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1. Principal accounting policies and basis of preparation
Basis of preparation
Signet Jewelers Limited (“Signet” or the “Company”), including its subsidiaries, is a leading retailer of jewelry, watches and associated services. Signet manages its business as two geographical segments, the United States of America (the “US”) and the United Kingdom (the “UK”). The US division operates retail stores under brands including Kay Jewelers, Jared The Galleria Of Jewelry, Ultra and various regional brands. Ultra was acquired by Signet in October 2012. The UK division’s retail stores operate under brands including H. Samuel and Ernest Jones.
These condensed consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in Signet’s Annual Report on Form 10-K for the year ended February 2, 2013.
Use of estimates
The preparation of these condensed consolidated 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 condensed consolidated financial statements and reported amounts of revenues 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, fair value of derivatives, depreciation and asset impairment, the valuation of employee benefits, income taxes and contingencies.
Fiscal year
The Company’s fiscal year ends on the Saturday nearest to January 31st. Fiscal 2014 is the 52 week year ending February 1, 2014 and Fiscal 2013 is the 53 week year ended February 2, 2013. Within these financial statements, the second quarter and year to date of the relevant fiscal years 2014 and 2013 refer to the 13 and 26 weeks ended August 3, 2013 and July 28, 2012, respectively.
Seasonality
Signet’s sales are seasonal, with the first and second quarters each normally accounting for slightly more than 20% of annual sales, the third quarter a little under 20% and the fourth quarter for about 40% of sales, with December being by far the most important month of the year. Sales made in November and December are known as the “Holiday Season.” Due to sales leverage, Signet’s operating income is even more seasonal; about 45% to 50% of Signet’s operating income normally occurs in the fourth quarter, comprised of nearly all of the UK division’s operating income and about 40% to 50% of the US division’s operating income.
Revenue recognition
Extended service plans and lifetime warranty agreements
The US division sells extended service plans where it is obliged, subject to certain conditions, to perform repair work over the lifetime of the product. Revenue from the sale of extended service plans is deferred over 14 years. Revenue is recognized in relation to the costs expected to be incurred in performing these services, with approximately 45% of revenue recognized within the first two years (February 2, 2013 and July 28, 2012: 46% and 46%, respectively). The deferral period is determined from patterns of claims costs, including estimates of future claims costs expected to be incurred. Management reviews the trends in claims to assess whether changes are required to the revenue and cost recognition rates used. All direct costs associated with the sale of these plans are deferred and amortized in proportion to the revenue recognized and disclosed as either other current assets or other assets.
New accounting pronouncements adopted during the period
Reclassification out of Accumulated Other Comprehensive Income
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The new guidance does not change the current requirements for reporting net income or other comprehensive income, but it does require disclosure of amounts reclassified out of accumulated other comprehensive income by component, as well as require the presentation of these amounts on the face of the statements of comprehensive income or in the notes to the consolidated financial statements. ASU 2013-02 is effective for the reporting periods beginning after December 15, 2012. Signet adopted this guidance effective for the first quarter ended May 4, 2013 and the implementation of this accounting pronouncement did not have a material impact on Signet’s consolidated financial statements.
New accounting pronouncements to be adopted in subsequent periods
Presentation of Unrecognized Tax Benefit
In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The new guidance requires, unless certain conditions exist, an unrecognized tax benefit to be presented as a reduction to a deferred tax asset in the financial statements for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The guidance in ASU 2013-11 will become effective for the Company prospectively for fiscal years beginning after December 15, 2013, and interim periods within those years, with early adoption permitted. Retrospective application is also permitted. Signet is currently assessing the impact, if any, that the adoption of this accounting pronouncement will have on its consolidated financial statements.
Reclassification
Signet has reclassified the presentation of certain prior year information to conform to the current year presentation.
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2. Segment information
Signet’s 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 services and have similar marketing and distribution strategies. Both divisions are managed by executive committees, which report to Signet’s Chief Executive Officer, who in turn reports to the Board of Directors (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 corporate administrative costs. There are no material transactions between the operating segments.
13 weeks ended | 26 weeks ended | |||||||||||||||
(in millions) |
August 3, 2013 |
July 28, 2012 |
August 3, 2013 |
July 28, 2012 |
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Sales: |
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US |
$ | 741.1 | $ | 701.9 | $ | 1,599.7 | $ | 1,453.4 | ||||||||
UK |
139.1 | 152.0 | 274.1 | 300.5 | ||||||||||||
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Total sales |
$ | 880.2 | $ | 853.9 | $ | 1,873.8 | $ | 1,753.9 | ||||||||
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Operating income (loss): |
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US |
$ | 111.5 | $ | 117.3 | $ | 264.3 | $ | 255.0 | ||||||||
UK |
(0.8 | ) | (0.3 | ) | (4.9 | ) | (3.3 | ) | ||||||||
Unallocated(1) |
(5.2 | ) | (6.1 | ) | (11.1 | ) | (11.4 | ) | ||||||||
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Total operating income |
$ | 105.5 | $ | 110.9 | $ | 248.3 | $ | 240.3 | ||||||||
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(in millions) |
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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Total assets: |
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US |
$ | 3,055.8 | $ | 3,018.8 | $ | 2,683.8 | ||||||
UK |
421.5 | 446.7 | 437.3 | |||||||||
Unallocated(1) |
150.5 | 250.3 | 197.9 | |||||||||
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Total assets |
$ | 3,627.8 | $ | 3,715.8 | $ | 3,319.0 | ||||||
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(1) | Unallocated principally relates to corporate administrative costs, assets and liabilities. |
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3. Foreign currency translation
Assets and liabilities denominated in the UK pound sterling are translated into the US dollar at the exchange rate prevailing at the balance sheet date. Equity accounts denominated in the UK pound sterling are translated into US dollars at historical exchange rates. Revenues and expenses denominated in the UK pound sterling are translated into the US dollar at the monthly average exchange rate for the period and calculated each month from the weekly exchange rates weighted by sales of the UK division. Gains and losses resulting from foreign currency transactions are included within the consolidated income statement, whereas translation adjustments and gains and losses related to intercompany loans of a long-term investment nature are reported as an element of other comprehensive income (loss).
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4. Income taxes
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 ending after November 1, 2008 and is subject to examination by the UK tax authority for tax years ending after January 31, 2010.
As of February 2, 2013, Signet had approximately $4.5 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. There has been no material change in the amount of unrecognized tax benefits in respect of uncertain tax positions during the 13 and 26 weeks ended August 3, 2013.
