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1. Principal accounting policies and basis of preparation
Basis of preparation
Signet Jewelers Limited (the "Company") and its subsidiaries (collectively, "Signet") is a leading retailer of jewelry, watches and associated services. Signet manages its business as two geographical segments, being the United States of America (the "US") and the United Kingdom (the "UK"). The US segment operates retail stores under brands including Kay Jewelers, Jared The Galleria Of Jewelry and various regional brands, while the UK segment operates retail stores under brands including H.Samuel and Ernest Jones.
These interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in Signet's Annual Report on Form 10-K for the year ended January 30, 2010, filed with the Securities and Exchange Commission ("SEC") on March 30, 2010.
These interim financial statements are unaudited. They have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for interim financial information. Accordingly, certain information and footnote disclosures normally included in audited consolidated financial statements have been condensed or omitted from these interim financial statements. However, these interim financial statements include all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly state the results of the interim periods.
Use of estimates in interim financial statements
The preparation of interim financial statements, in conformity with US GAAP and SEC regulations for interim reporting, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated interim financial statements and reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are primarily made in relation to the valuation of receivables, inventory and deferred revenue, depreciation and asset impairment, the valuation of employee benefits, income taxes and contingencies.
Seasonality
Signet's business is highly seasonal with a very significant proportion of its sales and operating profit generated during its fourth quarter, which includes the Christmas season. Management expects such a seasonal fluctuation in sales and profit to continue. Therefore, operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
Correction of immaterial error
During the third quarter of Fiscal 2011, Signet changed its accounting for extended service plans. Previously, revenue from the sale of extended service plans was deferred, net of direct costs arising from the sale, and was recognized in proportion to the historical actual claims incurred. Signet has conducted a review of the claims cost patterns, including estimates of future claims costs expected to be incurred, and concluded that the deferral period required extension and that claims cost is a more appropriate basis for revenue recognition than the number of claims incurred. In addition, Signet now defers all revenues and recognizes direct costs in proportion to the revenue recognized. These changes are in accordance with ASC 605-20-25. The impact resulted in an overstatement of extended service plan revenue and an understatement of deferred revenue. These plans are only sold by the US division and therefore only affect the US segment reporting.
Signet has evaluated the effects individually and in the aggregate and determined that its prior period financial statements are not materially misstated. However, Signet has determined that the cumulative effect of adjusting this in the third quarter of Fiscal 2011 would be material to the Fiscal 2011 financial statements. Therefore, Signet has adjusted the affected prior periods and presented the results in this quarterly report.
As a result of applying this correction, the following consolidated balance sheet, consolidated income statement and consolidated statement of cash flows were impacted as follows:
Impact on consolidated balance sheet
January 30, 2010 $million |
October 31, 2009 $million |
|||||||||||||||
Amounts previously reported |
As corrected | Amounts previously reported |
As corrected | |||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Other current assets |
58.4 | 75.8 | 52.1 | 68.4 | ||||||||||||
Total current assets |
2,435.8 | 2,453.2 | 2,251.9 | 2,268.2 | ||||||||||||
Non-current assets: |
||||||||||||||||
Other assets |
12.6 | 58.3 | 12.5 | 55.1 | ||||||||||||
Deferred tax assets |
54.7 | 112.3 | 53.9 | 110.5 | ||||||||||||
Total assets |
