Notes Payable and Long-Term Debt

12 Months Ended

Jan. 31, 2014

Notes Payable and Long-Term Debt

Notes Payable and Long-Term Debt:

The Company’s notes payable and long-term debt consisted of the following for the years presented:

					January 31
	Stated interest rate		Effective interest rate		2014		2013
	(dollars in millions)
Leidos Holdings, Inc. senior unsecured notes:
$450 million notes issued in fiscal 2011, which mature in December 2020	4.45	%	4.53	%	$	449	$	449
$300 million notes issued in fiscal 2011, which mature in December 2040	5.95	%	6.03	%	300		300
Leidos, Inc. senior unsecured notes:
$250 million notes issued in fiscal 2003, which mature in July 2032	7.13	%	7.43	%	248		248
$300 million notes issued in fiscal 2004, which mature in July 2033	5.50	%	5.78	%	296		296
Capital leases and other notes payable due on various dates through fiscal 2021	0%-3.7%		Various		40		2
Total notes payable and long-term debt					1,333		1,295
Less current portion					2		—
Total notes payable and long-term debt, net of current portion					$	1,331	$	1,295
Fair value of notes payable and long-term debt					$	1,350	$	1,390

Interest is payable on the Company’s senior unsecured notes on a semi-annual basis with principal payments due on maturity. The note discounts, deferred debt issuance costs, and the loss on the settlement of related treasury lock contracts are amortized to interest expense (approximately $2 million was amortized in fiscal 2014), which results in an effective interest rate that is higher than the stated interest rate of the notes. The senior unsecured notes contain customary restrictive covenants, including, among other things, restrictions on the Company’s ability to create liens and enter into sale and leaseback transactions under certain circumstances. The Company was in compliance with all covenants as of January 31, 2014.

The Plainfield Renewable Energy Project, as described in Note 3, was financed through two secured notes aggregating $149 million, net of debt discount, provided by affiliates of the Carlyle Group (“Carlyle”). Leidos assumed, in the acquisition of Plainfield, a Note Purchase Agreement between Plainfield and Carlyle, consisting of two secured notes, a Construction Note and a Cash Grant Note in the amount of $81 million and $68 million, respectively, as of the end of the third quarter of fiscal 2014. The Construction Note had a 17.5% stated interest rate, consisting of 8% paid in cash and remainder was accrued over the term of the note and paid at maturity. The Cash Grant Note had a 17.5% stated interest rate, consisting of 6% paid in cash and the remainder was accrued over the term of the note and paid at maturity.

On December 6, 2013, the Company entered into an Early Payoff Agreement (the "Agreement") between Plainfield and Carlyle, under which the Company agreed to pay off, on December 16, 2013, its obligations under the Note Purchase Agreement to include principal and interest due under the Construction Note and Cash Grant Note, an additional interest payment as provided in the Note Purchase Agreement and an early termination fee consisting of a make whole payment. In consideration of the early payment, the Agreement provided for a $6 million discount on the early termination fee and waived the covenants in Note Purchase Agreement. The Company paid $152 million in principal, $7 million of interest, including the additional interest payment, and $6 million in an early termination fee, net of the discount, for a total amount of $165 million. In addition, the unamortized deferred debt issuance costs and debt discount at the time of the pay off of approximately $2 million was expensed and included in "Other income, net" in the Company's consolidated statements of income.

Maturities of notes payable and long-term debt are as follows:

Year Ending January 31	Total
	(in millions)
2015	$	3
2016	2
2017	3
2018	2
2019	2
2020 and thereafter	1,328
Total principal payments	1,340
Less unamortized discount	7
	$	1,333

Leidos, Inc.

Notes Payable and Long-Term Debt

Notes Payable and Long-Term Debt:

The Company’s notes payable and long-term debt consisted of the following for the years presented:

					January 31
	Stated interest rate		Effective interest rate		2014		2013
	(dollars in millions)
Leidos Holdings, Inc. senior unsecured notes:
$450 million notes issued in fiscal 2011, which mature in December 2020	4.45	%	4.53	%	$	449	$	449
$300 million notes issued in fiscal 2011, which mature in December 2040	5.95	%	6.03	%	300		300
Leidos, Inc. senior unsecured notes:
$250 million notes issued in fiscal 2003, which mature in July 2032	7.13	%	7.43	%	248		248
$300 million notes issued in fiscal 2004, which mature in July 2033	5.50	%	5.78	%	296		296
Capital leases and other notes payable due on various dates through fiscal 2021	0%-3.7%		Various		40		2
Total notes payable and long-term debt					1,333		1,295
Less current portion					2		—
Total notes payable and long-term debt, net of current portion					$	1,331	$	1,295
Fair value of notes payable and long-term debt					$	1,350	$	1,390

Interest is payable on the Company’s senior unsecured notes on a semi-annual basis with principal payments due on maturity. The note discounts, deferred debt issuance costs, and the loss on the settlement of related treasury lock contracts are amortized to interest expense (approximately $2 million was amortized in fiscal 2014), which results in an effective interest rate that is higher than the stated interest rate of the notes. The senior unsecured notes contain customary restrictive covenants, including, among other things, restrictions on the Company’s ability to create liens and enter into sale and leaseback transactions under certain circumstances. The Company was in compliance with all covenants as of January 31, 2014.

The Plainfield Renewable Energy Project, as described in Note 3, was financed through two secured notes aggregating $149 million, net of debt discount, provided by affiliates of the Carlyle Group (“Carlyle”). Leidos assumed, in the acquisition of Plainfield, a Note Purchase Agreement between Plainfield and Carlyle, consisting of two secured notes, a Construction Note and a Cash Grant Note in the amount of $81 million and $68 million, respectively, as of the end of the third quarter of fiscal 2014. The Construction Note had a 17.5% stated interest rate, consisting of 8% paid in cash and remainder was accrued over the term of the note and paid at maturity. The Cash Grant Note had a 17.5% stated interest rate, consisting of 6% paid in cash and the remainder was accrued over the term of the note and paid at maturity.

On December 6, 2013, the Company entered into an Early Payoff Agreement (the "Agreement") between Plainfield and Carlyle, under which the Company agreed to pay off, on December 16, 2013, its obligations under the Note Purchase Agreement to include principal and interest due under the Construction Note and Cash Grant Note, an additional interest payment as provided in the Note Purchase Agreement and an early termination fee consisting of a make whole payment. In consideration of the early payment, the Agreement provided for a $6 million discount on the early termination fee and waived the covenants in Note Purchase Agreement. The Company paid $152 million in principal, $7 million of interest, including the additional interest payment, and $6 million in an early termination fee, net of the discount, for a total amount of $165 million. In addition, the unamortized deferred debt issuance costs and debt discount at the time of the pay off of approximately $2 million was expensed and included in "Other income, net" in the Company's consolidated statements of income.

Maturities of notes payable and long-term debt are as follows:

Year Ending January 31	Total
	(in millions)
2015	$	3
2016	2
2017	3
2018	2
2019	2
2020 and thereafter	1,328
Total principal payments	1,340
Less unamortized discount	7
	$	1,333