or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with the Company's affiliates; and prepay or amend the terms of certain indebtedness.

                    The Term Loan Facility also contains certain affirmative covenants, including financial and other reporting requirements. The Company is in compliance with all such covenants.

            Events of Default under the ABL Facility and Term Loan Facility

                    The ABL Facility and Term Loan Facility also provide for customary events of default, including non-payment of principal, interest or fees, violation of covenants, material inaccuracy of representations or warranties, specified cross default and cross acceleration to other material indebtedness, certain bankruptcy events, certain ERISA events, material invalidity of guarantees or security interest, material judgments and changes of control.

            81/8% Senior Secured First Priority Notes due 2019

                    The Company issued $950 million of First Priority Notes under an Indenture, dated, and amended, as of April 12, 2012 (the "First Priority Indenture") among the Company, certain subsidiaries of the Company, as guarantors (the "Subsidiary Guarantors"), the Trustee, and the Note Collateral Agent. On August 2, 2012, the Company issued $300 million additional aggregate principal amount of its First Priority Notes (the "Additional Notes") at a premium of 107.5%. The First Priority Notes bear interest at a rate of 81/8% per annum and will mature on April 15, 2019. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on October 15, 2012.

                    The First Priority Notes are senior secured indebtedness of the Company and rank equal in right of payment with all of its existing and future senior indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness.

                    The First Priority Notes are guaranteed, on a senior secured basis, by each of the Company's Wholly Owned Domestic Subsidiaries (as defined in the First Priority Indenture), other than an Excluded Subsidiary (as defined in the First Priority Indenture), and by each of the Company's other Domestic Subsidiaries (as defined in the First Priority Indenture) that is a borrower under the ABL Facility or that guarantees payment of indebtedness of the Company under any Credit Facility or Capital Markets Securities (as defined in the First Priority Indenture). These guarantees are subject to release under customary circumstances as stipulated in the First Priority Indenture.

            Collateral

                    The First Priority Notes and the related guarantees are secured by a first-priority security interest in substantially all of the tangible and intangible assets of the Company and the Subsidiary Guarantors (other than the ABL Priority Collateral, in which the First Priority Notes and the related guarantees have a second priority security interest), including pledges of all Capital Stock of the Company's


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Restricted Subsidiaries directly owned by the Company and the Subsidiary Guarantors (but only up to 65% of each series of Capital Stock of each direct Foreign Subsidiary owned by the Company or any Subsidiary Guarantor), subject to certain thresholds, exceptions and permitted liens, and excluding any Excluded Assets (as defined in the First Priority Indenture) and Excluded Subsidiary Securities (as defined in the First Priority Indenture) (the "Cash Flow Priority Collateral").

                    In addition, the First Priority Notes and the related guarantees are secured by a second-priority security interest in substantially all of the Company's and the Subsidiary Guarantors' present and future assets which secure the Company's obligations under the ABL Facility on a first priority basis, including accounts receivable, inventory and other related assets and all proceeds thereof, subject to permitted liens. Such assets are referred to as the "ABL Priority Collateral." (The Cash Flow Priority Collateral and the ABL Priority Collateral together are referred to herein as the "Collateral.")

            Redemption

                    The Company may redeem the First Priority Notes, in whole or in part, at any time (1) prior to April 15, 2015, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the First Priority Indenture and (2) on and after April 15, 2015, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 15 of the year set forth below.

            Year
            		 Percentage 

            2015

            		  106.094%

            2016

            		  104.063%

            2017

            		  102.031%

            2018 and thereafter

            		  100.000%

                    In addition, at any time prior to April 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the First Priority Notes with the proceeds of certain equity offerings at a redemption price of 108.125% of the principal amount in respect of the First Priority Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the First Priority Notes are redeemed, an aggregate principal amount of First Priority Notes equal to at least 50% of the original aggregate principal amount of First Priority Notes must remain outstanding immediately after each such redemption of First Priority Notes.

            11% Senior Secured Second Priority Notes due 2020

                    The Company issued $675 million aggregate principal amount of Second Priority Notes under an Indenture, dated, and amended, as of April 12, 2012 (the "Second Priority Indenture"), among the Company, the Subsidiary Guarantors, the Trustee, and the Note Collateral Agent. The Second Priority Notes bear interest at a rate of 11% per annum and will mature on April 15, 2020. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on October 15, 2012.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

                    The Second Priority Notes are senior secured indebtedness of the Company and rank equal in right of payment with all of the Company's existing and future senior indebtedness and senior in right of payment to all of the Company's existing and future subordinated indebtedness.

                    The Second Priority Notes are guaranteed, on a senior secured basis, by each of the Company's Wholly Owned Domestic Subsidiaries (as defined in the Second Priority Indenture), other than an Excluded Subsidiary (as defined in the Second Priority Indenture), and by each of the Company's other Domestic Subsidiaries (as defined in the Second Priority Indenture) that is a borrower under the ABL Facility or that guarantees payment of indebtedness of the Company under any Credit Facility or Capital Markets Securities (as defined in the Second Priority Indenture). These guarantees are subject to release under customary circumstances as stipulated in the Second Priority Indenture.

            Collateral

                    The Second Priority Notes and the related guarantees are secured by a second-priority security interest in the Cash Flow Priority Collateral, subject to permitted liens. In addition, the Second Priority Notes and the related guarantees are secured by a third-priority security interest in the ABL Priority Collateral, subject to permitted liens.

            Redemption

                    The Company may redeem the Second Priority Notes, in whole or in part, at any time (1) prior to April 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the Second Priority Indenture and (2) on and after April 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 15 of the year set forth below.

            Year
            		 Percentage 

            2016

            		  105.500%

            2017

            		  102.750%

            2018 and thereafter

            		  100.000%

                    In addition, at any time prior to April 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the Second Priority Notes with the proceeds of certain equity offerings at a redemption price of 111.000% of the principal amount in respect of the Second Priority Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the Second Priority Notes are redeemed, an aggregate principal amount of Second Priority Notes equal to at least 50% of the original aggregate principal amount of Second Priority Notes must remain outstanding immediately after each such redemption of Second Priority Notes.

            11.5% Senior Unsecured Notes due 2020

                    The Company issued $1,000 million aggregate principal amount of 11.5% Senior Notes under an Indenture, dated, and amended, as of October 15, 2012 ("11.5% Senior Notes Indenture") among the Company, certain subsidiaries of the Company as guarantors (the "Subsidiary Guarantors") and the


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Trustee. The 11.5% Senior Notes bear interest at a rate of 11.5% per annum and will mature on July 15, 2020. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on April 15, 2013.

                    The 11.5% Senior Notes are unsecured senior indebtedness of the Company and rank equal in right of payment with all of the Company's existing and future senior indebtedness, senior in right of payment to all of the Company's existing and future subordinated indebtedness, and effectively subordinated to all of the Company's existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness.

                    The 11.5% Senior Notes are guaranteed, on a senior unsecured basis, by each of the Company's direct and indirect domestic existing and future subsidiaries that is a wholly owned domestic subsidiary (other than certain excluded subsidiaries), and by each other domestic subsidiary that is a borrower under the ABL Facility or that guarantees the Company's obligations under any credit facility or capital markets securities. These guarantees are subject to release under customary circumstances as stipulated in the 11.5% Senior Notes Indenture.

            Redemption

                    The Company may redeem the 11.5% Senior Notes, in whole or in part, at any time (1) prior to October 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the 11.5% Senior Notes Indenture and (2) on and after October 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on October 15 of the year set forth below.

            Year
            		 Percentage 

            2016

            		  105.750%

            2017

            		  102.875%

            2018 and thereafter

            		  100.000%

                    In addition, at any time prior to October 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the 11.5% Senior Notes with the proceeds of certain equity offerings at a redemption price of 111.50% of the principal amount in respect of the 11.5% Senior Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the 11.5% Senior Notes are redeemed, an aggregate principal amount of the 11.5% Senior Notes equal to at least 50% of the original aggregate principal amount of the 11.5% Senior Notes must remain outstanding immediately after each such redemption of the 11.5% Senior Notes.

            7.5% Senior Unsecured Notes due 2020

                    The Company issued $1,275 million aggregate principal amount of 7.5% Senior Notes under an Indenture, dated, and amended, as of February 1, 2013 ("7.5% Senior Notes Indenture") among the Company, certain subsidiaries of the Company as guarantors (the "Subsidiary Guarantors") and the Trustee. The 7.5% Senior Notes bear interest at a rate of 7.5% per annum and will mature on July 15,


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            2020. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on April 15, 2013.

                    The 7.5% Senior Notes are unsecured senior indebtedness of the Company and rank equal in right of payment with all of the Company's existing and future senior indebtedness, senior in right of payment to all of the Company's existing and future subordinated indebtedness, and effectively subordinated to all of the Company's existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness.

                    The 7.5% Senior Notes are guaranteed, on a senior unsecured basis, by each of the Company's direct and indirect domestic existing and future subsidiaries that is a wholly owned domestic subsidiary (other than certain excluded subsidiaries), and by each other domestic subsidiary that is a borrower under the ABL Facility or that guarantees the Company's obligations under any credit facility or capital markets securities. These guarantees are subject to release under customary circumstances as stipulated in the 7.5% Senior Notes Indenture.

            Redemption

                    The Company may redeem the 7.5% Senior Notes, in whole or in part, at any time (1) prior to October 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the 7.5% Senior Notes Indenture and (2) on and after October 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on October 15 of the year set forth below.

            Year
            		 Percentage 

            2016

            		  103.750%

            2017

            		  101.875%

            2018 and thereafter

            		  100.000%

                    In addition, at any time prior to October 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the 7.5% Senior Notes with the proceeds of certain equity offerings at a redemption price of 107.50% of the principal amount in respect of the 7.5% Senior Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the 7.5% Senior Notes are redeemed, an aggregate principal amount of the 7.5% Senior Notes equal to at least 50% of the original aggregate principal amount of the 7.5% Senior Notes must remain outstanding immediately after each such redemption of the 7.5% Senior Notes.

            14.875% Senior Unsecured Notes due 2020

                    The Company issued approximately $757 million aggregate principal amount (net of $30 million of original issue discount) of 14.875% Senior Notes under an Indenture, dated as of April 12, 2012 (the "14.875% Senior Notes Indenture"), among the Company, the Subsidiary Guarantors and Wilmington Trust, National Association, as Trustee to investment funds associated with Bain Capital Partners, LLC, Carlyle Investment Management, LLC and Clayton, Dubilier & Rice, LLC, the Equity Sponsors. The


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            14.875% Senior Notes bore interest at a rate of 14.875% per annum and were scheduled to mature on October 12, 2020. Interest was to be paid semi-annually in arrears on each April 12th and October 12th through maturity, commencing on October 12, 2012, except that the first eleven payment periods through October 2017 were to be paid in kind ("PIK") and therefore increase the balance of the outstanding indebtedness rather than paid in cash. On October 12, 2012, the Company made a PIK payment of $56 million, increasing the outstanding principal balance to approximately $813 million.

                    The Company was permitted to redeem the 14.875% Senior Notes, in whole or in part, at any time prior to April 12, 2015, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the 14.875% Senior Notes Indenture. On February 1, 2013, the Company repurchased the 14.875% Senior Notes in accordance with the redemption provisions of the 14.875% Senior Notes Indenture.

            10.5% Senior Subordinated Notes due 2021

                    The Company issued $950 million aggregate principal amount of 10.5% Senior Subordinated Notes due 2021 ("Senior Subordinated Notes") under an Indenture, dated as of January 16, 2013 ("Senior Subordinated Notes Indenture") among the Company, certain subsidiaries of the Company as guarantors (the "Subsidiary Guarantors") and the Trustee. The Senior Subordinated Notes bear interest at a rate of 10.5% per annum and will mature on January 15, 2021. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on April 15, 2013.

                    The Senior Subordinated Notes are unsecured senior subordinated indebtedness of the Company and rank subordinated in right of payment to all the Company's existing and future senior indebtedness, equal in right of payment with all of the Company's existing and future senior subordinated indebtedness, and effectively subordinated to all of the Company's existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness.

                    The Senior Subordinated Notes are guaranteed, on an unsecured senior subordinated basis, by each of the Company's direct and indirect domestic existing and future subsidiaries that is a wholly owned domestic subsidiary (other than certain excluded subsidiaries), and by each other domestic subsidiary that is a borrower under the ABL Facility or that guarantees the Company's obligations under any credit facility or capital markets securities. These guarantees are subject to release under customary circumstances as stipulated in the Senior Subordinated Notes Indenture.

            Redemption

                    The Company may redeem the Senior Subordinated Notes, in whole or in part, at any time (1) prior to January 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the Senior Subordinated Notes Indenture and (2) on and after January 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on January 15 of the years set forth below.

            Year
            		 Percentage 

            2016

            		  107.875%

            2017

            		  105.250%

            2018

            		  102.625%

            2019 and thereafter

            		  100.000%

                    In addition, at any time after July 31, 2013 and on or before July 31, 2014, the Company may also redeem up to 100% of the aggregate principal amount of the Senior Subordinated Notes with funds in an equal aggregate amount not exceeding the aggregate proceeds of certain qualified public equity offerings at a redemption price (expressed as a percentage of principal amount) of (x) if such redemption occurs on or prior to January 31, 2014, 103% and (y) if such redemption occurs after January 31, 2014 and on or prior to July 31, 2014, 102%, in each case plus accrued and unpaid interest, if any, to the redemption date; provided, however, that if less than 100% of the Senior Subordinated Notes are to be redeemed in any qualified public offering redemption, at least 33.33% of the original aggregate principal amount of Senior Subordinated Notes must remain outstanding immediately after giving effect to such qualified public offering redemption.

                    In addition to the foregoing, at any time prior to January 15, 2016, the Company may redeem up to 35% of the aggregate principal amount of the Senior Subordinated Notes with the proceeds of certain equity offerings at a redemption price of 110.50% of the principal amount in respect of the Senior Subordinated Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the Senior Subordinated Notes are redeemed, an aggregate principal amount of Senior Subordinated Notes equal to at least 50% (or 35% if any redemption in connection with certain qualified public equity offerings shall have been consummated) of the original aggregate principal amount of Senior Subordinated Notes must remain outstanding immediately after each such redemption of Senior Subordinated Notes.

            First Priority Notes and Second Priority Notes (collectively the "Priority Notes"), 11.5% Senior Notes and 7.5% Senior Notes (collectively the "Senior Notes"), and Senior Subordinated Notes

            Offer to Repurchase

                    In the event of certain events that constitute a Change of Control (as defined in the First Priority Indenture and Second Priority Indenture, collectively the "Priority Indentures," the 11.5% Senior Notes Indentures and the 7.5% Senior Notes Indentures, collectively the "Senior Indentures," and the Senior Subordinated Notes Indenture), the Company must offer to repurchase all of the Priority Notes, Senior Notes, and Senior Subordinated Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. If the Company sells assets under certain circumstances, the Company must use the proceeds to make an offer to purchase the Priority Notes, Senior Notes, and Senior Subordinated Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Covenants

                    The Priority Indentures, Senior Indentures, and Senior Subordinated Notes Indenture contain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of the Company's restricted subsidiaries to pay dividends to the Company or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; and enter into certain transactions with the Company's affiliates. Most of these covenants will cease to apply for so long as the Priority Notes, Senior Notes, and Senior Subordinated Notes have investment grade ratings from both Moody's Investment Services, Inc. and Standard & Poor's. The Company is in compliance with all such covenants.

            Events of Default

                    The Priority Indentures, Senior Indentures, and Senior Subordinated Notes Indenture also provide for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and other monetary obligations on all the then outstanding Priority Notes, Senior Notes, and Senior Subordinated Notes to be due and payable immediately. The Priority Indentures, Senior Indentures, and Senior Subordinated Notes also provide for specified cross default and cross acceleration to other material indebtedness.

            Registration Rights Agreements

                    The 11.5% Senior Notes and the guarantees have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). The Company has agreed to make an offer to exchange the 11.5% Senior Notes for registered, publicly tradable notes that have substantially identical terms as the 11.5% Senior Notes within 270 days following the original issue date of the 11.5% Senior Notes. The Company is obligated to pay additional interest, up to a maximum additional interest rate of 0.50% per annum, on the 11.5% Senior Notes if the exchange offer has not been completed within 360 days following the original issue date of the 11.5% Senior Notes.

                    The Priority Notes and the guarantees have not been registered under the Securities Act. The Company has agreed to make an offer to exchange the Priority Notes for registered, publicly tradable notes that have substantially identical terms as the Priority Notes within 270 days following the original issue date of the Priority Notes. The Company is obligated to pay additional interest, up to a maximum additional interest rate of 0.50% per annum, on the Priority Notes if the exchange offer has not been completed within 360 days following the original issue date of the Priority Notes.

                    On January 31, 2013, the Company filed a registration statement on Form S-4/A with the SEC in accordance with the registration rights agreements relating to the 11.5% Senior Notes and Priority Notes. On January 31, 2013, the registration statement was declared effective by the SEC. See Note 17, Subsequent Events—Exchange Offers, for additional information regarding this exchange offer.

                    The Senior Subordinated Notes and the guarantees have not been registered under the Securities Act. The Company has agreed to make an offer to exchange the Senior Subordinated Notes for registered, publicly tradable notes that have substantially identical terms as the Senior Subordinated Notes within 270 days following the original issue date of the Senior Subordinated Notes. The Company is obligated to pay additional interest, up to a maximum additional interest rate of 0.50% per


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            annum, on the Senior Subordinated Notes if the exchange offer has not been completed within 360 days following the original issue date of the Senior Subordinated Notes.

                    On January 31, 2013, the Company filed a registration statement on Form S-4/A with the SEC in accordance with the registration rights agreements relating to the Senior Subordinated Notes. On January 31, 2013, the registration statement was declared effective by the SEC. See Note 17, Subsequent Events—Exchange Offers, for additional information regarding this exchange offer.

                    The 7.5% Senior Notes and the guarantees have not been registered under the Securities Act of 1933, as amended. The Company has agreed to make an offer to exchange the 7.5% Senior Notes for registered, publicly tradable notes that have substantially identical terms as the 7.5% Senior Notes within 270 days following the original issue date of the 7.5% Senior Notes. The Company is obligated to pay additional interest, up to a maximum additional interest rate of 0.50% per annum, on the 7.5% Senior Notes if the exchange offer has not been completed within 360 days following the original issue date of the 7.5% Senior Notes.

            Old Senior Subordinated Notes

            On August 30, 2007, the Company issued $1.3 billion$1,300 million aggregate principal amount of Senior Subordinated PIK Notes due 2015 bearing interest at a rate of 13.5% (the “13.5%"Old Senior Subordinated Notes”Notes"). Interest payments arewere due each March 1st1st and September 1st1st through maturity except that the first eight payment periods through September 2011 were paymentspaid in kind (“PIK”("PIK") and therefore increased the balance of the outstanding indebtedness rather than paid in cash. During fiscal 2009,

                    On May 15, 2012, the Company repurchased $252$1 million aggregate principal amount,of its Old Senior Subordinated Notes at a price of 97% plus accrued interestinterest. On November 8, 2012, the Company redeemed $930 million aggregate principal of $15its outstanding Old Senior Subordinated Notes at a price of 103.375% plus $23 million of accrued interest. As of February 3, 2013, $889 million of the 13.5%Company's Old Senior Subordinated Notes for $62 million. Asremained outstanding. On January 9, 2013, the Company issued a result, we recognized a $200 million pre-tax gain fornotice of redemption, subject to the extinguishment of this portionrequired thirty-day notification period, to redeem all of the 13.5%remaining $889 million aggregate principal outstanding of Old Senior Subordinated Notes, net of the write-off of unamortized deferred debt issuance costs. As a result of PIK interest capitalizations and the extinguishment of a portion of the principal, as of January 29, 2012, the outstanding principal balance of the 13.5% Senior Subordinated Notes was $1.8 billion.

            The 13.5% Senior Subordinated Notes mature on September 1, 2015 and can be redeemed by the Company as follows:

            Redemption Period

            Redemption Price

            September 1, 2011 – August 31, 2012

            		106.75% plus accrued interest

            September 1, 2012 – August 31, 2013

            		103.375% plus accrued interest

            September 1, 2013 – Thereafter

            		100% plus accrued interest

            The 13.5% Senior Subordinated Notes contain various restrictive covenants including limitations on additional indebtedness and dividend payments and stipulations regarding the use of proceeds from asset dispositions. The Company is in compliance with all such covenants.

            Index to Financial Statements

            The 12.0% Senior Notes and the 13.5% Senior Subordinated Notes are both fully and unconditionally guaranteed by the Company’s direct or indirect wholly-owned domestic subsidiaries. These guarantees can automatically be released under customary circumstances, including the sale of the assets of the subsidiary providing the guarantee.Notes. See the section titled “Description of Notes” of the Company’s Registration Statement on Form S-4 filed with the SEC on July 27, 2009 for a detailed description of the Company’s outstanding notes, including a discussion of each of the circumstances under which subsidiary guarantees may be released.Note 17, Subsequent Events—Debt Redemption.

            Debt Maturities

            Maturities of long-term debt outstanding, in principal amounts, at January 29, 2012February 3, 2013 are summarized below (amounts in millions):

            Fiscal Year

            		  Maturities 

            2012

            		  $82  

            2013

            		   10  

            2014

            		   3,550  

            2015

            		   1,820  
              

             

             

            		 

            Total

            		  $5,462  
              

             

             

            		 

            NOTE 7—DERIVATIVE INSTRUMENTS

            The Company maintained interest rate swap agreements to exchange fixed and variable rate interest payment obligations without the exchange

             
            		 Fiscal Year  
            		  
            		 
             
            		 2013(1) 2014 2015 2016 2017 Thereafter Total 

            Principal maturities

            		 $899 $10 $10 $10 $1,255 $5,150 $7,334 
            (1)
            Includes $889 million of the underlying principal amounts. At execution, the swaps were designated as hedging the exposure to variable cash flows of a forecasted transaction, wherebyCompany's Old Senior Subordinated Notes due 2015. On January 9, 2013, the Company pays fixed interest and receives variable interest, effectively converting $400 millionissued a notice of floating-rate debtredemption, subject to fixed rate debt. Swaps with a combined $200 million notional value matured on January 31, 2010. The remaining swaps with a combined $200 million notional value matured on January 31, 2011, the first day of fiscal 2011. As of January 30, 2011, the fair value of the swaps was a liability of $1 million and was included in Other current liabilities in the Consolidated Balance Sheet.

            The following tables summarize the weighted average rates and notional amounts of these agreements for the periods presented (dollars in millions).

               Fiscal Year Ended 
               January 29,
            2012            		   January 30,
            2011            		  January 31,
            2010            		 

            Weighted average notional value outstanding

            		   —      $200   $400  

            Weighted average fixed rate paid

            		   —       3.9%   3.8% 

            Weighted average floating rate received

            		   —       0.3%   0.3% 

               As of 
               January 29,
            2012            		   January 30,
            2011            		 

            Weighted average notional value outstanding

            		   —      $200  

            Weighted average fixed rate paid

            		   —       3.9% 

            Weighted average floating rate received

            		   —       0.3% 

            A subsidiary of Lehman Brothers Holdings, Inc. (“Lehman”) is the original counterpartyrequired thirty-day notification period, to these interest rate swap agreements. The expected and ultimate filing of bankruptcy by Lehman caused HD Supply to conclude on September 12, 2008 (the “date of de-designation”) that the ability of the counterparty to meet its obligations under the swap agreements was remote. Therefore, on September 12, 2008, HD Supply removed the designation

            Index to Financial Statements

            of the swaps as cash flow hedges, discontinued hedge accounting and considered these swaps economic hedges until their expiration. On June 16, 2009, Lehman assigned the counterparty position on the two interest rate swaps that matured on January 31, 2011 to Wells Fargo Foothill, LLC.

            On the date of de-designation, the aggregate fair value of the swaps was a liability of $6 million. In accordance with the derivatives and hedging principles of U.S. GAAP (ASC 815, Derivatives and Hedging), the net loss was retained in Accumulated other comprehensive income (loss) (“OCI”) and was reclassified into earnings in the same periods in which the original hedged forecasted transactions affected earnings. As of January 30, 2011,redeem all of the unrealized losses have been reclassified from OCI into Interest expense. Changes in the fair valueremaining $889 million outstanding Old Senior Subordinated Notes. See Note 17, Subsequent Events—Debt Redemption.


            Table of the swaps following the date of de-designation were recognized in earnings.Contents

            The following table summarizes the location and amounts of the gains or losses related to derivatives included in
            HD Supply’s consolidated financial statements for the periods presented (amounts in millions):SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

               

            Location of gain (loss) in

            statement of operations

            		  Fiscal
            2011            		   Fiscal
            2010            		  Fiscal
            2009            		 

            Changes in fair value

            		  Other income (expense), net  $1    $(6)  $11  

            Amortization of net loss remaining in OCI at de-designation

            		  Interest (expense)   —       (2)   (3) 

            Settlements

            		  Interest (expense)   —       (8)   (14) 

            NOTE 8—7—FAIR VALUE MEASUREMENTS

            The fair value measurements and disclosure principles of U.S. GAAP (ASC 820, Fair Value Measurements and Disclosures) define fair value, establish a framework for measuring fair value and provide disclosure requirements about fair value measurements. These principles define a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

            Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;

            Level 1—

            		Quoted prices (unadjusted) in active markets for identical assets or liabilities;

            Level 2—

            		Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly;

            Level 3—

            		Unobservable inputs in which little or no market activity exists.

            Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly;

            Level 3 – Unobservable inputs in which little or no market activity exists.

            The Company’s financial assets and liabilities measured at fair value on a recurring basis as of January 29, 2012 and January 30, 2011 were as follows (amounts in millions):

               Quoted Prices in
            Active Markets for
            Identical Assets
            (Level 1)            		   Significant Other
            Observable  Inputs
            (Level 2)            		  Significant
            Unobservable
            Inputs
            (Level 3)            		   Total 

            At January 29, 2012:

            		       

            Interest Rate Swap Contracts

            		  $—      $—     $—      $—    

            At January 30, 2011:

            		       

            Interest Rate Swap Contracts

            		  $—      $(1)  $—      $(1) 

            Index to Financial Statements

            The Company’sCompany's financial instruments that are not reflected at fair value on the balance sheet were as follows as of January 29, 2012 and January 30, 2011 (amounts in millions):

             
            		 As of February 3, 2013 As of January 29, 2012 
             
            		 Recorded
            Amount(1)            		 Estimated
            Fair Value(1)            		 Recorded
            Amount(1)            		 Estimated
            Fair Value(1)            		 

            ABL Facility

            		 $300 $292 $— $— 

            Term Loans and Notes

            		  7,034  7,573  5,462  5,070 
                      

            Total

            		 $7,334 $7,865 $5,462 $5,070 
                      
            (1)
            These amounts do not include accrued interest; accrued interest is classified as Other current liabilities and Other liabilities in the accompanying Consolidated Balance Sheets. These amounts do not include any related discounts and premiums.

                    

               As of January 29, 2012   As of January 30, 2011 
               Recorded
            Amount(1)            		   Estimated
            Fair Value            		   Recorded
            Amount(1)            		   Estimated
            Fair Value            		 

            Term Loan due August 30, 2012

            		  $73    $73    $74    $74  

            Term Loan due April 1, 2014

            		   855     855     864     871  

            ABL Term Loan due April 1, 2014

            		 �� 214     207     214     207  

            12.0% Senior Notes due September 1, 2014

            		   2,500     2,388     2,500     2,338  

            13.5% Senior Subordinated Notes due September 1, 2015

            		   1,820     1,547     1,597     1,198  
              

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

            Total

            		  $5,462    $5,070    $5,249    $4,688  
              

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

            (1)These amounts do not include accrued interest; accrued interest is classified as Other current liabilities in the accompanying Consolidated Balance Sheets.

            The Company utilized Level 2 inputs, as defined in the fair value hierarchy, to measure the fair value of the long-term debt.

            The Old Term Loan isLoans outstanding as of January 29, 2012 were guaranteed by Home Depot. BasedTherefore, management's estimates of fair value for the Old Term Loans were based on a review of the fair value of debt issued by companies with similar credit ratings as Home Depot, management estimates that asDepot. For all of January 29, 2012, the Company's other debt instruments, management's fair value of the Term Loan due August 30, 2012 was approximately 99-101% of the principal value, or $73 million, and the Term Loan due April 1, 2014 is approximately 99-101% of principal, or $855 million. Management estimated that as of January 30, 2011, the fair value of the Term Loan due August 30, 2012 was approximately 99-101% of the principal value, or $74 million, and the Term Loan due April 1, 2014 was approximately 100-102% of principal, or $871 million.

            The Company’s fair value estimates for the ABL Credit Facility, 12.0% Senior Notes, and 13.5% Senior Subordinated Notes were based on recent similar credit facilities initiated by companies with like credit quality in similar industries, quoted prices for similar instruments, and inquiries with certain investment communities. Based on this data, management estimates that as of January 29, 2012, the fair value of the ABL Term Loan due April 1, 2014 was approximately 94-100% of the principal value, or $207 million, the fair value of the 12.0% Senior Notes was approximately 93-98% of the principal value, or $2,388 million, and the fair value of the 13.5% Senior Subordinated Notes was approximately 80-90% of principal value, or $1,547 million. Management estimated that as of January 30, 2011, the fair value of the ABL Term Loan due April 1, 2014 was approximately 94-100% of the principal value, or $207 million, the fair value of the 12.0% Senior Notes was approximately 87-100% of the principal value, or $2,338 million, and the fair value of the 13.5% Senior Subordinated Notes was approximately 65-85% of principal value, or $1,198 million.

            NOTE 9—8—INCOME TAXES

            The components of Income (Loss) from Continuing Operations before Provision (Benefit) for Income Taxes are as follows (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3, 2013 January 29, 2012 January 30, 2011 

            United States

            		 $(1,210)$(503)$(606)

            Foreign

            		  14  19  21 
                    

            Total

            		 $(1,196)$(484)$(585)
                    

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    

               Fiscal Year Ended 
               January 29,
            2012            		  January 30,
            2011            		  January 31,
            2010            		 

            United States

            		  $(503)  $(606)  $(678) 

            Foreign

            		   19    21    —    
              

             

             

            		  

             

             

            		  

             

             

            		 

            Total

            		  $(484)  $(585)  $(678) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            Index to Financial Statements

            The Provision (Benefit) for Income Taxes consisted of the following (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3, 2013 January 29, 2012 January 30, 2011 

            Current:

            		          

            Federal

            		 $— $— $— 

            State

            		  3  3  2 

            Foreign

            		  2  —  6 
                    

            		  5  3  8 

            Deferred:

            		          

            Federal

            		  (3) 64  12 

            State

            		  (1) 6  4 

            Foreign

            		  —  (5) 4 

            Foreign realization of tax deductible goodwill from prior acquisitions

            		  2  11  — 
                    

            		  (2) 76  20 
                    

            Total

            		 $3 $79 $28 
                    

                    

               Fiscal Year Ended 
               January 29,
            2012            		  January 30,
            2011            		   January 31,
            2010            		 

            Current:

            		     

            Federal

            		  $—     $—      $—    

            State

            		   3    2     4  

            Foreign

            		   —      6     —    
              

             

             

            		  

             

             

            		   

             

             

            		 
               3    8     4  

            Deferred:

            		     

            Federal

            		   64    12     (182) 

            State

            		   6    4     (20) 

            Foreign

            		   (5)   4     —    

            Foreign realization of tax deductible goodwill from prior acquisitions

            		   11    —       —    
              

             

             

            		  

             

             

            		   

             

             

            		 
               76    20     (202) 
              

             

             

            		  

             

             

            		   

             

             

            		 

            Total

            		  $79   $28    $(198) 
              

             

             

            		  

             

             

            		   

             

             

            		 

            The Company’sCompany's combined federal, state and foreign effective tax rate for continuing operations for fiscal 2012, fiscal 2011, and fiscal 2010 and fiscal 2009 was approximately (16.4%(0.2%), (4.8%(16.4%), and 29.2%(4.8%), respectively.

            The Company’sCompany's effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and the related tax rates in the jurisdictions where it operates, restructuring and other one-time charges, as well as discrete events, such as settlements of future audits. The Company’sCompany's fiscal 2012, fiscal 2011 and fiscal 2010 effective tax rates were significantly impacted by the recording of a valuation allowance on its net U.S. deferred tax assets. The fiscal 2012 and fiscal 2011 valuation allowance was directly impacted by the increasing of the deferred tax liability for U.S. goodwill amortization for tax purposes. The deferred tax liability related to the Company’sCompany's U.S. tax deductible goodwill must be considered as a liability related to an asset with an indefinite life. Therefore, the deferred tax liability does not amortize and is not available as a source of taxable income to support the realization of deferred tax assets created by other deductible temporary timing difference.differences.

                    The Company’s fiscal 20092012 effective tax rate was significantlyalso impacted by financialthe goodwill impairments.impairment of an indefinite life intangible asset for book purposes. The fiscal 2012 goodwill impairment created a deferred tax asset which reduced the fiscal 2012 tax expense by decreasing the deferred tax liability associated with indefinite life intangibles which prior to the impairment could not serve as a source of taxable income. In addition, the tax expense for fiscal 2012 was also reduced by an adjustment to the Company's valuation allowance as a result of the acquisition of additional deferred tax liabilities in conjunction with the Peachtree acquisition.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

            The reconciliation of the provision (benefit) for income taxes from continuing operations at the federal statutory rate of 35% to the actual tax provision (benefit) for fiscal 2012, fiscal 2011, and fiscal 2010 and fiscal 2009 is as follows (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3, 2013 January 29, 2012 January 30, 2011 

            Income taxes at federal statutory rate

            		 $(419)$(169)$(205)

            State income taxes, net of federal income tax benefit

            		  (53) (24) (15)

            Non-deductible goodwill impairment

            		  17  —  — 

            Non-deductible interest

            		  14  15  13 

            Valuation allowance

            		  442  259  228 

            Adjustments to tax reserves

            		  (1) 12  4 

            Other, net

            		  3  (14) 3 
                    

            Total provision (benefit)

            		 $3 $79 $28 
                    

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    

               Fiscal Year Ended 
               January 29,
            2012            		  January 30,
            2011            		  January 31,
            2010            		 

            Income taxes at federal statutory rate

            		  $(169)  $(205)  $(237) 

            State income taxes, net of federal income tax benefit

            		   (24)   (15)   (25) 

            Non-deductible goodwill impairment

            		   —      —      41  

            Non-deductible interest

            		   15    13    12  

            Valuation allowance

            		   259    228    7  

            Adjustments to tax reserves

            		   12    4    3  

            Other, net

            		   (14)   3    1  
              

             

             

            		  

             

             

            		  

             

             

            		 

            Total provision (benefit)

            		  $79   $28   $(198) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            Index to Financial Statements

            The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of February 3, 2013 and January 29, 2012 and January 30, 2011 were as follows (amounts in millions):

             
            		 February 3, 2013 January 29, 2012 

            Current:

            		       

            Deferred Tax Assets:

            		       

            Interest

            		 $131 $33 

            Allowance for doubtful accounts

            		  9  12 

            Inventory

            		  37  49 

            Accrued compensation

            		  1  3 

            Accrued self-insurance liabilities

            		  5  5 

            Restructuring liabilities

            		  4  7 

            Other accrued liabilities

            		  23  27 

            Valuation allowance

            		  (167) (76)
                  

            Current deferred tax assets

            		  43  60 

            Deferred Tax Liabilities:

            		       

            Prepaid expense

            		 $(1)$(1)
                  

            Current deferred tax liabilities

            		  (1) (1)

            Noncurrent:

            		       

            Deferred Tax Assets:

            		       

            Interest

            		 $— $236 

            Accrued compensation

            		  33  27 

            Accrued self-insurance liabilities

            		  13  15 

            Other accrued liabilities

            		  7  8 

            Deferred revenue

            		  8  8 

            Restructuring liabilities

            		  29  32 

            Net operating loss

            		  830  374 

            Net capital loss carryforward

            		  —  10 

            Fixed assets

            		  23  16 

            Other

            		  22  21 

            Valuation allowance

            		  (758) (415)
                  

            Noncurrent deferred tax assets

            		  207  332 

            Deferred Tax Liabilities:

            		       

            Deferred Financing Costs

            		 $(8)$(24)

            Software costs

            		  (25) (23)

            Intangible assets

            		  (193) (316)

            Income from discharge of indebtedness

            		  (80) (80)
                  

            Noncurrent deferred tax liabilities

            		  (306) (443)
                  

            Deferred tax assets (liabilities), net

            		 $(57)$(52)
                  

                    The Company reported $6 million of long-term deferred tax assets related to its Canadian business within other assets on its balance sheet.

               January 29,
            2012            		  January 30,
            2011            		 

            Current:

            		   

            Deferred Tax Assets:

            		   

            Interest

            		  $33   $—    

            Allowance for doubtful accounts

            		   12    14  

            Inventory

            		   49    60  

            Accrued compensation

            		   3    2  

            Accrued self-insurance liabilities

            		   5    21  

            Restructuring liabilities

            		   7    31  

            Other accrued liabilities

            		   27    26  

            Valuation allowance

            		   (76)   (51) 
              

             

             

            		  

             

             

            		 

            Current deferred tax assets

            		   60    103  

            Deferred Tax Liabilities:

            		   

            Prepaid expense

            		  $(1)  $(1) 
              

             

             

            		  

             

             

            		 

            Current deferred tax liabilities

            		   (1)   (1) 

            Noncurrent:

            		   

            Deferred Tax Assets:

            		   

            Interest

            		  $212   $180  

            Accrued compensation

            		   27    18  

            Accrued self-insurance liabilities

            		   15    —    

            Other accrued liabilities

            		   8    8  

            Deferred revenue

            		   8    8  

            Restructuring liabilities

            		   32    —    

            Net operating loss

            		   374    291  

            Net capital loss carryforward

            		   10    —    

            Fixed assets

            		   16    22  

            Other

            		   21    16  

            Valuation allowance

            		   (415)   (188) 
              

             

             

            		  

             

             

            		 

            Noncurrent deferred tax assets

            		   308    355  

            Deferred Tax Liabilities:

            		   

            Software costs

            		  $(23)  $(23) 

            Intangible assets

            		   (316)   (357) 

            Income from discharge of indebtedness

            		   (80)   (76) 
              

             

             

            		  

             

             

            		 

            Noncurrent deferred tax liabilities

            		   (419)   (456) 
              

             

             

            		  

             

             

            		 

            Deferred tax assets (liabilities), net

            		  $(52)  $1  
              

             

             

            		  

             

             

            		 

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    In fiscal 2012, the Company recorded a valuation allowance on its total U.S. operations of $434 million of which $442 million related to continuing operations which was reduced by $8 million for discontinued operations. In fiscal 2011, the Company recorded a valuation allowance on its total U.S. operations of $252 million of which $259 million related to continuing operations which was reduced by $7 million for discontinued operations. In fiscal 2010, the Company recorded a valuation allowance on its total U.S. operations of $230 million of which $228 million related to continuing operations and $2 million related to discontinued operations. In fiscal 2009, the Company recorded a valuation allowance on its total U.S. operations of $7 million which was comprised entirely of continuing operations. The Company records a valuation allowance when it is “more"more likely than not”not" that some portion or all of the deferred income tax assets will not be realized. In reaching this determination, the Company considers the future reversals of taxable temporary differences, future taxable income, exclusive of taxable temporary differences and carryforwards, taxable income in prior carry-backcarryback years and tax planning strategies.

            During the first quarter of fiscal 2010, the Company designated the undistributed earnings of certain aspects of its foreign operations as not permanently reinvested. In fiscal 2012, the Company repatriated $29 million of cash which resulted in $3 million of income tax expense in the U.S. In fiscal 2011, the Company did not repatriate cash from its foreign operations to the U.S. If the company had repatriated cash to the U.S., no additional income tax expense would have been generated. In fiscal 2010, the Company repatriated $33 million of cash which resulted in $2 million of income tax expense in the U.S. In general, to the extent the Company’sCompany's financial reporting book basis

            Index to Financial Statements

            over tax basis of a foreign subsidiary exceeds the cash available for repatriation, deferred taxes have not been provided for, as they are essentially permanent in duration. If these amounts were not considered reinvested, it is estimated that no additional deferred taxes of zero would have been provided.provided for.

            As of January 29, 2012,February 3, 2013, the Company has tax-effected U.S. federal net operating loss carryforwards of $245$636 million which expire beginning in fiscal 2029. The Company also has $102$158 million of nettax effected state net operating loss carryfowards which expire in various years between fiscal 20122013 and fiscal 2030. During fiscal 2011,2012, the Company generated a capital gain from the sale of the IPVF business. The capital gain allowed the Company to fully utilize the fiscal 2011 capital loss carryforward of $10 million capital loss associated with the Company’sCompany's exit from the Plumbing business, which can be carried forward to offset future capital gain income. The availability to use the capital loss expires in fiscal 2016.business. The future utilization of the Company's net operating losses andloss carryforwards could be limited if the capital loss could also be impacted by SectionsCompany experiences an "ownership change," as defined in Section 382 and 383 of the Internal Revenue Code of 1986, shouldas amended. In general, an “ownership change” occur. Section 382 and 383 contain rules thatownership change may limitresult from transactions increasing the ability of a company that undergoes an “ownership change”, which generally is any change inaggregate ownership of certain persons (or groups of persons) in the Company's stock by more than 50% of its common stock50 percentage points over a three-yeartesting period to utilize its net operating loss carryfowards to offset taxable income in periods after the ownership change.(generally 3 years).

            There was no net income tax benefit or expense included in discontinued operations in fiscal 2012, fiscal 2011 or fiscal 2010. The amount of income tax benefit included in discontinued operations for fiscal 2009 was $19 million.

            Federal, state and foreign income taxes net receivable (payable) total $4 millionzero and $3$4 million as of February 3, 2013 and January 29, 2012, and January 30, 2011, respectively, and are included in Other current assets in the Consolidated Balance Sheets.respectively.

            Accounting for uncertain tax positions

            The Company follows the U.S. GAAP guidance for uncertain tax positions within ASC 740, Income Taxes. ASC 740 requires application of a “more"more likely than not”not" threshold to the recognition and de-recognition of tax positions. It further requires that a change in judgment related to prior years’years' tax positions be recognized in the quarter of such change. A reconciliation of the beginning and ending


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

            amount of unrecognized tax benefits for continuing operations for fiscal 2012, fiscal 2011, and fiscal 2010 and fiscal 2009 is as follows (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3,
            2013            		 January 29,
            2012            		 January 30,
            2011            		 

            Unrecognized Tax Benefits beginning of period

            		 $196 $192 $190 

            Gross increases for tax positions in current period

            		  —  —  1 

            Gross increases for tax positions in prior period

            		  2  6  4 

            Gross decreases for tax positions in prior period

            		  0  —  — 

            Settlements

            		  (1) (1) (3)

            Lapse of statutes

            		  (4) (1) — 
                    

            Unrecognized Tax Benefits end of period

            		 $193 $196 $192 
                    

                    

               Fiscal Year Ended 
               January 29,
            2012            		  January 30,
            2011            		  January 31,
            2010            		 

            Unrecognized Tax Benefits beginning of period

            		  $192   $190   $206  

            Gross increases for tax positions in current period

            		   —      1    1  

            Gross increases for tax positions in prior period

            		   6    4    —    

            Gross decreases for tax positions in prior period

            		   —      —      (16) 

            Settlements

            		   (1)   (3)   —    

            Lapse of statutes

            		   (1)   —      (1) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            Unrecognized Tax Benefits end of period

            		  $196   $192   $190  
              

             

             

            		  

             

             

            		  

             

             

            		 

            There are $193 million, $196 million, $192 million, and $140$192 million of unrecognized tax benefits included in the balance at February 3, 2013, January 29, 2012, and January 30, 2011, and January 31, 2010, respectively, whose resolution could affect the annual effective income tax rate.

            The Company accrued $3 million, $5 million, $2 million, and $3$2 million of net interest and penalties related to unrecognized tax benefits for fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively. The Company’sCompany's ending net accrual for interest and penalties related to unrecognized tax benefits at February 3, 2013, January 29, 2012, and January 30, 2011 and January 31, 2010 was $22 million, $19 million, $14 million, and $12$14 million, respectively. The Company’sCompany's accounting policy is to classify interest and penalties as components of income tax expense. Accrued interest and penalties from unrecognized tax benefits are included as a component of Otherother liabilities on the Consolidated Balance Sheet.

            The Company is subject to audits and examinations of its tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service.Service ("IRS"). Management regularly assesses the likelihood of adverse outcomes

            Index to Financial Statements

            resulting from these examinations to determine the adequacy of provisions for income taxes. Certain of the Company’sCompany's tax years 2006 and forward remain open for audit by the IRS and various state governments. The Company does not anticipate any significant changes in its unrecognized tax benefits over the next twelve months.

                    See Note 13, Commitments and Contingencies, for discussion on the IRS audit of the Company's U.S. federal income tax returns.

            NOTE 10—9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

            Stock-Based Compensation Plan

            Effective December 4, 2007, HDS Investment Holding,HD Supply Holdings, Inc. (“Holding”("Holding") established a Stock Incentive Plan (the “HDS Plan”"HDS Plan") for associates of HD Supply, a wholly-owned subsidiary. The HDS Plan provides for the award of non-qualified stock options and deferred share units of the common stock of Holding. Holding will issue new shares of common stock to satisfy options exercised.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)

            Under the terms of the HDS Plan, non-qualified stock options are to carry exercise prices at, or above, the fair market value of Holding’sHolding's stock on the date of the grant. Since Holding common stock is not publicly traded, the fair market value of the stock is determined by the Board of Directors of Holding based on such factors as it deems appropriate, including but not limited to the earnings and other financial and operating information of the Company in recent periods, the potential value of the Company as a whole, the future prospects of the Company and the industries in which it competes, the history and management of the Company, the general condition of the securities markets, the fair market value of securities of companies engaged in businesses similar to those of the Company, and any recent valuation of the common stock of Holding that shall have been performed by an independent valuation firm (although the Board of Directors of Holding is not obligated to obtain such a valuation). The non-qualified stock options generally vest at the rate of 20% per year commencing on the first anniversary date of the grant or 100% on the third anniversary of the grant and expire on the tenth anniversary date of the grant. The Company made a one-time grant in April 2011 of 10.6 million options with an exercise price of $4.15 that vests in its entirety on the three-year anniversary of the grant.

            On January 15, 2010, the Company initiated a one-time stock option exchange program (“("Option Exchange Program”Program"). Under the Option Exchange Program, all participants of the HDS Plan were offered the opportunity to exchange their outstanding options (the “Eligible Options”"Eligible Options") to purchase shares of Holding’sHolding's common stock (the “Common Stock”"Common Stock") granted under the HDS Plan for a lesser number of new options (as determined in accordance with the exchange ratios below) under the HDS Plan.

            The Option Exchange Program covered all options that were outstanding under the HDS Plan, including vested and unvested options, at the time of the offer. Eligible Options that had an exercise price greater than $10.00 per share were offered for exchange for a lesser number of options with a new exercise price equal to $4.15 per share (the “Repriced Options”"Repriced Options"). For every three Eligible Options with an exercise price greater than $10.00 per share, an eligible employee was offered two new Repriced Options. Options that had an exercise price equal to $10.00 per share were offered for exchange for an equal number of options with an exercise price equal to $10.00 per share (the “New"New $10.00 Options”Options", and together with the Repriced Options, the “New Options”"New Options").

            Regardless of the vesting status of the Eligible Options, the New Options have a five-year vesting period, with 20% of the New Options vesting on each anniversary of the date of exchange and an expiration date that is ten years from the date of exchange. All of the New Options are subject to the terms and conditions of the HDS Plan and the eligible employee’semployee's new stock option agreement.

            The offering period for the Option Exchange Program commenced on January 15, 2010 and expired on February 2, 2010. Participation in the Option Exchange Program was voluntary. However, once an eligible employee elected to participate, all of his or her Eligible Options were exchanged. Once the offer to exchange expired, all Eligible Options that were surrendered for exchange were cancelled and the New Options were granted.


            Table of Contents

            Index to Financial Statements

            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)

            On February 3, 2010, as a result of employee elections under the Option Exchange Program, the Company exchanged and issued the following options:

            Number of Eligible Options Exchanged

            		  20,484,001 

            Number of Repriced Options issued in the Option Exchange Program

            		  6,828,025 

            Number of New $10.00 Options issued in the Option Exchange
            Program

            		  10,242,002 

            As a result of the exchange, the Company will incur incremental stock-based compensation charges of approximately $1 million per year over the five years following the exchange date. The maximum number of shares of common stock that may be issued under the HDS Plan subsequent to the Option Exchange Program may not exceed 55.6 million, of which a maximum of 30.9 million shares may be issued in respect of options granted under the HDS Plan.

            A summary of option activity under the HDS Plan is presented below (shares in thousands):

             
            		 Number of Shares Weighted Average Option Price 

            Outstanding at January 31, 2010

            		  20,899 $13.13 
                  

            Granted(1)

            		  21,495  7.66 

            Exercised

            		  —  — 

            Canceled(2)

            		  (23,927) 12.41 
                  

            Outstanding at January 30, 2011

            		  18,467 $7.69 
                  

            Granted

            		  12,485  4.62 

            Exercised

            		  —  — 

            Canceled

            		  (1,415) 6.63 
                  

            Outstanding at January 29, 2012

            		  29,537 $6.44 
                  

            Granted

            		  1,894  8.09 

            Exercised

            		  (49) 7.34 

            Canceled

            		  (1,746) 7.34 
                  

            Outstanding at February 3, 2013

            		  29,636 $6.50 
                  
            (1)
            Includes shares granted in conjunction with the Option Exchange Program

            (2)
            Includes shares canceled in conjunction with the Option Exchange Program

                    

               Number of
            Shares            		  Weighted Average
            Option Price            		 

            Outstanding at February 1, 2009

            		   22,049   $13.13  
              

             

             

            		  

             

             

            		 

            Granted

            		   1,582    13.13  

            Exercised

            		   —      —    

            Canceled

            		   (2,732)   13.13  
              

             

             

            		  

             

             

            		 

            Outstanding at January 31, 2010

            		   20,899   $13.13  
              

             

             

            		  

             

             

            		 

            Granted1

            		   21,495    7.66  

            Exercised

            		   —      —    

            Canceled2

            		   (23,927)   12.41  
              

             

             

            		  

             

             

            		 

            Outstanding at January 30, 2011

            		   18,467   $7.69  
              

             

             

            		  

             

             

            		 

            Granted

            		   12,485    4.62  

            Exercised

            		   —      —    

            Canceled

            		   (1,415)   6.63  
              

             

             

            		  

             

             

            		 

            Outstanding at January 29, 2012

            		   29,537   $6.44  
              

             

             

            		  

             

             

            		 

            1 –Includes shares granted in conjunction with the Option Exchange Program.
            2 –Includes shares canceled in conjunction with the Option Exchange Program.

            As of January 29, 2012,February 3, 2013, there were approximately 29.529.6 million stock options outstanding with a weighted average remaining life of 8.67.7 years. As of January 29, 2012,February 3, 2013, there were approximately 3.66.9 million options exercisable with a weighted average exercise price of $7.78$7.72 and a weighted average remaining life of 8.17.1 years.

            The estimated fair value of the options when granted is amortized to expense over the options’options' vesting or required service period. The fair value for these options was estimated by management, after considering a third-party valuation specialist’sspecialist's assessment, at the date of grant based on the expected


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)

            life of the option and historical exercise experience, using a Black-Scholes option pricing model with the following weighted-average assumptions:

             
            		 Fiscal Year Ended 
             
            		 February 3,
            2013            		 January 29,
            2012            		 January 30,
            2011            		 

            Risk-free interest rate

            		  1.1% 2.8% 3.0%

            Dividend yield

            		  0.0% 0.0% 0.0%

            Expected volatility factor

            		  47.6% 46.0% 48.9%

            Expected option life in years

            		  6.5  6.6  6.8 

                    

               Fiscal Year Ended 
               January 29,
            2012            		  January 30,
            2011            		  January 31,
            2010            		 

            Risk-free interest rate

            		   2.8%   3.0%   2.9% 

            Dividend yield

            		   0.0%   0.0%   0.0% 

            Expected volatility factor

            		   46.0%   48.9%   50.5% 

            Expected option life in years

            		   6.6    6.8    7.3  

            Index to Financial Statements

            The risk free interest rate was determined based on an analysis of U.S. Treasury zero-coupon market yields as of the date of the option grant for issues having expiration lives similar to the expected option life. The expected volatility was based on an analysis of the historical volatility of HD Supply’sSupply's competitors over the expected life of the HD Supply options. These volatilities were weighted by the respective HD Supply segment against which they compete, resulting in an overall industry-based volatility for HD Supply. As insufficient data exists to determine the historical life of options issued under the HDS Plan, the expected option life was determined based on the vesting schedule of the options and their contractual life taking into consideration the expected time in which the share price of Holding would exceed the exercise price of the option. The weighted-average fair value of each option granted during fiscal 2012, fiscal 2011, and fiscal 2010 was $2.41, $1.99, and fiscal 2009 was $1.99, $1.64, and $1.63, respectively. HD Supply recognized $16 million, $20 million, $17 million, and $18$17 million of stock-based compensation expense related to stock options, included in Selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss), during fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively. As of January 29, 2012February 3, 2013 the unamortized compensation expense related to stock options was $32$20 million and was expected to be recognized over a period of 4.8 years.

            Employee Benefit Plans

            HD Supply offers a comprehensive Health & Welfare Benefits Program which allows employees who satisfy certain eligibility requirements to choose among different levels and types of coverage. The Health & Welfare Benefits program provides employees healthcare coverage in which the employer and employee share costs. In addition, the Program offers employees the opportunity to participate in various voluntary coverages, including flexible spending accounts.

            HD Supply maintains a 401(k) defined contribution plan that is qualified under Sections 401(a) and 501(a) of the Internal Revenue Code. Employees who satisfy the plan’splan's eligibility requirements may elect to contribute a portion of their compensation to the plan on a pre-tax basis. HD Supply may match a percentage of the employees’employees' contributions to the plan based on approval from the Board of Directors. Matching contributions are generally made shortly after the end of each pay period or shortly after the Company’sCompany's fiscal year-end if an additional annual matching contribution based on the Company’sCompany's fiscal-year financial results is approved. HD Supply paid $15 million, $7 million, and less than $1 million and $3 million during fiscal 2012, fiscal 2011, and fiscal 2010, and fiscal 2009, respectively.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 11—STOCKHOLDER’S10—STOCKHOLDER'S EQUITY

            Common Stock

            The Company is authorized to issue 1,000 shares of common stock, par value $0.01 per share. As of February 3, 2013 and January 29, 2012, and January 30, 2011, 1,000 shares were issued and outstanding.

            Accumulated Other Comprehensive Income (Loss)

            As of        On both February 3, 2013 and January 29, 2012, and January 30, 2011 accumulated other comprehensive income (loss) is comprised of $(2) million and $(1) million, respectively, of cumulative foreign currency translation adjustments, net.

            NOTE 12—11—SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

            Receivables

            Receivables as of February 3, 2013 and January 29, 2012 and January 30, 2011 consisted of the following (amounts in millions):

               January 29,
            2012            		   January 30,
            2011            		 

            Trade receivables, net of allowance for doubtful accounts

            		  $919    $837  

            Vendor rebate receivables

            		   71     60  

            Other receivables

            		   12     10  
              

             

             

            		   

             

             

            		 

            Total receivables, net

            		  $1,002    $907  
              

             

             

            		   

             

             

            		 

            Index to Financial Statements
             
            		 February 3,
            2013            		 January 29,
            2012            		 

            Trade receivables, net of allowance for doubtful accounts

            		 $926 $919 

            Vendor rebate receivables

            		  66  71 

            Other receivables

            		  16  12 
                  

            Total receivables, net

            		 $1,008 $1,002 
                  

            Property and Equipment

            Property and equipment as of February 3, 2013 and January 29, 2012 and January 30, 2011 consisted of the following (amounts in millions):

               January 29,
            2012            		  January 30,
            2011            		 

            Land

            		  $42   $45  

            Buildings and improvements

            		   206    214  

            Transportation equipment

            		   44    20  

            Furniture, fixtures and equipment

            		   298    288  

            Capitalized software

            		   185    177  

            Construction in progress

            		   40    12  
              

             

             

            		  

             

             

            		 
               815    756  

            Less accumulated depreciation & amortization

            		   (417)   (366) 
              

             

             

            		  

             

             

            		 

            Property and equipment, net

            		  $398   $390  
              

             

             

            		  

             

             

            		 
             
            		 February 3,
            2013            		 January 29,
            2012            		 

            Land

            		 $37 $42 

            Buildings and improvements

            		  201  206 

            Transportation equipment

            		  60  44 

            Furniture, fixtures and equipment

            		  301  298 

            Capitalized software

            		  208  185 

            Construction in progress

            		  38  40 
                  

            		  845  815 

            Less accumulated depreciation & amortization

            		  (450) (417)
                  

            Property and equipment, net

            		 $395 $398 
                  

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 11—SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION (Continued)

            Other Current Liabilities

            Other current liabilities as of February 3, 2013 and January 29, 2012 and January 30, 2011 consisted of the following (amounts in millions):

               January 29,
            2012            		   January 30,
            2011            		 

            Accrued interest

            		  $233    $131  

            Accrued non-income taxes

            		   31     28  

            Branch closure & consolidation reserves

            		   16     18  

            Other

            		   98     95  
              

             

             

            		   

             

             

            		 

            Total other current liabilities

            		  $378    $272  
              

             

             

            		   

             

             

            		 
             
            		 February 3,
            2013            		 January 29,
            2012            		 

            Accrued interest

            		 $147 $233 

            Accrued non-income taxes

            		  34  31 

            Branch closure & consolidation reserves

            		  7  16 

            Other

            		  103  98 
                  

            Total other current liabilities

            		 $291 $378 
                  

            Significant Non-Cash Transactions

            Interest payments on the 13.5%14.875% Senior Notes were due each April 12th and October 12th through maturity, commencing on October 12, 2012, except that the first eleven payment periods through October 2017 should be paid in kind ("PIK") and therefore increase the balance of the outstanding indebtedness rather than paid in cash. The Company made non-cash PIK interest payments during fiscal 2012 of $56 million, increasing the outstanding principal balance of the 14.875% Senior Notes.

