Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

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

 

For the quarterly period ended August 4, 2013

 

- OR -

 

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

 

For the transition period from          to          

 


 

Commission File
Number

 

Exact name of Registrant as specified in its
charter, Address of principal executive offices
and Telephone number

 

State of
incorporation

 

I.R.S. Employer
Identification
Number

001-35979

 

HD SUPPLY HOLDINGS, INC.
3100 Cumberland Boulevard, Suite 1480
Atlanta, Georgia 30339
(770) 852-9000

 

Delaware

 

26-0486780

333-159809

 

HD SUPPLY, INC.
3100 Cumberland Boulevard, Suite 1480
Atlanta, Georgia 30339
(770) 852-9000

 

Delaware

 

75-2007383

 


 

Indicate by check mark whether the Registrant (1) has filed all reports 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.

 

HD Supply Holdings, Inc.

 

Yes o No x

 

 

 

HD Supply, Inc.

 

Yes x No o

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive 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).

 

HD Supply Holdings, Inc.

 

Yes x No o

 

 

 

HD Supply, Inc.

 

Yes x No o

 

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

 

HD Supply Holdings, Inc.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

HD Supply, Inc.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

HD Supply Holdings, Inc.

 

Yes o No x

 

 

 

HD Supply, Inc.

 

Yes o No x

 

The number of shares of the registrant’s common stock outstanding as of September 6, 2013:

 

HD Supply Holdings, Inc.

 

192,080,428 shares of common stock, par value $0.01 per share

 

 

 

HD Supply, Inc.

 

1,000 shares of common stock, par value $0.01 per share, all of which were owned by HDS Holding Corporation, a wholly-owned subsidiary of HD Supply Holdings, Inc.

 

 

 



Table of Contents

 

INDEX TO FORM 10-Q

 

 

 

Page

 

Explanatory Note

3

 

 

 

 

Forward-looking statements and information

3

 

 

 

Part I.

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

HD Supply Holdings, Inc.

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months ended August 4, 2013 and July 29, 2012 (unaudited)

5

 

 

 

 

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

6

 

 

 

 

Consolidated Statements of Cash Flows for the Three and Six Months ended August 4, 2013 and July 29, 2012 (unaudited)

7

 

 

 

 

HD Supply, Inc.

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months ended August 4, 2013 and July 29, 2012 (unaudited)

8

 

 

 

 

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

9

 

 

 

 

Consolidated Statements of Cash Flows for the Three and Six Months ended August 4, 2013 and July 29, 2012 (unaudited)

10

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

11

 

 

 

Item 2.

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

31

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

49

 

 

 

Item 4.

Controls and Procedures

49

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

49

 

 

 

Item 1A.

Risk Factors

49

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

 

 

 

Item 6.

Exhibits

51

 

 

 

Signatures

 

58

 

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Table of Contents

 

EXPLANATORY NOTE

 

This Form 10-Q is a combined quarterly report being filed separately by two registrants: HD Supply Holdings, Inc. and HD Supply, Inc.  Unless the context indicates otherwise, any reference in this report to “Holdings” refers to HD Supply Holdings, Inc., any reference to “HDS” refers to HD Supply, Inc., the indirect wholly-owned subsidiary of Holdings, and any references to “HD Supply,” the “Company,” “we,” “us” and “our” refer to HD Supply Holdings, Inc. together with its direct and indirect subsidiaries, including HDS.  Each registrant hereto is filing on its own behalf all of the information contained in this quarterly report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information.

 

Forward-looking statements and information

 

This quarterly report includes forward-looking statements and cautionary statements.  Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms.  These forward-looking statements include all matters that are not historical facts.  They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, financial condition, liquidity, prospects, growth strategies and the industries in which we operate.

 

Forward-looking statements are subject to known and unknown risks and uncertainties, 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 Registration Statement on Form S-1, as amended (File No. 333-187872), that was declared effective on June 26, 2013 (the “Registration Statement”) and, in the case of Holdings, those described from time to time in Holdings’ other filings with the U.S. Securities and Exchange Commission (“SEC”) and, in the case of HDS, those described from time to time in HDS’s other filings with the SEC. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include:

 

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

 

·         our ability to achieve profitability;

 

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

 

·         limitations and restrictions in the agreements governing our indebtedness;

 

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

 

·         the loss of any of our significant customers;

 

·         competitive pricing pressure from our customers;

 

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

 

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

 

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

 

·         our ability to manage fixed costs;

 

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

 

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

 

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·         potential material liabilities under our self-insured programs;

 

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

 

·         limitations on our income tax net operating loss carryforwards in the event of an ownership change;

 

·         our ability to identify and integrate new products; and

 

·         the significant influence our sponsors have over corporate decisions.

 

You 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.

 

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Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

HD SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Amounts in millions, except share and per share data, unaudited

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

August 4,
2013

 

July 29,
2012

 

August 4,
2013

 

July 29,
2012

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

2,257

 

$

2,059

 

$

4,325

 

$

3,895

 

Cost of sales

 

1,596

 

1,465

 

3,066

 

2,778

 

Gross Profit

 

661

 

594

 

1,259

 

1,117

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

450

 

408

 

889

 

805

 

Depreciation and amortization

 

61

 

83

 

120

 

166

 

Total operating expenses

 

511

 

491

 

1,009

 

971

 

Operating Income

 

150

 

103

 

250

 

146

 

Interest expense

 

144

 

158

 

291

 

324

 

Loss on extinguishment & modification of debt

 

46

 

 

87

 

220

 

Other (income) expense, net

 

20

 

 

20

 

 

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

 

(60

)

(55

)

(148

)

(398

)

Provision (benefit) for income taxes

 

12

 

1

 

55

 

34

 

Income (Loss) from Continuing Operations

 

(72

)

(56

)

(203

)

(432

)

Income from discontinued operations, net of tax

 

 

 

 

16

 

Net Income (Loss)

 

$

(72

)

$

(56

)

$

(203

)

$

(416

)

Other comprehensive income— foreign currency translation adjustment

 

(3

)

(3

)

(4

)

 

Total Comprehensive Income (Loss)

 

$

(75

)

$

(59

)

$

(207

)

$

(416

)

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

 

 

 

 

 

 

 

 

Basic and Diluted (in thousands)

 

153,433

 

130,554

 

142,006

 

130,555

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Income (Loss) from Continuing Operations

 

$

(0.47

)

$

(0.43

)

$

(1.43

)

$

(3.31

)

Income (Loss) from Discontinued Operations

 

$

 

$

 

$

 

$

0.12

 

Net Income (Loss)

 

$

(0.47

)

$

(0.43

)

$

(1.43

)

$

(3.19

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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HD SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

Amounts in millions, except share and per share data, unaudited

 

 

 

August 4,
2013

 

February 3,
2013

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

109

 

$

141

 

Cash equivalents restricted for debt redemption

 

 

936

 

Receivables, less allowance for doubtful accounts of $22 and $23

 

1,221

 

1,008

 

Inventories

 

1,108

 

987

 

Deferred tax asset

 

3

 

42

 

Other current assets

 

47

 

49

 

Total current assets

 

2,488

 

3,163

 

Property and equipment, net

 

401

 

395

 

Goodwill

 

3,139

 

3,138

 

Intangible assets, net

 

406

 

473

 

Other assets

 

153

 

165

 

Total assets

 