Signet recognizes accrued interest and, where appropriate, penalties related to unrecognized tax benefits within income tax expense. As of February 2, 2013, Signet had accrued interest of $0.2 million and there has been no material change in the amount of accrued interest as of August 3, 2013.
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 February 2, 2013, due to settlement of the uncertain tax positions with the tax authorities.
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7. Reclassification out of accumulated OCI
Reclassification activity by individual accumulated OCI component: | Amounts reclassified from accumulated OCI |
Amounts reclassified from accumulated OCI |
Income statement caption |
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13 weeks ended August 3, 2013 |
26 weeks ended August 3, 2013 |
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(in millions) |
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(Gains) losses on cash flow hedges: |
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Foreign currency contracts |
$ | (0.2 | ) | $ | (0.4 | ) | Cost of sales (see Note 11) | |||
Commodity contracts |
0.2 | (0.6 | ) | Cost of sales (see Note 11) | ||||||
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Total before income tax |
— | (1.0 | ) | |||||||
(0.1 | ) | 0.3 | Income taxes | |||||||
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Net of tax |
(0.1 | ) | (0.7 | ) | ||||||
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Defined benefit pension plan items: |
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Amortization of unrecognized net prior service credit |
(0.3 | ) | (0.7 | ) | Selling, general and administrative expenses(1) | |||||
Amortization of unrecognized actuarial loss |
0.5 | 1.1 | Selling, general and administrative expenses(1) | |||||||
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Total before income tax |
0.2 | 0.4 | ||||||||
— | (0.1 | ) | Income taxes | |||||||
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Net of tax |
0.2 | 0.3 | ||||||||
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Total reclassifications |
$ | 0.1 | $ | (0.4 | ) | |||||
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(1) | These items are included in the computation of net periodic pension benefit (cost). See Note 12 for additional information. |
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8. Accounts receivable, net
Signet’s accounts receivable primarily consist of US customer in-house financing receivables. The accounts receivable portfolio consists of a population that is of similar characteristics and is evaluated collectively for impairment. The allowance is an estimate of the losses as of the balance sheet date, and is calculated using a proprietary model that analyzes factors such as delinquency rates and recovery rates. A 100% allowance is made for any amount that is more than 90 days aged on a recency basis and any amount associated with an account the owner of which has filed for bankruptcy, as well as an allowance for those amounts 90 days aged and under based on historical loss information and payment performance. The calculation is reviewed by management to assess whether, based on economic events, additional analyses are required to appropriately estimate losses inherent in the portfolio.
(in millions) |
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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Accounts receivable by portfolio segment, net: |
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US customer in-house finance receivables |
$ | 1,142.0 | $ | 1,192.9 | $ | 1,024.2 | ||||||
Other accounts receivable |
10.1 | 12.4 | 8.0 | |||||||||
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Total accounts receivable, net |
$ | 1,152.1 | $ | 1,205.3 | $ | 1,032.2 | ||||||
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Signet grants credit to customers based on a variety of credit quality indicators, including consumer financial information and prior payment experience. On an ongoing basis, management monitors the credit exposure based on past due status and collection experience, as it has found a meaningful correlation between the past due status of customers and the risk of loss.
Other accounts receivable is comprised primarily of gross accounts receivable relating to the insurance loss replacement business in the UK division of $9.1 million (February 2, 2013 and July 28, 2012: $13.0 million and $8.7 million, respectively) with a corresponding valuation allowance of $0.4 million (February 2, 2013 and July 28, 2012: $0.6 million and $0.7 million, respectively).
Allowance for Credit Losses on US Customer In-House Finance Receivables:
(in millions) |
26 weeks ended August 3, 2013 |
53 weeks ended February 2, 2013 |
26 weeks ended July 28, 2012 |
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Allowance on US portfolio, beginning of period |
$ | (87.7 | ) | $ | (78.1 | ) | $ | (78.1 | ) | |||
Charge-offs |
56.4 | 112.8 | 49.5 | |||||||||
Recoveries |
13.6 | 21.8 | 11.1 | |||||||||
Provision |
(71.4 | ) | (144.2 | ) | (61.1 | ) | ||||||
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Allowance on US portfolio, end of period |
$ | (89.1 | ) | $ | (87.7 | ) | $ | (78.6 | ) | |||
Ending receivable balance evaluated for impairment |
1,231.1 | 1,280.6 | 1,102.8 | |||||||||
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Percentage of allowance on US portfolio, end of period |
7.2 | % | 6.8 | % | 7.1 | % | ||||||
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US customer in-house finance receivables, net |
$ | 1,142.0 | $ | 1,192.9 | $ | 1,024.2 | ||||||
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Net bad debt expense is calculated as provision expense less recoveries.
Credit Quality Indicator and Age Analysis of Past Due US Customer In-House Finance Receivables:
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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(in millions) |
Gross | Valuation allowance |
Gross | Valuation allowance |
Gross | Valuation allowance |
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Performing: |
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Current, aged 0-30 days |
$ | 973.2 | $ | (29.9 | ) | $ | 1,030.3 | $ | (33.8 | ) | $ | 874.8 | $ | (27.0 | ) | |||||||||
Past due, aged 31-90 days |
206.1 | (7.4 | ) | 203.9 | (7.5 | ) | 183.1 | (6.7 | ) | |||||||||||||||
Non Performing: |
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Past due, aged more than 90 days |
51.8 | (51.8 | ) | 46.4 | (46.4 | ) | 44.9 | (44.9 | ) | |||||||||||||||
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$ | 1,231.1 | $ | (89.1 | ) | $ | 1,280.6 | $ | (87.7 | ) | $ | 1,102.8 | $ | (78.6 | ) | ||||||||||
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August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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(as a percentage of the ending receivable balance) |
Gross | Valuation allowance |
Gross | Valuation allowance |
Gross | Valuation allowance |
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Performing |
95.8 | % | 3.0 | % | 96.4 | % | 3.2 | % | 95.9 | % | 3.1 | % | ||||||||||||
Non Performing |
4.2 | % | 100.0 | % | 3.6 | % | 100.0 | % | 4.1 | % | 100.0 | % | ||||||||||||
100.0 | % | 7.2 | % | 100.0 | % | 6.8 | % | 100.0 | % | 7.1 | % | |||||||||||||
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9. Deferred revenue
Deferred revenue is comprised primarily of extended service plans (“ESP”) and voucher promotions and other as follows:
(in millions) |
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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ESP deferred revenue |
$ | 567.0 | $ | 549.7 | $ | 523.7 | ||||||
Voucher promotions and other |
6.0 | 15.9 | 3.5 | |||||||||
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Total deferred revenue |
$ | 573.0 | $ | 565.6 | $ | 527.2 | ||||||
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Disclosed as: |
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Current liabilities |
$ | 154.6 | $ | 159.7 | $ | 145.3 | ||||||
Non-current liabilities |
418.4 | 405.9 | 381.9 | |||||||||
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Total deferred revenue |
$ | 573.0 | $ | 565.6 | $ | 527.2 | ||||||
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In addition, other current assets include deferred direct costs related to the sale of ESP of $20.8 million as of August 3, 2013 (February 2, 2013 and July 28, 2012: $20.9 million and $21.2 million, respectively). Other assets include the long-term portion of these deferred direct costs of $58.8 million as of August 3, 2013 (February 2, 2013 and July 28, 2012: $56.9 million and $53.7 million, respectively).
