UNITED STATES SECURITIES AND EXCHANGE COMMISSION

~~SECURITIES~~WASHINGTON, ~~AND~~D.C. ~~EXCHANGE COMMISSION~~ 20549

~~WASHINGTON, D.C. 20549~~ FORM 10-Q

~~FORM~~(Mark ~~10-Q~~ One)

~~(Mark~~x QUARTERLY ~~One~~REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

xFor ~~QUARTERLY~~the ~~REPORT~~quarterly ~~PURSUANT~~period TOended ~~SECTION~~May 5, ~~13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~2013

~~For~~- ~~the~~OR ~~quarterly period ended October 28, 2012~~ -

-o TRANSITION REPORT PURSUANT TO SECTION 13 OR -15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨For ~~TRANSITION~~the ~~REPORT~~transition ~~PURSUANT~~period ~~TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~from to

~~For~~Commission ~~the~~file ~~transition~~number: ~~period from to~~ 333-159809

~~Commission~~HD ~~file number: 333-159809~~ SUPPLY, INC.

HD(Exact ~~SUPPLY,~~name ~~INC.~~of Registrant as specified in its charter)

(Exact name of Registrant as specified in its charter)

Delaware		75-2007383
(State or other jurisdiction of		(I.R.S. Employer Identification Number)
incorporation or organization)

3100 Cumberland Boulevard, Suite 1480, Atlanta, Georgia (Address of principal executive offices)		30339 (Zip Code)

Delaware		75-2007383
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
3100 Cumberland Boulevard, Suite 1480, Atlanta, Georgia		30339
(Address of principal executive offices)		(Zip Code)

(770) 852-9000
(Registrant’s telephone number, including area code)

(~~770) 852-9000~~Former name, former address and former fiscal year, if changed since last report)

(Indicate by check mark whether the Registrant’s ~~telephone~~(1) has ~~number,~~filed ~~including~~all ~~area~~reports ~~code~~required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

~~(Former~~Indicate ~~name, former~~by ~~address~~check mark whether the Registrant has submitted electronically and ~~former~~posted ~~fiscal~~on ~~year~~its corporate Web site, if ~~changed~~any, ~~since~~every ~~last~~Interactive ~~report~~Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the ~~Registrant~~registrant ~~(1) has~~is ~~filed~~a ~~all~~large ~~reports~~accelerated ~~required~~filer, toan beaccelerated ~~filed~~filer, bya ~~Section 13~~non-accelerated orfiler, ~~15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (~~or ~~for~~a ~~such~~smaller ~~shorter~~reporting ~~period~~company. ~~that~~See the ~~registrant~~definitions ~~was~~of ~~required~~“large toaccelerated ~~file such reports)~~filer,” ~~and~~“accelerated ~~(2) has~~filer” ~~been~~and ~~subject~~“smaller toreporting ~~such~~company” ~~filing~~in ~~requirements~~Rule 12b-2 ~~for~~of the ~~past~~Exchange ~~90 days~~Act. ~~Yes x No ¨~~ (Check one):

~~Indicate~~Large byaccelerated ~~check~~filer ~~mark~~o ~~whether~~Accelerated ~~the~~filer ~~Registrant~~o ~~has~~Non-accelerated ~~submitted~~filer ~~electronically~~x ~~and~~Smaller ~~posted~~reporting oncompany ~~its corporate~~o ~~Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T~~ (~~§232.405)~~Do ~~during~~not ~~the~~check ~~preceding~~if ~~12 months~~a ~~(or~~smaller ~~for~~reporting ~~such shorter period that the Registrant was required to submit and post such files~~company)~~. Yes x No ¨~~

Indicate by check mark whether the ~~registrant~~Registrant is a ~~large~~shell ~~accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting~~ company. ~~See~~(as ~~the~~defined ~~definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”~~ in Rule 12b-2 of the Exchange Act). ~~(Check~~Yes ~~one):~~o No x

~~Large~~The ~~accelerated~~registrant ~~filer~~is ¨a ~~Accelerated~~privately ~~filer~~held ¨corporation ~~Non-accelerated~~and ~~filer~~its xequity ~~(Do~~shares are not ~~check~~publicly iftraded. aAs ~~smaller~~of ~~reporting~~June 7, ~~company)~~2013, ~~Smaller~~there ~~reporting~~were ~~company~~1,000 ¨shares of common stock of HD Supply, Inc. outstanding, all of which were owned by HDS Holding Corporation, a wholly-owned subsidiary of HD Supply Holdings, Inc.

~~Indicate~~Table ~~by check mark whether the Registrant is a shell company (as defined in Rule 12b-2~~ of ~~the Exchange Act). Yes ¨ No x~~ Contents

AsINDEX ofTO ~~December~~FORM ~~6, 2012, there were 1,000 shares of common stock of HD Supply, Inc. outstanding.~~ 10-Q

		Page

Part I.	Financial Information

Item 1.	Financial Statements

	Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months ended May 5, 2013 and April 29, 2012 (unaudited)	3

	Consolidated Balance Sheets as of May 5, 2013 and February 3, 2013 (unaudited)	4

	Consolidated Statements of Cash Flows for the Three Months ended May 5, 2013 and April 29, 2012 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	37

Part II.	Other Information

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 6.	Exhibits	38

Signatures		39

~~INDEX TO FORM 10-Q~~ 2

		Page
Part I.	Financial Information
Item 1.	Financial Statements
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months ended October 28, 2012 and October 30, 2011 (unaudited)		3
	Consolidated Balance Sheets as of October 28, 2012 and January 29, 2012 (unaudited)		4
	Consolidated Statements of Cash Flows for the Nine Months ended October 28, 2012 and October 30, 2011 (unaudited)		5
	Notes to Consolidated Financial Statements (unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		51
Item 4.	Controls and Procedures		51
Part II.	Other Information
Item 1.	Legal Proceedings		51
Item 1A.	Risk Factors		51
Item 6.	Exhibits		52
Signatures			53

Table of Contents

2PART I. FINANCIAL INFORMATION

~~Table~~Item of1. ~~Contents~~Financial Statements

~~PART~~HD ISUPPLY, INC. ~~FINANCIAL INFORMATION~~

~~Item 1.~~CONSOLIDATED ~~Financial~~STATEMENTS ~~Statements~~OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

HDAmounts ~~SUPPLY~~in millions, ~~INC.~~ unaudited

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

	Three Months Ended
	May 5, 2013			April 29, 2012
Net Sales	$	2,068		$	1,836
Cost of sales	1,470			1,313
Gross Profit	598			523
Operating expenses:
Selling, general and administrative	439			397
Depreciation and amortization	59			83
Total operating expenses	498			480
Operating Income	100			43
Interest expense	147			166
Loss on extinguishment of debt	40			220
Other (income) expense, net	1			—
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes	(88		)	(343		)
Provision (benefit) for income taxes	43			33
Income (Loss) from Continuing Operations	(131		)	(376		)
Income (loss) from discontinued operations, net of tax	—			16
Net Income (Loss)	$	(131	)	$	(360	)
Other comprehensive income (loss) — foreign currency translation adjustment	(1		)	3
Total Comprehensive Income (Loss)	$	(132	)	$	(357	)

~~Amounts~~The inaccompanying ~~millions,~~notes ~~unaudited~~are an integral part of these consolidated financial statements.

	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~~Table ~~accompanying notes are an integral part~~ of ~~these consolidated financial statements.~~ Contents

3HD SUPPLY, INC.

~~Table~~CONSOLIDATED ofBALANCE ~~Contents~~SHEETS

HDAmounts ~~SUPPLY~~in millions, ~~INC.~~except share data, unaudited

CONSOLIDATED BALANCE SHEETS

	May 5, 2013			February 3, 2013

ASSETS
Current assets:
Cash and cash equivalents	$	88		$	141
Cash equivalents restricted for debt redemption	—			936
Receivables, less allowance for doubtful accounts of $21 and $23	1,089			1,008
Inventories	1,079			987
Deferred tax asset	7			42
Other current assets	46			49
Total current assets	2,309			3,163
Property and equipment, net	397			395
Goodwill	3,138			3,138
Intangible assets, net	440			473
Other assets	175			165
Total assets	$	6,459		$	7,334

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	849		$	693
Accrued compensation and benefits	81			160
Current installments of long-term debt	10			899
Other current liabilities	170			291
Total current liabilities	1,110			2,043

Long-term debt, excluding current installments	6,620			6,430
Deferred tax liabilities	106			104
Other liabilities	343			348
Total liabilities	8,179			8,925

Stockholder’s equity (deficit):
Common stock, par value $0.01; authorized 1,000 shares; issued and outstanding 1,000 shares at May 5, 2013 and February 3, 2013	—			—
Paid-in capital	2,699			2,696
Accumulated deficit	(4,416		)	(4,285		)
Accumulated other comprehensive loss	(3		)	(2		)
Total stockholder’s equity (deficit)	(1,720		)	(1,591		)
Total liabilities and stockholder’s equity (deficit)	$	6,459		$	7,334

~~Amounts~~The inaccompanying ~~millions,~~notes ~~except~~are ~~share~~an ~~data,~~integral ~~unaudited~~part of these consolidated financial statements.

	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~~Table ~~accompanying notes are an integral part~~ of ~~these consolidated financial statements.~~ Contents

4HD SUPPLY, INC.

~~Table~~CONSOLIDATED ofSTATEMENTS ~~Contents~~OF CASH FLOWS

HDAmounts ~~SUPPLY~~in millions, ~~INC.~~ unaudited

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	May 5, 2013			April 29, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(131	)	$	(360	)
Reconciliation of net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	60			86
Provision for uncollectibles	—			1
Non-cash interest expense	8			16
Payment of PIK interest & discounts upon extinguishment of debt	(364		)	—
Loss on extinguishment of debt	40			220
Stock-based compensation expense	3			5
Deferred income taxes	37			28
Gain on sale of a business	—			(9		)
Other	1			1
Changes in assets and liabilities:
(Increase) decrease in receivables	(82		)	(72		)
(Increase) decrease in inventories	(94		)	(122		)
(Increase) decrease in other current assets	4			(11		)
(Increase) decrease in other assets	—			1
Increase (decrease) in accounts payable and accrued liabilities	(42		)	(50		)
Increase (decrease) in other long-term liabilities	3			2
Net cash provided by (used in) operating activities	(557		)	(264		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(32		)	(22		)
Proceeds from sales of property and equipment	1			1
Proceeds from sale of investments	936			—
Proceeds from sale of a business	—			463
Other investing activities	—			(2		)
Net cash provided by (used in) investing activities	905			440
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt	79			2,817
Repayments of long-term debt	(638		)	(3,287		)
Borrowings on long-term revolver debt	348			625
Repayments on long-term revolver debt	(158		)	(255		)
Debt issuance and modification fees	(32		)	(63		)
Net cash provided by (used in) financing activities	(401		)	(163		)
Effect of exchange rates on cash and cash equivalents	—			1
Increase (decrease) in cash and cash equivalents	$	(53	)	$	14
Cash and cash equivalents at beginning of period	141			111
Cash and cash equivalents at end of period	$	88		$	125

~~Amounts~~The inaccompanying ~~millions,~~notes ~~unaudited~~are an integral part of these consolidated financial statements.

	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~~Table ~~accompanying notes are an integral part~~ of ~~these consolidated financial statements.~~ Contents

5HD SUPPLY, INC.

~~Table~~NOTES ofTO ~~Contents~~CONSOLIDATED FINANCIAL STATEMENTS

~~HD SUPPLY, INC.~~ (Unaudited)

~~NOTES~~NOTE TO1 ~~CONSOLIDATED~~— ~~FINANCIAL~~NATURE ~~STATEMENTS~~OF BUSINESS AND BASIS OF PRESENTATION

~~(Unaudited)~~Nature of Business

~~NOTE~~HD 1Supply, Inc. —(the ~~NATURE~~‘‘Company’’ OFor ~~BUSINESS~~‘‘HDS’’), ~~AND~~a ~~BASIS~~wholly-owned OFsubsidiary ~~PRESENTATION~~of HD Supply Holdings, Inc. (“Holdings”), 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. HDS 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. HDS’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.

~~Basis~~HDS is managed primarily on a product line basis and reports results of ~~Presentation~~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.

~~The~~Basis ~~consolidated financial statements have been prepared pursuant to the rules and regulations~~ of the U.S. Securities and Exchange Commission (“SEC”) that permit reduced disclosure for interim periods. The consolidated balance sheet as of January 29, 2012 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 (“U.S. GAAP”). Presentation

InThe ~~management’s~~consolidated ~~opinion, the unaudited~~ financial ~~information~~ ~~for~~statements ~~the~~have ~~interim~~been ~~periods~~prepared ~~presented~~pursuant ~~includes~~to ~~all adjustments necessary for a fair statement of~~ the ~~results of operations, financial position,~~ rules and ~~cash~~regulations ~~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~~U.S. ~~Therefore,~~Securities ~~the results~~ and ~~trends~~Exchange inCommission ~~these~~that ~~interim~~permit ~~financial~~reduced ~~statements~~disclosure ~~may not be the same as those~~ for ~~the~~interim ~~full year~~periods. ~~For~~The aconsolidated ~~more~~balance ~~complete~~sheet ~~discussion~~as of ~~HD Supply~~February 3, ~~Inc.’s~~ ~~significant~~2013 ~~accounting~~was ~~policies~~derived ~~and~~from ~~other~~audited ~~information~~financial statements, ~~you~~but ~~should~~does ~~read~~not ~~this~~include ~~report~~all innecessary ~~conjunction~~disclosures ~~with~~required HDby ~~Supply,~~accounting ~~Inc.’s~~principles ~~revised~~generally ~~annual~~accepted ~~report for the year ended January 29, 2012,~~ in the ~~current~~United ~~report~~States onof ~~Form~~America ~~8-K filed with the SEC on July 20, 2012, which includes all disclosures required by U.S.~~ (“GAAP”).

~~Nature~~In Management’s opinion, the unaudited financial information for the interim periods presented includes all adjustments necessary for a fair statement of ~~Business~~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 its annual report on Form 10-K for the year ended February 3, 2013, which includes all disclosures required by GAAP.

HDFiscal Supply, Inc. (the “Company” or “HD Supply”) 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 440,000 professional customers in the infrastructure and energy, maintenance, repair and improvement, and specialty construction markets. Year

~~The~~HDS’s ~~Company~~fiscal ~~provides~~year anis ~~expansive~~a ~~offering~~52- ofor ~~approximately~~53-week ~~one~~period ~~million~~ending ~~SKUs~~on ofthe ~~name~~Sunday ~~brand~~nearest ~~and~~to ~~propriety~~January 31. Fiscal ~~brand~~year ~~products at~~ending ~~competitive~~February 2, ~~prices.~~2014 ~~Through~~(“fiscal ~~approximately~~2013”) ~~630~~includes ~~locations~~52 ~~across~~weeks ~~46 states~~ and 9fiscal ~~Canadian~~year ~~provinces,~~ending ~~HD Supply provides localized~~February 3, ~~customer-driven~~2013 ~~services~~(“fiscal ~~including~~2012”) ~~jobsite~~included ~~delivery,~~53 ~~will~~weeks. The ~~call~~three ~~and~~months ~~direct-ship~~ended ~~options~~May 5, ~~diversified~~2013 ~~logistics~~ and ~~innovative~~ ~~solutions~~April 29, ~~that~~2012 ~~contribute~~both toincluded ~~its~~13 ~~customers’ success~~weeks.

HDPrinciples ~~Supply~~of has four reportable segments: Facilities Maintenance, Waterworks, Power Solutions, and White Cap. Other operating segments include Creative Touch Interiors (“CTI”), Crown Bolt, Repair & Remodel, and HD Supply Canada. In addition, the consolidated financial statements include Corporate, which includes enterprise-wide functional departments. Consolidation

~~Fiscal~~The ~~Year~~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 results of operations of all discontinued operations have been separately reported as discontinued operations for all periods presented.

