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¶ – Release Delayed to: 9/11/09 ·Document/Exhibit Description Pages Size
1: S-4/A Amendment No. 1 to Form S-4 HTML 3.37M
144: COVER ¶ Comment-Response or Cover Letter to the SEC HTML 41K
145: CORRESP ¶ Comment-Response or Other Letter to the SEC HTML 21K
2: EX-2.1 Purchase & Sales Agreement HTML 354K
3: EX-2.2 Letter Agreement HTML 52K
4: EX-2.3 Amendment No. 3 to Purchase and Sale Agreement, HTML 68K
Dated as of August 27,2007
5: EX-3.1 Certification of Incorporation of Hd Supply, Inc. HTML 56K
14: EX-3.10 By-Laws of Creative Touch Interiors, Inc. HTML 94K
15: EX-3.11 Certificate of Formation of Hd Builder Solutions HTML 59K
Group, LLC
16: EX-3.12 Limited Liability Company Agreement of Hd Builder HTML 66K
Solutions Group, LLC
17: EX-3.13 Amended and Restated Certificate of Incorporation HTML 58K
of Hd Supply Construction
18: EX-3.14 By-Laws of Hd Supply Construction Supply Group, HTML 73K
Inc.
19: EX-3.15 Certificate of Limited Partnership of Hd Supply HTML 58K
Construction Supply, Ltd.
20: EX-3.16 Amended and Restated Agreement of Limited HTML 89K
Partnership of Hd Supply Construction
21: EX-3.17 Certificate of Formation of Hd Supply Distribution HTML 53K
Services, LLC
22: EX-3.18 Amended and Restated Limited Liability Company HTML 66K
Agreement of Hd Supply
23: EX-3.19 Certificate of Limited Partnership of Hd Supply HTML 54K
Electrical, Ltd.
6: EX-3.2 By-Laws of Hd Supply, Inc. HTML 156K
24: EX-3.20 Amended and Restated Agreement of Limited HTML 90K
Partnership of Hd Supply Electrical
25: EX-3.21 Certificate of Incorporation of Hd Supply HTML 77K
Facilities Maintenance Group
26: EX-3.22 By-Laws of Hd Supply Facilities Maintenance Group, HTML 94K
Inc.
27: EX-3.23 Certificate of Limited Partnership of Hd Supply HTML 76K
Facilities Maintenance, Ltd.
28: EX-3.24 Amended and Restated Agreement of Limited HTML 87K
Partnership of Hd Supply Facilities
29: EX-3.25 Restated Articles of Incorporation of Hd Supply HTML 47K
Fasteners & Tools, Inc.
30: EX-3.26 Restated By-Laws of Hd Supply Fasteners & Tools, HTML 78K
Inc.
31: EX-3.27 Certificate of Incorporation of Hd Supply Gp & HTML 58K
Management, Inc.
32: EX-3.28 Amended and Restated By-Laws of Hd Supply Gp & HTML 93K
Management, Inc.
33: EX-3.29 Articles of Organization of Hd Supply Holdings, HTML 53K
LLC
7: EX-3.3 Amended and Restated Certificate of Incorporation HTML 90K
of Brafasco Holdings Ii, Inc
34: EX-3.30 Amended and Restated Operating Agreement of Hd HTML 76K
Supply Holdings, LLC
35: EX-3.31 Articles of Incorporation of Hd Supply Management, HTML 58K
Inc.
36: EX-3.32 By-Laws of Hd Supply Management, Inc. HTML 79K
37: EX-3.33 Certificate of Incorporation of Hd Supply HTML 57K
Plumbing/Hvac Group, Inc.
38: EX-3.34 By-Laws of Hd Supply Plumbing/Hvac Group, Inc. HTML 96K
39: EX-3.35 Certificate of Limited Partnership of Hd Supply HTML 54K
Plumbing/Hvac, Inc.
40: EX-3.36 Amended and Restated Agreement of Limited HTML 101K
Partnership of Hd Supply Plumbing/Hvac
41: EX-3.37 Certificate of Formation of Hd Supply Repair & HTML 54K
Remodel, LLC
42: EX-3.38 Amended and Restated Limited Liability Company HTML 66K
Agreement of Hd Supply Repair
43: EX-3.39 Restated Certificate of Incorporation of Hd Supply HTML 53K
Support Services, Inc.