                    Interest payments on the Old Senior Subordinated Notes arewere due each March 1st and September 1st through maturity except that the first eight payment periods through September 2011 were payments in kind (“PIK”) and therefore increased the balance of the outstanding indebtedness rather than paid in cash.kind. The Company made non-cash PIK interest payments during fiscal 2011 fiscal 2010, and fiscal 20092010 of $223 million $196 million, and $172$196 million, respectively, increasing the outstanding balance of the 13.5%Old Senior Subordinated Notes.

            Supplemental Cash Flow Information

            Cash paid for interest in fiscal 2012, fiscal 2011, and fiscal 2010 and fiscal 2009 was approximately $621 million, $356 million, and $363 million, respectively. Additionally, during fiscal 2012, the Company paid $502 million of original issue discounts and $366PIK interest related to the extinguishment of all of the 14.875% Senior Notes and $930 million respectively.of Old Senior Subordinated Notes.

                    During fiscal 2010, as a result of recent tax legislation regarding net operating loss carry-backcarryback periods, the Company filed for and received a cash refund of $220 million from the Internal Revenue Service for income tax previously paid. During fiscal 2009, the Company received a cash refund of $134 million from the Internal Revenue Service for income tax previously paid. Cash paid for income taxes, net of refunds, in fiscal 2012, fiscal 2011, and fiscal 2010 and fiscal 2009 was approximately $1 million net payment, $5 million net payment, $216 million net refund, and $127$216 million net refund, respectively.

            NOTE 13—12—BRANCH CLOSURE AND CONSOLIDATION ACTIVITIES

            Fiscal        Concurrent with the Transactions and acquisition integration, management evaluated the operations and performance of individual branches and identified branches for closure or consolidation. In addition, during fiscal years 2008 and 2009, Plan

            In the third quarter of fiscal 2009, the Companymanagement initiated a planadditional plans to restructure its businessesbusiness, which included evaluating opportunities to consolidate branches, further reduce costs, more efficiently employ working capital

            Index to Financial Statements

            and streamline activities. Under this plan,these plans, which waswere completed in fiscal 2010, management closed or consolidated 25235 branches and reduced workforce personnel by


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 12—BRANCH CLOSURE AND CONSOLIDATION ACTIVITIES (Continued)

            approximately 5005,000 employees. The Company does not expect to incur any additional restructuring charges relatedunder these plans.

                    The remaining liability balances for these plans represents the net present value of future lease obligations, including rent, taxes, utilities, etc., less estimated sublease income of the closed branches. The Company regularly reviews the assumptions used to this plan.estimate these liabilities.

            During fiscal 2010        The following table presents the activity for the liability balances, included in Other current liabilities and fiscal 2009,Other liabilities in the Company recognizedConsolidated Balance Sheets (amounts in millions):

             
            		 Severance Occupancy
            Costs            		 Other Total 

            Balance—January 31, 2010

            		 $3 $66 $2 $71 
                      

            Charges, net of reductions

            		  2  4  2  8 

            Cash payments

            		  (4) (21) (2) (27)

            Other

            		  (1) 2  —  1 
                      

            Balance—January 30, 2011

            		 $— $51 $2 $53 
                      

            Charges, net of reductions

            		  —  2  —  2 

            Cash payments

            		  —  (13) (2) (15)
                      

            Balance—January 29, 2012

            		 $— $40 $— $40 
                      

            Charges, net of reductions

            		  —  (4) —  (4)

            Cash payments

            		  —  (14) —  (14)

            Other

            		  —  (1) —  (1)
                      

            Balance—February 3, 2013

            		 $— $21 $— $21 
                      

                    As of February 3, 2013, approximately $7 million and $14 million, respectively, in restructuring chargesof the liability balances for the branch closure and consolidation charges underactivities is classified as a current liability on the Fiscal 2009 Plan. The cash and non-cash restructuring charges were recordedCompany's Consolidated Balance Sheet. Payments for occupancy costs are expected to Restructuring expense inbe substantially complete over the Consolidated Statements of Operations.next five years, with certain property lease obligations extending out as far as eleven years. The Company regularly reviews the assumptions used to estimate the net present value of the on-going lease liabilities and other occupancy costs, net of expected sublease income. During fiscal 2011, the Company recorded an additional $2 million in occupancy costs due to actual results differing from the original assumptions within the Plumbing/HVAC business. As a result of the sale of the Plumbing/HVAC business, this charge is reflected within Discontinued operations, net of taxes, in the Consolidated Statements of Operations.

            The following table presents the activity for the liability balance, included in Other current liabilities and Other liabilities in the Consolidated Balance Sheets, related to closure and consolidation activities under the Fiscal 2009 Plan (amounts in millions):

               Severance  Occupancy Costs  Other  Total 

            Charges

            		  $5   $7   $2   $14  

            Cash payments

            		   (2)   —      —      (2) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Balance – January 31, 2010

            		  $3   $7   $2   $12  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Charges

            		   2    2    2    6  

            Cash payments

            		   (4)   (3)   (2)   (9) 

            Other

            		   (1)   1    —      —    
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Balance – January 30, 2011

            		  $—     $7   $2   $9  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Charges, net of reductions

            		   —      2    —      2  

            Cash payments

            		   —      (1)   (2)   (3) 

            Other

            		   —      —      —      —    
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Balance – January 29, 2012

            		  $—     $8   $—     $8  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Transactions & Acquisition Integration

            Concurrent with the Transactions and acquisition integration, management evaluated the operations and performance of individual branches and identified branches for closure or consolidation. In addition, during the fourth quarter of fiscal 2008, as a result of continued acquisition integration efforts, the decline in the residential construction market, and the general decline in economic conditions, management evaluated the operations and performance of individual branches and identified branches for closure or consolidation and a reduction in workforce. Under these plans, management closed or consolidated 210 branches and reduced workforce personnel by approximately 4,500 employees. The Company does not expect to incur additional restructuring charges under these plans.

            Index to Financial Statements

            The following table presents the activity for the liability balance, included in Other current liabilities and Other liabilities, related to closure and consolidation activities under the Transactions and Acquisition Integration plans (amounts in millions):

               Severance  Occupancy Costs  Other  Total 

            Balance – February 1, 2009

            		  $5   $97   $3   $105  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Charges, net of reductions

            		   7    (3)   1    5  

            Cash payments

            		   (12)   (28)   (4)   (44) 

            Effects of exchange rates

            		   —      1    —      1  

            Other

            		   —      (8)   —      (8) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Balance – January 31, 2010

            		  $—     $59   $—     $59  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Charges, net of reductions

            		   —      2    —      2  

            Cash payments

            		   —      (18)   —      (18) 

            Other

            		   —      1    —      1  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Balance – January 30, 2011

            		  $—     $44   $—     $44  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Cash payments

            		   —      (12)   —      (12) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Balance – January 29, 2012

            		  $—     $32   $—     $32  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            The Company regularly reviews the assumptions used to estimate the net present value of the on-going lease liabilities and other occupancy costs, net of expected sublease income. During fiscal 2010, the Company recorded an additional $2 million in occupancy costs due to actual results differing from the original assumptions. During the fourth quarter of fiscal 2009, management’s review resulted in a reduction to the lease liabilities due to several favorable lease dispositions, resulting in a reduction to Restructuring expense of $4 million related to previously incurred restructuring charges and a reduction to Selling, general and administrative expense of $8 million related to the lease reserves established under purchase accounting. During the first quarter of fiscal 2009, the Company incurred additional restructuring charges under these plans of $9 million, primarily related to severance.

            As of January 29, 2012, approximately $16 million of the liability balances for all branch closure and consolidation activities is classified as a current liability on the Company’s Consolidated Balance Sheet. Payments for occupancy costs, which represent the net present value of future lease obligations, including rent, taxes, utilities, etc., less estimated sublease income of the closed branches, are expected to be substantially complete over the next five years, with certain property lease obligations extending out as far as twelve years. The Company continues to actively pursue buyout options or subleasing opportunities for the leased properties. The expected timing of cash payments related to the branch closure and consolidation activities could change or adjustments to the reserve may become necessary depending on the success and timing of entering into these types of agreements. Due to favorable lease and property dispositions, during fiscal 2012, the Company reduced the liability by $4 million, $2 million of which was recorded to continuing operations and $2 million of which was recorded as Income from discontinued operations, net in the Consolidated Statement of Operations and Comprehensive Income (Loss).

            NOTE 14—13—COMMITMENTS AND CONTINGENCIES

            Lease CommitmentsNature of Business

            HD Supply, occupies certain facilitiesInc. (the "Company" or "HD Supply"), a wholly-owned subsidiary of HD Supply Holdings, Inc., is one of the largest industrial distribution companies in North America. With a diverse portfolio of industry-leading businesses, the Company provides a broad range of products and operates certain equipmentservices to more than 500,000 professional customers in the infrastructure and vehicles under leasesenergy, maintenance, repair and improvement, and specialty construction markets.

                    The Company provides an expansive offering of approximately one million stock-keeping units ("SKUs") of quality, name-brand and propriety-brand products at competitive prices. Through approximately 635 locations across 46 states and 9 Canadian provinces, HD Supply provides localized, customer-driven services including jobsite delivery, will call or direct-ship options, diversified logistics and innovative solutions that expirecontribute to its customers' success.

                    HD Supply is managed primarily on a product line basis and reports results of operations in four reportable segments. The reportable segments are Facilities Maintenance, Waterworks, Power Solutions, and White Cap. Other operating segments include Crown Bolt, Repair & Remodel, Creative Touch Interiors ("CTI"), and HD Supply Canada. In addition, the consolidated financial statements include Corporate, which includes enterprise-wide functional departments.

            Principles of Consolidation

                    The consolidated financial statements present the results of operations, financial position and cash flows of HD Supply, Inc. and its wholly-owned subsidiaries. All material intercompany balances and transactions are eliminated. Results of operations of businesses acquired are included from their respective dates of acquisition. The assets, liabilities, and results of operations of all discontinued operations have been separately reported as discontinued operations for all periods presented. Certain amounts in prior-period financial statements have been reclassified to conform to the current period's presentation.

            Fiscal Year

                    HD Supply's fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. Fiscal year ended February 3, 2013 ("fiscal 2012") includes 53 weeks. Fiscal years ended January 29, 2012 ("fiscal 2011") and January 30, 2011 ("fiscal 2010") both include 52 weeks.

            Estimates

                    Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reported amounts of revenues and expenses in preparing these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Actual results could differ from these estimates.

            Cash and Cash Equivalents

                    HD Supply considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Allowance for Doubtful Accounts

                    Accounts receivable are evaluated for collectability based on numerous factors, including past transaction history with customers, their credit worthiness, and an assessment of lien and bond rights. An allowance for doubtful accounts is estimated as a percentage of aged receivables. This estimate is periodically adjusted when management becomes aware of a specific customer's inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in historical collection patterns.

            Inventories

                    Inventories consist primarily of finished goods and are carried at various datesthe lower of cost or market. The cost of substantially all inventories is determined by the moving or weighted average cost method. Inventory value is evaluated at each balance sheet date to ensure that it is carried at the lower of cost or market. This evaluation includes an analysis of historical physical inventory results, a review of excess and obsolete inventories based on inventory aging, and anticipated future demand. Periodically, perpetual inventory records are adjusted to reflect declines in net realizable value below inventory carrying cost.

            Consideration Received From Vendors

                    HD Supply enters into agreements with many of its vendors providing for inventory purchase rebates ("vendor rebates") upon achievement of specified volume purchasing levels. Vendor rebates are accrued as part of cost of sales for products sold based on progress towards earning the vendor rebates, taking into consideration cumulative purchases of inventory to date and projected purchases through the year 2027. In additionend of the year. An estimate of unearned vendor rebates is included in the carrying value of inventory at each period end for vendor rebates recognized on products not yet sold. At February 3, 2013 and January 29, 2012, vendor rebates due to minimum rentals, there are certain executory costs such as real estate taxes, insurance, and common area maintenance on most of its facility leases. Expense under these leases totaled $151 million, $153HD Supply were $66 million and $161$71 million, respectively. These receivables are included in Receivables in the accompanying Consolidated Balance Sheets.

            Property and Equipment

                    Property and equipment are recorded at cost and depreciated using the straight-line method based on the following estimated useful lives of the assets:

            Buildings and improvements

            		5 - 45 years

            Transportation equipment

            		5 - 7 years

            Furniture, fixtures and equipment

            		2 - 10 years

            Capitalized Software Costs

                    HD Supply capitalizes certain software costs, which are being amortized on a straight-line basis over the estimated useful lives of the software, ranging from three to six years. At February 3, 2013 and January 29, 2012, capitalized software costs totaled $82 million and $71 million, respectively, net of accumulated amortization of $126 million and $114 million, respectively. Amortization of capitalized software costs totaled $30 million, $28 million, and $31 million, in fiscal 2012, fiscal 2011, and fiscal 2010, respectively.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Goodwill

                    Goodwill represents the excess of purchase price over fair value of net assets acquired. HD Supply does not amortize goodwill, but does assess the recoverability of goodwill in the third quarter of each fiscal year or whenever events or circumstances indicate that it is "more likely than not" that the fair value of a reporting unit has dropped below its carrying value. For the fiscal 2012, fiscal 2011 and fiscal 2009,2010 annual impairment tests, the fair values of HD Supply's identified reporting units were estimated using a discounted cash flow ("DCF") analysis and a market comparable method, with each method being equally weighted in the calculation. During fiscal 2012, the Company recorded a $150 million goodwill impairment charge. There were no goodwill impairment charges recorded in fiscal 2011 and fiscal 2010. See Note 5, Goodwill and Intangible Assets, for a complete description of the Company's goodwill.

            Impairment of Long-Lived Assets

                    Long-lived assets, including property and equipment, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. To analyze recoverability, undiscounted future cash flows over the remaining life of the asset are projected. If these projected cash flows are less than the carrying amount, an impairment loss is recognized to the extent the fair value of the asset less any costs of disposition is less than the carrying amount of the asset. Judgments regarding the existence of impairment indicators are based on market and operational performance. Evaluating potential impairment also requires estimates of future operating results and cash flows.

            Self-Insurance

                    HD Supply has a high deductible insurance program for most losses related to general liability, product liability, environmental liability, automobile liability, workers' compensation, and is self-insured for medical claims and certain legal claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience. At February 3, 2013 and January 29, 2012, reserves totaled approximately $94 million and $101 million, respectively.

            Fair Value of Financial Instruments

                    The carrying amounts of restricted and unrestricted cash and cash equivalents, accounts receivable and accounts payable, accrued compensation and benefits and other current liabilities approximate fair value due to the short-term nature of these financial instruments. The Company's long-term financial assets and liabilities are recorded at historical costs. See Note 7, Fair Value Measurements, for information on the fair value of long-term financial instruments.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Revenue Recognition

                    HD Supply recognizes revenue when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and collectability is reasonably assured.

                    HD Supply ships products to customers predominantly by internal fleet and to a lesser extent by third party carriers. Revenues, net of sales tax and allowances for returns and discounts, are recognized from product sales when title to the products is passed to the customer, which generally occurs at the point of destination for products shipped by internal fleet and at the point of shipping for products shipped by third party carriers. Revenues related to services are recognized in the period the services are performed and totaled $134 million, $115 million, and $98 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively.

            Shipping and Handling Fees and Costs

                    HD Supply includes shipping and handling fees billed to customers in Net sales. Shipping and handling costs associated with inbound freight are capitalized to inventories and relieved through Cost of sales as inventories are sold. Shipping and handling costs associated with outbound freight are included in Selling, general and administrative expenses and totaled $116 million, $96 million, and $91 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively.

            Concentration of Credit Risk

                    The majority of HD Supply's sales are credit sales which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of industries and the areas where they operate. Concentration of credit risk with respect to trade accounts receivable is limited by the large number of customers comprising HD Supply's customer base. HD Supply performs ongoing credit evaluations of its customers.

            Leases

                    Leases are reviewed for capital or operating classification at their inception under the guidance of Accounting Standard Codification ("ASC ") 840, Leases. The Company uses its incremental borrowing rate in the assessment of lease classification and assumes the initial lease term includes renewal options that are reasonably assured. HD Supply conducts operations primarily under operating leases. For leases classified as operating leases, the Company records rent expense on a straight-line basis, over the lease term beginning with the date the Company has access to the property which in some cases is prior to commencement of lease payments. Accordingly, the amount of rental expense recognized in excess of lease payments is recorded as a deferred rent liability and is amortized to rental expense over the remaining term of the lease. Capital leases currently in effect are not material.

            Index to Financial Statements

            Future minimum aggregate rental payments under non-cancelable operating leases as of January 29, 2012 are as follows (amounts in millions):Advertising

                    Advertising costs are charged to expense as incurred except for the costs of producing and distributing certain direct response sales catalogs, which are capitalized and charged to expense over the life of the related catalog. Advertising expenses were approximately $34 million, $24 million, and

            Fiscal Year

            		  Operating Leases 

            2012

            		  $126  

            2013

            		   102  

            2014

            		   78  

            2015

            		   54  

            2016

            		   36  

            Thereafter

            		   86  
              

             

             

            		 

            Total

            		  $482  
              

             

             

            		 

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            $21 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively. Capitalized advertising costs related to direct response advertising were not material.

            Income Taxes

            The Company subleases certain leased facilitiesprovides for federal, state and foreign income taxes currently payable, as well as for those deferred due to third parties. Totaltemporary differences between reporting income and expenses for financial statement purposes versus tax purposes. Federal, state and foreign tax benefits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future minimum rentalstax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be receivedrecovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date.

                    The Company consists of corporations, limited liability companies and partnerships. All income tax expense (benefit) of the Company is recorded in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss) with the offset recorded through the Company's current tax accounts, deferred tax accounts, or stockholder's equity account as appropriate.

            Comprehensive Income (Loss)

                    Comprehensive income (loss) includes Net income (loss) adjusted for certain revenues, expenses, gains and losses that are excluded from net income under non-cancelable subleasesU.S. GAAP. Adjustments to net income are for foreign currency translation adjustments and unrealized gains or losses on derivatives, to the extent they are accounted for as an effective hedge under ASC 815, Derivatives and Hedging.

            Foreign Currency Translation

                    Assets and liabilities of foreign subsidiaries with a functional currency other than the U. S. dollar, primarily Canadian dollars, are translated into U.S. dollars at the current rate of exchange on the last day of the reporting period. Revenues and expenses are translated at a monthly average exchange rate and equity transactions are translated using either the actual exchange rate on the day of the transaction or a monthly average exchange rate.

            Derivative Financial Instruments

                    When the Company enters into derivative financial instruments, it is for hedging purposes. In hedging the exposure to variable cash flows on forecasted transactions, deferral accounting is applied when the derivative reduces the risk of the underlying hedged item effectively as a result of high inverse correlation with the value of the underlying exposure. If a derivative instrument either initially fails or later ceases to meet the criteria for deferral accounting, any subsequent gains or losses are recognized currently in income. Cash flows resulting from derivative financial instruments are classified in the same category as the cash flows from the items being hedged.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Stock-Based Compensation

                    HD Supply Holdings, Inc. ("Holding") established an Incentive Stock Plan (the "HDS Plan") for associates of HD Supply, a wholly-owned subsidiary. The HDS Plan provides for the award of non-qualified stock options and deferred share units of the common stock of Holding. The maximum number of shares of common stock that may be issued under the HDS Plan may not exceed 55.6 million, of which a maximum of 30.9 million shares may be issued in respect of options granted under the HDS Plan. Holding will issue new shares of common stock to satisfy options exercised. The HDS Plan is accounted for under ASC 718, Compensation—Stock Compensation, which requires the recognition of share-based compensation costs in the financial statements.

            Recent Accounting Pronouncements

                    Fair value measurement—In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" ("ASU 2011-04"). The amendments in this ASU are intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards ("IFRS"s). The amendments in this ASU explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The Company adopted the provisions of ASU 2011-04 on January 29,30, 2012. The adoption did not have an impact on the Company's financial position or results of operations.

                    Comprehensive income: Presentation—In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"), to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The Company adopted the provisions of ASU 2011-05 on January 30, 2012. The adoption of ASU 2011-05 did not have an impact on the Company's financial position or results of operations.

                    Comprehensive income: Reclassifications—In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), to supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU 2011-05, which were deferred indefinitely under ASU No. 2011-12, ""Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05" ("ASU 2011-12"), issued in December 2011. The amendments in ASU 2013-02 would require an entity to provide additional information about reclassifications out of accumulated other comprehensive income by the respective line items of net income. For public entities, the


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of ASU 2013-02 will not have an impact on the Company's financial position or results of operations.

                    Goodwill impairment testing—In September 2011, the FASB issued ASU No. 2011-08, "Testing Goodwill for Impairment" ("ASU 2011-08"), which simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company adopted the provisions of ASU 2011-08 on January 30, 2012. The adoption of ASU 2011-08 did not have an impact on the Company's financial position or results of operations.

                    Release of Cumulative Translation Adjustment—In March 2013, the FASB issued ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity" ("ASU 2013-05"), which resolves diversity in practice regarding the release of the cumulative translation adjustment into net income when a parent either sells a part of all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-05 will not have a material impact on the Company's financial position or results of operations.

            NOTE 2—ACQUISITIONS

                    HD Supply enters into strategic acquisitions to expand into new markets, new platforms, and new geographies in an effort to better service existing customers and attract new ones. In accordance with the acquisition method of accounting under ASC 805, Business Combinations, the results of the acquisitions completed by HD Supply are reflected in the Company's consolidated financial statements from the date of acquisition forward.

                    On December 3, 2012, arethe Company purchased substantially all of the assets of Water Products of Oklahoma, Inc., Arkansas Water Products, LLC, and Municipal Water Works Supply, LP (collectively "Water Products") for approximately $19$52 million. These subleases expire at various dates throughbusinesses distribute water, sewer, gas and related products, such as pipes, valves, fittings, hydrants, pumps and meters, and offer maintenance products and repair services primarily to municipalities and contractors. The businesses are operated as part of the year 2023.Waterworks segment.

            Purchase Obligations

            As of January        On June 29, 2012, the Company has agreementspurchased Peachtree Business Products LLC ("Peachtree") for approximately $196 million. Headquartered in place with various vendors to purchase goodsMarietta, Georgia, Peachtree specializes in customizable business and services, primarily inventory, in the aggregate amount of $671 million. These purchase obligations are generally cancelable, but the Company has no intent to cancel. Paymentproperty marketing supplies, serving residential and commercial property managers, medical facilities, schools and universities, churches and funeral homes. Peachtree is due during fiscal 2012 for these obligations.

            Internal Revenue Service

            The Internal Revenue Service has issued notices of proposed adjustments that propose to disallow certainoperated as part of the Company’s deductions and the carryback of certain of its net operating losses to taxable years during which the Company was a member of The Home Depot, Inc.’s U.S. federal consolidated income tax return. The Internal Revenue Service is expected to issue in the near future a letter that proposes to assess tax liabilities from such proposed adjustments. The Company is estimating such letter will contain a proposed assessment of tax liabilities for approximately $322 million to $325 million, including accrued interest. The Company believes that the deductions it reported on the tax returns in question and carryback of the net operating losses are accurate and appropriate. Therefore, the Company intends to challenge any proposed assessment by filing a formal protest with the Appeals Division of the Internal Revenue Service. During the protest period, the Company intends to vigorously defend its positions rather than pay any proposed assessments. If the Company is ultimately required to pay any such proposed assessments, it could incur significant liabilities and its cash flows, future results of operations and financial position could be affected in a significant and adverse manner. The carryback of the net operating losses was made in accordance with (and subject to the terms of) an agreement entered into between the Company’s ultimate parent corporation, HDS Investment Holding, Inc., and The Home Depot, Inc.Facilities Maintenance segment.

            Legal Matters

            HD Supply is involved in various legal proceedings arising in the normal course of its business. The Company establishes reserves for litigation and similar matters when those matters present loss contingencies that it determines to be both probable and reasonably estimable in        In accordance with ASC 450, Contingencies. In805, Business Combinations, the opinionCompany recorded the following assets and liabilities at fair value on the date of management, based on current knowledge, all reasonably estimablethe Peachtree acquisition: $129 million in goodwill, $53 million in definite-lived intangible assets, $12 million in property & equipment, $8 million in net


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 2—ACQUISITIONS (Continued)

            working capital assets and probable matters are believedliabilities, and $6 million in deferred tax liabilities. The total amount of goodwill expected to be adequately reserveddeductible for or covered by insurance and disclosed herein. Fortax purposes is $47 million. The definite-lived intangible assets are primarily $50 million in customer relationships that will be amortized over a weighted-average period of 10.9 years.

                    On May 2, 2011, the Company purchased substantially all such other matters, management believes the possibility of losses from such matters are remote or such matters are of such kind or involve such amounts that would not have a material adverse effect on the financial position, results of operations or cash flows of the assets of Rexford Albany Municipal Supply Company, if disposed of unfavorably.

            IndexInc. ("RAMSCO") for approximately $21 million. RAMSCO specializes in distributing water, sanitary and storm sewer materials primarily to Financial Statements

            NOTE 15—SEGMENT INFORMATION

            HD Supply’s operating segmentsmunicipalities and contractors through four locations in upstate New York. These locations are based on management structure and internal reporting. Each segment offers different products and services to the end customer, except for Corporate, which provides general corporate overhead support and HD Supply Canada (included in Other), which is organized based on geographic location. The Company determines the reportable segments in accordance with the principles of segment reporting within U.S. GAAP (ASC 280, Segment Reporting). For purposes of evaluation under these segment reporting principles, the Chief Operating Decision Maker for HD Supply assesses HD Supply’s ongoing performance, based on the periodic review and evaluation of Net sales, Adjusted EBITDA, and certain other measures for eachoperated as part of the operating segments.

            During fiscal 2011, the reportable segment presentation for two operating segments changed as compared to prior periods. The CTI operating segment no longer met the quantitative threshold requirements of a reportableWaterworks segment. In addition, the Electrical operating segment was merged into the Utilities operating segment, which is a reportable segment, and collectively titled Power Solutions. As a result, prior period disclosures reflect the change in reportable segments.

            In conjunction with the change in reportable segments, management re-evaluated its use of key performance metrics. Historically, the Company has presented operating income excluding certain charges as its measure of operating performance for presentation of segment results. Management uses both operating income excluding certain charges and Adjusted EBITDA in its evaluation of operating segment performance. However, based on the recent evaluation, management concluded that Adjusted EBITDA is the primary metric management uses to assess operating performance. Therefore, current and prior period segment presentation reflects Adjusted EBITDA as the operating performance measure.

            HD Supply has four reportable segments, each of which is presented below:

            •

            Facilities Maintenance—Supplies maintenance, repair and operations (“MRO”) products and upgrade and renovation services largely to the multifamily, healthcare, hospitality, and institutional markets.

            •

            Waterworks—Distributes complete lines of water and wastewater transmission products, serving contractors and municipalities in all aspects of the water and wastewater industries.

            •

            Power Solutions—Distributes electrical transmission and distribution products, power plant maintenance, repair and operations supplies, smart-grid technologies, and provides materials management and procurement outsourcing arrangements to investor-owned utilities, municipal and provincial power authorities, rural electric cooperatives and utility contractors and distributes electrical products such as wire and cable, switch gear supplies, lighting and conduit to residential and commercial contractors.

            •

            White Cap— Distributes specialized hardware, tools, building materials, and safety equipment to professional contractors.

            In addition to the reportable segments, the Company’s consolidated financial results include an Other category, Corporate, & Eliminations. Other primarily consists of (i) Repair & Remodel, offering light remodeling and construction supplies primarily to small remodeling contractors and tradesmen; (ii) Crown Bolt, a retail distribution operator, providing program and packaging solutions, sourcing, distribution, and in-store service, primarily serving Home Depot; (iii) CTI, offering turnkey supply and installation services for multiple interior finish options, including flooring, cabinets, countertops, and window coverings, along with comprehensive design center services for residential, commercial, and senior living projects; and (iv) HD Supply Canada, comprised of HD Supply’s Canadian operations (other than the Canadian utilities operations, which is included in the Power Solutions segment, and Commercial Direct, which is included in the Facilities Maintenance segment). Corporate has enterprise management responsibility and centralized support functions for some of the segments, information technology, human resources, sourcing and support services. Eliminations remove intersegment transactions.

            Index to Financial Statements

            The following tables present Net sales, Adjusted EBITDA, and certain other measures for each of the reportable segments and total continuing operations for the periods indicated (amounts in millions):

               Fiscal Year 2011 
               Net
            Sales            		   Adjusted
            EBITDA            		   Depreciation(1)
            & Software
            Amortization            		   Other
            Intangible
            Amortization            		   Total
            Assets(2)            		   Capital
            Expen-
            ditures            		 

            Facilities Maintenance

            		  $1,870    $318    $30    $75    $2,264    $32  

            Waterworks

            		   1,772     112     5     95     1,562     5  

            Power Solutions

            		   1,625     50     5     20     775     5  

            White Cap

            		   981     17     14     19     481     16  

            Other, Corporate, & Eliminations

            		   780     11     31     35     1,656     51  
              

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

            Total continuing operations

            		  $7,028    $508    $85    $244    $6,738    $109  
              

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

               Fiscal Year 2010 
               Net
            Sales            		   Adjusted
            EBITDA            		  Depreciation(1)
            & Software
            Amortization            		   Other
            Intangible
            Amortization            		   Total
            Assets(2)            		   Capital
            Expen-
            ditures            		 

            Facilities Maintenance

            		  $1,682    $282   $28    $75    $2,265    $20  

            Waterworks

            		   1,659     94    5     94     1,582     2  

            Power Solutions

            		   1,462     49    5     19     740     2  

            White Cap

            		   852     (10)   20     19     439     3  

            Other, Corporate, & Eliminations

            		   794     (4)   41     37     2,063     18  
              

             

             

            		   

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

            Total continuing operations

            		  $6,449    $411   $99    $244    $7,089    $45  
              

             

             

            		   

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

               Fiscal Year 2009 
               Net
            Sales            		   Adjusted
            EBITDA            		  Depreciation(1)
            & Software
            Amortization            		   Other
            Intangible
            Amortization            		   Total
            Assets(2)            		   Capital
            Expen-
            ditures            		 

            Facilities Maintenance

            		  $1,609    $279   $24    $73    $2,341    $28  

            Waterworks

            		   1,652     99    5     95     1,695     2  

            Power Solutions

            		   1,410     40    5     19     711     3  

            White Cap

            		   872     (31)   25     20     487     4  

            Other, Corporate, & Eliminations

            		   770     (44)   62     36     2,611     18  
              

             

             

            		   

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

            Total continuing operations

            		  $6,313    $343   $121    $243    $7,845    $55  
              

             

             

            		   

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

            (1)Depreciation includes amounts recorded within Cost of sales in the Consolidated Statements of Operations.
            (2)Total Assets include amounts attributable to discontinued operations for the periods prior to the dispositions.

            Index to Financial Statements

            Reconciliation to Consolidated Financial Statements

               Fiscal
            2011            		  Fiscal
            2010            		  Fiscal
            2009            		 

            Total Adjusted EBITDA

            		  $508   $411   $343  

            Depreciation and amortization

            		   329    343    364  

            Stock-based compensation

            		   20    17    18  

            Management fees and expenses

            		   5    5    5  

            Restructuring

            		   —      8    21  

            Goodwill impairment

            		   —      —      219  

            Other

            		   (1)   1    —    
              

             

             

            		  

             

             

            		  

             

             

            		 

            Operating income (loss)

            		   155    37    (284) 

            Interest expense

            		   639    623    602  

            Other (income) expense, net

            		   —      (1)   (208) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

            		   (484)   (585)   (678) 

            Provision (benefit) for income taxes

            		   79    28    (198) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            Income (loss) from continuing operations

            		  $(563)  $(613)  $(480) 
              

             

             

            		  

             

             

            		  

             

             

            		 

            Net sales for HD Supply outside the United States, primarily Canada, were $404 million, $365 million, and $330 million in fiscal 2011, fiscal 2010, and fiscal 2009, respectively. Long-lived assets of HD Supply outside the United States were $18 million and $29 million as of January 29, 2012 and January 30, 2011, respectively.

            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.

            Index to Financial Statements

            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 STATEMENTS3—DISCONTINUED OPERATIONS

                    

               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) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Index to Financial Statements

            CONDENSED CONSOLIDATING INCOME STATEMENTS (Continued)

               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) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Index to Financial Statements

            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  
              

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		  

             

             

            		 

            Index to Financial Statements

            CONDENSED CONSOLIDATING BALANCE SHEETS (Continued)

               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  
              

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		  

             

             

            		 

            Index to Financial 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  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Index to Financial Statements
               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  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            NOTE 17—QUARTERLY FINANCIAL DATA (UNAUDITED)

            The following is a summary of the quarterly consolidated results of operations for the fiscal years ended January 29, 2012 and January 30, 2011 (amounts in millions):

               Net
            Sales            		   Gross
            Profit            		   Net Income
            (Loss)            		 

            Fiscal Year Ended January 29, 2012:

            		      

            First Quarter

            		  $1,608    $460    $(164) 

            Second Quarter

            		   1,875     533     (101) 

            Third Quarter

            		   1,893     535     (105) 

            Fourth Quarter

            		   1,652     486     (173) 
              

             

             

            		   

             

             

            		   

             

             

            		 

            Fiscal Year 2011

            		  $7,028    $2,014    $(543) 

            Fiscal Year Ended January 30, 2011:

            		      

            First Quarter

            		  $1,552    $443    $(202) 

            Second Quarter

            		   1,719     488     (115) 

            Third Quarter

            		   1,724     488     (99) 

            Fourth Quarter

            		   1,454     422     (203) 
              

             

             

            		   

             

             

            		   

             

             

            		 

            Fiscal Year 2010

            		  $6,449    $1,841    $(619) 

            Index to Financial Statements

            The following is a summary of the changes to the previously reported quarterly financial data in order to conform presentation to reflect discontinued operations (amounts in millions):

               Net
            Sales            		  Gross
            Profit            		  Net Income
            (Loss)            		 

            Fiscal Year Ended January 29, 2012:

            		    

            First Quarter

            		  $(280)  $(67)  $—    

            Second Quarter

            		   (282)   (68)   —    

            Third Quarter

            		   (182)   (45)   —    

            Fourth Quarter

            		   (174)   (39)   —    
              

             

             

            		  

             

             

            		  

             

             

            		 

            Fiscal Year 2011

            		  $(918)  $(219)  $—    
              

             

             

            		  

             

             

            		  

             

             

            		 

            Fiscal Year Ended January 30, 2011:

            		    

            First Quarter

            		  $(259)  $(59)  $—    

            Second Quarter

            		   (255)   (59)   —    

            Third Quarter

            		   (269)   (60)   —    

            Fourth Quarter

            		   (245)   (58)   —    
              

             

             

            		  

             

             

            		  

             

             

            		 

            Fiscal Year 2010

            		  $(1,028)  $(236)  $—    
              

             

             

            		  

             

             

            		  

             

             

            		 

            NOTE 18—SUBSEQUENT EVENTS

            Disposition

            On March 26, 2012, the Company sold all of the issued and outstanding equity interests in its IPVFIndustrial Pipes, Valves and Fittings ("IPVF") business to Shale-Inland Holdings, LLC forLLC. The Company received cash proceeds of approximately $469 million.$477 million, net of $5 million of transaction costs. As a result of the sale, the Company recorded a $12 million pre-tax gain in fiscal 2012.

                    On September 9, 2011, the Company sold all of the issued and outstanding equity interests in its Plumbing/HVAC business to Hajoca Corporation. The Company received cash proceeds of approximately $116 million, net of $8 million remaining in escrow and $4 million of transaction costs. As a result of the sale, the Company recorded a $7 million pre-tax gain in fiscal 2011. During the fiscal 2012, the Company paid an additional $1 million in transaction costs and received $4 million from escrow.

                    On February 28, 2011, HD Supply Canada sold substantially all of the assets of SESCO/QUESCO, an electrical products division of HD Supply Canada, to Sonepar Canada, and received proceeds of approximately $11 million, less $1 million remaining in escrow. As a result of the sale, the Company recorded a $2 million pre-tax gain in fiscal 2011. During fiscal 2012, the Company received $1 million from escrow.

            Summary Financial Information

                    In accordance with ASC 205-20, Discontinued Operations, the results of the IPVF, Plumbing/HVAC and SESCO/QUESCO operations and the gains on sales of the businesses are classified as discontinued operations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations and gain on the sale of businesses, net of tax, as one line item on the Consolidated Statements of Operations.Operations and Comprehensive Income (Loss). All Consolidated Statements of Operations and Comprehensive Income (Loss) presented have been revised to reflect


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 3—DISCONTINUED OPERATIONS (Continued)

            this presentation. The following tables provide additional detail related to the results of operations of the discontinued operations (amounts in millions):

             
            		 Fiscal
            2012            		 Fiscal
            2011            		 Fiscal
            2010            		 

            Net sales

            		 $127 $969 $1,028 

            Gain on sales of discontinued operations

            		  12  9  — 

            Income (loss) before provision for income taxes

            		  20  20  (6)

            Provision for income taxes

            		  —  —  — 
                    

            Income (loss) from discontinued operations, net of tax

            		 $20 $20 $(6)
                    

            NOTE 4—RELATED PARTIES

                    On August 30, 2007, investment funds associated with Clayton, Dubilier & Rice, Inc., The Carlyle Group and Bain Capital Partners, LLC (collectively the "Equity Sponsors") formed Holding and entered into a stock purchase agreement with The Home Depot, Inc. ("Home Depot" or "THD") pursuant to which Home Depot agreed to sell to Holding or to a wholly owned subsidiary of Holding certain intellectual properties and all the outstanding common stock of HD Supply, Inc. and the Canadian subsidiary CND Holdings, Inc. On August 30, 2007, through a series of transactions, Holding's direct wholly owned subsidiary, HDS Holding Corporation, acquired direct control of HD Supply through the merger of its wholly owned subsidiary, HDS Acquisition Corp., with and into HD Supply, Inc. and the Canadian subsidiary CND Holdings, Inc. Through these transactions (the "Transactions"), Home Depot was paid cash of approximately $8.2 billion and 12.5% of Holding's common stock worth $325 million.

            Home Depot

                    Sales—HD Supply derived revenue from the sale of products to Home Depot of $296 million, $275 million, and $299 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively. Accounts receivable from Home Depot were $44 million and $45 million at February 3, 2013 and January 29, 2012, respectively, and are included within Receivables in the accompanying Consolidated Balance Sheets.

                    Strategic Agreement—On the date of the Transactions, Home Depot entered into a strategic purchase agreement with Crown Bolt, HD Supply's distribution services line of business. This agreement provided a guaranteed revenue stream to Crown Bolt through January 31, 2015 by specifying minimum annual purchase requirements from Home Depot. Crown Bolt recorded $19 million, $20 million and $12 million during fiscal 2012, fiscal 2011 and fiscal 2010, respectively, in Net sales in accordance with the minimum purchase requirement provisions of this strategic purchase agreement. On February 1, 2013, Crown Bolt and Home Depot agreed to an amendment and five-year extension of the strategic purchase agreement, which eliminated the minimum purchase requirement beginning in fiscal 2013, but retains Crown Bolt as the exclusive supplier of products purchased by Home Depot from Crown Bolt through January 31, 2020. Because the amendment was considered a triggering event, HD Supply performed an impairment analysis of goodwill and other intangible assets at Crown Bolt. As a result of the analysis, Crown Bolt recorded a $152 million non-cash impairment charge in fiscal 2012. For more information on this charge, see Note 5, Goodwill and Intangible Assets.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 4—RELATED PARTIES (Continued)

            Equity Sponsors

                    Sponsor Management Fee—In conjunction with the closing of the Transactions, the Company entered into a management agreement whereby the Company pays the Equity Sponsors a $5 million annual aggregate management fee ("Sponsor Management Fee") and related expenses through August 2017. During each of fiscal 2012, fiscal 2011, and fiscal 2010, the Company recorded $5 million of Sponsor Management Fees and related expenses, which are included in Selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).

                    Notes—Management of the Company has been informed that, as of February 3, 2013, affiliates of certain of the Equity Sponsors beneficially owned approximately $348 million aggregate principal amount, or 39%, of the Company's Old Senior Subordinated Notes (as defined in Note 6, Debt) and approximately $49 million aggregate principal amount of the Company's other outstanding indebtedness. During fiscal 2012, the Company issued and repurchased the 14.875% Senior Notes (as defined in Note 6, Debt) to and from certain affiliates of the Equity Sponsors. See Note 6, Debt, for information on the issuance and repurchase of the 14.875% Senior Notes and Note 17, Subsequent Event—Debt Redemption, for information on the redemption of the Company's Old Senior Subordinated Notes.

                    Purchases—HD Supply purchased product from affiliates of the Equity Sponsors for approximately $57 million, $60 million, and $24 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively. Management believes these transactions were conducted at prices that an unrelated third party would pay.

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS

            Goodwill

                    The carrying amount of goodwill by reporting unit is as follows (amounts in millions):

             
            		 As of February 3, 2013 As of January 29, 2012 
             
            		 Gross Goodwill Accumulated
            Impairments            		 Net
            Goodwill            		 Gross
            Goodwill            		 Accumulated
            Impairments            		 Net
            Goodwill            		 

            Waterworks

            		 $1,876 $(815)$1,061 $1,867 $(815)$1,052 

            Facilities Maintenance

            		  1,603  —  1,603  1,474  —  1,474 

            White Cap

            		  183  (74) 109  183  (74) 109 

            Utilities(1)

            		  284  (99) 185  285  (99) 186 

            Crown Bolt

            		  215  (150) 65  215  —  215 

            Repair & Remodel

            		  125  (30) 95  125  (30) 95 

            Electrical(1)

            		  20  —  20  20  —  20 

            CTI

            		  67  (67) —  67  (67) — 

            IPVF

            		  —  —  —  82  (82) — 
                          

            Total goodwill

            		 $4,373 $(1,235)$3,138 $4,318 $(1,167)$3,151 
                          
            (1)
            Utilities and Electrical are reporting units that, combined, comprise the Power Solutions segment.

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS (Continued)

                    Goodwill represents the excess of purchase price over fair value of net assets acquired. HD Supply does not amortize goodwill, but does assess the recoverability of goodwill in the third quarter of each fiscal year. If an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value, an interim impairment test would be performed between annual tests. Goodwill impairment testing is performed at the reporting unit level.

                    On January 30, 2012, the Company adopted the provisions of Accounting Standard Update No. 2011-08, "Testing Goodwill for Impairment" ("ASU 2011-08"), which simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.

                    The first step of the impairment test involves comparing each reporting unit's fair value to its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying value, applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of impairment.

                    The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill in the "pro forma" business combination accounting as described above, exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted under U.S. GAAP. HD Supply performed the annual goodwill impairment testing during the third quarter of fiscal 2012 for the seven reporting units with goodwill balances (goodwill balances at one reporting unit was zero prior to the annual testing). In accordance with ASU 2011-08, the Company elected to first assess qualitative factors on two reporting units, Facilities Maintenance and White Cap, to determine whether it is more likely than not that the fair value of each of these reporting units is less than its carrying amount. Based on this assessment, the Company determined that it was not necessary to perform the two-step goodwill impairment test for these two reporting units. The Company bypassed the qualitative analysis on the remaining five reporting units and proceeded with the first step of the two-step goodwill impairment test.

                    The Company determines the fair value of a reporting unit using a discounted cash flow ("DCF") analysis and a market comparable method, with each method being equally weighted in the calculation. Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, the amount and timing of expected future cash flows, as well as relevant comparable company earnings multiples for the market comparable approach. The cash flows employed in the DCF analyses are based on the Company's most recent long-range forecast and, for years beyond the forecast, the Company's estimates, which are based on estimated exit multiples ranging from six to seven times the final forecasted year earnings before interest, taxes, depreciation and amortization. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units and range from 11.5% to 14.0%. For the market comparable


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS (Continued)

            approach, the Company evaluated comparable company public trading values, using earnings multiples and sales multiples that are used to value the reporting units.

                    There was no indication of impairment in any of the Company's reporting units during the annual testing for fiscal 2012, fiscal 2011, and fiscal 2010 and accordingly, the second step of the goodwill impairment analysis was not performed. At the time of our fiscal 2012 annual testing, the fair value of the reporting units for which step one of the goodwill impairment test was completed exceeded their carrying value by the following percentages: 47% for Waterworks, 31% for Utilities, 6% for Crown Bolt, 40% for Repair & Remodel, and 116% for Electrical.

                    During the fourth quarter of fiscal 2012, Crown Bolt reached an agreement to amend and extend its strategic purchasing agreement with Home Depot. While the amendment extends the agreement five years through fiscal 2019, retaining Crown Bolt as the exclusive supplier of certain products to Home Depot, it eliminated the minimum purchase guarantee and adjusts future pricing. These changes resulted in a reduction of expected future cash proceeds from Home Depot. HD Supply, therefore, considered this amendment a triggering event and, as such, the Company performed an additional goodwill impairment analysis for Crown Bolt. During step one of the additional goodwill impairment analysis, there was an indication of impairment, and, accordingly, the second step of the goodwill impairment analysis was performed for this reporting unit. As a result of step two, the Company recorded a $150 million non-cash goodwill impairment in the fourth quarter of fiscal 2012.

                    The following table presents the changes in goodwill for the fiscal years presented (amounts in millions).

             
            		 Fiscal 2012 Fiscal 2011 Fiscal 2010 

            Beginning Balance

            		 $3,151 $3,150 $3,149 

            Acquisitions

            		  138  12  — 

            Realization of tax deductible goodwill from a prior
            acquisition

            		  (2) (11) — 

            Impairment

            		  (150) —  — 

            Translation & other adjustments

            		  1  —  1 
                    

            Ending Balance

            		 $3,138 $3,151 $3,150 
                    

                    The Company's discounted cash flow model is based on HD Supply's expectation of future market conditions for each of the reporting units, as well as discount rates that would be used by market participants in an arm's-length transaction. Future events could cause the Company to conclude that market conditions have declined or discount rates have increased to the extent that the Company's goodwill could be further impaired. It is not possible at this time to determine if any such future impairment charge would result.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS (Continued)

            Intangible Assets

                    HD Supply's intangible assets as of February 3, 2013 and January 29, 2012 consisted of the following (amounts in millions):

             
            		 As of February 3, 2013 As of January 29, 2012 
             
            		 Gross
            Intangible            		 Accumulated
            Amortization            		 Net
            Intangible            		 Gross
            Intangible            		 Accumulated
            Amortization            		 Net
            Intangible            		 

            Customer relationships

            		 $929 $(614)$315 $1,532 $(983)$549 

            Strategic purchase agreement

            		  166  (122) 44  166  (99) 67 

            Trade names

            		  153  (41) 112  152  (34) 118 

            Other

            		  2  —  2  1  —  1 
                          

            Total

            		 $1,250 $(777)$473 $1,851 $(1,116)$735 
                          

                    During fiscal 2012, the Company recorded $71 million of intangible assets, primarily $66 million in customer relationship intangibles, as a result of the Peachtree and Water Products business acquisitions. The customer relationship intangible assets will be amortized over a weighted-average period of 10.9 years. The remaining intangible assets recorded will be amortized over a weighted-average period of 3.6 years. In addition, during fiscal 2012, $516 million of customer relationship intangible assets became fully amortized and, therefore, were removed from the balance sheet.

                    During fiscal 2011, the Company recorded $4 million of intangible assets, primarily customer relationship intangibles, as a result of the RAMSCO business acquisition. These intangibles will be amortized over a weighted-average amortization period of 5.6 years.

                    As a result of the strategic purchase agreement amendment and extension with Home Depot, HD Supply performed an impairment analysis of the intangible asset assigned to the strategic purchase agreement. The analysis showed no indication of impairment of the intangible asset assigned to the strategic purchase agreement. The unamortized net book value of the intangible asset will be amortized over the remainder of the agreement, which is seven years. Additionally, Crown Bolt discontinued the use of a certain tradename. As a result, the related unamortized tradename intangible asset was written off, resulting in a $2 million impairment charge.

                    Amortization expense for continuing operations related to intangible assets was $243 million, $244 million, and $244 million, in fiscal 2012, fiscal 2011, and fiscal 2010, respectively. Estimated future amortization expense for continuing operations for intangible assets recorded as of February 3, 2013 is $135 million, $105 million, $40 million, $39 million and $38 million for fiscal years 2013 through 2017, respectively.

            NOTE 6—DEBT

                    On February 1, 2013, HD Supply, Inc. issued $1,275 million aggregate principal amount of 7.5% Senior Notes due 2020 (the "7.5% Senior Notes") at par. As a result of the issuance, the Company incurred $21 million in debt issuance costs, of which $19 million was paid as of February 3, 2013. The net proceeds from the 7.5% Senior Notes issuance were used to repurchase all of the Company's outstanding 14.875% Senior Notes (issued in April 2012 to the Equity Sponsors), plus a $422 million make-whole premium calculated in accordance with the 14.875% Senior Notes Indenture (as defined below), plus $37 million of un-capitalized PIK interest thereon through February 1, 2013. Also on


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            February 1, 2013, the trustee for the 14.875% Senior Notes cancelled all of the outstanding 14.875% Senior Notes. As a result of these transactions, the Company incurred a $452 million loss on extinguishment, which included the make-whole premium, a $28 million write-off of unamortized original issue discount, and $2 million write-off of unamortized deferred debt costs.

                    On January 16, 2013, HD Supply, Inc. issued $950 million aggregate principal amount of 10.5% Senior Subordinated Notes due 2021 (the "Senior Subordinated Notes") at par. As a result of the issuance, the Company incurred $16 million in debt issuance costs, of which $15 million was paid as of February 3, 2013. The Company committed to use the net proceeds from the Senior Subordinated Notes issuance to redeem all of its remaining $889 million outstanding Old Senior Subordinated Notes (as defined below), subject to the required thirty-day notification period.

                    As of February 3, 2013, the Company held $936 million in cash equivalents classified as Cash equivalents restricted for debt redemption in the Consolidated Balance Sheet for the redemption of $889 million of the Old Senior Subordinated Notes on February 8, 2013. The $936 million was used to redeem the Old Senior Subordinated Notes at a price equal to 103.375% of the principal amount thereof and to pay (together with $36 million of cash on hand) accrued and unpaid interest thereon through the redemption date. See Note 17, Subsequent Events—Debt Redemption.

                    On October 15, 2012, HD Supply, Inc. issued $1,000 million aggregate principal amount of 11.5% Senior Notes due 2020 (the "11.5% Senior Notes") at par. As a result of the issuance, the Company incurred and paid $17 million in debt issuance costs. On November 8, 2012, the Company used the net proceeds from the 11.5% Senior Notes issuance to redeem $930 million of its outstanding Old Senior Subordinated Notes at a redemption price equal to 103.375% of the principal amount thereof and to pay $23 million of accrued interest. As a result, the Company incurred a $37 million loss on extinguishment, which included a $31 million premium payment to redeem the Old Senior Subordinated Notes prior to maturity and $5 million to write-off the pro-rata portion of unamortized deferred debt costs.

            Refinancing Transactions (unaudited)and Additional Notes

            On April 12, 2012, HD Supply, Inc. consummated the following transactions (the “Refinancing Transactions”"Refinancing Transactions") in connection with the refinancing of the senior portion of its debt structure:

              •
              the issuance of $950 million of its 8.125%81/8% Senior Secured First Priority Notes due 2019 (the “First"First Priority Notes”Notes");



            •
            the issuance of $675 million of its 11% Senior Secured Second Priority Notes due 2020 (the “Second"Second Priority Notes”Notes");



            •
            the issuance of approximately $757 million of its 14.875% Senior Notes due 2020 (the “Senior Notes”"14.875% Senior Notes");



            •
            entry into a new senior term facility (the “Senior Term Facility”"Term Loan Facility") maturing in 2017 and providing for term loans in an aggregate principal amount of $1 billion;$1,000 million; and



            •
            entry into a new senior asset based lending facility (the “ABL Facility”"ABL Facility") maturing in 2017 and providing for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $1.5 billion.

            $1,500 million (subject to availability under the borrowing base).

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            The proceeds of the First Priority Notes, the Second Priority Notes, the 14.875% Senior Notes, the Senior Term Loan Facility and the ABL Facility were used to (i)(i) repay all amounts outstanding under the Old Senior Secured Credit Facility (ii)(Senior Secured Credit Facility dated as of August 30, 2007), (ii) repay all amounts outstanding under the Old ABL Credit Facility (iii)(ABL Credit Facility dated as of August 30, 2007), (iii) repurchase all remaining outstanding 12.0%Old Senior Notes (12.0% Senior Notes dated as of August 30, 2007) and (iv)(iv) pay related fees and expenses.

            Index to Financial Statements
                    Affiliates of certain of the Equity Sponsors owned an aggregate principal amount of approximately $484 million of the Old Senior Notes which they exchanged in a non-cash transaction for their investment in the 14.875% Senior Notes.

            Acquisition (unaudited)

            On June 29,August 2, 2012, the Company purchased Peachtree Business Products LLC forissued $300 million additional aggregate principal amount of its 81/8% First Priority Notes due 2019 (the "Additional Notes") at a premium of 107.5%. At closing, the Company received approximately $196 million. Headquartered in Marietta, Georgia, Peachtree Business Products specializes in customizable business and property marketing supplies, serving residential and commercial property managers, medical facilities, schools and universities, churches and funeral homes. Peachtree Business Products LLC will be operated as part$317 million, net of transaction fees. The Additional Notes were issued under the indenture pursuant to which HD Supply previously issued $950 million aggregate principal amount of 81/8% First Priority Notes due 2019, all of which remains outstanding. The net proceeds from the sale of the Company’s Facilities Maintenance segment.

            IndexAdditional Notes were applied to Financial Statements

            HD SUPPLY, INC.reduce outstanding borrowings under the Company's ABL Facility.

            CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        As a result of the Refinancing Transactions and the issuance of the Additional Notes, the Company incurred $80 million in debt issuance costs and recorded a $220 million loss on extinguishment, which included a $150 million premium payment to redeem the Old Senior Notes, $46 million to write-off the pro-rata portion of the unamortized deferred debt costs, and $24 million to write-off the remaining unamortized Other asset associated with Home Depot's guarantee of the Company's payment obligations for principal and interest under the Old Term Loan under the Old Senior Secured Credit Facility that was terminated in the Refinancing Transactions.

            Amounts in millions, unauditedUnamortized deferred debt costs

                    

               Three Months Ended  Nine Months Ended 
               October 28,
            2012            		  October 30,
            2011            		  October 28,
            2012            		  October 30,
            2011            		 

            Net Sales

            		  $2,146   $1,893   $6,041   $5,376  

            Cost of sales

            		   1,530    1,358    4,308    3,848  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Gross Profit

            		   616    535    1,733    1,528  

            Operating expenses:

            		     

            Selling, general and administrative

            		   418    389    1,223    1,144  

            Depreciation and amortization

            		   84    81    250    245  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Total operating expenses

            		   502    470    1,473    1,389  

            Operating Income

            		   114    65    260    139  

            Interest expense

            		   165    160    489    477  

            Loss on extinguishment of debt

            		   —      —      220    —    

            Other (income) expense, net

            		   —      —      —      (1) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

            		   (51)   (95)   (449)   (337) 

            Provision (benefit) for income taxes

            		   2    24    36    59  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Income (Loss) from Continuing Operations

            		   (53)   (119)   (485)   (396) 

            Income from discontinued operations, net of tax

            		   3    14    19    26  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Net Income (Loss)

            		  $(50)  $(105)  $(466)  $(370) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Other comprehensive income (loss) – foreign currency translation adjustment

            		   —      (6)   —      1  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Total Comprehensive Income (Loss)

            		  $(50)  $(111)  $(466)  $(369) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            The accompanying notes areIn accordance with ASC 470, Debt, the Company determined that all of the redemption of Old Senior Notes was an integral partextinguishment as either the original note holders were unknown or the refinancing was considered a "substantial" change. As a result of the extinguishment, the Company wrote-off approximately $24 million in unamortized deferred financing charges associated with the Old Senior Notes. Similarly, under ASC 470, approximately $834 million of the Old ABL Credit Facility and approximately $1,169 million of the Old Senior Secured Credit Facility were deemed extinguishments, with the remaining portions considered modifications. As a result of the extinguishment, the Company wrote-off approximately $22 million of $42 million in unamortized deferred financing charges associated with these consolidated financial statements.credit agreements.