$

6,587

 

$

7,334

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

815

 

$

693

 

Accrued compensation and benefits

 

116

 

160

 

Current installments of long-term debt

 

10

 

899

 

Other current liabilities

 

266

 

291

 

Total current liabilities

 

1,207

 

2,043

 

 

 

 

 

 

 

Long-term debt, excluding current installments

 

5,678

 

6,430

 

Deferred tax liabilities

 

111

 

104

 

Other liabilities

 

344

 

348

 

Total liabilities

 

7,340

 

8,925

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

Common stock, par value $0.01; 1 billion shares authorized; 192 million and 131 million shares issued and outstanding at August 4, 2013 and February 3, 2013, respectively

 

2

 

1

 

Paid-in capital

 

3,739

 

2,695

 

Accumulated deficit

 

(4,488

)

(4,285

)

Accumulated other comprehensive loss

 

(6

)

(2

)

Total stockholders’ equity (deficit)

 

(753

)

(1,591

)

Total liabilities and stockholders’ equity (deficit)

 

$

6,587

 

$

7,334

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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HD SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts in millions, unaudited

 

 

 

Six Months Ended

 

 

 

August 4,
2013

 

July 29,
2012

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

(203

)

$

(416

)

Reconciliation of net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

122

 

170

 

Provision for uncollectibles

 

2

 

3

 

Non-cash interest expense

 

16

 

51

 

Payment of PIK interest & discounts upon extinguishment of debt

 

(364

)

 

Loss on extinguishment & modification of debt

 

87

 

220

 

Stock-based compensation expense

 

8

 

10

 

Deferred income taxes

 

45

 

26

 

Gain on sale of a business

 

 

(9

)

Changes in assets and liabilities:

 

 

 

 

 

(Increase) decrease in receivables

 

(221

)

(200

)

(Increase) decrease in inventories

 

(125

)

(200

)

(Increase) decrease in other current assets

 

(2

)

(2

)

(Increase) decrease in other assets

 

 

2

 

Increase (decrease) in accounts payable and accrued liabilities

 

52

 

17

 

Increase (decrease) in other long-term liabilities

 

6

 

4

 

Net cash provided by (used in) operating activities

 

(577

)

(324

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(64

)

(52

)

Proceeds from sales of property and equipment

 

5

 

2

 

Proceeds from sale of investments

 

936

 

 

Proceeds from sale of a business

 

 

464

 

(Payment) settlement for acquisition of a business, net of cash acquired

 

2

 

(196

)

Other investing activities

 

 

(3

)

Net cash provided by (used in) investing activities

 

879

 

215

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from sale of common stock, net of transaction fees

 

1,040

 

 

Borrowings of long-term debt

 

79

 

2,817

 

Repayments of long-term debt

 

(1,619

)

(3,288

)

Borrowings on long-term revolver debt

 

520

 

1,004

 

Repayments on long-term revolver debt

 

(320

)

(372

)

Debt issuance and modification fees

 

(34

)

(73

)

Other financing activities

 

1

 

 

Net cash provided by (used in) financing activities

 

(333

)

88

 

Effect of exchange rates on cash and cash equivalents

 

(1

)

 

Increase (decrease) in cash and cash equivalents

 

$

(32

)

$

(21

)

Cash and cash equivalents at beginning of period

 

141

 

111

 

Cash and cash equivalents at end of period

 

$

109

 

$

90

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

 

HD SUPPLY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Amounts in millions, unaudited

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

August 4,
2013

 

July 29,
2012

 

August 4,
2013

 

July 29,
2012

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

2,257

 

$

2,059

 

$

4,325

 

$

3,895

 

Cost of sales

 

1,596

 

1,465

 

3,066

 

2,778

 

Gross Profit

 

661

 

594

 

1,259

 

1,117

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

450

 

408

 

889

 

805

 

Depreciation and amortization

 

61

 

83

 

120

 

166

 

Total operating expenses

 

511

 

491

 

1,009

 

971

 

Operating Income

 

150

 

103

 

250

 

146

 

Interest expense

 

144

 

158

 

291

 

324

 

Loss on extinguishment & modification of debt

 

46

 

 

87

 

220

 

Other (income) expense, net

 

20

 

 

20

 

 

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

 

(60

)

(55

)

(148

)

(398

)

Provision (benefit) for income taxes

 

12

 

1

 

55

 

34

 

Income (Loss) from Continuing Operations

 

(72

)

(56

)

(203

)

(432

)

Income from discontinued operations, net of tax

 

 

 

 

16

 

Net Income (Loss)

 

$

(72

)

$

(56

)

$

(203

)

$

(416

)

Other comprehensive income— foreign currency translation adjustment

 

(3

)

(3

)

(4

)

 

Total Comprehensive Income (Loss)

 

$

(75

)

$

(59

)

$

(207

)

$

(416

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

 

HD SUPPLY, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

Amounts in millions, except share and per share data, unaudited

 

 

 

August 4,
2013

 

February 3,
2013

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

109

 

$

141

 

Cash equivalents restricted for debt redemption

 

 

936

 

Receivables, less allowance for doubtful accounts of $22 and $23

 

1,221

 

1,008

 

Inventories

 

1,108

 

987

 

Deferred tax asset

 

3

 

42

 

Other current assets

 

47

 

49

 

Total current assets

 

2,488

 

3,163

 

Property and equipment, net

 

401

 

395

 

Goodwill

 

3,139

 

3,138

 

Intangible assets, net

 

406

 

473

 

Other assets

 

153

 

165

 

Total assets

 

$

6,587

 

$

7,334

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

815

 

$

693

 

Accrued compensation and benefits

 

116

 

160

 

Current installments of long-term debt

 

10

 

899

 

Other current liabilities

 

266

 

291

 

Total current liabilities

 

1,207

 

2,043

 

 

 

 

 

 

 

Long-term debt, excluding current installments

 

5,678

 

6,430

 

Deferred tax liabilities

 

111

 

104

 

Other liabilities

 

344

 

348

 

Total liabilities

 

7,340

 

8,925

 

 

 

 

 

 

 

Stockholder’s equity (deficit):

 

 

 

 

 

Common stock, par value $0.01; 1,000 shares authorized; 1,000 shares issued and outstanding at August 4, 2013 and February 3, 2013

 

 

 

Paid-in capital

 

3,741

 

2,696

 

Accumulated deficit

 

(4,488

)

(4,285

)

Accumulated other comprehensive loss

 

(6

)

(2

)

Total stockholder’s equity (deficit)

 

(753

)

(1,591

)

Total liabilities and stockholder’s equity (deficit)

 

$

6,587

 

$

7,334

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

 

HD SUPPLY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts in millions, unaudited

 

 

 

Six Months Ended

 

 

 

August 4,
2013

 

July 29,
2012

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

(203

)

$

(416

)

Reconciliation of net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

122

 

170

 

Provision for uncollectibles

 

2

 

3

 

Non-cash interest expense

 

16

 

51

 

Payment of PIK interest & discounts upon extinguishment of debt

 

(364

)

 

Loss on extinguishment & modification of debt

 

87

 

220

 

Stock-based compensation expense

 

8

 

10

 

Deferred income taxes

 

45

 

26

 

Gain on sale of a business

 

 

(9

)

Changes in assets and liabilities:

 

 

 

 

 

(Increase) decrease in receivables

 

(221

)