HD Supply’s fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31. Fiscal year ending February 3, 2013 (“fiscal 2012”) includes 53 weeks and fiscal year ending January 29, 2012 (“fiscal 2011”) includes 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. Estimates

~~Principles~~Management has made a number of ~~Consolidation~~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.

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. 6

~~Estimates~~Table of Contents

~~Management~~HD ~~has made a number of estimates and assumptions relating to the reporting of assets and liabilities~~SUPPLY, ~~the disclosure of contingent assets and liabilities, and reported amounts of revenues and expenses in preparing these consolidated financial statements in conformity with U~~ INC.~~S. GAAP. Actual results could differ from these estimates.~~

~~Self-Insurance~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 (Unaudited)

6 Self-Insurance

~~Table~~HDS 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 ~~Contents~~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 each of May 5, 2013 and February 3, 2013, self-insurance reserves totaled approximately $94 million.

HDNOTE ~~SUPPLY,~~2 ~~INC.~~— DISCONTINUED OPERATIONS

~~NOTES~~On TOMarch 26, ~~CONSOLIDATED~~2012, ~~FINANCIAL~~the ~~STATEMENTS~~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.

~~(Unaudited)~~Summary Financial Information

~~recognized~~In asaccordance awith ~~liability.~~Accounting ~~Self-insurance~~Standards ~~losses~~Codification ~~for~~(“ASC”) ~~claims~~205-20, ~~filed~~Discontinued ~~and~~Operations, ~~claims~~the ~~incurred~~results ~~but~~of ~~not~~the ~~reported~~IPVF ~~are~~operations ~~accrued~~and ~~based~~the ~~upon~~gain ~~estimates~~on sale of the ~~aggregate~~business ~~liability~~are ~~for~~classified ~~uninsured~~as ~~claims~~discontinued ~~using~~operations. ~~loss development~~The ~~factors~~presentation ~~and~~of ~~actuarial~~discontinued ~~assumptions~~operations ~~followed~~includes inrevenues and expenses of the ~~insurance~~discontinued ~~industry~~operations and ~~historical~~gain ~~loss~~on ~~development~~the ~~experience.~~sale Atof ~~October 28~~business, ~~2012~~net ~~and~~of ~~January 29~~tax, ~~2012,~~as ~~self-insurance~~one ~~reserves~~line ~~totaled~~item ~~approximately~~on ~~$97~~the ~~million~~Consolidated Statements of Operations and ~~$101 million,~~Comprehensive ~~respectively~~Income (Loss). The following table provides additional detail related to the results of operations of the discontinued operations (amounts in millions):

NOTE 2 — ACQUISITIONS

	Three Months Ended
	May 5, 2013		April 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

InNOTE ~~accordance~~3 ~~with~~— ~~the~~RELATED acquisition method of accounting under Accounting Standards Codification (“ASC”) 805, Business Combinations, the results of the acquisitions are reflected in the Company’s consolidated financial statements from the date of acquisition forward. PARTIES

On ~~June~~August 2930, ~~2012~~2007, ~~the~~investment ~~Company~~funds ~~purchased~~associated ~~Peachtree~~with ~~Business~~Clayton, ~~Products~~Dubilier & Rice, Inc., The Carlyle Group and Bain Capital Partners, LLC (collectively the “~~Peachtree~~Equity Sponsors”) ~~for~~formed ~~approximately~~Holdings ~~$196~~and ~~million~~entered into a stock purchase agreement with The Home Depot, Inc. ~~Headquartered~~(“Home inDepot” ~~Marietta~~or “THD”) pursuant to which Home Depot agreed to sell to Holdings, ~~Georgia~~or to a wholly-owned subsidiary of Holdings, ~~Peachtree~~certain ~~Business~~intellectual ~~Products specializes~~property inand ~~customizable~~all ~~business~~the outstanding common stock of HD Supply, Inc. and ~~property~~the ~~marketing~~Canadian ~~supplies~~subsidiary CND Holdings, Inc. On ~~serving~~August 30, ~~residential~~2007, ~~and~~through ~~commercial~~a ~~property~~series ~~managers~~of transactions, ~~medical~~Holdings’ ~~facilities~~direct wholly-owned subsidiary, ~~schools~~HDS ~~and~~Holding ~~universities~~Corporation, ~~churches~~acquired direct control of HD Supply, Inc. through the merger of its wholly-owned subsidiary, HDS Acquisition Corp., with and ~~funeral~~into ~~homes~~HD Supply, Inc. ~~Peachtree~~and ~~Business~~CND ~~Products~~Holdings, Inc. Through ~~LLC~~these istransactions ~~operated~~(the as“Transactions”), ~~part~~ Home Depot was paid cash of ~~the~~$8.2 ~~Facilities~~billion ~~Maintenance~~and ~~segment~~12.5% of Holdings’ common stock valued at $325 million.

InHome accordance with ASC 805, Business Combinations, the Company recorded the following assets and liabilities at fair value on the date of acquisition: $129 million in goodwill, $53 million in definite-lived intangible assets, $12 million in property & equipment, $8 million in net 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 average of eleven years. Depot

OnSales—HDS ~~May 2,~~derived ~~2011,~~revenue from the ~~Company~~sale ~~closed~~of onproducts ~~a transaction~~ to ~~acquire~~Home ~~substantially~~Depot ~~all~~ of ~~the~~$65 ~~assets~~million ofand ~~Rexford~~$69 ~~Albany~~million ~~Municipal Supply~~in ~~Company,~~the ~~Inc.~~three ~~(“RAMSCO”)~~months ~~for~~ended ~~approximately~~May 5, ~~$21~~2013 ~~million.~~and ~~RAMSCO~~April 29, ~~specializes in distributing water~~2012, ~~sanitary~~respectively. Accounts ~~and~~receivable ~~storm~~from ~~sewer~~Home ~~materials~~Depot ~~primarily~~were toapproximately ~~municipalities~~$28 ~~and~~million ~~contractors~~at ~~through~~May 5, ~~four~~2013 ~~locations~~and in$44 ~~upstate~~million ~~New~~at ~~York.~~February 3, ~~These locations~~2013, and are ~~operated~~included aswithin ~~part~~Receivables ofin the ~~Waterworks~~accompanying ~~segment.~~Consolidated Balance Sheets.

~~NOTE 3 — DISCONTINUED OPERATIONS~~ 7

OnTable ~~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 proceeds of approximately $469 million, which was subject to a customary working capital adjustment. 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 $13 million for the final working capital settlement, and, as a result, recorded an additional $3 million pre-tax gain. Contents

OnHD ~~September 9~~SUPPLY, ~~2011, the Company sold all of the issued and outstanding equity interests in its Plumbing/HVAC (“Plumbing”) business to Hajoca Corporation~~ INC. 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 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.

OnNOTES ~~February 28,~~TO ~~2011,~~CONSOLIDATED HDFINANCIAL 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. STATEMENTS

~~Summary Financial Information~~ (Unaudited)

InStrategic ~~accordance~~Agreement—On ~~with ASC 205-20, Discontinued Operations,~~ the ~~results~~date of the ~~IPVF~~Transactions, ~~Plumbing~~Home ~~and~~Depot ~~SESCO~~entered ~~operations~~into ~~and the~~a ~~gain~~strategic onpurchase ~~sale~~agreement ofwith ~~the~~Crown ~~businesses~~Bolt, ~~are~~HDS’s ~~classified~~distribution asservices ~~discontinued~~line ~~operations. The presentation~~ of ~~discontinued~~business. ~~operations~~As ~~includes~~subsequently ~~revenues~~amended ~~and expenses of the discontinued operations and gain~~ on ~~the sale of businesses~~February 4, ~~net of tax~~2013, asHome ~~one~~Depot ~~line~~agreed ~~item on~~to ~~the~~purchase ~~Consolidated~~certain ~~Statements~~products ofexclusively ~~Operations~~from ~~and~~Crown ~~Comprehensive~~Bolt ~~Income~~through January 31, 2020.

7Equity Sponsors

~~Table~~Sponsor Management Fee—In conjunction with the closing of ~~Contents~~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. The three months ended May 5, 2013 and April 29, 2012 each include $1 million in Sponsor Management Fees and related expenses. These charges are included in Selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).

HDDebt—Management ~~SUPPLY~~of the Company has been informed that, ~~INC~~as of May 5, 2013, affiliates of certain of the Equity Sponsors beneficially owned approximately $33 million aggregate principal amount of the Company’s outstanding indebtedness. On February 8, 2013, the Company 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.

~~NOTES~~NOTE TO4 ~~CONSOLIDATED~~- ~~FINANCIAL STATEMENTS~~ DEBT

Long-term debt as of May 5, 2013 and February 3, 2013 consisted of the following (~~Unaudited)~~dollars in millions):

(Loss). All prior period Consolidated Statements of Operations and Comprehensive Income (Loss) presented have been revised to reflect this presentation. The Consolidated Balance Sheets and Statements of Cash Flows prior to the dates of disposition have not been revised for discontinued operations.

	May 5, 2013				February 3, 2013
	Outstanding Principal			Interest Rate %(1)	Outstanding Principal			Interest Rate %(1)
Term Loans due 2017, net of unamortized discount of $22 million and $26 million as of May 5, 2013 and February 3, 2013, respectively	$	970		4.50	$	969		7.25
Senior ABL Facility due 2017	490			1.95	300			1.96
First Priority Notes due 2019, including unamortized premium of $20 million and $21 million as of May 5, 2013 and February 3, 2013, respectively	1,270			8.125	1,271			8.125
Second Priority Notes due 2020	675			11.00	675			11.00
October 2012 Senior 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	950			10.50
2007 Senior Subordinated Notes due 2015	—			—	889			13.50
Total long-term debt	$	6,630			$	7,329
Less current installments	(10		)		(899		)
Long-term debt, excluding current installments	$	6,620			$	6,430

~~The~~(1) Represents ~~following~~the ~~tables~~stated ~~provide additional~~rate ~~detail~~of ~~related~~interest, towithout including the ~~results~~effect of ~~operations~~discounts ofor ~~the discontinued operations (amounts in millions):~~ premiums.

	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

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 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 aggregate principal amount of Term Loans being prepaid if, on or prior to August 15, 2013, the Company enters into certain repricing transactions. In connection with the amendment, the Company 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, Debt-Modifications and Extinguishments. 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

~~NOTE 4 — RELATED PARTIES~~ 8

OnTable August 30, 2007, investment funds associated with Clayton, Dubilier & Rice, Inc., The Carlyle Group and Bain Capital Partners, LLC (collectively the “Equity Sponsors”) formed HDS Investment Holding, Inc. (“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 property 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’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. Through these transactions (the “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. Contents

~~Home~~HD ~~Depot~~ SUPPLY, INC.

~~Strategic~~NOTES ~~Agreement —~~TO OnCONSOLIDATED ~~the~~FINANCIAL date of the Transactions, 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, 2012, the net book value of the strategic purchase agreement is $50 million and the net book value of goodwill assigned to Crown 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 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 to Crown Bolt or both, which could be significant. STATEMENTS

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. (Unaudited)

~~Equity~~original ~~Sponsors~~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, which was reported as Other non-operating expense in the Consolidated Statement of Operations and Comprehensive Income (Loss).

~~Sponsor~~On ~~Management Fee~~February 8, —2013, InHDS ~~conjunction~~redeemed ~~with~~its ~~the~~remaining ~~closing~~$889 ofmillion ~~the~~outstanding ~~Transactions,~~aggregate ~~the~~principal ~~Company~~amount ~~entered~~of ~~into~~2007 aSenior ~~management~~Subordinated ~~agreement~~Notes ~~whereby~~at ~~the~~a ~~Company~~redemption ~~pays~~price ~~the~~equal ~~Equity~~to ~~Sponsors~~103.375% aof $5the ~~million~~principal ~~annual~~amount ~~aggregate~~thereof ~~management~~and ~~fee~~paid ~~(“Sponsor~~accrued ~~Management~~and ~~Fee”)~~unpaid ~~and related~~interest ~~expenses~~thereon through ~~August~~the ~~2017~~redemption date. ~~The~~As ~~three~~a ~~and~~result, ~~nine~~in ~~months~~the ~~ended~~first ~~October 28~~quarter of fiscal 2013, ~~2012~~the ~~include~~Company incurred a $134 million ~~and~~loss $4on ~~million~~extinguishment, ~~respectively,~~which inincludes ~~Sponsor~~a ~~Management~~$30 ~~Fees~~million ~~and~~premium ~~related~~payment ~~expenses.~~to ~~The~~redeem ~~three~~the ~~and~~2007 ~~nine~~Senior ~~months~~Subordinated ~~ended~~Notes ~~October 30,~~and ~~2011 include~~approximately $14 million ~~and~~to $4write ~~million,~~off the unamortized deferred debt cost.

8Senior Credit Facilities

~~Table~~The Company’s Senior Term Facility consists of ~~Contents~~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.

HDThe ~~SUPPLY~~Company’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 ~~INC~~million (subject to availability under a borrowing base). Extensions of credit under the Senior 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. A portion of the Senior ABL Facility is available for letters of credit and swingline loans. As of May 5, 2013, HDS has $744 million of additional available borrowings under the Senior ABL Facility (after giving effect to the borrowing base limitations and approximately $61 million in letters of credit issued and including $47 million of borrowings available on qualifying cash balances).

~~NOTES~~The TOSenior ~~CONSOLIDATED~~ABL ~~FINANCIAL~~Facility ~~STATEMENTS~~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 April 12, 2017.

~~(Unaudited)~~Secured Notes

~~respectively,~~The inCompany’s ~~Sponsor~~81/8% ~~Management~~Senior ~~Fees~~Secured ~~and~~First ~~related~~Priority ~~expenses.~~Notes ~~These~~due ~~charges~~2019 ~~are~~(the ~~included~~‘‘First inPriority ~~Selling~~Notes’’), ~~general~~bear interest at a rate of 81/8% per annum and ~~administrative~~will ~~expense~~mature inon ~~the~~April 15, ~~Consolidated~~2019. Interest ~~Statements~~will ofbe ~~Operations~~paid semi-annually in arrears on April 15th and ~~Comprehensive~~ ~~Income~~October 15th of ~~(Loss).~~each year.

~~Notes~~The ~~— 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~~11% Senior ~~Notes.~~Secured InSecond ~~addition,~~Priority ~~management~~Notes ofdue 2020 (the ~~Company~~‘‘Second ~~has~~Priority ~~been~~Notes’’ ~~informed that~~and, astogether ofwith ~~October 28, 2012, affiliates of certain of~~ the ~~Equity~~First ~~Sponsors~~Priority ~~beneficially owned approximately $713 million aggregate principal amount~~Notes, ~~or 39%, of~~ the ~~Company’s~~‘‘Secured ~~13.5% Senior Subordinated~~ Notes’’) ~~and~~bear ~~approximately~~interest ~~$42~~at ~~million~~a ~~aggregate~~rate ~~principal amount~~ of ~~the~~11% ~~Company’s~~per ~~other~~annum ~~outstanding~~and ~~indebtedness.~~will ~~See~~mature ~~Note~~on April 15, ~~Subsequent~~2020. Interest ~~Event,~~will ~~for information~~be onpaid ~~the pro~~semi-~~rata~~annually ~~redemption~~in ofarrears ~~the~~on ~~Company’s~~April 15th and ~~13.5%~~October 15th of ~~Senior~~each ~~Subordinated Notes~~year.

~~NOTE~~Unsecured ~~5 — GOODWILL~~ Notes

The ~~carrying~~Company’s ~~amount~~11.5% ofSenior ~~goodwill~~Notes bydue ~~reporting~~2020 ~~unit~~(the ~~as of~~ ‘‘October ~~28,~~ 2012 Senior Notes’’) bear interest at 11.5% per annum and ~~January~~will mature on July 2915, ~~2012~~2020. isInterest aswill ~~follows~~be ~~(amounts~~paid semi-annually in ~~millions):~~ arrears on April 15th and October 15th of each year.

