Leases

12 Months Ended

Jan. 30, 2015

Leases:

The Company occupies most of its facilities under operating leases. Most of the leases require the Company to pay maintenance and operating expenses such as taxes, insurance and utilities and also contain renewal options to extend the lease and provisions for periodic rate escalations to reflect inflationary increases. Certain equipment is leased under short-term or cancelable operating leases. Rental expense for facilities and equipment related to continuing operations for the three fiscal years ended January 30, 2015 were as follows:



	Year Ended
	January 30, 2015			January 31, 2014			January 31, 2013
	(in millions)
Gross rental expense	$	107		$	181		$	154
Less sublease income	(9		)	(6		)	(4		)
Net rental expense	$	98		$	175		$	150

In fiscal 2015 the Company continued its real estate optimization initiatives to reduce future rental expense and exited additional facilities from those exited in connection with the spin-off activities in the prior year and incurred lease termination costs. Rental expense in the table above for fiscal 2014 includes lease termination costs that were attributed to the spin-off transaction, whereby the Company took significant actions in order to align its cost structure post-separation to reduce its real estate footprint by vacating facilities that are not necessary for its future requirements.

Future minimum lease commitments and lease or sublease receipts under non-cancelable operating leases in effect at January 30, 2015 are as follows:



Year Ending January 30	Operating lease commitment		Sublease receipts
	(in millions)
2016	$	88	$	7
2017	76		7
2018	66		5
2019	55		4
2020	41		3
2021 and thereafter	70		9
Total	$	396	$	35

As of January 30, 2015, the Company had capital lease obligations of $2 million that are payable over the next three years.

Sale and Leaseback Agreement

On May 3, 2013, the Company entered into a purchase and sale agreement relating to the sale of approximately 18 acres of land in Fairfax County, Virginia, including four office buildings, a multi-level parking garage, surface parking lots, and other related improvements and structures, as well as tangible personal property and third-party leases. This sale is expected to be completed in a series of transactions over approximately six years.

On July 26, 2013, the Company closed the first phase of the purchase and sale agreement and received proceeds of $83 million, net of selling costs. The Company leased back from the buyer three of the office buildings over varying lease terms. The sale of two of the office buildings was accounted for as a sale-leaseback transaction with proceeds from the sale of $40 million, a corresponding book value of $42 million resulting in a $2 million loss recorded in selling, general and administrative expenses. These leases were accounted for as operating leases over a six months term which ended on January 31, 2014. The sale of the third office building is being accounted for as a financing transaction. The allocated consideration received of $38 million was recorded as a note payable to be paid over seven years with interest at the lessee’s incremental borrowing rate, estimated at 3.7%. The right of use for the multi-level parking garage and surface parking lots were allocated proceeds of $1 million and $4 million, respectively, and were accounted for as other long term liabilities.

Leidos, Inc.

Leases

Leases:



	Year Ended
	January 30, 2015			January 31, 2014			January 31, 2013
	(in millions)
Gross rental expense	$	107		$	181		$	154
Less sublease income	(9		)	(6		)	(4		)
Net rental expense	$	98		$	175		$	150

Future minimum lease commitments and lease or sublease receipts under non-cancelable operating leases in effect at January 30, 2015 are as follows:



Year Ending January 30	Operating lease commitment		Sublease receipts
	(in millions)
2016	$	88	$	7
2017	76		7
2018	66		5
2019	55		4
2020	41		3
2021 and thereafter	70		9
Total	$	396	$	35

As of January 30, 2015, the Company had capital lease obligations of $2 million that are payable over the next three years.

Sale and Leaseback Agreement

- Definition

Tabular disclosure of a lessee's leasing arrangements including: (1) the basis on which contingent rental payments are determined, (2) the existence and terms of renewal or purchase options and escalation clauses, (3) restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and further leasing, (4) rent holidays, rent concessions, or leasehold improvement incentives and unusual provisions or conditions. Disclosure may also include the specific period used to amortize material leasehold improvements made at the inception of the lease or during the lease term. Additionally, for operating leases having initial or remaining noncancelable lease terms in excess of one year: (a) future minimum rental payments required as of the date of the latest balance sheet presented, in the aggregate and for each of the five succeeding fiscal years, (b) the total of minimum rentals to be received in the future under noncancelable subleases as of the date of the latest balance sheet presented, and (c) for all operating leases, rental expense for each period for which an income statement is presented, with separate amounts for minimum rentals, contingent rentals, and sublease rentals. Rental payments under leases with terms of a month or less that were not renewed need not be included.

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