(200

)

(Increase) decrease in inventories

 

(125

)

(200

)

(Increase) decrease in other current assets

 

(2

)

(2

)

(Increase) decrease in other assets

 

 

2

 

Increase (decrease) in accounts payable and accrued liabilities

 

52

 

17

 

Increase (decrease) in other long-term liabilities

 

6

 

4

 

Net cash provided by (used in) operating activities

 

(577

)

(324

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(64

)

(52

)

Proceeds from sales of property and equipment

 

5

 

2

 

Proceeds from sale of investments

 

936

 

 

Proceeds from sale of a business

 

 

464

 

(Payment) settlement for acquisition of a business, net of cash acquired

 

2

 

(196

)

Other investing activities

 

 

(3

)

Net cash provided by (used in) investing activities

 

879

 

215

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Equity contribution from parent

 

1,038

 

 

Borrowings of long-term debt

 

79

 

2,817

 

Repayments of long-term debt

 

(1,619

)

(3,288

)

Borrowings on long-term revolver debt

 

520

 

1,004

 

Repayments on long-term revolver debt

 

(320

)

(372

)

Debt issuance and modification fees

 

(34

)

(73

)

Other financing activities

 

3

 

 

 

Net cash provided by (used in) financing activities

 

(333

)

88

 

Effect of exchange rates on cash and cash equivalents

 

(1

)

 

Increase (decrease) in cash and cash equivalents

 

$

(32

)

$

(21

)

Cash and cash equivalents at beginning of period

 

141

 

111

 

Cash and cash equivalents at end of period

 

$

109

 

$

90

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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HD SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 — NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

Nature of Business

 

HD Supply Holdings, Inc. (“Holdings”) indirectly owns all of the outstanding common stock of HD Supply, Inc. (“HDS”).

 

Holdings, together with its direct and indirect subsidiaries, including HDS (“HD Supply”), is one of the largest industrial distribution companies in North America.  The Company specializes in three distinct market sectors: Maintenance, Repair & Operations; Infrastructure & Power; and Specialty Construction. Through over 600 locations across 46 U.S. states and 9 Canadian provinces, the Company serves these markets with an integrated go-to-market strategy.  HD Supply has approximately 15,000 associates delivering localized, customer-tailored products, services and expertise. The Company serves approximately 500,000 customers, which include contractors, government entities, maintenance professionals, home builders and industrial businesses. HD Supply’s broad range of end-to-end product lines and services include over one million stock-keeping units (“SKUs”) of quality, name-brand and proprietary-brand products as well as value-add services supporting the entire life-cycle of a project from infrastructure and construction to maintenance, repair and operations.

 

HD Supply is managed primarily on a product line basis and reports results of operations in four reportable segments. The reportable segments are Facilities Maintenance, Waterworks, Power Solutions, and White Cap. Other operating segments include Crown Bolt, Repair & Remodel, Creative Touch Interiors (“CTI”), and HD Supply Canada. In addition, the consolidated financial statements include Corporate, which is comprised of enterprise-wide functional departments.

 

Initial Public Offering

 

On June 26, 2013, Holdings’ Registration Statement (File No. 333-187872) was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) for an initial public offering of its common stock, par value $0.01 per share (“Common Stock”). Holdings registered the offering and sale of 53,191,489 shares of Common Stock and an additional 7,978,723 shares of Common Stock to be sold to the underwriters pursuant to their over-allotment option at a price of $18.00 per share.  On July 2, 2013, Holdings completed the offering of 61,170,212 shares of Common Stock at a price of $18.00 per share, for an aggregate offering price of $1,038 million, net of underwriters’ discounts and commissions and paid and unpaid offering expenses of approximately $17 million (including the payment to the Equity Sponsors, as defined below, of a transaction fee of approximately $11 million). As of August 4, 2013, approximately $14 million of offering expenses have been paid.

 

The net proceeds from the initial public offering were used to (1) redeem all $950 million of HDS’s outstanding 10.50% Senior Subordinated Notes due 2021 (the “January 2013 Senior Subordinated Notes”), including the payment of a $29 million redemption premium and $29 million of accrued interest through the redemption date (See Note 4, Debt), and (2) pay related fees and expenses, including the payment to the Equity Sponsors, as defined below, of an aggregate fee to terminate the consulting agreements of approximately $18 million (See Note 3, Related Parties). The remaining net proceeds were used for general corporate purposes.

 

Basis of Presentation

 

On June 12, 2013, Holdings effected a 1-for-2 reverse stock split of Holdings’ common stock, resulting in 130,583,916 shares of common stock issued, including 5,500 of Treasury shares, and 130,578,416 shares of common stock outstanding.  The accompanying consolidated financial statements and notes to consolidated financial statements give retroactive effect to the reverse stock split for all periods presented. There are no preferred shares issued or outstanding.

 

The consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC that permit reduced disclosure for interim periods. The consolidated balance sheet as of February 3, 2013 was derived from audited financial statements, but does not include all necessary disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Certain amounts in prior-period financial statements have been reclassified to conform to the current period’s presentation.

 

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HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In management’s opinion, the unaudited financial information for the interim periods presented includes all adjustments necessary for a fair statement of the results of operations, financial position, and cash flows.  All adjustments are of a normal recurring nature unless otherwise disclosed.  Revenues, expenses, assets and liabilities can vary during each quarter of the year.  Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.  For a more complete discussion of the Company’s significant accounting policies and other information, you should read this report in conjunction with HD Supply’s financial statements for the year ended February 3, 2013, which includes all disclosures required by GAAP, included in the Company’s prospectus filed with the SEC pursuant to Rule 424(b) on June 28, 2013, relating to its initial public offering.

 

Fiscal Year

 

HD Supply’s fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31.  Fiscal year ending February 2, 2014 (“fiscal 2013”) includes 52 weeks and fiscal year ending February 3, 2013 (“fiscal 2012”) included 53 weeks.  The three months ended August 4, 2013 and July 29, 2012 both included 13 weeks and the six months ended August 4, 2013 and July 29, 2012 both included 26 weeks.

 

Principles of Consolidation

 

The consolidated financial statements of HD Supply Holdings, Inc. present the results of operations, financial position and cash flows of HD Supply Holdings, Inc. and its wholly-owned subsidiaries.  The consolidated financial statements of HD Supply, Inc. present the results of operations, financial position and cash flows of HD Supply, Inc. and its wholly-owned subsidiaries.  All material intercompany balances and transactions are eliminated.  Results of operations of businesses acquired are included from their respective dates of acquisition.  The results of operations of all discontinued operations have been separately reported as discontinued operations for all periods presented.

 

Estimates

 

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

 

Self-Insurance

 

HD Supply has a high deductible insurance program for most losses related to general liability, product liability, environmental liability, automobile, workers’ compensation, and is self-insured for medical claims and certain legal claims.  The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience.  At August 4, 2013 and February 3, 2013, self-insurance reserves totaled approximately $93 million and $94 million, respectively.

 

NOTE 2 — DISCONTINUED OPERATIONS

 

On March 26, 2012, the Company sold all of the issued and outstanding equity interests in its Industrial Pipes, Valves and Fittings (“IPVF”) business to Shale-Inland Holdings, LLC for approximately $477 million. Upon closing, the Company received cash proceeds of approximately $464 million, net of $5 million of transaction costs.  As a result of the sale, the Company recorded a $9 million pre-tax gain in the first quarter of fiscal 2012. During the third quarter of fiscal 2012, the Company received cash proceeds of $13 million in accordance with the final working capital settlement, and, as a result, recorded an additional $3 million pre-tax gain.