13 weeks ended | 26 weeks ended | |||||||||||||||
(in millions) |
August 3, 2013 |
July 28, 2012 |
August 3, 2013 |
July 28, 2012 |
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ESP deferred revenue, beginning of period |
$ | 563.4 | $ | 520.7 | $ | 549.7 | $ | 511.7 | ||||||||
Plans sold |
46.1 | 44.4 | 101.4 | 94.2 | ||||||||||||
Revenues recognized |
(42.5 | ) | (41.4 | ) | (84.1 | ) | (82.2 | ) | ||||||||
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ESP deferred revenue, end of period |
$ | 567.0 | $ | 523.7 | $ | 567.0 | $ | 523.7 | ||||||||
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10. Warranty reserve
Warranty reserve for diamond and gemstone guarantee, included in accrued expenses and other current liabilities, and other non-current liabilities, is as follows:
13 weeks ended | 26 weeks ended | |||||||||||||||
(in millions) |
August 3, 2013 |
July 28, 2012 |
August 3, 2013 |
July 28, 2012 |
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Warranty reserve, beginning of period |
$ | 18.6 | $ | 15.1 | $ | 18.5 | $ | 15.1 | ||||||||
Warranty expense |
1.9 | 4.6 | 3.5 | 6.1 | ||||||||||||
Utilized |
(1.9 | ) | (2.1 | ) | (3.4 | ) | (3.6 | ) | ||||||||
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Warranty reserve, end of period |
$ | 18.6 | $ | 17.6 | $ | 18.6 | $ | 17.6 | ||||||||
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(in millions) |
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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Disclosed as: |
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Current liabilities |
$ | 6.6 | $ | 6.9 | $ | 6.7 | ||||||
Non-current liabilities |
12.0 | 11.6 | 10.9 | |||||||||
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Total warranty reserve |
$ | 18.6 | $ | 18.5 | $ | 17.6 | ||||||
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11. Financial instruments and fair value
Signet’s principal financial instruments are comprised of cash, cash deposits/investments and overdrafts, accounts receivable and payable, derivatives and a revolving credit facility. Signet does not enter into derivative transactions for trading purposes. Derivative transactions are used by Signet for risk management purposes to address risks inherent in Signet’s business operations and sources of finance. The main risks arising from Signet’s operations are market risk including foreign currency risk and commodity risk, liquidity risk and interest rate risk. Signet uses these financial instruments to manage and mitigate these risks under policies reviewed and approved by the Board.
Derivatives
Signet enters into various types of derivative instruments to mitigate certain risk exposures related to changes in commodity costs and foreign exchange rates. Derivative instruments are recorded in the consolidated balance sheets at their fair values, as either assets or liabilities, with an offset to current or comprehensive income, depending on whether the derivative qualifies as an effective hedge.
If a derivative instrument meets certain hedge accounting criteria, it may be designated as a cash flow hedge on the date it is entered into. A cash flow hedge is a hedge of the exposure to variability in the cash flows of a recognized asset, liability or a forecasted transaction. For cash flow hedge transactions, the effective portion of the changes in fair value of derivatives is reported as other comprehensive income (“OCI”) and is recognized in the consolidated income statements in the same period(s) and on the same financial statement line in which the hedged transaction affects net income. Amounts excluded from the effectiveness calculation and any ineffective portions of the change in fair value of the derivative are recognized immediately in other operating income, net in the consolidated income statements. In addition, gains and losses on derivatives that do not qualify for hedge accounting are recognized immediately in other operating income net.
The following types of derivative instruments are utilized by Signet:
Forward foreign currency exchange contracts (designated)—These contracts, which are principally in US dollars, are entered into in order to limit the impact of movements in foreign exchange rates on forecasted foreign currency purchases. The total notional amount of these foreign currency contracts outstanding as of August 3, 2013 was $50.3 million (February 2, 2013 and July 28, 2012: $50.8 million and $52.3 million, respectively). These contracts have been designated as cash flow hedges and will be settled over the next 18 months (February 2, 2013 and July 28, 2012: 12 months and 17 months, respectively).
Forward foreign currency exchange contracts (undesignated)—Foreign currency contracts not designated as cash flow hedges are used to hedge currency flows through Signet’s bank accounts to mitigate Signet’s exposure to foreign currency exchange risk in its cash and borrowings.
Commodity forward purchase contracts and net zero-cost collar arrangements—These contracts are entered into in order to reduce Signet’s exposure to significant movements in the price of the underlying precious metal raw material. As of August 3, 2013, no commodity derivative contracts were outstanding. As of February 2, 2013 and July 28, 2012, the total notional amount of commodity contracts outstanding was $187.6 million and $197.5 million, respectively. The contracts outstanding as of February 2, 2013 and July 28, 2012 were designated as cash flow hedges and will be settled over 11 months and 16 months, respectively.