	October 28, 2012							January 29, 2012
	GrossGoodwill		AccumulatedImpairments			NetGoodwill		GrossGoodwill		AccumulatedImpairments			NetGoodwill
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

The Company’s 7.5% Senior Notes due 2020 (the ‘‘February 2013 Senior Unsecured Notes’’ and, together with the October 2012 Senior Notes, the ‘‘Unsecured Notes’’) bear interest at 7.5% 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.

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. 9

~~Under U.S.~~Table GAAP (ASC 350, Intangibles — Goodwill and Other), goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, 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. Contents

~~The~~HD 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 combinationSUPPLY, 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 INC. 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.

OnNOTES ~~January 30,~~TO ~~2012,~~CONSOLIDATED ~~the~~FINANCIAL 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 STATEMENTS

9 (Unaudited)

~~Table~~Senior ofSubordinated ~~Contents~~Notes

HDThe ~~SUPPLY~~Company’s 10.5% Senior Subordinated Notes due 2021 (the ‘‘January 2013 Senior Subordinated Notes’’) bear interest at 10.5%per annum and will mature on January 15, ~~INC~~2021. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year.

~~NOTES~~Debt ~~TO CONSOLIDATED FINANCIAL STATEMENTS~~ covenants

~~(Unaudited)~~The Company’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.

~~value~~First ofQuarter a2012 ~~reporting~~Refinancing ~~unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.~~ Transactions

HDOn ~~Supply~~April 12, ~~performed~~2012, ~~the~~HDS ~~annual~~consummated ~~goodwill impairment testing during~~ the ~~third~~following ~~quarter~~transactions ~~of fiscal 2012 for the seven reporting units with goodwill balances~~ (~~goodwill balances at one reporting unit was zero prior to~~ the ~~annual~~‘‘Refinancing ~~testing~~Transactions’’). Inin ~~accordance~~connection with ~~ASU 2011-08,~~ the ~~Company~~refinancing ~~elected~~of ~~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~~senior ~~value~~portion of ~~each of these reporting units is less than~~ its ~~carrying~~debt 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. structure:

~~The Company determines~~ · the ~~fair~~issuance ~~value~~ of a$950 ~~reporting~~million ~~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~~its 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 11.581/8% toSenior ~~14.0%.~~Secured ~~For~~First ~~the~~Priority ~~market~~Notes ~~comparable~~due ~~approach, the Company evaluated comparable company public trading values, using earnings multiples and sales multiples that are used to value the reporting units.~~ 2019;

~~There was no indication of impairment in any of~~ · the ~~Company’s~~issuance ~~reporting units during both the fiscal 2012 and fiscal 2011 annual testing and accordingly, the second step~~ of ~~the~~$675 ~~goodwill~~million ~~impairment analysis was not performed. At the time~~ of ~~our~~its ~~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~~11% ~~for~~Senior ~~Waterworks,~~Secured ~~31%~~Second ~~for~~Priority ~~Utilities,~~Notes 6%due ~~for Crown Bolt, 40% for Repair & Remodel, and 116% for Electrical.~~ 2020;

~~The following table presents~~ · the ~~changes~~issuance inof ~~goodwill~~approximately ~~for~~$757 ~~the~~million ~~nine~~of ~~months ended October~~April ~~28,~~ 2012 ~~and~~Senior ~~October 30,~~Notes ~~2011~~due ~~(amounts in millions).~~ 2020;

	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

· entry into a new senior term facility maturing in 2017 and providing for term loans in an aggregate principal amount of $1,000 million; and

~~The~~· entry ~~Company’s~~into ~~discounted~~a ~~cash~~new ~~flow~~senior ~~model~~asset is based onlending HDfacility ~~Supply’s~~maturing ~~expectation~~in of2017 ~~future~~and ~~market~~providing ~~conditions~~ for ~~each~~ ofsenior ~~the~~secured ~~reporting~~revolving ~~units,~~loans asand ~~well~~letters asof ~~discount~~credit ~~rates~~of ~~that~~up ~~would be used by market participants in an arms-length transaction. Future events could cause the Company~~ to ~~conclude~~a ~~that~~maximum ~~market~~aggregate ~~conditions~~principal ~~have~~amount ~~declined~~of or$1,500 ~~discount~~million ~~rates~~(subject ~~have increased~~ to ~~the~~availability ~~extent~~under ~~that~~ the ~~Company’s~~borrowing ~~goodwill could be further impaired~~base). ~~It is not possible at this time to determine if any such future impairment charge would result.~~

~~NOTE~~The 6proceeds —of ~~DEBT~~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.

OnAffiliates ~~October 15, 2012, HD Supply, Inc. issued $1,000 million~~ of ~~11.5%~~certain ~~Senior Notes due 2020 (the “11.5% Senior Notes”) at par. As a result~~ of the ~~issuance,~~Equity ~~the~~Sponsors ~~Company~~owned ~~incurred~~an ~~$18~~aggregate ~~million~~principal inamount ~~debt issuance costs,~~ of ~~which~~approximately $15484 million ~~was paid as~~ of ~~October 28, 2012. The Company committed to use~~ the ~~net~~2007 ~~proceeds from the 11.5%~~ Senior Notes ~~issuance~~which tothey ~~redeem~~exchanged ~~$930 million~~in ofa ~~the~~non-cash ~~Company’s~~transaction ~~outstanding~~for ~~13.5%~~their ~~Senior~~investment ~~Subordinated~~in ~~Notes, subject to~~ the ~~required~~April 2012 ~~thirty-day~~Senior ~~notification period~~Notes.

As a result of ~~October 28,~~ ~~2012~~the Refinancing Transactions, the Company ~~holds~~incurred $~~985~~75 million in ~~cash~~debt ~~classified~~issuance ascosts ~~Cash~~and ~~restricted~~recorded ~~for~~a ~~debt~~$220 ~~redemption~~million inloss on extinguishment, which included a $150 million premium payment to redeem the ~~Consolidated~~2007 ~~Balance~~Senior ~~Sheets~~Notes, ~~for~~$46 million to write off the ~~redemption~~pro-rata portion of the unamortized deferred debt costs, and $~~930~~24 million to write off the remaining unamortized asset associated with Home Depot’s guarantee of the ~~13.5%~~Company’s payment obligations for principal and interest under the Term Loan under the 2007 Senior ~~Subordinated~~Secured ~~Notes,~~ Credit Facility that was terminated in the Refinancing Transactions.

10NOTE 5 — FAIR VALUE MEASUREMENTS

~~Table~~The fair value measurements and disclosure principles of ~~Contents~~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:

HDLevel ~~SUPPLY,~~1 ~~INC.~~— Quoted prices (unadjusted) in active markets for identical assets or liabilities;

~~NOTES~~Level TO2 ~~CONSOLIDATED~~— ~~FINANCIAL~~Quoted ~~STATEMENTS~~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;

~~(Unaudited)~~Level 3 — Unobservable inputs in which little or no market activity exists.

~~payment of a $31 million premium to redeem the debt prior to maturity and $23 million of accrued interest. See Note 15, Subsequent Events.~~ 10

OnTable ~~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:~~ Contents

•HD ~~the issuance of $950 million of its 8~~SUPPLY, INC.~~125% Senior Secured First Priority Notes due 2019 (the “First Priority Notes”);~~

•NOTES ~~the~~TO ~~issuance~~CONSOLIDATED ofFINANCIAL ~~$675 million of its 11% Senior Secured Second Priority Notes due 2020 (the “Second Priority Notes”);~~STATEMENTS

~~• the issuance of approximately $757 million of its 14.875% Senior Notes due 2020~~ (~~the “14.875% Senior Notes”~~Unaudited);

•The ~~entry~~Company’s ~~into~~financial ainstruments ~~new~~that ~~senior~~are ~~term~~not ~~facility~~reflected ~~(the~~at ~~“Senior~~fair ~~Term~~value ~~Facility”)~~on ~~maturing~~the inbalance ~~2017~~sheet ~~and~~were ~~providing~~as ~~for~~follows ~~term~~as ~~loans~~of inMay 5, an2013 ~~aggregate~~and ~~principal~~February 3, ~~amount~~2013 of(amounts ~~$1,000~~in ~~million; and~~millions):

• 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.

	As of May 5, 2013				As of February 3, 2013
	Recorded Amount(1)		Estimated Fair Value		Recorded Amount(1)		Estimated Fair Value
Senior ABL Facility	$	490	$	478	$	300	$	292
Term Loans and Notes	6,143		6,832		7,034		7,573
Total	$	6,633	$	7,310	$	7,334	$	7,865

~~The proceeds of the First Priority Notes, the Second Priority Notes, the 14.875% Senior Notes, the Senior Term Facility and the ABL Facility were used to~~ (i1) ~~repay~~These ~~all~~ amounts ~~outstanding~~do ~~under~~not ~~the~~include ~~Existing~~accrued ~~Senior~~interest; ~~Secured~~accrued ~~Credit~~interest ~~Facility~~is ~~(Senior~~classified ~~Secured Credit Facility dated~~ as of ~~August 30,~~Other ~~2007),~~current ~~(ii) repay~~liabilities ~~all~~and ~~amounts~~Other ~~outstanding~~liabilities ~~under~~in the ~~Existing~~accompanying ~~ABL~~Consolidated ~~Credit~~Balance ~~Facility (ABL Credit Facility dated as of August 30, 2007), (iii) repurchase all remaining outstanding Old Senior Notes (12~~Sheets.0% ~~Senior~~These ~~Notes dated~~amounts asdo ofnot ~~August 30,~~include ~~2007)~~any ~~and (iv) pay~~ related ~~fees~~discounts and ~~expenses~~premiums.

OnThe ~~August 2, 2012, the~~ Company ~~issued~~ ~~$300~~utilized ~~million~~Level ~~additional~~2 ~~aggregate~~inputs, ~~principal~~as ~~amount~~defined ofin ~~its~~the ~~8 1/8%~~fair ~~First~~value ~~Priority~~hierarchy, ~~Notes~~to ~~due~~measure ~~2019 (~~the ~~“Additional~~fair ~~Notes”)~~value ~~at a premium~~ of ~~107.5%. At closing,~~ the ~~Company~~long-term ~~received approximately $317 million, net of transaction fees~~debt. Management’s ~~The~~fair ~~Additional~~value ~~Notes~~estimates were ~~issued~~based ~~under~~on ~~the~~recent ~~indenture~~similar ~~pursuant~~credit tofacilities ~~which~~initiated HDby ~~Supply~~companies ~~previously~~with ~~issued~~like ~~$950~~credit ~~million~~quality ~~aggregate~~in ~~principal~~similar ~~amount~~industries, ofquoted ~~8 1/8%~~prices ~~First~~for ~~Priority~~similar ~~Notes due 2019~~instruments, ~~all~~and ofinquiries ~~which~~with ~~remains~~certain ~~outstanding.~~investment ~~The net proceeds from the sale of the Additional Notes were applied to reduce outstanding borrowings under the Company’s ABL facility~~communities.

AsNOTE a6 ~~result~~— ofINCOME 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’s guarantee of the Company’s payment obligations for principal and interest under the Term Loan under the Existing Senior Secured Credit Facility that was terminated in the Refinancing Transactions. TAXES

~~Unamortized~~As of May 5, 2013, the Company’s combined federal, state and foreign effective tax rate for continuing operations for fiscal 2013 is a 48.4% provision, reflecting the impact of increasing the U.S. valuation allowance, increasing the deferred ~~debt costs~~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 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. Management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of provisions for income taxes.

InWith ~~accordance~~regard ~~with~~to ~~ASC~~the ~~470,~~increase ~~Debt,~~in the ~~Company~~valuation ~~determined~~allowance ~~that~~and ~~all~~the ofimpact the ~~redemption~~valuation ofallowance ~~Old~~had ~~Senior~~on ~~Notes~~income tax expense, the valuation allowance was andirectly ~~extinguishment~~impacted ~~as either~~by the ~~original~~increasing ~~note~~of ~~holders~~the ~~were~~deferred ~~unknown~~tax orliability for U.S. goodwill amortization for tax purposes. The deferred tax liability related to the ~~refinancing~~Company’s ~~was~~U.S. tax deductible goodwill is considered a ~~“substantial”~~liability ~~change~~related to an asset with an indefinite life. AsTherefore, the deferred tax liability does not amortize and is not available as a ~~result~~source of ~~the~~taxable ~~extinguishment,~~income to support the realization of deferred tax assets created by other deductible temporary timing differences. The Company ~~wrote-off~~does ~~approximately~~not ~~$24~~believe ~~million~~it inis ~~unamortized~~“more ~~deferred~~likely ~~financing~~than ~~charges~~not” ~~associated with~~it ~~the~~will ~~Old~~realize ~~Senior~~its ~~Notes~~U.S. ~~Similarly,~~deferred ~~under~~tax ~~ASC~~assets ~~470,~~equal ~~approximately~~to ~~$834~~the ~~million~~deferred ofliability ~~the~~created ~~Existing~~by ~~ABL~~tax ~~Credit~~deductible ~~Facility~~goodwill and ~~approximately $1~~therefore,~~169~~ ~~million~~the ofCompany ~~the~~was ~~Existing~~required ~~Senior~~to ~~Secured~~record ~~Credit~~an ~~Facility~~additional ~~were~~tax ~~deemed~~expense ~~extinguishments,~~to ~~with~~increase ~~the~~its ~~remaining portions~~deferred ~~considered~~tax ~~modifications~~asset valuation allowance. During Asthe athree ~~result~~months ofended ~~the~~May 5, ~~extinguishment~~2013, the ~~Company~~impact ~~wrote-off~~of ~~approximately~~the ~~$22~~tax ~~million~~amortization of ~~$42~~the ~~million~~indefinite inlived ~~unamortized~~intangibles ~~deferred~~increased ~~financing~~income ~~charges~~tax ~~associated~~expense ~~with~~by ~~these~~$37 ~~credit agreements~~million.

11At each of February 3, 2013 and May 5, 2013, the Company’s unrecognized tax benefits in accordance with the income taxes principles of GAAP (ASC 740, Income Taxes) were $193 million. During the three months ended May 5, 2013, the gross accrual for interest related to unrecognized tax benefits increased $2 million 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 $23 million as of May 5, 2013.

~~Table~~During fiscal year 2010, the Company determined that it did not meet the “more likely than not” standard that substantially all of ~~Contents~~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 May 5, 2013, the Company’s U.S. valuation allowance was $997 million and the Company expects to continue to add to its gross deferred tax assets for anticipated net operating losses.

HDAs ~~SUPPLY~~a result of the Company’s redemption of the remaining $889 million outstanding aggregate principal amount of 2007 Senior Subordinated Notes on February 8, ~~INC~~2013, the Company received deferred interest deductions on the 2007 Senior Subordinated Notes (representing a net deferred tax asset of $131 million at February 3, 2013). The interest deductions are currently deductible on the Company’s fiscal 2013 Federal income tax return and

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ 11

~~(Unaudited)~~Table of Contents

~~Long-term~~HD ~~debt as of October 28~~SUPPLY, ~~2012 and January~~ ~~29, 2012 consisted of the following (dollars in millions):~~ INC.

	October 28, 2012					January 29, 2012
	OutstandingPrincipal			InterestRate %(1)		OutstandingPrincipal			InterestRate %(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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1Unaudited) ~~Represents the stated rate of interest, without including the effect of discounts or premiums.~~

11applicable state returns.5% The ~~Senior~~deductions ~~Notes~~will ~~due~~not ~~2020~~have an impact on the Company’s fiscal 2013 total tax expense but increase the Company’s overall net operating loss carryforward.