 

Summary Financial Information

 

In accordance with Accounting Standards Codification (“ASC”) 205-20, Discontinued Operations, the results of the IPVF operations and the gain on sale of the business are classified as discontinued operations. The

 

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HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

presentation of discontinued operations includes revenues and expenses of the discontinued operations and gain on the sale of business, net of tax, as one line item on the Consolidated Statements of Operations and Comprehensive Income (Loss).

 

The following table provides additional detail related to the results of operations of the discontinued operations (amounts in millions):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

August 4,
2013

 

July 29,
2012

 

August 4,
2013

 

July 29,
2012

 

Net sales

 

$

 

$

 

$

 

$

127

 

Gain on sale of discontinued operations

 

 

 

 

9

 

Income (loss) before provision for income taxes

 

 

 

 

16

 

Provision for income taxes

 

 

 

 

 

Income (loss) from discontinued operations, net of tax

 

$

 

$

 

$

 

$

16

 

 

NOTE 3 — RELATED PARTIES

 

On August 30, 2007, investment funds associated with Clayton, Dubilier & Rice, Inc., The Carlyle Group and Bain Capital Partners, LLC (collectively the “Equity Sponsors”) formed Holdings (previously named HD Supply Investment Holding, Inc.) and entered into a stock purchase agreement with The Home Depot, Inc. (“Home Depot”) pursuant to which Home Depot agreed to sell to HD Supply, or to a wholly-owned subsidiary of HD Supply, certain intellectual property and all the outstanding common stock of HDS 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 HDS through the merger of its wholly-owned subsidiary, HDS Acquisition Corp., with and into HDS and CND Holdings, Inc.  Through these transactions (the “Transactions”), Home Depot was paid cash of $8.2 billion and 12.5% of Holdings’ common stock valued at $325 million.

 

After completion of Holdings’ initial public offering on July 2, 2013, the Equity Sponsors continue to hold more than 50% of Holdings’ common stock and Home Depot holds less than 10% of Holdings’ common stock.

 

Equity Sponsors

 

Consulting Agreements—In connection with the closing of the Transactions, HD Supply entered into consulting agreements with the Equity Sponsors, pursuant to which the Equity Sponsors provided HD Supply with financial advisory and management consulting services and HD Supply paid the Equity Sponsors a $5 million annual aggregate fee (“Sponsor Management Fee”) and an aggregate fee equal to a specified percentage of the transaction value of certain types of transactions that HD Supply completes (“Sponsor Transaction Fee”), plus out-of-pocket expenses. The original term of these agreements ran through August 2017.

 

As specified in the agreements, HD Supply paid the Equity Sponsors a Sponsor Transaction Fee of approximately $11 million as a result of HD Supply’s initial public offering on July 2, 2013.  The Sponsor Transaction Fee was considered an offering expense and, therefore, is presented as a reduction of proceeds from the initial public offering in the consolidated financial statements.

 

On July 2, 2013, in connection with the initial public offering, HD Supply paid the Equity Sponsors an aggregate fee of approximately $18 million to terminate the consulting agreements. The termination fee represents the estimated net present value of the Sponsor Management Fee payments over the remaining term of the consulting agreements. This charge is included in Other (income) expense, net in the Consolidated Statements of Operations and Comprehensive Income (Loss).

 

The Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended August 4, 2013 include $1 million and $2 million, respectively, in Sponsor Management Fees and related expenses.  The Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six

 

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HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

months ended July 29, 2012 include $2 million and $3 million, respectively, in Sponsor Management Fees and related expenses.  These fees and expenses are included in Selling, general and administrative expense.

 

Debt—Management of the Company has been informed that, as of August 4, 2013, affiliates of certain of the Equity Sponsors beneficially owned approximately $34 million aggregate principal amount of the Company’s outstanding indebtedness.  On February 8, 2013, HDS redeemed its outstanding 13.5% Senior Subordinated Notes due 2015 (“2007 Senior Subordinated Notes”) at a redemption price equal to 103.375% of the principal amount thereof and paid accrued and unpaid interest thereon through the redemption date.  Affiliates of certain of the Equity Sponsors owned approximately $348 million aggregate principal amount, or 39%, of the 2007 Senior Subordinated Notes that were redeemed and had such notes redeemed.

 

NOTE 4 - DEBT

 

HDS’s long-term debt as of August 4, 2013 and February 3, 2013 consisted of the following (dollars in millions):

 

 

 

August 4, 2013

 

February 3, 2013

 

 

 

Outstanding
Principal

 

Interest
Rate %(1)

 

Outstanding
Principal

 

Interest
Rate %(1)

 

Senior ABL Facility due 2017

 

$

500

 

1.69

 

$

300

 

1.96

 

Term Loans due 2017, net of unamortized discount of $21 million and $26 million as of August 4, 2013 and February 3, 2013, respectively

 

969

 

4.50

 

969

 

7.25

 

First Priority Notes due 2019, including unamortized premium of $19 million and $21 million as of August 4, 2013 and February 3, 2013, respectively

 

1,269

 

8.125

 

1,271

 

8.125

 

Second Priority Notes due 2020

 

675

 

11.00

 

675

 

11.00

 

October 2012 Senior Unsecured Notes due 2020

 

1,000

 

11.50

 

1,000

 

11.50

 

February 2013 Senior Unsecured Notes due 2020

 

1,275

 

7.50

 

1,275

 

7.50

 

January 2013 Senior Subordinated Notes due 2021

 

 

 

950

 

10.50

 

2007 Senior Subordinated Notes due 2015

 

 

 

889

 

13.50

 

Total long-term debt

 

$

5,688

 

 

 

$

7,329

 

 

 

Less current installments

 

(10

)

 

 

(899

)

 

 

Long-term debt, excluding current installments

 

$

5,678

 

 

 

$

6,430

 

 

 

 


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

 

On August 1, 2013, HDS redeemed all $950 million outstanding aggregate principal amount of its January 2013 Senior Subordinated Notes due 2021 at a redemption price equal to 103% of the principal amount thereof and paid accrued and unpaid interest thereon through the redemption date. As a result, in the second quarter of fiscal 2013 and in accordance with ASC 470-50, Debt-Modifications and Extinguishments, HDS incurred a $44 million loss on extinguishment, which included a $29 million premium payment to redeem the January 2013 Senior Subordinated Notes and approximately $15 million to write off the unamortized deferred debt cost.

 

On June 28, 2013, HDS amended its Senior ABL Facility to (i) reduce the applicable margin for borrowings under the Senior ABL Facility by 0.25%; (ii) reduce the commitment fee applicable thereunder by 0.125%; (iii) extend the maturity date of the Senior ABL Facility to June 28, 2018 (or the maturity date under HDS’s Term Loan Facility, if earlier); (iv) make certain changes to the borrowing base and (v) reduce the sublimit available for letters of credit under the Senior ABL Facility from $400 million to $250 million. In connection with the amendment, HDS paid approximately $2 million in financing fees which will be amortized into interest expense over the remaining term of the amended facility in accordance with ASC 470-50.  A portion of the amendment was considered an extinguishment, resulting in an approximately $3 million loss on extinguishment of debt for the write-off of pro-rata unamortized deferred debt costs.