8: EX-3.4 By-Laws of Brafasco Holdings Ii, Inc. HTML 117K
44: EX-3.40 Amended and Restated By-Laws of Hd Supply Support HTML 81K
Services, Inc.
45: EX-3.41 Certificate of Incorporation of Hd Supply HTML 65K
Utilities Group, Inc.
46: EX-3.42 By-Laws of Hd Supply Utilities Group, Inc. HTML 98K
47: EX-3.43 Certificate of Limited Partnership of Hd Supply HTML 56K
Utilities, Ltd.
48: EX-3.44 Amended and Restated Agreement of Limited HTML 81K
Partnership of Hd Supply Utilities
49: EX-3.45 Amended and Restated Certificate of Incorporation HTML 62K
of Hd Supply Waterworks Group
50: EX-3.46 Amended and Restated By-Laws of Hd Supply HTML 73K
Waterworks Group, Inc.
51: EX-3.47 Certificate of Limited Partnership of Hd Supply HTML 56K
Waterworks Group, Ltd.
52: EX-3.48 Amended and Restated Agreement of Limited HTML 100K
Partnership of Hd Supply Waterworks
53: EX-3.49 Articles of Organization of Hds Ip Holding, LLC HTML 45K
9: EX-3.5 Corrected Certificate of Incorporation of Brafasco HTML 56K
Holdings, Inc.
54: EX-3.50 Operating Agreement of Hds Ip Holding, LLC HTML 82K
55: EX-3.51 Certificate of Incorporation of Hsi Ip, Inc. HTML 52K
56: EX-3.52 Amended and Restated By-Laws of Hsi Ip, Inc. HTML 85K
57: EX-3.53 Articles of Organization of Madison Corner, LLC HTML 51K
58: EX-3.54 Operating Agreement of Madison Corner, LLC HTML 63K
59: EX-3.55 Articles of Organization of Park-Emp, LLC HTML 52K
60: EX-3.56 Operating Agreement of Park-Emp, LLC HTML 63K
61: EX-3.57 Certificate of Formation of Provalue, LLC HTML 50K
62: EX-3.58 Limited Liability Company Agreement of Provalue, HTML 76K
LLC
63: EX-3.59 Amended and Restated Certificate of Limited HTML 50K
Partnership of Southwest Stainless
10: EX-3.6 By-Laws of Brafasco Holdings, Inc. HTML 80K
64: EX-3.60 Amended and Restated Agreement of Limited HTML 99K
Partnership of Southwest Stainless L.P
65: EX-3.61 Certificate of Incorporation of Sunbelt Supply HTML 53K
Canada, Inc.
66: EX-3.62 By-Laws of Sunbelt Supply Canada, Inc. HTML 107K
67: EX-3.63 Articles of Incorporation of Utility Supply of HTML 187K
America, Inc.
68: EX-3.64 Amended and Restated By-Laws of Utility Supply of HTML 96K
America, Inc.
69: EX-3.65 Certificate of Incorporation of White Cap HTML 64K
Construction Supply, Inc.
70: EX-3.66 By-Laws of White Cap Construction Supply, Inc. HTML 157K
71: EX-3.67 Certificate of Formation of Williams Bros. Lumber HTML 51K
Comapany, LLC
72: EX-3.68 Amended and Restated Limited Liability Company HTML 65K
Agreement of Williams Bros.
73: EX-3.69 Articles of Incorporation of World-Wide Travel HTML 56K
Network, Inc.
11: EX-3.7 Certificate of Incorporation of Cox Lumber Co. HTML 109K
74: EX-3.70 By-Laws of World-Wide Travel Network, Inc. HTML 74K
12: EX-3.8 Second Amended and Restated By-Laws of Cox Lumber HTML 101K
Co.
13: EX-3.9 Certificate of Incorporation of Creative Touch HTML 58K
Interiors, Inc.
