Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is combined for two registrants: HD Supply Holdings, Inc. and HD Supply, Inc. Unless the context indicates otherwise, any reference in this discussion and analysis 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 Holdings together with its direct and indirect subsidiaries, including HDS.
HD Supply is one of the largest industrial distributors in North America. We operate through one reportable segment with a leading position in the Maintenance, Repair & Operations (“MRO”) market sector. Through approximately 44 distribution centers, in the U.S. and Canada, we serve this market sector with an integrated go-to-market strategy. We have more than 5,500 associates delivering localized, customer-tailored products, services and expertise. We serve approximately 300,000 customers, which include contractors, maintenance professionals, industrial businesses, and government entities primarily in multifamily, hospitality, healthcare, and institutional facilities markets. Our broad range of end-to-end product lines and services include approximately 200,000 stock-keeping units of quality, name-brand and proprietary-brand products as well as value-add services.
On August 10, 2020, HDS entered into a Transaction Agreement (the "Transaction Agreement") with an affiliate of Clayton, Dubilier & Rice (the "Purchaser") to sell the Company's Construction & Industrial business to Purchaser for a purchase price of $2.9 billion in cash, subject to customary adjustments. On October 19, 2020, the Company completed the sale of it Construction & Industrial business. For additional information, see "Note 2 - Discontinued Operations" in the Notes to Consolidated Financial Statements within Item 1 of this quarterly report on Form 10-Q.
On November 15, 2020, Holdings entered into an Agreement and Plan of Merger (the "Merger Agreement") with The Home Depot, Inc., a Delaware corporation ("Parent"), and Coronado Acquisition Sub Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"). Pursuant to the terms of the Merger Agreement, Parent has agreed to cause Merger Sub to commence a tender offer (as it may be extended, amended or supplemented from time to time, the "Offer") to purchase any and all of the outstanding shares of common stock, par value $0.01 per share, of the Company (the "Shares"), at a price of $56.00 per Share (the "Offer Price"), net to the holder thereof, in cash, without interest thereon. For additional information, see "Note 14 - Subsequent Event," in the Notes to Consolidated Financial Statements within Item 1 of this quarterly report on Form 10-Q.
Impact of COVID-19 on Our Business
The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has and will likely continue to adversely affect our business. As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic and the magnitude of the impact of the pandemic on our sales, operations, and supply chain and our customers, suppliers, vendors, and business partners.
HD Supply was deemed an essential business in all areas in which we operate. As a result, we have continued to service our customers. However, our customers have been impacted by various factors related to the pandemic, including the response of governmental and other regulatory authorities to the pandemic, such as “shelter-in-place,” “stay-at-home” orders, mandatory quarantine orders, travel restrictions, and restrictions on landlord remedies. These factors resulted in a slowing of our sales to the affected customers. Many of our hospitality customer locations were closed or operating at a meaningfully diminished capacity, which negatively impacted sales beginning in the last half of the first quarter and may negatively impact sales until the response to the COVID-19 pandemic moderates. Many of the markets in which we operate have eased restrictions that were in place earlier in the year, subject to change depending on the scope and nature of the continuing pandemic.