            Index to Financial Statements

            Table of ContentsHD SUPPLY, INC.

            CONSOLIDATED BALANCE SHEETS

            Amounts in millions, except share data, unaudited

               October 28,
            2012            		  January 29,
            2012            		 

            ASSETS

            		   

            Current assets:

            		   

            Cash and cash equivalents

            		  $158   $111  

            Cash restricted for debt redemption

            		   985    —    

            Receivables, less allowance for doubtful accounts of $25 and $32

            		   1,105    1,002  

            Inventories

            		   994    1,108  

            Deferred tax asset

            		   65    58  

            Other current assets

            		   45    47  
              

             

             

            		  

             

             

            		 

            Total current assets

            		   3,352    2,326  
              

             

             

            		  

             

             

            		 

            Property and equipment, net

            		   390    398  

            Goodwill

            		   3,279    3,151  

            Intangible assets, net

            		   518    735  

            Other assets

            		   139    128  
              

             

             

            		  

             

             

            		 

            Total assets

            		  $7,678   $6,738  
              

             

             

            		  

             

             

            		 

            LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)

            		   

            Current liabilities:

            		   

            Accounts payable

            		  $779   $714  

            Accrued compensation and benefits

            		   137    140  

            Current installments of long-term debt

            		   940    82  

            Other current liabilities

            		   217    378  
              

             

             

            		  

             

             

            		 

            Total current liabilities

            		   2,073    1,314  
              

             

             

            		  

             

             

            		 

            Long-term debt, excluding current installments

            		   5,975    5,380  

            Deferred tax liabilities

            		   149    111  

            Other liabilities

            		   362    361  
              

             

             

            		  

             

             

            		 

            Total liabilities

            		   8,559    7,166  
              

             

             

            		  

             

             

            		 

            Stockholder’s equity (deficit):

            		   

            Common stock, par value $0.01; authorized 1,000 shares; issued and outstanding 1,000 shares at October 28, 2012 and January 29, 2012

            		   —      —    

            Paid-in capital

            		   2,693    2,680  

            Accumulated deficit

            		   (3,572)   (3,106) 

            Accumulated other comprehensive income (loss) – cumulative foreign currency translation adjustment

            		   (2)   (2) 
              

             

             

            		  

             

             

            		 

            Total stockholder’s equity (deficit)

            		   (881)   (428) 
              

             

             

            		  

             

             

            		 

            Total liabilities and stockholder’s equity (deficit)

            		  $7,678   $6,738  
              

             

             

            		  

             

             

            		 

            The accompanying notes are an integral part of these consolidated financial statements.

            Index to Financial Statements

            HD SUPPLY, INC.

            CONSOLIDATED STATEMENTS OF CASH FLOWS

            Amounts in millions, unaudited

               Nine Months Ended 
               October 28,
            2012            		  October 30,
            2011            		 

            CASH FLOWS FROM OPERATING ACTIVITIES:

            		   

            Net income (loss)

            		  $(466)  $(370) 

            Reconciliation of net income (loss) to net cash provided by (used in) operating activities:

            		   

            Depreciation and amortization

            		   255    264  

            Provision for uncollectibles

            		   3    10  

            Non-cash interest expense

            		   86    170  

            Stock-based compensation expense

            		   13    16  

            Deferred income taxes

            		   27    43  

            Unrealized derivative gain

            		   —      (1) 

            Loss on extinguishment of debt

            		   220    —    

            Gain on sale of a business

            		   (12)   (9) 

            Other

            		   1    4  

            Changes in assets and liabilities:

            		   

            (Increase) decrease in receivables

            		   (215)   (262) 

            (Increase) decrease in inventories

            		   (197)   (128) 

            (Increase) decrease in other current assets

            		   (4)   —    

            (Increase) decrease in other assets

            		   2    —    

            Increase (decrease) in accounts payable and accrued liabilities

            		   (46)   3  

            Increase (decrease) in other long-term liabilities

            		   6    (4) 
              

             

             

            		  

             

             

            		 

            Net cash provided by (used in) operating activities

            		   (327)   (264) 
              

             

             

            		  

             

             

            		 

            CASH FLOWS FROM INVESTING ACTIVITIES:

            		   

            Capital expenditures

            		   (80)   (58) 

            Proceeds from sales of property and equipment

            		   5    4  

            Purchase of investments

            		   (985)   (23) 

            Proceeds from sale of a business

            		   481    98  

            Payment for acquisition of a business, net of cash acquired

            		   (196)   (21) 

            Other investing activity

            		   (2)   —    
              

             

             

            		  

             

             

            		 

            Net cash provided by (used in) investing activities

            		   (777)   —    
              

             

             

            		  

             

             

            		 

            CASH FLOWS FROM FINANCING ACTIVITIES:

            		   

            Borrowings of long-term debt

            		   4,140    —    

            Repayments of long-term debt

            		   (3,290)   (8) 

            Borrowings on long-term revolver debt

            		   1,192    888  

            Repayments on long-term revolver debt

            		   (797)   (769) 

            Debt issuance and modification fees

            		   (95)   —    

            Other financing activities

            		   1    —    
              

             

             

            		  

             

             

            		 

            Net cash provided by (used in) financing activities

            		   1,151    111  
              

             

             

            		  

             

             

            		 

            Increase (decrease) in cash and cash equivalents

            		  $47   $(153) 

            Cash and cash equivalents at beginning of period

            		   111    292  
              

             

             

            		  

             

             

            		 

            Cash and cash equivalents at end of period

            		  $158   $139  
              

             

             

            		  

             

             

            		 

            The accompanying notes are an integral part of these consolidated financial statements.

            Index to Financial Statements


            HD SUPPLY, INC.

            NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1 — NATURE OF BUSINESS AND BASIS OF PRESENTATION6—DEBT (Continued)

                    Long-term debt as of February 3, 2013 and January 29, 2012 consisted of the following (dollars in millions):

             
            		 February 3, 2013 January 29, 2012 
             
            		 Outstanding
            Principal            		 Interest
            Rate %(1)            		 Outstanding
            Principal            		 Interest
            Rate %(1)            		 

            ABL Facility due 2017

            		 $300  1.96 $—  — 

            Old Term Loan due August 30, 2012

            		  —  —  73  1.53 

            Old Term Loan due April 1, 2014

            		  —  —  855  3.03 

            Old ABL Term Loan due April 1, 2014

            		  —  —  214  3.56 

            Term Loan due 2017, net of unamortized discount of $26 million as of February 3, 2013

            		  969  7.25  —  — 

            First Priority Notes due 2019, including unamortized premium of $21 million as of February 3, 2013

            		  1,271  8.125  —  — 

            Second Priority Notes due 2020

            		  675  11.00  —  — 

            Old Senior Notes due 2014

            		  —  —  2,500  12.00 

            11.5% Senior Notes due 2020

            		  1,000  11.50  —  — 

            7.5% Senior Notes due 2020

            		  1,275  7.50  —  — 

            Senior Subordinated Notes due 2021

            		  950  10.50  —  — 

            Old Senior Subordinated Notes due 2015

            		  889  13.50  1,820  13.50 
                        

            Total long-term debt

            		 $7,329     5,462    

            Less current installments

            		  (899)    (82)   
                        

            Long-term debt, excluding current installments

            		 $6,430    $5,380    
                        
            (1)
            Represents the stated rate of interest, without including the effect of discounts or premiums.

            Senior Credit Facilities

            BasisAsset Based Lending Facility

                    The ABL Facility provides for senior secured revolving loans and letters of Presentation

            The consolidated financial statements have been prepared pursuantcredit of up to a maximum aggregate principal amount of $1,500 million (subject to availability under a borrowing base). Extensions of credit under the ABL Facility will be limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory and eligible accounts receivable, subject to certain reserves and other adjustments. As of February 3, 2013, the Company had $910 million of available borrowings under the ABL Facility (after giving effect to the rulesborrowing base limitations and regulationsapproximately $61 million in letters of credit issued and including $70 million of borrowings available on qualifying cash balances).

                    A portion of the ABL Facility is available for letters of credit and swingline loans. The ABL Facility also includes a sub-facility for loans and letters of credit in Canadian dollars. The ABL Facility also permits the Company to add one or more incremental term loans, revolving or letter of credit facilities to be included in the ABL Facility up to an aggregate maximum amount of $1,900 million for the total commitments under the ABL Facility (including all incremental commitments).


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

                    Until the date that was three months after the closing date of the ABL Facility, at the option of the applicable borrower, the interest rates applicable to the loans under the ABL Facility were based, (i) in the case of U.S. dollar denominated loans, either at LIBOR plus 2.00% or Prime Rate plus 1.00% and (ii) in the case of Canadian dollar denominated loans, either the BA Rate plus 2.00% or the Canadian Prime Rate plus 1.00%. From and after the date that was three months after the closing date of the ABL Facility, the foregoing interest margins are subject to a pricing grid, as included in the ABL Facility agreement, based on average excess availability for the previous fiscal quarter. The ABL Facility also contains a letter of credit fee computed at a rate per annum equal to the Applicable Margin (as defined in the agreement) then in effect for LIBOR Loans and an unused commitment fee subject to a pricing grid, as included in the ABL Facility agreement, based on the Average Daily Used Percentage (as defined in the agreement).

                    The ABL Facility will mature on April 12, 2017; unless the individual applicable lenders agree to extend the maturity of their respective loans under the ABL Facility upon the Company's request and without the consent of any other applicable lender.

                    The ABL Facility is senior secured indebtedness of the Company and ranks equal in right of payment with all of the Company's existing and future senior indebtedness and senior in right of payment to all of the Company's existing and future subordinated indebtedness.

                    The ABL Facility is guaranteed, on a senior secured basis, by the Subsidiary Guarantors. These guarantees are subject to release under customary circumstances as stipulated in the agreement.

                    The ABL Facility is secured by a first-priority security interest in the ABL Priority Collateral, subject to permitted liens.

            Prepayments

                    The ABL Facility may be prepaid at the Company's option at any time without premium or penalty and will be subject to mandatory prepayment if the outstanding ABL Facility exceeds either the aggregate commitments with respect thereto or the current borrowing base, in an amount equal to such excess. Mandatory prepayments do not result in a permanent reduction of the lenders' commitments under the ABL Facility.

            Guarantees

                    The Company, and at the Company's option, certain of the Company's subsidiaries, including HD Supply Canada, Inc., a Canadian subsidiary (the "Canadian Borrower"), are the borrowers under the ABL Facility. The Subsidiary Guarantors guarantee the Company's payment obligations under the ABL Facility (and, in the case of Canadian obligations, each direct and indirect wholly-owned Canadian subsidiary, subject to certain exceptions, in each case to the extent otherwise permitted by applicable law, regulation and contractual provision (the "Canadian Guarantors") guarantee the Canadian Borrower's payment obligations under the ABL Facility).

                    The Company's obligations under the ABL Facility and the guarantees thereof, are secured in favor of the U.S. ABL collateral agent, by (i) all of the capital stock of the Company, all capital stock of all domestic subsidiaries directly owned by the Company and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary held directly by the Company or any Subsidiary Guarantor (it


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by the Company and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Term Loan Facility, the First Priority Notes, the Second Priority Notes and the ABL Facility.

                    The Canadian obligations under the ABL Facility are also secured by liens on substantially all assets of the Canadian Borrower and the Canadian Guarantors, subject to certain exceptions.

            Covenants

                    The ABL Facility contains a number of covenants that, among other things, limit or restrict the Company's ability and, in certain cases, the Company's subsidiaries to make acquisitions, mergers, consolidations, dividends, and to prepay certain indebtedness (including the First Priority Notes, the Second Priority Notes, the 11.5% Senior Notes, the 7.5% Senior Notes, and the Senior Subordinated Notes), in each case to the extent any such transaction would reduce availability under the ABL Facility below a specified amount.

                    In addition, if the Company's specified excess availability (including an amount by which the Company's borrowing base exceeds the existing commitments) under the ABL Facility falls below the greater of $150 million and 10% of the aggregate commitments (a "Liquidity Event"), the Company will be required to maintain a Fixed Charge Coverage Ratio of at least 1.0:1.0, as defined in the ABL Facility.

                    The ABL Facility also contains certain affirmative covenants, including financial and other reporting requirements. The Company is in compliance with all such covenants.

            Senior Secured Term Loan Facility

                    The Term Loan Facility consists of a senior secured Term Loan Facility (the "Term Loan Facility"; the term loan thereunder, the "Term Loan") providing for a Term Loan in an aggregate principal amount of $1,000 million (net of $30 million of original issue discount). The Term Loan Facility also permits the Company to add one or more incremental term loans, revolving or letter of credit facilities of up to $250 million plus a certain amount depending on a secured first lien leverage ratio test included in the Term Loan Facility. The Term Loan bears interest at LIBOR (subject to a floor of 1.25%) plus a borrowing margin of 6.00% or Prime plus a borrowing margin of 5.00% at the Company's election, payable at the end of each calendar quarter with respect to Prime rate draws or at the maturity of each LIBOR draw (unless a draw is for a six-, nine-, or twelve-month period, then interest shall be paid quarterly). The Term Loan amortizes in nominal quarterly installments, beginning September 30, 2012, equal to 0.25% of the original aggregate principal amount of the Term Loan and matures on October 12, 2017; provided that the individual applicable lenders may agree to extend the maturity of their respective Term Loans upon the Company's request and without the consent of any other applicable lender. See Note 17, Subsequent Events—Debt Modification, for information about an amendment to the Term Loan Facility.

                    The Term Loan Facility is senior secured indebtedness of the Company and ranks equal in right of payment with all of the Company's existing and future senior indebtedness and senior in right of payment to all of the Company's existing and future subordinated indebtedness.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

                    The Term Loan Facility is guaranteed, on a senior secured basis, by the Subsidiary Guarantors. These guarantees are subject to release under customary circumstances. The guarantee of each Subsidiary Guarantor is a senior secured obligation of that Subsidiary Guarantor and ranks equal in right of payment with all existing and future senior indebtedness of that Subsidiary Guarantor and senior in right of payment to all existing and future subordinated indebtedness of such Subsidiary Guarantor.

            Collateral

                    The Term Loan Facility and the related guarantees are secured by a first-priority security interest in the Cash Flow Priority Collateral, subject to permitted liens. In addition, the Term Loan Facility and the related guarantees are secured by a second-priority security interest in the ABL Priority Collateral, subject to permitted liens.

            Prepayment

                    Prior to the first anniversary of the closing date of the Term Loan Facility, the loans under the Term Loan Facility may not be optionally prepaid. During the second and third years following the closing date of the Term Loan Facility, the Term Loans may be optionally prepaid at a price of 102% and 101%, respectively, of the principal amount being prepaid. On and after the third anniversary of the closing date of the Term Loan Facility, the Term Loans may be prepaid without premium or penalty. Under certain circumstances and subject to certain exceptions, the Term Loan Facility will be subject to mandatory prepayment in an amount equal to:

              •
              100% of the net proceeds (other than those that are used to purchase certain assets or to repay certain other indebtedness) of certain asset sales and certain insurance recovery events; and

              •
              50% of annual excess cash flow for any fiscal year, such percentage to decrease to 0% depending on the attainment of certain secured leverage ratio targets.

                    In addition, upon the incurrence of certain events constituting a Change of Control (as defined in the credit agreement governing the Term Loan Facility (the "Term Loan Credit Agreement")), the Company must offer to prepay the Term Loans (unless otherwise repaid) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repayment date.

            Guarantee

                    The Company is the borrower under the Term Loan Facility. The Subsidiary Guarantors guarantee the Company's payment obligations under the Term Loan Facility.

                    The Company's obligations under the Term Loan Facility and the guarantees thereof are secured in favor of the collateral agent by (i) all of the capital stock of the Company, all capital stock of all domestic subsidiaries directly owned by the Company and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary owned directly by the Company or any Subsidiary Guarantors (it being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by the Company and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Term Loan Facility, the First Priority Notes, the Second Priority Notes and the ABL Facility.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Covenants

                    The Term Loan Facility contains a number of covenants that, among other things, limit the ability of the Company and its restricted subsidiaries, as described in the Term Loan Credit Agreement, to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of the Company's restricted subsidiaries to pay dividends to the Company or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with the Company's affiliates; and prepay or amend the terms of certain indebtedness.

                    The Term Loan Facility also contains certain affirmative covenants, including financial and other reporting requirements. The Company is in compliance with all such covenants.

            Events of Default under the ABL Facility and Term Loan Facility

                    The ABL Facility and Term Loan Facility also provide for customary events of default, including non-payment of principal, interest or fees, violation of covenants, material inaccuracy of representations or warranties, specified cross default and cross acceleration to other material indebtedness, certain bankruptcy events, certain ERISA events, material invalidity of guarantees or security interest, material judgments and changes of control.

            81/8% Senior Secured First Priority Notes due 2019

                    The Company issued $950 million of First Priority Notes under an Indenture, dated, and amended, as of April 12, 2012 (the "First Priority Indenture") among the Company, certain subsidiaries of the Company, as guarantors (the "Subsidiary Guarantors"), the Trustee, and the Note Collateral Agent. On August 2, 2012, the Company issued $300 million additional aggregate principal amount of its First Priority Notes (the "Additional Notes") at a premium of 107.5%. The First Priority Notes bear interest at a rate of 81/8% per annum and will mature on April 15, 2019. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on October 15, 2012.

                    The First Priority Notes are senior secured indebtedness of the Company and rank equal in right of payment with all of its existing and future senior indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness.

                    The First Priority Notes are guaranteed, on a senior secured basis, by each of the Company's Wholly Owned Domestic Subsidiaries (as defined in the First Priority Indenture), other than an Excluded Subsidiary (as defined in the First Priority Indenture), and by each of the Company's other Domestic Subsidiaries (as defined in the First Priority Indenture) that is a borrower under the ABL Facility or that guarantees payment of indebtedness of the Company under any Credit Facility or Capital Markets Securities (as defined in the First Priority Indenture). These guarantees are subject to release under customary circumstances as stipulated in the First Priority Indenture.

            Collateral

                    The First Priority Notes and the related guarantees are secured by a first-priority security interest in substantially all of the tangible and intangible assets of the Company and the Subsidiary Guarantors (other than the ABL Priority Collateral, in which the First Priority Notes and the related guarantees have a second priority security interest), including pledges of all Capital Stock of the Company's


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Restricted Subsidiaries directly owned by the Company and the Subsidiary Guarantors (but only up to 65% of each series of Capital Stock of each direct Foreign Subsidiary owned by the Company or any Subsidiary Guarantor), subject to certain thresholds, exceptions and permitted liens, and excluding any Excluded Assets (as defined in the First Priority Indenture) and Excluded Subsidiary Securities (as defined in the First Priority Indenture) (the "Cash Flow Priority Collateral").

                    In addition, the First Priority Notes and the related guarantees are secured by a second-priority security interest in substantially all of the Company's and the Subsidiary Guarantors' present and future assets which secure the Company's obligations under the ABL Facility on a first priority basis, including accounts receivable, inventory and other related assets and all proceeds thereof, subject to permitted liens. Such assets are referred to as the "ABL Priority Collateral." (The Cash Flow Priority Collateral and the ABL Priority Collateral together are referred to herein as the "Collateral.")

            Redemption

                    The Company may redeem the First Priority Notes, in whole or in part, at any time (1) prior to April 15, 2015, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the First Priority Indenture and (2) on and after April 15, 2015, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 15 of the year set forth below.

            Year
            		 Percentage 

            2015

            		  106.094%

            2016

            		  104.063%

            2017

            		  102.031%

            2018 and thereafter

            		  100.000%

                    In addition, at any time prior to April 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the First Priority Notes with the proceeds of certain equity offerings at a redemption price of 108.125% of the principal amount in respect of the First Priority Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the First Priority Notes are redeemed, an aggregate principal amount of First Priority Notes equal to at least 50% of the original aggregate principal amount of First Priority Notes must remain outstanding immediately after each such redemption of First Priority Notes.

            11% Senior Secured Second Priority Notes due 2020

                    The Company issued $675 million aggregate principal amount of Second Priority Notes under an Indenture, dated, and amended, as of April 12, 2012 (the "Second Priority Indenture"), among the Company, the Subsidiary Guarantors, the Trustee, and the Note Collateral Agent. The Second Priority Notes bear interest at a rate of 11% per annum and will mature on April 15, 2020. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on October 15, 2012.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

                    The Second Priority Notes are senior secured indebtedness of the Company and rank equal in right of payment with all of the Company's existing and future senior indebtedness and senior in right of payment to all of the Company's existing and future subordinated indebtedness.

                    The Second Priority Notes are guaranteed, on a senior secured basis, by each of the Company's Wholly Owned Domestic Subsidiaries (as defined in the Second Priority Indenture), other than an Excluded Subsidiary (as defined in the Second Priority Indenture), and by each of the Company's other Domestic Subsidiaries (as defined in the Second Priority Indenture) that is a borrower under the ABL Facility or that guarantees payment of indebtedness of the Company under any Credit Facility or Capital Markets Securities (as defined in the Second Priority Indenture). These guarantees are subject to release under customary circumstances as stipulated in the Second Priority Indenture.

            Collateral

                    The Second Priority Notes and the related guarantees are secured by a second-priority security interest in the Cash Flow Priority Collateral, subject to permitted liens. In addition, the Second Priority Notes and the related guarantees are secured by a third-priority security interest in the ABL Priority Collateral, subject to permitted liens.

            Redemption

                    The Company may redeem the Second Priority Notes, in whole or in part, at any time (1) prior to April 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the Second Priority Indenture and (2) on and after April 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 15 of the year set forth below.

            Year
            		 Percentage 

            2016

            		  105.500%

            2017

            		  102.750%

            2018 and thereafter

            		  100.000%

                    In addition, at any time prior to April 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the Second Priority Notes with the proceeds of certain equity offerings at a redemption price of 111.000% of the principal amount in respect of the Second Priority Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the Second Priority Notes are redeemed, an aggregate principal amount of Second Priority Notes equal to at least 50% of the original aggregate principal amount of Second Priority Notes must remain outstanding immediately after each such redemption of Second Priority Notes.

            11.5% Senior Unsecured Notes due 2020

                    The Company issued $1,000 million aggregate principal amount of 11.5% Senior Notes under an Indenture, dated, and amended, as of October 15, 2012 ("11.5% Senior Notes Indenture") among the Company, certain subsidiaries of the Company as guarantors (the "Subsidiary Guarantors") and the


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Trustee. The 11.5% Senior Notes bear interest at a rate of 11.5% per annum and will mature on July 15, 2020. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on April 15, 2013.

                    The 11.5% Senior Notes are unsecured senior indebtedness of the Company and rank equal in right of payment with all of the Company's existing and future senior indebtedness, senior in right of payment to all of the Company's existing and future subordinated indebtedness, and effectively subordinated to all of the Company's existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness.

                    The 11.5% Senior Notes are guaranteed, on a senior unsecured basis, by each of the Company's direct and indirect domestic existing and future subsidiaries that is a wholly owned domestic subsidiary (other than certain excluded subsidiaries), and by each other domestic subsidiary that is a borrower under the ABL Facility or that guarantees the Company's obligations under any credit facility or capital markets securities. These guarantees are subject to release under customary circumstances as stipulated in the 11.5% Senior Notes Indenture.

            Redemption

                    The Company may redeem the 11.5% Senior Notes, in whole or in part, at any time (1) prior to October 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the 11.5% Senior Notes Indenture and (2) on and after October 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on October 15 of the year set forth below.

            Year
            		 Percentage 

            2016

            		  105.750%

            2017

            		  102.875%

            2018 and thereafter

            		  100.000%

                    In addition, at any time prior to October 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the 11.5% Senior Notes with the proceeds of certain equity offerings at a redemption price of 111.50% of the principal amount in respect of the 11.5% Senior Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the 11.5% Senior Notes are redeemed, an aggregate principal amount of the 11.5% Senior Notes equal to at least 50% of the original aggregate principal amount of the 11.5% Senior Notes must remain outstanding immediately after each such redemption of the 11.5% Senior Notes.

            7.5% Senior Unsecured Notes due 2020

                    The Company issued $1,275 million aggregate principal amount of 7.5% Senior Notes under an Indenture, dated, and amended, as of February 1, 2013 ("7.5% Senior Notes Indenture") among the Company, certain subsidiaries of the Company as guarantors (the "Subsidiary Guarantors") and the Trustee. The 7.5% Senior Notes bear interest at a rate of 7.5% per annum and will mature on July 15,


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            2020. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on April 15, 2013.

                    The 7.5% Senior Notes are unsecured senior indebtedness of the Company and rank equal in right of payment with all of the Company's existing and future senior indebtedness, senior in right of payment to all of the Company's existing and future subordinated indebtedness, and effectively subordinated to all of the Company's existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness.

                    The 7.5% Senior Notes are guaranteed, on a senior unsecured basis, by each of the Company's direct and indirect domestic existing and future subsidiaries that is a wholly owned domestic subsidiary (other than certain excluded subsidiaries), and by each other domestic subsidiary that is a borrower under the ABL Facility or that guarantees the Company's obligations under any credit facility or capital markets securities. These guarantees are subject to release under customary circumstances as stipulated in the 7.5% Senior Notes Indenture.

            Redemption

                    The Company may redeem the 7.5% Senior Notes, in whole or in part, at any time (1) prior to October 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the 7.5% Senior Notes Indenture and (2) on and after October 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on October 15 of the year set forth below.

            Year
            		 Percentage 

            2016

            		  103.750%

            2017

            		  101.875%

            2018 and thereafter

            		  100.000%

                    In addition, at any time prior to October 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the 7.5% Senior Notes with the proceeds of certain equity offerings at a redemption price of 107.50% of the principal amount in respect of the 7.5% Senior Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the 7.5% Senior Notes are redeemed, an aggregate principal amount of the 7.5% Senior Notes equal to at least 50% of the original aggregate principal amount of the 7.5% Senior Notes must remain outstanding immediately after each such redemption of the 7.5% Senior Notes.

            14.875% Senior Unsecured Notes due 2020

                    The Company issued approximately $757 million aggregate principal amount (net of $30 million of original issue discount) of 14.875% Senior Notes under an Indenture, dated as of April 12, 2012 (the "14.875% Senior Notes Indenture"), among the Company, the Subsidiary Guarantors and Wilmington Trust, National Association, as Trustee to investment funds associated with Bain Capital Partners, LLC, Carlyle Investment Management, LLC and Clayton, Dubilier & Rice, LLC, the Equity Sponsors. The


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            14.875% Senior Notes bore interest at a rate of 14.875% per annum and were scheduled to mature on October 12, 2020. Interest was to be paid semi-annually in arrears on each April 12th and October 12th through maturity, commencing on October 12, 2012, except that the first eleven payment periods through October 2017 were to be paid in kind ("PIK") and therefore increase the balance of the outstanding indebtedness rather than paid in cash. On October 12, 2012, the Company made a PIK payment of $56 million, increasing the outstanding principal balance to approximately $813 million.

                    The Company was permitted to redeem the 14.875% Senior Notes, in whole or in part, at any time prior to April 12, 2015, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the 14.875% Senior Notes Indenture. On February 1, 2013, the Company repurchased the 14.875% Senior Notes in accordance with the redemption provisions of the 14.875% Senior Notes Indenture.

            10.5% Senior Subordinated Notes due 2021

                    The Company issued $950 million aggregate principal amount of 10.5% Senior Subordinated Notes due 2021 ("Senior Subordinated Notes") under an Indenture, dated as of January 16, 2013 ("Senior Subordinated Notes Indenture") among the Company, certain subsidiaries of the Company as guarantors (the "Subsidiary Guarantors") and the Trustee. The Senior Subordinated Notes bear interest at a rate of 10.5% per annum and will mature on January 15, 2021. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on April 15, 2013.

                    The Senior Subordinated Notes are unsecured senior subordinated indebtedness of the Company and rank subordinated in right of payment to all the Company's existing and future senior indebtedness, equal in right of payment with all of the Company's existing and future senior subordinated indebtedness, and effectively subordinated to all of the Company's existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness.

                    The Senior Subordinated Notes are guaranteed, on an unsecured senior subordinated basis, by each of the Company's direct and indirect domestic existing and future subsidiaries that is a wholly owned domestic subsidiary (other than certain excluded subsidiaries), and by each other domestic subsidiary that is a borrower under the ABL Facility or that guarantees the Company's obligations under any credit facility or capital markets securities. These guarantees are subject to release under customary circumstances as stipulated in the Senior Subordinated Notes Indenture.

            Redemption

                    The Company may redeem the Senior Subordinated Notes, in whole or in part, at any time (1) prior to January 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the Senior Subordinated Notes Indenture and (2) on and after January 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on January 15 of the years set forth below.

            Year
            		 Percentage 

            2016

            		  107.875%

            2017

            		  105.250%

            2018

            		  102.625%

            2019 and thereafter

            		  100.000%

                    In addition, at any time after July 31, 2013 and on or before July 31, 2014, the Company may also redeem up to 100% of the aggregate principal amount of the Senior Subordinated Notes with funds in an equal aggregate amount not exceeding the aggregate proceeds of certain qualified public equity offerings at a redemption price (expressed as a percentage of principal amount) of (x) if such redemption occurs on or prior to January 31, 2014, 103% and (y) if such redemption occurs after January 31, 2014 and on or prior to July 31, 2014, 102%, in each case plus accrued and unpaid interest, if any, to the redemption date; provided, however, that if less than 100% of the Senior Subordinated Notes are to be redeemed in any qualified public offering redemption, at least 33.33% of the original aggregate principal amount of Senior Subordinated Notes must remain outstanding immediately after giving effect to such qualified public offering redemption.

                    In addition to the foregoing, at any time prior to January 15, 2016, the Company may redeem up to 35% of the aggregate principal amount of the Senior Subordinated Notes with the proceeds of certain equity offerings at a redemption price of 110.50% of the principal amount in respect of the Senior Subordinated Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the Senior Subordinated Notes are redeemed, an aggregate principal amount of Senior Subordinated Notes equal to at least 50% (or 35% if any redemption in connection with certain qualified public equity offerings shall have been consummated) of the original aggregate principal amount of Senior Subordinated Notes must remain outstanding immediately after each such redemption of Senior Subordinated Notes.

            First Priority Notes and Second Priority Notes (collectively the "Priority Notes"), 11.5% Senior Notes and 7.5% Senior Notes (collectively the "Senior Notes"), and Senior Subordinated Notes

            Offer to Repurchase

                    In the event of certain events that constitute a Change of Control (as defined in the First Priority Indenture and Second Priority Indenture, collectively the "Priority Indentures," the 11.5% Senior Notes Indentures and the 7.5% Senior Notes Indentures, collectively the "Senior Indentures," and the Senior Subordinated Notes Indenture), the Company must offer to repurchase all of the Priority Notes, Senior Notes, and Senior Subordinated Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. If the Company sells assets under certain circumstances, the Company must use the proceeds to make an offer to purchase the Priority Notes, Senior Notes, and Senior Subordinated Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Covenants

                    The Priority Indentures, Senior Indentures, and Senior Subordinated Notes Indenture contain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of the Company's restricted subsidiaries to pay dividends to the Company or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; and enter into certain transactions with the Company's affiliates. Most of these covenants will cease to apply for so long as the Priority Notes, Senior Notes, and Senior Subordinated Notes have investment grade ratings from both Moody's Investment Services, Inc. and Standard & Poor's. The Company is in compliance with all such covenants.

            Events of Default

                    The Priority Indentures, Senior Indentures, and Senior Subordinated Notes Indenture also provide for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and other monetary obligations on all the then outstanding Priority Notes, Senior Notes, and Senior Subordinated Notes to be due and payable immediately. The Priority Indentures, Senior Indentures, and Senior Subordinated Notes also provide for specified cross default and cross acceleration to other material indebtedness.

            Registration Rights Agreements

                    The 11.5% Senior Notes and the guarantees have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). The Company has agreed to make an offer to exchange the 11.5% Senior Notes for registered, publicly tradable notes that have substantially identical terms as the 11.5% Senior Notes within 270 days following the original issue date of the 11.5% Senior Notes. The Company is obligated to pay additional interest, up to a maximum additional interest rate of 0.50% per annum, on the 11.5% Senior Notes if the exchange offer has not been completed within 360 days following the original issue date of the 11.5% Senior Notes.

                    The Priority Notes and the guarantees have not been registered under the Securities Act. The Company has agreed to make an offer to exchange the Priority Notes for registered, publicly tradable notes that have substantially identical terms as the Priority Notes within 270 days following the original issue date of the Priority Notes. The Company is obligated to pay additional interest, up to a maximum additional interest rate of 0.50% per annum, on the Priority Notes if the exchange offer has not been completed within 360 days following the original issue date of the Priority Notes.

                    On January 31, 2013, the Company filed a registration statement on Form S-4/A with the SEC in accordance with the registration rights agreements relating to the 11.5% Senior Notes and Priority Notes. On January 31, 2013, the registration statement was declared effective by the SEC. See Note 17, Subsequent Events—Exchange Commission (“SEC”Offers, for additional information regarding this exchange offer.

                    The Senior Subordinated Notes and the guarantees have not been registered under the Securities Act. The Company has agreed to make an offer to exchange the Senior Subordinated Notes for registered, publicly tradable notes that have substantially identical terms as the Senior Subordinated Notes within 270 days following the original issue date of the Senior Subordinated Notes. The Company is obligated to pay additional interest, up to a maximum additional interest rate of 0.50% per


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            annum, on the Senior Subordinated Notes if the exchange offer has not been completed within 360 days following the original issue date of the Senior Subordinated Notes.

                    On January 31, 2013, the Company filed a registration statement on Form S-4/A with the SEC in accordance with the registration rights agreements relating to the Senior Subordinated Notes. On January 31, 2013, the registration statement was declared effective by the SEC. See Note 17, Subsequent Events—Exchange Offers, for additional information regarding this exchange offer.

                    The 7.5% Senior Notes and the guarantees have not been registered under the Securities Act of 1933, as amended. The Company has agreed to make an offer to exchange the 7.5% Senior Notes for registered, publicly tradable notes that have substantially identical terms as the 7.5% Senior Notes within 270 days following the original issue date of the 7.5% Senior Notes. The Company is obligated to pay additional interest, up to a maximum additional interest rate of 0.50% per annum, on the 7.5% Senior Notes if the exchange offer has not been completed within 360 days following the original issue date of the 7.5% Senior Notes.

            Old Senior Subordinated Notes

                    On August 30, 2007, the Company issued $1,300 million aggregate principal amount of Senior Subordinated Notes due 2015 bearing interest at a rate of 13.5% (the "Old Senior Subordinated Notes"). Interest payments were due each March 1st and September 1st through maturity except that the first eight payment periods through September 2011 were paid in kind ("PIK") and therefore increased the balance of the outstanding indebtedness rather than paid in cash.

                    On May 15, 2012, the Company repurchased $1 million aggregate principal of its Old Senior Subordinated Notes at a price of 97% plus accrued interest. On November 8, 2012, the Company redeemed $930 million aggregate principal of its outstanding Old Senior Subordinated Notes at a price of 103.375% plus $23 million of accrued interest. As of February 3, 2013, $889 million of the Company's Old Senior Subordinated Notes remained outstanding. On January 9, 2013, the Company issued a notice of redemption, subject to the required thirty-day notification period, to redeem all of the remaining $889 million aggregate principal outstanding of Old Senior Subordinated Notes. See Note 17, Subsequent Events—Debt Redemption.

            Debt Maturities

                    Maturities of long-term debt outstanding, in principal amounts, at February 3, 2013 are summarized below (amounts in millions):

             
            		 Fiscal Year  
            		  
            		 
             
            		 2013(1) 2014 2015 2016 2017 Thereafter Total 

            Principal maturities

            		 $899 $10 $10 $10 $1,255 $5,150 $7,334 
            (1)
            Includes $889 million of the Company's Old Senior Subordinated Notes due 2015. On January 9, 2013, the Company issued a notice of redemption, subject to the required thirty-day notification period, to redeem all of the remaining $889 million outstanding Old Senior Subordinated Notes. See Note 17, Subsequent Events—Debt Redemption.

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 7—FAIR VALUE MEASUREMENTS

                    The fair value measurements and disclosure principles of U.S. GAAP (ASC 820, Fair Value Measurements and Disclosures) define fair value, establish a framework for measuring fair value and provide disclosure requirements about fair value measurements. These principles define a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

            Level 1—

            		Quoted prices (unadjusted) in active markets for identical assets or liabilities;

            Level 2—

            		Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly;

            Level 3—

            		Unobservable inputs in which little or no market activity exists.

                    The Company's financial instruments that permit reduced disclosure for interim periods. The consolidatedare not reflected at fair value on the balance sheet were as follows (amounts in millions):

             
            		 As of February 3, 2013 As of January 29, 2012 
             
            		 Recorded
            Amount(1)            		 Estimated
            Fair Value(1)            		 Recorded
            Amount(1)            		 Estimated
            Fair Value(1)            		 

            ABL Facility

            		 $300 $292 $— $— 

            Term Loans and Notes

            		  7,034  7,573  5,462  5,070 
                      

            Total

            		 $7,334 $7,865 $5,462 $5,070 
                      
            (1)
            These amounts do not include accrued interest; accrued interest is classified as Other current liabilities and Other liabilities in the accompanying Consolidated Balance Sheets. These amounts do not include any related discounts and premiums.

                    The Company utilized Level 2 inputs, as defined in the fair value hierarchy, to measure the fair value of the long-term debt. The Old Term Loans outstanding as of January 29, 2012 were guaranteed by Home Depot. Therefore, management's estimates of fair value for the Old Term Loans were based on a review of the fair value of debt issued by companies with similar credit ratings as Home Depot. For all of the Company's other debt instruments, management's fair value estimates were based on recent similar credit facilities initiated by companies with like credit quality in similar industries, quoted prices for similar instruments, and inquiries with certain investment communities.

            NOTE 8—INCOME TAXES

                    The components of Income (Loss) from Continuing Operations before Provision (Benefit) for Income Taxes are as follows (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3, 2013 January 29, 2012 January 30, 2011 

            United States

            		 $(1,210)$(503)$(606)

            Foreign

            		  14  19  21 
                    

            Total

            		 $(1,196)$(484)$(585)
                    

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    The Provision (Benefit) for Income Taxes consisted of the following (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3, 2013 January 29, 2012 January 30, 2011 

            Current:

            		          

            Federal

            		 $— $— $— 

            State

            		  3  3  2 

            Foreign

            		  2  —  6 
                    

            		  5  3  8 

            Deferred:

            		          

            Federal

            		  (3) 64  12 

            State

            		  (1) 6  4 

            Foreign

            		  —  (5) 4 

            Foreign realization of tax deductible goodwill from prior acquisitions

            		  2  11  — 
                    

            		  (2) 76  20 
                    

            Total

            		 $3 $79 $28 
                    

                    The Company's combined federal, state and foreign effective tax rate for continuing operations for fiscal 2012, fiscal 2011, and fiscal 2010 was derived from audited financial statements, butapproximately (0.2%), (16.4%), and (4.8%), respectively.

                    The Company's effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and the related tax rates in the jurisdictions where it operates, restructuring and other one-time charges, as well as discrete events, such as settlements of future audits. The Company's fiscal 2012, fiscal 2011 and fiscal 2010 effective tax rates were significantly impacted by the recording of a valuation allowance on its net U.S. deferred tax assets. The fiscal 2012 and fiscal 2011 valuation allowance was directly impacted by the increasing of the deferred tax liability for U.S. goodwill amortization for tax purposes. The deferred tax liability related to the Company's U.S. tax deductible goodwill must be considered as a liability related to an asset with an indefinite life. Therefore, the deferred tax liability does not includeamortize and is not available as a source of taxable income to support the realization of deferred tax assets created by other deductible temporary timing differences.

                    The fiscal 2012 effective tax rate was also impacted by the goodwill impairment of an indefinite life intangible asset for book purposes. The fiscal 2012 goodwill impairment created a deferred tax asset which reduced the fiscal 2012 tax expense by decreasing the deferred tax liability associated with indefinite life intangibles which prior to the impairment could not serve as a source of taxable income. In addition, the tax expense for fiscal 2012 was also reduced by an adjustment to the Company's valuation allowance as a result of the acquisition of additional deferred tax liabilities in conjunction with the Peachtree acquisition.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    The reconciliation of the provision (benefit) for income taxes from continuing operations at the federal statutory rate of 35% to the actual tax provision (benefit) for fiscal 2012, fiscal 2011, and fiscal 2010 is as follows (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3, 2013 January 29, 2012 January 30, 2011 

            Income taxes at federal statutory rate

            		 $(419)$(169)$(205)

            State income taxes, net of federal income tax benefit

            		  (53) (24) (15)

            Non-deductible goodwill impairment

            		  17  —  — 

            Non-deductible interest

            		  14  15  13 

            Valuation allowance

            		  442  259  228 

            Adjustments to tax reserves

            		  (1) 12  4 

            Other, net

            		  3  (14) 3 
                    

            Total provision (benefit)

            		 $3 $79 $28 
                    

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of February 3, 2013 and January 29, 2012 were as follows (amounts in millions):

             
            		 February 3, 2013 January 29, 2012 

            Current:

            		       

            Deferred Tax Assets:

            		       

            Interest

            		 $131 $33 

            Allowance for doubtful accounts

            		  9  12 

            Inventory

            		  37  49 

            Accrued compensation

            		  1  3 

            Accrued self-insurance liabilities

            		  5  5 

            Restructuring liabilities

            		  4  7 

            Other accrued liabilities

            		  23  27 

            Valuation allowance

            		  (167) (76)
                  

            Current deferred tax assets

            		  43  60 

            Deferred Tax Liabilities:

            		       

            Prepaid expense

            		 $(1)$(1)
                  

            Current deferred tax liabilities

            		  (1) (1)

            Noncurrent:

            		       

            Deferred Tax Assets:

            		       

            Interest

            		 $— $236 

            Accrued compensation

            		  33  27 

            Accrued self-insurance liabilities

            		  13  15 

            Other accrued liabilities

            		  7  8 

            Deferred revenue

            		  8  8 

            Restructuring liabilities

            		  29  32 

            Net operating loss

            		  830  374 

            Net capital loss carryforward

            		  —  10 

            Fixed assets

            		  23  16 

            Other

            		  22  21 

            Valuation allowance

            		  (758) (415)
                  

            Noncurrent deferred tax assets

            		  207  332 

            Deferred Tax Liabilities:

            		       

            Deferred Financing Costs

            		 $(8)$(24)

            Software costs

            		  (25) (23)

            Intangible assets

            		  (193) (316)

            Income from discharge of indebtedness

            		  (80) (80)
                  

            Noncurrent deferred tax liabilities

            		  (306) (443)
                  

            Deferred tax assets (liabilities), net

            		 $(57)$(52)
                  

                    The Company reported $6 million of long-term deferred tax assets related to its Canadian business within other assets on its balance sheet.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    In fiscal 2012, the Company recorded a valuation allowance on its total U.S. operations of $434 million of which $442 million related to continuing operations which was reduced by $8 million for discontinued operations. In fiscal 2011, the Company recorded a valuation allowance on its total U.S. operations of $252 million of which $259 million related to continuing operations which was reduced by $7 million for discontinued operations. In fiscal 2010, the Company recorded a valuation allowance on its total U.S. operations of $230 million of which $228 million related to continuing operations and $2 million related to discontinued operations. The Company records a valuation allowance when it is "more likely than not" that some portion or all necessary disclosures required by accounting principles generally acceptedof the deferred income tax assets will not be realized. In reaching this determination, the Company considers the future reversals of taxable temporary differences, future taxable income, exclusive of taxable temporary differences and carryforwards, taxable income in prior carryback years and tax planning strategies.

                    During the first quarter of fiscal 2010, the Company designated the undistributed earnings of certain aspects of its foreign operations as not permanently reinvested. In fiscal 2012, the Company repatriated $29 million of cash which resulted in $3 million of income tax expense in the United StatesU.S. In fiscal 2011, the Company did not repatriate cash from its foreign operations to the U.S. If the company had repatriated cash to the U.S., no additional income tax expense would have been generated. In fiscal 2010, the Company repatriated $33 million of America (“cash which resulted in $2 million of income tax expense in the U.S. GAAP”).In general, to the extent the Company's financial reporting book basis over tax basis of a foreign subsidiary exceeds the cash available for repatriation, deferred taxes have not been provided for, as they are essentially permanent in duration. If these amounts were not considered reinvested, it is estimated that no additional deferred taxes would have been provided for.

            In management’s opinion,        As of February 3, 2013, the unaudited financial information forCompany has tax-effected U.S. federal net operating loss carryforwards of $636 million which expire beginning in fiscal 2029. The Company also has $158 million of tax effected state net operating loss carryfowards which expire in various years between fiscal 2013 and fiscal 2030. During fiscal 2012, the interim periods presented includes all adjustments necessary forCompany generated a fair statementcapital gain from the sale of the resultsIPVF business. The capital gain allowed the Company to fully utilize the fiscal 2011 capital loss carryforward of $10 million associated with the Company's exit from the Plumbing business. The future utilization of the Company's net operating loss carryforwards could be limited if the Company experiences an "ownership change," as defined in Section 382 of the Internal Revenue Code of 1986, as amended. In general, an ownership change may result from transactions increasing the aggregate ownership of certain persons (or groups of persons) in the Company's stock by more than 50 percentage points over a testing period (generally 3 years).

                    There was no net income tax benefit or expense included in discontinued operations financial position,in fiscal 2012, fiscal 2011 or fiscal 2010.

                    Federal, state and cash flows. All adjustments areforeign income taxes net receivable (payable) total zero and $4 million as of February 3, 2013 and January 29, 2012, respectively.

            Accounting for uncertain tax positions

                    The Company follows the U.S. GAAP guidance for uncertain tax positions within ASC 740, Income Taxes. ASC 740 requires application of a normal recurring nature unless otherwise disclosed. Revenues, expenses, assets"more likely than not" threshold to the recognition and liabilities can vary during eachde-recognition of tax positions. It further requires that a change in judgment related to prior years' tax positions be recognized in the quarter of such change. A reconciliation of the year. Therefore,beginning and ending


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

            amount of unrecognized tax benefits for continuing operations for fiscal 2012, fiscal 2011, and fiscal 2010 is as follows (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3,
            2013            		 January 29,
            2012            		 January 30,
            2011            		 

            Unrecognized Tax Benefits beginning of period

            		 $196 $192 $190 

            Gross increases for tax positions in current period

            		  —  —  1 

            Gross increases for tax positions in prior period

            		  2  6  4 

            Gross decreases for tax positions in prior period

            		  0  —  — 

            Settlements

            		  (1) (1) (3)

            Lapse of statutes

            		  (4) (1) — 
                    

            Unrecognized Tax Benefits end of period

            		 $193 $196 $192 
                    

                    There are $193 million, $196 million, and $192 million of unrecognized tax benefits included in the resultsbalance at February 3, 2013, January 29, 2012, and trendsJanuary 30, 2011, respectively, whose resolution could affect the annual effective income tax rate.

                    The Company accrued $3 million, $5 million, and $2 million of net interest and penalties related to unrecognized tax benefits for fiscal 2012, fiscal 2011, and fiscal 2010, respectively. The Company's ending net accrual for interest and penalties related to unrecognized tax benefits at February 3, 2013, January 29, 2012, and January 30, 2011 was $22 million, $19 million, and $14 million, respectively. The Company's accounting policy is to classify interest and penalties as components of income tax expense. Accrued interest and penalties from unrecognized tax benefits are included as a component of other liabilities on the Consolidated Balance Sheet.

                    The Company is subject to audits and examinations of its tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service ("IRS"). Management regularly assesses the likelihood of adverse outcomes resulting from these interim financial statements mayexaminations to determine the adequacy of provisions for income taxes. Certain of the Company's tax years 2006 and forward remain open for audit by the IRS and various state governments. The Company does not beanticipate any significant changes in its unrecognized tax benefits over the same as thosenext twelve months.

                    See Note 13, Commitments and Contingencies, for discussion on the full year. ForIRS audit of the Company's U.S. federal income tax returns.

            NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

            Stock-Based Compensation Plan

                    Effective December 4, 2007, HD Supply Holdings, Inc. ("Holding") established a more complete discussionStock Incentive Plan (the "HDS Plan") for associates of HD Supply, Inc.’s significant accounting policiesa wholly-owned subsidiary. The HDS Plan provides for the award of non-qualified stock options and deferred share units of the common stock of Holding. Holding will issue new shares of common stock to satisfy options exercised.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)

                    Under the terms of the HDS Plan, non-qualified stock options are to carry exercise prices at, or above, the fair market value of Holding's stock on the date of the grant. Since Holding common stock is not publicly traded, the fair market value of the stock is determined by the Board of Directors of Holding based on such factors as it deems appropriate, including but not limited to the earnings and other financial and operating information see “Management Discussionof the Company in recent periods, the potential value of the Company as a whole, the future prospects of the Company and Analysisthe industries in which it competes, the history and management of Financial Conditionthe Company, the general condition of the securities markets, the fair market value of securities of companies engaged in businesses similar to those of the Company, and Resultsany recent valuation of Operations—Critical accounting policies,” “Auditedthe common stock of Holding that shall have been performed by an independent valuation firm (although the Board of Directors of Holding is not obligated to obtain such a valuation). The non-qualified stock options generally vest at the rate of 20% per year commencing on the first anniversary date of the grant or 100% on the third anniversary of the grant and expire on the tenth anniversary date of the grant. The Company made a one-time grant in April 2011 of 10.6 million options with an exercise price of $4.15 that vests in its entirety on the three-year anniversary of the grant.

                    On January 15, 2010, the Company initiated a one-time stock option exchange program ("Option Exchange Program"). Under the Option Exchange Program, all participants of the HDS Plan were offered the opportunity to exchange their outstanding options (the "Eligible Options") to purchase shares of Holding's common stock (the "Common Stock") granted under the HDS Plan for a lesser number of new options (as determined in accordance with the exchange ratios below) under the HDS Plan.

                    The Option Exchange Program covered all options that were outstanding under the HDS Plan, including vested and unvested options, at the time of the offer. Eligible Options that had an exercise price greater than $10.00 per share were offered for exchange for a lesser number of options with a new exercise price equal to $4.15 per share (the "Repriced Options"). For every three Eligible Options with an exercise price greater than $10.00 per share, an eligible employee was offered two new Repriced Options. Options that had an exercise price equal to $10.00 per share were offered for exchange for an equal number of options with an exercise price equal to $10.00 per share (the "New $10.00 Options", and together with the Repriced Options, the "New Options").

                    Regardless of the vesting status of the Eligible Options, the New Options have a five-year vesting period, with 20% of the New Options vesting on each anniversary of the date of exchange and an expiration date that is ten years from the date of exchange. All of the New Options are subject to the terms and conditions of the HDS Plan and the eligible employee's new stock option agreement.

                    The offering period for the Option Exchange Program commenced on January 15, 2010 and expired on February 2, 2010. Participation in the Option Exchange Program was voluntary. However, once an eligible employee elected to participate, all of his or her Eligible Options were exchanged. Once the offer to exchange expired, all Eligible Options that were surrendered for exchange were cancelled and the New Options were granted.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)

                    On February 3, 2010, as a result of employee elections under the Option Exchange Program, the Company exchanged and issued the following options:

            Number of Eligible Options Exchanged

            		20,484,001

            Number of Repriced Options issued in the Option Exchange Program

            		6,828,025

            Number of New $10.00 Options issued in the Option Exchange
            Program

            		10,242,002

                    As a result of the exchange, the Company will incur incremental stock-based compensation charges of approximately $1 million per year over the five years following the exchange date. The maximum number of shares of common stock that may be issued under the HDS Plan subsequent to the Option Exchange Program may not exceed 55.6 million, of which a maximum of 30.9 million shares may be issued in respect of options granted under the HDS Plan.

                    A summary of option activity under the HDS Plan is presented below (shares in thousands):

             
            		 Number of Shares Weighted Average Option Price 

            Outstanding at January 31, 2010

            		  20,899 $13.13 
                  

            Granted(1)

            		  21,495  7.66 

            Exercised

            		  —  — 

            Canceled(2)

            		  (23,927) 12.41 
                  

            Outstanding at January 30, 2011

            		  18,467 $7.69 
                  

            Granted

            		  12,485  4.62 

            Exercised

            		  —  — 

            Canceled

            		  (1,415) 6.63 
                  

            Outstanding at January 29, 2012

            		  29,537 $6.44 
                  

            Granted

            		  1,894  8.09 

            Exercised

            		  (49) 7.34 

            Canceled

            		  (1,746) 7.34 
                  

            Outstanding at February 3, 2013

            		  29,636 $6.50 
                  
            (1)
            Includes shares granted in conjunction with the Option Exchange Program

            (2)
            Includes shares canceled in conjunction with the Option Exchange Program

                    As of February 3, 2013, there were approximately 29.6 million stock options outstanding with a weighted average remaining life of 7.7 years. As of February 3, 2013, there were approximately 6.9 million options exercisable with a weighted average exercise price of $7.72 and a weighted average remaining life of 7.1 years.

                    The estimated fair value of the options when granted is amortized to expense over the options' vesting or required service period. The fair value for these options was estimated by management, after considering a third-party valuation specialist's assessment, at the date of grant based on the expected


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)

            life of the option and historical exercise experience, using a Black-Scholes option pricing model with the following weighted-average assumptions:

             
            		 Fiscal Year Ended 
             
            		 February 3,
            2013            		 January 29,
            2012            		 January 30,
            2011            		 

            Risk-free interest rate

            		  1.1% 2.8% 3.0%

            Dividend yield

            		  0.0% 0.0% 0.0%

            Expected volatility factor

            		  47.6% 46.0% 48.9%

            Expected option life in years

            		  6.5  6.6  6.8 

                    The risk free interest rate was determined based on an analysis of U.S. Treasury zero-coupon market yields as of the date of the option grant for issues having expiration lives similar to the expected option life. The expected volatility was based on an analysis of the historical volatility of HD Supply's competitors over the expected life of the HD Supply options. These volatilities were weighted by the respective HD Supply segment against which they compete, resulting in an overall industry-based volatility for HD Supply. As insufficient data exists to determine the historical life of options issued under the HDS Plan, the expected option life was determined based on the vesting schedule of the options and their contractual life taking into consideration the expected time in which the share price of Holding would exceed the exercise price of the option. The weighted-average fair value of each option granted during fiscal 2012, fiscal 2011, and fiscal 2010 was $2.41, $1.99, and $1.64, respectively. HD Supply recognized $16 million, $20 million, and $17 million of stock-based compensation expense related to stock options, included in Selling, general and administrative expense in the Consolidated Financial Statements”Statements of Operations and “NotesComprehensive Income (Loss), during fiscal 2012, fiscal 2011, and fiscal 2010, respectively. As of February 3, 2013 the unamortized compensation expense related to Auditedstock options was $20 million and was expected to be recognized over a period of 4.8 years.

            Employee Benefit Plans

                    HD Supply offers a comprehensive Health & Welfare Benefits Program which allows employees who satisfy certain eligibility requirements to choose among different levels and types of coverage. The Health & Welfare Benefits program provides employees healthcare coverage in which the employer and employee share costs. In addition, the Program offers employees the opportunity to participate in various voluntary coverages, including flexible spending accounts.

                    HD Supply maintains a 401(k) defined contribution plan that is qualified under Sections 401(a) and 501(a) of the Internal Revenue Code. Employees who satisfy the plan's eligibility requirements may elect to contribute a portion of their compensation to the plan on a pre-tax basis. HD Supply may match a percentage of the employees' contributions to the plan based on approval from the Board of Directors. Matching contributions are generally made shortly after the end of each pay period or after the Company's fiscal year-end if an additional annual matching contribution based on the Company's fiscal-year financial results is approved. HD Supply paid $15 million, $7 million, and less than $1 million during fiscal 2012, fiscal 2011, and fiscal 2010, respectively.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 10—STOCKHOLDER'S EQUITY

            Common Stock

                    The Company is authorized to issue 1,000 shares of common stock, par value $0.01 per share. As of February 3, 2013 and January 29, 2012, 1,000 shares were issued and outstanding.

            Accumulated Other Comprehensive Income (Loss)

                    On both February 3, 2013 and January 29, 2012, accumulated other comprehensive income (loss) is comprised of $(2) million of cumulative foreign currency translation adjustments, net.