 

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

 

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HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(subject to a floor of 1.25%) plus a borrowing margin of 3.25% or Prime plus a borrowing margin of 2.25% at HDS’s election. The amendment also replaced the hard call provision applicable to optional prepayment of Term Loans thereunder with a soft call option. The soft call option provides for a premium equal to 1.0% of the aggregate principal amount of Term Loans being prepaid if, on or prior to August 15, 2013, HDS enters into certain repricing transactions.  In connection with the amendment, HDS paid approximately $30 million in financing fees, of which approximately $27 million will be amortized into interest expense over the remaining term of the amended facility in accordance with ASC 470-50.  A portion of the amendment was considered an extinguishment, resulting in a $5 million loss on extinguishment of debt, which included approximately $2 million of fees, $2 million to write off the pro-rata portion of unamortized original issue discount, and $1 million to write off the pro-rata portion of unamortized deferred debt cost.  The portion of the amendment considered a modification resulted in a charge of $1 million.

 

On February 8, 2013, HDS redeemed its remaining $889 million outstanding aggregate principal amount of 2007 Senior Subordinated Notes at a redemption price equal to 103.375% of the principal amount thereof and paid accrued and unpaid interest thereon through the redemption date. As a result, in the first quarter of fiscal 2013, HDS incurred a $34 million loss on extinguishment of debt, which included a $30 million premium payment to redeem the 2007 Senior Subordinated Notes and approximately $4 million to write off the unamortized deferred debt cost.

 

Senior Credit Facilities

 

HDS’s Senior Term Facility consists of a senior secured Term Loan Facility (the “Term Loan Facility,” the term loans thereunder, the “Term Loans”) providing for Term Loans in an aggregate principal amount of $1,000 million. The Term Loan Facility will mature on October 12, 2017 (the “Term Loan Maturity Date”). The Term Loans will amortize in equal quarterly installments in aggregate annual amounts equal to 1% of the original principal amount of the Term Loan Facility with the balance payable on the Term Loan Maturity Date.

 

HDS’s Senior Asset Based Lending Facility (“Senior ABL Facility”) provides for senior secured revolving loans and letters of credit of up to a maximum aggregate principal amount of $1,500 million (subject to availability under a borrowing base).  Extensions of credit under the Senior ABL Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory and eligible accounts receivable, subject to certain reserves and other adjustments.  A portion of the Senior ABL Facility is available for letters of credit and swingline loans. As of August 4, 2013, HDS has $888 million of additional available borrowings under the Senior ABL Facility (after giving effect to the borrowing base limitations and approximately $56 million in letters of credit issued and including $51 million of borrowings available on qualifying cash balances).

 

The Senior ABL Facility also permits HDS to add one or more incremental term loan facilities to be included in the Senior ABL Facility or one or more revolving credit facility commitments to be included in the Senior ABL Facility. The Senior ABL Facility will mature on June 28, 2018 (or the maturity date under HDS’s Term Loan Facility, if earlier).

 

Secured Notes

 

HDS’s 81/8% Senior Secured First Priority Notes due 2019 (the “First Priority Notes”), bear interest at a rate of 81/8% per annum and will mature on April 15, 2019.  Interest is paid semi-annually in arrears on April 15th and October 15th of each year.

 

HDS’s 11% Senior Secured Second Priority Notes due 2020 (the “Second Priority Notes”) bear interest at a rate of 11% per annum and will mature on April 15, 2020.  Interest is paid semi-annually in arrears on April 15th and October 15th of each year.

 

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HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Unsecured Notes

 

HDS’s 11.5% Senior Notes due 2020 (the “October 2012 Senior Unsecured Notes”) bear interest at 11.5% per annum and will mature on July 15, 2020. Interest is paid semi-annually in arrears on April 15th and October 15th of each year.

 

HDS’s 7.5% Senior Notes due 2020 (the “February 2013 Senior Unsecured Notes”) bear interest at 7.5% per annum and will mature on July 15, 2020. Interest is paid semi-annually in arrears on April 15th and October 15th of each year.

 

Debt covenants

 

HDS’s outstanding debt agreements contain various restrictive covenants including, but not limited to, limitations on additional indebtedness and dividend payments and stipulations regarding the use of proceeds from asset dispositions. As of August 4, 2013, HDS is in compliance with all such covenants that were in effect on such date.

 

First Quarter 2012 Refinancing Transactions

 

On April 12, 2012, HDS consummated the following transactions (the “Refinancing Transactions”) in connection with the refinancing of the senior portion of its debt structure:

 

·                  the issuance of $950 million of its First Priority Notes;

 

·                  the issuance of $675 million of its Second Priority Notes;

 

·                  the issuance of approximately $757 million of 14.875% Senior Notes due 2020 (the “April 2012 Senior Notes”);

 

·                  entry into the Term Loan Facility; and

 

·                  entry into the Senior ABL Facility.

 

The proceeds of the First Priority Notes, the Second Priority Notes, the April 2012 Senior Notes, the Term Loan Facility and the Senior ABL Facility were used to (i) repay all amounts outstanding under the 2007 Senior Secured Credit Facility (Senior Secured Credit Facility dated as of August 30, 2007), (ii) repay all amounts outstanding under the 2007 ABL Credit Facility (ABL Credit Facility dated as of August 30, 2007), (iii) repurchase all remaining outstanding 2007 Senior Notes (12.0% Senior Notes dated as of August 30, 2007) and (iv) pay related fees and expenses.

 

Affiliates of certain of the Equity Sponsors owned an aggregate principal amount of approximately $484 million of the 2007 Senior Notes which they exchanged in a non-cash transaction for their investment in the April 2012 Senior Notes.

 

As a result of the Refinancing Transactions, HDS incurred $75 million in debt issuance costs and recorded a $220 million loss on extinguishment of debt, which included a $150 million premium payment to redeem the 2007 Senior Notes, $46 million to write off the pro-rata portion of the unamortized deferred debt costs, and $24 million to write off the remaining unamortized asset associated with Home Depot’s guarantee of HDS’s payment obligations for principal and interest under the Term Loan under the 2007 Senior Secured Credit Facility that was terminated in the Refinancing Transactions.

 

On February 1, 2013, HDS repurchased and cancelled all of its April 2012 Senior Notes at 100% of the aggregate principal balance, including capitalized paid-in kind (“PIK”) interest, plus a $422 million make-whole premium, plus $37 million of un-capitalized PIK interest thereon through February 1, 2013.

 

NOTE 5 — FAIR VALUE MEASUREMENTS

 

The fair value measurements and disclosure principles of GAAP (ASC 820, Fair Value Measurements and Disclosures) define fair value, establish a framework for measuring fair value and provide disclosure

 

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HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

requirements about fair value measurements.  These principles define a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

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

Level 2 — Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly;

Level 3 — Unobservable inputs in which little or no market activity exists.

 

The Company’s financial instruments that are not reflected at fair value on the balance sheet were as follows as of August 4, 2013 and February 3, 2013 (amounts in millions):

 

 

 

As of August 4, 2013

 

As of February 3, 2013

 

 

 

Recorded
Amount(1)

 

Estimated
Fair Value

 

Recorded
Amount(1)

 

Estimated
Fair Value

 

Senior ABL Facility

 

$

500

 

$

488

 

$

300

 

$

292

 

Term Loans and Notes

 

5,190

 

5,737

 

7,034

 

7,573

 

Total

 

$

5,690

 

$

6,225

 

$

7,334

 

$

7,865

 

 


(1) These amounts do not include accrued interest; accrued interest is classified as Other current liabilities in the accompanying Consolidated Balance Sheets. These amounts do not include any related discounts or premiums.