~~The~~See ~~Company~~Note ~~issued $1~~8,~~000~~ ~~million~~Commitments ~~of its 11.5% Senior Notes under an Indenture, dated,~~ and ~~amended~~Contingencies, asfor discussion of ~~October 15,~~the ~~2012~~Internal ~~(“11.5%~~Revenue ~~Senior~~Service ~~Notes~~audit ~~Indenture”) among the Company, certain subsidiaries~~ of the Company’s ~~as guarantors (the “Subsidiary Guarantors”) and the Trustee~~U. ~~The 11~~S.5% ~~Senior~~federal ~~Notes~~income ~~will~~tax ~~bear interest at a rate of 11~~returns.~~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~~NOTE ~~11.5%~~7 ~~Senior~~— ~~Notes~~SUPPLEMENTAL ~~are~~BALANCE ~~unsecured~~SHEET ~~senior~~AND ~~indebtedness~~CASH ofFLOW 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. INFORMATION

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. Receivables

~~Redemption~~Receivables as of May 5, 2013 and February 3, 2013 consisted of the following (amounts in millions):

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.

	May 5, 2013		February 3, 2013
Trade receivables, net of allowance for doubtful accounts	$	1,016	$	926
Vendor rebate receivables	56		66
Other receivables	17		16
Total receivables, net	$	1,089	$	1,008

Year		Percentage
2016		105.750%
2017		102.875%
2018 and thereafter		100.000%

Other Current Liabilities

12Other current liabilities as of May 5, 2013 and February 3, 2013 consisted of the following (amounts in millions):

	May 5, 2013		February 3, 2013
Accrued interest	$	26	$	147
Accrued non-income taxes	40		34
Other	104		110
Total other current liabilities	$	170	$	291

HDSupplemental ~~SUPPLY,~~Cash ~~INC.~~Flow Information

~~NOTES~~Cash TOpaid ~~CONSOLIDATED~~for ~~FINANCIAL~~interest ~~STATEMENTS~~in the three months ended May 5, 2013 and April 29, 2012 was $260 million and $329 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.

~~(Unaudited)~~Cash paid or received for income taxes, net of refunds, in the three months ended May 5, 2013 and April 29, 2012 was approximately $2 million and less than $1 million, respectively.

InNOTE ~~addition,~~8 at— ~~any~~COMMITMENTS ~~time~~AND 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 11.5% Senior Notes equal to at least 50% of the original aggregate principal amount of 11.5% Senior Notes must remain outstanding immediately after each such redemption of 11.5% Senior Notes. CONTINGENCIES

8Internal ~~1/8%~~Revenue ~~Senior Secured First Priority Notes due 2019~~ Service

~~The~~HDS ~~Company~~carried ~~issued~~back ~~$950~~tax ~~million~~net ofoperating ~~its~~losses ~~First~~(‘‘NOL’’) ~~Priority~~from ~~Notes~~its ~~under~~tax anyears ~~Indenture,~~ended ~~dated,~~on ~~and amended~~February 3, as2008 ofand ~~April~~February 121, ~~2012~~2009 ~~(the “First~~to ~~Priority~~tax ~~Indenture”)~~years ~~among~~during ~~the~~which ~~Company,~~it ~~certain~~was ~~subsidiaries~~a member of ~~the~~Home ~~Company,~~Depot’s asU.S. ~~guarantors~~federal ~~(the~~consolidated ~~“Subsidiary~~tax ~~Guarantors”),~~group. ~~the~~As ~~Trustee,~~a ~~and~~result ~~the~~of ~~Note~~those ~~Collateral~~NOL ~~Agent. On August 2~~carrybacks, ~~2012,~~Home ~~the~~Depot ~~Company~~received ~~issued~~cash ~~$300~~refunds ~~million additional~~from ~~aggregate~~the ~~principal~~Internal ~~amount~~Revenue ofService ~~its First Priority Notes~~ (~~the “Additional Notes”~~‘‘IRS’’) atin athe ~~premium~~amount of ~~107.5%.~~approximately ~~The~~$354 ~~First~~million. ~~Priority~~Under ~~Notes~~an ~~bear~~agreement ~~interest~~(the at‘‘Agreement’’) abetween ~~rate~~Holding ~~of 8 1/8% per annum~~ and ~~will~~Home ~~mature on April 15~~Depot, ~~2019.~~Home ~~Interest~~Depot ~~will be~~ paid ~~semi-annually~~HDS inthe ~~arrears~~refund ~~on April 15th~~proceeds ~~and~~resulting ~~October 15th~~from ofthe ~~each~~NOL ~~year, commencing on October 15, 2012~~carrybacks.

~~The~~In ~~First~~connection ~~Priority~~with ~~Notes~~an ~~are~~audit ~~senior~~of ~~secured~~the ~~indebtedness~~Company’s ofU.S. federal income tax returns filed for the ~~Company~~tax years ended on February 3, 2008 and ~~rank~~February 1, ~~equal~~2009, inthe ~~right~~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 ~~payment~~the ~~with~~cash ~~all~~refunds resulting from HDS’s NOL carrybacks. In January 2013, the IRS issued a revised RAR reducing the challenge to approximately $131 million (excluding interest) of ~~our~~cash ~~existing~~refunds ~~and~~from ~~future~~HDS’s ~~senior indebtedness~~carrybacks. The issuance of the January 2013 revised RAR formally revoked the original May 2012 RAR and ~~senior~~reduced inthe ~~right~~amount of ~~payment~~cash torefunds ~~all~~the IRS is currently challenging by $168 million. As of ~~our~~May 5, ~~existing~~2013, ~~and~~the ~~future~~Company ~~subordinated~~estimates ~~indebtedness~~the interest to which the IRS would be entitled, if successful in all claims, to be approximately $16 million. If the IRS is ultimately successful with respect to the proposed adjustments, pursuant to the terms of

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. 12

~~Collateral~~Table of Contents

~~The~~HD 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 CollateralSUPPLY, 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”) INC.

InNOTES ~~addition,~~TO ~~the~~CONSOLIDATED ~~First~~FINANCIAL 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.”) STATEMENTS

~~Redemption~~ (Unaudited)

~~The Company may redeem~~ the ~~First Priority Notes~~Agreement, inthe ~~whole~~Company orwould inbe ~~part,~~required ~~at any time (1) prior~~ to ~~April 15,~~reimburse ~~2015,~~Home atDepot aan ~~price~~amount equal to ~~100% of~~ the ~~principal~~ ~~amount~~disallowed ~~thereof,~~refunds plus ~~accrued~~related ~~and unpaid~~ interest,. ifIf ~~any, to~~ the ~~redemption~~IRS ~~date,~~is ~~plus~~successful ~~the~~in ~~applicable~~defending ~~make-whole~~its ~~premium~~positions ~~set~~with ~~forth~~respect into the ~~First~~disallowed ~~Priority Indenture and (2) on and after April 15~~deductions, ~~2015,~~certain ~~at the applicable redemption price set forth below (expressed as a percentage~~ of ~~principal~~those ~~amount),~~disallowed ~~plus~~deductions ~~accrued~~may ~~and~~be ~~unpaid~~available ~~interest, if any,~~ to the ~~relevant~~Company ~~redemption~~in ~~date,~~the ifform ~~redeemed~~of ~~during~~increases ~~the~~in ~~12-month~~its ~~period~~deferred ~~commencing~~tax onassets ~~April 15~~by ofapproximately ~~the~~$63 ~~year~~million ~~set~~before ~~forth~~any ~~below~~valuation allowance.

13The 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, HDS 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.

~~Table~~See ofNote ~~Contents~~6, Income Taxes, for further disclosures on the Company’s income taxes.

HDLegal ~~SUPPLY, INC.~~ Matters

~~NOTES~~HDS TOis ~~CONSOLIDATED~~involved ~~FINANCIAL~~in ~~STATEMENTS~~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.

~~(Unaudited)~~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 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.

Year		Percentage
2015		106.094%
2016		104.063%
2017		102.031%
2018 and thereafter		100.000%

NOTE 9 — SEGMENT INFORMATION

InHDS’s ~~addition,~~operating atsegments ~~any~~are ~~time~~based ~~prior~~on tomanagement ~~April 15,~~structure ~~2015,~~and ~~the~~internal ~~Company~~reporting. ~~may~~Each ~~redeem~~segment upoffers todifferent ~~35%~~products ofand ~~the~~services ~~aggregate~~to ~~principal~~the ~~amount of~~end ~~the~~customer, ~~First~~except ~~Priority~~for ~~Notes~~Corporate ~~with~~and ~~the~~Other, ~~proceeds~~which ofprovides ~~certain~~general ~~equity~~corporate ~~offerings~~overhead atsupport aand ~~redemption~~HD ~~price~~Supply ofCanada ~~108.125%~~(included ofin ~~the~~Corporate ~~principal~~and ~~amount~~Other), inwhich ~~respect~~is oforganized ~~the~~based ~~First~~on ~~Priority~~geographic ~~Notes~~location. ~~being~~The ~~redeemed,~~Company ~~plus~~determines ~~accrued~~the ~~and~~reportable ~~unpaid~~segments ~~interest~~in toaccordance with the ~~redemption~~principles ~~date, provided,~~of ~~however~~segment reporting within ASC 280, ~~that~~Segment ifReporting. ~~the~~For ~~First~~purposes ~~Priority~~of ~~Notes~~evaluation ~~are~~under ~~redeemed,~~these ansegment ~~aggregate~~reporting ~~principal~~principles, ~~amount~~the ofChief ~~First~~Operating ~~Priority~~Decision ~~Notes~~Maker ~~equal~~for toHDS atassesses ~~least~~HDS’s ~~50%~~ongoing ofperformance, based on the ~~original~~periodic ~~aggregate~~review ~~principal~~and ~~amount~~evaluation of ~~First~~Net ~~Priority~~sales, ~~Notes~~Adjusted ~~must~~EBITDA, ~~remain~~and ~~outstanding~~certain ~~immediately after~~other ~~each~~measures ~~such~~for ~~redemption~~each of ~~First~~the ~~Priority~~operating ~~Notes~~segments.

~~11% Senior Secured Second Priority Notes due 2020~~ 13

~~The~~Table ~~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, 2020. Interest will be paid semi-annually in arrears on April 15th and October 15th of each year, commencing on October 15, 2012. Contents

~~The~~HD 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 indebtednessSUPPLY, INC.

~~The~~NOTES ~~Second~~TO ~~Priority~~CONSOLIDATED ~~Notes~~FINANCIAL 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. STATEMENTS

~~Collateral~~ (Unaudited)

~~The~~HDS ~~Second~~has ~~Priority~~four ~~Notes~~reportable ~~and the related guarantees are secured by a second-priority security interest in the Cash Flow Priority Collateral~~segments, ~~subject~~each toof ~~permitted~~which ~~liens.~~is Inpresented ~~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.~~ below:

~~Redemption~~· 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.

~~The~~· Waterworks—Waterworks ~~Company~~distributes ~~may~~complete ~~redeem~~lines ~~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~~water ~~principal amount thereof, plus accrued~~ and ~~unpaid~~wastewater ~~interest,~~transmission ~~if any~~products, toserving ~~the~~contractors ~~redemption~~and ~~date,~~municipalities ~~plus the applicable make-whole premium set forth~~ in the ~~Second~~water ~~Priority Indenture~~ and ~~(2) on~~wastewater ~~and~~industries ~~after~~for ~~April 15,~~non-residential ~~2016, at the applicable redemption price set forth below (expressed as a percentage of principal amount), plus accrued~~ and ~~unpaid~~residential ~~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~~uses.

Year		Percentage
2016		105.500%
2017		102.750%
2018 and thereafter		100.000%

· 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.

In· White ~~addition,~~Cap—White atCap ~~any~~distributes ~~time~~specialized ~~prior to April 15~~hardware, ~~2015~~tools, ~~the~~engineered ~~Company~~materials ~~may~~and ~~redeem~~safety upproducts to ~~35%~~non-residential 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~~residential ~~interest to the redemption date, provided, however, that if the Second Priority Notes are redeemed, an~~ contractors.

14In 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, which are comprised of finance, information technology, human resources, legal, supply chain and other support services, and removes inter-segment transactions.

~~Table~~The following tables present Net sales, Adjusted EBITDA, and other measures for each of ~~Contents~~the reportable segments, Corporate & Other and total continuing operations for the periods indicated (amounts in millions):

HD SUPPLY, INC.

	Facilities Maintenance		Waterworks		Power Solutions		White Cap		Corporate & Other			Total Continuing Operations
Three Months Ended May 5, 2013
Net Sales	$	561	$	523	$	462	$	310	$	212		$	2,068
Adjusted EBITDA	100		38		18		14		(6		)	164
Depreciation(1) & Software Amortization	11		2		1		4		8			26
Other Intangible Amortization	20		1		5		5		3			34
Three Months Ended April 29, 2012
Net Sales	$	497	$	461	$	415	$	266	$	197		$	1,836
Adjusted EBITDA	85		28		14		8		(2		)	133
Depreciation(1) & Software Amortization	9		2		1		3		8			23
Other Intangible Amortization	19		24		5		5		7			60

~~NOTES~~(1) Depreciation TOincludes ~~CONSOLIDATED~~amounts ~~FINANCIAL~~recorded ~~STATEMENTS~~within Cost of sales in the Consolidated Statements of Operations and Comprehensive Income (Loss).

~~(Unaudited)~~ 14

~~aggregate~~Table ~~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.~~ Contents

~~14.875%~~HD ~~Senior Notes due 2020~~ SUPPLY, INC.

~~The~~NOTES ~~Company~~TO ~~issued~~CONSOLIDATED ~~$757~~FINANCIAL million (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% 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 14.875% Senior Notes bear interest at a rate of 14.875% per annum and will mature on October 12, 2020. Interest will 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 shall 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 $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. 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. (Unaudited)

~~The~~Reconciliation ~~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~~Consolidated ~~existing~~Financial ~~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.~~ Statements

Redemption

	Three Months Ended
	May 5, 2013			April 29, 2012
Total Adjusted EBITDA	$	164		$	133
Depreciation and amortization	60			83
Stock-based compensation	3			5
Management fees and expenses	1			1
Other	—			1
Operating Income (Loss)	100			43
Interest expense	147			166
Loss on extinguishment of debt	40			220
Other (income) expense, net	1			—
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes	(88		)	(343		)
Provision (benefit) for income taxes	43			33
Income (Loss) from Continuing Operations	$	(131	)	$	(376	)

~~The~~NOTE ~~Company~~10—SUBSIDIARY may 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 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. GUARANTORS

Year		Percentage
2015		111.1563%
2016		107.4375%
2017		103.7188%
2018 and thereafter		100.0000%

The Company has issued First Priority Notes, Second Priority Notes, October 2012 Senior Notes, February 2013 Senior Unsecured Notes, and January 2013 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 primarily include the Company’s operations in Canada and a non-operating subsidiary in the United States that previously held an investment of the Company’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 Parent Issuer (as defined below) in a non-cash transaction. The Parent 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 ~~addition,~~connection atwith ~~any~~the ~~time prior to April 12~~Notes, ~~2015,~~ the Company ~~may~~determined ~~redeem~~the upneed tofor ~~35%~~compliance ofwith ~~the~~Rule 3-10 ~~aggregate~~of ~~principal~~SEC ~~amount of~~Regulation ~~the~~S-X 14(‘‘Rule 3-10’’).~~875%~~ ~~Senior~~In ~~Notes~~lieu ~~with~~of ~~the~~providing ~~proceeds~~separate ofaudited ~~certain~~financial ~~equity~~statements ~~offerings~~for atthe aGuarantor ~~redemption~~Subsidiaries, ~~price~~the ofCompany ~~114.875%~~has ofincluded the ~~principal~~accompanying ~~amount~~Condensed Consolidating Financial Statements in ~~respect~~accordance with Rule 3-10(d) of ~~the~~SEC 14Regulation S-X.~~875%~~ ~~Senior~~The ~~Notes~~following ~~being~~supplemental ~~redeemed,~~financial ~~plus~~information ~~accrued~~sets ~~and~~forth, ~~unpaid~~on ~~interest~~a toconsolidating basis, the ~~redemption~~condensed ~~date, provided,~~statements ~~however,~~of ~~that~~operations ifand ~~the~~comprehensive ~~14.875%~~income ~~Senior~~(loss), ~~Notes~~the ~~are~~condensed ~~redeemed~~balance sheets, anand ~~aggregate~~the ~~principal~~condensed ~~amount~~statements of ~~14.875%~~cash ~~Senior~~flows ~~Notes~~for ~~equal~~the toparent atcompany ~~least~~issuer ~~50%~~ of the ~~original~~Notes, ~~aggregate~~HD ~~principal~~Supply, Inc., ~~amount~~(the of‘‘Parent ~~14.875%~~Issuer’’), ~~Senior~~for ~~Notes~~the ~~must~~Guarantor ~~remain~~Subsidiaries ~~outstanding~~and ~~immediately after~~for ~~each~~the ~~such~~Non-guarantor ~~redemption~~Subsidiaries ofand ~~14.875%~~total ~~Senior~~consolidated ~~Notes~~HD Supply, Inc. and subsidiaries (amounts in millions):

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. 15

15Table of Contents

~~Table~~HD ~~of Contents~~SUPPLY, INC.