2,924.2 | 3,044.9 | 2,756.8 | 2,872.3 | ||||||||||||
Liabilities and Shareholders' equity |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Deferred revenue |
120.1 | 137.7 | 103.0 | 121.2 | ||||||||||||
Total current liabilities |
621.3 | 638.9 | 570.9 | 589.1 | ||||||||||||
Non-current liabilities: |
||||||||||||||||
Deferred revenue |
140.9 | 338.0 | 132.4 | 322.0 | ||||||||||||
Total liabilities |
1,126.6 | 1,341.3 | 1,070.2 | 1,278.0 | ||||||||||||
Total shareholders' equity |
1,797.6 | 1,703.6 | 1,686.6 | 1,594.3 | ||||||||||||
Total liabilities and shareholders' equity |
2,924.2 | 3,044.9 | 2,756.8 | 2,872.3 | ||||||||||||
Impact on consolidated income statement |
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13 weeks ended October 31, 2009 $million |
39 weeks ended October 31, 2009 $million |
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Amounts previously reported |
As corrected | Amounts previously reported |
As corrected | |||||||||||||
Sales |
613.7 | 611.4 | 2,087.1 | 2,076.8 | ||||||||||||
Cost of sales |
(447.9 | ) | (448.4 | ) | (1,444.3 | ) | (1,442.6 | ) | ||||||||
Gross margin |
165.8 | 163.0 | 642.8 | 634.2 | ||||||||||||
Operating (loss)/income |
(3.1 | ) | (5.9 | ) | 95.9 | 87.3 | ||||||||||
Income before income taxes |
(10.5 | ) | (13.3 | ) | 69.4 | 60.8 | ||||||||||
Income taxes |
3.5 | 4.6 | (22.5 | ) | (19.2 | ) | ||||||||||
Net (loss)/income |
(7.0 | ) | (8.7 | ) | 46.9 | 41.6 | ||||||||||
(Loss)/earnings per share – basic |
$ | (0.08 | ) | $ | (0.10 | ) | $ | 0.55 | $ | 0.49 | ||||||
– diluted |
$ | (0.08 | ) | $ | (0.10 | ) | $ | 0.55 | $ | 0.49 |
Impact on consolidated statement of cash flows
13 weeks ended October 31, 2009 $million |
39 weeks ended October 31, 2009 $million |
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Amounts previously reported |
As corrected | Amounts previously reported |
As corrected | |||||||||||||
Cash flows from operating activities: |
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Net (loss)/income |
(7.0 | ) | (8.7 | ) | 46.9 | 41.6 | ||||||||||
Adjustments to reconcile net (loss)/income to cash flows provided by operations: |
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Deferred income taxes |
(1.7 | ) | (2.8 | ) | 0.4 | (2.9 | ) | |||||||||
Changes in operating assets and liabilities: |
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Changes in other receivables |
(0.4 | ) | — | 55.4 | 54.2 | |||||||||||
Changes in other current assets |
(2.4 | ) | (2.3 | ) | (16.3 | ) | (16.8 | ) | ||||||||
Decrease in deferred revenue |
(10.9 | ) | (8.6 | ) | (28.2 | ) | (17.9 | ) | ||||||||
Net cash provided by operating activities |
54.1 | 54.1 | 349.1 | 349.1 |
New accounting pronouncements to be adopted in future periods
Revenue recognition – multi-deliverable arrangements
In October 2009, the FASB issued ASU 2009-13, which amends ASC 605-25 "Revenue Recognition – Multi-Deliverable Arrangements". ASU 2009-13 requires arrangement consideration to be allocated to all deliverables at inception using a relative selling price method and establishes a selling price hierarchy for determining the selling price of a deliverable. The update also expands the disclosure requirements to include additional detail regarding the deliverables, method of calculation of selling price and the timing of revenue recognition. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The adoption of this amendment is not expected to have a material impact on Signet.
Disclosures about the credit quality of financing receivables
In July 2010, the FASB issued ASU No. 2010-20 "Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses" (ASU 2010-20), which requires entities to provide disclosures designed to facilitate financial statement users' evaluation of (i) the nature of credit risk inherent in the entity's portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment. The required disclosures include, among other things, a roll forward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 will be effective for the Company's financial statements as of January 29, 2011, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period will be required for the Company's consolidated financial statements that include periods beginning on or after January 30, 2011. Management is currently evaluating the effect that ASU 2010-20 will have on the Company's future consolidated financial statements.