The bank counterparties to the derivative instruments expose Signet to credit-related losses in the event of their non-performance. However, to mitigate that risk, Signet only contracts with counterparties that meet certain minimum requirements under its counterparty risk assessment process. As of August 3, 2013, Signet 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 |
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Fair value | ||||||||||||||
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Balance sheet location |
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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Derivatives designated as hedging instruments: |
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Foreign currency contracts |
Other current assets | $ | 1.5 | $ | 1.0 | $ | 1.0 | |||||||
Foreign currency contracts |
Other assets | 0.1 | — | 0.2 | ||||||||||
Commodity contracts |
Other current assets | — | 2.8 | 3.1 | ||||||||||
Commodity contracts |
Other assets | — | — | 0.1 | ||||||||||
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$ | 1.6 | $ | 3.8 | $ | 4.4 | |||||||||
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Derivatives not designated as hedging instruments: |
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Foreign currency contracts |
Other current assets | 0.1 | — | — | ||||||||||
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$ | 0.1 | $ | — | $ | — | |||||||||
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Total derivative assets |
$ | 1.7 | $ | 3.8 | $ | 4.4 | ||||||||
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Derivative liabilities | ||||||||||||||
Fair value | ||||||||||||||
(in millions) |
Balance sheet location | August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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Derivatives designated as hedging instruments: |
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Foreign currency contracts |
Other current liabilities | $ | — | $ | — | $ | (0.2 | ) | ||||||
Commodity contracts |
Other current liabilities | — | (4.6 | ) | (6.3 | ) | ||||||||
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$ | — | $ | (4.6 | ) | $ | (6.5 | ) | |||||||
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Derivatives not designated as hedging instruments: |
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Foreign currency contracts |
Other current liabilities | — | — | (1.3 | ) | |||||||||
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$ | — | $ | — | $ | (1.3 | ) | ||||||||
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Total derivative liabilities |
$ | — | $ | (4.6 | ) | $ | (7.8 | ) | ||||||
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The following tables summarize the effect of derivative instruments on the 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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(in millions) |
August 3, 2013 | July 28, 2012 | August 3, 2013 |
July 28, 2012 |
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Derivatives in cash flow hedging relationships: |
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Foreign currency contracts |
$ | 0.9 | $ | 0.9 | Cost of sales | $ | 0.2 | $ | 0.1 | |||||||||||
Commodity contracts |
(9.5 | )(1) | (2.1 | ) | Cost of sales | (0.2 | ) | 5.8 | ||||||||||||
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|
|
|
|||||||||||||
Total |
$ | (8.6 | ) | $ | (1.2 | ) | $ | — | $ | 5.9 | ||||||||||
|
|
|
|
|
|
|
|
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) |
||||||||||||||||||
26 weeks ended | 26 weeks ended | |||||||||||||||||||
(in millions) |
August 3, 2013 | July 28, 2012 | August 3, 2013 |
July 28, 2012 |
||||||||||||||||
Derivatives in cash flow hedging relationships: |
||||||||||||||||||||
Foreign currency contracts |
$ | 1.4 | $ | 0.1 | Cost of sales | $ | 0.4 | $ | 0.2 | |||||||||||
Commodity contracts |
(27.5 | )(1) | (14.2 | ) | Cost of sales | 0.6 | 14.3 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | (26.1 | ) | $ | (14.1 | ) | $ | 1.0 | $ | 14.5 | ||||||||||
|
|
|
|
|
|
|
|
(1) | During the 13 and 26 weeks ended August 3, 2013, losses recognized in OCI on commodity derivative contracts designated in cash flow hedging relationships included $6.2 million and $25.8 million of losses related to the change in fair value of commodity derivative contracts the Company terminated prior to contract maturity in the respective periods. |
Amount of gain (loss) recognized in income on derivatives |
Location of gain (loss) recognized in income on derivatives |
Amount of gain (loss) recognized in income on derivatives |
||||||||||||||||
13 weeks ended | 26 weeks ended | |||||||||||||||||
(in millions) |
August 3, 2013 |
July 28, 2012 |
August 3, 2013 |
July 28, 2012 |
||||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||
Foreign currency contracts |
$ | 3.0 | $ | 1.1 | Other operating income, net | $ | 2.8 | $ | 1.1 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 3.0 | $ | 1.1 | $ | 2.8 | $ | 1.1 | ||||||||||
|
|
|
|
|
|
|
|
As of August 3, 2013, the ending balance of accumulated OCI for commodity derivative contracts designated in cash flow hedging relationships was $28.6 million, including $27.7 million related to the commodity derivative contracts terminated prior to contract maturity in Fiscal 2014. The Company expects approximately $22.1 million of net pre-tax derivative losses to be reclassified out of accumulated OCI into earnings within the next 12 months.
Fair value
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:
August 3, 2013 | February 2, 2013 | July 28, 2012 | ||||||||||||||||||||||
(in millions) |
Carrying Value |
Fair Value (Level 2) |
Carrying Value |
Fair Value (Level 2) |
Carrying Value |
Fair Value (Level 2) |
||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Forward foreign currency contracts and swaps |
$ | 1.7 | $ | 1.7 | $ | 1.0 | $ | 1.0 | $ | 1.2 | $ | 1.2 | ||||||||||||
Forward commodity contracts |
— | — | 2.8 | 2.8 | 3.2 | 3.2 | ||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||
Forward foreign currency contracts and swaps |
— | — | — | — | (1.5 | ) | (1.5 | ) | ||||||||||||||||
Forward commodity contracts |
— | — | (4.6 | ) | (4.6 | ) | (6.3 | ) | (6.3 | ) |
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 18 months. 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.
|
12. Pensions
Signet operates a defined benefit pension plan in the UK (the “UK Plan”). The components of net periodic pension cost were as follows:
13 weeks ended | 26 weeks ended | |||||||||||||||
(in millions) |
August 3, 2013 |
July 28, 2012 |
August 3, 2013 |
July 28, 2012 |
||||||||||||
Components of net periodic pension benefit (cost): |
||||||||||||||||
Service cost |
$ | (0.6 | ) | $ | (0.9 | ) | $ | (1.2 | ) | $ | (1.8 | ) | ||||
Interest cost |
(2.3 | ) | (2.3 | ) | (4.6 | ) | (4.7 | ) | ||||||||
Expected return on UK Plan assets |
3.2 | 2.8 | 6.4 | 5.7 | ||||||||||||
Amortization of unrecognized prior service credit |
0.3 | 0.4 | 0.7 | 0.8 | ||||||||||||
Amortization of unrecognized actuarial loss |
(0.5 | ) | (0.8 | ) | (1.1 | ) | (1.6 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic pension benefit (cost) |
$ | 0.1 | $ | (0.8 | ) | $ | 0.2 | $ | (1.6 | ) | ||||||
|
|
|
|
|
|
|
|
In the 26 weeks ended August 3, 2013, Signet contributed $2.8 million to the UK Plan and expects to contribute a minimum aggregate of $5.2 million at current exchange rates to the UK Plan in Fiscal 2014. These contributions are in accordance with an agreed upon deficit recovery plan and based on the results of the actuarial valuation as of April 5, 2012.