75: EX-4.1 Indenture, Dated as of August 30, 2007 HTML 703K
83: EX-4.11 Exchange and Registration Rights Agreement HTML 206K
84: EX-4.12 Exchange and Registration Rights Agreement HTML 209K
76: EX-4.2 Merger Supplemental Indenture HTML 57K
77: EX-4.3 Supplemental Indenture in Respect of Subsidiary HTML 87K
Guarantee
78: EX-4.4 Third Supplemental Indenture HTML 87K
79: EX-4.5 Indenture, Dated as of August 30, 2007 HTML 783K
80: EX-4.6 Merger Supplemental Indenture HTML 57K
81: EX-4.7 Supplemental Indenture in Respect of Subsidiary HTML 85K
Guarantee
82: EX-4.8 Third Supplemental Indenture HTML 91K
85: EX-5.1 Opinion of Debevoise & Plimpton LLP HTML 67K
86: EX-5.2 Opinion of Holland & Hart LLP HTML 67K
87: EX-5.3 Opinion of Holland & Knight LLP HTML 81K
88: EX-5.4 Opinion of Morris, Nichols, Arsht & Tunnell LLP HTML 83K
89: EX-5.5 Opinion of Dykema Gossett Pllc HTML 60K
90: EX-10.1 Credit Agreement Among Hds Acquisition Subsidiary, HTML 744K
Inc.
99: EX-10.10 Guarantee and Reimbursement Agreement HTML 286K
100: EX-10.11 Guarantee and Collateral Agreement HTML 326K
101: EX-10.12 Amend #1 to Guarantee and Collateral Agreement HTML 87K
102: EX-10.13 U.S. Guarantee and Collateral Agreement HTML 331K
103: EX-10.14 Amend #1 to U.S. Guarantee and Collateral HTML 85K
Agreement
104: EX-10.15 Canadian Guarantee and Collateral Agreement HTML 305K
105: EX-10.16 Amend #1 to Canadian Guarantee and Collateral HTML 60K
Agreement
106: EX-10.17 Holding Pledge Agreement HTML 149K
107: EX-10.18 Abl Holding Pledge Agreement HTML 141K
108: EX-10.19 Notice of Grant of Security Interest in Patents HTML 85K
91: EX-10.2 Amend and Waiver No.1 to the Credit Agreement HTML 65K
Among Hd Supply, Inc.
109: EX-10.20 Grant of Security Interest in Copyrights HTML 109K
110: EX-10.21 Notice of Grant of Security Interest in Trademarks HTML 154K
111: EX-10.22 Abl Notice of Grant of Security Interest in HTML 85K
Patents
112: EX-10.23 Abl Grant of Security Interest in Copyrights HTML 111K
113: EX-10.24 Abl Notice of Grant of Security Interest in HTML 163K
Trademarks
114: EX-10.25 Abl Notice of Grant of Security Interest in HTML 62K
Canadian Trademarks
115: EX-10.26 Pledge of Bond Agreement HTML 81K
116: EX-10.27 Amendment No. 1 to Pledge of Bond Agreement HTML 57K
117: EX-10.28 Deed of Hypothec and Issue of Bonds HTML 263K
118: EX-10.29 Hd Supply Canada, Inc. Demand Bond and Endorsement HTML 57K
92: EX-10.3 Amend #2 to the Credit Agreement Among Hd Supply, HTML 57K
Inc.
119: EX-10.30 Hd Supply Management Incentive Plan HTML 78K
120: EX-10.32 Hds Investment Holding, Inc. Stock Incentive Plan HTML 86K
121: EX-10.33 Letter Agreement With Mark Jamieson HTML 62K
122: EX-10.34 Home Depot Retention Agreement With Joseph HTML 83K
Deangelo
123: EX-10.35 Home Depot Retention Agreement With Anesa Chaibi HTML 82K
124: EX-10.36 Home Depot Retention Agreement With Thomas Lazzaro HTML 86K
125: EX-10.37 Tax Sharing Agreement HTML 82K
126: EX-10.38 Strategic Purchase Agreement HTML 5.82M
127: EX-10.39 Consulting Agreement HTML 91K
93: EX-10.4 Abl Credit Agreement Among Hds Acquisition HTML 865K
Subsidiary, Inc
128: EX-10.40 Consulting Agreement HTML 92K
129: EX-10.41 Consulting Agreement HTML 89K
130: EX-10.42 Indemnification Agreement HTML 110K
131: EX-10.43 Indemnification Agreement HTML 132K
132: EX-10.44 Indemnification Agreement HTML 132K
133: EX-10.45 Indemnification Agreement HTML 100K
94: EX-10.5 Amend and Waiver No.1 to Abl Credit Agreement HTML 77K
95: EX-10.6 Amend #2 to Abl Credit Agreement HTML 78K
96: EX-10.7 Abl Joinder Agreement HTML 94K
97: EX-10.8 Intercreditor Agreement HTML 357K
98: EX-10.9 Amend #1 to Intercreditor Agreement HTML 63K
136: EX-21.1 List of Subsidiaries HTML 58K
137: EX-23.1 Consent of Pricewaterhousecoopers LLP HTML 46K
138: EX-23.2 Consent of Kpmg LLP HTML 49K
139: EX-25.1 Statement of Eligibility of Wells Fargo Bank, HTML 102K
National Association on Form T-1
140: EX-99.1 Form of Letter of Transmittal HTML 177K
141: EX-99.2 Form of Notice of Guaranteed Delivery HTML 68K
142: EX-99.3 Form of Instruction to Registered Holder HTML 59K
143: EX-99.4 Letter of Kpmg LLP HTML 48K
134: EX-12.1 Computation of Ratio of Earnings to Fixed Charges HTML 66K
135: EX-18.1 Preferability Letter HTML 49K
| Letter to Mr. H. Christopher Owings |
[Debevoise & Plimpton Letterhead]
VIA EDGAR
Mr. H. Christopher Owings
Assistant Director
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549-7010
Mail Stop 3561
| Re: | HD Supply, Inc. |
| Registration Statement on Form S-4 |
| Filed June 5, 2009 |
| File No. 333-159809 |