 

The Company utilized Level 2 inputs, as defined in the fair value hierarchy, to measure the fair value of the long-term debt.  Management’s fair value estimates were based on quoted prices for recent trades of HDS’s  long-term debt, recent similar credit facilities initiated by companies with like credit quality in similar industries, quoted prices for similar instruments, and inquiries with certain investment communities.

 

NOTE 6 STOCK-BASED COMPENSATION

 

On June 26, 2013, the Board of Directors and shareholders of Holdings approved the HD Supply Holdings, Inc. 2013 Omnibus Incentive Plan (the “Plan”). The Plan provides for stock-based awards to employees, consultants and directors, including stock options, stock purchase rights, restricted stock, restricted stock units, deferred stock units, performance shares, performance units, stock appreciation rights, dividend equivalents and other stock-based awards. The Plan replaces and succeeds the HDS Investment Holding, Inc. Stock Incentive Plan, as amended effective April 11, 2011 (the “Stock Incentive Plan”), and, from and after June 26, 2013, no further awards will be made under the Stock Incentive Plan. On July 2, 2013, HD Supply registered 12.5 million shares for issuance pursuant to awards under the Plan and registered 14,818,000 shares for issuance pursuant to outstanding awards under the Stock Incentive Plan as of June 26, 2013.

 

In connection with HD Supply’s initial public offering, HD Supply granted an aggregate 929,900 options to its senior management.  The options have an exercise price of $18.00, vest on the third anniversary of the June 26, 2013 grant date, and have an estimated fair value of $10.25 per option.  The Company expects to record approximately $9 million of stock-based compensation for the options over the options’ vesting period.

 

On June 26, 2013, HD Supply granted an aggregate 331,431 shares of restricted stock to certain employees. The restricted stock vests in five equal annual installments on each of the first through fifth anniversaries of May 9, 2013. The Company expects to record approximately $6 million of stock-based compensation for the restricted stock over the restricted stock’s vesting period.

 

On July 2, 2013, HD Supply’s non-employee directors were awarded an aggregate 41,031 restricted stock units (“RSUs”) pursuant to HD Supply’s Board of Director Compensation Policy that became effective on the consummation of HD Supply’s initial public offering on July 2, 2013. The RSUs vest on the earlier of (i) the first anniversary of the grant date or (ii) the date of the Company’s next annual meeting after the grant date.  On a date selected by the Company that is within thirty days following the vesting date, vested RSUs will be settled into an equal number of shares of the Company’s common stock, unless the director has elected to defer settlement of the RSU until termination of board service, in which case the award will be settled at service

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

termination. The Company expects to record less than $1 million of stock-based compensation for the RSUs over the RSU’s vesting period.

 

NOTE 7 — INCOME TAXES

 

As of August 4, 2013, the Company’s combined federal, state and foreign effective tax rate for continuing operations for fiscal 2013 is a 36.8% provision, reflecting the impact of increasing the U.S. valuation allowance, increasing the deferred tax liability for U.S. goodwill amortization for tax purposes, and the accrual of income taxes for foreign and certain state jurisdictions.  The Company’s effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and the related tax rates in the jurisdictions where it operates, restructuring and other charges, as well as discrete events, such as acquisitions and settlements of audits.  The Company is subject to audits and examinations of its tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service (the “IRS”).  Management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of provisions for income taxes.

 

With regard to the increase in the valuation allowance and the impact the valuation allowance had on income tax expense, the valuation allowance was directly impacted by the increasing of the deferred tax liability for U.S. goodwill amortization for tax purposes.  The deferred tax liability related to the Company’s U.S. tax deductible goodwill is considered a liability related to an asset with an indefinite life. Therefore, the deferred tax liability does not amortize and is not available as a source of taxable income to support the realization of deferred tax assets created by other deductible temporary timing differences.  The Company does not believe it is “more likely than not” it will realize its U.S. deferred tax assets equal to the deferred liability created by tax deductible goodwill and therefore, the Company was required to record an additional tax expense to increase its deferred tax asset valuation allowance.  During the three and six months ended August 4, 2013, the impact of the tax amortization of the indefinite lived intangibles increased income tax expense by $9 million and $46 million, respectively.

 

As of February 3, 2013, the Company’s unrecognized tax benefits in accordance with the income taxes principles of U.S. GAAP (ASC 740, Income Taxes) were $193 million.  During the six months ended August 4, 2013, the balance for unrecognized tax benefits decreased $1 million as result of state audit settlements for tax positions in a prior period.  As of August 4, 2013, the Company’s unrecognized tax benefits were $192 million.  During the three and six months ended August 4, 2013, the gross accrual for interest related to unrecognized tax benefits increased $3 million and $5 million, respectively, as a result of interest accruals on tax positions in a prior period.  The Company’s ending net accrual for interest related to unrecognized tax benefits as of February 3, 2013 was $22 million and increased to $24 million as of August 4, 2013.

 

During fiscal year 2010, the Company determined that it did not meet the “more likely than not” standard that substantially all of its net U.S. deferred tax assets would be realized and therefore, the Company established a valuation allowance for its net U.S. deferred tax assets.  With regard to the U.S., the Company continues to believe that a full valuation allowance is needed against the majority of its net deferred tax assets.  As of August 4, 2013, the Company’s U.S. valuation allowance was $1,030 million and the Company expects to continue to add to its gross deferred tax assets for anticipated net operating losses.

 

See Note 10, Commitments and Contingencies, for discussion of the Internal Revenue Service audit of the Company’s U.S. federal income tax returns.

 

NOTE 8—LOSS PER COMMON SHARE

 

The following loss per common share is provided for HD Supply Holdings, Inc.

 

Basic loss per common share is computed by dividing the net loss by the weighted-average common shares outstanding during the respective periods. Diluted loss per common share equals basic loss per common share for the periods presented, as the effect of stock options, restricted stock, and restricted stock units are anti-dilutive because the Company incurred net losses.

 

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HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock for the three and six months ended August 4, 2013 and July 29, 2012 (in millions, except per share and share data):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

August 4,
2013

 

July 29,
2012

 

August 4,
2013

 

July 29,
2012

 

Loss from continuing operations

 

$

(72

)

$

(56

)

$

(203

)

$

(432

)

Income (loss) from discontinued operations, net of tax

 

 

 

 

16

 

Net income (loss)

 

$

(72

)

$

(56

)

$

(203

)

$

(416

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted (in thousands) (1)

 

153,433

 

130,554

 

142,006

 

130,555

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.47

)

$

(0.43

)

$

(1.43

)

$

(3.31

)

Income (loss) from discontinued operations, net of tax

 

 

 

 

0.12

 

Net income (loss)

 

$

(0.47

)

$

(0.43

)

$

(1.43

)

$

(3.19

)

 


(1)         Weighted average common shares outstanding in fiscal 2013 reflect 130.6 million shares outstanding on February 3, 2013 and the issuance of 61 million shares on July 2, 2013 for Holdings’ initial public offering.