            NOTE 11—SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

            Receivables

                    Receivables as of February 3, 2013 and January 29, 2012 consisted of the following (amounts in millions):

             
            		 February 3,
            2013            		 January 29,
            2012            		 

            Trade receivables, net of allowance for doubtful accounts

            		 $926 $919 

            Vendor rebate receivables

            		  66  71 

            Other receivables

            		  16  12 
                  

            Total receivables, net

            		 $1,008 $1,002 
                  

            Property and Equipment

                    Property and equipment as of February 3, 2013 and January 29, 2012 consisted of the following (amounts in millions):

             
            		 February 3,
            2013            		 January 29,
            2012            		 

            Land

            		 $37 $42 

            Buildings and improvements

            		  201  206 

            Transportation equipment

            		  60  44 

            Furniture, fixtures and equipment

            		  301  298 

            Capitalized software

            		  208  185 

            Construction in progress

            		  38  40 
                  

            		  845  815 

            Less accumulated depreciation & amortization

            		  (450) (417)
                  

            Property and equipment, net

            		 $395 $398 
                  

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 11—SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION (Continued)

            Other Current Liabilities

                    Other current liabilities as of February 3, 2013 and January 29, 2012 consisted of the following (amounts in millions):

             
            		 February 3,
            2013            		 January 29,
            2012            		 

            Accrued interest

            		 $147 $233 

            Accrued non-income taxes

            		  34  31 

            Branch closure & consolidation reserves

            		  7  16 

            Other

            		  103  98 
                  

            Total other current liabilities

            		 $291 $378 
                  

            Significant Non-Cash Transactions

                    Interest payments on the 14.875% Senior Notes were due each April 12th and October 12th through maturity, commencing on October 12, 2012, except that the first eleven payment periods through October 2017 should be paid in kind ("PIK") and therefore increase the balance of the outstanding indebtedness rather than paid in cash. The Company made non-cash PIK interest payments during fiscal 2012 of $56 million, increasing the outstanding principal balance of the 14.875% Senior Notes.

                    Interest payments on the Old Senior Subordinated Notes were due each March 1st and September 1st through maturity except that the first eight payment periods through September 2011 were paid in kind. The Company made non-cash PIK interest payments during fiscal 2011 and fiscal 2010 of $223 million and $196 million, respectively, increasing the outstanding balance of the Old Senior Subordinated Notes.

            Supplemental Cash Flow Information

                    Cash paid for interest in fiscal 2012, fiscal 2011, and fiscal 2010 was approximately $621 million, $356 million, and $363 million, respectively. Additionally, during fiscal 2012, the Company paid $502 million of original issue discounts and PIK interest related to the extinguishment of all of the 14.875% Senior Notes and $930 million of Old Senior Subordinated Notes.

                    During fiscal 2010, as a result of tax legislation regarding net operating loss carryback periods, the Company filed for and received a cash refund of $220 million from the Internal Revenue Service for income tax previously paid. Cash paid for income taxes, net of refunds, in fiscal 2012, fiscal 2011, and fiscal 2010 was approximately $1 million net payment, $5 million net payment, and $216 million net refund, respectively.

            NOTE 12—BRANCH CLOSURE AND CONSOLIDATION ACTIVITIES

                    Concurrent with the Transactions and acquisition integration, management evaluated the operations and performance of individual branches and identified branches for closure or consolidation. In addition, during fiscal years 2008 and 2009, management initiated additional plans to restructure its business, which included evaluating opportunities to consolidate branches, reduce costs, more efficiently employ working capital and streamline activities. Under these plans, which were completed in fiscal 2010, management closed or consolidated 235 branches and reduced workforce personnel by


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 12—BRANCH CLOSURE AND CONSOLIDATION ACTIVITIES (Continued)

            approximately 5,000 employees. The Company does not expect to incur additional restructuring charges under these plans.

                    The remaining liability balances for these plans represents the net present value of future lease obligations, including rent, taxes, utilities, etc., less estimated sublease income of the closed branches. The Company regularly reviews the assumptions used to estimate these liabilities.

                    The following table presents the activity for the liability balances, included in Other current liabilities and Other liabilities in the Consolidated Financial Statements.”Balance Sheets (amounts in millions):

             
            		 Severance Occupancy
            Costs            		 Other Total 

            Balance—January 31, 2010

            		 $3 $66 $2 $71 
                      

            Charges, net of reductions

            		  2  4  2  8 

            Cash payments

            		  (4) (21) (2) (27)

            Other

            		  (1) 2  —  1 
                      

            Balance—January 30, 2011

            		 $— $51 $2 $53 
                      

            Charges, net of reductions

            		  —  2  —  2 

            Cash payments

            		  —  (13) (2) (15)
                      

            Balance—January 29, 2012

            		 $— $40 $— $40 
                      

            Charges, net of reductions

            		  —  (4) —  (4)

            Cash payments

            		  —  (14) —  (14)

            Other

            		  —  (1) —  (1)
                      

            Balance—February 3, 2013

            		 $— $21 $— $21 
                      

                    As of February 3, 2013, approximately $7 million of the liability balances for the branch closure and consolidation activities is classified as a current liability on the Company's Consolidated Balance Sheet. Payments for occupancy costs are expected to be substantially complete over the next five years, with certain property lease obligations extending out as far as eleven years. The Company regularly reviews the assumptions used to estimate the net present value of the on-going lease liabilities and other occupancy costs, net of expected sublease income. In addition, the Company continues to actively pursue buyout options or subleasing opportunities for the leased properties. The expected timing of cash payments related to the branch closure and consolidation activities could change or adjustments to the reserve may become necessary depending on the success and timing of entering into these types of agreements. Due to favorable lease and property dispositions, during fiscal 2012, the Company reduced the liability by $4 million, $2 million of which was recorded to continuing operations and $2 million of which was recorded as Income from discontinued operations, net in the Consolidated Statement of Operations and Comprehensive Income (Loss).

            NOTE 13—COMMITMENTS AND CONTINGENCIES

            Nature of Business

            HD Supply, Inc. (the “Company”"Company" or “HD Supply”"HD Supply"), a wholly-owned subsidiary of HD Supply Holdings, Inc., is one of the largest industrial distribution companies in North America. With a diverse portfolio of industry-leading businesses, the Company provides a broad range of products and services to approximately 440,000more than 500,000 professional customers in the infrastructure and energy, maintenance, repair and improvement, and specialty construction markets.

            The Company provides an expansive offering of approximately one million SKUsstock-keeping units ("SKUs") of name brandquality, name-brand and propriety brandpropriety-brand products at competitive prices. Through approximately 630635 locations across 46 states and 9 Canadian provinces, HD Supply provides localized, customer-driven services including jobsite delivery, will call andor direct-ship options, diversified logistics and innovative solutions that contribute to its customers’customers' success.

            HD Supply hasis managed primarily on a product line basis and reports results of operations in four reportable segments:segments. The reportable segments are Facilities Maintenance, Waterworks, Power Solutions, and White Cap. Other operating segments include Creative Touch Interiors (“CTI”), Crown Bolt, Repair & Remodel, Creative Touch Interiors ("CTI"), and HD Supply Canada. In addition, the consolidated financial statements include Corporate, which includes enterprise-wide functional departments.

            Fiscal YearPrinciples of Consolidation

                    The consolidated financial statements present the results of operations, financial position and cash flows of HD Supply’sSupply, Inc. and its wholly-owned subsidiaries. All material intercompany balances and transactions are eliminated. Results of operations of businesses acquired are included from their respective dates of acquisition. The assets, liabilities, and results of operations of all discontinued operations have been separately reported as discontinued operations for all periods presented. Certain amounts in prior-period financial statements have been reclassified to conform to the current period's presentation.

            Fiscal Year

                    HD Supply's fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. Fiscal year endingended February 3, 2013 (“("fiscal 2012”2012") includes 53 weeks and fiscal year endingweeks. Fiscal years ended January 29, 2012 (“("fiscal 2011”2011") includesand January 30, 2011 ("fiscal 2010") both include 52 weeks. The three months ended October 28, 2012 and October 30, 2011 both include thirteen weeks and the nine months ended October 28, 2012 and October 30, 2011 both include thirty-nine weeks.

            Principles of Consolidation

            The consolidated financial statements present the results of operations, financial position and cash flows of HD Supply. All material intercompany balances and transactions are eliminated. Results of operations of companies acquired are included from their respective dates of acquisition.

            Index to Financial Statements

            Estimates

            Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reported amounts of revenues and expenses in preparing these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP.GAAP"). Actual results could differ from these estimates.

            Cash and Cash Equivalents

                    HD Supply considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Allowance for Doubtful Accounts

                    Accounts receivable are evaluated for collectability based on numerous factors, including past transaction history with customers, their credit worthiness, and an assessment of lien and bond rights. An allowance for doubtful accounts is estimated as a percentage of aged receivables. This estimate is periodically adjusted when management becomes aware of a specific customer's inability to meet its financial obligations (e.g., bankruptcy filing) or as a result of changes in historical collection patterns.

            Inventories

                    Inventories consist primarily of finished goods and are carried at the lower of cost or market. The cost of substantially all inventories is determined by the moving or weighted average cost method. Inventory value is evaluated at each balance sheet date to ensure that it is carried at the lower of cost or market. This evaluation includes an analysis of historical physical inventory results, a review of excess and obsolete inventories based on inventory aging, and anticipated future demand. Periodically, perpetual inventory records are adjusted to reflect declines in net realizable value below inventory carrying cost.

            Consideration Received From Vendors

                    HD Supply enters into agreements with many of its vendors providing for inventory purchase rebates ("vendor rebates") upon achievement of specified volume purchasing levels. Vendor rebates are accrued as part of cost of sales for products sold based on progress towards earning the vendor rebates, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the year. An estimate of unearned vendor rebates is included in the carrying value of inventory at each period end for vendor rebates recognized on products not yet sold. At February 3, 2013 and January 29, 2012, vendor rebates due to HD Supply were $66 million and $71 million, respectively. These receivables are included in Receivables in the accompanying Consolidated Balance Sheets.

            Property and Equipment

                    Property and equipment are recorded at cost and depreciated using the straight-line method based on the following estimated useful lives of the assets:

            Buildings and improvements

            		5 - 45 years

            Transportation equipment

            		5 - 7 years

            Furniture, fixtures and equipment

            		2 - 10 years

            Capitalized Software Costs

                    HD Supply capitalizes certain software costs, which are being amortized on a straight-line basis over the estimated useful lives of the software, ranging from three to six years. At February 3, 2013 and January 29, 2012, capitalized software costs totaled $82 million and $71 million, respectively, net of accumulated amortization of $126 million and $114 million, respectively. Amortization of capitalized software costs totaled $30 million, $28 million, and $31 million, in fiscal 2012, fiscal 2011, and fiscal 2010, respectively.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Goodwill

                    Goodwill represents the excess of purchase price over fair value of net assets acquired. HD Supply does not amortize goodwill, but does assess the recoverability of goodwill in the third quarter of each fiscal year or whenever events or circumstances indicate that it is "more likely than not" that the fair value of a reporting unit has dropped below its carrying value. For the fiscal 2012, fiscal 2011 and fiscal 2010 annual impairment tests, the fair values of HD Supply's identified reporting units were estimated using a discounted cash flow ("DCF") analysis and a market comparable method, with each method being equally weighted in the calculation. During fiscal 2012, the Company recorded a $150 million goodwill impairment charge. There were no goodwill impairment charges recorded in fiscal 2011 and fiscal 2010. See Note 5, Goodwill and Intangible Assets, for a complete description of the Company's goodwill.

            Impairment of Long-Lived Assets

                    Long-lived assets, including property and equipment, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. To analyze recoverability, undiscounted future cash flows over the remaining life of the asset are projected. If these projected cash flows are less than the carrying amount, an impairment loss is recognized to the extent the fair value of the asset less any costs of disposition is less than the carrying amount of the asset. Judgments regarding the existence of impairment indicators are based on market and operational performance. Evaluating potential impairment also requires estimates of future operating results and cash flows.

            Self-Insurance

            HD Supply has a high deductible insurance program for most losses related to general liability, product liability, environmental liability, automobile workers’liability, workers' compensation, and is self-insured for medical claims and certain legal claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience. At October 28, 2012February 3, 2013 and January 29, 2012, self-insurance reserves totaled approximately $97$94 million and $101 million, respectively.

            Fair Value of Financial Instruments

                    The carrying amounts of restricted and unrestricted cash and cash equivalents, accounts receivable and accounts payable, accrued compensation and benefits and other current liabilities approximate fair value due to the short-term nature of these financial instruments. The Company's long-term financial assets and liabilities are recorded at historical costs. See Note 7, Fair Value Measurements, for information on the fair value of long-term financial instruments.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 2 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Revenue Recognition

                    HD Supply recognizes revenue when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and collectability is reasonably assured.

                    HD Supply ships products to customers predominantly by internal fleet and to a lesser extent by third party carriers. Revenues, net of sales tax and allowances for returns and discounts, are recognized from product sales when title to the products is passed to the customer, which generally occurs at the point of destination for products shipped by internal fleet and at the point of shipping for products shipped by third party carriers. Revenues related to services are recognized in the period the services are performed and totaled $134 million, $115 million, and $98 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively.

            Shipping and Handling Fees and Costs

                    HD Supply includes shipping and handling fees billed to customers in Net sales. Shipping and handling costs associated with inbound freight are capitalized to inventories and relieved through Cost of sales as inventories are sold. Shipping and handling costs associated with outbound freight are included in Selling, general and administrative expenses and totaled $116 million, $96 million, and $91 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively.

            Concentration of Credit Risk

                    The majority of HD Supply's sales are credit sales which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of industries and the areas where they operate. Concentration of credit risk with respect to trade accounts receivable is limited by the large number of customers comprising HD Supply's customer base. HD Supply performs ongoing credit evaluations of its customers.

            Leases

                    Leases are reviewed for capital or operating classification at their inception under the guidance of Accounting Standard Codification ("ASC ") 840, Leases. The Company uses its incremental borrowing rate in the assessment of lease classification and assumes the initial lease term includes renewal options that are reasonably assured. HD Supply conducts operations primarily under operating leases. For leases classified as operating leases, the Company records rent expense on a straight-line basis, over the lease term beginning with the date the Company has access to the property which in some cases is prior to commencement of lease payments. Accordingly, the amount of rental expense recognized in excess of lease payments is recorded as a deferred rent liability and is amortized to rental expense over the remaining term of the lease. Capital leases currently in effect are not material.

            Advertising

                    Advertising costs are charged to expense as incurred except for the costs of producing and distributing certain direct response sales catalogs, which are capitalized and charged to expense over the life of the related catalog. Advertising expenses were approximately $34 million, $24 million, and


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            $21 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively. Capitalized advertising costs related to direct response advertising were not material.

            Income Taxes

                    The Company provides for federal, state and foreign income taxes currently payable, as well as for those deferred due to temporary differences between reporting income and expenses for financial statement purposes versus tax purposes. Federal, state and foreign tax benefits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date.

                    The Company consists of corporations, limited liability companies and partnerships. All income tax expense (benefit) of the Company is recorded in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss) with the offset recorded through the Company's current tax accounts, deferred tax accounts, or stockholder's equity account as appropriate.

            Comprehensive Income (Loss)

                    Comprehensive income (loss) includes Net income (loss) adjusted for certain revenues, expenses, gains and losses that are excluded from net income under U.S. GAAP. Adjustments to net income are for foreign currency translation adjustments and unrealized gains or losses on derivatives, to the extent they are accounted for as an effective hedge under ASC 815, Derivatives and Hedging.

            Foreign Currency Translation

                    Assets and liabilities of foreign subsidiaries with a functional currency other than the U. S. dollar, primarily Canadian dollars, are translated into U.S. dollars at the current rate of exchange on the last day of the reporting period. Revenues and expenses are translated at a monthly average exchange rate and equity transactions are translated using either the actual exchange rate on the day of the transaction or a monthly average exchange rate.

            Derivative Financial Instruments

                    When the Company enters into derivative financial instruments, it is for hedging purposes. In hedging the exposure to variable cash flows on forecasted transactions, deferral accounting is applied when the derivative reduces the risk of the underlying hedged item effectively as a result of high inverse correlation with the value of the underlying exposure. If a derivative instrument either initially fails or later ceases to meet the criteria for deferral accounting, any subsequent gains or losses are recognized currently in income. Cash flows resulting from derivative financial instruments are classified in the same category as the cash flows from the items being hedged.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Stock-Based Compensation

                    HD Supply Holdings, Inc. ("Holding") established an Incentive Stock Plan (the "HDS Plan") for associates of HD Supply, a wholly-owned subsidiary. The HDS Plan provides for the award of non-qualified stock options and deferred share units of the common stock of Holding. The maximum number of shares of common stock that may be issued under the HDS Plan may not exceed 55.6 million, of which a maximum of 30.9 million shares may be issued in respect of options granted under the HDS Plan. Holding will issue new shares of common stock to satisfy options exercised. The HDS Plan is accounted for under ASC 718, Compensation—Stock Compensation, which requires the recognition of share-based compensation costs in the financial statements.

            Recent Accounting Pronouncements

                    Fair value measurement—In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" ("ASU 2011-04"). The amendments in this ASU are intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards ("IFRS"s). The amendments in this ASU explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The Company adopted the provisions of ASU 2011-04 on January 30, 2012. The adoption did not have an impact on the Company's financial position or results of operations.

                    Comprehensive income: Presentation—In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"), to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The Company adopted the provisions of ASU 2011-05 on January 30, 2012. The adoption of ASU 2011-05 did not have an impact on the Company's financial position or results of operations.

                    Comprehensive income: Reclassifications—In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), to supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU 2011-05, which were deferred indefinitely under ASU No. 2011-12, ""Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05" ("ASU 2011-12"), issued in December 2011. The amendments in ASU 2013-02 would require an entity to provide additional information about reclassifications out of accumulated other comprehensive income by the respective line items of net income. For public entities, the


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of ASU 2013-02 will not have an impact on the Company's financial position or results of operations.

                    Goodwill impairment testing—In September 2011, the FASB issued ASU No. 2011-08, "Testing Goodwill for Impairment" ("ASU 2011-08"), which simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company adopted the provisions of ASU 2011-08 on January 30, 2012. The adoption of ASU 2011-08 did not have an impact on the Company's financial position or results of operations.

                    Release of Cumulative Translation Adjustment—In March 2013, the FASB issued ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity" ("ASU 2013-05"), which resolves diversity in practice regarding the release of the cumulative translation adjustment into net income when a parent either sells a part of all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-05 will not have a material impact on the Company's financial position or results of operations.

            NOTE 2—ACQUISITIONS

                    HD Supply enters into strategic acquisitions to expand into new markets, new platforms, and new geographies in an effort to better service existing customers and attract new ones. In accordance with the acquisition method of accounting under Accounting Standards Codification (“ASC”)ASC 805, Business Combinations, the results of the acquisitions completed by HD Supply are reflected in the Company’sCompany's consolidated financial statements from the date of acquisition forward.

                    On December 3, 2012, the Company purchased substantially all of the assets of Water Products of Oklahoma, Inc., Arkansas Water Products, LLC, and Municipal Water Works Supply, LP (collectively "Water Products") for approximately $52 million. These businesses distribute water, sewer, gas and related products, such as pipes, valves, fittings, hydrants, pumps and meters, and offer maintenance products and repair services primarily to municipalities and contractors. The businesses are operated as part of the Waterworks segment.

            On June 29, 2012, the Company purchased Peachtree Business Products LLC (“Peachtree”("Peachtree") for approximately $196 million. Headquartered in Marietta, Georgia, Peachtree Business Products specializes in customizable business and property marketing supplies, serving residential and commercial property managers, medical facilities, schools and universities, churches and funeral homes. Peachtree Business Products LLC is operated as part of the Facilities Maintenance segment.

            In accordance with ASC 805, Business Combinations, the Company recorded the following assets and liabilities at fair value on the date of the Peachtree acquisition: $129 million in goodwill, $53 million in definite-lived intangible assets, $12 million in property & equipment, $8 million in net


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 2—ACQUISITIONS (Continued)

            working capital assets and liabilities, and $6 million in deferred tax liabilities. The total amount of goodwill expected to be deductible for tax purposes is $47 million. The definite-lived intangible assets are primarily $50 million in customer relationships that will be amortized over an averagea weighted-average period of eleven10.9 years.

            On May 2, 2011, the Company closed on a transaction to acquirepurchased substantially all of the assets of Rexford Albany Municipal Supply Company, Inc. (“RAMSCO”("RAMSCO") for approximately $21 million. RAMSCO specializes in distributing water, sanitary and storm sewer materials primarily to municipalities and contractors through four locations in upstate New York. These locations are operated as part of the Waterworks segment.

            NOTE 3 — 3—DISCONTINUED OPERATIONS

            On March 26, 2012, the Company sold all of the issued and outstanding equity interests in its Industrial Pipes, Valves and Fittings (“IPVF”("IPVF") business to Shale-Inland Holdings, LLC for proceeds of approximately $469 million, which was subject to a customary working capital adjustment. Upon closing, theLLC. The Company received cash proceeds of approximately $464$477 million, net of $5 million of transaction costs. As a result of the sale, the Company recorded a $9$12 million pre-tax gain in the first quarter of fiscal 2012. During the third quarter of fiscal 2012, the Company received $13 million for the final working capital settlement, and, as a result, recorded an additional $3 million pre-tax gain.

            On September 9, 2011, the Company sold all of the issued and outstanding equity interests in its Plumbing/HVAC (“Plumbing”) business to Hajoca Corporation. The Company received cash proceeds of approximately $116 million, net of $8 million remaining in escrow and $4 million of transaction costs. As a result of the sale,

            Index to Financial Statements

            the Company recorded a $7 million pre-tax gain in fiscal 2011. During the first quarter of fiscal 2012, the Company paid an additional $1 million in transaction costs. During the third quarter of fiscal 2012, the Companycosts and received $4 million from escrow.

            On February 28, 2011, HD Supply Canada sold substantially all of the assets of SESCO/QUESCO, (“SESCO”), an electrical products division of HD Supply Canada, to Sonepar Canada, and received proceeds of approximately $11 million, less $1 million remaining in escrow. As a result of the sale, the Company recorded a $2 million pre-tax gain in fiscal 2011. During the second quarter of fiscal 2012, the Company received $1 million from escrow.

            Summary Financial Information

            In accordance with ASC 205-20, Discontinued Operations, the results of the IPVF, PlumbingPlumbing/HVAC and SESCOSESCO/QUESCO operations and the gaingains on salesales of the businesses are classified as discontinued operations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations and gain on the sale of businesses, net of tax, as one line item on the Consolidated Statements of Operations and Comprehensive Income (Loss). All prior period Consolidated Statements of Operations and Comprehensive Income (Loss) presented have been revised to reflect


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 3—DISCONTINUED OPERATIONS (Continued)

            this presentation. The Consolidated Balance Sheets and Statements of Cash Flows prior to the dates of disposition have not been revised for discontinued operations.

            The following tables provide additional detail related to the results of operations of the discontinued operations (amounts in millions):

               Three Months Ended   Nine Months Ended 
               Oct 28,
            2012            		   Oct 30,
            2011            		   Oct 28,
            2012            		   Oct 30,
            2011            		 

            Net sales

            		  $—      $230    $127    $795  

            Gain on sale of discontinued operations

            		   3     7     12     9  

            Income (loss) before provision for income taxes

            		   3     14     19     26  

            Provision (benefit) for income taxes

            		   —       —       —       —    
              

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

            Income from discontinued operations, net of tax

            		  $3    $14    $19    $26  
              

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 
             
            		 Fiscal
            2012            		 Fiscal
            2011            		 Fiscal
            2010            		 

            Net sales

            		 $127 $969 $1,028 

            Gain on sales of discontinued operations

            		  12  9  — 

            Income (loss) before provision for income taxes

            		  20  20  (6)

            Provision for income taxes

            		  —  —  — 
                    

            Income (loss) from discontinued operations, net of tax

            		 $20 $20 $(6)
                    

            NOTE 4 — 4—RELATED PARTIES

            On August 30, 2007, investment funds associated with Clayton, Dubilier & Rice, Inc., The Carlyle Group and Bain Capital Partners, LLC (collectively the “Equity Sponsors”"Equity Sponsors") formed HDS Investment Holding Inc. (“Holding”) and entered into a stock purchase agreement with The Home Depot, Inc. (“("Home Depot”Depot" or “THD”"THD") pursuant to which Home Depot agreed to sell to Holding or to a wholly owned subsidiary of Holding certain intellectual propertyproperties and all of the outstanding common stock of HD Supply, Inc. and the Canadian subsidiary CND Holdings, Inc. (collectively “HD Supply”). On August 30, 2007, through a series of transactions, Holding’sHolding's direct wholly owned subsidiary, HDS Holding Corporation, acquired direct control of HD Supply through the merger of its wholly owned subsidiary, HDS Acquisition Corp., with and into HD Supply.Supply, Inc. and the Canadian subsidiary CND Holdings, Inc. Through these transactions (the “Transactions”"Transactions"), Home Depot was paid cash of approximately $8.2 billion and 12.5% of Holding’sHolding's common stock worth $325 million for certain intellectual property and all of the outstanding common stock of HD Supply, Inc. and CND Holdings, Inc. including all dividends and interest payable associated with those shares.million.

            Home Depot

                    Sales—HD Supply derived revenue from the sale of products to Home Depot of $296 million, $275 million, and $299 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively. Accounts receivable from Home Depot were $44 million and $45 million at February 3, 2013 and January 29, 2012, respectively, and are included within Receivables in the accompanying Consolidated Balance Sheets.

            Strategic Agreement—On the date of the Transactions, Home Depot entered into a strategic purchase agreement with Crown Bolt.Bolt, HD Supply's distribution services line of business. This agreement providesprovided a guaranteed revenue stream to Crown Bolt through January 31, 2015 by specifying minimum annual purchase requirements from Home Depot. AsCrown Bolt recorded $19 million, $20 million and $12 million during fiscal 2012, fiscal 2011 and fiscal 2010, respectively, in Net sales in accordance with the minimum purchase requirement provisions of October 28, 2012, the net book valuethis strategic purchase agreement. On February 1, 2013, Crown Bolt and Home Depot agreed to an amendment and five-year extension of the strategic purchase agreement, is $50 million andwhich eliminated the net book valueminimum purchase requirement beginning in fiscal 2013, but retains Crown Bolt as the exclusive supplier of products purchased by Home Depot from Crown Bolt through January 31, 2020. Because the amendment was considered a triggering event, HD Supply performed an impairment analysis of goodwill assigned toand other intangible assets at Crown

            Index to Financial Statements

            Bolt is $215 million. From time to time, the Company has discussions with Home Depot concerning amending, extending or replacing the current strategic purchase agreement, as well as the potential terms of any such amendment, extension or replacement. Some Bolt. As a result of the options discussed with Home Depot concerning the amendment, extension or replacement of the agreement could result in a future impairment of the strategic purchase agreement, the goodwill assigned toanalysis, Crown Bolt or both, which could be significant.recorded a $152 million non-cash impairment charge in fiscal 2012. For more information on this charge, see Note 5, Goodwill and Intangible Assets.


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            Sales—
            HD Supply derived revenue from the sale of products to Home Depot of $68 million and $211 million in the three and nine months ended October 28, 2012, respectively, and $66 million and $193 million in the three and nine months ended October 30, 2011, respectively. The revenue was recorded at an amount that generally approximates fair value. Accounts receivable from the sale of products to Home Depot were approximately $26 million at October 28, 2012 and $45 million at January 29, 2012, and are included within Receivables in the accompanying Consolidated Balance Sheets.SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 4—RELATED PARTIES (Continued)

            Equity Sponsors

            Sponsor Management Fee—In conjunction with the closing of the Transactions, the Company entered into a management agreement whereby the Company pays the Equity Sponsors a $5 million annual aggregate management fee (“("Sponsor Management Fee”Fee") and related expenses through August 2017. The threeDuring each of fiscal 2012, fiscal 2011, and nine months ended October 28, 2012 include $1fiscal 2010, the Company recorded $5 million and $4 million, respectively, inof Sponsor Management Fees and related expenses. The three and nine months ended October 30, 2011 include $1 million and $4 million, respectively, in Sponsor Management Fees and related expenses. These chargesexpenses, which are included in Selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).

            Notes—As of October 28, 2012, affiliates of the Equity Sponsors beneficially owned all of the $813 million outstanding principal of the Company’s 14.875% Senior Notes. In addition, managementManagement of the Company has been informed that, as of October 28, 2012,February 3, 2013, affiliates of certain of the Equity Sponsors beneficially owned approximately $713$348 million aggregate principal amount, or 39%, of the Company’s 13.5%Company's Old Senior Subordinated Notes (as defined in Note 6, Debt) and approximately $42$49 million aggregate principal amount of the Company’sCompany's other outstanding indebtedness. During fiscal 2012, the Company issued and repurchased the 14.875% Senior Notes (as defined in Note 6, Debt) to and from certain affiliates of the Equity Sponsors. See Note 15, Subsequent Event,6, Debt, for information on the pro-rataissuance and repurchase of the 14.875% Senior Notes and Note 17, Subsequent Event—Debt Redemption, for information on the redemption of the Company’s 13.5%Company's Old Senior Subordinated Notes.

            NOTE 5         Purchases— GOODWILLHD Supply purchased product from affiliates of the Equity Sponsors for approximately $57 million, $60 million, and $24 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively. Management believes these transactions were conducted at prices that an unrelated third party would pay.

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS

            Goodwill

            The carrying amount of goodwill by reporting unit as of October 28, 2012 and January 29, 2012 is as follows (amounts in millions):

             
            		 As of February 3, 2013 As of January 29, 2012 
             
            		 Gross Goodwill Accumulated
            Impairments            		 Net
            Goodwill            		 Gross
            Goodwill            		 Accumulated
            Impairments            		 Net
            Goodwill            		 

            Waterworks

            		 $1,876 $(815)$1,061 $1,867 $(815)$1,052 

            Facilities Maintenance

            		  1,603  —  1,603  1,474  —  1,474 

            White Cap

            		  183  (74) 109  183  (74) 109 

            Utilities(1)

            		  284  (99) 185  285  (99) 186 

            Crown Bolt

            		  215  (150) 65  215  —  215 

            Repair & Remodel

            		  125  (30) 95  125  (30) 95 

            Electrical(1)

            		  20  —  20  20  —  20 

            CTI

            		  67  (67) —  67  (67) — 

            IPVF

            		  —  —  —  82  (82) — 
                          

            Total goodwill

            		 $4,373 $(1,235)$3,138 $4,318 $(1,167)$3,151 
                          
            (1)
            Utilities and Electrical are reporting units that, combined, comprise the Power Solutions segment.

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS (Continued)

                    

               October 28, 2012   January 29, 2012 
               Gross
            Goodwill            		   Accumulated
            Impairments            		  Net
            Goodwill            		   Gross
            Goodwill            		   Accumulated
            Impairments            		  Net
            Goodwill            		 

            Waterworks

            		  $1,867    $(815)  $1,052    $1,867    $(815)  $1,052  

            Facilities Maintenance

            		   1,603     —      1,603     1,474     —      1,474  

            White Cap

            		   183     (74)   109     183     (74)   109  

            Utilities

            		   284     (99)   185     285     (99)   186  

            Crown Bolt

            		   215     —      215     215     —      215  

            Repair & Remodel

            		   125     (30)   95     125     (30)   95  

            Electrical

            		   20     —      20     20     —      20  

            CTI

            		   67     (67)   —       67     (67)   —    

            IPVF

            		   —       —      —       82     (82)   —    
              

             

             

            		   

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		  

             

             

            		 

            Total goodwill

            		  $4,364    $(1,085)  $3,279    $4,318    $(1,167)  $3,151  
              

             

             

            		   

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		  

             

             

            		 

            Goodwill represents the excess of purchase price over fair value of net assets acquired. HD Supply does not amortize goodwill, but does assess the recoverability of goodwill in the third quarter of each fiscal year. If an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit

            Index to Financial Statements

            below its carrying value, an interim impairment test would be performed between annual tests. Goodwill impairment testing is performed at the reporting unit level.

            Under U.S. GAAP (ASC 350, Intangibles—        On January 30, 2012, the Company adopted the provisions of Accounting Standard Update No. 2011-08, "Testing Goodwill for Impairment" ("ASU 2011-08"), which simplifies how entities test goodwill for impairment and Other),permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment analysis is a two-step test.

                    The first step used to identify potentialof the impairment test involves comparing each reporting unit’sunit's fair value to its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying value, applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of impairment.

            The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill in the “pro forma”"pro forma" business combination accounting as described above, exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted under U.S. GAAP.

            On January 30, 2012, the Company adopted the provisions of Accounting Standard Update No. 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”), which simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.

            HD Supply performed the annual goodwill impairment testing during the third quarter of fiscal 2012 for the seven reporting units with goodwill balances (goodwill balances at one reporting unit was zero prior to the annual testing). In accordance with ASU 2011-08, the Company elected to first assess qualitative factors on two reporting units, Facilities Maintenance and White Cap, to determine whether it is more likely than not that the fair value of each of these reporting units is less than its carrying amount. Based on this assessment, the Company determined that it was not necessary to perform the two-step goodwill impairment test for these two reporting units. The Company bypassed the qualitative analysis on the remaining five reporting units and proceeded with the first step of the two-step goodwill impairment test.

            The Company determines the fair value of a reporting unit using a discounted cash flow (“DCF”("DCF") analysis and a market comparable method, with each method being equally weighted in the calculation. Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, the amount and timing of expected future cash flows, as well as relevant comparable company earnings multiples for the market comparable approach. The cash flows employed in the DCF analyses are based on the Company’sCompany's most recent long-range forecast and, for years beyond the forecast, the Company’sCompany's estimates, which are based on estimated exit multiples ranging from six to seven times the final forecasted year earnings before interest, taxes, depreciation and amortization. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units and range from 11.5% to 14.0%. For the market comparable


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 5—GOODWILL AND INTANGIBLE ASSETS (Continued)

            approach, the Company evaluated comparable company public trading values, using earnings multiples and sales multiples that are used to value the reporting units.

            There was no indication of impairment in any of the Company’sCompany's reporting units during both the annual testing for fiscal 2012, fiscal 2011, and fiscal 2011 annual testing2010 and accordingly, the second step of the goodwill impairment analysis was not performed. At the time of our fiscal 2012 annual testing, the fair value of the reporting units for which step one of the goodwill impairment test was completed exceeded their carrying value by the following percentages: 47% for Waterworks, 31% for Utilities, 6% for Crown Bolt, 40% for Repair & Remodel, and 116% for Electrical.

                    During the fourth quarter of fiscal 2012, Crown Bolt reached an agreement to amend and extend its strategic purchasing agreement with Home Depot. While the amendment extends the agreement five years through fiscal 2019, retaining Crown Bolt as the exclusive supplier of certain products to Home Depot, it eliminated the minimum purchase guarantee and adjusts future pricing. These changes resulted in a reduction of expected future cash proceeds from Home Depot. HD Supply, therefore, considered this amendment a triggering event and, as such, the Company performed an additional goodwill impairment analysis for Crown Bolt. During step one of the additional goodwill impairment analysis, there was an indication of impairment, and, accordingly, the second step of the goodwill impairment analysis was performed for this reporting unit. As a result of step two, the Company recorded a $150 million non-cash goodwill impairment in the fourth quarter of fiscal 2012.

            Index to Financial Statements

            The following table presents the changes in goodwill for the nine months ended October 28, 2012 and October 30, 2011fiscal years presented (amounts in millions).

             
            		 Fiscal 2012 Fiscal 2011 Fiscal 2010 

            Beginning Balance

            		 $3,151 $3,150 $3,149 

            Acquisitions

            		  138  12  — 

            Realization of tax deductible goodwill from a prior
            acquisition

            		  (2) (11) — 

            Impairment

            		  (150) —  — 

            Translation & other adjustments

            		  1  —  1 
                    

            Ending Balance

            		 $3,138 $3,151 $3,150 
                    

                    

               Nine Months Ended 
               October 28,
            2012            		  October 30,
            2011            		 

            Beginning Balance

            		  $3,151   $3,150  

            Acquisition

            		   129    12  

            Realization of tax deductible goodwill from a prior acquisition

            		   (1)   (11) 
              

             

             

            		  

             

             

            		 

            Ending Balance

            		  $3,279   $3,151  
              

             

             

            		  

             

             

            		 

            The Company’sCompany's discounted cash flow model is based on HD Supply’sSupply's expectation of future market conditions for each of the reporting units, as well as discount rates that would be used by market participants in an arms-lengtharm's-length transaction. Future events could cause the Company to conclude that market conditions have declined or discount rates have increased to the extent that the Company’sCompany's goodwill could be further impaired. It is not possible at this time to determine if any such future impairment charge would result.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6 — 5—GOODWILL AND INTANGIBLE ASSETS (Continued)

            Intangible Assets

                    HD Supply's intangible assets as of February 3, 2013 and January 29, 2012 consisted of the following (amounts in millions):

             
            		 As of February 3, 2013 As of January 29, 2012 
             
            		 Gross
            Intangible            		 Accumulated
            Amortization            		 Net
            Intangible            		 Gross
            Intangible            		 Accumulated
            Amortization            		 Net
            Intangible            		 

            Customer relationships

            		 $929 $(614)$315 $1,532 $(983)$549 

            Strategic purchase agreement

            		  166  (122) 44  166  (99) 67 

            Trade names

            		  153  (41) 112  152  (34) 118 

            Other

            		  2  —  2  1  —  1 
                          

            Total

            		 $1,250 $(777)$473 $1,851 $(1,116)$735 
                          

                    During fiscal 2012, the Company recorded $71 million of intangible assets, primarily $66 million in customer relationship intangibles, as a result of the Peachtree and Water Products business acquisitions. The customer relationship intangible assets will be amortized over a weighted-average period of 10.9 years. The remaining intangible assets recorded will be amortized over a weighted-average period of 3.6 years. In addition, during fiscal 2012, $516 million of customer relationship intangible assets became fully amortized and, therefore, were removed from the balance sheet.

                    During fiscal 2011, the Company recorded $4 million of intangible assets, primarily customer relationship intangibles, as a result of the RAMSCO business acquisition. These intangibles will be amortized over a weighted-average amortization period of 5.6 years.

                    As a result of the strategic purchase agreement amendment and extension with Home Depot, HD Supply performed an impairment analysis of the intangible asset assigned to the strategic purchase agreement. The analysis showed no indication of impairment of the intangible asset assigned to the strategic purchase agreement. The unamortized net book value of the intangible asset will be amortized over the remainder of the agreement, which is seven years. Additionally, Crown Bolt discontinued the use of a certain tradename. As a result, the related unamortized tradename intangible asset was written off, resulting in a $2 million impairment charge.

                    Amortization expense for continuing operations related to intangible assets was $243 million, $244 million, and $244 million, in fiscal 2012, fiscal 2011, and fiscal 2010, respectively. Estimated future amortization expense for continuing operations for intangible assets recorded as of February 3, 2013 is $135 million, $105 million, $40 million, $39 million and $38 million for fiscal years 2013 through 2017, respectively.

            NOTE 6—DEBT

            On October 15, 2012,February 1, 2013, HD Supply, Inc. issued $1,000$1,275 million aggregate principal amount of 11.5%7.5% Senior Notes due 2020 (the “11.5%"7.5% Senior Notes”Notes") at par. As a result of the issuance, the Company incurred $18$21 million in debt issuance costs, of which $19 million was paid as of February 3, 2013. The net proceeds from the 7.5% Senior Notes issuance were used to repurchase all of the Company's outstanding 14.875% Senior Notes (issued in April 2012 to the Equity Sponsors), plus a $422 million make-whole premium calculated in accordance with the 14.875% Senior Notes Indenture (as defined below), plus $37 million of un-capitalized PIK interest thereon through February 1, 2013. Also on


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            February 1, 2013, the trustee for the 14.875% Senior Notes cancelled all of the outstanding 14.875% Senior Notes. As a result of these transactions, the Company incurred a $452 million loss on extinguishment, which included the make-whole premium, a $28 million write-off of unamortized original issue discount, and $2 million write-off of unamortized deferred debt costs.

                    On January 16, 2013, HD Supply, Inc. issued $950 million aggregate principal amount of 10.5% Senior Subordinated Notes due 2021 (the "Senior Subordinated Notes") at par. As a result of the issuance, the Company incurred $16 million in debt issuance costs, of which $15 million was paid as of October 28, 2012.February 3, 2013. The Company committed to use the net proceeds from the Senior Subordinated Notes issuance to redeem all of its remaining $889 million outstanding Old Senior Subordinated Notes (as defined below), subject to the required thirty-day notification period.

                    As of February 3, 2013, the Company held $936 million in cash equivalents classified as Cash equivalents restricted for debt redemption in the Consolidated Balance Sheet for the redemption of $889 million of the Old Senior Subordinated Notes on February 8, 2013. The $936 million was used to redeem the Old Senior Subordinated Notes at a price equal to 103.375% of the principal amount thereof and to pay (together with $36 million of cash on hand) accrued and unpaid interest thereon through the redemption date. See Note 17, Subsequent Events—Debt Redemption.

                    On October 15, 2012, HD Supply, Inc. issued $1,000 million aggregate principal amount of 11.5% Senior Notes due 2020 (the "11.5% Senior Notes") at par. As a result of the issuance, the Company incurred and paid $17 million in debt issuance costs. On November 8, 2012, the Company used the net proceeds from the 11.5% Senior Notes issuance to redeem $930 million of the Company’sits outstanding 13.5%Old Senior Subordinated Notes subjectat a redemption price equal to the required thirty-day notification period.

            As of October 28, 2012, the Company holds $985 million in cash classified as Cash restricted for debt redemption in the Consolidated Balance Sheets for the redemption of $930 million103.375% of the 13.5% Senior Subordinated Notes, payment of a $31 million premiumprincipal amount thereof and to redeem the debt prior to maturity andpay $23 million of accrued interest. See Note 15, Subsequent Events.As a result, the Company incurred a $37 million loss on extinguishment, which included a $31 million premium payment to redeem the Old Senior Subordinated Notes prior to maturity and $5 million to write-off the pro-rata portion of unamortized deferred debt costs.

            Refinancing Transactions and Additional Notes

            On April 12, 2012, HD Supply, Inc. consummated the following transactions (the “Refinancing Transactions”"Refinancing Transactions") in connection with the refinancing of the senior portion of its debt structure:

              •
              the issuance of $950 million of its 8.125%81/8% Senior Secured First Priority Notes due 2019 (the “First"First Priority Notes”Notes");



            •
            the issuance of $675 million of its 11% Senior Secured Second Priority Notes due 2020 (the “Second"Second Priority Notes”Notes");



            •
            the issuance of approximately $757 million of its 14.875% Senior Notes due 2020 (the “14.875%"14.875% Senior Notes”Notes");



            •
            entry into a new senior term facility (the “Senior Term Facility”"Term Loan Facility") maturing in 2017 and providing for term loans in an aggregate principal amount of $1,000 million; and



            •
            entry into a new senior asset based lending facility (the “ABL Facility”"ABL Facility") maturing in 2017 and providing for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $1,500 million.million (subject to availability under the borrowing base).

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            The proceeds of the First Priority Notes, the Second Priority Notes, the 14.875% Senior Notes, the Senior Term Loan Facility and the ABL Facility were used to (i) repay all amounts outstanding under the ExistingOld Senior Secured Credit Facility (Senior Secured Credit Facility dated as of August 30, 2007), (ii) repay all amounts outstanding under the ExistingOld ABL Credit Facility (ABL Credit Facility dated as of August 30, 2007), (iii) repurchase all remaining outstanding Old Senior Notes (12.0% Senior Notes dated as of August 30, 2007) and (iv) pay related fees and expenses.

                    Affiliates of certain of the Equity Sponsors owned an aggregate principal amount of approximately $484 million of the Old Senior Notes which they exchanged in a non-cash transaction for their investment in the 14.875% Senior Notes.

            Index to Financial Statements

            On August 2, 2012, the Company issued $300 million additional aggregate principal amount of its 81/8% First Priority Notes due 2019 (the “Additional Notes”"Additional Notes") at a premium of 107.5%. At closing, the Company received approximately $317 million, net of transaction fees. The Additional Notes were issued under the indenture pursuant to which HD Supply previously issued $950 million aggregate principal amount of 81/8% First Priority Notes due 2019, all of which remains outstanding. The net proceeds from the sale of the Additional Notes were applied to reduce outstanding borrowings under the Company’sCompany's ABL facility.Facility.

            As a result of the Refinancing Transactions and the issuance of the Additional Notes, the Company incurred $80 million in debt issuance costs all of which was paid as of October 28, 2012, and recorded a $220 million loss on extinguishment, which included a $150 million premium payment to redeem the Old Senior Notes, $46 million to write-off the pro-rata portion of the unamortized deferred debt costs, and $24 million to write-off the remaining unamortized Other asset associated with Home Depot’sDepot's guarantee of the Company’sCompany's payment obligations for principal and interest under the Old Term Loan under the ExistingOld Senior Secured Credit Facility that was terminated in the Refinancing Transactions.

            Unamortized deferred debt costs

            In accordance with ASC 470, Debt, the Company determined that all of the redemption of Old Senior Notes was an extinguishment as either the original note holders were unknown or the refinancing was considered a “substantial”"substantial" change. As a result of the extinguishment, the Company wrote-off approximately $24 million in unamortized deferred financing charges associated with the Old Senior Notes. Similarly, under ASC 470, approximately $834 million of the ExistingOld ABL Credit Facility and approximately $1,169 million of the ExistingOld Senior Secured Credit Facility were deemed extinguishments, with the remaining portions considered modifications. As a result of the extinguishment, the Company wrote-off approximately $22 million of $42 million in unamortized deferred financing charges associated with these credit agreements.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Long-term debt as of October 28, 2012February 3, 2013 and January 29, 2012 consisted of the following (dollars in millions):

             
            		 February 3, 2013 January 29, 2012 
             
            		 Outstanding
            Principal            		 Interest
            Rate %(1)            		 Outstanding
            Principal            		 Interest
            Rate %(1)            		 

            ABL Facility due 2017

            		 $300  1.96 $—  — 

            Old Term Loan due August 30, 2012

            		  —  —  73  1.53 

            Old Term Loan due April 1, 2014

            		  —  —  855  3.03 

            Old ABL Term Loan due April 1, 2014

            		  —  —  214  3.56 

            Term Loan due 2017, net of unamortized discount of $26 million as of February 3, 2013

            		  969  7.25  —  — 

            First Priority Notes due 2019, including unamortized premium of $21 million as of February 3, 2013

            		  1,271  8.125  —  — 

            Second Priority Notes due 2020

            		  675  11.00  —  — 

            Old Senior Notes due 2014

            		  —  —  2,500  12.00 

            11.5% Senior Notes due 2020

            		  1,000  11.50  —  — 

            7.5% Senior Notes due 2020

            		  1,275  7.50  —  — 

            Senior Subordinated Notes due 2021

            		  950  10.50  —  — 

            Old Senior Subordinated Notes due 2015

            		  889  13.50  1,820  13.50 
                        

            Total long-term debt

            		 $7,329     5,462    

            Less current installments

            		  (899)    (82)   
                        

            Long-term debt, excluding current installments

            		 $6,430    $5,380    
                        
            (1)
            Represents the stated rate of interest, without including the effect of discounts or premiums.

            Senior Credit Facilities

            Asset Based Lending Facility

                    The ABL Facility provides for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $1,500 million (subject to availability under a borrowing base). Extensions of credit under the ABL Facility will be limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory and eligible accounts receivable, subject to certain reserves and other adjustments. As of February 3, 2013, the Company had $910 million of available borrowings under the ABL Facility (after giving effect to the borrowing base limitations and approximately $61 million in letters of credit issued and including $70 million of borrowings available on qualifying cash balances).

               October 28, 2012   January 29, 2012 
               Outstanding
            Principal            		  Interest
            Rate
            %(1)            		   Outstanding
            Principal            		  Interest
            Rate
            %(1)            		 

            ABL Facility due April 12, 2017

            		  $395    2.21    $—      —    

            Term Loan due October 12, 2017, net of unamortized discount of $27 million as of October 28, 2012

            		   970    7.25     —      —    

            8.125% First Priority Notes due April 15, 2019, including unamortized premium of $22 million as of October 28, 2012

            		   1,272    8.13     —      —    

            11.0% Second Priority Notes due April 15, 2020

            		   675    11.00     —      —    

            11.5% Senior Notes due July 15, 2020

            		   1,000    11.50     

            14.875% Senior Notes due October 12, 2020, net of unamortized discount of $29 million as of October 28, 2012

            		   784    14.88     —      —    

            Term Loan due August 30, 2012

            		   —      —       73    1.53  

            Term Loan due April 1, 2014

            		   —      —       855    3.03  

            ABL Term Loan due April 1, 2014

            		   —      —       214    3.56  

            12.0% Senior Notes due September 1, 2014

            		   —      —       2,500    12.00  

            13.5% Senior Subordinated Notes due September 1, 2015

            		   1,819    13.50     1,820    13.50  
              

             

             

            		    

             

             

            		  

            Total long-term debt

            		  $6,915      5,462   

            Less current installments

            		   (940)     (82)  
              

             

             

            		    

             

             

            		  

            Long-term debt, excluding current installments

            		  $5,975     $5,380   
              

             

             

            		    

             

             

            		  

                    A portion of the ABL Facility is available for letters of credit and swingline loans. The ABL Facility also includes a sub-facility for loans and letters of credit in Canadian dollars. The ABL Facility also permits the Company to add one or more incremental term loans, revolving or letter of credit facilities to be included in the ABL Facility up to an aggregate maximum amount of $1,900 million for the total commitments under the ABL Facility (including all incremental commitments).

            (1)Represents

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

                    Until the date that was three months after the closing date of the ABL Facility, at the option of the applicable borrower, the interest rates applicable to the loans under the ABL Facility were based, (i) in the case of U.S. dollar denominated loans, either at LIBOR plus 2.00% or Prime Rate plus 1.00% and (ii) in the case of Canadian dollar denominated loans, either the BA Rate plus 2.00% or the Canadian Prime Rate plus 1.00%. From and after the date that was three months after the closing date of the ABL Facility, the foregoing interest margins are subject to a pricing grid, as included in the ABL Facility agreement, based on average excess availability for the previous fiscal quarter. The ABL Facility also contains a letter of credit fee computed at a rate per annum equal to the Applicable Margin (as defined in the agreement) then in effect for LIBOR Loans and an unused commitment fee subject to a pricing grid, as included in the ABL Facility agreement, based on the Average Daily Used Percentage (as defined in the agreement).

                    The ABL Facility will mature on April 12, 2017; unless the individual applicable lenders agree to extend the maturity of their respective loans under the ABL Facility upon the Company's request and without the consent of any other applicable lender.

                    The ABL Facility is senior secured indebtedness of the Company and ranks equal in right of payment with all of the Company's existing and future senior indebtedness and senior in right of payment to all of the Company's existing and future subordinated indebtedness.

                    The ABL Facility is guaranteed, on a senior secured basis, by the Subsidiary Guarantors. These guarantees are subject to release under customary circumstances as stipulated in the agreement.

                    The ABL Facility is secured by a first-priority security interest in the ABL Priority Collateral, subject to permitted liens.

            Prepayments

                    The ABL Facility may be prepaid at the Company's option at any time without premium or penalty and will be subject to mandatory prepayment if the outstanding ABL Facility exceeds either the aggregate commitments with respect thereto or the current borrowing base, in an amount equal to such excess. Mandatory prepayments do not result in a permanent reduction of the lenders' commitments under the ABL Facility.

            Guarantees

                    The Company, and at the Company's option, certain of the Company's subsidiaries, including HD Supply Canada, Inc., a Canadian subsidiary (the "Canadian Borrower"), are the borrowers under the ABL Facility. The Subsidiary Guarantors guarantee the Company's payment obligations under the ABL Facility (and, in the case of Canadian obligations, each direct and indirect wholly-owned Canadian subsidiary, subject to certain exceptions, in each case to the extent otherwise permitted by applicable law, regulation and contractual provision (the "Canadian Guarantors") guarantee the Canadian Borrower's payment obligations under the ABL Facility).

                    The Company's obligations under the ABL Facility and the guarantees thereof, are secured in favor of the U.S. ABL collateral agent, by (i) all of the capital stock of the Company, all capital stock of all domestic subsidiaries directly owned by the Company and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary held directly by the Company or any Subsidiary Guarantor (it


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by the Company and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Term Loan Facility, the First Priority Notes, the Second Priority Notes and the ABL Facility.

                    The Canadian obligations under the ABL Facility are also secured by liens on substantially all assets of the Canadian Borrower and the Canadian Guarantors, subject to certain exceptions.

            Covenants

                    The ABL Facility contains a number of covenants that, among other things, limit or restrict the Company's ability and, in certain cases, the Company's subsidiaries to make acquisitions, mergers, consolidations, dividends, and to prepay certain indebtedness (including the First Priority Notes, the Second Priority Notes, the stated rate of interest, without including the effect of discounts or premiums.

            Index to Financial Statements

            11.5% Senior Notes, the 7.5% Senior Notes, and the Senior Subordinated Notes), in each case to the extent any such transaction would reduce availability under the ABL Facility below a specified amount.

                    In addition, if the Company's specified excess availability (including an amount by which the Company's borrowing base exceeds the existing commitments) under the ABL Facility falls below the greater of $150 million and 10% of the aggregate commitments (a "Liquidity Event"), the Company will be required to maintain a Fixed Charge Coverage Ratio of at least 1.0:1.0, as defined in the ABL Facility.

                    The ABL Facility also contains certain affirmative covenants, including financial and other reporting requirements. The Company is in compliance with all such covenants.

            Senior Secured Term Loan Facility

                    The Term Loan Facility consists of a senior secured Term Loan Facility (the "Term Loan Facility"; the term loan thereunder, the "Term Loan") providing for a Term Loan in an aggregate principal amount of $1,000 million (net of $30 million of original issue discount). The Term Loan Facility also permits the Company to add one or more incremental term loans, revolving or letter of credit facilities of up to $250 million plus a certain amount depending on a secured first lien leverage ratio test included in the Term Loan Facility. The Term Loan bears interest at LIBOR (subject to a floor of 1.25%) plus a borrowing margin of 6.00% or Prime plus a borrowing margin of 5.00% at the Company's election, payable at the end of each calendar quarter with respect to Prime rate draws or at the maturity of each LIBOR draw (unless a draw is for a six-, nine-, or twelve-month period, then interest shall be paid quarterly). The Term Loan amortizes in nominal quarterly installments, beginning September 30, 2012, equal to 0.25% of the original aggregate principal amount of the Term Loan and matures on October 12, 2017; provided that the individual applicable lenders may agree to extend the maturity of their respective Term Loans upon the Company's request and without the consent of any other applicable lender. See Note 17, Subsequent Events—Debt Modification, for information about an amendment to the Term Loan Facility.

                    The Term Loan Facility is senior secured indebtedness of the Company and ranks equal in right of payment with all of the Company's existing and future senior indebtedness and senior in right of payment to all of the Company's existing and future subordinated indebtedness.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

                    The Term Loan Facility is guaranteed, on a senior secured basis, by the Subsidiary Guarantors. These guarantees are subject to release under customary circumstances. The guarantee of each Subsidiary Guarantor is a senior secured obligation of that Subsidiary Guarantor and ranks equal in right of payment with all existing and future senior indebtedness of that Subsidiary Guarantor and senior in right of payment to all existing and future subordinated indebtedness of such Subsidiary Guarantor.

            Collateral

                    The Term Loan Facility and the related guarantees are secured by a first-priority security interest in the Cash Flow Priority Collateral, subject to permitted liens. In addition, the Term Loan Facility and the related guarantees are secured by a second-priority security interest in the ABL Priority Collateral, subject to permitted liens.

            Prepayment

                    Prior to the first anniversary of the closing date of the Term Loan Facility, the loans under the Term Loan Facility may not be optionally prepaid. During the second and third years following the closing date of the Term Loan Facility, the Term Loans may be optionally prepaid at a price of 102% and 101%, respectively, of the principal amount being prepaid. On and after the third anniversary of the closing date of the Term Loan Facility, the Term Loans may be prepaid without premium or penalty. Under certain circumstances and subject to certain exceptions, the Term Loan Facility will be subject to mandatory prepayment in an amount equal to:

              •
              100% of the net proceeds (other than those that are used to purchase certain assets or to repay certain other indebtedness) of certain asset sales and certain insurance recovery events; and

              •
              50% of annual excess cash flow for any fiscal year, such percentage to decrease to 0% depending on the attainment of certain secured leverage ratio targets.

                    In addition, upon the incurrence of certain events constituting a Change of Control (as defined in the credit agreement governing the Term Loan Facility (the "Term Loan Credit Agreement")), the Company must offer to prepay the Term Loans (unless otherwise repaid) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repayment date.

            Guarantee

                    The Company is the borrower under the Term Loan Facility. The Subsidiary Guarantors guarantee the Company's payment obligations under the Term Loan Facility.

                    The Company's obligations under the Term Loan Facility and the guarantees thereof are secured in favor of the collateral agent by (i) all of the capital stock of the Company, all capital stock of all domestic subsidiaries directly owned by the Company and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary owned directly by the Company or any Subsidiary Guarantors (it being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by the Company and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Term Loan Facility, the First Priority Notes, the Second Priority Notes and the ABL Facility.