Dear Mr. Owings,
This letter sets forth the responses of HD Supply, Inc. (the “Company”) to the comments contained in your letter, dated July 2, 2009, relating to the Registration Statement on Form S-4 (the “Registration Statement”) of the Company filed with the Securities and Exchange Commission (the “Commission”) on June 5, 2009. The comments of the Commission are set forth in bold/italicized text below, and the Company’s responses are set forth in plain text immediately beneath each comment.
The Company is filing, via EDGAR, Amendment No. 1 (“Amendment No. 1”) to the Registration Statement. Please be advised that a redacted version of Exhibit 10.38 has been filed herewith and is subject to a request for confidential treatment which has been filed separately, in paper form, with the office of the Secretary of the Commission, pursuant to Rule 406 of Regulation C.
Page references in the responses below are to the blacklined version of Amendment No. 1.
General
| 1. | With your next amendment, please provide us with the supplemental letter that you state you intend to submit regarding your reliance on our positions enunciated in Exxon Capital Holdings Corporation, SEC No-Action Letter (May 13, 1988), Morgan Stanley & Co. Inc., SEC No-Action Letter (June 5, 1991), K-III Communications Corporation, SEC No-Action Letter (May 14, 1993) and Shearman & Sterling, SEC No-Action Letter (July 2, 1993). Please ensure that your letter includes the representations contained in the Morgan Stanley and Shearman & Sterling no-action letters. |
In response to the Staff’s comment, the Company has submitted as separate SEC correspondence the supplemental letter regarding its reliance on the Commission’s positions in the no-action letters listed above.
Forward-Looking Statements, page ii
| 2. | Section 27A(b)(2)(C) of the Securities Act of 1933 and Section 21E(b)(2)(C) of the Securities Exchange Act of 1934 expressly state that the safe harbor for forward-looking statements does not apply to statements made in connection with a tender offer. Please either delete references to the Private Securities Litigation Reform Act or make clear, each time you refer to the Litigation Reform Act, that the safe harbor for forward-looking statements does not apply to this offering. |
In response to the Staff’s comment, the Company has deleted the references on page ii to the Private Securities Litigation Reform Act with respect to forward-looking statements.
Management’s discussion and analysis of financial condition and results of operations, page 55
Key business metrics, page 57
| 3. | Please clarify the types of expenses you include in the cost of sales line item. Specifically address whether you include purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and the other costs of your distribution network in the cost of sales line item. With the exception of warehousing costs, if you currently exclude a portion of these costs from cost of sales, please disclose the line items that these excluded costs are included in and the amounts included in each line item for each period presented. If applicable, please disclose in management’s |
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| discussion and analysis of financial position and results of operations that your gross margins may not be comparable to those of other entities, since some entities include all of the costs related to their distribution network in cost of sales and others like you exclude a portion of them from gross margin, including them instead in a line item such as selling, general and administrative expenses. |
In response to the Staff’s comment, the Company has expanded the disclosure on page 57 to indicate that (i) its cost of goods sold includes product cost, net of earned rebates and discounts, plus in-bound freight and (ii) purchasing, receiving, warehousing and freight-out, including internal transfer costs, are included in selling, general and administrative expenses within operating expenses. Many of these costs are not distinguishable from selling costs as branch associates often perform multiple tasks including receiving, handling and selling activities. The Company has also indicated within “Management’s discussion and analysis of financial condition and results of operations” on page 57 that the Company’s gross margins may not be comparable to other companies, since other companies may include costs related to their distribution network in cost of sales that the Company includes in selling, general and administrative expenses.