 

The following table provides the securities that could potentially dilute basic earnings per share in the future, but were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive (in thousands):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

August 4,
2013

 

July 29,
2012

 

August 4,
2013

 

July 29,
2012

 

Stock options

 

15,107

 

14,548

 

14,913

 

14,455

 

Restricted stock & restricted stock units

 

336

 

 

168

 

 

 

NOTE 9 SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

 

Receivables

 

Receivables as of August 4, 2013 and February 3, 2013 consisted of the following (amounts in millions):

 

 

 

August 4,
2013

 

February 3,
2013

 

Trade receivables, net of allowance for doubtful accounts

 

$

1,136

 

$

926

 

Vendor rebate receivables

 

67

 

66

 

Other receivables

 

18

 

16

 

Total receivables, net

 

$

1,221

 

$

1,008

 

 

Other Current Liabilities

 

Other current liabilities as of August 4, 2013 and February 3, 2013 consisted of the following (amounts in millions):

 

 

 

August 4,
2013

 

February 3,
2013

 

Accrued interest

 

$

 118

 

$

147

 

Accrued non-income taxes

 

38

 

34

 

Other

 

110

 

110

 

Total other current liabilities

 

$

 266

 

$

291

 

 

Supplemental Cash Flow Information

 

Cash paid for interest in the six months ended August 4, 2013 and July 29, 2012 was $304 million and $351 million, respectively.  Additionally, during first quarter 2013, the Company paid $364 million of original issue

 

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HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

discounts and paid-in-kind (“PIK”) interest related to the extinguishments of $889 million of 2007 Senior Subordinated Notes and a portion of the Term Loans.

 

Cash paid for income taxes, net of refunds, in the six months ended August 4, 2013 and July 29, 2012 was approximately $5 million and $2 million, respectively.

 

NOTE 10 — COMMITMENTS AND CONTINGENCIES

 

Internal Revenue Service

 

HD Supply carried back tax net operating losses (“NOL”) from its tax years ended on February 3, 2008 and February 1, 2009 to tax years during which it was a member of Home Depot’s U.S. federal consolidated tax group. As a result of those NOL carrybacks, Home Depot received cash refunds from the IRS in the amount of approximately $354 million. Under an agreement (the “Agreement”) between HD Supply and Home Depot, Home Depot paid HD Supply the refund proceeds resulting from the NOL carrybacks.

 

In connection with an audit of the Company’s U.S. federal income tax returns filed for the tax years ended on February 3, 2008 and February 1, 2009, the IRS has disallowed certain deductions claimed by the Company. In May 2012, the IRS issued a formal Revenue Agent’s Report (“RAR”) challenging approximately $299 million (excluding interest) of the cash refunds resulting from HD Supply’s NOL carrybacks. In January 2013, the IRS issued a revised RAR reducing the challenge to approximately $131 million (excluding interest) of cash refunds from HD Supply’s carrybacks. The issuance of the January 2013 revised RAR formally revoked the original May 2012 RAR and reduced the amount of cash refunds the IRS is currently challenging by $168 million.  As of August 4, 2013, the Company estimates the interest to which the IRS would be entitled, if successful in all claims, to be approximately $18 million. If the IRS is ultimately successful with respect to the proposed adjustments, pursuant to the terms of the Agreement, the Company would be required to reimburse Home Depot an amount equal to the disallowed refunds plus related interest. If the IRS is successful in defending its positions with respect to the disallowed deductions, certain of those disallowed deductions may be available to the Company in the form of increases in its deferred tax assets by approximately $63 million before any valuation allowance.

 

The Company believes that its positions with respect to the deductions and the corresponding NOL carrybacks are supported by, and consistent with, applicable tax law. In collaboration with Home Depot, HD Supply has challenged the proposed adjustments by filing a formal protest with the Office of Appeals Division within the IRS.  During the administrative appeal period and as allowed under statute, the Company intends to vigorously defend its positions rather than pay any amount related to the proposed adjustments. In the event of an unfavorable outcome at the Office of Appeals, the Company will strongly consider litigating the matter in U.S. Tax Court. The unpaid assessment would continue to accrue interest at the statutory rate until resolved. If the Company is ultimately required to pay a significant amount related to the proposed adjustments to Home Depot pursuant to the terms of the Agreement (or to the IRS), the Company’s cash flows, future results of operations and financial positions could be affected in a significant and adverse manner.

 

See Note 7, Income Taxes, for further disclosures on the Company’s income taxes.

 

Legal Matters

 

HD Supply is involved in various legal proceedings arising in the normal course of its business. The Company establishes reserves for litigation and similar matters when those matters present loss contingencies that it determines to be both probable and reasonably estimable in accordance with ASC 450, Contingencies. In the opinion of management, based on current knowledge, all reasonably estimable and probable matters are believed to be adequately reserved for or covered by insurance.  For all such other matters, management believes the possibility of losses from such matters are remote or such matters are of such kind or involve such amounts that would not have a material adverse effect on the financial position, results of operations or cash flows of the Company if disposed of unfavorably.

 

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HD SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 is updated by the government on its investigation periodically and continues to cooperate with the investigation. While the Company cannot predict the outcome, it believes a potential loss on this matter is reasonably possible but due to the current state of the investigation it is not able to estimate a range of potential loss.

 

NOTE 11 — SEGMENT INFORMATION

 

HD Supply’s operating segments are based on management structure and internal reporting. Each segment offers different products and services to the end customer, except for HD Supply Canada, which is organized based on geographic location and Corporate, which provides general corporate overhead support. Both HD Supply Canada and Corporate are included within “Corporate and Other.” The Company determines the reportable segments in accordance with the principles of segment reporting within ASC 280, Segment Reporting. For purposes of evaluation under these segment reporting principles, the Chief Operating Decision Maker for HD Supply assesses HD Supply’s ongoing performance, based on the periodic review and evaluation of Net sales, Adjusted EBITDA, and certain other measures for each of the operating segments.

 

HD Supply has four reportable segments, each of which is presented below:

 

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

 

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

 

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

 

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

 

In addition to the reportable segments, the Company’s consolidated financial results include “Corporate & Other.” Corporate & Other is comprised of the following operating segments: Crown Bolt, Creative Touch Interiors (“CTI”), Repair & Remodel and HD Supply Canada. Crown Bolt is a retail distribution operator providing program and packaging solutions, sourcing, distribution, and in-store service, fasteners, builders’ hardware, rope and chain and plumbing accessories, primarily serving Home Depot and other hardware stores. CTI offers turnkey supply and installation services for multiple interior finish options, including flooring, cabinets, countertops, and window coverings, along with comprehensive design center services for residential, commercial and senior living projects. Repair & Remodel offers light remodeling and construction supplies, kitchen and bath cabinets, windows, plumbing materials, electrical equipment and other products, primarily to small remodeling contractors and trade professionals. HD Supply Canada is an industrial distributor that primarily focuses on servicing fasteners/industrial supplies and specialty lighting markets which operates across nine provinces. Corporate & Other also includes costs related to our centralized support functions, which are comprised of finance, information technology, human resources, legal, supply chain and other support services, and removes inter-segment transactions.