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Covenants

                    The Term Loan Facility contains a number of covenants that, among other things, limit the ability of the Company and its restricted subsidiaries, as described in the Term Loan Credit Agreement, to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of the Company's restricted subsidiaries to pay dividends to the Company or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with the Company's affiliates; and prepay or amend the terms of certain indebtedness.

                    The Term Loan Facility also contains certain affirmative covenants, including financial and other reporting requirements. The Company is in compliance with all such covenants.

            Events of Default under the ABL Facility and Term Loan Facility

                    The ABL Facility and Term Loan Facility also provide for customary events of default, including non-payment of principal, interest or fees, violation of covenants, material inaccuracy of representations or warranties, specified cross default and cross acceleration to other material indebtedness, certain bankruptcy events, certain ERISA events, material invalidity of guarantees or security interest, material judgments and changes of control.

            81/8% Senior Secured First Priority Notes due 2019

                    The Company issued $950 million of First Priority Notes under an Indenture, dated, and amended, as of April 12, 2012 (the "First Priority Indenture") among the Company, certain subsidiaries of the Company, as guarantors (the "Subsidiary Guarantors"), the Trustee, and the Note Collateral Agent. On August 2, 2012, the Company issued $300 million additional aggregate principal amount of its First Priority Notes (the "Additional Notes") at a premium of 107.5%. The First Priority Notes bear interest at a rate of 81/8% per annum and will mature on April 15, 2019. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on October 15, 2012.

                    The First Priority Notes are senior secured indebtedness of the Company and rank equal in right of payment with all of its existing and future senior indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness.

                    The First Priority Notes are guaranteed, on a senior secured basis, by each of the Company's Wholly Owned Domestic Subsidiaries (as defined in the First Priority Indenture), other than an Excluded Subsidiary (as defined in the First Priority Indenture), and by each of the Company's other Domestic Subsidiaries (as defined in the First Priority Indenture) that is a borrower under the ABL Facility or that guarantees payment of indebtedness of the Company under any Credit Facility or Capital Markets Securities (as defined in the First Priority Indenture). These guarantees are subject to release under customary circumstances as stipulated in the First Priority Indenture.

            Collateral

                    The First Priority Notes and the related guarantees are secured by a first-priority security interest in substantially all of the tangible and intangible assets of the Company and the Subsidiary Guarantors (other than the ABL Priority Collateral, in which the First Priority Notes and the related guarantees have a second priority security interest), including pledges of all Capital Stock of the Company's


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Restricted Subsidiaries directly owned by the Company and the Subsidiary Guarantors (but only up to 65% of each series of Capital Stock of each direct Foreign Subsidiary owned by the Company or any Subsidiary Guarantor), subject to certain thresholds, exceptions and permitted liens, and excluding any Excluded Assets (as defined in the First Priority Indenture) and Excluded Subsidiary Securities (as defined in the First Priority Indenture) (the "Cash Flow Priority Collateral").

                    In addition, the First Priority Notes and the related guarantees are secured by a second-priority security interest in substantially all of the Company's and the Subsidiary Guarantors' present and future assets which secure the Company's obligations under the ABL Facility on a first priority basis, including accounts receivable, inventory and other related assets and all proceeds thereof, subject to permitted liens. Such assets are referred to as the "ABL Priority Collateral." (The Cash Flow Priority Collateral and the ABL Priority Collateral together are referred to herein as the "Collateral.")

            Redemption

                    The Company may redeem the First Priority Notes, in whole or in part, at any time (1) prior to April 15, 2015, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the First Priority Indenture and (2) on and after April 15, 2015, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 15 of the year set forth below.

            Year
            		 Percentage 

            2015

            		  106.094%

            2016

            		  104.063%

            2017

            		  102.031%

            2018 and thereafter

            		  100.000%

                    In addition, at any time prior to April 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the First Priority Notes with the proceeds of certain equity offerings at a redemption price of 108.125% of the principal amount in respect of the First Priority Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the First Priority Notes are redeemed, an aggregate principal amount of First Priority Notes equal to at least 50% of the original aggregate principal amount of First Priority Notes must remain outstanding immediately after each such redemption of First Priority Notes.

            11% Senior Secured Second Priority Notes due 2020

                    The Company issued $675 million aggregate principal amount of Second Priority Notes under an Indenture, dated, and amended, as of April 12, 2012 (the "Second Priority Indenture"), among the Company, the Subsidiary Guarantors, the Trustee, and the Note Collateral Agent. The Second Priority Notes bear interest at a rate of 11% per annum and will mature on April 15, 2020. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on October 15, 2012.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

                    The Second Priority Notes are senior secured indebtedness of the Company and rank equal in right of payment with all of the Company's existing and future senior indebtedness and senior in right of payment to all of the Company's existing and future subordinated indebtedness.

                    The Second Priority Notes are guaranteed, on a senior secured basis, by each of the Company's Wholly Owned Domestic Subsidiaries (as defined in the Second Priority Indenture), other than an Excluded Subsidiary (as defined in the Second Priority Indenture), and by each of the Company's other Domestic Subsidiaries (as defined in the Second Priority Indenture) that is a borrower under the ABL Facility or that guarantees payment of indebtedness of the Company under any Credit Facility or Capital Markets Securities (as defined in the Second Priority Indenture). These guarantees are subject to release under customary circumstances as stipulated in the Second Priority Indenture.

            Collateral

                    The Second Priority Notes and the related guarantees are secured by a second-priority security interest in the Cash Flow Priority Collateral, subject to permitted liens. In addition, the Second Priority Notes and the related guarantees are secured by a third-priority security interest in the ABL Priority Collateral, subject to permitted liens.

            Redemption

                    The Company may redeem the Second Priority Notes, in whole or in part, at any time (1) prior to April 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the Second Priority Indenture and (2) on and after April 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 15 of the year set forth below.

            Year
            		 Percentage 

            2016

            		  105.500%

            2017

            		  102.750%

            2018 and thereafter

            		  100.000%

                    In addition, at any time prior to April 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the Second Priority Notes with the proceeds of certain equity offerings at a redemption price of 111.000% of the principal amount in respect of the Second Priority Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the Second Priority Notes are redeemed, an aggregate principal amount of Second Priority Notes equal to at least 50% of the original aggregate principal amount of Second Priority Notes must remain outstanding immediately after each such redemption of Second Priority Notes.

            11.5% Senior Unsecured Notes due 2020

            The Company issued $1,000 million aggregate principal amount of its 11.5% Senior Notes under an Indenture, dated, and amended, as of October 15, 2012 (“("11.5% Senior Notes Indenture”Indenture") among the Company, certain subsidiaries of the Company as guarantors (the “Subsidiary Guarantors”"Subsidiary Guarantors") and the


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Trustee. The 11.5% Senior Notes will bear interest at a rate of 11.5% per annum and will mature on July 15, 2020. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on April 15, 2013.

            The 11.5% Senior Notes are unsecured senior indebtedness of the Company and rank equal in right of payment with all of the Company’sCompany's existing and future senior indebtedness, senior in right of payment to all of the Company’sCompany's existing and future subordinated indebtedness, and effectively subordinated to all of the Company’sCompany's existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness.

            The 11.5% Senior Notes are guaranteed, on a senior unsecured basis, by each of the Company’sCompany's direct and indirect domestic existing and future subsidiaries that is a wholly owned domestic subsidiary (other than certain excluded subsidiaries), and by each other domestic subsidiary that is a borrower under the ABL facilityFacility or that guarantees the Company’sCompany's obligations under any credit facility or capital markets securities. These guarantees are subject to release under customary circumstances as stipulated in the 11.5% Senior Notes Indenture.

            Redemption

            The Company may redeem the 11.5% Senior Notes, in whole or in part, at any time (1) prior to October 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the 11.5% Senior Notes Indenture and (2) on and after October 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on October 15 of the year set forth below.

            Year
            		 Percentage 

            2016

            		  105.750%

            2017

            		  102.875%

            2018 and thereafter

            		  100.000%

                    

            Year

            		  Percentage 

            2016

            		   105.750% 

            2017

            		   102.875% 

            2018 and thereafter

            		   100.000% 

            In addition, at any time prior to October 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the 11.5% Senior Notes with the proceeds of certain equity offerings at a redemption price of 111.50% of the principal amount in respect of the 11.5% Senior Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the 11.5% Senior Notes are redeemed, an aggregate principal amount of the 11.5% Senior Notes equal to at least 50% of the original aggregate principal amount of the 11.5% Senior Notes must remain outstanding immediately after each such redemption of the 11.5% Senior Notes.

            81/8%7.5% Senior Secured First PriorityUnsecured Notes due 20192020

            The Company issued $950$1,275 million aggregate principal amount of its First Priority7.5% Senior Notes under an Indenture, dated, and amended, as of April 12, 2012 (the “First Priority Indenture”February 1, 2013 ("7.5% Senior Notes Indenture") among the Company, certain subsidiaries of the Company as guarantors (the “Subsidiary Guarantors”"Subsidiary Guarantors"), the Trustee, and the Note Collateral Agent. On August 2, 2012, the Company issued $300 million additional aggregate principal amount of its First Priority Notes (the “Additional Notes”) at a premium of 107.5%.Trustee. The First Priority7.5% Senior Notes bear interest at a rate of 8 1/8%7.5% per annum and will mature on AprilJuly 15, 2019. Interest will be paid semi-annually in arrears on April 15


            th and October 15thTable of each year, commencing on October 15, 2012.

            Index to Financial StatementsContents

            The First Priority Notes are senior secured indebtedness of the Company and rank equal in right of payment with all of our existing and future senior indebtedness and senior in right of payment to all of our existing and future subordinated indebtedness.

            The First Priority Notes are guaranteed, on a senior secured basis, by each of the Company’s Wholly Owned Domestic Subsidiaries (as defined in the First Priority Indenture) (other than an Excluded Subsidiary (as defined in the First Priority Indenture)) and by each of the Company’s other Domestic Subsidiaries (as defined in the First Priority Indenture) that is a borrower under the ABL Facility or that guarantees payment of indebtedness of the Company under any Credit Facility or Capital Markets Securities (as defined in the First Priority Indenture). These guarantees are subject to release under customary circumstances as stipulated in the First Priority Indenture.

            Collateral

            The First Priority Notes and the related guarantees are secured by a first-priority security interest in substantially all of the tangible and intangible assets of the Company and the Subsidiary Guarantors (other than the ABL Priority Collateral, in which the First Priority Notes and the related guarantees have a second priority security interest), including pledges of all Capital Stock of the Company’s Restricted Subsidiaries directly owned by the Company and the Subsidiary Guarantors (but only up to 65% of each series of Capital Stock of each direct Foreign Subsidiary owned by the Company or any Subsidiary Guarantor), subject to certain thresholds, exceptions and permitted liens, and excluding any Excluded Assets (as defined in the First Priority Indenture) and Excluded Subsidiary Securities (as defined in the First Priority Indenture) (the “Cash Flow Priority Collateral”).

            In addition, the First Priority Notes and the related guarantees are secured by a second-priority security interest in substantially all of the Company’s and the Subsidiary Guarantors’ present and future assets which secure the Company’s obligations under the ABL Facility on a first priority basis, including accounts receivable, inventory and other related assets and all proceeds thereof, subject to permitted liens. Such assets are referred to as the “ABL Priority Collateral.” (The Cash Flow Priority Collateral and the ABL Priority Collateral together are referred to herein as the “Collateral.”)

            Redemption

            The Company may redeem the First Priority Notes, in whole or in part, at any time (1) prior to April 15, 2015, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the First Priority Indenture and (2) on and after April 15, 2015, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 15 of the year set forth below.

            Year

            		  Percentage 

            2015

            		   106.094% 

            2016

            		   104.063% 

            2017

            		   102.031% 

            2018 and thereafter

            		   100.000% 

            In addition, at any time prior to April 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the First Priority Notes with the proceeds of certain equity offerings at a redemption price of 108.125% of the principal amount in respect of the First Priority Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the First Priority Notes are redeemed, an aggregate principal amount of First Priority Notes equal to at least 50% of the original aggregate principal amount of First Priority Notes must remain outstanding immediately after each such redemption of First Priority Notes.

            Index to Financial Statements

            11% Senior Secured Second Priority Notes due 2020

            The Company issued $675 million of its Second Priority Notes under an Indenture, dated, and amended, as of April 12, 2012 (the “Second Priority Indenture”), among the Company, the Subsidiary Guarantors, the Trustee, and the Note Collateral Agent. The Second Priority Notes bear interest at a rate of 11% per annum and will mature on April 15,
            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            2020. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on OctoberApril 15, 2012.2013.

            The Second Priority7.5% Senior Notes are unsecured senior secured indebtedness of the Company and rank equal in right of payment with all of the Company’sCompany's existing and future senior indebtedness, and senior in right of payment to all of the Company’sCompany's existing and future subordinated indebtedness, and effectively subordinated to all of the Company's existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness.

            The Second Priority7.5% Senior Notes are guaranteed, on a senior securedunsecured basis, by each of the Company’s Wholly Owned Domestic Subsidiaries (as defined in the Second Priority Indenture), otherCompany's direct and indirect domestic existing and future subsidiaries that is a wholly owned domestic subsidiary (other than an Excluded Subsidiary (as defined in the Second Priority Indenture)certain excluded subsidiaries), and by each of the Company’s other Domestic Subsidiaries (as defined in the Second Priority Indenture)domestic subsidiary that is a borrower under the ABL Facility or that guarantees payment of indebtedness of the CompanyCompany's obligations under any Credit Facilitycredit facility or Capital Markets Securities (as defined in the Second Priority Indenture).capital markets securities. These guarantees are subject to release under customary circumstances as stipulated in the Second Priority7.5% Senior Notes Indenture.

            Collateral

            The Second Priority Notes and the related guarantees are secured by a second-priority security interest in the Cash Flow Priority Collateral, subject to permitted liens. In addition, the Second Priority Notes and the related guarantees are secured by a third-priority security interest in the ABL Priority Collateral, subject to permitted liens.

            Redemption

            The Company may redeem the Second Priority7.5% Senior Notes, in whole or in part, at any time (1) prior to AprilOctober 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the Second Priority7.5% Senior Notes Indenture and (2) on and after AprilOctober 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on AprilOctober 15 of the year set forth below.

            Year
            		 Percentage 

            2016

            		  103.750%

            2017

            		  101.875%

            2018 and thereafter

            		  100.000%

                    

            Year

            		  Percentage 

            2016

            		   105.500% 

            2017

            		   102.750% 

            2018 and thereafter

            		   100.000% 

            In addition, at any time prior to AprilOctober 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the Second Priority7.5% Senior Notes with the proceeds of certain equity offerings at a redemption price of 111.000%107.50% of the principal amount in respect of the Second Priority7.5% Senior Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the Second Priority7.5% Senior Notes are redeemed, an aggregate principal amount of Second Prioritythe 7.5% Senior Notes equal to at least 50% of the original aggregate principal amount of Second Prioritythe 7.5% Senior Notes must remain outstanding immediately after each such redemption of Second Prioritythe 7.5% Senior Notes.

            Index to Financial Statements

            14.875% Senior Unsecured Notes due 2020

            The Company issued approximately $757 million aggregate principal amount (net of $30 million of original issue discount) of its 14.875% Senior Notes under an Indenture, dated as of April 12, 2012 (the “14.875%"14.875% Senior Notes Indenture”Indenture"), among the Company, the Subsidiary Guarantors and Wilmington Trust, National Association, as Trustee to investment funds associated with Bain Capital Partners, LLC, Carlyle Investment Management, LLC and Clayton, Dubilier & Rice, LLC, the Equity Sponsors. The


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            14.875% Senior Notes bearbore interest at a rate of 14.875% per annum and willwere scheduled to mature on October 12, 2020. Interest willwas to be paid semi-annually in arrears on each April 12th and October 12th through maturity, commencing on October 12, 2012, except that the first eleven payment periods through October 2017 shallwere to be paid in kind (“PIK”("PIK") and therefore increase the balance of the outstanding indebtedness rather than paid in cash. On October 12, 2012, the Company made a PIK payment of $56 million, increasing the outstanding principal balance to approximately $813 million. As a result of the PIK payment and the amortization of the original issue discount, the net book value of the 14.875% Senior Notes as of October 28, 2012 was $784 million.

            Affiliates of certain of the Equity Sponsors owned an aggregate principal amount of approximately $484 million of the Old Senior Notes which they exchanged in a non-cash transaction for their investment in the 14.875% Senior Notes.

            The 14.875% Senior Notes and the guarantees thereof are the Company’s and the guarantors’ senior unsecured indebtedness and rank equally in right of payment to all existing and future senior unsecured indebtedness of the Company and the guarantors and rank senior in right of payment to all existing and future subordinated obligations of the Company and the guarantors.

            Redemption

            The Company maywas permitted to redeem the 14.875% Senior Notes, in whole or in part, at any time (1) prior to April 12, 2015, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the 14.875% Senior Notes Indenture. On February 1, 2013, the Company repurchased the 14.875% Senior Notes in accordance with the redemption provisions of the 14.875% Senior Notes Indenture.

            10.5% Senior Subordinated Notes due 2021

                    The Company issued $950 million aggregate principal amount of 10.5% Senior Subordinated Notes due 2021 ("Senior Subordinated Notes") under an Indenture, dated as of January 16, 2013 ("Senior Subordinated Notes Indenture") among the Company, certain subsidiaries of the Company as guarantors (the "Subsidiary Guarantors") and the Trustee. The Senior Subordinated Notes bear interest at a rate of 10.5% per annum and will mature on January 15, 2021. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on April 15, 2013.

                    The Senior Subordinated Notes are unsecured senior subordinated indebtedness of the Company and rank subordinated in right of payment to all the Company's existing and future senior indebtedness, equal in right of payment with all of the Company's existing and future senior subordinated indebtedness, and effectively subordinated to all of the Company's existing and future secured indebtedness, including, without limitation, indebtedness under the Senior Credit Facilities, the First Priority Notes and the Second Priority Notes, to the extent of the value of the collateral securing such indebtedness.

                    The Senior Subordinated Notes are guaranteed, on an unsecured senior subordinated basis, by each of the Company's direct and indirect domestic existing and future subsidiaries that is a wholly owned domestic subsidiary (other than certain excluded subsidiaries), and by each other domestic subsidiary that is a borrower under the ABL Facility or that guarantees the Company's obligations under any credit facility or capital markets securities. These guarantees are subject to release under customary circumstances as stipulated in the Senior Subordinated Notes Indenture.

            Redemption

                    The Company may redeem the Senior Subordinated Notes, in whole or in part, at any time (1) prior to January 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the applicable make-whole premium set forth in the Senior Subordinated Notes Indenture and (2) on and after April 12, 2015,January 15, 2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued and


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            unpaid interest, if any, to the relevant redemption date, if redeemed during the 12-month period commencing on April 12January 15 of the years set forth below.

            Year
            		 Percentage 

            2016

            		  107.875%

            2017

            		  105.250%

            2018

            		  102.625%

            2019 and thereafter

            		  100.000%

                    

            Year

            		  Percentage 

            2015

            		   111.1563% 

            2016

            		   107.4375% 

            2017

            		   103.7188% 

            2018 and thereafter

            		   100.0000% 

            In addition, at any time after July 31, 2013 and on or before July 31, 2014, the Company may also redeem up to 100% of the aggregate principal amount of the Senior Subordinated Notes with funds in an equal aggregate amount not exceeding the aggregate proceeds of certain qualified public equity offerings at a redemption price (expressed as a percentage of principal amount) of (x) if such redemption occurs on or prior to April 12, 2015,January 31, 2014, 103% and (y) if such redemption occurs after January 31, 2014 and on or prior to July 31, 2014, 102%, in each case plus accrued and unpaid interest, if any, to the redemption date; provided, however, that if less than 100% of the Senior Subordinated Notes are to be redeemed in any qualified public offering redemption, at least 33.33% of the original aggregate principal amount of Senior Subordinated Notes must remain outstanding immediately after giving effect to such qualified public offering redemption.

                    In addition to the foregoing, at any time prior to January 15, 2016, the Company may redeem up to 35% of the aggregate principal amount of the 14.875% Senior Subordinated Notes with the proceeds of certain equity offerings at a redemption price of 114.875%110.50% of the principal amount in respect of the 14.875% Senior Subordinated Notes being redeemed, plus accrued and unpaid interest to the redemption date, provided, however, that if the 14.875% Senior Subordinated Notes are redeemed, an aggregate principal amount of 14.875% Senior Subordinated Notes equal to at least 50% (or 35% if any redemption in connection with certain qualified public equity offerings shall have been consummated) of the original aggregate principal amount of 14.875% Senior Subordinated Notes must remain outstanding immediately after each such redemption of 14.875% Senior Subordinated Notes.

            On or after April 12, 2017, the Company will be required to redeem or pay portions of the 14.875% Senior Notes in amounts intended to ensure the 14.875% Senior Notes are not treated as applicable high yield discount obligations for U.S. federal income tax purposes.

            Index to Financial Statements

            First Priority Notes and Second Priority Notes (collectively the “Priority Notes”"Priority Notes") and, 11.5% Senior Notes and 14.875%7.5% Senior Notes (collectively the “Senior Notes”"Senior Notes"), and Senior Subordinated Notes

            Offer to Repurchase

            In the event of certain events that constitute a Change of Control (as defined in the First Priority Indenture and Second Priority Indenture, collectively the “Priority Indentures” and"Priority Indentures," the 11.5% Senior Notes Indentures and the 14.875%7.5% Senior Notes Indenture,Indentures, collectively the “Senior Indentures”)"Senior Indentures," and the Senior Subordinated Notes Indenture), the Company must offer to repurchase all of the Priority Notes, Senior Notes, and Senior Subordinated Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. If the Company sells assets under certain circumstances, the Company must use the proceeds to make an offer to purchase the Priority Notes, Senior Notes, and Senior Subordinated Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            Covenants

            The Priority Indentures, Senior Indentures, and Senior IndenturesSubordinated Notes Indenture contain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of the Company’sCompany's restricted subsidiaries to pay dividends to the Company or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; and enter into certain transactions with the Company’sCompany's affiliates. Most of these covenants will cease to apply for so long as the Priority Notes, Senior Notes, and Senior Subordinated Notes have investment grade ratings from both Moody’sMoody's Investment Services, Inc. and Standard & Poor’s.Poor's. The Company is in compliance with all such covenants.

            Events of Default

            The Priority Indentures, Senior Indentures, and Senior IndenturesSubordinated Notes Indenture also provide for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and other monetary obligations on all the then outstanding Priority Notes, Senior Notes, and Senior Subordinated Notes to be due and payable immediately. The Priority Indentures, Senior Indentures, and Senior IndenturesSubordinated Notes also provide for specified cross default and cross acceleration to other material indebtedness. It is also an event of default if more than $450.0 million aggregate principal amount of (1) the Company’s 13.5% Senior Subordinated Notes due 2015 (the “Senior Subordinated Notes”) remains outstanding on the date that is 90 days or 45 days, in the case of the Priority Notes and Senior Notes, respectively, prior to the scheduled maturity date of the Senior Subordinated Notes or (2) any unsecured indebtedness of the Company or any restricted subsidiary incurred to refinance the Senior Subordinated Notes remains outstanding on the date that is 90 days or 45 days, in the case of the Priority Notes and Senior Notes, respectively, prior to the scheduled maturity date of the such refinancing indebtedness.

            Registration Rights Agreements

            The 11.5% Senior Notes and the guarantees have not been registered under the Securities Act of 1933, as amended (the “Securities Act”"Securities Act"). The Company has agreed to make an offer to exchange the 11.5% Senior Notes for registered, publicly tradable notes that have substantially identical terms as the 11.5% Senior Notes within 270 days following the original issue date of the 11.5% Senior Notes. The Company is obligated to pay additional interest, up to a maximum additional interest rate of 0.50% per annum, on the 11.5% Senior Notes if the exchange offer has not been completed within 360 days following the original issue date of the 11.5% Senior Notes.

            The Priority Notes and the guarantees have not been registered under the Securities Act of 1933, as amended (the “Securities Act”).Act. The Company has agreed to make an offer to exchange the Priority Notes for registered, publicly tradable notes that have substantially identical terms as the Priority Notes within 270 days following the original issue date of the Priority Notes. The Company is obligated to pay additional interest, up to a maximum

            Index to Financial Statements

            additional interest rate of 0.50% per annum, on the Priority Notes if the exchange offer has not been completed within 360 days following the original issue date of the Priority Notes.

                    On January 31, 2013, the Company filed a registration statement on Form S-4/A with the SEC in accordance with the registration rights agreements relating to the 11.5% Senior Notes and Priority Notes. On January 31, 2013, the registration statement was declared effective by the SEC. See Note 17, Subsequent Events—Exchange Offers, for additional information regarding this exchange offer.

            The 14.875%Senior Subordinated Notes and the guarantees have not been registered under the Securities Act. The Company has agreed to make an offer to exchange the Senior Subordinated Notes for registered, publicly tradable notes that have substantially identical terms as the Senior Subordinated Notes within 270 days following the original issue date of the Senior Subordinated Notes. The Company is obligated to pay additional interest, up to a maximum additional interest rate of 0.50% per


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 6—DEBT (Continued)

            annum, on the Senior Subordinated Notes if the exchange offer has not been completed within 360 days following the original issue date of the Senior Subordinated Notes.

                    On January 31, 2013, the Company filed a registration statement on Form S-4/A with the SEC in accordance with the registration rights agreements relating to the Senior Subordinated Notes. On January 31, 2013, the registration statement was declared effective by the SEC. See Note 17, Subsequent Events—Exchange Offers, for additional information regarding this exchange offer.

                    The 7.5% Senior Notes and the guarantees have not been registered under the Securities Act. UnderAct of 1933, as amended. The Company has agreed to make an offer to exchange the 14.875%7.5% Senior Notes Exchange and Registration Rights Agreement,for registered, publicly tradable notes that have substantially identical terms as the holders of the 14.875%7.5% Senior Notes will not have registration rights until the later of (a) the date when 75% of the Senior Subordinated Notes have been repaid or refinanced and (b) the earlier of (i) October 12, 2013 and the date that is 90within 270 days after a registration statement with respect to the Second Priority Notes has become effective. Thereafter, the holders of the 14.875% Senior Notes will have limited demand and piggy-back registration rights.

            Senior Credit Facilities

            Senior Term Facility

            The Senior Term Facility consists of a senior secured Term Loan Facility (the “Term Loan Facility”; the term loan thereunder, the “Term Loan”) providing for a Term Loan in an aggregate principal amount of $1,000 million (net of $30 million of original issue discount). The Term Loan Facility also permits the Company to add one or more incremental term loans, revolving or letter of credit facilities of up to $250 million plus a certain amount depending on a secured first lien leverage ratio test included in the Term Loan Facility. The Term Loan bears interest at LIBOR (subject to a floor of 1.25%) plus a borrowing margin of 6.00% or Prime plus a borrowing margin of 5.00% at the Company’s election, payable at the end of each calendar quarter with respect to Prime rate draws or at the maturity of each LIBOR draw (unless a draw is for a six-, nine-, or twelve-month period, then interest shall be paid quarterly). The Term Loan amortizes in nominal quarterly installments, beginning September 30, 2012, equal to 0.25% offollowing the original aggregate principal amount of the Term Loan and matures on October 12, 2017 (the “Term Loan Maturity Date”); provided that if more than $450 million aggregate principal amount of the Senior Subordinated Notes remain outstanding as of the date (the “First Springing Maturity Date”) occurring 90 days prior to theissue date of the scheduled maturity of the7.5% Senior Subordinated Notes, the Term Loan Facility will mature, and the balances of any then outstanding Term Loans will be payable, on the date occurring 90 days prior to the scheduled maturity of the Senior Subordinated Notes or in the event that more than $450 million aggregate principal amount of any unsecured indebtedness incurred to refinance the Senior Subordinated Notes remains outstanding on the date (the “Second Springing Maturity Date”) that is 90 days prior to the maturity date of such refinancing indebtedness, the Term Loan Facility will mature on the earlier of the Second Springing Maturity Date and October 12, 2017, provided further that the individual applicable lenders may agree to extend the maturity of their respective Term Loans upon the Company’s request and without the consent of any other applicable lender.

            The Senior Term Facility is senior secured indebtedness of the Company and ranks equal in right of payment with all of the Company’s existing and future senior indebtedness and senior in right of payment to all of the Company’s existing and future subordinated indebtedness.

            The Senior Term Facility is guaranteed, on a senior secured basis, by the Subsidiary Guarantors. These guarantees are subject to release under customary circumstances. The guarantee of each Subsidiary Guarantor is a senior secured obligation of that Subsidiary Guarantor and ranks equal in right of payment with all existing and future senior indebtedness of that Subsidiary Guarantor and senior in right of payment to all existing and future subordinated indebtedness of such Subsidiary Guarantor.

            Collateral

            The Senior Term Facility and the related guarantees are secured by a first-priority security interest in the Cash Flow Priority Collateral, subject to permitted liens. In addition, the Senior Term Facility and the related guarantees are secured by a second-priority security interest in the ABL Priority Collateral, subject to permitted liens.

            Index to Financial Statements

            Prepayment

            Prior to the first anniversary of the closing date of the Term Loan Facility, the loans under the Term Loan Facility may not be optionally prepaid. During the second and third years following the closing date of the Term Loan Facility, the Term Loans may be optionally prepaid at a price of 102% and 101%, respectively, of the principal amount being prepaid. On and after the third anniversary of the closing date of the Term Loan Facility, the Term Loans may be prepaid without premium or penalty. Under certain circumstances and subject to certain exceptions, the Term Loan Facility will be subject to mandatory prepayment in an amount equal to:

            100% of the net proceeds (other than those that are used to purchase certain assets or to repay certain other indebtedness) of certain asset sales and certain insurance recovery events; and

            50% of annual excess cash flow for any fiscal year, such percentage to decrease to 0% depending on the attainment of certain secured leverage ratio targets.

            In addition, upon the incurrence of certain events constituting a Change of Control (as defined in credit agreement governing the Term Loan Facility (the “Term Loan Credit Agreement”)), the Company must offer to prepay the Term Loans (unless otherwise repaid) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repayment date.

            Guarantee

            Notes. The Company is the borrower under the Term Loan Facility. The Subsidiary Guarantors guarantee the Company’s payment obligations under the Term Loan Facility.

            The Company’s obligations under the Term Loan Facility and the guarantees thereof are secured in favor of the collateral agent by (i) all of the capital stock of the Company, all capital stock of all domestic subsidiaries directly owned by the Company and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary owned directly by the Company or any Subsidiary Guarantors (it being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by the Company and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Term Loan Facility, the First Priority Notes, the Second Priority Notes and the ABL Facility.

            Covenants

            The Term Loan Facility contains a number of covenants that, among other things, limit the ability of the Company and its restricted subsidiaries, as described in the Term Loan Credit Agreement, to: incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of the Company’s restricted subsidiariesobligated to pay dividends to the Company or make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with the Company’s affiliates; and prepay or amend the terms of certain indebtedness.

            The Term Loan Facility also contains certain affirmative covenants, including financial and other reporting requirements.

            Asset Based Lending Facility

            The ABL Facility provides for senior secured revolving loans and letters of credit ofadditional interest, up to a maximum aggregate principal amountadditional interest rate of $1,500 million (subject to availability under a borrowing base). Extensions of credit under0.50% per annum, on the ABL Facility will be limited by a borrowing base calculated periodically based on specified percentages of7.5% Senior Notes if the value of eligible inventory and eligible accounts receivable, subject to certain reserves and other adjustments. As of October 28, 2012,exchange offer has not been completed within 360 days following the Company has $867 million of available borrowings under the ABL Facility (after giving effect to the borrowing base limitations and approximately $61 million in letters of credit issued and including $43 million of borrowings available on qualifying cash balances).

            Index to Financial Statements

            A portion of the ABL Facility is available for letters of credit and swingline loans. The ABL Facility also includes a sub-facility for loans and letters of credit in Canadian dollars. The ABL Facility also permits the Company to add one or more incremental term loans, revolving or letter of credit facilities to be included in the ABL Facility up to an aggregate maximum amount of $1,900 million for the total commitments under the ABL Facility (including all incremental commitments).

            Until the date that is three months after the closingoriginal issue date of the ABL Facility, at the option of the applicable borrower, the interest rates applicable to the loans under the ABL Facility will be based, (i) in the case of U.S. dollar denominated loans, either a LIBOR plus 2.00% or Prime Rate plus 1.00% and (ii) in the case of Canadian dollar denominated loans, either the BA Rate plus 2.00% or the Canadian Prime Rate plus 1.00%. From and after the date that is three months after the closing date of the ABL Facility, the foregoing interest margins will be subject to a pricing grid, as included in ABL Facility agreement, based on average excess availability for the previous fiscal quarter. The ABL facility also contains a letter of credit fee computed at a rate per annum equal to the Applicable Margin (as defined in the agreement) then in effect for LIBOR Loans and an unused commitment fee subject to a pricing grid, as included in the ABL Facility agreement, based on the Average Daily Used Percentage (as defined in the agreement).

            The ABL Facility will mature on April 12, 2017; provided that if more than $450 million aggregate principal amount of the7.5% Senior Subordinated Notes remain outstanding as of the date (the “First Springing Maturity Date”) occurring 90 days prior to the date of the scheduled maturity of the Senior Subordinated Notes, the ABL Facility will mature, and the balances of any then outstanding loans under the ABL Facility will be payable, on the date occurring 90 days prior to the scheduled maturity of the Subordinated Notes or in the event that more than $450 million aggregate principal amount of any unsecured indebtedness incurred to refinance the Subordinated Notes remains outstanding on the date (the “Second Springing Maturity Date”) that is 90 days prior to the scheduled maturity date of such refinancing indebtedness, the ABL Facility will mature on the earlier of the Second Springing Maturity Date and April 12, 2017; provided further that the individual applicable lenders may agree to extend the maturity of their respective loans under the ABL Facility upon the Company’s request and without the consent of any other applicable lender.

            The ABL Facility is senior secured indebtedness of the Company and ranks equal in right of payment with all of the Company’s existing and future senior indebtedness and senior in right of payment to all of the Company’s existing and future subordinated indebtedness.

            The ABL Facility is guaranteed, on a senior secured basis, by the Subsidiary Guarantors. These guarantees are subject to release under customary circumstances as stipulated in the agreement.

            The ABL Facility is secured by a first-priority security interest in the ABL Priority Collateral, subject to permitted liens.Notes.

            Prepayments

            The ABL Facility may be prepaid at the Company’s option at any time without premium or penalty and will be subject to mandatory prepayment if the outstanding ABL Facility exceeds either the aggregate commitments with respect thereto or the current borrowing base, in an amount equal to such excess. Mandatory prepayments do not result in a permanent reduction of the lenders’ commitments under the ABL Facility.

            Guarantees

            The Company and at the Company’s option, certain of the Company’s subsidiaries, including HD Supply Canada, Inc., a Canadian subsidiary (the “Canadian Borrower”), are the borrowers under the ABL Facility. The Subsidiary Guarantors guarantee the Company’s payment obligations under the ABL Facility (and, in the case of Canadian obligations, each direct and indirect wholly-owned Canadian subsidiary, subject to certain exceptions,

            Index to Financial Statements

            in each case to the extent otherwise permitted by applicable law, regulation and contractual provision (the “Canadian Guarantors”) guarantee the Canadian Borrower’s payment obligations under the ABL Facility).

            The Company’s obligations under the ABL Facility and the guarantees thereof, are secured in favor of the U.S. ABL collateral agent, by (i) all of the capital stock of the Company, all capital stock of all domestic subsidiaries directly owned by the Company and the Subsidiary Guarantors and 65% of the capital stock of any foreign subsidiary held directly by the Company or any Subsidiary Guarantor (it being understood that a foreign subsidiary holding company will be deemed a foreign subsidiary) and (ii) substantially all other tangible and intangible assets owned by the Company and each Subsidiary Guarantor, in each case to the extent permitted by applicable law and subject to certain exceptions and subject to the priority of liens between the Term Loan Facility, the First Priority Notes, the Second Priority Notes and the ABL Facility.

            The Canadian obligations under the ABL Facility are also secured by liens on substantially all assets of the Canadian Borrower and the Canadian Guarantors, subject to certain exceptions.

            Covenants

            The ABL Facility contains a number of covenants that, among other things, limit or restrict the Company’s ability and, in certain cases, the Company’s subsidiaries to make acquisitions, mergers, consolidations, dividends, and to prepay certain indebtedness (including the First Priority Notes, the Second Priority Notes and the 14.875% Senior Notes), in each case to the extent any such transaction would reduce availability under the ABL Facility below a specified amount.

            In addition, if the Company’s specified excess availability (including an amount by which the Company’s borrowing base exceeds the existing commitments) under the ABL Facility falls below the greater of $150 million and 10% of the aggregate commitments (a “Liquidity Event”), the Company will be required to maintain a Fixed Charge Coverage Ratio of at least 1.0:1.0, as defined in the ABL Facility.

            The ABL Facility also contains certain affirmative covenants, including financial and other reporting requirements.

            Events of Default under the ABL Facility and Term Loan Facility

            The ABL Facility and Term Loan Facility also provide for customary events of default, including non-payment of principal, interest or fees, violation of covenants, material inaccuracy of representations or warranties, specified cross default and cross acceleration to other material indebtedness, certain bankruptcy events, certain ERISA events, material invalidity of guarantees or security interest, material judgments and changes of control.

            13.5%Old Senior Subordinated Notes

            On August 30, 2007, the Company issued $1,300 million aggregate principal amount of Senior Subordinated Notes due 2015 bearing interest at a rate of 13.5% (the “13.5%"Old Senior Subordinated Notes”Notes"). Interest payments arewere due each March 1stand September 1st1st through maturity except that the first eight payment periods through September 2011 were paid in kind (“PIK”("PIK") and therefore increased the balance of the outstanding indebtedness rather than paid in cash. During the second quarter of fiscal

                    On May 15, 2012, the Company repurchased $1 million aggregate principal of the 13.5%its Old Senior Subordinated Notes at a 3% discount. Asprice of October 28,97% plus accrued interest. On November 8, 2012, the Company redeemed $930 million aggregate principal of its outstanding principal balance of the 13.5%Old Senior Subordinated Notes was $1,819 million. During October 2012,at a price of 103.375% plus $23 million of accrued interest. As of February 3, 2013, $889 million of the Company's Old Senior Subordinated Notes remained outstanding. On January 9, 2013, the Company issued a notice of partial redemption, subject to the required thirty-day notification period, to redeem $930 millionall of the 13.5%remaining $889 million aggregate principal outstanding of Old Senior Subordinated Notes. See Note 15,17, Subsequent Events.

            Events—Debt Redemption.

            IndexDebt Maturities

                    Maturities of long-term debt outstanding, in principal amounts, at February 3, 2013 are summarized below (amounts in millions):

             
            		 Fiscal Year  
            		  
            		 
             
            		 2013(1) 2014 2015 2016 2017 Thereafter Total 

            Principal maturities

            		 $899 $10 $10 $10 $1,255 $5,150 $7,334 
            (1)
            Includes $889 million of the Company's Old Senior Subordinated Notes due 2015. On January 9, 2013, the Company issued a notice of redemption, subject to Financial Statementsthe required thirty-day notification period, to redeem all of the remaining $889 million outstanding Old Senior Subordinated Notes. See Note 17, Subsequent Events—Debt Redemption.

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 7 — 7—FAIR VALUE MEASUREMENTS

            The fair value measurements and disclosure principles of U.S. GAAP (ASC 820, Fair Value Measurements and Disclosures) define fair value, establish a framework for measuring fair value and provide disclosure requirements about fair value measurements. These principles define a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

            Level 1

            		–1—

            		 Quoted prices (unadjusted) in active markets for identical assets or liabilities;

            Level 2

            		–2—

            		 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly;

            Level 3

            		–3—

            		 Unobservable inputs in which little or no market activity exists.

            The Company’sCompany's financial instruments that are not reflected at fair value on the balance sheet were as follows as of October 28, 2012 and January 29, 2012 (amounts in millions):

             
            		 As of February 3, 2013 As of January 29, 2012 
             
            		 Recorded
            Amount(1)            		 Estimated
            Fair Value(1)            		 Recorded
            Amount(1)            		 Estimated
            Fair Value(1)            		 

            ABL Facility

            		 $300 $292 $— $— 

            Term Loans and Notes

            		  7,034  7,573  5,462  5,070 
                      

            Total

            		 $7,334 $7,865 $5,462 $5,070 
                      
            (1)
            These amounts do not include accrued interest; accrued interest is classified as Other current liabilities and Other liabilities in the accompanying Consolidated Balance Sheets. These amounts do not include any related discounts and premiums.

                    

               As of October 28, 2012   As of January 29, 2012 
               Recorded
            Amount(1)            		   Estimated
            Fair
            Value            		   Recorded
            Amount(1)            		   Estimated
            Fair
            Value            		 

            ABL Facility

            		  $395    $379    $—      $—    

            Term Loans and Notes

            		   6,555     6,898     5,462     5,070  
              

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

            Total

            		  $6,950    $7,277    $5,462    $5,070  
              

             

             

            		   

             

             

            		   

             

             

            		   

             

             

            		 

            (1)These amounts do not include accrued interest; accrued interest is classified as Other current liabilities and Other liabilities in the accompanying Consolidated Balance Sheets. These amounts do include any related discounts and premiums.

            The Company utilized Level 2 inputs, as defined in the fair value hierarchy, to measure the fair value of the long-term debt. The Old Term Loans outstanding as of January 29, 2012 and due August 30, 2012 and April 1, 2014 were guaranteed by Home Depot. Therefore, management’smanagement's estimates of fair value for thesethe Old Term Loans were based on a review of the fair value of debt issued by companies with similar credit ratings as Home Depot. For all of the Company’sCompany's other debt instruments, management’smanagement's fair value estimates were based on recent similar credit facilities initiated by companies with like credit quality in similar industries, quoted prices for similar instruments, and inquiries with certain investment communities.

            NOTE 8 — 8—INCOME TAXES

            As        The components of October 28, 2012,Income (Loss) from Continuing Operations before Provision (Benefit) for Income Taxes are as follows (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3, 2013 January 29, 2012 January 30, 2011 

            United States

            		 $(1,210)$(503)$(606)

            Foreign

            		  14  19  21 
                    

            Total

            		 $(1,196)$(484)$(585)
                    

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    The Provision (Benefit) for Income Taxes consisted of the Company’sfollowing (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3, 2013 January 29, 2012 January 30, 2011 

            Current:

            		          

            Federal

            		 $— $— $— 

            State

            		  3  3  2 

            Foreign

            		  2  —  6 
                    

            		  5  3  8 

            Deferred:

            		          

            Federal

            		  (3) 64  12 

            State

            		  (1) 6  4 

            Foreign

            		  —  (5) 4 

            Foreign realization of tax deductible goodwill from prior acquisitions

            		  2  11  — 
                    

            		  (2) 76  20 
                    

            Total

            		 $3 $79 $28 
                    

                    The Company's combined federal, state and foreign effective tax rate for continuing operations for the fiscal year ending February 3, 2013 is an 8.0% provision, reflecting the impact of increasing the U.S. valuation allowance, increasing the deferred tax liability for U.S. goodwill amortization for tax purposes,2012, fiscal 2011, and the accrual of income taxes for foreignfiscal 2010 was approximately (0.2%), (16.4%), and certain state jurisdictions.(4.8%), respectively.

                    The tax expense for the nine months ended October 28, 2012 was partially offset by an adjustment of the Company’s valuation allowance as a result of the acquisition of additional deferred tax liabilities in conjunction with the Peachtree acquisition. The Company’sCompany's effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and the related tax rates in the jurisdictions where it operates, restructuring and other one-time charges, as well as discrete events, such as acquisitions and settlements of future audits. The Company is subject to auditsCompany's fiscal 2012, fiscal 2011 and examinationsfiscal 2010 effective tax rates were significantly impacted by the recording of its tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service. Management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of provisions for income taxes.

            Index to Financial Statements

            With regard to the increase in thea valuation allowance on its net U.S. deferred tax assets. The fiscal 2012 and the impact the valuation allowance had on income tax expense, thefiscal 2011 valuation allowance was directly impacted by the increasing of the deferred tax liability for U.S. goodwill amortization for tax purposes. The deferred tax liability related to the Company’sCompany's U.S. tax deductible goodwill must be considered as a liability related to an asset with an indefinite life. Therefore, the deferred tax liability does not amortize and is not available as a source of taxable income to support the realization of deferred tax assets created by other deductible temporary timing differences.

                    The Company does not believe it is “more likely than not” it will realize its U.S. deferredfiscal 2012 effective tax assets equal to deferred liabilityrate was also impacted by the goodwill impairment of an indefinite life intangible asset for book purposes. The fiscal 2012 goodwill impairment created by tax deductible goodwill and therefore, the Company was required to record an additional tax expense to increase itsa deferred tax asset valuation allowance. Duringwhich reduced the three and nine months ended October 28,fiscal 2012 the impact of the amortization of the indefinite lived intangibles increased income tax expense by $1 million and $34 million, respectively.

            Duringdecreasing the nine month period ended October 28, 2012,deferred tax liability associated with indefinite life intangibles which prior to the Company recordedimpairment could not serve as a $6 million reduction in incomesource of taxable income. In addition, the tax expense associated withfor fiscal 2012 was also reduced by an adjustment to the Company’sCompany's valuation allowance as a result of the acquisition of additional deferred tax liabilities in conjunction with the Peachtree acquisition.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    The impactreconciliation of the provision (benefit) for income taxes from continuing operations at the federal statutory rate of 35% to the Company’sactual tax provision (benefit) for fiscal 2012, fiscal 2011, and fiscal 2010 is as follows (amounts in millions):

             
            		 Fiscal Year Ended 
             
            		 February 3, 2013 January 29, 2012 January 30, 2011 

            Income taxes at federal statutory rate

            		 $(419)$(169)$(205)

            State income taxes, net of federal income tax benefit

            		  (53) (24) (15)

            Non-deductible goodwill impairment

            		  17  —  — 

            Non-deductible interest

            		  14  15  13 

            Valuation allowance

            		  442  259  228 

            Adjustments to tax reserves

            		  (1) 12  4 

            Other, net

            		  3  (14) 3 
                    

            Total provision (benefit)

            		 $3 $79 $28 
                    

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of February 3, 2013 and January 29, 2012 were as follows (amounts in millions):

             
            		 February 3, 2013 January 29, 2012 

            Current:

            		       

            Deferred Tax Assets:

            		       

            Interest

            		 $131 $33 

            Allowance for doubtful accounts

            		  9  12 

            Inventory

            		  37  49 

            Accrued compensation

            		  1  3 

            Accrued self-insurance liabilities

            		  5  5 

            Restructuring liabilities

            		  4  7 

            Other accrued liabilities

            		  23  27 

            Valuation allowance

            		  (167) (76)
                  

            Current deferred tax assets

            		  43  60 

            Deferred Tax Liabilities:

            		       

            Prepaid expense

            		 $(1)$(1)
                  

            Current deferred tax liabilities

            		  (1) (1)

            Noncurrent:

            		       

            Deferred Tax Assets:

            		       

            Interest

            		 $— $236 

            Accrued compensation

            		  33  27 

            Accrued self-insurance liabilities

            		  13  15 

            Other accrued liabilities

            		  7  8 

            Deferred revenue

            		  8  8 

            Restructuring liabilities

            		  29  32 

            Net operating loss

            		  830  374 

            Net capital loss carryforward

            		  —  10 

            Fixed assets

            		  23  16 

            Other

            		  22  21 

            Valuation allowance

            		  (758) (415)
                  

            Noncurrent deferred tax assets

            		  207  332 

            Deferred Tax Liabilities:

            		       

            Deferred Financing Costs

            		 $(8)$(24)

            Software costs

            		  (25) (23)

            Intangible assets

            		  (193) (316)

            Income from discharge of indebtedness

            		  (80) (80)
                  

            Noncurrent deferred tax liabilities

            		  (306) (443)
                  

            Deferred tax assets (liabilities), net

            		 $(57)$(52)
                  

                    The Company reported $6 million of long-term deferred tax assets related to its Canadian business within other assets on its balance sheet.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

                    In fiscal 2012, the Company recorded a valuation allowance on its total U.S. operations of $434 million of which $442 million related to continuing operations which was reduced by $8 million for discontinued operations. In fiscal 2011, the Company recorded a valuation allowance on its total U.S. operations of $252 million of which $259 million related to continuing operations which was reduced by $7 million for discontinued operations. In fiscal 2010, the Company recorded a valuation allowance on its total U.S. operations of $230 million of which $228 million related to continuing operations and $2 million related to discontinued operations. The Company records a valuation allowance when it is "more likely than not" that some portion or all of the deferred income tax rate of acquiring Peachtree’s net deferred tax liability is recorded in the Company’s financial statements outside of Peachtree’s purchase accounting. Peachtree’s net deferred tax liability of $6 million recorded in purchase accounting is available toassets will not be realized. In reaching this determination, the Company as a sourceconsiders the future reversals of taxable temporary differences, future taxable income, to supportexclusive of taxable temporary differences and carryforwards, taxable income in prior carryback years and tax planning strategies.

                    During the realizationfirst quarter of fiscal 2010, the Company’s deferred tax assetsCompany designated the undistributed earnings of certain aspects of its foreign operations as not permanently reinvested. In fiscal 2012, the Company repatriated $29 million of cash which resultsresulted in lowering the Company’s valuation allowance and$3 million of income tax expense by such amount.in the U.S. In fiscal 2011, the Company did not repatriate cash from its foreign operations to the U.S. If the company had repatriated cash to the U.S., no additional income tax expense would have been generated. In fiscal 2010, the Company repatriated $33 million of cash which resulted in $2 million of income tax expense in the U.S. In general, to the extent the Company's financial reporting book basis over tax basis of a foreign subsidiary exceeds the cash available for repatriation, deferred taxes have not been provided for, as they are essentially permanent in duration. If these amounts were not considered reinvested, it is estimated that no additional deferred taxes would have been provided for.

            As of February 3, 2013, the Company has tax-effected U.S. federal net operating loss carryforwards of $636 million which expire beginning in fiscal 2029. The Company also has $158 million of tax effected state net operating loss carryfowards which expire in various years between fiscal 2013 and fiscal 2030. During fiscal 2012, the Company generated a capital gain from the sale of the IPVF business. The capital gain allowed the Company to fully utilize the fiscal 2011 capital loss carryforward of $10 million associated with the Company's exit from the Plumbing business. The future utilization of the Company's net operating loss carryforwards could be limited if the Company experiences an "ownership change," as defined in Section 382 of the Internal Revenue Code of 1986, as amended. In general, an ownership change may result from transactions increasing the aggregate ownership of certain persons (or groups of persons) in the Company's stock by more than 50 percentage points over a testing period (generally 3 years).

                    There was no net income tax benefit or expense included in discontinued operations in fiscal 2012, fiscal 2011 or fiscal 2010.

                    Federal, state and foreign income taxes net receivable (payable) total zero and $4 million as of February 3, 2013 and January 29, 2012, respectively.

            Accounting for uncertain tax positions

                    The Company follows the Company’sU.S. GAAP guidance for uncertain tax positions within ASC 740, Income Taxes. ASC 740 requires application of a "more likely than not" threshold to the recognition and de-recognition of tax positions. It further requires that a change in judgment related to prior years' tax positions be recognized in the quarter of such change. A reconciliation of the beginning and ending


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 8—INCOME TAXES (Continued)

            amount of unrecognized tax benefits for continuing operations for fiscal 2012, fiscal 2011, and fiscal 2010 is as follows (amounts in accordance with the income taxes principlesmillions):

             
            		 Fiscal Year Ended 
             
            		 February 3,
            2013            		 January 29,
            2012            		 January 30,
            2011            		 

            Unrecognized Tax Benefits beginning of period

            		 $196 $192 $190 

            Gross increases for tax positions in current period

            		  —  —  1 

            Gross increases for tax positions in prior period

            		  2  6  4 

            Gross decreases for tax positions in prior period

            		  0  —  — 

            Settlements

            		  (1) (1) (3)

            Lapse of statutes

            		  (4) (1) — 
                    

            Unrecognized Tax Benefits end of period

            		 $193 $196 $192 
                    

                    There are $193 million, $196 million, and $192 million of U.S. GAAP (ASC 740, Income Taxes) were $196 million. During the nine months ended October 28, 2012, the balance for unrecognized tax benefits increased $1included in the balance at February 3, 2013, January 29, 2012, and January 30, 2011, respectively, whose resolution could affect the annual effective income tax rate.

                    The Company accrued $3 million, as result$5 million, and $2 million of the Peachtree acquisition which was partially offset by settlements for tax positions in a prior period. Under the terms of the purchase agreement, the seller is required to reimburse the Company for any cash settlements related to the unrecognized tax benefits recorded in purchase accounting. As of October 28, 2012, the Company’s unrecognized tax benefits were $197 million. During the threenet interest and nine months ended October 28, 2012, the gross accrual for interestpenalties related to unrecognized tax benefits increased $3 millionfor fiscal 2012, fiscal 2011, and $7 million, respectively, as a result of interest accruals on tax positions in a prior period.fiscal 2010, respectively. The Company’sCompany's ending net accrual for interest and penalties related to unrecognized tax benefits as ofat February 3, 2013, January 29, 2012, and January 30, 2011 was $22 million, $19 million, and increased$14 million, respectively. The Company's accounting policy is to $23 millionclassify interest and penalties as components of October 28, 2012.income tax expense. Accrued interest and penalties from unrecognized tax benefits are included as a component of other liabilities on the Consolidated Balance Sheet.

            During fiscal year 2010, the        The Company determined that it did not meet the “more likely than not” standard that substantially allis subject to audits and examinations of its net U.S. deferred tax assets would be realizedreturns by tax authorities in various jurisdictions, including the Internal Revenue Service ("IRS"). Management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of provisions for income taxes. Certain of the Company's tax years 2006 and therefore,forward remain open for audit by the IRS and various state governments. The Company established a valuation allowance fordoes not anticipate any significant changes in its net U.S. deferredunrecognized tax assets. With regard tobenefits over the U.S., the Company continues to believe that a full valuation allowance is needed against the majority of its net deferred tax assets. As of October 28, 2012, the Company’s U.S. valuation allowance was $676 million and the Company expects to continue to add to its gross deferred tax assets for anticipated net operating losses.next twelve months.

            See Note 11,13, Commitments and Contingencies, for discussion on the Internal Revenue ServiceIRS audit of the Company’sCompany's U.S. federal income tax returns.

            NOTE 9 — 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

            Stock-Based Compensation Plan

                    Effective December 4, 2007, HD Supply Holdings, Inc. ("Holding") established a Stock Incentive Plan (the "HDS Plan") for associates of HD Supply, a wholly-owned subsidiary. The HDS Plan provides for the award of non-qualified stock options and deferred share units of the common stock of Holding. Holding will issue new shares of common stock to satisfy options exercised.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)

                    Under the terms of the HDS Plan, non-qualified stock options are to carry exercise prices at, or above, the fair market value of Holding's stock on the date of the grant. Since Holding common stock is not publicly traded, the fair market value of the stock is determined by the Board of Directors of Holding based on such factors as it deems appropriate, including but not limited to the earnings and other financial and operating information of the Company in recent periods, the potential value of the Company as a whole, the future prospects of the Company and the industries in which it competes, the history and management of the Company, the general condition of the securities markets, the fair market value of securities of companies engaged in businesses similar to those of the Company, and any recent valuation of the common stock of Holding that shall have been performed by an independent valuation firm (although the Board of Directors of Holding is not obligated to obtain such a valuation). The non-qualified stock options generally vest at the rate of 20% per year commencing on the first anniversary date of the grant or 100% on the third anniversary of the grant and expire on the tenth anniversary date of the grant. The Company made a one-time grant in April 2011 of 10.6 million options with an exercise price of $4.15 that vests in its entirety on the three-year anniversary of the grant.

                    On January 15, 2010, the Company initiated a one-time stock option exchange program ("Option Exchange Program"). Under the Option Exchange Program, all participants of the HDS Plan were offered the opportunity to exchange their outstanding options (the "Eligible Options") to purchase shares of Holding's common stock (the "Common Stock") granted under the HDS Plan for a lesser number of new options (as determined in accordance with the exchange ratios below) under the HDS Plan.

                    The Option Exchange Program covered all options that were outstanding under the HDS Plan, including vested and unvested options, at the time of the offer. Eligible Options that had an exercise price greater than $10.00 per share were offered for exchange for a lesser number of options with a new exercise price equal to $4.15 per share (the "Repriced Options"). For every three Eligible Options with an exercise price greater than $10.00 per share, an eligible employee was offered two new Repriced Options. Options that had an exercise price equal to $10.00 per share were offered for exchange for an equal number of options with an exercise price equal to $10.00 per share (the "New $10.00 Options", and together with the Repriced Options, the "New Options").

                    Regardless of the vesting status of the Eligible Options, the New Options have a five-year vesting period, with 20% of the New Options vesting on each anniversary of the date of exchange and an expiration date that is ten years from the date of exchange. All of the New Options are subject to the terms and conditions of the HDS Plan and the eligible employee's new stock option agreement.