Consolidated and combined results of operations, page 59
| 4. | In the tabular presentation of your results of operations, we note that your “combined” results of operations for fiscal year 2007 are based on the mathematical sum of the predecessor and successor periods during 2007. We do not believe it is appropriate to combine information for the pre-and post-transaction periods without reflecting all relevant pro forma adjustments. We also note that the discussion of your operations for fiscal year 2007 is limited to such “combined” financial results. Please revise to provide a discussion of the results of operations and financial condition set forth in the audited financial statements included in the filing. If you believe that a supplemental discussion based on the full 2007 fiscal year is warranted or appropriate, then please present the results of operations for fiscal year 2007 on a pro forma basis in a format consistent with Article 11 of Regulation S-X. Supplemental discussions based on Article 11 pro forma financial information should not be presented with greater prominence than the discussion of the historical audited financial statements. Moreover, disclosure should be provided to explain how the pro forma presentation was derived, why management believes the presentation to be useful, and any potential risks associated with using such a presentation (for example, the potential that such results might not necessarily be indicative of future results for examples). |
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In response to the Staff’s comment and in accordance with the telephonic guidance of Anthony Watson on July 6, 2009, the Company has revised the disclosure in “Management’s discussion and analysis of financial condition and results of operations” such that its results of operations compare each of the historical audited financial statement periods in chronological order (e.g., Fiscal 2008 compared to Successor 2007, Successor 2007 compared to Predecessor 2007 and Predecessor 2007 compared to Fiscal 2006). The Company has also included a discussion of its results of operations for fiscal year 2007 on a pro forma basis as supplemental information.
Critical accounting policies, page 78
Goodwill, page 79
| 5. | We note you use a combination of discounted cash flows and a market based approach to determine the fair value of reporting units. Please disclose the weight assigned to each approach in arriving at the fair value of the reporting units. To the extent you change the weighting of these methods from period to period, please disclose the basis for the change, including why the change provides a better estimate of fair value. Please also discuss the sensitivity of your goodwill impairment assessments to the methods, assumptions and estimates underlying the fair value estimates for your reporting units. Discuss the likelihood that materially different amounts would be reported under different conditions or using different assumptions. |
In response to the Staff’s comment, the Company has expanded its discussion of goodwill on page 98 to include specific discount rates and terminal growth rates used as well as to provide sensitivity of these assumptions. The Company has also modified its disclosure on pages F-20 and F-21 to indicate that it uses a discounted cash flow approach to determine fair value of reporting units and utilizes a market based approach only to validate the reasonableness of its discounted cash flow analysis.
Consolidated Financial Statements, page F-l
| 6. | Please update the financial statements and related financial information in accordance with the requirements set forth in Rule 3-12 of Regulation S-X. |
In response to the Staff’s comment, the Company has updated the financial statements and related financial information in accordance with Rule 3-12 of Regulation S-X.
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Note 1 – Nature of Business and Summary of Significant Accounting Policies, page F-8
Basis of Presentation, page F-8
| 7. | Please tell us in detail how you applied the guidance in EITF 88-16 in determining to record the continuing interest of Home Depot in HD Supply at fair value rather than at Home Depot’s predecessor basis. In your response, please be sure to address the impact on your analysis of any direct or indirect guarantees provided by Home Depot on behalf of HD Supply, such as Home Depot’s guarantee related to the Term Loan Facility. |
In response to the Staff’s comment, the Company provides the following discussion and analysis:
On August 30, 2007, HDS Investment Holding, Inc. (“NEWCO”) acquired 100% of the outstanding shares of HD Supply, Inc. and CND Holdings, Inc. (collectively “OLDCO”) from THD Holdings LLC and Home Depot International, Inc. both wholly owned subsidiaries of Home Depot, Inc. (“Home Depot”). As part of the acquisition of OLDCO, a wholly owned subsidiary of Home Depot acquired a 12.5% interest in NEWCO for $325 million. The issue to be determined is how the step-up in basis of NEWCO’s assets and liabilities to fair value should be impacted by Home Depot’s 12.5% continuing interest.