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2. Segment information
The consolidated sales are derived from the retailing of jewelry, watches, other products and services. Signet is managed as two geographical operating segments, being the US and UK divisions. These segments represent channels of distribution that offer similar merchandise and service and have similar marketing and distribution strategies. Both divisions are managed by executive committees, which report through a divisional Chief Executive to Signet's Chief Executive who in turn reports to the Board. Each divisional executive committee is responsible for operating decisions within parameters set by the Board. The performance of each segment is regularly evaluated based on sales and operating income. The operating segments do not include certain central costs, which is consistent with the treatment in Signet's management accounts. There are no material transactions between the operating segments.
13 weeks ended | 39 weeks ended | |||||||||||||||
October 30, 2010 $million |
October 31, 2009 $million |
October 30, 2010 $million |
October 31, 2009 $million |
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Sales: |
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US |
497.0 | 457.0 | 1,737.2 | 1,626.4 | ||||||||||||
UK, Channel Islands & Republic of Ireland |
144.8 | 154.4 | 429.7 | 450.4 | ||||||||||||
Total sales |
641.8 | 611.4 | 2,166.9 | 2,076.8 | ||||||||||||
Operating income/(loss), net: |
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US |
25.7 | 2.0 | 174.8 | 103.0 | ||||||||||||
UK, Channel Islands & Republic of Ireland |
(1.6 | ) | (3.6 | ) | 1.7 | (3.9 | ) | |||||||||
Unallocated(1) |
(5.6 | ) | (4.3 | ) | (14.5 | ) | (11.8 | ) | ||||||||
Total operating income, net |
18.5 | (5.9 | ) | 162.0 | 87.3 | |||||||||||
October 30, 2010 $million |
January 30, 2010 $million |
October 31, 2009 $million |
||||||||||
Total assets: |
||||||||||||
US |
2,438.1 | 2,401.4 | 2,372.3 | |||||||||
UK, Channel Islands & Republic of Ireland |
399.8 | 383.6 | 422.1 | |||||||||
Unallocated |
309.7 | 259.9 | 77.9 | |||||||||
Total assets |
3,147.6 | 3,044.9 | 2,872.3 | |||||||||
(1) | Unallocated principally relates to central costs that are not allocated to the US and UK divisions in Signet's management accounts. |
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3. Exchange rates
The exchange rates used in these interim financial statements for the translation of UK pound sterling transactions and balances into US dollars are as follows:
39 weeks ended October 30, 2010 |
52 weeks ended January 30, 2010 |
39 weeks ended October 31, 2009 |
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Income statement (average rate) |
1.53 | 1.59 | 1.57 | |||||||||
Balance sheet (closing rate) |
1.60 | 1.60 | 1.64 |
The year-to-date average exchange rate is used to prepare the income statement for the 39 weeks ended October 30, 2010 and is calculated from the weekly average exchange rates weighted by sales of the UK division. The income statement for the 13 weeks ended October 30, 2010 is calculated as the difference between the income statement for the 39 weeks ended October 30, 2010 and the previously reported income statement for the 26 weeks ended July 31, 2010. Therefore, the third quarter's income statement includes the impact of the change in the year-to-date exchange rates between these quarter ends.
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4. Taxation
Signet has business activity in all states within the US and files income tax returns for the US federal jurisdiction and all applicable states. Signet also files income tax returns in the UK and certain other foreign jurisdictions. Signet is subject to US federal and state examinations by tax authorities for tax years after October 28, 2006 and is subject to examination by the UK tax authority for tax years after January 31, 2008.
As of January 30, 2010, Signet had approximately $14.9 million of unrecognized tax benefits in respect of uncertain tax positions, all of which would favorably affect the effective income tax rate if resolved in Signet's favor. These unrecognized tax benefits relate to financing arrangements and intra-group charges which are subject to different and changing interpretations of tax law.
During the 39 weeks ended October 30, 2010, agreement was reached in respect of the treatment of certain financing arrangements in the UK and a cash settlement was paid of approximately $1.7 million, excluding interest thereon. A benefit of approximately $2.7 million has been recognized in income tax expense for the 39 weeks ended October 30, 2010.