                    The offering period for the Option Exchange Program commenced on January 15, 2010 and expired on February 2, 2010. Participation in the Option Exchange Program was voluntary. However, once an eligible employee elected to participate, all of his or her Eligible Options were exchanged. Once the offer to exchange expired, all Eligible Options that were surrendered for exchange were cancelled and the New Options were granted.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)

                    On February 3, 2010, as a result of employee elections under the Option Exchange Program, the Company exchanged and issued the following options:

            Number of Eligible Options Exchanged

            		20,484,001

            Number of Repriced Options issued in the Option Exchange Program

            		6,828,025

            Number of New $10.00 Options issued in the Option Exchange
            Program

            		10,242,002

                    As a result of the exchange, the Company will incur incremental stock-based compensation charges of approximately $1 million per year over the five years following the exchange date. The maximum number of shares of common stock that may be issued under the HDS Plan subsequent to the Option Exchange Program may not exceed 55.6 million, of which a maximum of 30.9 million shares may be issued in respect of options granted under the HDS Plan.

                    A summary of option activity under the HDS Plan is presented below (shares in thousands):

             
            		 Number of Shares Weighted Average Option Price 

            Outstanding at January 31, 2010

            		  20,899 $13.13 
                  

            Granted(1)

            		  21,495  7.66 

            Exercised

            		  —  — 

            Canceled(2)

            		  (23,927) 12.41 
                  

            Outstanding at January 30, 2011

            		  18,467 $7.69 
                  

            Granted

            		  12,485  4.62 

            Exercised

            		  —  — 

            Canceled

            		  (1,415) 6.63 
                  

            Outstanding at January 29, 2012

            		  29,537 $6.44 
                  

            Granted

            		  1,894  8.09 

            Exercised

            		  (49) 7.34 

            Canceled

            		  (1,746) 7.34 
                  

            Outstanding at February 3, 2013

            		  29,636 $6.50 
                  
            (1)
            Includes shares granted in conjunction with the Option Exchange Program

            (2)
            Includes shares canceled in conjunction with the Option Exchange Program

                    As of February 3, 2013, there were approximately 29.6 million stock options outstanding with a weighted average remaining life of 7.7 years. As of February 3, 2013, there were approximately 6.9 million options exercisable with a weighted average exercise price of $7.72 and a weighted average remaining life of 7.1 years.

                    The estimated fair value of the options when granted is amortized to expense over the options' vesting or required service period. The fair value for these options was estimated by management, after considering a third-party valuation specialist's assessment, at the date of grant based on the expected


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS (Continued)

            life of the option and historical exercise experience, using a Black-Scholes option pricing model with the following weighted-average assumptions:

             
            		 Fiscal Year Ended 
             
            		 February 3,
            2013            		 January 29,
            2012            		 January 30,
            2011            		 

            Risk-free interest rate

            		  1.1% 2.8% 3.0%

            Dividend yield

            		  0.0% 0.0% 0.0%

            Expected volatility factor

            		  47.6% 46.0% 48.9%

            Expected option life in years

            		  6.5  6.6  6.8 

                    The risk free interest rate was determined based on an analysis of U.S. Treasury zero-coupon market yields as of the date of the option grant for issues having expiration lives similar to the expected option life. The expected volatility was based on an analysis of the historical volatility of HD Supply's competitors over the expected life of the HD Supply options. These volatilities were weighted by the respective HD Supply segment against which they compete, resulting in an overall industry-based volatility for HD Supply. As insufficient data exists to determine the historical life of options issued under the HDS Plan, the expected option life was determined based on the vesting schedule of the options and their contractual life taking into consideration the expected time in which the share price of Holding would exceed the exercise price of the option. The weighted-average fair value of each option granted during fiscal 2012, fiscal 2011, and fiscal 2010 was $2.41, $1.99, and $1.64, respectively. HD Supply recognized $16 million, $20 million, and $17 million of stock-based compensation expense related to stock options, included in Selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss), during fiscal 2012, fiscal 2011, and fiscal 2010, respectively. As of February 3, 2013 the unamortized compensation expense related to stock options was $20 million and was expected to be recognized over a period of 4.8 years.

            Employee Benefit Plans

                    HD Supply offers a comprehensive Health & Welfare Benefits Program which allows employees who satisfy certain eligibility requirements to choose among different levels and types of coverage. The Health & Welfare Benefits program provides employees healthcare coverage in which the employer and employee share costs. In addition, the Program offers employees the opportunity to participate in various voluntary coverages, including flexible spending accounts.

                    HD Supply maintains a 401(k) defined contribution plan that is qualified under Sections 401(a) and 501(a) of the Internal Revenue Code. Employees who satisfy the plan's eligibility requirements may elect to contribute a portion of their compensation to the plan on a pre-tax basis. HD Supply may match a percentage of the employees' contributions to the plan based on approval from the Board of Directors. Matching contributions are generally made shortly after the end of each pay period or after the Company's fiscal year-end if an additional annual matching contribution based on the Company's fiscal-year financial results is approved. HD Supply paid $15 million, $7 million, and less than $1 million during fiscal 2012, fiscal 2011, and fiscal 2010, respectively.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 10—STOCKHOLDER'S EQUITY

            Common Stock

                    The Company is authorized to issue 1,000 shares of common stock, par value $0.01 per share. As of February 3, 2013 and January 29, 2012, 1,000 shares were issued and outstanding.

            Accumulated Other Comprehensive Income (Loss)

                    On both February 3, 2013 and January 29, 2012, accumulated other comprehensive income (loss) is comprised of $(2) million of cumulative foreign currency translation adjustments, net.

            NOTE 11—SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

            Receivables

            Receivables as of October 28, 2012February 3, 2013 and January 29, 2012 consisted of the following (amounts in millions):

               October 28,
            2012            		   January 29,
            2012            		 

            Trade receivables, net of allowance for doubtful accounts

            		  $1,027    $919  

            Vendor rebate receivables

            		   69     71  

            Other receivables

            		   9     12  
              

             

             

            		   

             

             

            		 

            Total receivables, net

            		  $1,105    $1,002  
              

             

             

            		   

             

             

            		 

            Index to Financial Statements
             
            		 February 3,
            2013            		 January 29,
            2012            		 

            Trade receivables, net of allowance for doubtful accounts

            		 $926 $919 

            Vendor rebate receivables

            		  66  71 

            Other receivables

            		  16  12 
                  

            Total receivables, net

            		 $1,008 $1,002 
                  

            Other Current LiabilitiesProperty and Equipment

            Other current liabilities        Property and equipment as of October 28, 2012February 3, 2013 and January 29, 2012 consisted of the following (amounts in millions):

             
            		 February 3,
            2013            		 January 29,
            2012            		 

            Land

            		 $37 $42 

            Buildings and improvements

            		  201  206 

            Transportation equipment

            		  60  44 

            Furniture, fixtures and equipment

            		  301  298 

            Capitalized software

            		  208  185 

            Construction in progress

            		  38  40 
                  

            		  845  815 

            Less accumulated depreciation & amortization

            		  (450) (417)
                  

            Property and equipment, net

            		 $395 $398 
                  

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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 11—SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION (Continued)

            Other Current Liabilities

                    Other current liabilities as of February 3, 2013 and January 29, 2012 consisted of the following (amounts in millions):

               October  28,
            2012            		   January 29,
            2012            		 

            Accrued interest

            		  $60    $233  

            Accrued non-income taxes

            		   42     31  

            Branch closure & consolidation reserves

            		   12     16  

            Other

            		   103     98  
              

             

             

            		   

             

             

            		 

            Total other current liabilities

            		  $217    $378  
              

             

             

            		   

             

             

            		 

             
            		 February 3,
            2013            		 January 29,
            2012            		 

            Accrued interest

            		 $147 $233 

            Accrued non-income taxes

            		  34  31 

            Branch closure & consolidation reserves

            		  7  16 

            Other

            		  103  98 
                  

            Total other current liabilities

            		 $291 $378 
                  

            Significant Non-Cash Transactions

            Interest payments on the 14.875% Senior Notes arewere due each April 12th12th and October 12th12th through maturity, commencing on October 12, 2012, except that the first eleven payment periods through October 2017 shallshould be paid in kind (“PIK”("PIK") and therefore increase the balance of the outstanding indebtedness rather than paid in cash. The Company made non-cash PIK interest payments during the third quarter of fiscal 2012 of $56 million, increasing the outstanding principal balance of the 14.875% Senior Notes.

            Interest payments on the 13.5%Old Senior Subordinated Notes arewere due each March 1st1st and September 1st1st through maturity except that the first eight payment periods through September 2011 were paid in kind. The Company made non-cash PIK interest payments during the nine months ended October 30,fiscal 2011 and fiscal 2010 of $223 million and $196 million, respectively, increasing the outstanding balance of the 13.5%Old Senior Subordinated Notes.

            Supplemental Cash Flow Information

            Cash paid for interest in the nine months ended October 28,fiscal 2012, fiscal 2011, and October 30, 2011fiscal 2010 was $576approximately $621 million, $356 million, and $340$363 million, respectively. Additionally, during fiscal 2012, the Company paid $502 million of original issue discounts and PIK interest related to the extinguishment of all of the 14.875% Senior Notes and $930 million of Old Senior Subordinated Notes.

                    During fiscal 2010, as a result of tax legislation regarding net operating loss carryback periods, the Company filed for and received a cash refund of $220 million from the Internal Revenue Service for income tax previously paid. Cash paid for income taxes, net of refunds, in the nine months ended October 28,fiscal 2012, fiscal 2011, and October 30, 2011fiscal 2010 was $2approximately $1 million net payment, $5 million net payment, and $4$216 million net refund, respectively.

            NOTE 10 — 12—BRANCH CLOSURE AND CONSOLIDATION ACTIVITIES

            Concurrent with the Transactions and acquisition integration, management evaluated the operations and performance of individual branches and identified branches for closure or consolidation. In addition, during fiscal years 2008 and 2009, management initiated additional plans to restructure its business, which included evaluating opportunities to consolidate branches, reduce costs, more efficiently employ working capital and streamline activities. Under these plans, which were completed in fiscal 2010, management closed or consolidated 235 branches and reduced workforce personnel by


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 12—BRANCH CLOSURE AND CONSOLIDATION ACTIVITIES (Continued)

            approximately 5,000 employees. The Company does not expect to incur additional restructuring charges under these plans.

            The remaining liability balances for these plans represents the net present value of future lease obligations, including rent, taxes, utilities, etc., less estimated sublease income of the closed branches. The Company regularly reviews the assumptions used to estimate these liabilities.

            The following table presents the activity for the liability balances, included in Other current liabilities and Other liabilities in the Consolidated Balance Sheets (amounts in millions):

             
            		 Severance Occupancy
            Costs            		 Other Total 

            Balance—January 31, 2010

            		 $3 $66 $2 $71 
                      

            Charges, net of reductions

            		  2  4  2  8 

            Cash payments

            		  (4) (21) (2) (27)

            Other

            		  (1) 2  —  1 
                      

            Balance—January 30, 2011

            		 $— $51 $2 $53 
                      

            Charges, net of reductions

            		  —  2  —  2 

            Cash payments

            		  —  (13) (2) (15)
                      

            Balance—January 29, 2012

            		 $— $40 $— $40 
                      

            Charges, net of reductions

            		  —  (4) —  (4)

            Cash payments

            		  —  (14) —  (14)

            Other

            		  —  (1) —  (1)
                      

            Balance—February 3, 2013

            		 $— $21 $— $21 
                      

                    

            Balance – January 29, 2012

            		  $40  

            Non-cash reduction

            		   (2) 

            Cash payments

            		   (9) 

            Other

            		   (1) 
              

             

             

            		 

            Balance – October 28, 2012

            		  $28  
              

             

             

            		 

            Index to Financial Statements

            As of October 28, 2012,February 3, 2013, approximately $12$7 million of the liability balances for the branch closure and consolidation activities is classified as a current liability on the Company’sCompany's Consolidated Balance Sheet. Payments for occupancy costs are expected to be substantially complete over the next sixfive years, with certain property lease obligations extending out as far as fourteeneleven years. The Company regularly reviews the assumptions used to estimate the net present value of the on-going lease liabilities and other occupancy costs, net of expected sublease income. In addition, the Company continues to actively pursue buyout options or subleasing opportunities for the leased properties. The expected timing of cash payments related to the branch closure and consolidation activities could change or adjustments to the reserve may become necessary depending on the success and timing of entering into these types of agreements. Due to favorable lease and property dispositions, during the third quarter of fiscal 2012, the Company reduced the liability by $4 million, $2 million of which was recorded to continuing operations and $2 million of which was recorded as Income from discontinued operations, net in the Consolidated Statement of Operations and Comprehensive Income (Loss).

            NOTE 11 — 13—COMMITMENTS AND CONTINGENCIES

            Lease Commitments

                    HD Supply occupies certain facilities and operates certain equipment and vehicles under leases that expire at various dates through the year 2026. In addition to minimum rentals, there are certain executory costs such as real estate taxes, insurance, and common area maintenance on most of its facility leases. Expense under these leases totaled $132 million, $144 million, and $146 million in fiscal 2012, fiscal 2011, and fiscal 2010, respectively. Capital leases currently in effect are not material.


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 13—COMMITMENTS AND CONTINGENCIES (Continued)

                    Future minimum aggregate rental payments under non-cancelable operating leases as of February 3, 2013 are as follows (amounts in millions):

             
            		 Fiscal Year  
            		  
            		 
             
            		 2013 2014 2015 2016 2017 Thereafter Total 

            Operating Leases

            		 $123 $101 $79 $59 $39 $81 $482 

                    The Company subleases certain leased facilities to third parties. Total future minimum rentals to be received under non-cancelable subleases as of February 3, 2013 are approximately $18 million. These subleases expire at various dates through the year 2023.

            Purchase Obligations

                    As of February 3, 2013, the Company has agreements in place with various vendors to purchase goods and services, primarily inventory, in the aggregate amount of $684 million. These purchase obligations are generally cancelable, but the Company has no intent to cancel. Payment is due during fiscal 2013 for these obligations.

            Internal Revenue Service

            HD Supply carried back tax net operating losses (“NOL”("NOL") from its tax years ended on February 3, 2008 and February 1, 2009 to taxabletax years during which the Companyit was a member of Home Depot’sDepot's U.S. federal consolidated tax group. As a result of those NOL carrybacks, Home Depot received cash refunds from the IRS in the amount of approximately $354 million. Under an agreement (the “Agreement”"Agreement") between HDS Investment Holding Inc. (the Company’s ultimate parent corporation) and Home Depot, Home Depot paid to the CompanyHD Supply the refund proceeds resulting from the NOL carrybacks.

            In connection with an audit of the Company’sCompany's U.S. federal income tax returns filed for the tax years ended on February 3, 2008 and February 1, 2009, the IRS has disallowed certain deductions claimed by the Company. During fiscalIn May 2012, the IRS issued a formal Revenue AgentsAgent's Report ("RAR") challenging approximately $299 million (excluding interest) of the cash refunds resulting from the Company’sHD Supply's NOL carrybacks. In January 2013, the IRS issued a revised RAR reducing the challenge to approximately $131 million (excluding interest) of cash refunds from HD Supply's carrybacks. The issuance of the January 2013 revised RAR formally revoked the original May 2012 RAR and reduced the amount of cash refunds the IRS is currently challenging by $168 million. As of October 28, 2012,February 3, 2013, the Company estimates the interest to which the IRS would be entitled, if successful in all claims, to be approximately $36$14 million. If the IRS is ultimately successful with respect to the proposed adjustments, the Company, pursuant to the terms of the Agreement, the Company would be required to payreimburse Home Depot an amount equal to the disallowed refunds plus related interest. If the IRS is successful in defending its positions with respect to the disallowed deductions, certain of those disallowed deductions may be available to the Company in the form of increases in the Company’sits deferred tax assets by approximately $231$63 million before any valuation allowance.

            The Company believes that its positions with respect to the deductions and the corresponding NOL carrybacks are supported by, and consistent with, applicable tax law. In collaboration with Home Depot, the CompanyHD Supply has challenged the IRS’ proposed adjustments by filing a formal protest with the Office of Appeals Division within the IRS. During the administrative appeal period and as allowed under


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            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 13—COMMITMENTS AND CONTINGENCIES (Continued)

            statute, the Company intends to vigorously defend its positions rather than pay any amount related to the proposed adjustments. In the event of an unfavorable outcome at the Office of Appeals, the Company will strongly consider litigating the matter in U.S. Tax Court. The unpaid assessment would continue to accrue interest at the statutory rate until resolved. If the Company is ultimately required to pay a significant amount to Home Depot (or the IRS) related to the proposed IRS adjustments to Home Depot pursuant to the terms of the Agreement (or to the Company’sIRS), the Company's cash flows, future results of operations and financial positions could be affected in a significant and adverse manner.

            See Note 8, Income Taxes, for further disclosures on the Company’sCompany's income taxes.

            Legal Matters

            HD Supply is involved in various legal proceedings arising in the normal course of its business. The Company establishes reserves for litigation and similar matters when those matters present loss contingencies that it determines to be both probable and reasonably estimable in accordance with ASC 450, Contingencies. In the opinion of management, based on current knowledge, all reasonably estimable and probable matters are believed

            Index to Financial Statements

            to be adequately reserved for or covered by insurance.insurance and disclosed herein. For all such other matters, management believes the possibility of losses from such matters are remote or such matters are of such kind or involve such amounts that would not have a material adverse effect on the financial position, results of operations or cash flows of the Company if disposed of unfavorably.

                    The Company has been informed that the Office of the United States Attorney for the Northern District of New York is conducting an investigation related to the activities of certain disadvantaged business enterprises. In May of 2011, in connection with that investigation, the government executed a search of an entity from which Waterworks purchased assets shortly before the search was executed. On June 20, 2012, in connection with that same investigation, the government executed search warrants at two Waterworks branches. The Company was updated by the government on its investigation in March 2013 and continues to cooperate with the investigation. While the Company cannot predict the outcome, it believes a potential loss on this matter is reasonably possible but due to the current state of the investigation it is not able to estimate a range of potential loss.

            NOTE 12 — 14—SEGMENT INFORMATION

            HD Supply’sSupply's operating segments are based on management structure and internal reporting. Each segment offers different products and services to the end customer, except for Corporate and Other, which provides general corporate overhead support and HD Supply Canada (included in Corporate and Other), which is organized based on geographic location. The Company determines the reportable segments in accordance with the principles of segment reporting within U.S. GAAP (ASC 280, Segment Reporting). For purposes of evaluation under these segment reporting principles, the Chief Operating Decision Maker for HD Supply assesses HD Supply’sSupply's ongoing performance, based on the periodic review and evaluation of Net sales, Adjusted EBITDA, and certain other measures for each of the operating segments.


            EBITDA is defined as Net income (loss) less Income (loss) from discontinued operations, netTable of tax, plus (i) Interest expense and Interest income, net, (ii) Provision (benefit) for income taxes, and (iii) Depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted to exclude non-cash items and certain other adjustments to Consolidated Net Income.Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 14—SEGMENT INFORMATION (Continued)

            HD Supply has four reportable segments, each of which is presented below:

              •
              Facilities Maintenance—Supplies maintenance, repair and operations ("MRO") products and upgrade and renovation services largely to the multifamily, healthcare, hospitality, and institutional markets.

              •
              Waterworks—Distributes complete lines of water and wastewater transmission products, serving contractors and municipalities in all aspects of the water and wastewater industries.

              •
              Power Solutions—Distributes electrical transmission and distribution products, power plant maintenance, repair and operations supplies, smart-grid technologies, and provides materials management and procurement outsourcing arrangements to investor-owned utilities, municipal and provincial power authorities, rural electric cooperatives and utility contractors and distributes electrical products such as wire and cable, switch gear supplies, lighting and conduit to residential and commercial contractors.

              •
              White Cap—Distributes specialized hardware, tools, building materials, and safety equipment to professional contractors.

                    

            •

            Facilities Maintenance—Supplies maintenance, repair and operations (“MRO”) products and upgrade and renovation services largely to the multifamily, healthcare, hospitality, and institutional markets.

            •

            Waterworks—Distributes complete lines of water and wastewater transmission products, serving contractors and municipalities in all aspects of the water and wastewater industries.

            •

            Power Solutions (formerly “Utilities/Electrical”)—Distributes electrical transmission and distribution products, power plant MRO supplies, smart-grid technologies, and provides materials management and procurement outsourcing arrangements to the power generation and distribution industries and distributes electrical products such as wire and cable, switch gear supplies, lighting and conduit to residential and commercial contractors.

            •

            White Cap—Distributes specialized hardware, tools, building materials, and safety equipment to professional contractors.

            In addition to the reportable segments, the Company’sCompany's consolidated financial results include an Other category,"Corporate and Other." Corporate & Eliminations. Other primarily consistsis comprised of (i)the following business units: Crown Bolt, Creative Touch Interiors ("CTI"), Repair & Remodel offering light remodeling and construction supplies primarily to small remodeling contractors and tradesmen; (ii)HD Supply Canada. Crown Bolt is a retail distribution operator providing program and packaging solutions, sourcing, distribution, and in-store service, fasteners, builders' hardware, rope and chain and plumbing accessories, primarily serving The Home Depot; (iii)Depot and other hardware stores. CTI offeringoffers turnkey supply and installation services for multiple interior finish options, including flooring, cabinets, countertops, and window coverings, along with comprehensive design center services for residential, commercial and senior living projects;projects. Our Repair & Remodel business unit offers light remodeling and (iv)construction supplies, kitchen and bath cabinets, windows, plumbing materials, electrical equipment and other products, primarily to small remodeling contractors and trade professionals. HD Supply Canada comprised of HD Supply’s Canadian operations (other than the Canadian utilities operations,is an industrial distributor that primarily focuses on servicing fasteners/industrial supplies and specialty lighting markets which is included in the Power Solutions segment, and Commercial Direct, which is included in the Facilities Maintenance segment).operates across nine provinces. Corporate has enterprise management responsibility and& Other also includes costs related to our centralized support functions, for some of the segments,which include finance, information technology, human resources, sourcinglegal, supply chain and other support services. All material intersegment transactions have been eliminated.services and removes inter segment transactions.


            Table of Contents

            Index to Financial Statements

            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 14—SEGMENT INFORMATION (Continued)

            The following tables present Net sales, Adjusted EBITDA, and certain other measures for each of the reportable segments and total continuing operations for the periods indicated (amounts in millions):

             
            		 Fiscal Year 2012 
             
            		 Net
            Sales            		 Adjusted
            EBITDA            		 Depreciation(1)
            & Software
            Amortization            		 Other
            Intangible
            Amortization            		 Total
            Assets(2)            		 Capital
            Expenditures            		 

            Facilities Maintenance

            		 $2,182 $389 $39 $79 $2,463 $35 

            Waterworks

            		  2,028  137  10  96  1,562  12 

            Power Solutions

            		  1,787  72  7  18  816  4 

            White Cap

            		  1,178  56  12  20  521  22 

            Corporate & Other

            		  860  29  28  30  1,972  42 
                          

            Total continuing operations

            		 $8,035 $683 $96 $243 $7,334 $115 
                          

             

               Facilities
            Maintenance            		   Waterworks   Power
            Solutions            		   White
            Cap            		   Other,
            Corporate, &
            Eliminations            		   Total
            Continuing
            Operations            		 

            Three Months Ended Oct. 28, 2012

            		            

            Net Sales

            		  $587    $553    $468    $318    $220    $2,146  

            Adjusted EBITDA

            		   112     42     21     22     7     204  

            Depreciation(1) & Software Amortization

            		   9     3     2     3     7     24  

            Other Intangible Amortization

            		   21     24     5     5     6     61  

            Three Months Ended Oct. 30, 2011

            		            

            Net Sales

            		  $497    $490    $429    $277    $200    $1,893  

            Adjusted EBITDA

            		   87     37     17     13     1     155  

            Depreciation(1) & Software Amortization

            		   8     1     1     2     9     21  

            Other Intangible Amortization

            		   18     24     5     5     9     61  

             
            		 Fiscal Year 2011 
             
            		 Net
            Sales            		 Adjusted
            EBITDA            		 Depreciation(1)
            & Software
            Amortization            		 Other
            Intangible
            Amortization            		 Total
            Assets(2)            		 Capital
            Expenditures            		 

            Facilities Maintenance

            		 $1,870 $318 $30 $75 $2,264 $32 

            Waterworks

            		  1,772  112  5  95  1,562  5 

            Power Solutions

            		  1,625  50  5  20  775  5 

            White Cap

            		  981  17  14  19  481  16 

            Corporate & Other

            		  780  11  31  35  1,656  51 
                          

            Total continuing operations

            		 $7,028 $508 $85 $244 $6,738 $109 
                          

             

            (1)Depreciation includes amounts recorded within Cost of sales in the Consolidated Statements of Operations and Comprehensive Income (Loss).

               Facilities
            Maintenance            		   Waterworks   Power
            Solutions            		   White
            Cap            		   Other,
            Corporate, &
            Eliminations            		   Total
            Continuing
            Operations            		 

            Nine Months Ended Oct. 28, 2012

            		            

            Net Sales

            		  $1,655    $1,541    $1,323    $891    $631    $6,041  

            Adjusted EBITDA

            		   306     109     55     48     11     529  

            Depreciation(1) & Software Amortization

            		   28     7     5     9     22     71  

            Other Intangible Amortization

            		   59     72     14     15     21     181  

            Nine Months Ended Oct. 30, 2011

            		            

            Net Sales

            		  $1,441    $1,373    $1,239    $748    $575    $5,376  

            Adjusted EBITDA

            		   254     91     43     17     1     406  

            Depreciation(1) & Software Amortization

            		   22     3     3     10     26     64  

            Other Intangible Amortization

            		   56     71     15     15     26     183  

            (1)Depreciation includes amounts recorded within Cost of sales in the Consolidated Statements of Operations and Comprehensive Income (Loss).

            Index
             
            		 Fiscal Year 2010 
             
            		 Net
            Sales            		 Adjusted
            EBITDA            		 Depreciation(1)
            & Software
            Amortization            		 Other
            Intangible
            Amortization            		 Total
            Assets(2)            		 Capital
            Expenditures            		 

            Facilities Maintenance

            		 $1,682 $282 $28 $75 $2,265 $20 

            Waterworks

            		  1,659  94  5  94  1,582  2 

            Power Solutions

            		  1,462  49  5  19  740  2 

            White Cap

            		  852  (10) 20  19  439  3 

            Corporate & Other

            		  794  (4) 41  37  2,063  18 
                          

            Total continuing operations

            		 $6,449 $411 $99 $244 $7,089 $45 
                          
            (1)
            Depreciation includes amounts recorded within Cost of sales in the Consolidated Statements of Operations.

            (2)
            Total Assets include amounts attributable to Financial Statementsdiscontinued operations for the periods prior to the dispositions.

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 14—SEGMENT INFORMATION (Continued)

            Reconciliation to Consolidated Financial Statements(amounts

             
            		 Fiscal 2012 Fiscal 2011 Fiscal 2010 

            Total Adjusted EBITDA

            		 $683 $508 $411 

            Depreciation and amortization

            		  339  329  343 

            Stock-based compensation

            		  16  20  17 

            Management fees and expenses

            		  5  5  5 

            Restructuring

            		  —  —  8 

            Goodwill & other intangible asset impairment

            		  152  —  — 

            Other

            		  —  (1) 1 
                    

            Operating income

            		  171  155  37 

            Interest expense

            		  658  639  623 

            Loss on extinguishment of debt

            		  709       

            Other (income) expense, net

            		  —  —  (1)
                    

            Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

            		  (1,196) (484) (585)

            Provision (benefit) for income taxes

            		  3  79  28 
                    

            Income (loss) from continuing operations

            		 $(1,199)$(563)$(613)
                    

                    Net sales for HD Supply outside the United States, primarily Canada, were $428 million, $404 million, and $365 million in millions)fiscal 2012, fiscal 2011, and fiscal 2010, respectively. Long-lived assets of HD Supply outside the United States, primarily Canada, were $16 million and $18 million as of February 3, 2013 and January 29, 2012, respectively.

            NOTE 15—GUARANTOR SUBSIDIARIES

                    

               Three Months Ended  Nine Months Ended 
               October  28,
            2012            		  October  30,
            2011            		  October  28,
            2012            		  October  30,
            2011            		 

            Total Adjusted EBITDA

            		  $204   $155   $529   $406  

            Depreciation and amortization

            		   85    82    252    247  

            Stock-based compensation

            		   3    7    13    16  

            Management fees and expenses

            		   1    1    4    4  

            Other

            		   1    —      —      —    
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Operating income (loss)

            		   114    65    260    139  

            Interest expense

            		   165    160    489    477  

            Loss on extinguishment of debt

            		   —      —      220    —    

            Other (income) expense, net

            		   —      —      —      (1) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

            		   (51)   (95)   (449)   (337) 

            Provision (benefit) for income taxes

            		   2    24    36    59  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Income (loss) from continuing operations

            		  $(53)  $(119)  $(485)  $(396) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            NOTE 13 — SUBSIDIARY GUARANTORS

            The Company has issued 13.5%First Priority Notes, Second Priority Notes, 11.5% Senior Notes, 7.5% Senior Notes, Senior Subordinated Notes, and Old Senior Subordinated Notes (collectively the "Notes") guaranteed by certain of its subsidiaries (the “Guarantor Subsidiaries”"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”Subsidiaries") are direct or indirect wholly-owned subsidiaries of the Company and primarily include the Company’sCompany's operations in Canada and a non-operating subsidiary in the United States that previously held an investment inof the Company’s 13.5%Company's Old Senior Subordinated Notes, which was eliminated in consolidation. During the third quarter of fiscal 2012, the investment in the 13.5%Old Senior Subordinated Notes was contributed to the Parent in a non-cash transaction. The Parent retired this portion of the 13.5%Old 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”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”"Parent Issuer"), for the Guarantor

            Index to Financial Statements

            Subsidiaries and for the Non-guarantor Subsidiaries and total consolidated HD Supply, Inc. and subsidiaries (amounts in millions):


            Table of Contents

            CONDENSED CONSOLIDATING STATEMENTSOF OPERATIONSAND COMPREHENSIVE INCOME (LOSS)
            HD SUPPLY, INC.

               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) 
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Index to Financial Statements
              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) 
             

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            F-73

            CONDENSED CONSOLIDATING STATEMENTSOF OPERATIONSAND COMPREHENSIVE INCOME (LOSS) (CONTINUED)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            Index to Financial Statements
              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) 
             

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            F-74

            CONDENSED CONSOLIDATING STATEMENTSOF OPERATIONSAND COMPREHENSIVE INCOME (LOSS) (CONTINUED)

            Index to Financial Statements

            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  
              

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		  

             

             

            		 

            Index to Financial Statements
               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  
              

             

             

            		  

             

             

            		   

             

             

            		   

             

             

            		  

             

             

            		 

            F-76

            CONDENSED CONSOLIDATING BALANCE SHEETS (CONTINUED)

            Index to Financial Statements

            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  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            Index to Financial 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  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            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  
              

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		  

             

             

            		 

            NOTE 14 — RECENT ACCOUNTING PRONOUNCEMENTS

            Fair value measurement—In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). The amendments in this ASU are intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”s). The amendments in this ASU explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The Company adopted the provisions of ASU 2011-04 on January 30, 2012. The adoption did not have an impact on the consolidated financial statements or results of operations.

            Comprehensive income—In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”), to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The Company adopted the provisions of ASU 2011-05 on January 30, 2012. The adoption of ASU 2011-05 did not have an impact on the Company’s financial position or results of operations.

            Goodwill impairment testing—In September 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”), which simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting

            F-78

            CONDENSED CONSOLIDATING CASH FLOW STATEMENTS (CONTINUED)

            Index to Financial Statements

            unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company adopted the provisions of ASU 2011-08 on January 30, 2012. The adoption of ASU 2011-08 did not have an impact on the Company’s financial position or results of operations.

            NOTE 15 — SUBSEQUENT EVENTS15—GUARANTOR SUBSIDIARIES (Continued)

            On November 8,CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

             
            		 Fiscal Year 2012 
             
            		 Parent Issuer Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total 

            Net Sales

            		 $— $7,608 $428 $(1)$8,035 

            Cost of sales

            		  —  5,398  317  —  5,715 
                        

            Gross Profit

            		  —  2,210  111  (1) 2,320 

            Operating expenses:

            		                

            Selling, general and administrative

            		  64  1,504  94  (1) 1,661 

            Depreciation and amortization

            		  13  321  2  —  336 

            Goodwill & other intangible asset impairment

            		  —  152  —  —  152 
                        

            Total operating expenses

            		  77  1,977  96  (1) 2,149 

            Operating Income (Loss)

            		  (77) 233  15  —  171 

            Interest expense

            		  715  301  1  (359) 658 

            Interest (income)

            		  (302) (3) (54) 359  — 

            Net (earnings) loss of equity affiliates

            		  14  —  —  (14) — 

            Loss on extinguishment of debt

            		  709  —  —  —  709 
                        

            Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

            		  (1,213) (65) 68  14  (1,196)

            Provision (benefit) for income taxes

            		  (22) —  25  —  3 
                        

            Income (Loss) from Continuing Operations

            		  (1,191) (65) 43  14  (1,199)

            Income (loss) from discontinued operations, net of tax

            		  12  8  —  —  20 
                        

            Net Income (Loss)

            		 $(1,179)$(57)$43 $14 $(1,179)
                        

            Other comprehensive income—foreign currency translation adjustment

            		  —  —  —  —  — 
                        

            Total Comprehensive Income (Loss)

            		 $(1,179)$(57)$43 $14 $(1,179)
                        

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 15—GUARANTOR SUBSIDIARIES (Continued)

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

             
            		 Fiscal Year 2011 
             
            		 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 (earnings) 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)

            Income (loss) from discontinued operations, net of tax

            		  32  (15) 3  —  20 
                        

            Net Income (Loss)

            		 $(543)$(95)$65 $30 $(543)
                        

            Other comprehensive income—foreign currency translation adjustment

            		  (1) —  (1) 1  (1)
                        

            Total Comprehensive Income (Loss)

            		 $(544)$(95)$64 $31 $(544)
                        

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 15—GUARANTOR SUBSIDIARIES (Continued)

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

             
            		 Fiscal Year 2010 
             
            		 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  — 

            Loss on extinguishment of debt

            		  2  —  —  —  2 

            Other (income) expense, net

            		  (3) —  —  —  (3)

            Net (earnings) 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)

            Income (loss) from discontinued operations, net of tax

            		  42  (49) 1  —  (6)
                        

            Net Income (Loss)

            		 $(619)$(235)$57 $178 $(619)
                        

            Other comprehensive income:

            		                

            Foreign currency translation adjustment

            		  9  —  9  (9) 9 

            Unrealized gains on derivatives, net of tax

            		  1  —  —  —  1 
                        

            Total Comprehensive Income (Loss)

            		 $(609)$(235)$66 $169 $(609)
                        

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 15—GUARANTOR SUBSIDIARIES (Continued)

            CONDENSED CONSOLIDATING BALANCE SHEETS

             
            		 As of February 3, 2013 
             
            		 Parent Issuer Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total 

            ASSETS

            		                

            Current assets:

            		                

            Cash and cash equivalents

            		 $91 $15 $35 $— $141 

            Cash equivalents restricted for debt
            redemption

            		  936  —  —  —  936 

            Receivables, net

            		  4  937  67  —  1,008 

            Inventories

            		  —  928  59  —  987 

            Deferred tax asset

            		  —  48  1  (7) 42 

            Intercompany receivable

            		  —  1  —  (1) — 

            Other current assets

            		  9  37  3  —  49 
                        

            Total current assets

            		  1,040  1,966  165  (8) 3,163 
                        

            Property and equipment, net

            		  66  323  6  —  395 

            Goodwill

            		  —  3,132  6  —  3,138 

            Intangible assets, net

            		  —  469  4  —  473 

            Deferred tax asset

            		  48  —  6  (48) 6 

            Investment in subsidiaries

            		  2,854  —  —  (2,854) — 

            Intercompany notes receivable

            		  2,774  634  —  (3,408) — 

            Other assets

            		  153  6  —  —  159 
                        

            Total assets

            		 $6,935 $6,530 $187 $(6,318)$7,334 
                        

            LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

            		                

            Current liabilities:

            		                

            Accounts payable

            		 $14 $638 $41 $— $693 

            Accrued compensation and benefits

            		  46  108  6  —  160 

            Current installments of long-term debt

            		  899  —  —  —  899 

            Deferred tax liabilities

            		  7  —  —  (7) — 

            Intercompany payable

            		  —  —  1  (1) — 

            Other current liabilities

            		  183  98  10  —  291 
                        

            Total current liabilities

            		  1,149  844  58  (8) 2,043 
                        

            Long-term debt, excluding current installments

            		  6,430  —  —  —  6,430 

            Deferred tax liabilities

            		  —  152  —  (48) 104 

            Intercompany notes payable

            		  634  2,774  —  (3,408) — 

            Other liabilities

            		  313  28  7  —  348 
                        

            Total liabilities

            		  8,526  3,798  65  (3,464) 8,925 
                        

            Stockholder's equity (deficit)

            		  (1,591) 2,732  122  (2,854) (1,591)
                        

            Total liabilities and stockholder's equity (deficit)

            		 $6,935 $6,530 $187 $(6,318)$7,334 
                        

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 15—GUARANTOR SUBSIDIARIES (Continued)

            CONDENSED CONSOLIDATING BALANCE SHEETS (Continued)

             
            		 As of 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

            		  (428) 3,005  451  (3,456) (428)
                        

            Total liabilities and stockholder's equity (deficit)

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

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 15—GUARANTOR SUBSIDIARIES (Continued)

            CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

             
            		 Fiscal Year 2012 
             
            		 Parent
            Issuer            		 Guarantor
            Subsidiaries            		 Non-Guarantor
            Subsidiaries            		 Eliminations Total 

            Net cash flows from operating activities

            		 $(813)$110 $73 $(51)$(681)
                        

            Cash flows from investing activities

            		                

            Capital expenditures

            		  (26) (87) (2) —  (115)

            Proceeds from sale of property and equipment

            		  —  17  —  —  17 

            Payment for a business acquired

            		  —  (248) —  —  (248)

            Proceeds from sale of a business

            		  480  —  1  —  481 

            Purchase of other investments

            		  (1,921) —  —  —  (1,921)

            Proceeds from sale of investments

            		  985  —  —  —  985 

            Purchase of debt investments

            		  —  —  (1) 1  — 

            Proceeds from (payments of) intercompany notes

            		  —  6  —  (6) — 

            Investments (return of capital) in equity affiliates

            		  (169) —  —  169  — 

            Other investing activities

            		  —  1  —  —  1 
                        

            Net cash flows from investing activities

            		  (651) (311) (2) 164  (800)
                        

            Cash flows from financing activities

            		                

            Dividend payment

            		  —  —  (51) 51  — 

            Equity contribution (return of capital)

            		  —  204  (35) (169) — 

            Borrowings (repayments) of intercompany notes

            		  (6) —  —  6  — 

            Borrowings of long-term debt

            		  6,365  —  —  —  6,365 

            Repayments of long-term debt

            		  (5,023) —  —  (1) (5,024)

            Borrowings on long-term revolver

            		  1,291  —  10  —  1,301 

            Repayments of long-term revolver

            		  (991) —  (10) —  (1,001)

            Debt issuance and modification fees

            		  (132) —  —  —  (132)

            Other financing activities

            		  2  —  —  —  2 
                        

            Net cash flows from financing activities

            		  1,506  204  (86) (113) 1,511 
                        

            Net increase (decrease) in cash & cash equivalents

            		 $42 $3 $(15)$— $30 

            Cash and cash equivalents at beginning of period

            		  49  12  50  —  111 
                        

            Cash and cash equivalents at end of period

            		 $91 $15 $35 $— $141 
                        

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 15—GUARANTOR SUBSIDIARIES (Continued)

            CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Continued)

             
            		 Fiscal Year 2011 
             
            		 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 
                        

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 15—GUARANTOR SUBSIDIARIES (Continued)

            CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Continued)

             
            		 Fiscal Year 2010 
             
            		 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 
                        

            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 16—QUARTERLY FINANCIAL DATA (UNAUDITED)

                    The following is a summary of the quarterly consolidated results of operations for the fiscal years ended February 3, 2013 and January 29, 2012 (amounts in millions):

             
            		 First
            Quarter            		 Second
            Quarter            		 Third
            Quarter            		 Fourth
            Quarter            		 TOTAL 

            Fiscal Year 2012

            		                

            Net sales

            		 $1,836 $2,059 $2,146 $1,994 $8,035 

            Gross profit

            		  523  594  616  587  2,320 

            Loss from continuing operations

            		  (376) (56) (53) (714) (1,199)

            Net income (loss)

            		  (360) (56) (50) (713) (1,179)

            Fiscal Year 2011

            		                

            Net sales

            		 $1,608 $1,875 $1,893 $1,652 $7,028 

            Gross profit

            		  460  533  535  486  2,014 

            Loss from continuing operations

            		  (169) (108) (119) (167) (563)

            Net income (loss)

            		  (164) (101) (105) (173) (543)

                    Loss from continuing operations and Net income (loss) in the Company redeemed $930 millionfirst quarter of its outstanding 13.5% Senior Subordinated Notes atfiscal 2012 includes a premiumloss on extinguishment of 103.375% plus $23 milliondebt of accrued interest. As a result,$220 million. Loss from continuing operations and Net income (loss) in the fourth quarter of fiscal 2012 includes a loss on extinguishment of debt of $489 million and goodwill and other intangible asset impairment charges of $152 million, or $113 million net of tax. There is no tax impact related to the losses on extinguishment of debt due to the Company's valuation allowance position. See Note 8, Income Taxes, for further information on the Company's taxes.

            NOTE 17—SUBSEQUENT EVENTS

            Debt Redemption

                    On February 8, 2013, the Company redeemed the remaining $889 million outstanding aggregate principal amount of Old Senior Subordinated Notes at a redemption price equal to 103.375% of the principal amount thereof and paid accrued and unpaid interest thereon through the redemption date. As a result, in the first quarter of fiscal 2013, the Company will report a $37$34 million loss on extinguishment, which includes a $31$30 million premium payment to redeem the 13.5%Old Senior Subordinated Notes and $5$4 million to write-off the pro-rata portion of the unamortized deferred debt costs. Subsequent tocost. In addition, the redemption, $889 million ofdeferred interest deductions on the Company’s 13.5%Old Senior Subordinated Notes remains outstanding. Affiliates(representing the net deferred tax asset of $131 million) are currently deductible on the Company's fiscal 2013 federal income tax return and applicable state returns. Such deductions will not have an impact on the Company's fiscal 2013 total tax expense and may increase the Company's overall net operating loss carryforward.

            Debt Modification

                    On February 15, 2013, HD Supply, Inc. modified its Term Loan Facility to lower the borrowing margins 275 basis points to LIBOR (subject to a floor of 1.25%) plus a borrowing margin of 3.25% or Prime plus a borrowing margin of 2.25% at the Company's election. The amendment also replaced the hard call provision applicable to optional prepayment of term loans thereunder with a soft call option. The soft call option provides for a premium equal to 1.0% of the Equity Sponsors that holdaggregate principal amount of term loans being prepaid if, on or prior to August 15, 2013, the Company’s 13.5%Company enters into certain repricing transactions. In connection with the modification, the Company incurred approximately $30 million in


            Table of Contents


            HD SUPPLY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            NOTE 17—SUBSEQUENT EVENTS (Continued)

            financing fees, of which approximately $27 million will be amortized into interest expense over the remaining term of the amended facility in accordance with U. S. GAAP (ASC 470, Debt). Of the non-deferred financing fees, approximately $2 million will be recorded as a Loss on extinguishment of debt and the remaining $1 million will be recorded as Other non-operating expense in the Consolidated Statement of Operations and Comprehensive Income (Loss) in the first quarter of fiscal 2013.

            Exchange Offers

                    On February 5, 2013, the Company executed the offer to exchange outstanding First Priority Notes with registered First Priority Notes, outstanding Second Priority Notes with registered Second Priority Notes, outstanding 11.5% Senior Notes with registered 11.5% Senior Notes and outstanding Senior Subordinated Notes had such notes redeemed on a pro-rata basis, such that subsequent to the redemption, they beneficially own approximately $348 million aggregate principal amount, or 39%, of the Company’s 13.5%with registered Senior Subordinated Notes.

            On November 14, 2012, The exchange offers closed in the Company entered into an agreement to purchasefirst quarter of fiscal 2013 with substantially all of the assetsnotes held by eligible participants in the exchange offers tendered.


            Table of Water Products of Oklahoma, Inc., Arkansas Water Products, LLC, and Municipal Water Works Supply, LP. These businesses distribute water, sewer, gas and related products, such as pipes, values, fittings, hydrants, pumps and meters, and offer maintenance products and repair services primarily to municipalities and contractors. The businesses will be operated as part of the Waterworks segment. The transaction closed in December 2012.

            Contents

            Index to Financial Statements

            LOGOLOGO

            HD Supply, Inc.

            10.50%7.50% Senior Subordinated Notes due 20212020


            Offer to Exchange

            $950,000,0001,275,000,000 Outstanding 10.50%7.50% Senior Notes due 2020
            for $1,275,000,000 Registered 7.50% Senior Subordinated Notes due 2021

            for $950,000,000 Registered 10.50% Senior Subordinated Notes due 20212020

            PROSPECTUS

                            , 2013


            DEALER PROSPECTUS DELIVERY OBLIGATION

            Until                    , 2013, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

               

            Index to Financial Statements

            PART II

            Table of Contents


            PART II
            INFORMATION NOT REQUIRED IN THE PROSPECTUS

            ITEM 20.    INDEMNIFICATION OF DIRECTORS AND OFFICERS

            ITEM 20.INDEMNIFICATION OF DIRECTORS AND OFFICERS

            Delaware Registrants

            (a) Each of HD Supply, Inc., Brafasco Holdings II, Inc., Brafasco Holdings, Inc., HD Supply Construction Supply Group, Inc., HD Supply Waterworks Group, Inc., HD Supply Facilities Maintenance Group, Inc., HD Supply Utilities Group,Power Solutions, Inc., HSI IP, Inc., HD Supply GP & Management, Inc., HD Supply Support Services, Inc. and White Cap Construction Supply, Inc., is incorporated under the laws of the state of Delaware.

            Section 145(a) of the General Corporation Law of the State of Delaware, or the “DGCL,”"DGCL," provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he acted in good faith and in a manner such person believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’sperson's conduct was unlawful.

            Section 145(b) of the DGCL provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or such other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.

            Section 145(c) of the DGCL provides that to the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145 of the DGCL, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’attorneys' fees) actually and reasonably incurred by such person in connection therewith.

            Section 145(e) of the DGCL provides that expenses, including attorneys’attorneys' fees, incurred by an officer or director of the corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in Section 145 of the DGCL. Such expenses, including attorneys’

            II-1

            Table of Contents

            attorneys' fees, incurred by former directors and officers or other persons serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the corporation deems appropriate.

                    

            II-1

            Index to Financial Statements

            Section 145(g) of the DGCL specifically allows a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against the person and incurred by the person in any such capacity, arising out of the person’sperson's status as such, whether or not the corporation would otherwise have the power to indemnify the person under Section 145 of the DGCL.

            The certificate of incorporation of HD Supply, Inc. provides that, to the fullest extent permitted by the DGCL, the corporation shall indemnify and advance expenses to the directors of the corporation; provided that, with respect to an action, suit or proceeding initiated by a director, HD Supply, Inc. shall only indemnify that director to the extent that the action, suit or proceeding was authorized by the board of directors of the corporation. The certificate of incorporation further provides that such rights to indemnification do not limit or exclude any rights, indemnities or limitations of liability to which any director of the corporation may be entitled under any statute, bylaws of the corporation, agreement, vote of stockholders, approval of the directors of the corporation or otherwise.

            The bylaws of HD Supply, Inc. provide for the indemnification of directors and officers who were or are made party to, are threatened to be made party to or are involved in any action, suit or proceeding by reason of the fact that he or she is or was a director or officer of HD Supply, Inc. or is or was serving at the request of HD Supply, Inc. as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, to the fullest extent permitted by the DGCL against expenses, liability and losses (including attorneys’attorneys' fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred by him or her or on his or her behalf in connection therewith. In the case of an action or suit by or in the right of HD Supply, Inc. to obtain a judgment in its favor, indemnification shall be limited to expenses (including attorneys’attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of the suit or action, and no indemnification shall extend to matters as to which it is adjudged that such director or officer is liable to HD Supply, Inc. unless and only to the extent that a court determines that such director or officer is fairly and reasonably entitled to indemnity.

            The bylaws of HD Supply, Inc. provide for the maintenance of insurance as described in Section 145(g) of the DGCL.

            The certificate of incorporation of Brafasco Holdings II, Inc. provides that the corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may thereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she, or a person for whom he or she is a legal representative, is or was a director (or board observer) at the request of the corporation or, while a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’attorneys' fees) reasonably incurred by such person. The certificate of incorporation of Brafasco Holdings II, Inc. also provides that the corporation shall be required to indemnify such a person only if the commencement of such proceeding (or part thereof) by the person was authorized in the specific case by the board of directors of the corporation. Such certificate of incorporation further provides that the rights of indemnification shall not be exclusive of any other

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            rights which such person may have or acquire under any statute, provision in the certificate of incorporation, the bylaws of the corporation, agreement, vote of stockholders or disinterested directors or otherwise. Such certificate of incorporation further provides that the corporation shall advance expenses to such persons to the maximum extent permitted by applicable law.

            The bylaws of Brafasco Holdings II, Inc. provide that any officer, employee or agent of the corporation shall be indemnified to the fullest extent permitted by the DGCL, as amended.

                    

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            Index to Financial Statements

            The certificate of incorporation of Brafasco Holdings, Inc. contains no provisions addressing indemnification.

            The bylaws of Brafasco Holdings, Inc. contain the same indemnification and advancement provisions as the certificate of incorporation of Brafasco Holdings II, Inc.

            The certificate of incorporation of each of HD Supply Construction Supply Group, Inc. and HD Supply Waterworks Group, Inc. provides that the corporation shall, to the full extent permitted by Section 145 of the DGCL, indemnify all persons whom it may indemnify pursuant thereto.

            The bylaws of each of HD Supply Construction Supply Group, Inc. and HD Supply Waterworks Group, Inc. are silent with respect to indemnification.

            The certificate of incorporation of HD Supply Facilities Maintenance Group, Inc. is silent with respect to indemnification.

            The bylaws of HD Supply Facilities Maintenance Group, Inc. provide that each director, officer and former director or officer of the corporation, and any person who may have served or who may hereafter serve at the request of the corporation as a director or officer of another corporation in which it owns shares of capital stock or of which it is a creditor, is indemnified by the corporation against expenses actually and necessarily incurred by him in connection with the defense of any action, suit or proceeding in which he is made a party by reason of being or having been such director or officer, except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty. Such indemnification will not be deemed exclusive of any other rights to which such director, officer or other person may be entitled under any agreement, vote of stockholders or otherwise.

            The certificate of incorporation of HD Supply Utilities Group,Power Solutions, Inc. is silent with respect to indemnification.

            The bylaws of HD Supply Utilities Group,Power Solutions, Inc. provide that each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the corporation to the fullest extent permitted by the DGCL, as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys’attorneys' fees actually and reasonably incurred by such person in connection with such proceeding); provided, however, that, except as provided by Section 2 of Article V of the bylaws (addressing the procedure for indemnification of directors and officers), the corporation shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person that was authorized by the board of directors of the corporation. The right to indemnification shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final deposition unless otherwise determined by the board of directors of the corporation. Any repeal or modification of the indemnification article shall not affect any rights or obligation then existing with respect to any state of facts or proceedings then existing. The bylaws of

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            HD Supply Utilities Group,Power Solutions, Inc. further provide that the right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

            The bylaws of HD Supply Utilities Group,Power Solutions, Inc. further provide that any indemnification of a director or officer of the corporation or advancement of expenses under the bylaws shall be made promptly, and in any event within 30 days, upon the written request of the director or officer. If a determination by the corporation that the

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            Index to Financial Statements

            director or officer is entitled to indemnification pursuant to the bylaws is required, and the corporation fails to respond within 60 days to a written request for indemnity, the corporation shall be deemed to have approved the request. If the corporation denies a written request for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within 30 days, the right to indemnification or advances as granted by the bylaws shall be enforceable by the director or officer in any court of competent jurisdiction. Such person’sperson's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the DGCL for the corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

            The bylaws of HD Supply Utilities Group,Power Solutions, Inc. also provide for the maintenance of insurance under the circumstances described in Section 145(g) of the DGCL.

            The certificate of incorporation of HSI IP, Inc. provides that the corporation shall indemnify directors and officers of the corporation to the fullest extent permitted by law.

            The bylaws of HSI IP, Inc. provide that, except as prohibited by law, every director and officer of the corporation now or hereafter serving as such shall be entitled as of right to be indemnified by the corporation against reasonable expenses and any liability paid or incurred by such person in connection with any actual or threatened claim, action, suit or proceeding, civil, criminal, administrative or otherwise, whether brought by or in the right of the corporation or otherwise, by reason of such person being or having been a director or officer of the corporation or by reason of the fact that such officer or director of the corporation is or was serving at the request of the corporation as a director, officer, employee, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefits plan or other entity; provided however that no such person shall be indemnified against, nor be reimbursed for, any expense incurred in connection with any liability arising out of his or her own willful misconduct or gross negligence. The bylaws further provide that the corporation shall have the express authority to enter into such agreements as the board of directors deems appropriate for the indemnification, including advancement of expenses, of present or future directors and officers of the corporation and other persons in connection with their service to, or status with, the corporation or any other corporation, partnership, joint venture, trust, employee benefit plan, or other entity with whom such director or officer or other person is serving at the request of the corporation. The right of indemnification (i) shall not be deemed exclusive of any other rights to which those seeking

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            indemnification may be entitled, (ii) shall be deemed to create contractual rights in favor of persons entitled to indemnification, (iii) shall continue as to persons who have ceased to have the status pursuant to which they were entitled or were determined to be entitled to indemnification and (iv) shall be applicable to actions, suits or proceedings commenced after the adoption of the bylaws, whether arising from actions or omissions occurring before or after adoption. The rights of indemnification may not be amended, modified or repealed so as to limit in any way the indemnification provided for with respect to any acts or omissions occurring prior to the effective date of any such amendment, modification or repeal.

            The bylaws of HSI IP, Inc. further provide that the corporation may purchase and maintain insurance to protect itself and any person eligible to be indemnified against any liability or expense asserted or incurred by such person in connection with any action, whether or not the corporation would have the power to indemnify such person against such liability or expense by law or under the bylaws of the corporation.

                    

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            Index to Financial Statements

            The certificate of incorporation of HD Supply GP & Management, Inc. provides that the corporation shall indemnify directors and officers of the corporation to the fullest extent permitted by law.

            The bylaws of HD Supply GP & Management, Inc. provide that the corporation shall indemnify any director, officer, other employee or agent, who was or is a party to, or is threatened to be made a party to or who is called as a witness in connection with any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the corporation by reason of the fact that he or she is or was serving at the request of a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprises, against expenses, including attorneys’attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him or her in connection with such action, suit or proceeding unless the act or the failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness. The indemnification and advancement of expenses shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled to under bylaw, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction, howsoever embodied, of any court of competent jurisdiction or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. It is the policy of the corporation that the indemnification of, and advancement of expenses to, directors, officers, employees and other agents of the corporation shall be made to the fullest extent permitted by law. To this end, the provisions of Article V of the bylaws (addressing indemnification of officers, directors, employees and agents) of the corporation shall be deemed to have been amended for the benefit of directors, officers, employees and other agents of the corporation effectively immediately upon any modification of the DGCL which expands or enlarges the power or obligation of corporations organized under the DGCL to indemnify, or advance expenses to, directors, officers, employees and other agents of the corporation. The indemnification and advancement of expenses, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent. A contract shall be deemed to exist between the corporation and each director and officer of the corporation with respect to indemnification and advancement of expenses as provided by in the indemnification article and as otherwise provided by applicable law.

            The certificate of incorporation of HD Supply Support Services, Inc. is silent with respect to indemnification.

            The bylaws of HD Supply Support Services, Inc. provide that the corporation shall have the power to indemnify any person who was or is a party to any proceeding (other than an action by, or in the

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            right of, the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation against liabilities incurrent in connection with such proceeding, including any appeal thereof, if the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’sperson's conduct was unlawful. The corporation shall have the power to indemnify any person who was or is a party to any proceeding by or in the right of the corporation to procure judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors of the corporation, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof. To the extent that any director, officer, employee, or agent of the Corporation has been successful on the merits or otherwise in defense of any such proceeding, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses actually and reasonably incurred in connection therewith. The bylaws of HD Supply Support Services, Inc. further provide that the corporation may advance expenses incurred by any officer or director in defending a civil or criminal proceeding.