EITF 88-16, Basis in Leveraged Buyouts, is the authoritative literature for this transaction as NEWCO has purchased 100% of the outstanding stock of OLDCO. The first determination under EITF 88-16 is whether or not a change in control has taken place. According to EITF 88-16 Section 1(a)(ii), a change in control has occurred if, “A group of new shareholders (shareholders with no residual interest in OLDCO), that may include management, that meets the definition for inclusion in the NEWCO control group…obtains unilateral control of NEWCO.” Unilateral Control is defined as “ownership of more than 50 percent of the voting interest of a business enterprise…” Affiliates of Bain Capital, Carlyle Group and Clayton, Dubilier and Rice (collectively the “Sponsors”) have acquired in excess of 84% of the voting shares of NEWCO and had no residual interest in OLDCO. Therefore, the Company concluded that a change in control has occurred.
The second determination to be made is what parties comprise the NEWCO control group. EITF 88-16 Section 1(c) addresses this issue. Based on Section(1)(c)(ii), the Company’s three Sponsors are considered part of the NEWCO control group as they each hold greater than a 5 percent residual interest in NEWCO and have a residual interest in NEWCO larger than they did in OLDCO. Home Depot’s residual interest in NEWCO is less than it is in OLDCO and therefore does not meet the requirements of Section(1)(c)(ii). The Company therefore looks to Section(1)(c)(iii) to determine if
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Home Depot should be included in the NEWCO control group. Home Depot’s voting interest is 12.5% in NEWCO and therefore they do not meet the 20 percent or more of the voting interest of NEWCO requirement in Section 1(c)(iii)(a). In determining whether or not they meet the 20 percent threshold for the cumulative capital at risk in NEWCO stipulated in Section(1)(c)(iii)(b), the Company has performed the following calculation:
| (in millions) |
Total | THD Value |
THD Cumulative % | |||||
| Equity Fair Value |
$ | 2,600 | $ | 325 | 12.5 | |||
| Subordinated Notes |
1,300 | — | 8.3 | |||||
| Senior Cash Pay Notes |
2,500 | — | 5.1 | |||||
| Term Loan |
1,000 | $ | 1,000 | 17.9 | ||||
| ABL |
1,287 | — | 15.3 | |||||
| Total |
$ | 8,687 | $ | 1,325 | 15.3 | |||
As Home Depot’s cumulative capital at risk never reaches 20% on a cumulative basis, beginning with equity and layering in debt from least secured to most secured, including the $1,000 million Home Depot loan guarantee at its full stated amount, the Company concludes that Home Depot is not part of NEWCO’s control group.
EITF 88-16 Section 2(b) of EITF 88-16 addresses the carrying amount of NEWCO’s investment in OLDCO assuming a change in control has occurred, which the Company has already determined has occurred. Section 2(b)(i) states that the lesser of the continuing shareholder’s residual interest in OLDCO or NEWCO is carried over at the predecessor basis except as explained for shareholders that are not part of the NEWCO control group. Since the Company determined that Home Depot is not part of the NEWCO control group and has more than a 5% residual interest in NEWCO, the Company refers to Section 2(b)(i)(b). This paragraph states that the residual interest of all individual continuing shareholders with the same or lower percentage of residual interest in NEWCO than they held in OLDCO that individually have a 5 percent or more residual interest in NEWCO and that in the aggregate have less than a 20 percent residual interest in NEWCO should be valued at fair value subject to the monetary test in EITF 88-16 Section 3. Home Depot is the only shareholder that falls into this category. They have a 12.5% residual interest in NEWCO which is less than their 100% residual interest in OLDCO and the 12.5% interest is less than the 20% threshold so Home Depot’s 12.5% residual interest should be valued at fair value subject to the monetary test in Section 3.