HDNOTES ~~SUPPLY,~~TO ~~INC.~~CONSOLIDATED FINANCIAL STATEMENTS

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ (Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (~~Unaudited~~LOSS)

First Priority Notes and Second Priority Notes (collectively the “Priority Notes”) and 11.5% Senior Notes and 14.875% Senior Notes (collectively the “Senior Notes”)

	Three Months Ended May 5, 2013
	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total

Net Sales	$	—		$	1,966		$	102		$	—		$	2,068
Cost of sales	—			1,396			74			—			1,470
Gross Profit	—			570			28			—			598
Operating expenses:
Selling, general and administrative	19			398			22			—			439
Depreciation and amortization	4			55			—			—			59
Total operating expenses	23			453			22			—			498
Operating Income (Loss)	(23		)	117			6			—			100
Interest expense	147			75			—			(75		)	147
Interest (income)	(74		)	(1		)	—			75			—
Net (earnings) loss of equity affiliates	(69		)	—			—			69			—
Loss on extinguishment of debt	40			—			—			—			40
Other (income) expense, net	1			—			—			—			1
Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes	(68		)	43			6			(69		)	(88		)
Provision (benefit) for income taxes	63			(21		)	1			—			43
Income (Loss) from Continuing Operations	(131		)	64			5			(69		)	(131		)
Income (loss) from discontinued operations, net of tax	—			—			—			—			—
Net Income (Loss)	(131		)	64			5			(69		)	(131		)
Other comprehensive income (loss) — foreign currency translation adjustment	(1		)	—			(1		)	1			(1		)
Total Comprehensive Income (Loss)	$	(132	)	$	64		$	4		$	(68	)	$	(132	)

Offer to Repurchase

	Three Months Ended April 29, 2012
	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total

Net Sales	$	—		$	1,736		$	100		$	—		$	1,836
Cost of sales	—			1,239			74			—			1,313
Gross Profit	—			497			26			—			523
Operating expenses:
Selling, general and administrative	20			355			22			—			397
Depreciation and amortization	4			79			—			—			83
Total operating expenses	24			434			22			—			480
Operating Income (Loss)	(24		)	63			4			—			43
Interest expense	188			75			—			(97		)	166
Interest (income)	(75		)	(2		)	(20		)	97			—
Net (earnings) loss of equity affiliates	(7		)	—			—			7			—
Loss on extinguishment of debt	220			—			—			—			220
Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes	(350		)	(10		)	24			(7		)	(343		)
Provision (benefit) for income taxes	18			3			12			—			33
Income (Loss) from Continuing Operations	(368		)	(13		)	12			(7		)	(376		)
Income (loss) from discontinued operations, net of tax	8			8			—			—			16
Net Income (Loss)	$	(360	)	$	(5	)	$	12		$	(7	)	$	(360	)
Other comprehensive income (loss) — foreign currency translation adjustment	3			—			3			(3		)	3
Total Comprehensive Income (Loss)	$	(357	)	$	(5	)	$	15		$	(10	)	$	(357	)

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 the 11.5% Senior Notes Indentures and the 14.875% Senior Notes Indenture, collectively the “Senior Indentures”), the Company must offer to repurchase all of the Priority Notes and 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 the Company sells assets under certain circumstances, the Company must use the proceeds to make an offer to purchase the Priority Notes and Senior Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase. 16

~~Covenants~~Table of Contents

~~The~~HD ~~Priority Indentures and Senior Indentures contain covenants that~~SUPPLY, 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 and Senior Notes have investment grade ratings from both Moody’s Investment Services, Inc. and Standard ~~& Poor’s~~INC.

~~Events~~NOTES ofTO ~~Default~~CONSOLIDATED FINANCIAL STATEMENTS

The Priority Indentures and Senior Indentures 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 and Senior Notes to be due and payable immediately. The Priority Indentures and Senior Indentures 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 (1Unaudited) 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~~CONDENSED ~~Rights~~CONSOLIDATING ~~Agreements~~BALANCE SHEETS

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.

	As of May 5, 2013
	Parent Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	31		$	15	$	42	$	—		$	88
Receivables, net	4			1,022		63		—			1,089
Inventories	—			1,020		59		—			1,079
Deferred tax asset	—			47		2		(42		)	7
Intercompany receivable	—			1		—		(1		)	—
Other current assets	12			32		2		—			46
Total current assets	47			2,137		168		(43		)	2,309

Property and equipment, net	65			326		6		—			397
Goodwill	—			3,132		6		—			3,138
Intangible assets, net	—			436		4		—			440
Deferred tax asset	45			—		6		(45		)	6
Investment in subsidiaries	2,801			—		—		(2,801		)	—
Intercompany notes receivable	2,774			534		—		(3,308		)	—
Other assets	164			5		—		—			169
Total assets	$	5,896		$	6,570	$	190	$	(6,197	)	$	6,459

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	18		$	789	$	42	$	—		$	849
Accrued compensation and benefits	26			52		3		—			81
Current installments of long-term debt	10			—		—		—			10
Deferred tax liabilities	42			—		—		(42		)	—
Intercompany payable	—			—		1		(1		)	—
Other current liabilities	56			102		12		—			170
Total current liabilities	152			943		58		(43		)	1,110

Long-term debt, excluding current installments	6,620			—		—		—			6,620
Deferred tax liabilities	—			151		—		(45		)	106
Intercompany notes payable	534			2,774		—		(3,308		)	—
Other liabilities	310			27		6		—			343
Total liabilities	7,616			3,895		64		(3,396		)	8,179

Stockholder’s equity (deficit)	(1,720		)	2,675		126		(2,801		)	(1,720		)
Total liabilities and stockholder’s equity (deficit)	$	5,896		$	6,570	$	190	$	(6,197	)	$	6,459

The Priority 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 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. 17

~~The 14.875%~~Table ~~Senior Notes and the guarantees have not been registered under the Securities Act. Under the 14.875% Senior Notes Exchange and Registration Rights Agreement, the holders~~ of ~~the 14.875% Senior Notes will not have registration rights until the later of (a) the date when 75% of the Senior Subordinated Notes have been~~ Contents

16HD SUPPLY, INC.

~~Table~~NOTES ofTO ~~Contents~~CONSOLIDATED FINANCIAL STATEMENTS

~~HD SUPPLY, INC.~~ (Unaudited)

~~NOTES~~CONDENSED TOCONSOLIDATING ~~CONSOLIDATED~~BALANCE ~~FINANCIAL~~SHEETS ~~STATEMENTS~~ (CONTINUED)

(Unaudited)

	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

repaid or refinanced and (b) the earlier of (i) October 12, 2013 and the date that is 90 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. 18

~~Senior~~Table ~~Credit Facilities~~of Contents

~~Senior~~HD ~~Term Facility~~ SUPPLY, INC.

~~The~~NOTES ~~Senior~~TO ~~Term~~CONSOLIDATED ~~Facility~~FINANCIAL 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 (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 the date of the scheduled maturity of the 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. STATEMENTS

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. (Unaudited)

~~The~~CONDENSED ~~Senior~~CONSOLIDATING ~~Term~~CASH ~~Facility~~FLOW 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. STATEMENTS

Collateral

	Three Months Ended May 5, 2013
	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Net cash flows from operating activities	$	(488	)	$	(77	)	$	8		$	—		$	(557	)
Cash flows from investing activities
Capital expenditures	(7		)	(24		)	(1		)	—			(32		)
Proceeds from sale of property and equipment	—			1			—			—			1
Proceeds from sale of investments	936			—			—			—			936
Proceeds from (payments of) intercompany notes	—			100			—			(100		)	—
Net cash flows from investing activities	929			77			(1		)	(100		)	905
Cash flows from financing activities
Borrowings (repayments) of intercompany notes	(100		)	—			—			100			—
Borrowings of long-term debt	79			—			—			—			79
Repayments of long-term debt	(638		)	—			—			—			(638		)
Borrowings on long-term revolver	348			—			—			—			348
Repayments of long-term revolver	(158		)	—			—			—			(158		)
Debt issuance and modification fees	(32		)	—			—			—			(32		)
Net cash flows from financing activities	(501		)	—			—			100			(401		)
Effect of exchange rates on cash	—			—			—			—			—
Net increase (decrease) in cash & cash equivalents	$	(60	)	$	—		$	7		$	—		$	(53	)
Cash and cash equivalents at beginning of period	91			15			35			—			141
Cash and cash equivalents at end of period	$	31		$	15		$	42		$	—		$	88

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.

	Three Months Ended April 29, 2012
	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Net cash flows from operating activities	$	(205	)	$	(71	)	$	37		$	(25	)	$	(264	)
Cash flows from investing activities
Capital expenditures	(5		)	(17		)	—			—			(22		)
Proceeds from sale of property and equipment	—			1			—			—			1
Proceeds from sale of a business	463			—			—			—			463
Proceeds from (payments of) intercompany notes	—			89			—			(89		)	—
Other investing activities	—			—			(2		)	—			(2		)
Net cash flows from investing activities	458			73			(2		)	(89		)	440
Cash flows from financing activities
Dividend payment	—			—			(25		)	25			—
Borrowings (repayments) of intercompany notes	(89		)	—			—			89			—
Borrowings of long-term debt	2,817			—			—			—			2,817
Repayments of long-term debt	(3,287		)	—			—			—			(3,287		)
Borrowings on long-term revolver	625			—			—			—			625
Repayments of long-term revolver	(255		)	—			—			—			(255		)
Debt issuance and modification fees	(63		)	—						—			(63		)
Net cash flows from financing activities	(252		)	—			(25		)	114			(163		)
Effect of exchange rates on cash	—			—			1			—			1
Net increase (decrease) in cash & cash equivalents	$	1		$	2		$	11		$	—		$	14
Cash and cash equivalents at beginning of period	49			12			50			—			111
Cash and cash equivalents at end of period	$	50		$	14		$	61		$	—		$	125

~~Prepayment~~ 19

~~Prior~~Table ~~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: Contents

17HD SUPPLY, INC.

~~Table~~NOTES ofTO ~~Contents~~CONSOLIDATED FINANCIAL STATEMENTS

~~HD SUPPLY, INC.~~ (Unaudited)

~~NOTES~~NOTE TO11 ~~CONSOLIDATED~~— ~~FINANCIAL~~RECENT ~~STATEMENTS~~ACCOUNTING PRONOUNCEMENTS

Comprehensive income: Reclassifications — In February 2013, the FASB issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (~~Unaudited~~“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 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 ~~100%~~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 ~~proceeds~~income ~~(other~~when ~~than~~a ~~those~~parent ~~that~~either ~~are~~sells ~~used~~a topart ~~purchase~~or ~~certain~~all ~~assets~~of its investment in a foreign entity or tono ~~repay~~longer ~~certain~~holds ~~other~~a ~~indebtedness)~~controlling financial interest in a subsidiary or group of ~~certain~~assets ~~asset~~within ~~sales~~a ~~and~~foreign ~~certain~~entity. ~~insurance~~The ~~recovery~~amendments ~~events;~~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.

~~• 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.~~20

InTable ~~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. Contents

~~Guarantee~~HD SUPPLY, INC.

~~The~~MANAGEMENT’S ~~Company~~DISCUSSION isAND ~~the~~ANALYSIS ~~borrower~~OF ~~under~~FINANCIAL ~~the~~CONDITION ~~Term~~AND ~~Loan~~RESULTS ~~Facility.~~OF ~~The Subsidiary Guarantors guarantee the Company’s payment obligations under the Term Loan Facility.~~ OPERATIONS

~~The~~Item ~~Company~~2. Management’s ~~obligations~~Discussion ~~under the Term Loan Facility~~ and ~~the~~Analysis ~~guarantees thereof are secured in favor~~ of ~~the~~Financial ~~collateral~~Condition ~~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~~Results ~~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. Operations

~~Covenants~~Forward-looking statements and information

~~The~~This ~~Term~~quarterly ~~Loan~~report ~~Facility contains~~includes aforward-looking ~~number~~statements ofand ~~covenants~~cautionary ~~that,~~statements. Some ~~among~~of ~~other~~the ~~things,~~forward-looking ~~limit~~statements ~~the~~can ~~ability~~be ofidentified by the ~~Company~~use ~~and~~of ~~its~~forward-looking ~~restricted~~terms ~~subsidiaries,~~such as ~~described~~“believes,” in“expects,” ~~the~~“may,” ~~Term~~“will,” ~~Loan~~“should,” ~~Credit~~“could,” ~~Agreement~~“seeks,” ~~to:~~“intends,” ~~incur~~“plans,” ~~more indebtedness; pay dividends~~“estimates,” ~~redeem~~“anticipates” ~~stock~~ or ~~make~~ other ~~distributions;~~ ~~make~~comparable ~~investments;~~terms. These ~~create~~forward-looking ~~restrictions~~statements oninclude ~~the~~all ~~ability~~matters ofthat ~~the~~are ~~Company’s~~not ~~restricted~~historical ~~subsidiaries~~facts. They toappear ~~pay~~in ~~dividends~~a tonumber ~~the~~of ~~Company~~places orthroughout ~~make~~this ~~other~~report ~~intercompany~~and ~~transfers;~~include ~~create~~statements ~~liens~~regarding ~~securing~~our ~~indebtedness;~~intentions, ~~transfer~~beliefs or ~~sell~~current ~~assets; merge~~expectations orconcerning, ~~consolidate;~~among ~~enter~~other ~~into~~things, ~~certain~~our ~~transactions~~consolidated ~~with~~results ~~the~~of ~~Company’s~~operations, ~~affiliates;~~financial ~~and~~condition, ~~prepay~~liquidity, orprospects, ~~amend~~growth strategies and the ~~terms~~industries ofin ~~certain~~which ~~indebtedness.~~we operate.