During the 39 weeks ended October 30, 2010, the statute of limitations expired in the US in respect of the tax year ended October 28, 2006 with no adjustment to taxable income. A benefit of approximately $1.8 million has been recognized in income tax expense for the 39 weeks ended October 30, 2010.
Apart from the above, there has been no material change in the amount of unrecognized tax benefits in respect of uncertain tax positions during the 39 weeks ended October 30, 2010.
Signet recognizes accrued interest and, where appropriate, penalties related to unrecognized tax benefits within income tax expense. As of January 30, 2010, Signet had accrued interest of $2.2 million and there has been no material change in the amount of accrued interest as of October 30, 2010.
Over the next twelve months, management believes that it is reasonably possible that there could be a reduction of substantially all of the unrecognized tax benefits as of January 30, 2010, due to settlement of the uncertain tax positions with the tax authorities.
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6. Inventories
October 30, 2010 $million |
January 30, 2010 $million |
October 31, 2009 $million |
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Raw materials |
7.5 | 9.5 | 5.4 | |||||||||
Finished goods |
1,289.9 | 1,163.6 | 1,300.6 | |||||||||
Total inventory |
1,297.4 | 1,173.1 | 1,306.0 | |||||||||
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7. Deferred revenue
October 30, 2010 $million |
January 30, 2010 $million |
October 31, 2009 $million |
||||||||||
Warranty deferred revenue |
458.4 | 458.3 | 436.1 | |||||||||
Other |
6.4 | 17.4 | 7.1 | |||||||||
Total deferred revenue |
464.8 | 475.7 | 443.2 | |||||||||
Disclosed as: |
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Current liabilities |
128.1 | 137.7 | 121.2 | |||||||||
Non-current liabilities |
336.7 | 338.0 | 322.0 | |||||||||
Total deferred revenue |
464.8 | 475.7 | 443.2 | |||||||||
13 weeks ended | 39 weeks ended | |||||||||||||||
October 30, 2010 $million |
October 31, 2009 $million |
October 30, 2010 $million |
October 31, 2009 $million |
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Warranty deferred revenue, beginning of period |
465.9 | 444.6 | 458.3 | 440.6 | ||||||||||||
Warranties sold |
29.7 | 27.1 | 110.6 | 101.2 | ||||||||||||
Revenues recognized |
(37.2 | ) | (35.6 | ) | (110.5 | ) | (105.7 | ) | ||||||||
Warranty deferred revenue, end of period |
458.4 | 436.1 | 458.4 | 436.1 | ||||||||||||
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8. Derivative instruments and hedging activities
Signet is exposed to foreign currency exchange risk arising from various currency exposures. Signet enters into forward foreign currency exchange contracts and foreign currency option contracts, principally in US dollars, in order to limit the impact of movements in foreign exchange rates on its forecast foreign currency purchases. The total notional amount of these foreign currency contracts outstanding as of October 30, 2010 was $46.9 million (January 30, 2010: $37.2 million; October 31, 2009: $56.3 million). These contracts have been designated as cash flow hedges and will be settled over the next 15 months (January 30, 2010: 17 months; October 31, 2009: 21 months).
Signet enters into forward purchase contracts and option purchase contracts for commodities in order to reduce its exposure to significant movements in the price of the underlying precious metal raw material. The total notional amount of commodity contracts outstanding as of October 30, 2010 was $75.3 million (January 30, 2010: $100.0 million; October 31, 2009: $47.4 million). These contracts have been designated as cash flow hedges and will be settled over the next 15 months (January 30, 2010: 12 months; October 31, 2009: 15 months).
For derivatives that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income ("OCI") and reclassified into earnings in the same period in which the hedged item affects net income or loss. Gains and losses on derivatives that do not qualify for hedge accounting, together with any hedge ineffectiveness, are recognized immediately in other operating income, net. Signet does not hold derivative contracts for trading purposes.