 

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HD SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

Facilities
Maintenance

 

Waterworks

 

Power
Solutions

 

White Cap

 

Corporate
& Other

 

Total
Continuing
Operations

 

Three Months Ended August 4, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

638

 

$

601

 

$

456

 

$

336

 

$

226

 

$

2,257

 

Adjusted EBITDA

 

125

 

50

 

18

 

24

 

1

 

218

 

Depreciation(1) & Software Amortization

 

11

 

3

 

2

 

4

 

9

 

29

 

Other Intangible Amortization

 

20

 

1

 

4

 

5

 

3

 

33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended July 29, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

571

 

$

527

 

$

440

 

$

307

 

$

214

 

$

2,059

 

Adjusted EBITDA

 

109

 

39

 

20

 

18

 

6

 

192

 

Depreciation(1) & Software Amortization

 

10

 

2

 

2

 

3

 

7

 

24

 

Other Intangible Amortization

 

19

 

24

 

4

 

5

 

8

 

60

 

 

 

 

Facilities
Maintenance

 

Waterworks

 

Power
Solutions

 

White Cap

 

Corporate
& Other

 

Total
Continuing
Operations

 

Six Months Ended August 4, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

1,199

 

$

1,124

 

$

918

 

$

646

 

$

438

 

$

4,325

 

Adjusted EBITDA

 

225

 

88

 

36

 

38

 

(5

)

382

 

Depreciation(1) & Software Amortization

 

22

 

5

 

3

 

8

 

17

 

55

 

Other Intangible Amortization

 

40

 

2

 

9

 

10

 

6

 

67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended July 29, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

1,068

 

$

988

 

$

855

 

$

573

 

$

411

 

$

3,895

 

Adjusted EBITDA

 

194

 

67

 

34

 

26

 

4

 

325

 

Depreciation(1) & Software Amortization

 

19

 

4

 

3

 

6

 

15

 

47

 

Other Intangible Amortization

 

38

 

48

 

9

 

10

 

15

 

120

 

 


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

 

Reconciliation to Consolidated Financial Statements

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

August 4,
2013

 

July 29,
2012

 

August 4,
2013

 

July 29,
2012

 

Total Adjusted EBITDA

 

$

218

 

$

192

 

$

382

 

$

325

 

Depreciation and amortization

 

62

 

84

 

122

 

167

 

Stock-based compensation

 

5

 

5

 

8

 

10

 

Management fees and expenses

 

1

 

2

 

2

 

3

 

Other

 

 

(2

)

 

(1

)

Operating income (loss)

 

150

 

103

 

250

 

146

 

Interest expense

 

144

 

158

 

291

 

324

 

Loss on extinguishment & modification of debt

 

46

 

 

87

 

220

 

Other (income) expense, net

 

20

 

 

20

 

 

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

 

(60

)

(55

)

(148

)

(398

)

Provision (benefit) for income taxes

 

12

 

1

 

55

 

34

 

Income (loss) from continuing operations

 

$

(72

)

$

(56

)

$

(203

)

$

(432

)

 

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HD SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 12—SUBSIDIARY GUARANTORS

 

HD Supply, Inc. (the “Debt Issuer” or “HDS”) has issued First Priority Notes, Second Priority Notes, October 2012 Senior Notes, and February 2013 Senior Unsecured Notes (collectively the “Notes”) guaranteed by certain of its subsidiaries (the “Guarantor Subsidiaries”). The Guarantor Subsidiaries are direct or indirect wholly-owned domestic subsidiaries of HDS. The subsidiaries of HDS that do not guarantee the Notes (“Non-guarantor Subsidiaries”) are direct or indirect wholly-owned subsidiaries of HDS and primarily include HDS’s operations in Canada and a non-operating subsidiary in the United States that previously held an investment of HDS’s 2007 Senior Subordinated Notes, which was eliminated in consolidation. During fiscal 2012, the investment in the 2007 Senior Subordinated Notes was contributed to the Debt Issuer in a non-cash transaction. The Debt Issuer retired this portion of the 2007 Senior Subordinated Notes. These transactions had no impact on the consolidated results of operations or financial position.

 

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

 

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

 

 

Three Months Ended August 4, 2013

 

 

 

Debt
Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total HDS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

 

$

2,136

 

$

122

 

$

(1

)

$

2,257

 

Cost of sales

 

 

1,504

 

92

 

 

1,596

 

Gross Profit

 

 

632

 

30

 

(1

)

661

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

22

 

407

 

22

 

(1

)

450

 

Depreciation and amortization

 

4

 

56

 

1

 

 

61

 

Total operating expenses

 

26

 

463

 

23

 

(1

)

511

 

Operating Income (Loss)

 

(26

)

169

 

7

 

 

150

 

Interest expense

 

145

 

73

 

1

 

(75

)

144

 

Interest (income)

 

(75

)

 

 

75

 

 

Net (earnings) loss of equity affiliates

 

(127

)

 

 

127

 

 

Loss on extinguishment & modification of debt

 

46

 

 

 

 

46

 

Other (income) expense, net

 

20

 

 

 

 

20

 

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes

 

(35

)

96

 

6

 

(127

)

(60

)

Provision (benefit) for income taxes

 

37

 

(25

)

 

 

12

 

Income (Loss) from Continuing Operations

 

(72

)

121

 

6

 

(127

)

(72

)

Income (loss) from discontinued operations, net of tax

 

 

 

 

 

 

Net Income (Loss)

 

(72

)

121

 

6

 

(127

)

(72

)

Other comprehensive income (loss) — foreign currency translation adjustment

 

(3

)

 

(3

)

3

 

(3

)

Total Comprehensive Income (Loss)

 

$

(75

)

$

121

 

$

3

 

$

(124

)

$

(75

)

 

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HD SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

HD SUPPLY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

Three Months Ended July 29, 2012

 

 

 

Debt
Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total HDS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

 

$

1,954

 

$

105

 

$

 

$

2,059

 

Cost of sales

 

 

1,388

 

77

 

 

1,465

 

Gross Profit

 

 

566

 

28

 

 

594

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

16

 

371

 

21

 

 

408

 

Depreciation and amortization

 

3

 

79

 

1

 

 

83

 

Total operating expenses

 

19

 

450

 

22

 

 

491

 

Operating Income (Loss)

 

(19

)

116

 

6

 

 

103

 

Interest expense

 

179

 

75

 

 

(96

)

158

 

Interest (income)

 

(75

)

 

(21

)

96

 

 

Net (earnings) loss of equity affiliates

 

(65

)

 

 

65

 

 

Other (income) expense, net

 

 

 

 

 

 

Income (Loss) From Continuing Operations Before Provision (Benefit) for Income Taxes

 

(58

)

41

 

27

 

(65

)

(55

)

Provision (benefit) for income taxes

 

(2

)

(6

)

9

 

 

1

 

Income (Loss) from Continuing Operations

 

(56

)

47

 

18

 

(65

)

(56

)

Income (loss) from discontinued operations, net of tax

 

 

 

 

 

 

Net Income (Loss)

 

$

(56

)

$

47

 

$

18

 

$

(65

)

$

(56

)

Other comprehensive income — foreign currency translation adjustment

 

(3

)

 

(3

)

3

 

(3

)

Total Comprehensive Income (Loss)

 

$

(59

)

$

47

 

$

15

 

$

(62

)

$

(59

)

 

 

 

Six Months Ended August 4, 2013

 

 

 

Debt
Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Total HDS

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

 

$

4,102

 

$

224

 

$

(1

)

$

4,325