The monetary test in Section 3 stipulates a requirement that at least 80 percent of the fair value of consideration paid to acquire OLDCO equity comprise monetary consideration of cash, equity or debt securities. This criteria is satisfied as Home Depot received $8.5 billion of cash for the sale of OLDCO offset by $325 million that was used
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to purchase a 12.5% interest in NEWCO and $100 million of debt financing costs that Home Depot paid on behalf of NEWCO. Even if the $1 billion Home Depot loan guarantee is netted against the consideration paid, the 80 percent threshold is met (at 83%). The Company therefore concludes that Home Depot’s 12.5% residual interest in NEWCO should be stated at fair value.
Allowance for Doubtful Accounts, page F-9
Revenue Recognition, page F-11
| 8. | With respect to your allowance for doubtful accounts and your allowance for sales returns and discounts, please disclose the information prescribed by Rule 12-09 of Regulation S-X either in Schedule II -Valuation and Qualifying Accounts or in the notes to the financial statements. Refer to Rule 5-04 of Regulation S-X. |
In response to the Staff’s comment, the Company directs your attention to Schedule II – Valuation and Qualifying Accounts on page II-28. The Company has included Allowance for Doubtful Accounts and Inventory Valuation Reserves in Schedule II. The Company has omitted Sales Returns and Discounts as the amount is less than $12 million as of February 1, 2009 and neither the balance nor the activity during the periods presented are deemed material by management.
Note 4 – Related Parties, page F-16
Transactions with THD, page F-16
Other Transactions, page F-17
| 9. | Please disclose the terms of the predecessor company’s long-term borrowings with Home Depot. Also disclose the nature and extent of any other cash flow support provided by Home Depot during the predecessor period, such as the “non-cash charges from THD” as shown on your statements of cash flows. |
In response to the Staff’s comment, the Company has added disclosure on page F-17 regarding the terms of the borrowings from and to Home Depot. The Company has also clarified the treatment of The Home Depot charges that were not reimbursed by HD Supply, Inc. and referenced the amount on its combined Statements of Cash Flows.
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Note 8 – Stock Based Compensation and Employee Benefit Plans, page F-26
| 10. | Please disclose the methods and significant assumptions used to determine 1) the risk-free interest rate and expected term of options granted under the HDS Plan; and 2) the risk-free interest rate, expected term, expected volatility and expected dividends for options granted under the THD Plans. Refer to paragraph A240e(2) of SFAS 123(R). |
In response to the Staff’s comment, the Company has supplemented its disclosures on page F-26 of the assumptions utilized in the valuation of stock options granted under both the HDS Plan and the THD Plans in accordance with SFAS 123(R).
Item 21. Exhibits and Financial Statement Schedules, page II-18
| 11. | Please note that all exhibits are subject to our review. Accordingly, please file all exhibits with your next amendment, including, but not limited to, your opinion of counsel and the form of letter of transmittal that you indicate on page II-24 will be filed as exhibit 99.1. |
The Company acknowledges the Staff’s comment, and has filed substantially all exhibits with Amendment No. 1.
Item 22. Undertakings, page II-27
| 12. | Please provide the undertakings required by Items 512(a)(5)(ii) and 512(a)(6) of Regulation S-K. See Securities Act Rule 430C(d). Please also provide the undertakings required by Item 512(g) of Regulation S-K. |
In response to the Staff’s comment, the Company has revised the disclosure on pages II-29 and II-30 to provide the requested additional undertakings.
* * * * *
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If you have any questions regarding this letter, please do not hesitate to call Steven Slutzky at (212) 909-6036, Paul Rodel at (212) 909-6478 or Sharon Han at (212) 909-6550.
| Sincerely, |
| Steven J. Slutzky |
| cc: | Anthony Watson |
| Robyn Manuel |
| Christopher Chase |
Securities and Exchange Commission
| Ricardo Nunez, Esq. |
HD Supply, Inc.
Enclosures
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| This ‘S-4/A’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| Filed on: | 7/10/09 | |||
| 7/6/09 | ||||
| 7/2/09 | UPLOAD | |||
| 6/5/09 | S-4 | |||
| 2/1/09 | ||||
| 8/30/07 | ||||
| 7/2/93 | ||||
| 5/14/93 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 12/04/20 HD Supply Holdings, Inc. 10-Q 11/01/20 84:8.8M Toppan Merrill/FA 9/09/20 HD Supply Holdings, Inc. 10-Q 8/02/20 85:8M Toppan Merrill/FA 7/30/09 SEC UPLOAD¶ 10/07/17 1:19K HD Supply, Inc. |