|
13. Commitments and contingencies
Legal proceedings
In March 2008, a group of private plaintiffs (the “Claimants”) 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 alleging that US store-level employment practices are discriminatory as to compensation and promotional activities with respect to gender. In June 2008, the District Court referred the matter to private arbitration where the Claimants sought to proceed on a class-wide basis. In June 2009, the arbitrator ruled that the arbitration agreements allowed the Claimants to proceed on a class-wide basis and attempt to seek class certification. Sterling challenged the ruling and the District Court vacated the arbitrator’s decision in July 2010. The Claimants appealed that order to the U.S. Court of Appeals for the Second Circuit. In July 2011, the Second Circuit reversed the District Court’s decision and instructed the District Court to confirm the Arbitrator’s Award (i.e., to allow the Claimants to move forward with a proposed class claim in arbitration). Sterling filed a petition for rehearing en banc of the Second Circuit panel’s decision, which was denied on September 6, 2011. Sterling filed a petition writ of certiorari with U.S. Supreme Court seeking review of the Second Circuit’s decision, which was denied on March 19, 2012. The arbitration proceeding has resumed. The parties engaged in fact discovery related to class certification issues through March 15, 2013. On June 21, 2013, pursuant to the briefing schedule ordered by the Arbitrator, the Claimants filed their motion for class certification, disclosed their experts, and produced their expert reports. Sterling’s response to Claimants’ class certification motion, Sterling’s disclosure of its experts and their reports, as well as any motions relating thereto are due on October 3, 2013. The Claimants’ reply brief, any expert rebuttal submissions, as well as any motions relating thereto are due on December 20, 2013. Expert discovery is ongoing, and all expert depositions must be completed by January 10, 2014. The parties have proposed that a hearing on Claimants’ motion for class certification be held during the week of January 20, 2014, or as soon thereafter as the Arbitrator’s schedule permits.
On September 23, 2008, the U.S. Equal Employment Opportunity 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 intentional and disparate impact 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. Non-expert fact discovery closed on May 13, 2013. Pursuant to the Court’s case management order, on June 21, 2013, the EEOC designated its experts and produced their reports. Sterling’s disclosure of its experts and their reports are due on October 3, 2013. The EEOC’s expert rebuttal submission is due on December 20, 2013. Expert discovery is ongoing, and all expert depositions must be completed by January 10, 2014. Any dispositive motions must be filed by February 4, 2014. In the event that no dispositive motions are filed, a status conference is set for February 7, 2014.
Sterling denies the allegations of both parties and has been defending these cases vigorously. At this point, no outcome or amount of loss is able to be estimated.
In the ordinary course of business, Signet may be subject, from time to time, to various other proceedings, lawsuits, disputes or claims incidental to its business or not significant to Signet’s consolidated financial position.
|
15. Loans, overdrafts and long-term debt
In May 2011, Signet entered into a $400 million senior unsecured multi-currency five year revolving credit facility agreement (the “Credit Facility”). The Credit Facility contains an expansion option that, with the consent of the lenders or the addition of new lenders, and subject to certain conditions, availability under the Credit Facility may be increased by an additional $200 million at the request of Signet. The Credit Facility has a five year term and matures in May 2016, at which time all amounts outstanding under the Credit Facility will be due and payable. The Credit Facility also contains various customary representations and warranties, financial reporting requirements and other affirmative and negative covenants. The Credit Facility requires that Signet maintain at all times a “Leverage Ratio” (as defined in the Credit Facility) to be no greater than 2.50 to 1.00 and a “Fixed Charge Coverage Ratio” (as defined in the Credit Facility) to be no less than 1.40 to 1.00, both determined as of the end of each fiscal quarter of Signet for the trailing twelve months.
At August 3, 2013, February 2, 2013, and July 28, 2012, there were no amounts outstanding under the Credit Facility, with no intra-period borrowings. Signet had stand-by letters of credit of $9.5 million as of August 3, 2013 and February 2, 2013 and $8.2 million as of July 28, 2012.
|
16. Acquisition
On October 29, 2012, Signet acquired the outstanding shares of Ultra Stores, Inc., a leading jewelry retailer operating primarily in outlet centers, from Crystal Financial LLC and its other stockholders (the “Ultra Acquisition”). As a result of the acquisition, Signet immediately increased its share of the US outlet channel for jewelry. The Company initially paid $56.7 million, net of acquired cash of $1.5 million, for the Ultra Acquisition including a $1.4 million working capital adjustment as of the closing, subject to post-closing procedures. The total consideration paid was funded through existing cash.
On May 15, 2013, the post-closing procedures were finalized and a reduction to the initial purchase price was agreed to. As a result, total consideration paid for the Ultra Acquisition was reduced to $55.3 million. The refund of $1.4 million from the initial consideration paid was received during the second quarter of Fiscal 2014.
The results of operations related to the Ultra Acquisition are reported as a component of the results of the US division and included in Signet’s consolidated financial statements commencing on the date of acquisition.
During the first quarter of Fiscal 2014, the Company finalized the valuation of net assets acquired. There were no material changes to the valuation of net assets acquired from the initial allocation reported during the fourth quarter of Fiscal 2013. Accordingly, the total consideration paid has been allocated to the net assets acquired based on the final fair values at October 29, 2012 as follows:
(in millions) |
Initial Allocation |
Final Allocation |
Change | |||||||||
Recognized amounts of assets acquired and liabilities assumed: |
||||||||||||
Inventories |
$ | 43.3 | $ | 43.3 | $ | — | ||||||
Other current assets, excluding cash acquired |
3.3 | 3.3 | — | |||||||||
Property and equipment |
12.1 | 12.1 | — | |||||||||
Other assets |
0.3 | 0.3 | — | |||||||||
Current liabilities |
(19.5 | ) | (19.5 | ) | — | |||||||
Other liabilities |
(7.4 | ) | (7.4 | ) | — | |||||||
|
|
|
|
|
|
|||||||
Fair value of net assets acquired |
$ | 32.1 | $ | 32.1 | $ | — | ||||||
Goodwill(1) |
24.6 | 23.2 | (1.4 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total consideration |
$ | 56.7 | $ | 55.3 | $ | (1.4 | ) | |||||
|
|
|
|
|
|
(1) | None of the goodwill will be deductible for income tax purposes. The goodwill balance is recorded within other assets in the consolidated balance sheet. |
|
Basis of preparation
Signet Jewelers Limited (“Signet” or the “Company”), including its subsidiaries, is a leading retailer of jewelry, watches and associated services. Signet manages its business as two geographical segments, the United States of America (the “US”) and the United Kingdom (the “UK”). The US division operates retail stores under brands including Kay Jewelers, Jared The Galleria Of Jewelry, Ultra and various regional brands. Ultra was acquired by Signet in October 2012. The UK division’s retail stores operate under brands including H. Samuel and Ernest Jones.