Foreign currency contracts not designated as cash flow hedges are used to hedge currency flows through Signet's bank accounts to ensure Signet is not exposed to foreign currency exchange risk in its cash and borrowings.
On October 28, 2010, Signet entered into an interest rate protection agreement in relation to the prepayment of the $229.1 million of outstanding Fixed Rate Investor Certificate Notes (the "Private Placement Notes") on November 26, 2010. This prepayment required the payment of a premium determined by the 'Make Whole' provision in the agreement governing the Private Placement Notes. The 'Make Whole' was determined by reference to medium term US Treasury yields on November 23, 2010 and therefore without this protection agreement Signet would have been exposed to the changes in US Treasury yields between October 27, 2010, the notification date of the prepayment, and November 23, 2010, the date the 'Make Whole' was determined.
The notional value of the interest rate protection agreement is $267.9 million and as at October 30, 2010 the fair value of the agreement was $0.0 million. The agreement terminated on November 23, 2010.
The bank counterparties to the derivative contracts expose Signet to credit-related losses in the event of their nonperformance. However, to mitigate that risk, Signet only contracts with counterparties that meet certain minimum requirements under its counterparty risk assessment process. As of October 30, 2010, the Company believes that this credit risk did not materially change the fair value of the foreign currency or commodity contracts.
The following table summarizes the fair value and presentation of derivative instruments in the condensed consolidated balance sheets:
Derivative assets | ||||||||||||||||
Fair value | ||||||||||||||||
Balance sheet location |
October 30, 2010 $million |
January 30, 2010 $million |
October 31, 2009 $million |
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Derivatives designated as hedging instruments: |
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Foreign currency contracts |
Other current assets | 0.3 | 0.6 | 2.2 | ||||||||||||
Commodity contracts |
Other current assets | 6.9 | 2.4 | 5.4 | ||||||||||||
7.2 | 3.0 | 7.6 | ||||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||
Foreign currency contracts |
Other current assets | — | — | — | ||||||||||||
— | — | — | ||||||||||||||
Total derivative assets |
7.2 | 3.0 | 7.6 | |||||||||||||
Derivative liabilities | ||||||||||||||||
Fair value | ||||||||||||||||
Balance sheet location |
October 30, 2010 $million |
January 30, 2010 $million |
October 31, 2009 $million |
|||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||
Foreign currency contracts |
Other current liabilities | (1.0 | ) | (0.4 | ) | (1.3 | ) | |||||||||
Commodity contracts |
Other current liabilities | — | (1.6 | ) | (0.1 | ) | ||||||||||
(1.0 | ) | (2.0 | ) | (1.4 | ) | |||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||
Foreign currency contracts |
Other current liabilities | (0.4 | ) | — | (0.1 | ) | ||||||||||
(0.4 | ) | — | (0.1 | ) | ||||||||||||
Total derivative liabilities |
(1.4 | ) | (2.0 | ) | (1.5 | ) | ||||||||||
The following tables summarize the effect of derivative instruments on the unaudited condensed consolidated income statements:
Amount of gain/(loss) recognized in OCI on derivatives (Effective portion) |
Location of gain/(loss) reclassified from accumulated OCI into income (Effective portion) |
Amount of gain/(loss) reclassified from accumulated OCI into income (Effective portion) |
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13 weeks ended | 13 weeks ended | |||||||||||||||||||
October 30, 2010 $million |
October 31, 2009 $million |
October 30, 2010 $million |
October 31, 2009 $million |
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Derivatives in cash flow hedging relationships: |
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Foreign currency contracts |
(1.0 | ) | 0.9 | Cost of sales | 1.0 | 0.8 | ||||||||||||||
Commodity contracts |
10.6 | 6.7 | Cost of sales | 3.0 | 1.4 | |||||||||||||||
Total |
9.6 | 7.6 | 4.0 | 2.2 | ||||||||||||||||
Amount of gain/(loss) recognized in OCI on derivatives (Effective portion) |
Location of gain/(loss) reclassified from accumulated OCI into income (Effective portion) |
Amount of gain/(loss) reclassified from accumulated OCI into income (Effective portion) |
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39 weeks ended | 39 weeks ended | |||||||||||||||||||
October 30, 2010 $million |
October 31, 2009 $million |
October 30, 2010 $million |
October 31, 2009 $million |
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Derivatives in cash flow hedging relationships: |
||||||||||||||||||||
Foreign currency contracts |
(0.5 | ) | (5.1 | ) | Cost of sales | 3.9 | 5.1 | |||||||||||||
Commodity contracts |
17.0 | 4.6 | Cost of sales | 10.1 | (0.5 | ) | ||||||||||||||
Total |
16.5 | (0.5 | ) | 14.0 | 4.6 | |||||||||||||||
The ineffective portion of hedging instruments taken into other operating income, net in the 13 and 39 weeks ended October 30, 2010 was $0.0 million and a $0.4 million profit respectively (13 and 39 weeks ended October 31, 2009: $0.0 million).