                    

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            Index to Financial Statements

            The bylaws of HD Supply Support Services, Inc. further provide that the corporation shall have the power to purchase and maintain insurance under the circumstances described in Section 145 of the DGCL.

            The certificate of incorporation of White Cap Construction Supply, Inc. provides that the corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same exists from time to time indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. The corporation shall not indemnify any such person with respect to any of the following matters: (i) remuneration paid to such person if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (ii) any accounting of profits made from the purchase or sale by such person of the corporation’scorporation's securities within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (iii) actions brought about or contributed to by the dishonesty of such person, if a final judgment or other final adjudication adverse to such person establishes that acts of active and deliberate dishonesty were committed or attempted by such person with actual dishonest purpose and intent and were material to the adjudication; (iv) actions based on or attributable to such person having gained any personal profit or advantage to which he was not entitled, in the event that a final judgment or other final adjudication adverse to such person establishes that such person in fact gained such personal profit or other advantage to which he was not entitled; or (v) any matter in respect of which a final decision by a court with competent jurisdiction shall determine that indemnification is unlawful. The bylaws further provide that the rights to indemnification and to the advancement of expenses conferred shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the certificate of incorporation, the bylaws of the corporation, by agreement, vote of stockholders, or disinterested directors or otherwise.

            The bylaws of White Cap Construction Supply, Inc. provide that the corporation shall have power to indemnify to the fullest extent permitted by applicable law as it presently exists or hereafter may be amended, any person who was or is a party or is threatened to be made a party to any threatened,

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            pending or completed action, suit or proceeding, whether criminal, administrative, or investigative (other than an action by or in the right of a corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. In addition, the corporation shall have to power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. The bylaws further provide that to the extent a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, he

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            Index to Financial Statements

            shall be indemnified against expenses (including attorneys’attorneys' fees) actually and reasonably incurred by him in connection. The indemnification and advancement of expenses shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’sperson's official capacity and as to action in another capacity while holding such office. The indemnification and advancement of expenses, unless otherwise provided when authorized or ratified, continue as to a director, officer, employee or agent of the corporation who has ceased to serve in such capacity. Any repeal or modification of the provisions shall not adversely affect any right or protection of any person with respect to any act or omission occurring prior to the time of such repeal of modification.

            The bylaws of White Cap Construction Supply, Inc. also provide that the corporation may purchase and maintain insurance under the circumstances described in Section 145 of the DGCL.

            Section 102(b)(7) of the DGCL permits a Delaware corporation to include a provision in its certificate of incorporation eliminating or limiting the personal liability of directors to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. This provision, however, may not eliminate or limit a director’sdirector's liability (1) for breach of the director’sdirector's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, or (4) for any transaction from which the director derived an improper personal benefit. The certificate of incorporation of each of HD Supply Inc., Brafasco Holdings II, Inc., Brafasco Holdings, Inc., HD Supply Construction Supply Group, Inc., HD Supply Waterworks Group, Inc., HD Supply Facilities Maintenance Group, Inc., HD Supply Utilities Group,Power Solutions, Inc., HSI IP, Inc., HD Supply GP & Management, Inc. and White Cap Construction Supply, Inc. contains such a provision. The Certificate of Incorporation of HD Supply Support Services, Inc. does not contain such a provision.

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            The foregoing summaries are necessarily subject to the complete text of the DGCL and each of the above registrant’sregistrant's certificate of incorporation and bylaws, as amended to date.

            (b) Each of HD Builder Solutions Group, LLC, HD Supply Distribution Services, LLC, HD Supply Repair & Remodel, LLC, LBM Holdings, LLC and ProValue, LLC, is organized as a limited liability company under the laws of the state of Delaware.

            Section 18-108 of the Delaware Limited Liability Company Act (6 Del. C. § 18-101, et seq.) (the “Delaware"Delaware LLC Act”Act") provides that, subject to such standards and restrictions, if any, as are set forth in its limited liability company agreement, a limited liability company may, and shall have the power to indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.

            The limited liability company agreement of HD Builder Solutions Group, LLC provides that to the fullest extent permitted by applicable law as it presently or may hereafter be amended, the company shall indemnify and hold harmless the manager of the company from and against any and all claims, actions, suits, damages, costs and expenses, including reasonable fees and disbursements of counsel, asserted against or incurred by the manager arising out of or in connection with the manager’smanager's management or conduct in carrying out the company’scompany's purposes, whether or not the manager is a member of the company when such claims are asserted against or incurred by it; provided, however, that the manager shall not be indemnified for any liability for fraud, intentional misconduct, gross negligence, or a knowing violation of the law that was material to the cause of action. No amendment to the limited liability company agreement of HD Builder Solutions Group, LLC shall affect the rights of the manager in existence prior to such amendment. The limited liability company agreement of HD Builder Solutions Group, LLC further provides that the company may indemnify and hold harmless any officer from and against any and all claims asserted against or incurred by such officer arising out of or in connection with such officer’sofficer's management or conduct in carrying out the company’scompany's purposes; provided, however, that any officer shall not be indemnified for any liability for fraud, intentional misconduct, gross negligence, or a knowing violation of the law that was material to the cause of action.

                    

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            Index to Financial Statements

            The limited liability company agreement of each of HD Supply Distribution Services, LLC and HD Supply Repair & Remodel, LLC provides that, to the greatest extent permitted by law, as it presently exists or may be amended, the company shall indemnify and hold harmless the manager of the company from and against any and all claims, actions, suits, damages, costs and expenses, including reasonable fees and disbursements of counsel, asserted against or incurred by the manager arising out of or in connection with the manager’smanager's management or conduct in carrying out the company’scompany's purposes, whether or not the manager is a member of the company when such claims are asserted against or incurred by it; provided, however, that the manager shall not be indemnified for any liability for fraud, intentional misconduct, gross negligence, or a knowing violation of the law that was material to the cause of action.

            The limited liability company agreement of LBM Holdings, LLC provides that, to the fullest extent permitted by applicable law, the member of the company and any of its or the company’scompany's directors, officers, employees, shareholders agents or representatives (each, a “LBM"LBM Covered Person”Person") shall be entitled to indemnification from the company for any loss, damage or claim incurred by such LBM Covered Person by reason of any act or omission performed or omitted by such LBM Covered Person in good faith on behalf of the company, except that no such LBM Covered Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such LBM Covered Person by reason of such LBM Covered Person’sPerson's gross negligence or willful misconduct. The limited liability company agreement of LBM Holdings, LLC further provides that, to the extent permitted by applicable law, expenses may be advanced, at the discretion of the board of directors of the company, prior to a proceeding’sproceeding's final disposition upon receipt by the company of an undertaking by or on behalf of an

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            LBM Covered Person to repay such amount if it shall ultimately be determined that the person is not entitled to indemnification.

            The limited liability company agreement of ProValue, LLC provides that, to the fullest extent permitted by applicable law, any member, any affiliate of the member and any officers, directors, shareholder, partners or employees of the member and their respective affiliates, and any officer, employee or expressly authorized agent of the company or its affiliates (each, a “ProValue"ProValue Covered Person”Person" and collectively, the “ProValue"ProValue Covered Persons”Persons") shall be entitled to indemnification from the company for any loss, damage or claim incurred by reason of any act or omission by such ProValue Covered Person in good faith on behalf of the company and in a manner reasonably believed to be within the scope of authority conferred upon such ProValue Covered Person, except that no ProValue Covered Person shall entitled to be indemnified in respect of any loss, damage or claim incurred by reason of such ProValue Covered Person’sPerson's gross negligence or willful misconduct with respect to such acts or omissions; provided, however that any indemnity provided under the limited liability company agreement of ProValue, LLC shall be provided out of and to the extent of company assets only, and no such person shall have any personal liability on account thereof. The limited liability company agreement of ProValue, LLC further provides that, to the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a ProValue Covered Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the company prior to the final disposition of such claim, demand, action suit or proceeding upon receipt by the company of an undertaking by or on behalf of such ProValue Covered Person to repay such amount if it shall be determined that such ProValue Covered Person is not entitled to indemnification under the limited liability company agreement. In addition, the limited liability company agreement of ProValue, LLC provides that the company may purchase and maintain insurance to the extent and in such amounts as the managing member of the company shall, in its sole discretion, deem reasonable, on behalf of the ProValue Covered Person and such other persons or entities as the managing member shall determine, against any liability that may be asserted against or expenses that may be incurred by any such person or entity in connection with the activities of the company or such indemnities, regardless of whether the company would have the power to indemnify such person or entity against such liability under the provisions of the limited liability company agreement. Furthermore, the limited liability company agreement of ProValue, LLC provides that the managing member and the company may enter into indemnity contracts with ProValue Covered Persons and adopt written procedures pursuant to which arrangements are made for the advancement of expenses and the funding of obligations under the indemnification provisions of the limited liability company agreement and containing such other procedures regarding indemnification as are appropriate.

                    

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            Index to Financial Statements

            Section 18-303(a) of the Delaware LLC Act provides that except as otherwise provided by the Delaware LLC Act, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company, and no member or manager of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of being a member or acting as a manager of the limited liability company.

            The limited liability company agreement of each of HD Builder Solutions Group, LLC, HD Supply Distribution Services, LLC and HD Supply Repair & Remodel, LLC provides that, the member of the company shall not have any liability for the obligations of the company, except to the extent required by the Delaware LLC Act.

            The limited liability company agreement of LBM Holdings, LLC provides that, except as otherwise provided by the Delaware LLC Act or the limited liability company agreement of the company, the debts, obligations and liabilities of the company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the company, and the member of the company shall not

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            be obligated personally for any such debt, obligation or liability of the company solely by reason of being a member of the company.

            The limited liability company agreement of ProValue, LLC provides that the member of the company shall not have any liability for the obligations or liabilities of the company except to the extent provided in the Delaware LLC Act.

            Section 18-406 of the Delaware LLC Act provides that a member, manager or liquidating trustee of a limited liability company shall be fully protected in relying in good faith upon the records of the limited liability company and upon information, opinions, reports or statements presented by another manager, member or liquidating trustee, an officer or employee of the limited liability company, or committees of the limited liability company, members or managers, or by any other person as to matters the member, manager or liquidating trustees reasonably believes are within such other person’sperson's professional or expert competence, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits or losses of the limited liability company, or the value and amount of assets or reserves or contracts, agreements or other undertakings that would be sufficient to pay claims and obligations of the limited liability company or to make reasonable provision to pay such claims and obligations, or any other facts pertinent to the existence and amount of assets from which distributions to members or creditors might properly be paid.

            The limited liability company agreement of LBM Holdings, LLC provides that, a LBM Covered Person shall be fully protected in relying in good faith upon the records of the company and upon such information, opinions, reports or statements presented to the company by any person or entity as to matters such LBM Covered Person reasonably believes are within such person’sperson's or entity’sentity's professional or expert competence.

            The limited liability company agreement of ProValue, LLC provides that any ProValue Covered Person shall be fully protected in relying in good faith upon the records of the company and upon such information, opinions, reports or statements presented to the company by any person or entity as to matters such ProValue Covered Person reasonably believes are within the professional or expert competence of such person or entity and who or which has been selected with reasonable care by or on behalf of the company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which distributions to the member of the company might properly be paid.

            Section 18-1101(d) of the Delaware LLC Act provides that unless otherwise provided in a limited liability company agreement, a member or manager or other person shall not be liable to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement for breach of fiduciary duty for the member’smember's or manager’smanager's or other person’sperson's good faith reliance on the provisions of the limited liability company agreement.

                    

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            Index to Financial Statements

            Section 18-1101(e) of the Delaware LLC Act permits a limited liability company agreement to limit or eliminate any and all liabilities for breach of contract and breach of duties (including fiduciary duties) of a member, manager or other person to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement. However, under Section 18-1101(e) of the Delaware LLC Act, a limited liability company agreement may not limit or eliminate liability for any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing.

            The limited liability company agreement of LBM Holdings, LLC provides that no LBM Covered Person shall be liable to the company for any loss, liability, damage or claim incurred by reason of any act or omission performed or omitted by such person in good faith on behalf of the company, except that such person shall be liable for any loss, liability, damage or claim incurred by such person as a

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            result of the person’sperson's gross negligence or willful misconduct. The limited liability company agreement of LBM Holdings, LLC provides further, that to the extent that, at law or in equity, a LBM Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the company, such LBM Covered Person acting under the limited liability company shall not be liable to the company for such LBM Covered Person’sPerson's good faith reliance on the provisions of such agreement. The provisions of the limited liability company agreement of the company, to the extent that they restrict or eliminate the duties and liabilities of a person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such person. Notwithstanding any provision of the limited liability company agreement of the company or any provision of law or equity otherwise applicable, whenever in such limited liability company agreement a LBM Covered Person is permitted or required to make decisions in good faith, such person shall act under such standard and shall not be subject to any other or different standard imposed by such agreement or any relevant provisions of law or in equity or otherwise.

            The limited liability company agreement of ProValue, LLC provides that no ProValue Covered Person shall be liable to the company or any other ProValue Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such ProValue Covered Person in good faith on behalf of the company and in a manner reasonably believed to be within the scope of authority conferred upon such ProValue Covered Person by the limited liability company agreement of the company, except that such ProValue Covered Person shall be liable for any loss, damage or claim incurred by reason of ProValue Covered Person person’sperson's gross negligence or willful misconduct. The limited liability company agreement of ProValue, LLC provides further that to the extent that, at law or in equity, any ProValue Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the company or to any other ProValue Covered Person, such ProValue Covered Person acting under the limited liability company agreement shall not be liable to the company or to any other ProValue Covered Person for its good faith reliance on the provisions of the limited liability company agreement. The provisions of the limited liability company agreement, to the extent that they restrict the duties and liabilities of any ProValue Covered Person otherwise existing at law or in equity, are agreed by the member of the company to replace such other duties and liabilities of such person. In addition, the limited liability company agreement of ProValue, LLC provides that, unless otherwise expressly provided therein, (a) whenever a conflict of interest exists or arises between ProValue Covered Persons, or (b) whenever this agreement or any other agreement contemplated herein or therein provides that a ProValue Covered Person shall act in a manner that is, or provides terms that are, fair and reasonable to the company or the member, the ProValue Covered Person shall resolve such conflict of interest, taking such action or providing such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the ProValue Covered Person, the resolution, action or term so made, taken or provided by the ProValue Covered Person shall not constitute a breach of the limited liability company agreement or any other agreement contemplated therein or of any duty or obligation of the ProValue Covered Person at law or in equity or otherwise. Furthermore, the limited liability company agreement of ProValue, LLC provides that, whenever in such agreement a ProValue Covered Person is permitted or required to make a decision (a) in its “discretion”"discretion" or under a grant of similar authority or latitude, the ProValue Covered Person shall be entitled to consider only such interests and factors as

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            Index to Financial Statements

            it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the company or any other person or entity, or (b) in its “good faith”"good faith" or under another express standard, the ProValue Covered Person shall act under such express standard and shall not be subject to any other or different standard imposed by the limited liability company or other applicable law.

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            The foregoing summaries are necessarily subject to the complete text of the Delaware LLC Act and each of the above registrant’sregistrant's limited liability company agreements, as amended to date.

            Florida Registrants

            (a) HD Supply Management, Inc. is incorporated under the laws of the state of Florida.

            Section 607.0850 of the Florida Business Corporation Act, as amended (the “FBCA”"FBCA"), provides that, in general, a business corporation may indemnify any person who is or was party to any proceeding, other than an action by, or in the right of, the corporation, by reason of the fact that he or she is or was a director or officer of the corporation, against liability incurred in connection with such proceeding, including any appeal thereof, provided certain standards are met, including that such officer or director acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interest of the corporation, and provided further that, with respect to any criminal action or proceeding, the officer or director had no reasonable cause to believe his or her conduct was unlawful. In the case of proceedings by or in the right of the corporation, the FBCA provides that, in general, a corporation may indemnify any person who was or is a party to any such proceeding by reason of the fact that he or she is or was a director or officer of the corporation against and amounts paid in settlement actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof, provided that such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made with respect to any claim as to which such person is adjudged liable, unless a court of competent jurisdiction determines upon application that such person is fairly and reasonably entitled to indemnity. To the extent that any officer or director is successful on the merits or otherwise in the defense of any such proceedings, the FBCA provides that the corporation is required to indemnify such officer or director against expenses actually and reasonably incurred in connection therewith. However, the FBCA further provides that, in general, indemnification or advancement of expenses shall not be made to or on behalf of any officer or director if a judgment or other final adjudication establishes that his or her actions, or omissions to act, were material to the cause of action so adjudicated and constitute: (i)(i) a violation of the criminal law, unless the director or officer had reasonable cause to believe his or her conduct was lawful or had no reasonable cause to believe that it was unlawful; (ii)(ii) a transaction from which the director or officer derived an improper personal benefit; (iii)(iii) in the case of a director, a circumstance under which the director has voted for or assented to a distribution made in violation of the FBCA or the corporation’scorporation's articles of incorporation or (iv)(iv) willful misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a shareholder.

            The bylaws of HD Supply Management, Inc. (“("Management Inc.”") provide that, to the fullest extent permitted by law, Management Inc. shall indemnify any person who (a)(a) is or was a director, officer, employee or agent of Management Inc., or (b)(b) serves or served any other corporation or enterprise in any capacity at the request of Management Inc. in connection with any actual or threatened action or proceeding, whether civil, criminal, administrative or investigative. Management Inc. shall also advance related expenses to such person to the fullest extent permitted by law. The bylaws further provide that Management Inc. may purchase insurance for the purpose of indemnifying these person and which may be for the benefit of all directors, officers or employees.

            (b) HD Supply Holdings, LLC is organized as a limited liability company under the laws of the state of Florida.

            Section 608.4229 of the Florida Limited Liability Company Act provides that, subject to such standards and restrictions set forth in its articles of organization or operating agreement, a limited liability company may, and

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            shall have the power to, but shall not be required to, indemnify and hold

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            harmless any member or manager or other person from and against any and all claims and demands whatsoever. Notwithstanding that provision, indemnification or advancement of expenses shall not be made to or on behalf of any member, manager, managing member, officer, employee, or agent if a judgment or other final adjudication establishes that the actions, or omissions to act, of such member, manager, managing member, officer, employee or agent were material to the cause of action so adjudicated and constitute any of the following: (a)(a) a violation of criminal law, unless the member, manager, managing member, officer, employee, or agent had no reasonable cause to believe such conduct was unlawful; (b)(b) a transaction from which the member, manager, managing member, officer, employee, or agent derived an improper personal benefit; (c)(c) in the case of a manager or managing member, a circumstance under which the liability provisions of Section 608.426 (relating to improper distribution to members) are applicable; or (d)(d) willful misconduct or a conscious disregard for the best interests of the LLC in a proceeding by or in the right of the LLC to procure a judgment in its favor or in a proceeding by or in the right of a member.

            The operating agreement of HD Supply Holdings, LLC provides that the company shall have the power and authority to take any and all actions necessary, appropriate advisable, convenient or incidental to or for the furtherance of the purpose of indemnifying any person or entity and to obtain any and all types of insurance. The operating agreement further provides that no Covered Person (defined as the Manager, any affiliate of the Member and any officers, directors, shareholder, partners or employees of the Member and their respective affiliates, and any officer, employee or expressly authorized agent of the company or its affiliates) shall be liable to the company or any other Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the company and in a manner reasonably believed to be within the scope of authority conferred upon such Covered Person by the operating agreement, except that a Covered Person shall be liable for any loss, damage or claim incurred by reason of such Covered Person’sPerson's gross negligence or willful misconduct.

            The operating agreement further provides that to the fullest extent permitted by applicable law, a Covered Person shall be entitled to indemnification from the company for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the company and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by the operating agreement, except that no Covered Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Covered Persons by reason of gross negligence or willful misconduct with respect to such actions of omissions; provided, however, that any indemnity shall be provided out of and to the extent of company assets only, and no Covered Person shall have any personal liability on account thereof.

            The operating agreement further provides that the company may purchase and maintain insurance, to the extent and in such amounts as the Manager shall, in its sole discretion, deem reasonable, on behalf of Covered Persons and such other persons or entities as the Manager shall determine, against any liability that may be asserted against or expenses that may be incurred by any such person or entity in connection with the activities of the company or such indemnities, regardless of whether the company would have the power to indemnify such person or entity against such liability under the provisions of the operating agreement.

            (c) Each of HD Supply Construction Supply, Ltd., HD Supply Electrical, Ltd., HD Supply Facilities Maintenance, Ltd., HD Supply Utilities,Power Solutions, Ltd. and HD Supply Waterworks, Ltd. is registered as a limited partnership under the laws of the state of Florida.

            Section 620.1406(6) of the Florida Revised Uniform Limited Partnership Act of 2005 provides that a limited partnership shall reimburse a general partner for payments made and indemnify a general partner for liabilities incurred by the general partner in the ordinary course of activities of the partnership or for the preservation of the partnership’spartnership's activities or property if such payments were

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            made or such liabilities were incurred in good faith and either in the furtherance of the limited partnership’spartnership's purposes or the ordinary scope of its activities.

                    

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            Index to Financial Statements

            Section 620.2001 provides that a partner may maintain an action against the limited partnership or other partners to enforce his rights under the partnership agreement or the limited partnership statute.

            Section 620.1110 provides that the partnership agreement among the partners governs relations among partners and between the partners and the limited partnership (subject to certain limitations or “nonwaivable”"nonwaivable" requirements described in such section). The limited partnership statutory provisions govern such relations to the extent that the partnership agreement does not otherwise provide. Such nonwaivable requirements include the partner’spartner's duties of loyalty and care to the partnership and other partners and the partner’spartner's obligations of fair dealing and good faith, which could be enforced by the partnership and other partners pursuant to Sections 620.2001 (direct actions) and 620.2002 (derivative actions).

            The limited partnership agreements of HD Supply Construction Supply, Ltd., HD Supply Electrical, Ltd., HD Supply Facilities Maintenance, Ltd., HD Supply Utilities,Power Solutions, Ltd. and HD Supply Waterworks, Ltd. (each a “Florida LP”"Florida LP"), provide that no General Partner nor any officer, director or employee of the General Partner of such Florida LP will have any liability to the Florida LP or any partner for any acts taken on behalf of the Florida LP within the scope of authority given to the General Partner by the limited partnership agreement or under law, except in the case of actions taken or not taken that were fraudulent, in bad faith, or constituted wanton and willful misconduct or gross negligence. In addition, each Florida LP shall indemnify and hold harmless the General Partner, each officer, director and employee of the General Partner, and the agents of them (“("indemnified parties”parties"), from and against any loss, expense, damage or injury suffered or sustained by such person by reason of any act or omission arising out of his activities on behalf of the Florida LP or in furtherance of the interest of the Florida LP, including, but not limited to, any judgment, award, settlement, reasonable attorney’sattorney's fees, and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding, or claim and including any payments made by the General Partner to any of its officers, directors, or employees pursuant to an indemnification agreement no broader than this section; provided that the act, omission, or alleged act or omission upon which such actual or threatened action, proceeding or claim is based was not performed or omitted fraudulently or in bad faith or as a result of wanton and willful misconduct or gross negligence by such Indemnified Party.

            Maryland Registrant

            (a) Creative Touch Interiors, Inc. is incorporated under the laws of the state of Maryland.

            The Maryland General Corporation Law (“MGCL”("MGCL") permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty established by a final judgment as being material to the cause of action.

            The MGCL requires a corporation to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made a party by reason of his service in that capacity. Section 2-418 of the MGCL permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in those or other capacities unless it is established that (1)(1) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (a)(a) was committed in bad faith or (b)(b) was the result of active and deliberate dishonesty, (2)(2) the director or officer actually received an improper personal benefit in money, property or services or (3)(3) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that

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            the act or omission was unlawful. However, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation. In addition, the MGCL requires a corporation, as a condition to advancing expenses, to obtain (1)(1) a written affirmation by the director or officer of his good faith belief that he has met the standard of conduct necessary for indemnification by the corporation as authorized by

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            Index to Financial Statements

            the bylaws and (2)(2) a written statement by or on his behalf to repay the amount paid or reimbursed by the corporation if it shall ultimately be determined that the standard of conduct was not met.

            The articles of incorporation of Creative Touch Interiors, Inc. (“("Creative Touch”Touch") provide that no present or former director or officer of Creative Touch, or person who have served at the request of Creative Touch as a director or officer of another corporation in which Creative Touch owns shares of capital stock or of which it is a creditors, shall be liable to the corporation or its stockholders for any money damages including any expenses incurred in proceedings in connection with defense of a claim for damages, arising from any acts, events or omissions by reason of service in the director’sdirector's or officer’sofficer's official capacity, except as such exculpation from liability is specifically limited by provisions of Section 2-405.2 of the MGCL.

            The articles of incorporation further provide that, except to the extent limited by the provisions of Section 2-418 of the MGCL, Creative Touch shall indemnify (i)(i) any present or former director or officer of Creative Touch or (ii)(ii) any person who may have served at the request of Creative Touch as a director or officer of another corporation in which Creative Touch owns shares of capital stock or of which it is a creditor, against liabilities, fines, penalties and claims imposed upon such persons by reason of his or her status if being or having been in such positions. Such person shall also be indemnified against all expenses (including attorney fees) reasonably incurred by such person in connection therewith. Such person may receive advances from Creative Touch for expenses reasonably incurred. Creative Touch shall not indemnify an officer or director if the board of directors decides that: (a)(a) act or omission of a director or officer was material to the claim, and either was committed in bad faith or was the result of active and deliberate dishonesty; or (b)(b) the director or officer actually received an improper personal benefit in money, property or services; or (c)(c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.

            Michigan Registrant

            (a) HDS Power Solutions, Inc. is incorporated under the laws of the state of Michigan.

            Sections 561 through 571 of the Michigan Business Corporation Act (“MBCA”("MBCA") contain provisions governing the indemnification of directors and officers by Michigan corporations. The statute provides that a corporation has the power to indemnify a person who was or is a party of is threatened to be made a party to a threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, against expenses (including attorneys’attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonable incurred by him or her in connection with the action, suit or proceeding, if the person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders, and with respect to a criminal action or proceeding, if the person had no reasonable cause to believe his or her conduct was unlawful. The termination of an action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation or its

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            shareholders, and, with respect to a criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

            Indemnification of expenses (including attorneys’attorneys' fees) and amounts paid in settlement is permitted in derivative actions, except that indemnification is not allowed for any claim, issue or matter in which such person has been found liable to the corporation unless and to the extent that a court decides indemnification is proper, in which case indemnification is limited to reasonable expenses incurred. To the extent that a director or officer has been successful in on the merits or otherwise in defense of an action, suit or proceeding, or in defense of a claim, issue or matter in the action, suit or proceeding, he or she shall be indemnified against actual and reasonable

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            Index to Financial Statements

            expenses (including attorneys’attorneys' fees) incurred by him or her in connection with the action, suit or proceeding, and any action, suit or proceeding brought to enforce the mandatory indemnification provided under the MBCA. The MBCA permits partial indemnification for a portion of expenses (including reasonable attorneys’attorneys' fees), judgments, penalties, fines and amounts paid in settlement to the extent the person is entitled to indemnification for less than the total amount.

            A determination that the person indemnified meets the applicable standard of conduct and an evaluation of the reasonableness of the expenses incurred and amounts paid in settlement shall be made (a)(a) by a majority vote of a quorum of the board of directors who are not parties or threatened to be made parties to the action, suit or proceeding, (b)(b) if a quorum cannot be obtained under clause (a), by a majority vote of a committee duly designated by the board and consisting of two or more directors who are not parties or threatened to be made parties to the action, suit, or proceeding, (c)(c) by independent legal counsel appointed in accordance with the terms of the MBCA, (d)(d) by all “independent directors”"independent directors" who are not parties or threatened to be made parties to the action, suit or proceeding or (e)(e) by the shareholders subject to the terms set forth in the MBCA

            Under the MBCA, a corporation may pay or reimburse the reasonable expenses incurred by a director, officer, employee, or agent who is a party or threatened to be made a party to an action, suit, or proceeding in advance of final distribution if the person furnishes the corporation a written undertaking, executed personally or on his or her behalf, to repay the advance if it is ultimately determined that he or she did not meet the standard of conduct, if any, required by the MBCA for the indemnification of a person under the circumstances. The undertaking discussed above must be an unlimited general obligation of the person, but may be unsecured and may be accepted without reference to the financial ability of the person to make repayment.

            The indemnification provisions of the MBCA are not exclusive of the rights to indemnification under a corporation’scorporation's articles of incorporation, bylaws, or by agreement. However, the total amount of expenses advanced or indemnified from all sources combined may not exceed the amount of actual expenses incurred by the person seeking indemnification or advancement of expenses. The indemnification provided under the MBCA continues as to a person who ceases to be a director, officer, employee, or agent. Additionally, the MBCA permits a corporation to purchase insurance on behalf of its directors, officers, employees and agents against liabilities arising out of their positions with the corporation, whether or not such liabilities would be within the above indemnification provisions.

            An amendment to the articles of incorporation of HDS Power Solutions, Inc. provides that a director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for a breach of fiduciary duty as a director, except for liability: (1)(1) for any breach of the director’sdirector's duty of loyalty to the corporation or its shareholders; (2)(2) for acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law; (3)(3) for a violation of Section 551(1) of the Michigan Business Corporation Act; (4)(4) for any transaction from which the director derived an improper personal benefit; and (5)(5) for any acts or omission occurring before June 27, 1989.

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            The bylaws of HDS Power Solutions, Inc. provide that each person who is or has been a director or officer of the corporation or any subsidiary thereof shall be indemnified by the corporation from and against losses and expenses sustained or incurred by him in connection with any action, suit or proceeding to which he may be a party by reason of his being, or having been a director or officer of the corporation or of any subsidiary thereof, except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of his duty as such director or officer. The bylaws also state that the foregoing right of indemnification shall not be exclusive of other rights to which an officer or director may be entitled as a matter of law.

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            Index to Financial Statements

            Nevada Registrant

            (a)   HDS IP Holding, LLC is organized as a limited liability company under the laws of the state of Nevada.

            Section 86.411 of the Nevada Revised Statutes (the “NRS”"NRS") permits a limited liability company to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (except an action by or in the right of the limited liability company), by reason of being or having been a manager, member, employee or agent of the limited liability company or serving or having served in certain capacities at the request of the limited liability company. Indemnification may include attorneys’attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person to be indemnified in connection with the action, suit or proceeding if the person acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.

            Section 86.421 of the NRS permits a limited liability company to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or suit by or in the right of the liability company to procure a judgment in its favor by reason of being or having been a manager, member, employee or agent of the limited liability company or serving or having served in certain capacities at the request of the limited liability company, against expenses, including amounts paid in settlement and attorneys’attorneys' fees actually and reasonably incurred by the person in connection with the defense or settlement of the action or suit. Indemnification may not be made for any claim, issue or matter as to which such person has been finally adjudged by a court of competent jurisdiction to be liable to the limited liability company or for amounts paid in settlement to the limited liability company, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that, in view of all the circumstances, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. However, to be entitled to indemnification, the person to be indemnified in either case much have acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the limited liability company.

            Section 86.431 of the NRS also provides that to the extent a manager, member, employee or agent of a limited liability company has been successful on the merits or otherwise in defense of any such action, he or she must be indemnified by the limited liability company against expenses, including attorneys’attorneys' fees actually and reasonably incurred in connection with the defense.

            Section 86.441 of the NRS permits a limited liability company, in its articles of organization, operating agreement or other agreement, to provide for the payment of expenses incurred by members or managers in defending any civil or criminal action, suit or proceeding as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking to repay the amount if it is ultimately determined by a court of competent jurisdiction that the person is not entitled to indemnification by the company.

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            Section 86.461 of the NRS permits a limited liability company to purchase and maintain insurance or make other financial arrangements on behalf of the limited liability company’scompany's current and former managers, members, employees or agents, or any person serving or who have served in certain capacities at the request of the limited liability company, for any liability and expenses incurred by them or in their capacities as managers, members, employees or agents or arising out of their status as such, whether or not the limited liability company has the authority to indemnify him, her or them against such liability and expenses.

            The operating agreement of HDS IP Holding, LLC (the “Nevada Guarantor”"Nevada Guarantor") provides that no member, manager, or officers of the Nevada Guarantor shall be liable for the Nevada Guarantor’sGuarantor's liabilities or obligations. The failure of the Nevada Guarantor to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs shall not be grounds for imposing personal liability on the

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            Index to Financial Statements

            member, manager, or officer. Additionally, the Nevada Guarantor shall indemnify the member and manager for all costs, losses, liabilities, and damages paid in connection with the Nevada Guarantor’sGuarantor's business or because the person is a member or manager, to the fullest extent provided by Nevada law. The operating agreement further provides that the manager shall cause the Nevada Guarantor to advance costs of participation in any proceeding to the manager or member. The manager may, with consent of the member, indemnify, to the fullest extent permitted by Nevada law, all other employees, officer and agents of the Nevada Guarantor for all costs, losses, liabilities, and damages paid or accrued by such persons in connection with Nevada Guarantor’sGuarantor's business or because such person is an agent, officer or employee.

            ITEM 21.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

                    

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            ITEM 21.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

            (a)   Exhibits.

            The following exhibits are included as exhibits to this Registration Statement.


            Exhibit List

            Exhibit Number

            Exhibit Description

            Exhibit
            Number            		Exhibit Description
            2.1 Purchase and Sale Agreement, dated as of June 19, 2007, by and between The Home Depot, Inc., THD Holdings, LLC, Home Depot International, Inc., Homer TLC, Inc. and Pro Acquisition Corporation.1(1)


            2.2
             
            Letter agreement,Agreement, dated August 14, 2007, by and between The Home Depot, Inc., THD Holdings, LLC, Home Depot International, Inc., Homer TLC, Inc. and Pro Acquisition Corporation.1(1)


            2.3
             
            Amendment, dated as of August 27, 2007, by and between The Home Depot, Inc., THD Holdings, LLC, Home Depot International, Inc., Homer TLC, Inc. and ProHDS Investment Holding, Inc. and HDS Acquisition Corporation.1Subsidiary, Inc.(1)


            3.1
             
            Certificate of Incorporation of HD Supply, Inc.1(1)


            3.2

            Certificate of Amendment of Certificate of Incorporation of HD Supply, Inc.(15)
            3.2

            3.3

            Amended and Restated By-Laws of HD Supply, Inc.1(15)

            3.3
            3.4
             
            Certificate of Incorporation of Brafasco Holdings II, Inc.1(1)

            3.4
            3.5
             
            By-Laws of Brafasco Holdings II, Inc.1(1)

            3.5
            3.6
             
            Certificate of Incorporation of Brafasco Holdings, Inc.1(1)

            3.6
            3.7
             
            By-Laws of Brafasco Holdings, Inc.1(1)

            II-18

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            3.73.8 Articles of Incorporation of Creative Touch Interiors, Inc.1(1)

            3.8
            3.9
             
            By-Laws of Creative Touch Interiors, Inc.1(1)

            3.9
            3.10
             
            Certificate of Formation of HD Builder Solutions Group, LLC.1(1)

            3.10
            3.11
             
            Limited Liability Company Agreement of HD Builder Solutions Group, LLC.1(1)

            3.11
            3.12
             
            Certificate of Incorporation of HD Supply Construction Supply Group, Inc.1(1)

            3.12
            3.13
             
            By-Laws of HD Supply Construction Supply Group, Inc.1(1)

            3.13
            3.14
             
            Certificate of Limited Partnership of HD Supply Construction Supply, Ltd.1(1)

            3.14
            3.15
             
            Agreement of Limited Partnership of HD Supply Construction Supply, Ltd.1(1)

            3.15
            3.16
             
            Certificate of Formation of HD Supply Distribution Services, LLC.1(1)

            3.16
            3.17
             
            Limited Liability Company Agreement of HD Supply Distribution Services, LLC.1(1)

            3.17
            3.18
                         		Certificate of Limited Partnership of HD Supply Electrical, Ltd.1
            3.18Agreement of Limited Partnership of HD Supply Electrical, Ltd.1
            3.19
            Certificate of Incorporation of HD Supply Facilities Maintenance Group, Inc.1(1)

            3.20
            3.19
             
            By-Laws of HD Supply Facilities Maintenance Group, Inc.1(1)

            3.21
            3.20
             
            Certificate of Limited Partnership of HD Supply Facilities Maintenance, Ltd.1(1)

            3.22
            3.21
             
            Agreement of Limited Partnership of HD Supply Facilities Maintenance, Ltd.1(1)

            3.23
            3.22
             
            Certificate of Incorporation of HD Supply GP & Management, Inc.1(1)

            3.24
            3.23
             
            By-Laws of HD Supply GP & Management, Inc.(1)1

            II-18

            Index to Financial Statements

            Exhibit Number



            3.24

            Exhibit Description


            3.25
            Articles of Organization of HD Supply Holdings, LLC.1(1)

            3.26
            3.25
             
            Operating Agreement of HD Supply Holdings, LLC.1(1)

            3.27
            3.26
             
            Articles of Incorporation of HD Supply Management, Inc.1(1)

            3.28
            3.27
             
            By-Laws of HD Supply Management, Inc.1(1)

            3.29
            3.28
             
            Certificate of Formation of HD Supply Repair & Remodel, LLC.1(1)

            3.30
            3.29
             
            Limited Liability Company Agreement of HD Supply Repair & Remodel, LLC.1(1)

            3.31
            3.30
             
            Certificate of Incorporation of HD Supply Support Services, Inc.1(1)

            3.32
            3.31
             
            By-Laws of HD Supply Support Services, Inc.1(1)

            3.33
            3.32
             
            Certificate of Incorporation of HD Supply Utilities Group,Power Solutions, Inc.1(1)


            3.33

            Certificate of Amendment of Certificate of Incorporation of HD Supply Power Solutions, Inc.(18)
            3.34

            3.34

            By-Laws of HD Supply Utilities Group,Power Solutions, Inc.1(1)


            3.35
             
            Certificate of Limited Partnership of HD Supply Utilities,Power Solutions, Ltd.1(1)


            3.36

            Certificate of Amendment of Certificate of Limited Partnership of HD Supply Power Solutions, Ltd.(18)
            3.36

            3.37

            Agreement of Limited Partnership of HD Supply Utilities,Power Solutions, Ltd.1(1)

            3.37
            3.38
             
            Certificate of Incorporation of HD Supply Waterworks Group, Inc.1(1)

            3.38
            3.39
             
            By-Laws of HD Supply Waterworks Group, Inc.1(1)

            II-19

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            3.393.40 Certificate of Limited Partnership of HD Supply Waterworks, Ltd.1(1)

            3.40
            3.41
             
            Agreement of Limited Partnership of HD Supply Waterworks, Ltd.1(1)

            3.41
            3.42
             
            Articles of Organization of HDS IP Holding, LLC.1(1)

            3.42
            3.43
             
            Operating Agreement of HDS IP Holding, LLC.1(1)

            3.43
            3.44
             
            Articles of Incorporation of HDS Power Solutions, Inc.1(1)

            3.44
            3.45
             
            Certificate of Amendment to Articles of Incorporation of HDS Power Solutions, Inc.9(9)

            3.45
            3.46
             
            By-Laws of HDS Power Solutions, Inc.1(1)

            3.46
            3.47
             
            Certificate of Incorporation of HSI IP, Inc.1(1)

            3.47
            3.48
             
            By-Laws of HSI IP, Inc.1(1)

            3.48
            3.49
             
            Articles of Organization of LBM Holdings, LLC.9(9)

            3.49
            3.50
             
            Operating Agreement of LBM Holdings, LLC.9(9)

            3.50
            3.51
             
            Certificate of Formation of ProValue, LLC.1(1)

            3.51
            3.52
             
            Operating Agreement of ProValue, LLC.1(1)

            3.52
            3.53
             
            Certificate of Incorporation of White Cap Construction Supply, Inc.1(1)

            3.53
            3.54
             
            By-Laws of White Cap Construction Supply, Inc.1(1)


            4.1
             
            Indenture, dated as of April 12, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wilmington Trust, National Association, as trustee and note collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.7(7)


            4.2
             
            First Supplemental Indenture, dated as of April 12, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors named therein, and Wilmington Trust, National Association, as trustee, relating to the 81/8% Senior Secured First Priority Notes due 2019.7(7)


            4.3
             
            Second Supplemental Indenture, dated as of July 27, 2012, among Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products,  LLC, AP RE LLC, HD Supply, Inc. and Wilmington Trust, National Association, as trustee, relating to the 81/8% Senior Secured First Priority Notes due 2019.(8)8

            II-19

            Index to Financial Statements

            Exhibit Number



            4.4

            Exhibit Description


            4.4
            Third Supplemental Indenture, dated as of August 2, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors named therein, and Wilmington Trust, National Association, as trustee, relating to the 81/8% Senior Secured First Priority Notes due 2019.8(8)


            4.5
                         		Exchange and Registration Rights Agreement, dated as of April 12, 2012, among HD Supply, Inc., the Subsidiary Guarantors named therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other financial institutions named therein, relating to the 8 1/8% Senior Secured First Priority Notes due 2019.7
            4.6Exchange and Registration Rights Agreement, dated as of August 2, 2012, among HD Supply, Inc., the Subsidiary Guarantors named therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other financial institutions named therein, relating to the 8 1/8% Senior Secured First Priority Notes due 2019.8
            4.7
            Indenture, dated as of April 12, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wilmington Trust, National Association, as trustee and note collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.7(7)

            4.8
            4.6
             
            First Supplemental Indenture, dated as of April 12, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors named therein, and Wilmington Trust, National Association, as trustee, relating to the 11% Senior Secured Second Priority Notes due 2020.7(7)

            II-20

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            4.94.7 Second Supplemental Indenture, dated as of July 27, 2012, among Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products,  LLC, AP RE LLC, HD Supply, Inc. and Wilmington Trust, National Association, as trustee, relating to the 11% Senior Secured Second Priority Notes due 2020.8(8)

            4.10
            4.8
                         		Exchange and Registration Rights Agreement, dated as of April 12, 2012, among HD Supply, Inc., the Subsidiary Guarantors named therein, Goldman, Sachs & Co. and the other financial institutions named therein, relating to the 11% Senior Secured Second Priority Notes due 2020.7
            4.11
            Indenture, dated as of October 15, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo Bank, National Association, as trustee, relating to the 11.5%11.50% Senior Notes due 2020.9(9)

            4.12
            4.9
             
            First Supplemental Indenture, dated as of October 15, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto,named therein, and Wells Fargo Bank, National Association, as trustee, relating to the 11.5%11.50% Senior Notes due 2020.9(9)

            4.13
            4.10
                         		Exchange and Registration Rights Agreement, dated as of October 15, 2012, among HD Supply, Inc., the Subsidiary Guarantors named therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other financial institutions named therein, relating to the 11.5% Senior Notes due 2020.9
            4.14
            Indenture, dated as of April 12, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wilmington Trust, National Association, as trustee, relating to the 14.875% Senior Notes due 2020.7
            4.15First Supplemental Indenture, dated as of July 27, 2012, among Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC, AP RE LLC, HD Supply, Inc. and Wilmington Trust, National Association, as trustee, relating to the 14.875% Senior Notes due 2020.8

            II-20

            Index to Financial Statements

            Exhibit Number

            Exhibit Description

              4.16Exchange and Registration Rights Agreement, dated as of April 12, 2012, among HD Supply, Inc., the Subsidiary Guarantors named therein, and the Initial Investors named therein, relating to the 14.875% Senior Notes due 2020.7
              4.17Indenture, dated as of January 16,February 1, 2013, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo Bank, National Association, as trustee, relating to the 10.50%7.50% Senior Subordinated Notes due 2021.112020.(11)

              4.18
            4.11
             
            First Supplemental Indenture, dated as of January 16,February 1, 2013, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto,named therein, and Wells Fargo Bank, National Association, as trustee, relating to the 10.50%7.50% Senior Subordinated Notes due 2021.112020.(11)

              4.19
            4.12
             
            Exchange and Registration Rights Agreement, dated as of January 16,February 1, 2013, among HD Supply, Inc., as issuer, the Subsidiary Guarantors named therein, and Merrill, Lynch, Pierce, Fenner & Smith Incorporated and the other financial institutions named therein, relating to the 10.50%7.50% Senior Subordinated Notes due 2021.112020.(11)

              4.20
            4.13
                         		Indenture, dated as of August 30, 2007, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo Bank, National Association, as trustee, relating to the 13.5% Senior Subordinated Notes due 2015.1
              4.21Merger Supplemental Indenture, dated as of August 30, 2007, by and between HD Supply, Inc. and Wells Fargo Bank, National Association, as trustee, relating to the 13.5% Senior Subordinated Notes due 2015.1
              4.22Supplemental Indenture in Respect of Subsidiary Guarantee, dated as of August 30, 3007, by and between HD Supply Inc., the Subsidiary Guarantors named therein, and Wells Fargo Bank, National Association, as trustee, relating to the 13.5% Senior Subordinated Notes due 2015.1
              4.23Third Supplemental Indenture, dated October 30, 2007, by and between HD Supply, Inc., the Subsidiary Guarantors parties named therein, and Wells Fargo Bank, National Association, as trustee, relating to the 13.5% Senior Subordinated Notes due 2015.1
              4.24Fourth Supplemental Indenture, dated as of July 27, 2012, among Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC, AP RE LLC, HD Supply, Inc. and Wells Fargo Bank, National Association, as trustee, relating to the 13.5% Senior Subordinated Notes due 2015.8
              4.25Exchange and Registration Rights Agreement, dated as of August 30, 2007, among HD Supply, Inc. (successor by merger to HDS Acquisition Subsidiary, Inc.), J.P. Morgan Securities Inc. and the other financial institutions named therein, relating to the 13.5% Senior Subordinated Notes due 2015.1
              4.26
            Form of 81/8% Senior Secured First Priority Note due 2019 (included in Exhibit 4.1 hereto).7

              4.27
            4.14
             
            Form of 11% Senior Secured Second Priority Note due 2020 (included in Exhibit 4.74.5 hereto).7

              4.28
            4.15
             
            Form of 11.5%11.50% Senior Note due 2020 (included in Exhibit 4.114.8 hereto).9

              4.29
            4.16
             
            Form of 14.875%7.50% Senior Note due 2020 (included in Exhibit 4.14 hereto).7
              4.30Form of 10.50% Senior Subordinated Note due 2021 of HD Supply, Inc. (included in Exhibit 4.174.12 hereto).11

              4.31
            5.1
                         		Form of 13.5% Senior Subordinated Note due 2015 of HD Supply, Inc. (included in Exhibit 4.20 hereto).1
              5.1
            Opinion of Debevoise & Plimpton LLP.(19)13

            II-21

            Index to Financial Statements

            Exhibit Number



            5.2

            Exhibit Description


              5.2
            Opinion of Richards, Layton & Finger, P.A.13(19)


            5.3
             
            Opinion of Holland & Knight LLP.13(19)


            5.4
             
            Opinion of Clark Hill PLC.13(19)


            5.5
             
            Opinion of Holland & Hart LLP.13(19)


            10.1
             
            Credit Agreement, dated as of April 12, 2012, among HD Supply, Inc., as borrower, the several lenders and financial institutions from time to time parties thereto, Bank of America, N.A., as administrative agent and collateral agent for the lenders party thereto, and the other parties thereto.7(7)


            10.2
             
            Guarantee and Collateral Agreement, dated as of April 12, 2012 among HD Supply, Inc., the Subsidiary Guarantors named therein, in favor of Bank of America, N.A., as administrative agent and collateral agent for the banks and other financial institutions from time to time parties to the Credit Agreement.7(7)

            II-21

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            10.3 ABL Credit Agreement, dated as of April 12, 2012, among HD Supply, Inc., as parent borrower, the Subsidiary Borrowers from time to time parties thereto, HD Supply Canada, Inc,Inc., as Canadian borrower, the several lenders and financial institutions from time to time parties thereto, General Electric Capital Corporation, as administrative agent and U.S. ABL collateral agent for the lenders party thereto, GE Canada Finance Holding Company, as Canadian agent and Canadian collateral agent for the lenders party thereto, and the other parties thereto.7(7)


            10.4
             
            ABL Joinder Agreement, dated as of July 27, 2012, among HD Supply, Inc., as parent borrower, certain operating subsidiaries of the Parent Borrower signatory thereto and consented to by the other Loan Parties, General Electric Capital Corporation, as administrative agent and U.S. ABL collateral agent for the lenders party to the ABL Credit Agreement, GE Canada Finance Holding Company, as Canadian agent and Canadian collateral agent for the lenders party to the ABL Credit Agreement.8(8)


            10.5
             
            U.S. Guarantee and Collateral Agreement, dated as of April 12, 2012, among HD Supply, Inc., the Subsidiary Borrowers named therein, the Subsidiary Guarantors named therein, in favor of General Electric Capital Corporation, as U.S. ABL administrative agent and U.S. ABL collateral agent for the banks and other financial institutions from time to time parties to the ABL Credit Agreement.7(7)


            10.6
             
            Assumption Agreement, dated as of July 27, 2012, made by Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC and AP RE LLC in favor of General Electric Capital Corporation, as administrative agent and U.S. ABL collateral agent for the lenders party to the ABL Credit Agreement, and the other parties thereto.8(8)


            10.7
             
            Supplemental Agreement, dated as of July 27, 2012, made by HD Supply Holdings, LLC in favor of General Electric Capital Corporation, as administrative agent and U.S. ABL collateral agent for the lenders party to the ABL Credit Agreement, and the other parties thereto.8(8)


            10.8
             
            Holding Pledge Agreement, dated as of April 12, 2012, by HDS Holding Corporation in favor of Bank of America, N.A., as collateral agent and administrative agent for the banks and other financial institutions from time to time parties to the Credit Agreement.7(7)


            10.9
             
            Assumption Agreement, dated as of July 27, 2012, made by Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC and AP RE LLC in favor of Bank of America, N.A., as collateral agent and administrative for the lenders party to the Credit Agreement, and the other parties thereto.(8)8

            II-22

            Index to Financial Statements

            Exhibit Number



            10.10

            Exhibit Description


            10.10
            Supplemental Agreement, dated as of July 27, 2012, made by HD Supply Holdings, LLC in favor of Bank of America, N.A., as collateral agent and administrative for the lenders party to the Credit Agreement, and the other parties thereto.8(8)


            10.11
             
            ABSABL Holding Pledge Agreement, dated as of April 12, 2012, by HDS Holding Corporation in favor of General Electric Capital Corporation, as administrative agent and collateral agent for the banks and other financial institutions from time to time parties to the ABL Credit Agreement.7(7)


            10.12
             
            Collateral Agreement, dated as of April 12, 2012, amongmade by HD Supply, Inc., and the Subsidiaries named therein andin favor of Wilmington Trust, National Association, as note collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.7(7)

            II-22

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            10.13 Assumption Agreement, dated as of July 27, 2012, made by Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC and AP RE LLC in favor of Wilmington Trust, National Association, as collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.8(8)


            10.14
             
            Supplemental Agreement, dated as of July 27, 2012, made by HD Supply Holdings, LLC in favor of Wilmington Trust, National Association, as collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.8(8)


            10.15
             
            Collateral Agreement, dated as of April 12, 2012, amongmade by HD Supply, Inc., and the Subsidiaries named therein andin favor of Wilmington Trust, National Association, as note collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.7(7)


            10.16
             
            Assumption Agreement, dated as of July 27, 2012, made by Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC and AP RE LLC in favor of Wilmington Trust, National Association, as collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.8(8)


            10.17
             
            Supplemental Agreement, dated as of July 27, 2012, made by HD Supply Holdings, LLC in favor of Wilmington Trust, National Association, as collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.8(8)


            10.18

            Amendment No. 1 to Credit Agreement, dated as of February 15, 2013, among HD Supply, Inc., as borrower, Bank of America, N.A., as administrative agent and the several lenders and financial institutions party thereto.(11)
            10.18

            10.19

            Amendment No. 1 to ABL Credit Agreement, dated as of June 28, 2013, by and among the HD Supply, Inc., the other borrowers party thereto, the lenders party thereto, General Electric Capital Corporation, as administrative agent and U.S. ABL collateral agent, and GE Canada Finance Holding Company, as Canadian agent and Canadian collateral agent.(17)


            10.20

            Intercreditor Agreement, dated as of April 12, 2012, among the Bank of America, N.A., as collateral agent for the banks and other financial institutions party to the Credit Agreement, General Electric Capital Corporation, as collateral agent for the banks and other financial institutions party to the ABL Credit Agreement, Wilmington Trust, National Association, as note collateral agent for the 81/8% Senior Secured First Priority Notes due 2019, and Wilmington Trust, National Association, as note collateral agent for the 11% Senior Secured Second Priority Notes due 2020.7(7)

            10.19
            10.21
             
            Cash Flow Intercreditor Agreement, dated as of April 12, 2012, among Bank of America, N.A., as collateral agent for the banks and other financial institutions party to the Credit Agreement, Wilmington Trust, National Association, as note collateral agent for the 81/8% Senior Secured First Priority Notes due 2019, and Wilmington Trust, National Association, as note collateral agent for the 11% Senior Secured Second Priority Notes due 2020.7(7)

            10.20
            10.22
             
            Notice and Confirmation of Grant of Security Interest in Trademarks, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Bank of America, N.A., as administrative agent and collateral agent for the banks and other financial institutions that are parties to the Credit Agreement.7(7)

            II-23

            Index to Financial Statements

            Table of Contents

            Exhibit
            Number            		Exhibit Description

            Exhibit Number

            		10.23 

            Exhibit Description

            10.21Grant of Security Interest in Copyrights, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Bank of America, N.A., as administrative agent and collateral agent for the banks and other financial institutions that are parties to the Credit Agreement.7(7)

            10.22
            10.24
             
            ABL Notice and Confirmation of Grant of Security Interest in Trademarks, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of General Electric Capital Corporation, as administrative agent and collateral agent for the banks and other financial institutions that are parties to the ABL Credit Agreement.7(7)

            10.23
            10.25
             
            ABL Grant of Security Interest in Copyrights, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of General Electric Capital Corporation, as administrative agent and collateral agent for the banks and other financial institutions that are parties to the ABL Credit Agreement.7(7)

            10.24
            10.26
             
            First Lien Secured Note Notice and Confirmation of Grant of Security Interest in Trademarks, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Wilmington Trust, National Association, as note collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.7(7)

            10.25
            10.27
             
            First Lien Secured Note Grant of Security Interest in Copyrights, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Wilmington Trust, National Association, as note collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.7(7)

            10.26
            10.28
             
            Second Lien Secured Note Notice and Confirmation of Grant of Security Interest in Trademarks, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Wilmington Trust, National Association, as note collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.7(7)

            10.27
            10.29
             
            Second Lien Secured Note Grant of Security Interest in Copyrights, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Wilmington Trust, National Association, as note collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.7(7)

            10.28
            10.30
                         		HD Supply Management Incentive Plan.1
            10.29Industrial PVF Bonus Plans.2
            10.31
            HDS Investment Holding, Inc. Stock Incentive Plan.5(5)

            10.32
            10.31
             
            Home Depot Retention Agreement with Joseph DeAngelo, effective August 30, 2007.1(1)

            10.33
            10.32
             
            Letter of Continued Employment, dated as of August 10, 2007, by Pro Acquisition Corporation in favor of Joseph J. DeAngelo.3(3)

            10.34
            10.33
             
            Letter of Continued Employment, dated as of August 10, 2007, by Pro Acquisition Corporation in favor of Anesa T. Chaibi.3(3)

            10.35
            10.34
             
            Letter of Employment, dated as of April 14, 2010, by and between HD Supply, Inc. and Ronald J. Domanico.4(4)

            10.36
            10.35
             
            Letter of Employment, dated as of March 26,18, 2010, by and between HD Supply, Inc. and Joseph Izganics.5John Stegeman.(3)

            10.37
            10.36
             
            Letter of Employment, effective April 4, 2011,dated as of August 3, 2012, by and between HD Supply, Inc. and Steve Margolius.6Mark Fabere.(11)

            II-24

            Index to Financial Statements

            Table of Contents

            Exhibit
            Number            		Exhibit Description

            Exhibit Number

            		10.37 

            Exhibit Description

            10.38Tax Sharing Agreement, dated as of August 30, 2007, by and betweenamong HDS Investment Holding, Inc., HDS Acquisition Subsidiary, Inc. (which has been merged into HD Supply, Inc.), HDS Holding Corporation and HD Supply, Inc.1(1)

            10.39
            10.38
             
            Strategic Purchase Agreement, dated August 30, 2007, between Home Depot USA, Inc. and HD Supply Distribution Services, LLC.1(1)†


            10.39

            Amendment to Strategic Purchase Agreement, dated as of February 3, 2013, between Home Depot U.S.A., Inc. and HD Supply Distribution Services, LLC.(11)†
            12.1

            10.40

            Indemnification Agreement, dated as of August 30, 2007, by and among Bain Capital Integral Investors 2006, LLC, Bain Capital Partners, LLC, HDS Investment Holding, Inc. and HD Supply,  Inc.(1)


            10.41

            Indemnification Agreement, dated as of August 30, 2007, by and among Carlyle Partners V, L.P., Carlyle Partners V-A, L.P., CP V Coinvestment A, L.P., CP V Coinvestment B, L.P., TC Group V, L.L.C., HDS Investment Holding, Inc. and HD Supply, Inc.(1)


            10.42

            Amended and Restated Indemnification Agreement, dated as of November 23, 2009, by and among Clayton, Dubilier & Rice Fund VII, L.P., CD&R Parallel Fund VII, L.P., Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P., Clayton, Dubilier & Rice, Inc., Clayton, Dubilier & Rice, LLC, Clayton, Dubilier & Rice Holdings, L.P., HDS Investment Holding, Inc. and HD Supply, Inc.(16)


            10.43

            Indemnification Agreement, dated as of August 30, 2007, by and among The Home Depot, Inc., HDS Investment Holding, Inc. and HD Supply, Inc.(1)


            10.44

            Form of Director Indemnification Agreement.(2)


            10.45

            Form of Employee Stock Option Agreement.(3)


            10.46

            HD Supply Holdings, Inc. 2013 Omnibus Incentive Plan.(13)


            10.47

            HD Supply Holdings, Inc. Annual Incentive Plan.(13)


            10.48

            HD Supply Holdings, Inc. Employee Stock Purchase Plan.(13)


            10.49

            Commitment Letter, dated May 30, 2013, by and among HD Supply, Inc. and the Committed Lenders named therein.(12)


            10.50

            Form of HD Supply Holdings, Inc. Employee Stock Option Agreement.(13)


            10.51

            Form of Director Restricted Stock Unit Agreement.(13)


            10.52

            Form of Director Deferred Stock Unit Agreement.(13)


            10.53

            Board of Directors Compensation Policy.(13)


            12.1

            Computation of Ratio of Earnings to Fixed Charges.12(18)


            21.1
             
            List of Subsidiaries.12(18)


            23.1
             
            Consent of PricewaterhouseCoopers LLP.13(18)


            23.2
             
            Consent of Debevoise & Plimpton LLP (included in Exhibit 5.1 hereto).13(19)


            23.3
             
            Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 hereto).13(19)


            23.4
             
            Consent of Holland & Knight LLP (included in Exhibit 5.3 hereto).13(19)

            II-25

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            23.5 Consent of Clark Hill PLC (included in Exhibit 5.4 hereto).13(19)


            23.6
             
            Consent of Holland & Hart LLP (included in Exhibit 5.5 hereto).13(19)


            24.1
             
            Powers of Attorney (contained on signature pages to Form S-4 (File No. 333-186164) filed on January 23, 2013)hereto).