These condensed consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in Signet’s Annual Report on Form 10-K for the year ended February 2, 2013.
Use of estimates
The preparation of these condensed consolidated 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 condensed consolidated financial statements and reported amounts of revenues 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, fair value of derivatives, depreciation and asset impairment, the valuation of employee benefits, income taxes and contingencies.
Fiscal year
The Company’s fiscal year ends on the Saturday nearest to January 31st. Fiscal 2014 is the 52 week year ending February 1, 2014 and Fiscal 2013 is the 53 week year ended February 2, 2013. Within these financial statements, the second quarter and year to date of the relevant fiscal years 2014 and 2013 refer to the 13 and 26 weeks ended August 3, 2013 and July 28, 2012, respectively.
Seasonality
Signet’s sales are seasonal, with the first and second quarters each normally accounting for slightly more than 20% of annual sales, the third quarter a little under 20% and the fourth quarter for about 40% of sales, with December being by far the most important month of the year. Sales made in November and December are known as the “Holiday Season.” Due to sales leverage, Signet’s operating income is even more seasonal; about 45% to 50% of Signet’s operating income normally occurs in the fourth quarter, comprised of nearly all of the UK division’s operating income and about 40% to 50% of the US division’s operating income.
Revenue recognition
Extended service plans and lifetime warranty agreements
The US division sells extended service plans where it is obliged, subject to certain conditions, to perform repair work over the lifetime of the product. Revenue from the sale of extended service plans is deferred over 14 years. Revenue is recognized in relation to the costs expected to be incurred in performing these services, with approximately 45% of revenue recognized within the first two years (February 2, 2013 and July 28, 2012: 46% and 46%, respectively). The deferral period is determined from patterns of claims costs, including estimates of future claims costs expected to be incurred. Management reviews the trends in claims to assess whether changes are required to the revenue and cost recognition rates used. All direct costs associated with the sale of these plans are deferred and amortized in proportion to the revenue recognized and disclosed as either other current assets or other assets.
New accounting pronouncements adopted during the period
Reclassification out of Accumulated Other Comprehensive Income
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The new guidance does not change the current requirements for reporting net income or other comprehensive income, but it does require disclosure of amounts reclassified out of accumulated other comprehensive income by component, as well as require the presentation of these amounts on the face of the statements of comprehensive income or in the notes to the consolidated financial statements. ASU 2013-02 is effective for the reporting periods beginning after December 15, 2012. Signet adopted this guidance effective for the first quarter ended May 4, 2013 and the implementation of this accounting pronouncement did not have a material impact on Signet’s consolidated financial statements.
New accounting pronouncements to be adopted in subsequent periods
Presentation of Unrecognized Tax Benefit
In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” The new guidance requires, unless certain conditions exist, an unrecognized tax benefit to be presented as a reduction to a deferred tax asset in the financial statements for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The guidance in ASU 2013-11 will become effective for the Company prospectively for fiscal years beginning after December 15, 2013, and interim periods within those years, with early adoption permitted. Retrospective application is also permitted. Signet is currently assessing the impact, if any, that the adoption of this accounting pronouncement will have on its consolidated financial statements.
Reclassification
Signet has reclassified the presentation of certain prior year information to conform to the current year presentation.
|
13 weeks ended |
26 weeks ended | |||||||||||||||
(in millions) |
August 3, 2013 |
July 28, 2012 |
August 3, 2013 |
July 28, 2012 |
||||||||||||
Sales: |
||||||||||||||||
US |
$ | 741.1 | $ | 701.9 | $ | 1,599.7 | $ | 1,453.4 | ||||||||
UK |
139.1 | 152.0 | 274.1 | 300.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total sales |
$ | 880.2 | $ | 853.9 | $ | 1,873.8 | $ | 1,753.9 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss): |
||||||||||||||||
US |
$ | 111.5 | $ | 117.3 | $ | 264.3 | $ | 255.0 | ||||||||
UK |
(0.8 | ) | (0.3 | ) | (4.9 | ) | (3.3 | ) | ||||||||
Unallocated(1) |
(5.2 | ) | (6.1 | ) | (11.1 | ) | (11.4 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating income |
$ | 105.5 | $ | 110.9 | $ | 248.3 | $ | 240.3 | ||||||||
|
|
|
|
|
|
|
|
(in millions) |
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
|||||||||
Total assets: |
||||||||||||
US |
$ | 3,055.8 | $ | 3,018.8 | $ | 2,683.8 | ||||||
UK |
421.5 | 446.7 | 437.3 | |||||||||
Unallocated(1) |
150.5 | 250.3 | 197.9 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 3,627.8 | $ | 3,715.8 | $ | 3,319.0 | ||||||
|
|
|
|
|
|
(1) | Unallocated principally relates to corporate administrative costs, assets and liabilities. |
|
Reclassification activity by individual accumulated OCI component: | Amounts reclassified from accumulated OCI |
Amounts reclassified from accumulated OCI |
Income statement caption |
|||||||
13 weeks ended August 3, 2013 |
26 weeks ended August 3, 2013 |
|||||||||
(in millions) |
||||||||||
(Gains) losses on cash flow hedges: |
||||||||||
Foreign currency contracts |
$ | (0.2 | ) | $ | (0.4 | ) | Cost of sales (see Note 11) | |||
Commodity contracts |
0.2 | (0.6 | ) | Cost of sales (see Note 11) | ||||||
|
|
|
|
|||||||
Total before income tax |
— | (1.0 | ) | |||||||
(0.1 | ) | 0.3 | Income taxes | |||||||
|
|
|
|
|||||||
Net of tax |
(0.1 | ) | (0.7 | ) | ||||||
|
|
|
|
|||||||
Defined benefit pension plan items: |