Amount of gain/(loss) recognized in income on derivatives |
||||||||||||
Location of gain/(loss) recognized in income on derivatives |
13 weeks ended | |||||||||||
October 30, 2010 $million |
October 31, 2009 $million |
|||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||
Foreign currency contracts |
Other operating income, net | 0.1 | — | |||||||||
Total |
0.1 | — | ||||||||||
Amount of gain/(loss) recognized in income on derivatives |
||||||||||||
Location of gain/(loss) recognized in income on derivatives |
39 weeks ended | |||||||||||
October 30, 2010 $million |
October 31, 2009 $million |
|||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||
Foreign currency contracts |
Other operating income, net | (0.4 | ) | — | ||||||||
Total |
(0.4 | ) | — | |||||||||
The estimated fair value of Signet's financial instruments held or issued to finance Signet's operations is summarized below. Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that Signet would realize upon disposition nor do they indicate Signet's intent or ability to dispose of the financial instrument. Assets and liabilities that are carried at fair value are required to be classified and disclosed in one of the following three categories:
Level 1 - quoted market prices in active markets for identical assets and liabilities
Level 2 - observable market based inputs or unobservable inputs that are corroborated by market data
Level 3 - unobservable inputs that are not corroborated by market data
Signet determines fair value based upon quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. The methods Signet uses to determine fair value on an instrument-specific basis are detailed below:
October 30, 2010 $million |
January 30, 2010 $million |
October 31, 2009 $million |
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Carrying Value |
Significant other observable inputs (Level 2) |
Carrying Value |
Significant other observable inputs (Level 2) |
Carrying Value |
Significant other observable inputs (Level 2) |
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Assets: |
||||||||||||||||||||||||
Forward foreign currency contracts and swaps |
0.3 | 0.3 | 0.6 | 0.6 | 2.2 | 2.2 | ||||||||||||||||||
Forward commodity contracts |
6.9 | 6.9 | 2.4 | 2.4 | 5.4 | 5.4 | ||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||
Borrowings |
(266.7 | ) | (311.9 | ) | (324.1 | ) | (371.3 | ) | (300.3 | ) | (317.8 | ) | ||||||||||||
Forward foreign currency contracts and swaps |
(1.4 | ) | (1.4 | ) | (0.4 | ) | (0.4 | ) | (1.4 | ) | (1.4 | ) | ||||||||||||
Forward commodity contracts |
— | — | (1.6 | ) | (1.6 | ) | (0.1 | ) | (0.1 | ) |
The fair value of derivative financial instruments has been determined based on market value equivalents at the balance sheet date, taking into account the current interest rate environment, current foreign currency forward rates or current commodity forward rates. These are held as assets and liabilities within other receivables and other payables, and all contracts have a maturity of less than 15 months. At October 30, 2010, Signet held $229.1 million (January 30, 2010 and October 31, 2009: $280.0 million) of Private Placement Notes under a Note Purchase Agreement. The fair value of this debt is determined by discounting to present value the known future coupon and final Note redemption amounts at market yields as of the balance sheet date. The carrying amounts of cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities approximate fair value because of the short-term maturity of these amounts. See Notes 12 and 13.