~~The~~Forward-looking ~~Term~~statements ~~Loan~~are ~~Facility~~subject ~~also~~to ~~contains~~known ~~certain~~and ~~affirmative~~unknown ~~covenants~~risks and uncertainties, ~~including~~many of which may be 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 the 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. In addition, even if our consolidated results of operations, financial condition and liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this report, 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 factors discussed in “Risk factors” in our annual report on Form 10-K for the year ended February 3, 2013 and those described from time to time in our other ~~reporting~~filings ~~requirements~~with the U.S. Securities and Exchange Commission (“SEC”). The section entitled “Risk factors” in our annual report on Form 10-K is incorporated herein by reference. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include:

~~Asset~~· inherent ~~Based~~risks ~~Lending~~of ~~Facility~~the maintenance, repair and operations market, infrastructure spending and the non-residential and residential construction markets;

~~The~~· our ~~ABL~~ability ~~Facility provides for senior secured revolving loans and letters of credit of up~~ to aachieve 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 October 28, 2012, 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). profitability;

A· our ~~portion~~ability ofto ~~the~~service ~~ABL~~our ~~Facility~~debt ~~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~~refinance ~~one~~all or ~~more~~a ~~incremental~~portion ~~term loans, revolving or letter~~ of ~~credit~~our ~~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).~~ indebtedness;

~~Until~~· limitations ~~the~~and ~~date~~restrictions ~~that is 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 will be based, (i)~~ in the ~~case~~agreements ofgoverning ~~U.S.~~our 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 indebtedness;

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

~~Table~~· the loss of ~~Contents~~any of our significant customers;

HD· competitive ~~SUPPLY,~~pricing ~~INC.~~pressure from our customers;

~~NOTES~~· our TOability ~~CONSOLIDATED~~to ~~FINANCIAL~~identify ~~STATEMENTS~~and acquire suitable acquisition candidates on favorable terms;

~~(Unaudited)~~· cyclicality and seasonality of the maintenance, repair and operations market, infrastructure spending and the non-residential and residential construction markets;

~~subject~~· our ability to aidentify ~~pricing~~and ~~grid,~~develop asrelationships ~~included~~with ~~in ABL Facility agreement, based on average excess availability for the previous fiscal quarter. The ABL facility also contains~~ a ~~letter~~sufficient number of ~~credit~~qualified ~~fee computed~~suppliers ~~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 amaintain ~~pricing~~our ~~grid,~~supply ~~as included in the ABL Facility agreement, based on the Average Daily Used Percentage (as defined in the agreement).~~ chains;

~~The~~· our ~~ABL~~ability Facility will mature on April 12, 2017; 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 ~~the~~manage ~~date~~fixed 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, 2017costs; 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~~development ~~and ranks equal in right~~ of ~~payment~~alternatives ~~with~~to ~~all~~distributors ~~of the Company’s existing and future senior indebtedness and senior~~ in ~~right of payment to all of~~ the ~~Company’s~~supply ~~existing and future subordinated indebtedness.~~ chain;

~~The~~· our ~~ABL~~ability ~~Facility~~to ismanage ~~guaranteed,~~our onworking acapital ~~senior~~through ~~secured~~product ~~basis,~~purchasing byand ~~the~~customer ~~Subsidiary~~credit ~~Guarantors. These guarantees are subject to release under customary circumstances as stipulated in the agreement.~~ policies;

~~The~~· potential ~~ABL~~material ~~Facility~~liabilities isunder ~~secured~~our ~~by a first~~self-~~priority~~insured ~~security interest in the ABL Priority Collateral, subject to permitted liens.~~ programs;

~~Prepayments~~· our ability to attract, train and retain highly qualified associates and key personnel;

~~The~~· limitations ~~ABL~~on ~~Facility~~our ~~may~~income betax ~~prepaid~~net atoperating ~~the~~loss ~~Company’s~~carryforwards ~~option~~in ~~at any time without premium or penalty and will be subject to mandatory prepayment if~~ the ~~outstanding~~event ~~ABL~~of ~~Facility exceeds either the aggregate commitments with respect thereto or the current borrowing base, in~~ an ~~amount~~ownership ~~equal to such excess. Mandatory prepayments do not result in a permanent reduction of the lenders’ commitments under the ABL Facility.~~ change;

~~Guarantees~~· our ability to identify and integrate new products; and

~~The Company and at~~ · the ~~Company’s~~ ~~option,~~significant ~~certain~~influence ofour ~~the~~sponsors ~~Company’s~~have ~~subsidiaries,~~over ~~including~~corporate ~~HD Supply Canada, Inc~~decisions., 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 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. 21

~~The~~Table ~~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.~~ Contents

19You should read this report completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this report are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this report, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, changes in future operating results over time or otherwise. 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.

~~Table of Contents~~Overview

HD ~~SUPPLY~~Supply, Inc. ~~INC~~(“we”, the “Company”, or “HDS”) is 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 9 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.

~~NOTES~~Description TOof ~~CONSOLIDATED FINANCIAL STATEMENTS~~ segments

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

~~Covenants~~Facilities Maintenance. Facilities Maintenance distributes MRO products, provides value-add services and fabricates custom products. The markets that Facilities Maintenance serves 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.

~~The~~Waterworks. ~~ABL~~Waterworks ~~Facility~~distributes ~~contains~~complete alines ~~number~~ of ~~covenants~~water ~~that,~~and ~~among~~wastewater ~~other~~transmission ~~things~~products, ~~limit~~serving orcontractors ~~restrict~~and municipalities in the ~~Company’s~~water ~~ability~~and wastewater industries for residential and non-residential uses. Waterworks serves non-residential, inresidential, ~~certain~~water ~~cases~~systems, ~~the~~sewage ~~Company’s~~systems ~~subsidiaries~~and toother ~~make~~markets. ~~acquisitions~~Products include pipes, ~~mergers~~fittings, ~~consolidations,~~ ~~dividends~~valves, hydrants and tometers ~~prepay~~for ~~certain~~use ~~indebtedness~~in ~~(including~~ the ~~First Priority Notes~~construction, ~~the~~maintenance ~~Second~~and ~~Priority~~repair ~~Notes~~of water and ~~the~~wastewater 14systems as well as fire-protection systems.~~875%~~ ~~Senior~~Waterworks ~~Notes),~~has incomplemented ~~each~~its ~~case~~core toproducts ~~the~~through ~~extent~~additional ~~any~~offerings, ~~such~~including ~~transaction~~smart ~~would~~meters ~~reduce~~(AMR/AMI), ~~availability~~HDPE ~~under~~pipes ~~the~~and ~~ABL Facility~~specific ~~below~~engineered atreatment ~~specified~~plant ~~amount.~~products and services.

InPower ~~addition~~Solutions. Power Solutions distributes electrical transmission and distribution products, ifpower ~~the~~plant ~~Company’s~~MRO ~~specified~~supplies ~~excess~~and ~~availability~~smart-grid ~~(including~~products, anand ~~amount~~arranges bymaterials ~~which~~management ~~the Company’s~~and ~~borrowing~~procurement ~~base~~outsourcing ~~exceeds~~for the ~~existing~~power ~~commitments)~~generation ~~under~~and ~~the~~distribution ~~ABL~~industries. ~~Facility~~Power ~~falls~~Solutions ~~below~~serves ~~the~~utilities ~~greater~~and ofelectrical ~~$150~~markets. ~~million~~Products include conductors such as wire and ~~10%~~cable, oftransformers, ~~the~~overhead ~~aggregate~~transmission ~~commitments~~and (adistribution ~~“Liquidity~~hardware, ~~Event”)~~switches, ~~the~~protective ~~Company~~devices ~~will~~and beunderground ~~required~~distribution, toconnectors ~~maintain~~used ain ~~Fixed Charge~~the ~~Coverage~~construction ~~Ratio~~or maintenance and repair of atelectricity ~~least~~transmission ~~1.0:1.0~~and substation distribution infrastructure, asand ~~defined~~electrical wire and cable, switchgear, supplies, lighting and conduit used in ~~the~~non-residential ~~ABL~~and ~~Facility.~~residential construction.

~~The~~White ~~ABL~~Cap. ~~Facility~~White ~~also~~Cap ~~contains~~distributes ~~certain~~specialized ~~affirmative~~hardware, ~~covenants~~tools and engineered materials to non-residential and residential contractors. Products include tilt-up brace systems, ~~including~~ ~~financial~~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 ~~reporting~~engineered ~~requirements.~~materials used broadly across all types of non-residential and residential construction.

~~Events of Default under the ABL Facility and Term Loan Facility~~ 22

~~The~~Table ~~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. Contents

13In addition to the reportable segments, our consolidated financial results include ‘‘Corporate & Other.5%’’ ~~Senior~~Corporate & ~~Subordinated~~Other ~~Notes~~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 non-residential, residential 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, which are comprised of finance, information technology, human resources, legal, supply chain and other support services, and removes inter-segment transactions.

OnDiscontinued August 30, 2007, the Company issued $1,300 million of Senior Subordinated Notes due 2015 bearing interest at a rate of 13.5% (the “13.5% Senior Subordinated Notes”). Interest payments are due each March 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. During the second quarter of fiscal 2012, the Company repurchased $1 million aggregate principal of the 13.5% Senior Subordinated Notes at a 3% discount. As of October 28, 2012, the outstanding principal balance of the 13.5% Senior Subordinated Notes was $1,819 million. During October 2012, the Company issued a notice of partial redemption to redeem $930 million of the 13.5% Senior Subordinated Notes. See Note 15, Subsequent Events. operations

~~NOTE~~On 7March 26, —2012, ~~FAIR~~we ~~VALUE~~sold ~~MEASUREMENTS~~all of the issued and outstanding equity interests in our Industrial Pipes, Valves and Fittings (“IPVF”) business to Shale-Inland Holdings, LLC for approximately $477 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, we 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.

~~The~~In ~~fair~~accordance ~~value~~with ~~measurements~~Accounting Standards Codification (“ASC”) 205-20, Discontinued Operations, the results of the IPVF operations and ~~disclosure~~the ~~principles~~gain on sale of Uthe business are classified as discontinued operations.S. ~~GAAP~~The ~~(ASC~~presentation ~~820,~~of ~~Fair~~discontinued ~~Value~~operations ~~Measurements~~includes revenues and ~~Disclosures)~~expenses ~~define~~of ~~fair value~~the discontinued operations and gain on the sale of business, ~~establish~~net aof ~~framework~~tax, ~~for~~as ~~measuring~~one ~~fair~~line ~~value~~item ~~and~~on ~~provide~~the ~~disclosure~~Consolidated ~~requirements~~Statements ~~about~~of ~~fair~~Operations ~~value~~and ~~measurements~~Comprehensive Income (Loss). ~~These~~For ~~principles~~additional ~~define~~detail arelated ~~three-tier~~to ~~fair~~the ~~value~~results ~~hierarchy,~~of ~~which~~operations ~~prioritizes~~of the ~~inputs~~discontinued ~~used~~operations, see “Note 2, Discontinued Operations,” in ~~measuring~~the ~~fair~~Notes ~~value~~to asthe ~~follows:~~ Consolidated Financial Statements within Item 1 of this quarterly report on Form 10-Q.

~~Level~~Key 1business ~~— Quoted prices (unadjusted) in active markets for identical assets or liabilities;~~metrics

~~Level~~Net 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;sales

~~Level~~We 3earn —our ~~Unobservable~~Net ~~inputs~~sales inprimarily ~~which~~from ~~little~~the orsale noof ~~market~~construction, ~~activity~~infrastructure, maintenance and renovation and improvement related products 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.

~~The~~We ~~Company’s~~ship ~~financial~~products ~~instruments~~to ~~that~~customers predominantly by internal fleet and to a lesser extent by third-party carriers. Net sales are ~~not~~recognized ~~reflected~~from atproduct ~~fair~~sales ~~value~~when ontitle to the ~~balance~~products ~~sheet~~is ~~were~~passed asto ~~follows~~the ascustomer, which generally occurs at the point of ~~October 28,~~destination ~~2012~~for products shipped by internal fleet and ~~January 29,~~at ~~2012~~the ~~(amounts~~point inof ~~millions):~~shipping for products shipped by third-party carriers.

	As of October 28, 2012				As of January 29, 2012
	RecordedAmount(1)		EstimatedFair Value		RecordedAmount(1)		EstimatedFair 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

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.

(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.23

20Table of Contents

~~Table~~Gross ~~of Contents~~profit

HDGross ~~SUPPLY~~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), ~~INC~~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.

~~NOTES~~Operating ~~TO CONSOLIDATED FINANCIAL STATEMENTS~~ expenses

Operating expenses are primarily comprised of selling, general and administrative costs, which include payroll expenses (~~Unaudited~~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.

~~The~~Cash ~~Company~~interest ~~utilized~~expense ~~Level 2 inputs, as defined in the fair value hierarchy, to measure the fair value of the long-term debt. The Term Loans outstanding as of January 29, 2012~~ and ~~due~~Adjusted August 30, 2012 and April 1, 2014 were guaranteed by Home Depot. Therefore, management’s estimates of fair value for these 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. EBITDA

~~NOTE~~Cash 8interest ~~— INCOME TAXES~~ expense:

AsCash ofinterest ~~October 28,~~expense ~~2012,~~represents ~~the~~total ~~Company’s~~interest ~~combined~~expense ~~federal,~~in ~~state and foreign effective tax rate for~~ continuing operations ~~for the~~less ~~fiscal year ending February~~(i) 3,amortization ~~2013 is an 8.0% provision, reflecting the impact~~ of ~~increasing~~deferred ~~the~~financing ~~U.S. valuation allowance~~costs, ~~increasing the deferred tax liability for U.S. goodwill~~ (ii) amortization ~~for~~of ~~tax purposes, and~~ the ~~accrual~~asset ofrelated ~~income taxes~~to ~~for foreign and certain state jurisdictions. The tax expense for~~ the ~~nine~~estimated ~~months~~fair ~~ended~~value ~~October 28, 2012 was partially offset by an adjustment~~ of ~~the~~Home ~~Company~~Depot’s ~~valuation~~guarantee ~~allowance as a result~~ of ~~the~~our ~~acquisition~~payment ofobligations ~~additional~~for ~~deferred tax~~principal ~~liabilities~~and ininterest ~~conjunction with the Peachtree acquisition. The Company’s effective tax rate will vary based on a variety~~ of ~~factors, including overall profitability,~~ the ~~geographical~~Term ~~mix~~Loan ofunder ~~income before taxes and~~ the ~~related~~2007 ~~tax~~Senior ~~rates~~Secured ~~in the~~Credit ~~jurisdictions~~Facility ~~where~~(“THD ~~it operates~~Guarantee”), ~~restructuring~~(iii) Paid-in-kind ~~and~~(“PIK”) ~~other~~interest ~~charges,~~expense ason ~~well~~our asApril 2012 ~~discrete~~Senior ~~events~~Notes, ~~such as acquisitions~~ and ~~settlements~~(iv) amortization of ~~audits.~~original ~~The~~issue ~~Company~~discounts ~~is subject to audits~~ and ~~examinations of its tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service~~premium. ~~Management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of provisions for income taxes.~~

~~With~~Cash ~~regard~~interest toexpense ~~the~~is ~~increase~~not ina ~~the~~recognized ~~valuation~~term ~~allowance~~under ~~and~~accounting ~~the~~principles ~~impact~~generally ~~the~~accepted ~~valuation~~in ~~allowance had on income tax expense,~~ the ~~valuation~~United ~~allowance~~States ~~was directly impacted by the increasing~~ of ~~the~~America ~~deferred~~(“GAAP”) ~~tax~~and ~~liability~~does ~~for~~not ~~U.S.~~purport ~~goodwill~~to ~~amortization~~be ~~for~~an ~~tax~~alternative ~~purposes. The deferred tax liability related~~ to ~~the~~interest ~~Company’s U~~expense.S. ~~tax~~Management ~~deductible~~believes ~~goodwill~~that ~~must~~cash beinterest ~~considered~~expense asis auseful ~~liability~~for ~~related~~analyzing ~~to an asset with an indefinite life. Therefore,~~ the ~~deferred~~cash ~~tax~~flow ~~liability~~needs ~~does not amortize~~ and isdebt ~~not~~service ~~available~~requirements ~~as a source~~ of ~~taxable income to support~~ the ~~realization of deferred tax assets created by other deductible temporary timing differences~~Company. The ~~Company~~ ~~does~~following ~~not~~table ~~believe~~provides ita isreconciliation ~~“more~~of ~~likely~~interest ~~than~~expense, ~~not”~~the itmost ~~will~~directly ~~realize~~comparable ~~its~~financial ~~U.S.~~measure ~~deferred~~under ~~tax assets equal to deferred liability created by tax deductible goodwill and therefore~~GAAP, ~~the Company was required~~ to ~~record~~cash aninterest ~~additional tax~~ expense to ~~increase its deferred tax asset valuation allowance. During the three~~ and ~~nine~~to ~~months~~cash ~~ended~~interest ~~October 28,~~payments ~~2012,~~for the ~~impact~~periods ofpresented ~~the~~(amounts ~~amortization~~in ~~of the indefinite lived intangibles increased income tax expense by $1 million and $34 million, respectively.~~ millions):

During the nine month period ended October 28, 2012, 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.