            25.1
             


            Statement of Eligibility of Wells Fargo Bank, National Association on Form T-1.(18)12



            99.1
             
            Form of Letter of Transmittal.12(18)


            99.2
             
            Form of Notice of Guaranteed Delivery.12(18)


            99.3
             
            Form of Letter to Nominee.12(18)


            99.4
             
            Form of Letter to Clients.12(18)


            99.5
             
            Instruction to Registered Holder or DTC Participant From Beneficial Owner.12(18)


            101
             
            The following financial information from (a)(a) the Annual Report on Form 8-K10-K for the fiscal year ended January 29, 2012 and/or (b)(b) the Quarterly Report on Form 10-Q for the fiscal quarter ended October 28, 2012,August 4, 2013, as applicable, in each case formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i)(i) the Consolidated Statements of Operations; (ii)(ii) the Consolidated Statements of Operations and Comprehensive Income (Loss); (iii)(iii) the Consolidated Balance Sheets; (iv)(iv) Consolidated Statements of Stockholder’sStockholder's Equity and Comprehensive Income; (v)(v) the Consolidated Statements of Cash Flows; and (vi)(vi) the Notes to the Consolidated Financial Statements.12(18)
            (1)
            Previously filed in Amendment No. 1 to Form S-4 of HD Supply, Inc. (File No. 333-159809) filed on July 10, 2009.

            (2)
            Previously filed in Amendment No. 2 to Form S-4 of HD Supply, Inc. (File No. 333-159809) filed on July 27, 2009.

            (3)
            Previously filed in Form 10-K of HD Supply, Inc. (File No. 333-159809) filed on April 13, 2010.

            (4)
            Previously filed in Form 10-Q of HD Supply, Inc. (File No. 333-159809) filed on June 11, 2010.

            (5)
            Previously filed in Form 10-K of HD Supply, Inc. (File No. 333-159809) filed on April 14, 2011.

            (6)
            Previously filed in Form 10-K of HD Supply, Inc. (File No. 333-159809) filed on March 23, 2012.

            (7)
            Previously filed in Form 10-Q of HD Supply, Inc. (File No. 333-159809) filed on June 7, 2012.

            (8)
            Previously filed in Form 10-Q of HD Supply, Inc. (File No. 333-159809) filed on September 4, 2012.

            (9)
            Previously filed in Form S-4 of HD Supply, Inc. (File No. 333-185158) filed on November 27, 2012.

            (10)
            Previously filed in Amendment No. 2 to Form S-4 of HD Supply, Inc. (File No. 333-185158) filed on January 18, 2013.

            (11)
            Previously filed in Form 10-K of HD Supply, Inc. (File No. 333-159809) filed on April 16, 2013.

            (12)
            Previously filed in Form 8-K of HD Supply, Inc. (File No. 333-159809) filed on June 4, 2013.

            (13)
            Previously filed in Amendment No. 3 to Form S-1 of HD Supply Holdings, Inc. (File No. 333-187872) filed on June 13, 2013.

            (14)
            Previously filed in Form S-8 of HD Supply Holdings, Inc. (File No. 333-189771) filed on July 2, 2013.

            II-26

            1

            Table of Contents

            (15)
            Previously filed in Form 8-K of HD Supply, Inc. (File No. 333-159809) filed on July 9, 2013.

            (16)
            Previously filed in Amendment No. 2 to Form S-1 of HD Supply Holdings, Inc. (File No. 333-187872) filed on June 4, 2013.

            (17)
            Previously filed on Form 10-Q of HD Supply Holdings, Inc. and HD Supply, Inc. (File Nos. 001-35979 and 333-159809) filed on September 10, 2013.

            (18)
            Filed herewith.

            (19)
            To be filed by amendment.

            †
            Certain provisions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.

            II-27

            Previously filed in Amendment No. 1 to Form S-4 (File No. 333-159809) filed on July 10, 2009.

            2

            Previously filed in Amendment No. 2 to Form S-4 (File No. 333-159809) filed on July 27, 2009.

            3

            Previously filed in Form 10-K (File No. 333-159809) filed on April 13, 2010.

            4

            Previously filed in Form 10-Q (File No. 333-159809) filed on June 11, 2010.

            5

            Previously filed in Form 10-K (File No. 333-159809) filed on April 14, 2011.

            6

            Previously filed in Form 10-K (File No. 333-159809) filed on March 23, 2012.

            7

            Previously filed in Form 10-Q (File No. 333-159809) filed on June 7, 2012.

            8

            Previously filed in Form 10-Q (File No. 333-159809) filed on September 4, 2012.

            9

            Previously filed in Form S-4 (File No. 333-185158) filed on November 27, 2012.

            10

            Previously filed in Amendment No. 1 to Form S-4 (File No. 333-185158) filed on January 2, 2013.

            11

            Previously filed in Amendment No. 2 to Form S-4 (File No. 333-185158) filed on January 18, 2013.

            12

            Previously filed in Form S-4 (File No. 333-186164) filed on January 23, 2013.

            13

            Filed herewith.

            II-25Table of Contents

            Index to Financial Statements

            (b)
            Financial Statement Schedule

            HD SUPPLY, INC.

            SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

            (Amounts in millions)

            Accounts Receivable Allowance for Doubtful Accounts:

               Balance
            at
            Beginning
            of Period            		   Acquisition or
            Disposition of
            Business Adjustment            		  Charges
            to
            Expense /
            (Income)            		   Doubtful
            Accounts
            Written
            Off, Net            		  Other
            Adjustments            		  Balance
            at End of
            Period            		 

            Period ended:

            		         

            January 31, 2010

            		  $94     2    23     (64)   (3)  $52  

            January 30, 2011

            		  $52     —      12     (28)   —     $36  

            January 29, 2012

            		  $36     (2)   12     (14)   —     $32  
             
            		 Balance at
            Beginning of
            Period            		 Acquisition
            or
            Disposition
            of Business
            Adjustment            		 Charges to
            Expense/
            Income            		 Doubtful
            Accounts
            Written Off,
            Net            		 Other
            Adjustments            		 Balance at
            End of
            Period            		 

            Fiscal Year ended:

            		                   

            January 30, 2011

            		 $52  —  12  (28) — $36 

            January 29, 2012

            		 $36  (2) 12  (14) — $32 

            February 3, 2013

            		 $32  (3) 4  (10) — $23 

            Deferred Tax Valuation Allowances:

             
            		 Balance at Beginning
            of Period            		 Charges to Expense Balance at End of
            Period            		 

            Fiscal Year ended:

            		          

            January 30, 2011

            		 $9  230 $239 

            January 29, 2012

            		 $239  252 $491 

            February 3, 2013

            		 $491  434 $925 

            ITEM 22.    UNDERTAKINGS

                    

               Balance
            at
            Beginning
            of Period            		   Charges
            to
            Expense            		   Balance
            at End of
            Period            		 

            Period ended:

            		      

            January 31, 2010

            		  $2     7    $9  

            January 30, 2011

            		  $9     230    $239  

            January 29, 2012

            		  $239     252    $491  

            ITEM 22.UNDERTAKINGS

            The undersigned registrant hereby undertakes:

              (1)   To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

                (a)   To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

                (b)   To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation"Calculation of Registration Fee”Fee" table in the effective registration statement;

                (c)   To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

              (2)   That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

              (3)   To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

                      

              II-26

              Index to Financial Statements

              (4)   That, for purposes of determining liability under the Securities Act of 1933 to any purchaser: Each prospectus filed pursuant to Rule 424(b) as part of the registration statement relating to an offering, other than registration statements relying on Rule 430B or other than

            II-28

            Table of Contents

              prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

              (5)   That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

                (a)   Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

                (b)   Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

                (c)   The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

                (d)   Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

              (6)   Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, that the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

              (7)   To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

              (8)   To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

            II-29

            Table of Contents


            SIGNATURES

                    

            II-27

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, HD Supply, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            HD SUPPLY, INC.

            By: 

            /s/ Ricardo Nunez

            HD SUPPLY, INC.



            By:

            /s/ RICARDO J. NUNEZ
             Name: Ricardo J. Nunez
             Title: Senior Vice President, General Counsel and Secretary

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title



            /s/ JOSEPH J. DEANGELO
            Joseph J. DeAngelo            		 

            Title

            *

            Joseph J. DeAngelo

            President and Chief Executive Officer (Principal Executive Officer), Director

            *


            /s/ RONALD J. DOMANICO

            Ronald J. Domanico


             
            Senior Vice President and Chief Financial Officer (Principal Financial Officer)

            *


            /s/ EVAN LEVITT

            Evan Levitt


             
            Controller and Assistant Treasurer (Principal Accounting Officer)

            *

            James G. Berges

            Director

            *

            Vipul Amin

            Director

            *

            Brian A. Bernasek

            Director

            *

            Paul Edgerley

            Director

            *

            Mitchell Jacobson

            Director

            *

            Lew Klessel

            Director

            *

            Gregory S. Ledford

            Director

            *

            Nathan K. Sleeper

            Director

            *

            Stephen M. Zide

            Director

            II-30

            Table of Contents

            Signature
            Title



            *By:/s/ JAMES G. BERGES
            James G. Berges            		 

            Director


            /s/ Ricardo Nunez

            Ricardo Nunez

            BETSY S. ATKINS
            Betsy S. Atkins
             

            Attorney-in-Fact


            Director

            /s/ BRIAN A. BERNASEK
            Brian A. Bernasek

            Director

            /s/ PAUL B. EDGERLEY
            Paul B. Edgerley

            Director

            /s/ MITCHELL JACOBSON
            Mitchell Jacobson

            Director

            /s/ GREGORY S. LEDFORD
            Gregory S. Ledford

            Director

            /s/ PATRICK R. MCNAMEE
            Patrick R. McNamee

            Director

            /s/ CHARLES W. PEFFER
            Charles W. Peffer

            Director

            /s/ NATHAN K. SLEEPER
            Nathan K. Sleeper

            Director

            /s/ STEPHEN M. ZIDE
            Stephen M. Zide

            Director

            II-31

            Table of Contents


            SIGNATURES

                    

            II-28

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, each of the registrants listed below has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            BRAFASCO HOLDINGS II, INC.

            BRAFASCO HOLDINGS, INC.

            HD SUPPLY CONSTRUCTION SUPPLY GROUP, INC.

            HD SUPPLY FACILITIES MAINTENANCE GROUP, INC.

            HD SUPPLY MANAGEMENT, INC.

            HD SUPPLY UTILITIES GROUP, INC.

            HD SUPPLY WATERWORKS GROUP, INC.

            HDS POWER SOLUTIONS, INC.

            HSI IP, INC.

            LBM HOLDINGS, LLC

            By:

            		 

            /s/ Ricardo NunezBRAFASCO HOLDINGS II, INC.

            		 

            BRAFASCO HOLDINGS, INC.

            HD SUPPLY CONSTRUCTION SUPPLY GROUP, INC.

            HD SUPPLY FACILITIES MAINTENANCE GROUP, INC.

            HD SUPPLY MANAGEMENT, INC.

            HD SUPPLY POWER SOLUTIONS, INC.

            HD SUPPLY WATERWORKS GROUP, INC.

            HDS POWER SOLUTIONS, INC.

            HSI IP, INC.

            LBM HOLDINGS, LLC

            By:

            /s/ RICARDO J. NUNEZ

            		Name:

            		 Ricardo J. Nunez

            Title:

            		 Title:Vice President and Secretary of each registrant

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            II-32

            Table of Contents

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title




            *

            /s/ JOSEPH J. DEANGELO

            Joseph J. DeAngelo

            		 President (Principal Executive Officer) and Director of each registrantRegistrant

            *


            /s/ RONALD J. DOMANICO

            Ronald J. Domanico


             
            Vice President (Principal Financial Officer) and Director of each registrant

            *


            /s/ EVAN LEVITT

            Evan Levitt


             
            Assistant Treasurer (Principal Accounting Officer) of each registrant

            /s/ RICARDO J. NUNEZ
            Ricardo J. Nunez

            *

            Ricardo Nunez



            Director of each registrantRegistrant

            II-33

            * By:

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            Table of Contents


            SIGNATURES

                    

            II-29

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, Creative Touch Interiors, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            CREATIVE TOUCH INTERIORS, INC.



            By:

            /s/ RICARDO J. NUNEZ
            By: 

            /s/ Ricardo Nunez

             Name:Ricardo J. Nunez
             Title:Vice President and Secretary

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            II-34

            Table of Contents

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title




            *

            /s/ JOSEPH C. IZGANICS

            Joseph C. Izganics

            		 President (Principal Executive Officer)

            *


            /s/ RONALD J. DOMANICO

            Ronald J. Domanico


             
            Vice President (Principal Financial Officer) and Director

            *


            /s/ EVAN LEVITT

            Evan Levitt


             
            Assistant Treasurer (Principal Accounting Officer)

            *


            /s/ JOSEPH J. DEANGELO

            Joseph J. DeAngelo


             
            Director

            /s/ RICARDO J. NUNEZ
            Ricardo J. Nunez

            *

            Ricardo Nunez



            Director

            II-35

            * By:

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            Table of Contents


            SIGNATURES

                    

            II-30

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, HD Supply GP & Management, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            HD SUPPLY GP & MANAGEMENT, INC.



            By:

            /s/ RICARDO J. NUNEZ
            By: 

            /s/ Ricardo Nunez

             Name:Ricardo J. Nunez
             Title:Vice President and Secretary

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            II-36

            Table of Contents

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title




            *

            /s/ JOSEPH J. DEANGELO

            Joseph J. DeAngelo

            		 Chief Executive Officer (Principal Executive Officer) and Director

            *


            /s/ RONALD J. DOMANICO

            Ronald J. Domanico


             
            Vice President (Principal Financial Officer) and Director

            *


            /s/ EVAN LEVITT

            Evan Levitt


             
            Assistant Treasurer (Principal Accounting Officer)

            /s/ RICARDO J. NUNEZ
            Ricardo J. Nunez

            *

            Ricardo Nunez



            Director

            II-37

            * By:

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            Table of Contents


            SIGNATURES

                    

            II-31

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, HD Supply Support Services, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            HD SUPPLY SUPPORT SERVICES, INC.



            By:

            /s/ RICARDO J. NUNEZ
            By: /s/ Ricardo Nunez
             Name:Ricardo J. Nunez
             Title:Vice President and Secretary

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            II-38

            Table of Contents

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title




            *

            /s/ JOSEPH J. DEANGELO

            Joseph J. DeAngelo

            		 President (Principal Executive Officer) and Director

            *


            /s/ RONALD J. DOMANICO

            Ronald J. Domanico


             
            Vice President (Principal Financial Officer) and Director

            *


            /s/ JEFFREY MONDAY

            Jeffrey Monday


             
            Assistant Treasurer (Principal Accounting Officer)

            /s/ RICARDO J. NUNEZ
            Ricardo J. Nunez

            *

            Ricardo Nunez



            Director

            II-39

            * By:

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            Table of Contents


            SIGNATURES

                    

            II-32

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, White Cap Construction Supply, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            WHITE CAP CONSTRUCTION SUPPLY, INC.



            By:

            /s/ RICARDO J. NUNEZ
            By: /s/ Ricardo Nunez
             Name:Ricardo J. Nunez
             Title:Vice President and Secretary

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            II-40

            Table of Contents

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            		Title




            *

            /s/ JOHN A. STEGEMAN

            John A. Stegeman

            		 President (Principal Executive Officer)

            *


            /s/ RONALD J. DOMANICO

            Ronald J. Domanico


             
            Vice President (Principal Financial Officer) and Director

            *


            /s/ EVAN LEVITT

            Evan Levitt


             
            Assistant Treasurer (Principal Accounting Officer)

            *


            /s/ JOSEPH J. DEANGELO

            Joseph J. DeAngelo


             
            Director

            /s/ RICARDO J. NUNEZ
            Ricardo J. Nunez

            *

            Ricardo Nunez



            Director

            II-41

            * By:

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            Table of Contents


            SIGNATURES

                    

            II-33

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, both of the registrants listed below has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            		HD BUILDER SOLUTIONS GROUP, LLC


            HD SUPPLY DISTRIBUTION SERVICES, LLC




            By:

            /s/ RICARDO J. NUNEZ
            By: /s/ Ricardo Nunez
             Name: Ricardo J. Nunez
             Title: Vice President and Secretary of both registrants

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            II-42

            Table of Contents

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title

            Signature
            Title

            *








            /s/ JOSEPH J. DEANGELO
            Joseph J. DeAngelo

            		 Vice President (Principal Executive Officer) of both registrants

            *


            /s/ RONALD J. DOMANICO

            Ronald J. Domanico


             
            Vice President (Principal Financial Officer) of both registrants

            *


            /s/ EVAN LEVITT

            Evan Levitt


             
            Assistant Treasurer (Principal Accounting Officer) of both registrants


            HD Supply GP & Management, Inc.

             
            Manager of both registrants

            By:

            /s/ JOSEPH J. DEANGELO


            By:

            		 *Name: 
            Joseph J. DeAngelo 

            Name: Joseph J. DeAngelo

            Title:Chief Executive Officer

            		 

            II-43

            * By:

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            Table of Contents


            SIGNATURES

                    

            II-34

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, HD Supply Holdings, LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            HD SUPPLY HOLDINGS, LLC



            By:

            /s/ RICARDO J. NUNEZ
            By: /s/ Name:Ricardo J. Nunez
             

            Name: Ricardo Nunez

             

            Title:

            		Vice President and Secretary

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            II-44

            Table of Contents

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title

            Signature
            Title

            *








            /s/ JOSEPH J. DEANGELO
            Joseph J. DeAngelo

            		 President (Principal Executive Officer)

            *


            /s/ RONALD J. DOMANICO

            Ronald J. Domanico


             
            Vice President (Principal Financial Officer)

            *


            /s/ EVAN LEVITT

            Evan Levitt


             
            Assistant Treasurer (Principal Accounting Officer)


            HD Supply GP & Management, Inc.


            Manager

            By:

            /s/ JOSEPH J. DEANGELO


             Manager

            By:

            Name:            		 

            *

            Name: Joseph J. DeAngelo

            Title:Chief Executive Officer

            		 

            II-45

            * By:

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            Table of Contents


            SIGNATURES

                    

            II-35

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, HD Supply Repair & Remodel, LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            HD SUPPLY REPAIR & REMODEL, LLC



            By:

            /s/ RICARDO J. NUNEZ
            By: /s/ Name:Ricardo J. Nunez
             

            Name: Ricardo Nunez

             

            Title:

            		Vice President and Secretary

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            II-46

            Table of Contents

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title

            *

            Joseph J. DeAngelo

            		Vice President (Principal Executive Officer)

            *

            Katherine Boelte

            		Treasurer (Principal Financial Officer)

            *

            Evan Levitt

            		Assistant Treasurer (Principal Accounting Officer)

            Signature
            Title








            /s/ JOSEPH J. DEANGELO
            Joseph J. DeAngelo

            President (Principal Executive Officer)

            /s/ KATHERINE BOELTE
            Katherine Boelte

            Treasurer (Principal Financial Officer)

            /s/ EVAN LEVITT
            Evan Levitt

            Assistant Treasurer (Principal Accounting Officer)

            HD Supply GP & Management, Inc.


            Manager

            By:

            /s/ JOSEPH J. DEANGELO


             Manager

            By:

            Name:            		 

            *

            Name: Joseph J. DeAngelo

            Title:Chief Executive Officer

            		 

            II-47

            * By:

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            Table of Contents


            SIGNATURES

                    

            II-36

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, HDS IP Holding, LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            HDS IP HOLDING, LLC



            By:

            /s/ RICARDO J. NUNEZ
            By: 

            /s/ Ricardo Nunez

             Name:Ricardo J. Nunez
             Title:Vice President

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title




            *

            /s/ LEO COOK

            Leo Cook

            		 President (Principal Executive Officer) and Manager

            *


            /s/ JOSHUA C. MILLER

            Joshua C. Miller


             
            Treasurer (Principal Financial Officer and Principal Accounting Officer)

            II-48

            * By:

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            Table of Contents


            SIGNATURES

                    

            II-37

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, ProValue, LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            PROVALUE, LLC



            By:

            /s/ RICARDO J. NUNEZ
            By: 

            /s/ Ricardo Nunez

             Name:Ricardo J. Nunez
             Title:Vice President and Secretary

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            II-49

            Table of Contents

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title

            Signature
            Title

            *








            /s/ JOSEPH J. DEANGELO
            Joseph J. DeAngelo

            		 President (Principal Executive Officer)

            *


            /s/ KATHERINE BOELTE

            Katherine Boelte


             
            Treasurer (Principal Financial Officer)

            *


            /s/ EVAN LEVITT

            Evan Levitt


             
            Assistant Treasurer (Principal Accounting Officer)


            HD Supply Support Services, Inc.
             
            Managing Member

            By:

            /s/ JOSEPH J. DEANGELO


            By:

            *

             Name:Joseph J. DeAngelo 
             Title:   President 

            * By:President 

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            II-50

            Table of Contents


            SIGNATURES

                    

            II-38

            Index to Financial Statements

            SIGNATURES

            Pursuant to the requirements of the Securities Act of 1933, as amended, each of the registrants listed below has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on JanuarySeptember 30, 2013.

            HD SUPPLY CONSTRUCTION SUPPLY, LTD.

            HD SUPPLY ELECTRICAL, LTD.

            HD SUPPLY FACILITIES MAINTENANCE, LTD.

            HD SUPPLY UTILITIES,POWER SOLUTIONS, LTD.

            HD SUPPLY WATERWORKS, LTD.

            By:

            		 

            By:

            /s/ Ricardo NunezRICARDO J. NUNEZ

            		 Name:Ricardo J. Nunez

            		 

            		Title:Vice President and Secretary of the general partner of each registrant, HD Supply GP & Management, Inc.

                    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Domanico and Ricardo J. Nunez, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-facts and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

                    This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned's execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.

            II-51

            Table of Contents

            Pursuant to the requirements of the Securities Act, this registration statement has been signed on JanuarySeptember 30, 2013 by the following persons in the capacities indicated.

            Signature

            Title




            *

            /s/ JOSEPH J. DEANGELO

            Joseph J. DeAngelo

            		 Chief Executive Officer (Principal Executive Officer) and Director of the general partner of each registrant, HD Supply GP & Management, Inc.

            *


            /s/ RONALD J. DOMANICO

            Ronald J. Domanico


             
            Vice President (Principal Financial Officer) and Director of the general partner of each registrant, HD Supply GP & Management, Inc.

            *


            /s/ EVAN LEVITT

            Evan Levitt


             
            Assistant Treasurer (Principal Accounting Officer) of the general partner of each registrant, HD Supply GP & Management, Inc.

            /s/ RICARDO J. NUNEZ
            Ricardo J. Nunez

            *

            Ricardo Nunez



            Director of the general partner of each registrant, HD Supply GP & Management, Inc.

            II-52

            Table of Contents


            EXHIBIT INDEX

            Exhibit List

            Exhibit
            Number            		Exhibit Description

            * By:

            /s/ Ricardo Nunez

            Ricardo Nunez

            		Attorney-in-Fact

            II-39

            Index to Financial Statements

            EXHIBIT INDEX

            Exhibit List

            Exhibit List

            Exhibit Number

            Exhibit Description

            2.1 Purchase and Sale Agreement, dated as of June 19, 2007, by and between The Home Depot, Inc., THD Holdings, LLC, Home Depot International, Inc., Homer TLC, Inc. and Pro Acquisition Corporation.1(1)


            2.2
             
            Letter agreement,Agreement, dated August 14, 2007, by and between The Home Depot, Inc., THD Holdings, LLC, Home Depot International, Inc., Homer TLC, Inc. and Pro Acquisition Corporation.1(1)


            2.3
             
            Amendment, dated as of August 27, 2007, by and between The Home Depot, Inc., THD Holdings, LLC, Home Depot International, Inc., Homer TLC, Inc. and ProHDS Investment Holding, Inc. and HDS Acquisition Corporation.1Subsidiary, Inc.(1)


            3.1
             
            Certificate of Incorporation of HD Supply, Inc.1(1)


            3.2

            Certificate of Amendment of Certificate of Incorporation of HD Supply, Inc.(15)
            3.2

            3.3

            Amended and Restated By-Laws of HD Supply, Inc.1(15)

            3.3
            3.4
             
            Certificate of Incorporation of Brafasco Holdings II, Inc.1(1)

            3.4
            3.5
             
            By-Laws of Brafasco Holdings II, Inc.1(1)

            3.5
            3.6
             
            Certificate of Incorporation of Brafasco Holdings, Inc.1(1)

            3.6
            3.7
             
            By-Laws of Brafasco Holdings, Inc.1(1)

            3.7
            3.8
             
            Articles of Incorporation of Creative Touch Interiors, Inc.1(1)

            3.8
            3.9
             
            By-Laws of Creative Touch Interiors, Inc.1(1)

            3.9
            3.10
             
            Certificate of Formation of HD Builder Solutions Group, LLC.1(1)

            3.10
            3.11
             
            Limited Liability Company Agreement of HD Builder Solutions Group, LLC.1(1)

            3.11
            3.12
             
            Certificate of Incorporation of HD Supply Construction Supply Group, Inc.1(1)

            3.12
            3.13
             
            By-Laws of HD Supply Construction Supply Group, Inc.1(1)

            3.13
            3.14
             
            Certificate of Limited Partnership of HD Supply Construction Supply, Ltd.1(1)

            3.14
            3.15
             
            Agreement of Limited Partnership of HD Supply Construction Supply, Ltd.1(1)

            3.15
            3.16
             
            Certificate of Formation of HD Supply Distribution Services, LLC.1(1)

            3.16
            3.17
             
            Limited Liability Company Agreement of HD Supply Distribution Services, LLC.1(1)

            3.17
            3.18
                         		Certificate of Limited Partnership of HD Supply Electrical, Ltd.1
            3.18Agreement of Limited Partnership of HD Supply Electrical, Ltd.1
            3.19
            Certificate of Incorporation of HD Supply Facilities Maintenance Group, Inc.1(1)

            3.20
            3.19
             
            By-Laws of HD Supply Facilities Maintenance Group, Inc.1(1)

            3.21
            3.20
             
            Certificate of Limited Partnership of HD Supply Facilities Maintenance, Ltd.1(1)

            3.22
            3.21
             
            Agreement of Limited Partnership of HD Supply Facilities Maintenance, Ltd.1(1)

            3.23
            3.22
             
            Certificate of Incorporation of HD Supply GP & Management, Inc.1(1)

            3.24
            3.23
             
            By-Laws of HD Supply GP & Management, Inc.(1)1

            II-40

            Index to Financial Statements

            Exhibit Number



            3.24

            Exhibit Description


            3.25
            Articles of Organization of HD Supply Holdings, LLC.1(1)

            II-53

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            3.263.25 Operating Agreement of HD Supply Holdings, LLC.1(1)

            3.27
            3.26
             
            Articles of Incorporation of HD Supply Management, Inc.1(1)

            3.28
            3.27
             
            By-Laws of HD Supply Management, Inc.1(1)

            3.29
            3.28
             
            Certificate of Formation of HD Supply Repair & Remodel, LLC.1(1)

            3.30
            3.29
             
            Limited Liability Company Agreement of HD Supply Repair & Remodel, LLC.1(1)

            3.31
            3.30
             
            Certificate of Incorporation of HD Supply Support Services, Inc.1(1)

            3.32
            3.31
             
            By-Laws of HD Supply Support Services, Inc.1(1)

            3.33
            3.32
             
            Certificate of Incorporation of HD Supply Utilities Group,Power Solutions, Inc.1(1)


            3.33

            Certificate of Amendment of Certificate of Incorporation of HD Supply Power Solutions, Inc.(18)
            3.34

            3.34

            By-Laws of HD Supply Utilities Group,Power Solutions, Inc.1(1)


            3.35
             
            Certificate of Limited Partnership of HD Supply Utilities,Power Solutions, Ltd.1(1)


            3.36

            Certificate of Amendment of Certificate of Limited Partnership of HD Supply Power Solutions, Ltd.(18)
            3.36

            3.37

            Agreement of Limited Partnership of HD Supply Utilities,Power Solutions, Ltd.1(1)

            3.37
            3.38
             
            Certificate of Incorporation of HD Supply Waterworks Group, Inc.1(1)

            3.38
            3.39
             
            By-Laws of HD Supply Waterworks Group, Inc.1(1)

            3.39
            3.40
             
            Certificate of Limited Partnership of HD Supply Waterworks, Ltd.1(1)

            3.40
            3.41
             
            Agreement of Limited Partnership of HD Supply Waterworks, Ltd.1(1)

            3.41
            3.42
             
            Articles of Organization of HDS IP Holding, LLC.1(1)

            3.42
            3.43
             
            Operating Agreement of HDS IP Holding, LLC.1(1)

            3.43
            3.44
             
            Articles of Incorporation of HDS Power Solutions, Inc.1(1)

            3.44
            3.45
             
            Certificate of Amendment to Articles of Incorporation of HDS Power Solutions, Inc.9(9)

            3.45
            3.46
             
            By-Laws of HDS Power Solutions, Inc.1(1)

            3.46
            3.47
             
            Certificate of Incorporation of HSI IP, Inc.1(1)

            3.47
            3.48
             
            By-Laws of HSI IP, Inc.1(1)

            3.48
            3.49
             
            Articles of Organization of LBM Holdings, LLC.9(9)

            3.49
            3.50
             
            Operating Agreement of LBM Holdings, LLC.9(9)

            3.50
            3.51
             
            Certificate of Formation of ProValue, LLC.1(1)

            3.51
            3.52
             
            Operating Agreement of ProValue, LLC.1(1)

            3.52
            3.53
             
            Certificate of Incorporation of White Cap Construction Supply, Inc.1(1)

            3.53
            3.54
             
            By-Laws of White Cap Construction Supply, Inc.1(1)

            II-54

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            4.1 Indenture, dated as of April 12, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wilmington Trust, National Association, as trustee and note collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.7(7)


            4.2
             
            First Supplemental Indenture, dated as of April 12, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors named therein, and Wilmington Trust, National Association, as trustee, relating to the 81/8% Senior Secured First Priority Notes due 2019.7(7)


            4.3
             
            Second Supplemental Indenture, dated as of July 27, 2012, among Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products,  LLC, AP RE LLC, HD Supply, Inc. and Wilmington Trust, National Association, as trustee, relating to the 81/8% Senior Secured First Priority Notes due 2019.(8)8

            II-41

            Index to Financial Statements

            Exhibit Number



            4.4

            Exhibit Description


            4.4
            Third Supplemental Indenture, dated as of August 2, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors named therein, and Wilmington Trust, National Association, as trustee, relating to the 81/8% Senior Secured First Priority Notes due 2019.8(8)


            4.5
                         		Exchange and Registration Rights Agreement, dated as of April 12, 2012, among HD Supply, Inc., the Subsidiary Guarantors named therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other financial institutions named therein, relating to the 8 1/8% Senior Secured First Priority Notes due 2019.7
            4.6Exchange and Registration Rights Agreement, dated as of August 2, 2012, among HD Supply, Inc., the Subsidiary Guarantors named therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other financial institutions named therein, relating to the 8 1/8% Senior Secured First Priority Notes due 2019.8
            4.7
            Indenture, dated as of April 12, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wilmington Trust, National Association, as trustee and note collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.7(7)

            4.8
            4.6
             
            First Supplemental Indenture, dated as of April 12, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors named therein, and Wilmington Trust, National Association, as trustee, relating to the 11% Senior Secured Second Priority Notes due 2020.7(7)

            4.9
            4.7
             
            Second Supplemental Indenture, dated as of July 27, 2012, among Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products,  LLC, AP RE LLC, HD Supply, Inc. and Wilmington Trust, National Association, as trustee, relating to the 11% Senior Secured Second Priority Notes due 2020.8(8)

            4.10
            4.8
                         		Exchange and Registration Rights Agreement, dated as of April 12, 2012, among HD Supply, Inc., the Subsidiary Guarantors named therein, Goldman, Sachs & Co. and the other financial institutions named therein, relating to the 11% Senior Secured Second Priority Notes due 2020.7
            4.11
            Indenture, dated as of October 15, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo Bank, National Association, as trustee, relating to the 11.5%11.50% Senior Notes due 2020.9(9)

            4.12
            4.9
             
            First Supplemental Indenture, dated as of October 15, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto,named therein, and Wells Fargo Bank, National Association, as trustee, relating to the 11.5%11.50% Senior Notes due 2020.9(9)

            4.13
            4.10
                         		Exchange and Registration Rights Agreement, dated as of October 15, 2012, among HD Supply, Inc., the Subsidiary Guarantors named therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other financial institutions named therein, relating to the 11.5% Senior Notes due 2020.9
            4.14
            Indenture, dated as of April 12, 2012, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wilmington Trust, National Association, as trustee, relating to the 14.875% Senior Notes due 2020.7
            4.15First Supplemental Indenture, dated as of July 27, 2012, among Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC, AP RE LLC, HD Supply, Inc. and Wilmington Trust, National Association, as trustee, relating to the 14.875% Senior Notes due 2020.8

            II-42

            Index to Financial Statements

            Exhibit Number

            Exhibit Description

              4.16Exchange and Registration Rights Agreement, dated as of April 12, 2012, among HD Supply, Inc., the Subsidiary Guarantors named therein, and the Initial Investors named therein, relating to the 14.875% Senior Notes due 2020.7
              4.17Indenture, dated as of January 16,February 1, 2013, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo Bank, National Association, as trustee, relating to the 10.50%7.50% Senior Subordinated Notes due 2021.112020.(11)

              4.18
            4.11
             
            First Supplemental Indenture, dated as of January 16,February 1, 2013, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto,named therein, and Wells Fargo Bank, National Association, as trustee, relating to the 10.50%7.50% Senior Subordinated Notes due 2021.112020.(11)

              4.19
            4.12
             
            Exchange and Registration Rights Agreement, dated as of January 16,February 1, 2013, among HD Supply, Inc., as issuer, the Subsidiary Guarantors named therein, and Merrill, Lynch, Pierce, Fenner & Smith Incorporated and the other financial institutions named therein, relating to the 10.50%7.50% Senior Subordinated Notes due 2021.112020.(11)

            II-55

            Table of Contents

              4.20Exhibit
            Number            		Exhibit Description
             Indenture, dated as of August 30, 2007, among HD Supply, Inc., as issuer, the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo Bank, National Association, as trustee, relating to the 13.5% Senior Subordinated Notes due 2015.1
              4.21Merger Supplemental Indenture, dated as of August 30, 2007, by and between HD Supply, Inc. and Wells Fargo Bank, National Association, as trustee, relating to the 13.5% Senior Subordinated Notes due 2015.1
              4.22Supplemental Indenture in Respect of Subsidiary Guarantee, dated as of August 30, 3007, by and between HD Supply Inc., the Subsidiary Guarantors named therein, and Wells Fargo Bank, National Association, as trustee, relating to the 13.5% Senior Subordinated Notes due 2015.1
              4.23Third Supplemental Indenture, dated October 30, 2007, by and between HD Supply, Inc., the Subsidiary Guarantors parties named therein, and Wells Fargo Bank, National Association, as trustee, relating to the 13.5% Senior Subordinated Notes due 2015.1
              4.24Fourth Supplemental Indenture, dated as of July 27, 2012, among Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC, AP RE LLC, HD Supply, Inc. and Wells Fargo Bank, National Association, as trustee, relating to the 13.5% Senior Subordinated Notes due 2015.8
              4.25Exchange and Registration Rights Agreement, dated as of August 30, 2007, among HD Supply, Inc. (successor by merger to HDS Acquisition Subsidiary, Inc.), J.P. Morgan Securities Inc. and the other financial institutions named therein, relating to the 13.5% Senior Subordinated Notes due 2015.1
              4.264.13 Form of 81/8% Senior Secured First Priority Note due 2019 (included in Exhibit 4.1 hereto).7

              4.27
            4.14
             
            Form of 11% Senior Secured Second Priority Note due 2020 (included in Exhibit 4.74.5 hereto).7

              4.28
            4.15
             
            Form of 11.5%11.50% Senior Note due 2020 (included in Exhibit 4.114.8 hereto).9

              4.29
            4.16
             
            Form of 14.875%7.50% Senior Note due 2020 (included in Exhibit 4.14 hereto).7
              4.30Form of 10.50% Senior Subordinated Note due 2021 of HD Supply, Inc. (included in Exhibit 4.174.12 hereto).11

              4.31
            5.1
                         		Form of 13.5% Senior Subordinated Note due 2015 of HD Supply, Inc. (included in Exhibit 4.20 hereto).1
              5.1
            Opinion of Debevoise & Plimpton LLP.(19)13

            II-43

            Index to Financial Statements

            Exhibit Number



            5.2

            Exhibit Description


              5.2
            Opinion of Richards, Layton & Finger, P.A.13(19)


            5.3
             
            Opinion of Holland & Knight LLP.13(19)


            5.4
             
            Opinion of Clark Hill PLC.13(19)


            5.5
             
            Opinion of Holland & Hart LLP.13(19)


            10.1
             
            Credit Agreement, dated as of April 12, 2012, among HD Supply, Inc., as borrower, the several lenders and financial institutions from time to time parties thereto, Bank of America, N.A., as administrative agent and collateral agent for the lenders party thereto, and the other parties thereto.7(7)


            10.2
             
            Guarantee and Collateral Agreement, dated as of April 12, 2012 among HD Supply, Inc., the Subsidiary Guarantors named therein, in favor of Bank of America, N.A., as administrative agent and collateral agent for the banks and other financial institutions from time to time parties to the Credit Agreement.7(7)


            10.3
             
            ABL Credit Agreement, dated as of April 12, 2012, among HD Supply, Inc., as parent borrower, the Subsidiary Borrowers from time to time parties thereto, HD Supply Canada, Inc,Inc., as Canadian borrower, the several lenders and financial institutions from time to time parties thereto, General Electric Capital Corporation, as administrative agent and U.S. ABL collateral agent for the lenders party thereto, GE Canada Finance Holding Company, as Canadian agent and Canadian collateral agent for the lenders party thereto, and the other parties thereto.7(7)


            10.4
             
            ABL Joinder Agreement, dated as of July 27, 2012, among HD Supply, Inc., as parent borrower, certain operating subsidiaries of the Parent Borrower signatory thereto and consented to by the other Loan Parties, General Electric Capital Corporation, as administrative agent and U.S. ABL collateral agent for the lenders party to the ABL Credit Agreement, GE Canada Finance Holding Company, as Canadian agent and Canadian collateral agent for the lenders party to the ABL Credit Agreement.8(8)


            10.5
             
            U.S. Guarantee and Collateral Agreement, dated as of April 12, 2012, among HD Supply, Inc., the Subsidiary Borrowers named therein, the Subsidiary Guarantors named therein, in favor of General Electric Capital Corporation, as U.S. ABL administrative agent and U.S. ABL collateral agent for the banks and other financial institutions from time to time parties to the ABL Credit Agreement.7(7)


            10.6
             
            Assumption Agreement, dated as of July 27, 2012, made by Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC and AP RE LLC in favor of General Electric Capital Corporation, as administrative agent and U.S. ABL collateral agent for the lenders party to the ABL Credit Agreement, and the other parties thereto.8(8)

            II-56

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            10.7 Supplemental Agreement, dated as of July 27, 2012, made by HD Supply Holdings, LLC in favor of General Electric Capital Corporation, as administrative agent and U.S. ABL collateral agent for the lenders party to the ABL Credit Agreement, and the other parties thereto.8(8)


            10.8
             
            Holding Pledge Agreement, dated as of April 12, 2012, by HDS Holding Corporation in favor of Bank of America, N.A., as collateral agent and administrative agent for the banks and other financial institutions from time to time parties to the Credit Agreement.7(7)


            10.9
             
            Assumption Agreement, dated as of July 27, 2012, made by Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC and AP RE LLC in favor of Bank of America, N.A., as collateral agent and administrative for the lenders party to the Credit Agreement, and the other parties thereto.(8)8

            II-44

            Index to Financial Statements

            Exhibit Number



            10.10

            Exhibit Description


            10.10
            Supplemental Agreement, dated as of July 27, 2012, made by HD Supply Holdings, LLC in favor of Bank of America, N.A., as collateral agent and administrative for the lenders party to the Credit Agreement, and the other parties thereto.8(8)


            10.11
             
            ABSABL Holding Pledge Agreement, dated as of April 12, 2012, by HDS Holding Corporation in favor of General Electric Capital Corporation, as administrative agent and collateral agent for the banks and other financial institutions from time to time parties to the ABL Credit Agreement.7(7)


            10.12
             
            Collateral Agreement, dated as of April 12, 2012, amongmade by HD Supply, Inc., and the Subsidiaries named therein andin favor of Wilmington Trust, National Association, as note collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.7(7)


            10.13
             
            Assumption Agreement, dated as of July 27, 2012, made by Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC and AP RE LLC in favor of Wilmington Trust, National Association, as collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.8(8)


            10.14
             
            Supplemental Agreement, dated as of July 27, 2012, made by HD Supply Holdings, LLC in favor of Wilmington Trust, National Association, as collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.8(8)


            10.15
             
            Collateral Agreement, dated as of April 12, 2012, amongmade by HD Supply, Inc., and the Subsidiaries named therein andin favor of Wilmington Trust, National Association, as note collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.7(7)


            10.16
             
            Assumption Agreement, dated as of July 27, 2012, made by Varsity AP Holding Corporation, GCP Amerifile Coinvest Inc., Varsity AP Holdings LLC, Amerifile, LLC, Peachtree Business Products, LLC and AP RE LLC in favor of Wilmington Trust, National Association, as collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.8(8)


            10.17
             
            Supplemental Agreement, dated as of July 27, 2012, made by HD Supply Holdings, LLC in favor of Wilmington Trust, National Association, as collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.8(8)


            10.18

            Amendment No. 1 to Credit Agreement, dated as of February 15, 2013, among HD Supply, Inc., as borrower, Bank of America, N.A., as administrative agent and the several lenders and financial institutions party thereto.(11)

            II-57

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            10.1810.19 Amendment No. 1 to ABL Credit Agreement, dated as of June 28, 2013, by and among the HD Supply, Inc., the other borrowers party thereto, the lenders party thereto, General Electric Capital Corporation, as administrative agent and U.S. ABL collateral agent, and GE Canada Finance Holding Company, as Canadian agent and Canadian collateral agent.(17)


            10.20

            Intercreditor Agreement, dated as of April 12, 2012, among the Bank of America, N.A., as collateral agent for the banks and other financial institutions party to the Credit Agreement, General Electric Capital Corporation, as collateral agent for the banks and other financial institutions party to the ABL Credit Agreement, Wilmington Trust, National Association, as note collateral agent for the 81/8% Senior Secured First Priority Notes due 2019, and Wilmington Trust, National Association, as note collateral agent for the 11% Senior Secured Second Priority Notes due 2020.7(7)

            10.19
            10.21
             
            Cash Flow Intercreditor Agreement, dated as of April 12, 2012, among Bank of America, N.A., as collateral agent for the banks and other financial institutions party to the Credit Agreement, Wilmington Trust, National Association, as note collateral agent for the 81/8% Senior Secured First Priority Notes due 2019, and Wilmington Trust, National Association, as note collateral agent for the 11% Senior Secured Second Priority Notes due 2020.7(7)

            10.20
            10.22
             
            Notice and Confirmation of Grant of Security Interest in Trademarks, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Bank of America, N.A., as administrative agent and collateral agent for the banks and other financial institutions that are parties to the Credit Agreement.(7)7

            II-45

            Index to Financial Statements

            Exhibit Number



            10.23

            Exhibit Description


            10.21
            Grant of Security Interest in Copyrights, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Bank of America, N.A., as administrative agent and collateral agent for the banks and other financial institutions that are parties to the Credit Agreement.7(7)

            10.22
            10.24
             
            ABL Notice and Confirmation of Grant of Security Interest in Trademarks, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of General Electric Capital Corporation, as administrative agent and collateral agent for the banks and other financial institutions that are parties to the ABL Credit Agreement.7(7)

            10.23
            10.25
             
            ABL Grant of Security Interest in Copyrights, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of General Electric Capital Corporation, as administrative agent and collateral agent for the banks and other financial institutions that are parties to the ABL Credit Agreement.7(7)

            10.24
            10.26
             
            First Lien Secured Note Notice and Confirmation of Grant of Security Interest in Trademarks, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Wilmington Trust, National Association, as note collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.7(7)

            10.25
            10.27
             
            First Lien Secured Note Grant of Security Interest in Copyrights, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Wilmington Trust, National Association, as note collateral agent, relating to the 81/8% Senior Secured First Priority Notes due 2019.7(7)

            10.26
            10.28
             
            Second Lien Secured Note Notice and Confirmation of Grant of Security Interest in Trademarks, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Wilmington Trust, National Association, as note collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.7(7)

            II-58

            Table of Contents

            Exhibit
            Number            		Exhibit Description
            10.2710.29 Second Lien Secured Note Grant of Security Interest in Copyrights, dated as of April 12, 2012, made by subsidiaries of HD Supply, Inc. named therein in favor of Wilmington Trust, National Association, as note collateral agent, relating to the 11% Senior Secured Second Priority Notes due 2020.7(7)

            10.28
            10.30
                         		HD Supply Management Incentive Plan.1
            10.29Industrial PVF Bonus Plans.2
            10.31
            HDS Investment Holding, Inc. Stock Incentive Plan.5(5)

            10.32
            10.31
             
            Home Depot Retention Agreement with Joseph DeAngelo, effective August 30, 2007.1(1)

            10.33
            10.32
             
            Letter of Continued Employment, dated as of August 10, 2007, by Pro Acquisition Corporation in favor of Joseph J. DeAngelo.3(3)

            10.34
            10.33
             
            Letter of Continued Employment, dated as of August 10, 2007, by Pro Acquisition Corporation in favor of Anesa T. Chaibi.3(3)

            10.35
            10.34
             
            Letter of Employment, dated as of April 14, 2010, by and between HD Supply, Inc. and Ronald J. Domanico.4(4)

            10.36
            10.35
             
            Letter of Employment, dated as of March 26,18, 2010, by and between HD Supply, Inc. and Joseph Izganics.5John Stegeman.(3)

            10.37
            10.36
             
            Letter of Employment, effective April 4, 2011,dated as of August 3, 2012, by and between HD Supply, Inc. and Steve Margolius.Mark Fabere.(11)6

            II-46

            Index to Financial Statements

            Exhibit Number



            10.37

            Exhibit Description


              10.38
            Tax Sharing Agreement, dated as of August 30, 2007, by and betweenamong HDS Investment Holding, Inc., HDS Acquisition Subsidiary, Inc. (which has been merged into HD Supply, Inc.), HDS Holding Corporation and HD Supply, Inc.1(1)

              10.39
            10.38
             
            Strategic Purchase Agreement, dated August 30, 2007, between Home Depot USA, Inc. and HD Supply Distribution Services, LLC.1(1)†


            10.39

            Amendment to Strategic Purchase Agreement, dated as of February 3, 2013, between Home Depot U.S.A., Inc. and HD Supply Distribution Services, LLC.(11)†


            10.40

            Indemnification Agreement, dated as of August 30, 2007, by and among Bain Capital Integral Investors 2006, LLC, Bain Capital Partners, LLC, HDS Investment Holding, Inc. and HD Supply,  Inc.(1)


            10.41

            Indemnification Agreement, dated as of August 30, 2007, by and among Carlyle Partners V, L.P., Carlyle Partners V-A, L.P., CP V Coinvestment A, L.P., CP V Coinvestment B, L.P., TC Group V, L.L.C., HDS Investment Holding, Inc. and HD Supply, Inc.(1)


            10.42

            Amended and Restated Indemnification Agreement, dated as of November 23, 2009, by and among Clayton, Dubilier & Rice Fund VII, L.P., CD&R Parallel Fund VII, L.P., Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P., Clayton, Dubilier & Rice, Inc., Clayton, Dubilier & Rice, LLC, Clayton, Dubilier & Rice Holdings, L.P., HDS Investment Holding, Inc. and HD Supply, Inc.(16)


            10.43

            Indemnification Agreement, dated as of August 30, 2007, by and among The Home Depot, Inc., HDS Investment Holding, Inc. and HD Supply, Inc.(1)


            10.44

            Form of Director Indemnification Agreement.(2)


            10.45

            Form of Employee Stock Option Agreement.(3)


            10.46

            HD Supply Holdings, Inc. 2013 Omnibus Incentive Plan.(13)


            10.47

            HD Supply Holdings, Inc. Annual Incentive Plan.(13)

            II-59

            Table of Contents

            Exhibit
            Number            		Exhibit Description
             12.110.48 HD Supply Holdings, Inc. Employee Stock Purchase Plan.(13)


            10.49

            Commitment Letter, dated May 30, 2013, by and among HD Supply, Inc. and the Committed Lenders named therein.(12)


            10.50

            Form of HD Supply Holdings, Inc. Employee Stock Option Agreement.(13)


            10.51

            Form of Director Restricted Stock Unit Agreement.(13)


            10.52

            Form of Director Deferred Stock Unit Agreement.(13)


            10.53

            Board of Directors Compensation Policy.(13)


            12.1

            Computation of Ratio of Earnings to Fixed Charges.12(18)


            21.1
             
            List of Subsidiaries.12(18)


            23.1
             
            Consent of PricewaterhouseCoopers LLP.13(18)


            23.2
             
            Consent of Debevoise & Plimpton LLP (included in Exhibit 5.1 hereto).13(19)


            23.3
             
            Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 hereto).13(19)


            23.4
             
            Consent of Holland & Knight LLP (included in Exhibit 5.3 hereto).13(19)


            23.5
             
            Consent of Clark Hill PLC (included in Exhibit 5.4 hereto).13(19)


            23.6
             
            Consent of Holland & Hart LLP (included in Exhibit 5.5 hereto).13(19)


            24.1
             
            Powers of Attorney (contained on signature pages to Form S-4 (File No. 333-186164) filed on January 23, 2013)hereto).


            25.1
             


            Statement of Eligibility of Wells Fargo Bank, National Association on Form T-1.(18)12



            99.1
             
            Form of Letter of Transmittal.12(18)


            99.2
             
            Form of Notice of Guaranteed Delivery.12(18)


            99.3
             
            Form of Letter to Nominee.12(18)


            99.4
             
            Form of Letter to Clients.12(18)


            99.5
             
            Instruction to Registered Holder or DTC Participant From Beneficial Owner.12(18)


            101
             
            The following financial information from (a)(a) the Annual Report on Form 8-K10-K for the fiscal year ended January 29, 2012 and/or (b)(b) the Quarterly Report on Form 10-Q for the fiscal quarter ended October 28, 2012,August 4, 2013, as applicable, in each case formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i)(i) the Consolidated Statements of Operations; (ii)(ii) the Consolidated Statements of Operations and Comprehensive Income (Loss); (iii)(iii) the Consolidated Balance Sheets; (iv)(iv) Consolidated Statements of Stockholder’sStockholder's Equity and Comprehensive Income; (v)(v) the Consolidated Statements of Cash Flows; and (vi)(vi) the Notes to the Consolidated Financial Statements.12(18)
            (1)
            Previously filed in Amendment No. 1 to Form S-4 of HD Supply, Inc. (File No. 333-159809) filed on July 10, 2009.

            (2)
            Previously filed in Amendment No. 2 to Form S-4 of HD Supply, Inc. (File No. 333-159809) filed on July 27, 2009.

            (3)
            Previously filed in Form 10-K of HD Supply, Inc. (File No. 333-159809) filed on April 13, 2010.

            (4)
            Previously filed in Form 10-Q of HD Supply, Inc. (File No. 333-159809) filed on June 11, 2010.

            II-60

            1

            Previously filed in Amendment No. 1 to Form S-4 (File No. 333-159809) filed on July 10, 2009.

            2

            Previously filed in Amendment No. 2 to Form S-4 (File No. 333-159809) filed on July 27, 2009.

            3

            Previously filed in Form 10-K (File No. 333-159809) filed on April 13, 2010.

            4

            Previously filed in Form 10-Q (File No. 333-159809) filed on June 11, 2010.

            5

            Previously filed in Form 10-K (File No. 333-159809) filed on April 14, 2011.

            6

            Previously filed in Form 10-K (File No. 333-159809) filed on March 23, 2012.

            7

            Previously filed in Form 10-Q (File No. 333-159809) filed on June 7, 2012.

            8

            Previously filed in Form 10-Q (File No. 333-159809) filed on September 4, 2012.

            9

            Previously filed in Form S-4 (File No. 333-185158) filed on November 27, 2012.

            10

            Previously filed in Amendment No. 1 to Form S-4 (File No. 333-185158) filed on January 2, 2013.

            11

            Previously filed in Amendment No. 2 to Form S-4 (File No. 333-185158) filed on January 18, 2013.

            12

            Previously filed in Form S-4 (File No. 333-186164) filed on January 23, 2013.

            13

            Filed herewith.

            Table of Contents

            (5)
            Previously filed in Form 10-K of HD Supply, Inc. (File No. 333-159809) filed on April 14, 2011.

            (6)
            Previously filed in Form 10-K of HD Supply, Inc. (File No. 333-159809) filed on March 23, 2012.

            (7)
            Previously filed in Form 10-Q of HD Supply, Inc. (File No. 333-159809) filed on June 7, 2012.

            (8)
            Previously filed in Form 10-Q of HD Supply, Inc. (File No. 333-159809) filed on September 4, 2012.

            (9)
            Previously filed in Form S-4 of HD Supply, Inc. (File No. 333-185158) filed on November 27, 2012.

            (10)
            Previously filed in Amendment No. 2 to Form S-4 of HD Supply, Inc. (File No. 333-185158) filed on January 18, 2013.

            (11)
            Previously filed in Form 10-K of HD Supply, Inc. (File No. 333-159809) filed on April 16, 2013.

            (12)
            Previously filed in Form 8-K of HD Supply, Inc. (File No. 333-159809) filed on June 4, 2013.

            (13)
            Previously filed in Amendment No. 3 to Form S-1 of HD Supply Holdings, Inc. (File No. 333-187872) filed on June 13, 2013.

            (14)
            Previously filed in Form S-8 of HD Supply Holdings, Inc. (File No. 333-189771) filed on July 2, 2013.

            (15)
            Previously filed in Form 8-K of HD Supply, Inc. (File No. 333-159809) filed on July 9, 2013.

            (16)
            Previously filed in Amendment No. 2 to Form S-1 of HD Supply Holdings, Inc. (File No. 333-187872) filed on June 4, 2013.

            (17)
            Previously filed on Form 10-Q of HD Supply Holdings, Inc. and HD Supply, Inc. (File Nos. 001-35979 and 333-159809) filed on September 10, 2013.

            (18)
            Filed herewith.

            (19)
            To be filed by amendment.

            †
            Certain provisions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.

            II-47II-61