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9. Pensions
Signet operates a defined benefit pension scheme in the UK (the "Group Scheme"). The components of net periodic pension cost were as follows:
13 weeks ended | 39 weeks ended | |||||||||||||||
October 30, 2010 $million |
October 31, 2009 $million |
October 30, 2010 $million |
October 31, 2009 $million |
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Components of net periodic benefit cost: |
||||||||||||||||
Service cost |
1.3 | 1.1 | 3.9 | 3.2 | ||||||||||||
Interest cost |
2.6 | 2.7 | 7.5 | 7.9 | ||||||||||||
Expected return on Group Scheme assets |
(3.2 | ) | (2.8 | ) | (9.2 | ) | (8.2 | ) | ||||||||
Amortization of unrecognized prior service credit |
(0.2 | ) | (0.3 | ) | (0.7 | ) | (0.8 | ) | ||||||||
Amortization of unrecognized actuarial loss |
1.2 | 1.3 | 3.5 | 3.5 | ||||||||||||
Net periodic benefit cost |
1.7 | 2.0 | 5.0 | 5.6 | ||||||||||||
In the 39 weeks to October 30, 2010, Signet contributed $10.0 million to the Group Scheme and expects to contribute a minimum aggregate of $13.3 million at current exchange rates to the Group Scheme in Fiscal 2011. These contributions are in accordance with a deficit recovery plan that was in response to the funding deficit indicated by the April 5, 2009 actuarial valuation.
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10. Commitments and contingencies
Legal proceedings
In March 2008, private plaintiffs filed a class action lawsuit for an unspecified amount against Sterling Jewelers Inc. ("Sterling"), a subsidiary of Signet, in the U.S. District Court for the Southern District of New York federal court alleging that US store-level employment practices are discriminatory as to compensation and promotional activities. On September 23, 2008, the US Equal Employment Opportunities Commission ("EEOC") filed a lawsuit against Sterling in the U.S. District Court for the Western District of New York. The EEOC's lawsuit alleges that Sterling engaged in a pattern or practice of gender discrimination with respect to pay and promotions of female retail store employees from January 1, 2003 to the present. The EEOC asserts claims for unspecified monetary relief and non-monetary relief against the Company on behalf of a class of female employees subjected to these alleged practices. Sterling denies the allegations from both parties and intends to defend them vigorously.
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12. Loans, overdrafts and long-term debt
At October 30, 2010, $229.1 million aggregate principal amount of Private Placement Notes were outstanding.
Signet maintains a $300 million revolving credit facility with a maturity date of June 26, 2013. In October 2010, this facility was amended to eliminate the obligation to reduce the amount of the facility by 60% of any reduction in net debt from the prior year; revise the fixed charge cover covenant as defined in the agreement to 1.55:1 for the remaining duration of the agreement; delete the annual limit on capital expenditure; increase the aggregate costs of assets that may be acquired in any fiscal year to $50.0 million and remove any restrictions on payments of dividends and share repurchases. At October 30, 2010 and October 31, 2009, no amounts were outstanding under this facility.
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13. Subsequent events
On October 27, 2010, Signet notified the holders of its Private Placement Notes (the "Notes") that it was exercising its right to prepay in full the $229.1 million of outstanding Notes on November 26, 2010 (the "Prepayment Date"). The prepayment required the payment of all accrued interest up to the Prepayment Date, plus a premium determined by the 'Make Whole' provision contained in the agreement governing the Notes. The 'Make Whole' premium of $47.5 million (including the cost of an interest rate protection agreement) was determined on November 23, 2010. The payment will be reflected in Signet's results for the fourth quarter of Fiscal 2011.