	Three Months Ended
	May 5, 2013			April 29, 2012
Interest expense	$	147		$	166
Amortization of deferred financing costs	(7		)	(7		)
Amortization of THD Guarantee	—			(2		)
PIK interest expense(a)	—			(6		)
Amortization of original issue discounts and premium	(1		)	—
Cash interest expense	$	139		$	151
(Increase) decrease in accrued interest	121			178
Cash interest payments(b)	$	260		$	329

~~As of January 29, 2012, the Company’s unrecognized tax benefits in accordance with the income taxes principles of U.S. GAAP~~ (~~ASC 740, Income Taxes~~a) PIK ~~were~~interest ~~$196~~expense ~~million.~~in ~~During~~ the ~~nine~~three months ended ~~October~~April 2829, 2012, ~~the~~represents ~~balance~~PIK ~~for~~interest ~~unrecognized~~incurred ~~tax~~on ~~benefits~~our ~~increased~~April 2012 $1Senior ~~million~~Notes. asIn ~~result~~October 2012, ofthis ~~the~~interest ~~Peachtree acquisition which~~ was ~~partially offset by settlements for tax positions~~ paid-in-kind aat ~~prior period. Under~~ the ~~terms~~first ofinterest ~~the~~payment ~~purchase agreement,~~date; ~~the~~thereby ~~seller~~increasing ~~is required to reimburse~~ the ~~Company~~outstanding ~~for~~principal ~~any~~amount ~~cash~~of ~~settlements related to~~ the ~~unrecognized tax benefits recorded in purchase accounting. As of October~~April ~~28,~~ 2012, ~~the~~Senior ~~Company’s unrecognized tax benefits were $197 million~~Notes. ~~During~~On ~~the three and nine months ended October~~February 281, ~~2012~~2013, the ~~gross~~capitalized ~~accrual for~~ interest ~~related~~was topaid ~~unrecognized tax benefits increased $3 million and $7 million, respectively, as a result of interest accruals on tax positions~~ in ~~a prior~~cash ~~period.~~upon ~~The~~extinguishment ~~Company’s ending net accrual for interest related to unrecognized tax benefits as~~ of ~~January 29,~~the April 2012 ~~was~~Senior ~~$19 million and increased to $23 million as of October 28, 2012~~Notes.

21(b) In addition to the cash interest payments noted in the table, 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 $889 million of 2007 Senior Subordinated Notes and a portion of the term loans under the Senior Term Facility (the “Term Loans”).

~~Table~~Adjusted ~~of Contents~~EBITDA:

HDWe ~~SUPPLY,~~present ~~INC~~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 GAAP and does not purport to be an alternative to Net income (loss) as a measure of operating performance. We believe Adjusted

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ 24

~~(Unaudited)~~Table of Contents

~~During~~EBITDA ~~fiscal~~is ~~year~~helpful ~~2010,~~in ~~the~~highlighting ~~Company~~operating ~~determined~~trends, ~~that~~because it ~~did~~excludes ~~not~~the ~~meet~~results of decisions that are outside the ~~“more~~control ~~likely~~of ~~than not”~~operating ~~standard~~management and that ~~substantially~~can ~~all~~differ ofsignificantly ~~its~~from ~~net~~company ~~U.S.~~to ~~deferred~~company ~~tax~~depending ~~assets~~on ~~would~~long-term bestrategic ~~realized~~decisions ~~and~~regarding ~~therefore~~capital structure, the ~~Company~~tax ~~established~~jurisdictions ain ~~valuation~~which ~~allowance~~companies ~~for~~operate, ~~its~~age ~~net~~and ~~U.S.~~book ~~deferred~~depreciation ~~tax~~of ~~assets~~facilities and capital investments. ~~With~~We ~~regard~~further tobelieve ~~the~~that ~~U.S.~~Adjusted EBITDA is frequently used by securities analysts, ~~the~~investors ~~Company~~and ~~continues~~other ~~to believe~~interested ~~that~~parties ain ~~full~~their ~~valuation~~evaluation ~~allowance~~of iscompanies, ~~needed~~many ~~against~~of which present an Adjusted EBITDA measure when reporting their results. We compensate for the ~~majority~~limitations of ~~its~~using ~~net~~non-GAAP ~~deferred~~financial ~~tax~~measures ~~assets.~~by Asusing them to supplement GAAP results to provide a more complete understanding of ~~October 28,~~the ~~2012,~~factors and trends affecting the ~~Company’s~~business Uthan GAAP results alone.S. ~~valuation~~Because ~~allowance~~not ~~was~~all ~~$676~~companies ~~million~~use ~~and~~identical ~~the~~calculations, ~~Company~~our ~~expects~~presentation toof ~~continue~~Adjusted toEBITDA ~~add~~may tonot ~~its~~be ~~gross deferred~~comparable ~~tax~~to ~~assets~~other ~~for~~similarly ~~anticipated~~titled ~~net~~measures ~~operating~~of ~~losses.~~other companies.

~~See~~Adjusted ~~Note~~EBITDA 11is based on ‘‘Consolidated EBITDA,’’ ~~Commitments~~a measure which is defined in our Senior Term Facility and ~~Contingencies~~Senior ABL Facility and used in calculating financial ratios in several material debt covenants. Borrowings under these facilities are a key source of liquidity and our ability to borrow under these facilities depends upon, ~~for~~among ~~discussion~~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 our specified excess availability (including an amount by which our borrowing base exceeds the ~~Internal~~outstanding ~~Revenue Service~~amounts) ~~audit~~under the Senior ABL Facility falls below the greater of $150 million and 10% of the ~~Company’s~~aggregate Ucommitments.S. ~~federal~~Adjusted EBITDA is defined as Net income (loss) less Income (loss) from discontinued operations, net of tax, ~~returns~~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 presenting Adjusted EBITDA is appropriate to provide additional information to investors about how the covenants in those agreements operate and about certain non-cash 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 report. 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 our annual report on Form 10-K, filed with the SEC on April 16, 2013, under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources— External Financing.”

~~NOTE~~Adjusted 9EBITDA —has ~~SUPPLEMENTAL~~limitations ~~BALANCE~~as ~~SHEET~~an ~~AND~~analytical ~~CASH~~tool ~~FLOW~~and ~~INFORMATION~~should not be considered in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are:

~~Receivables~~· Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

~~Receivables~~· Adjusted asEBITDA ofdoes ~~October 28,~~not ~~2012~~reflect ~~and~~our ~~January 29~~interest expense, ~~2012~~or ~~consisted~~the ofrequirements ~~the~~necessary ~~following~~to ~~(amounts~~service ininterest ~~millions):~~or principal payments on our debt;

	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

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

~~Other~~· Adjusted ~~Current~~EBITDA ~~Liabilities~~does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and

~~Other~~· although ~~current~~depreciation ~~liabilities~~and asamortization ofcharges ~~October 28~~are non-cash charges, ~~2012~~the assets being depreciated and ~~January 29,~~amortized ~~2012~~will ~~consisted~~often ofhave ~~the~~to ~~following~~be ~~(amounts~~replaced in ~~millions):~~the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

	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

~~Significant~~Table ~~Non-Cash~~of ~~Transactions~~ Contents

~~Interest~~The ~~payments~~following ontable ~~the~~presents ~~14.875%~~a ~~Senior~~reconciliation ~~Notes~~of ~~are~~Net ~~due~~income ~~each April 12th and October 12th through maturity, commencing on October 12, 2012, except that the first eleven payment periods through October 2017 shall be paid in kind~~ (~~“PIK”~~loss), ~~and therefore increase~~ the ~~balance~~most ofdirectly ~~the~~comparable ~~outstanding~~financial ~~indebtedness~~measure ~~rather~~under ~~than paid in cash. The Company made PIK interest payments during the third quarter of fiscal 2012 of $56 million~~GAAP, ~~increasing~~to ~~the~~Adjusted ~~outstanding~~EBITDA ~~principal~~for ~~balance of~~ the ~~14.875%~~periods ~~Senior Notes.~~ presented:

Interest payments on the 13.5% Senior Subordinated Notes are 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 PIK interest payments during the nine months ended October 30, 2011 of $223 million, increasing the outstanding balance of the 13.5% Senior Subordinated Notes.

	Three Months Ended
	May 5, 2013			April 29, 2012
Net income (loss)	$	(131	)	$	(360	)
Less income (loss) from discontinued operations, net of tax	—			16
Income (loss) from continuing operations	(131		)	(376		)
Interest expense, net	147			166
Provision (benefit) for income taxes	43			33
Depreciation and amortization (i)	60			83
Other (income) expense, net (ii)	1			—
Loss (gain) on extinguishment of debt (iii)	40			220
Stock-based compensation (iv)	3			5
Management fee & related expenses paid to Equity Sponsors (v)	1			1
Other	—			1
Adjusted EBITDA	$	164		$	133

~~Supplemental~~(i) Depreciation ~~Cash~~and ~~Flow~~amortization ~~Information~~includes amounts recorded within Cost of sales in the Consolidated Statements of Operations and Comprehensive Income (Loss).

~~Cash paid~~(ii) Represents ~~for interest in~~ the ~~nine~~costs ~~months~~related ~~ended~~to ~~October 28,~~the ~~2012~~modification ~~and October 30, 2011 was $576 million and $340 million, respectively. Cash paid for income taxes, net~~ of ~~refunds,~~debt ~~in the nine months ended October 28, 2012~~ and ~~October 30,~~ ~~2011~~other ~~was~~non-operating ~~$2 million and $4 million, respectively~~(income)/expense.

~~NOTE~~(iii) Represents 10the —loss/(gain) ~~BRANCH~~on ~~CLOSURE~~extinguishment ~~AND~~of ~~CONSOLIDATION~~debt ~~ACTIVITIES~~including the premium/(discount) paid to repurchase or call the debt as well as the write-off of unamortized deferred financing costs and other assets or liabilities associated with such debt.

~~Concurrent~~(iv) Represents ~~with~~ the ~~Transactions~~stock-based ~~and~~compensation ~~acquisition~~costs ~~integration, management evaluated the operations and performance of individual branches and identified branches~~ for ~~closure~~stock ~~or consolidation~~options. ~~In addition, during~~

22(v) 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.

~~Table~~Relationship ofwith ~~Contents~~Home Depot

HDHistorical ~~SUPPLY, INC.~~ relationship

~~NOTES~~On TOAugust 30, ~~CONSOLIDATED~~2007, ~~FINANCIAL~~investment ~~STATEMENTS~~funds associated with Clayton, Dubilier & Rice, Inc., The Carlyle Group and Bain Capital Partners, LLC (collectively the “Equity Sponsors”) formed HD Supply Holdings, Inc. (“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 Holdings, or to a wholly-owned subsidiary of Holdings, certain intellectual property 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, Holdings’ direct wholly-owned subsidiary, HDS Holding Corporation, acquired direct control of HD Supply, Inc. through the merger of its wholly-owned subsidiary, HDS Acquisition Corp., with and into HD Supply, Inc. 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.

~~(Unaudited)~~Strategic agreement

~~fiscal~~On ~~years~~the ~~2008~~date ~~and~~of ~~2009~~the Transactions, ~~management~~Home ~~initiated~~Depot ~~additional~~entered ~~plans~~into toa ~~restructure~~strategic ~~its~~purchase ~~business,~~agreement ~~which~~with ~~included~~Crown ~~evaluating opportunities to consolidate branches~~Bolt, ~~reduce~~HDS’s ~~costs,~~distribution ~~more~~services ~~efficiently employ~~line ~~working~~of ~~capital and streamline activities~~business. As ~~Under~~subsequently ~~these~~amended ~~plans~~on February 4, ~~which were completed in fiscal 2010~~2013, ~~management~~Home ~~closed~~Depot oragreed ~~consolidated~~to ~~235~~purchase ~~branches~~certain ~~and~~products ~~reduced~~exclusively ~~workforce~~from ~~personnel~~Crown byBolt ~~approximately~~through 5January 31,~~000~~ ~~employees~~2020. ~~The Company does not expect to incur additional restructuring charges under these plans.~~

~~The~~HDS ~~remaining~~derived ~~liability~~revenue ~~balances~~from ~~for these plans represents~~ the ~~net~~sale ~~present value~~ of ~~future~~products ~~lease~~to ~~obligations,~~Home ~~including~~Depot ~~rent,~~of ~~taxes,~~$65 ~~utilities,~~million ~~etc.,~~and ~~less~~$69 ~~estimated~~million ~~sublease~~in ~~income of~~ the ~~closed~~three ~~branches.~~months ~~The~~ended ~~Company~~May 5, ~~regularly~~2013 ~~reviews~~and ~~the~~April 29, ~~assumptions~~2012, ~~used to estimate these liabilities~~respectively.

~~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):~~ Seasonality

Balance — January 29, 2012	$	40
Non-cash reduction		(2	)
Cash payments		(9	)
Other		(1	)
Balance — October 28, 2012	$	28

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

As of October 28, 2012, approximately $12 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 six years, with certain property lease obligations extending out as far as fourteen 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 the third quarter of fiscal 2012, the Company reduced the liability by $2 million, which was recorded as Income from discontinued operations, net in the Consolidated Statement of Operations and Comprehensive Income (Loss). 26

~~NOTE~~Table 11of ~~— COMMITMENTS AND CONTINGENCIES~~ Contents

~~Internal~~conditions ~~Revenue~~during ~~Service~~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.

HDFiscal Supply carried back tax net operating losses (“NOL”) from its tax years ended on February 3, 2008 and February 1, 2009 to taxable years during which the Company was a member of Home Depot’s U.S. federal consolidated 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 HDS Investment Holding Inc. (the Company’s ultimate parent corporation) and Home Depot, Home Depot paid to the Company the refund proceeds resulting from the NOL carrybacks. Year

~~In connection with an audit of the Company~~HDS’s ~~U.S.~~fiscal ~~federal~~year ~~income~~is ~~tax~~a ~~returns~~52- ~~filed~~or ~~for~~53-week ~~the~~period ~~tax~~ending ~~years ended~~ on ~~February 3, 2008 and February 1, 2009,~~ the ~~IRS~~Sunday ~~has~~nearest ~~disallowed~~to ~~certain deductions claimed by the Company~~January 31. Fiscal ~~During~~year ~~fiscal~~ending ~~2012~~February 2, ~~the~~2014 ~~IRS issued a formal Revenue Agents Report challenging approximately $299 million~~ (~~excluding~~“fiscal ~~interest~~2013”) ofincludes ~~the~~52 ~~cash~~weeks ~~refunds~~and ~~resulting~~fiscal ~~from~~year ~~the~~ending ~~Company’s NOL carrybacks. As of October~~February 283, ~~2012,~~2013 ~~the~~(“fiscal ~~Company~~2012”) ~~estimates~~included ~~the~~53 ~~interest to which the IRS would be entitled, if successful in all claims, to be approximately $36 million~~weeks. The Ifthree ~~the~~months ~~IRS~~ended ~~is ultimately successful with respect to the proposed adjustments~~May 5, ~~the~~2013 ~~Company, pursuant~~(“first toquarter ~~the~~2013”) ~~terms~~and ~~of the Agreement~~April 29, ~~would~~2012 be(“first ~~required~~quarter to2012”) ~~pay~~both ~~Home~~included ~~Depot~~13 ~~an amount equal to the disallowed refunds plus related interest~~weeks. 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’s deferred tax assets by approximately $231 million before valuation allowance.