||||||||||
Amortization of unrecognized net prior service credit |
(0.3 | ) | (0.7 | ) | Selling, general and administrative expenses(1) | |||||
Amortization of unrecognized actuarial loss |
0.5 | 1.1 | Selling, general and administrative expenses(1) | |||||||
|
|
|
|
|||||||
Total before income tax |
0.2 | 0.4 | ||||||||
— | (0.1 | ) | Income taxes | |||||||
|
|
|
|
|||||||
Net of tax |
0.2 | 0.3 | ||||||||
|
|
|
|
|||||||
Total reclassifications |
$ | 0.1 | $ | (0.4 | ) | |||||
|
|
|
|
(1) | These items are included in the computation of net periodic pension benefit (cost). See Note 12 for additional information. |
|
(in millions) |
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
|||||||||
Accounts receivable by portfolio segment, net: |
||||||||||||
US customer in-house finance receivables |
$ | 1,142.0 | $ | 1,192.9 | $ | 1,024.2 | ||||||
Other accounts receivable |
10.1 | 12.4 | 8.0 | |||||||||
|
|
|
|
|
|
|||||||
Total accounts receivable, net |
$ | 1,152.1 | $ | 1,205.3 | $ | 1,032.2 | ||||||
|
|
|
|
|
|
Allowance for Credit Losses on US Customer In-House Finance Receivables:
(in millions) |
26 weeks ended August 3, 2013 |
53 weeks ended February 2, 2013 |
26 weeks ended July 28, 2012 |
|||||||||
Allowance on US portfolio, beginning of period |
$ | (87.7 | ) | $ | (78.1 | ) | $ | (78.1 | ) | |||
Charge-offs |
56.4 | 112.8 | 49.5 | |||||||||
Recoveries |
13.6 | 21.8 | 11.1 | |||||||||
Provision |
(71.4 | ) | (144.2 | ) | (61.1 | ) | ||||||
|
|
|
|
|
|
|||||||
Allowance on US portfolio, end of period |
$ | (89.1 | ) | $ | (87.7 | ) | $ | (78.6 | ) | |||
Ending receivable balance evaluated for impairment |
1,231.1 | 1,280.6 | 1,102.8 | |||||||||
|
|
|
|
|
|
|||||||
Percentage of allowance on US portfolio, end of period |
7.2 | % | 6.8 | % | 7.1 | % | ||||||
|
|
|
|
|
|
|||||||
US customer in-house finance receivables, net |
$ | 1,142.0 | $ | 1,192.9 | $ | 1,024.2 | ||||||
|
|
|
|
|
|
Credit Quality Indicator and Age Analysis of Past Due US Customer In-House Finance Receivables:
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
||||||||||||||||||||||
(in millions) |
Gross | Valuation allowance |
Gross | Valuation allowance |
Gross | Valuation allowance |
||||||||||||||||||
Performing: |
||||||||||||||||||||||||
Current, aged 0-30 days |
$ | 973.2 | $ | (29.9 | ) | $ | 1,030.3 | $ | (33.8 | ) | $ | 874.8 | $ | (27.0 | ) | |||||||||
Past due, aged 31-90 days |
206.1 | (7.4 | ) | 203.9 | (7.5 | ) | 183.1 | (6.7 | ) | |||||||||||||||
Non Performing: |
||||||||||||||||||||||||
Past due, aged more than 90 days |
51.8 | (51.8 | ) | 46.4 | (46.4 | ) | 44.9 | (44.9 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 1,231.1 | $ | (89.1 | ) | $ | 1,280.6 | $ | (87.7 | ) | $ | 1,102.8 | $ | (78.6 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
||||||||||||||||||||||
(as a percentage of the ending receivable balance) |
Gross | Valuation allowance |
Gross | Valuation allowance |
Gross | Valuation allowance |
||||||||||||||||||
Performing |
95.8 | % | 3.0 | % | 96.4 | % | 3.2 | % | 95.9 | % | 3.1 | % | ||||||||||||
Non Performing |
4.2 | % | 100.0 | % | 3.6 | % | 100.0 | % | 4.1 | % | 100.0 | % | ||||||||||||
100.0 | % | 7.2 | % | 100.0 | % | 6.8 | % | 100.0 | % | 7.1 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue is comprised primarily of extended service plans (“ESP”) and voucher promotions and other as follows:
(in millions) |
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
|||||||||
ESP deferred revenue |
$ | 567.0 | $ | 549.7 | $ | 523.7 | ||||||
Voucher promotions and other |
6.0 | 15.9 | 3.5 | |||||||||
|
|
|
|
|
|
|||||||
Total deferred revenue |
$ | 573.0 | $ | 565.6 | $ | 527.2 | ||||||
|
|
|
|
|
|
|||||||
Disclosed as: |
||||||||||||
Current liabilities |
$ | 154.6 | $ | 159.7 | $ | 145.3 | ||||||
Non-current liabilities |
418.4 | 405.9 | 381.9 | |||||||||
|
|
|
|
|
|
|||||||
Total deferred revenue |
$ | 573.0 | $ | 565.6 | $ | 527.2 | ||||||
|
|
|
|
|
|
13 weeks ended | 26 weeks ended | |||||||||||||||
(in millions) |
August 3, 2013 |
July 28, 2012 |
August 3, 2013 |
July 28, 2012 |
||||||||||||
ESP deferred revenue, beginning of period |
$ | 563.4 | $ | 520.7 | $ | 549.7 | $ | 511.7 | ||||||||
Plans sold |
46.1 | 44.4 | 101.4 | 94.2 | ||||||||||||
Revenues recognized |
(42.5 | ) | (41.4 | ) | (84.1 | ) | (82.2 | ) | ||||||||
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ESP deferred revenue, end of period |
$ | 567.0 | $ | 523.7 | $ | 567.0 | $ | 523.7 | ||||||||
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Warranty reserve for diamond and gemstone guarantee, included in accrued expenses and other current liabilities, and other non-current liabilities, is as follows:
13 weeks ended | 26 weeks ended | |||||||||||||||
(in millions) |
August 3, 2013 |
July 28, 2012 |
August 3, 2013 |
July 28, 2012 |
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Warranty reserve, beginning of period |
$ | 18.6 | $ | 15.1 | $ | 18.5 | $ | 15.1 | ||||||||
Warranty expense |
1.9 | 4.6 | 3.5 | 6.1 | ||||||||||||
Utilized |
(1.9 | ) | (2.1 | ) | (3.4 | ) | (3.6 | ) | ||||||||
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Warranty reserve, end of period |
$ | 18.6 | $ | 17.6 | $ | 18.6 | $ | 17.6 | ||||||||
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(in millions) |
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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Disclosed as: |
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Current liabilities |
$ | 6.6 | $ | 6.9 | $ | 6.7 | ||||||
Non-current liabilities |
12.0 | 11.6 | 10.9 | |||||||||
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Total warranty reserve |
$ | 18.6 | $ | 18.5 | $ | 17.6 | ||||||
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The following table summarizes the fair value and presentation of derivative instruments in the condensed consolidated balance sheets:
Derivative assets |
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Fair value | ||||||||||||||
(in millions) |
Balance sheet location |
August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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Derivatives designated as hedging instruments: |
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Foreign currency contracts |