~~The~~Consolidated ~~Company~~results 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 Company 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 statute, the Company intends to~~ operations

									% of Net Sales
	Three Months Ended						Percentage		Three Months Ended				Basis Point
	May 5, 2013			April 29, 2012			Increase (Decrease)		May 5, 2013		April 29, 2012		Increase (Decrease)
Net Sales	$	2,068		$	1,836		12.6	%	100.0	%	100.0	%	—
Gross Profit	598			523			14.3		28.9		28.5		40	bps
Operating expenses:
Selling, general and administrative	439			397			10.6		21.2		21.6		(40	)
Depreciation and amortization	59			83			(28.9	)	2.9		4.6		(170	)
Total operating expenses	498			480			3.8		24.1		26.2		(210	)
Operating Income	100			43			132.6		4.8		2.3		250
Interest expense	147			166			(11.4	)	7.1		9.0		(190	)
Loss on extinguishment of debt	40			220			*		2.0		12.0		*
Other (income) expense, net	1			—			*		—		—		—
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes	(88		)	(343		)	*		(4.3	)	(18.7	)	*
Provision (benefit) for income taxes	43			33			30.3		2.0		1.8		20
Income (Loss) from Continuing Operations	(131		)	(376		)	*		(6.3	)	(20.5	)	*
Income (loss) from discontinued operations, net of tax	—			16			*		—		0.9		(90	)
Net Income (Loss)	$	(131	)	$	(360	)	*		(6.3	)	(19.6	)	*
Non-GAAP financial data:
Adjusted EBITDA	$	164		$	133		23.3		7.9		7.2		70

~~Table~~* ofNot ~~Contents~~meaningful

~~HD SUPPLY, INC.~~ Highlights

~~NOTES~~Net TOsales ~~CONSOLIDATED~~in ~~FINANCIAL~~first ~~STATEMENTS~~quarter 2013 increased $232 million, or 12.6%, compared to first quarter 2012. Each of our four reportable segments realized increases in Net sales. Operating income in first quarter 2013 increased $57 million, or 133%, as compared to first quarter 2012. Our sales initiatives and investments in the business resulted in an increase to Adjusted EBITDA of $31 million, or 23.3%, in first quarter 2013 as compared to first quarter 2012.

~~(Unaudited)~~During first quarter 2013, we extinguished all of the $889 million outstanding 2007 Senior Subordinated Notes, incurring a loss on extinguishment of approximately $34 million. In addition, we amended our Term Loan Facility to lower the borrowing margin by 275 basis points and replace the hard call provision applicable to optional prepayments of the Term Loans with a soft call option. In connection with the amendment, we recognized an approximately $5 million loss on extinguishment of debt related to the portion of the amendment considered an extinguishment. As of May 5, 2013, our liquidity was $785 million.

~~vigorously~~Net defend its positions rather than pay any amount related to the 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 pursuant to the terms of the Agreement, the Company’s cash flows, future results of operations and financial positions could be affected in a significant and adverse manner. sales

~~See~~Net ~~Note~~sales 8in first quarter 2013 increased $232 million, ~~Income~~or ~~Taxes~~12.6%, ~~for~~compared ~~further~~to ~~disclosures~~first onquarter ~~the~~2012. Each ~~Company’s~~of ~~income~~our ~~taxes.~~reportable segments experienced an increase in Net sales in first quarter 2013 as compared to first quarter 2012.

~~Legal Matters~~ 27

HDTable ~~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. Contents

~~NOTE~~The 12Net —sales ~~SEGMENT~~increases ~~INFORMATION~~were primarily due to sales initiatives at each of our businesses and, to a lesser extent, increases in market volume and acquisitions. Organic sales growth was 10.4% for first quarter 2013 as compared to first quarter 2012. Our fiscal 2012 acquisitions provided $40 million of non-organic sales growth.

HDGross 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 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 each of the operating segments. profit

~~EBITDA~~Gross isprofit ~~defined~~increased as$75 ~~Net~~million, ~~income~~or ~~(loss)~~14.3%, ~~less~~during ~~Income~~first ~~(loss)~~quarter ~~from~~2013 ~~discontinued~~as ~~operations,~~compared ~~net~~to offirst ~~tax,~~quarter ~~plus~~2012. The ~~(i) Interest~~increase ~~expense~~in ~~and~~Gross ~~Interest income~~profit, ~~net,~~driven ~~(ii) Provision~~by ~~(benefit)~~our ~~for~~Facilities ~~income taxes~~Maintenance, ~~and~~ ~~(iii) Depreciation~~White Cap and ~~amortization.~~Waterworks ~~Adjusted~~businesses, ~~EBITDA~~was isprimarily ~~defined~~due ~~as EBITDA adjusted~~ to ~~exclude~~sales ~~non-cash~~initiatives, ~~items~~volume increases and ~~certain~~product ~~other adjustments to Consolidated Net Income~~mix.

HDGross ~~Supply~~profit ~~has~~as ~~four~~a ~~reportable~~percentage ~~segments,~~of ~~each~~Net ofsales ~~which~~(“gross ismargin”) ~~presented~~increased ~~below:~~approximately 40 basis points to 28.9% in first quarter 2013 as compared to 28.5% in first quarter 2012. The improvement in gross margin was driven by our Facilities Maintenance and White Cap businesses.

•Operating Facilities Maintenance — Supplies maintenance, repair and operations (“MRO”) products and upgrade and renovation services largely to the multifamily, healthcare, hospitality, and institutional markets.expenses

•Operating ~~Waterworks~~expenses —increased ~~Distributes~~$18 ~~complete~~million, ~~lines~~or ~~of water and wastewater transmission products~~3.8%, ~~serving~~during ~~contractors~~first ~~and~~quarter ~~municipalities~~2013 inas ~~all~~compared ~~aspects~~to offirst ~~the~~quarter ~~water and wastewater industries~~2012.

•Selling, ~~Power~~general ~~Solutions~~and ~~(formerly~~administrative ~~“Utilities/Electrical”)~~expenses —increased ~~Distributes~~$42 ~~electrical~~million, ~~transmission~~or ~~and~~10.6%, ~~distribution~~in ~~products,~~first ~~power~~quarter ~~plant~~2013 ~~MRO~~as ~~supplies,~~compared ~~smart-grid~~to ~~technologies,~~first ~~and~~quarter ~~provides~~2012. The ~~materials~~increase ~~management~~is ~~and~~primarily ~~procurement~~as ~~outsourcing~~a ~~arrangements~~result of increases in variable expenses due to ~~the~~higher ~~power~~sales ~~generation~~volume. Depreciation and ~~distribution~~amortization ~~industries~~expense ~~and~~decreased ~~distributes~~$24 ~~electrical~~million, ~~products~~or ~~such~~28.9%, in first quarter 2013 as ~~wire~~compared ~~and~~to ~~cable,~~first ~~switch~~quarter ~~gear~~2012 ~~supplies,~~primarily ~~lighting~~as ~~and~~a ~~conduit~~result toof ~~residential~~certain ~~and~~intangible ~~commercial~~assets ~~contractors~~becoming fully amortized during fiscal 2012.

•Operating ~~White~~expenses ~~Cap~~as —a ~~Distributes~~percentage ~~specialized~~of ~~hardware~~Net sales decreased approximately 210 basis points to 24.1% in the first quarter 2013 as compared to first quarter 2012. The lower Depreciation and amortization expense resulted in approximately 170 basis points of the total decrease. Selling, ~~tools~~general and administrative expenses as a percentage of Net sales decreased approximately 40 basis points in first quarter 2013 as compared to first quarter 2012. The improvement reflects the leverage of fixed costs through sales volume increases, ~~building~~primarily ~~materials~~at Waterworks, Power Solutions, and ~~safety~~CTI. These ~~equipment~~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 ~~professional~~the ~~contractors~~impact of the investment in sales force additions and greenfields since first quarter 2012 to support continued growth in our business.

InOperating ~~addition~~income ~~to the reportable segments, the Company’s consolidated financial results include an Other category, Corporate, & Eliminations. Other primarily consists of~~ (iloss) 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,

24Operating income increased $57 million during first quarter 2013 as compared to first quarter 2012, as a result of the improvement in Net sales and Gross profit and the reduction in Depreciation and amortization expense.

~~Table~~Operating income as a percentage of ~~Contents~~Net sales increased approximately 250 basis points first quarter 2013 as compared to first quarter 2012. The improvement was driven by the reduction in Depreciation and amortization expense, improvements in gross margins and control over growth in Selling, general and administrative expense.

HDInterest ~~SUPPLY, INC.~~ expense

~~NOTES~~Interest TOexpense ~~CONSOLIDATED~~decreased ~~FINANCIAL~~$19 ~~STATEMENTS~~million, or 11.4%, during first quarter 2013 as compared to first quarter 2012. The decrease in interest expense is due to a lower average interest rate on our outstanding indebtedness, partially offset by a higher average outstanding balance.

~~(Unaudited)~~Loss on extinguishment of debt

~~primarily~~In ~~serving~~first ~~Home~~quarter ~~Depot; (iii) CTI~~2013, ~~offering~~we ~~turnkey~~redeemed ~~supply~~all ~~and~~of ~~installation~~the ~~services~~$889 ~~for~~million ~~multiple~~outstanding ~~interior~~2007 ~~finish~~Senior ~~options,~~Subordinated ~~including~~Notes ~~flooring,~~at ~~cabinets,~~redemption ~~countertops,~~price ~~and~~of ~~window coverings,~~103.375% ~~along~~of ~~with~~the ~~comprehensive~~principal ~~design~~amount ~~center~~thereof. ~~services~~As ~~for~~a ~~residential~~result, ~~commercial,~~we ~~and~~reported ~~senior~~a ~~living~~$34 ~~projects;~~million ~~and~~loss ~~(iv) HD~~on ~~Supply Canada~~extinguishment, ~~comprised of HD Supply’s Canadian operations (other than the Canadian utilities operations,~~ which isincludes ~~included~~a in$30 ~~the~~million ~~Power~~premium ~~Solutions~~payment ~~segment,~~to ~~and~~redeem ~~Commercial Direct, which is included in~~ the ~~Facilities~~2007 ~~Maintenance~~Senior ~~segment).~~Subordinated ~~Corporate~~Notes ~~has enterprise management responsibility~~ and ~~centralized~~approximately ~~support~~$4 ~~functions~~million ~~for~~to ~~some~~write ofoff the ~~segments, information~~unamortized ~~technology,~~deferred ~~human~~debt ~~resources, sourcing and support services~~cost. ~~All material intersegment transactions have been eliminated.~~

~~The following~~In ~~tables~~addition, ~~present~~during ~~Net~~first ~~sales~~quarter 2013, ~~Adjusted~~we ~~EBITDA,~~amended ~~and~~our ~~other~~Term ~~measures~~Loan ~~for~~Facility ~~each~~to oflower the ~~reportable~~borrowing ~~segments~~margin by 275 basis points and ~~total~~replace ~~continuing~~the ~~operations~~hard ~~for~~call provision applicable to optional prepayment of Term Loans thereunder with a soft call option. A portion of the ~~periods~~amendment ~~indicated~~was ~~(amounts~~considered an extinguishment in ~~millions):~~accordance with ASC

	FacilitiesMaintenance		Waterworks		PowerSolutions		White Cap		Other,Corporate, &Eliminations		TotalContinuingOperations
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

~~(1)~~Table ~~Depreciation includes amounts recorded within Cost~~ of ~~sales in the Consolidated Statements of Operations and Comprehensive Income (Loss).~~Contents

	FacilitiesMaintenance		Waterworks		PowerSolutions		White Cap		Other,Corporate, &Eliminations		TotalContinuingOperations
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

470-50, Debt-Modifications and Extinguishments, 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. For additional information, see “Note 4, Debt,” in the Notes to the Consolidated Financial Statements within Item 1 of this quarterly report on Form 10-Q.

~~(1)~~In ~~Depreciation~~connection ~~includes~~with ~~amounts~~the refinancing of the senior portion of our debt structure in first quarter 2012, we recorded ~~within~~a ~~Cost~~charge of ~~sales~~$220 million in accordance with ASC 470-50, Debt-Modifications and Extinguishments. This charge consisted of $150 million for the premium paid to the holders of the 2007 Senior Notes, as contractually required, upon early extinguishment, $46 million of unamortized deferred debt costs and $24 million to write off the remaining unamortized value associated with the THD Guarantee. For additional information, see “Note 4, Debt,” in the Notes to the Consolidated Financial Statements within Item 1 of ~~Operations~~this ~~and~~quarterly ~~Comprehensive~~report ~~Income~~on ~~(Loss)~~Form 10-Q.

25Other (income) expense, net

~~Table~~A significant portion of ~~Contents~~the amendment of our Term Loan Facility during first quarter 2013 was considered a modification in accordance with ASC 470-50, Debt-Modifications and Extinguishments. As a result, we incurred approximately $1 million in financing fees that were expensed.

HDProvision ~~SUPPLY,~~(benefit) ~~INC.~~for income taxes

~~NOTES~~The TOprovision ~~CONSOLIDATED~~for ~~FINANCIAL~~income ~~STATEMENTS~~taxes from continuing operations in first quarter 2013 was $43 million compared to $33 million in first quarter 2012. The effective rate for continuing operations for first quarter 2013 was a provision of 48.4%, 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 in first quarter 2012 was a provision of 9.5%, 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.

~~(Unaudited)~~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.

~~Reconciliation~~Adjusted ~~to Consolidated Financial Statements (amounts in millions)~~ EBITDA

	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	)

Adjusted EBITDA increased $31 million, or 23.3%, in first quarter 2013 as compared to first quarter 2012. Each of our reportable segments experienced an increase in Adjusted EBITDA in first quarter 2013 as compared to first quarter 2012.

~~NOTE~~The 13increase —in ~~SUBSIDIARY~~Adjusted ~~GUARANTORS~~EBITDA in first quarter 2013 is primarily due to the increases in Net sales and Gross profit. Adjusted EBITDA as a percentage of Net sales increased approximately 70 basis points to 7.9% in first quarter 2013 as compared to first quarter 2012, primarily due to gross margin improvements and the leverage of fixed costs through sales volume increases.

The Company has issued 13.5% Senior Subordinated Notes guaranteed by certain of its subsidiaries (the “Guarantor Subsidiaries”). The Guarantor Subsidiaries are direct or indirect wholly-owned domestic subsidiaries of the Company. The subsidiaries of the Company that do not guarantee the 13.5% Senior Subordinated Notes (“Non-guarantor Subsidiaries”) are direct or indirect wholly-owned subsidiaries of the Company and include the Company’s operations in Canada and a non-operating subsidiary in the United States that held an investment in the Company’s 13.5% Senior Subordinated Notes, which was eliminated in consolidation. During the third quarter of fiscal 2012, the investment in the 13.5% Senior Subordinated Notes was contributed to the Parent in a non-cash transaction. The Parent retired this portion of the 13.5% Senior Subordinated Notes. These transactions had no impact on the consolidated results of operations or financial position. 29

~~In connection~~Table ~~with the 13.5% Senior Subordinated Notes, the Company determined the need for compliance with Rule 3-10~~ of SEC Regulation S-X (“Rule 3-10”). In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, the Company has included the accompanying Condensed Consolidating Financial Statements in accordance with Rule 3-10(d) of SEC Regulation S-X. The following supplemental financial information sets forth, on a consolidating basis, the condensed statements of operations and comprehensive income (loss), the condensed balance sheets, and the condensed statements of cash flows for the parent company issuer of the 13.5% Senior Subordinated Notes HD Supply, Inc. (the “Parent Issuer”), for the Guarantor Subsidiaries and for the Non-guarantor Subsidiaries and total consolidated HD Supply, Inc. and subsidiaries (amounts in millions): Contents

26Results of operations by reportable segment

~~Table~~Facilities ~~of Contents~~Maintenance

HD SUPPLY, INC.

	Three Months Ended
Dollars in millions	May 5, 2013			April 29, 2012			Increase (Decrease)
Net sales	$	561		$	497		12.9	%
Operating income (loss)	$	69		$	57		21.1	%
% of Net sales	12.3		%	11.5		%	80	bps
Depreciation and amortization	31			28			10.7	%
Adjusted EBITDA	$	100		$	85		17.6	%
% of Net sales	17.8		%

Filing Compare · HD SUPPLY, INC.