Other current assets | $ | 1.5 | $ | 1.0 | $ | 1.0 | |||||||
Foreign currency contracts |
Other assets | 0.1 | — | 0.2 | ||||||||||
Commodity contracts |
Other current assets | — | 2.8 | 3.1 | ||||||||||
Commodity contracts |
Other assets | — | — | 0.1 | ||||||||||
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$ | 1.6 | $ | 3.8 | $ | 4.4 | |||||||||
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Derivatives not designated as hedging instruments: |
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Foreign currency contracts |
Other current assets | 0.1 | — | — | ||||||||||
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$ | 0.1 | $ | — | $ | — | |||||||||
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Total derivative assets |
$ | 1.7 | $ | 3.8 | $ | 4.4 | ||||||||
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Derivative liabilities | ||||||||||||||
Fair value | ||||||||||||||
(in millions) |
Balance sheet location | August 3, 2013 |
February 2, 2013 |
July 28, 2012 |
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Derivatives designated as hedging instruments: |
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Foreign currency contracts |
Other current liabilities | $ | — | $ | — | $ | (0.2 | ) | ||||||
Commodity contracts |
Other current liabilities | — | (4.6 | ) | (6.3 | ) | ||||||||
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$ | — | $ | (4.6 | ) | $ | (6.5 | ) | |||||||
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Derivatives not designated as hedging instruments: |
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Foreign currency contracts |
Other current liabilities | — | — | (1.3 | ) | |||||||||
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$ | — | $ | — | $ | (1.3 | ) | ||||||||
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Total derivative liabilities |
$ | — | $ | (4.6 | ) | $ | (7.8 | ) | ||||||
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The methods Signet uses to determine fair value on an instrument-specific basis are detailed below:
August 3, 2013 | February 2, 2013 | July 28, 2012 | ||||||||||||||||||||||
(in millions) |
Carrying Value |
Fair Value (Level 2) |
Carrying Value |
Fair Value (Level 2) |
Carrying Value |
Fair Value (Level 2) |
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Assets: |
||||||||||||||||||||||||
Forward foreign currency contracts and swaps |
$ | 1.7 | $ | 1.7 | $ | 1.0 | $ | 1.0 | $ | 1.2 | $ | 1.2 | ||||||||||||
Forward commodity contracts |
— | — | 2.8 | 2.8 | 3.2 | 3.2 | ||||||||||||||||||
Liabilities: |
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Forward foreign currency contracts and swaps |
— | — | — | — | (1.5 | ) | (1.5 | ) | ||||||||||||||||
Forward commodity contracts |
— | — | (4.6 | ) | (4.6 | ) | (6.3 | ) | (6.3 | ) |
The following tables summarize the effect of derivative instruments on the 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 | |||||||||||||||||||
(in millions) |
August 3, 2013 | July 28, 2012 | August 3, 2013 |
July 28, 2012 |
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Derivatives in cash flow hedging relationships: |
||||||||||||||||||||
Foreign currency contracts |
$ | 0.9 | $ | 0.9 | Cost of sales | $ | 0.2 | $ | 0.1 | |||||||||||
Commodity contracts |
(9.5 | )(1) | (2.1 | ) | Cost of sales | (0.2 | ) | 5.8 | ||||||||||||
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Total |
$ | (8.6 | ) | $ | (1.2 | ) | $ | — | $ | 5.9 | ||||||||||
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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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26 weeks ended | 26 weeks ended | |||||||||||||||||||
(in millions) |
August 3, 2013 | July 28, 2012 | August 3, 2013 |
July 28, 2012 |
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Derivatives in cash flow hedging relationships: |
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Foreign currency contracts |
$ | 1.4 | $ | 0.1 | Cost of sales | $ | 0.4 | $ | 0.2 | |||||||||||
Commodity contracts |
(27.5 | )(1) | (14.2 | ) | Cost of sales | 0.6 | 14.3 | |||||||||||||
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Total |
$ | (26.1 | ) | $ | (14.1 | ) | $ | 1.0 | $ | 14.5 | ||||||||||
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(1) | During the 13 and 26 weeks ended August 3, 2013, losses recognized in OCI on commodity derivative contracts designated in cash flow hedging relationships included $6.2 million and $25.8 million of losses related to the change in fair value of commodity derivative contracts the Company terminated prior to contract maturity in the respective periods. |
Amount of gain (loss) recognized in income on derivatives |
Location of gain (loss) recognized in income on derivatives |
Amount of gain (loss) recognized in income on derivatives |
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13 weeks ended | 26 weeks ended | |||||||||||||||||
(in millions) |
August 3, 2013 |
July 28, 2012 |
August 3, 2013 |
July 28, 2012 |
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Derivatives not designated as hedging instruments: |
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Foreign currency contracts |
$ | 3.0 | $ | 1.1 | Other operating income, net | $ | 2.8 | $ | 1.1 | |||||||||
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Total |
$ | 3.0 | $ | 1.1 | $ | 2.8 | $ | 1.1 | ||||||||||
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The components of net periodic pension cost were as follows:
13 weeks ended | 26 weeks ended | |||||||||||||||
(in millions) |
August 3, 2013 |
July 28, 2012 |
August 3, 2013 |
July 28, 2012 |
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Components of net periodic pension benefit (cost): |
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Service cost |
$ | (0.6 | ) | $ | (0.9 | ) | $ | (1.2 | ) | $ | (1.8 | ) | ||||
Interest cost |
(2.3 | ) | (2.3 | ) | (4.6 | ) | (4.7 | ) | ||||||||
Expected return on UK Plan assets |
3.2 | 2.8 | 6.4 | 5.7 | ||||||||||||
Amortization of unrecognized prior service credit |
0.3 | 0.4 | 0.7 | 0.8 | ||||||||||||
Amortization of unrecognized actuarial loss |
(0.5 | ) | (0.8 | ) | (1.1 | ) | (1.6 | ) | ||||||||
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Net periodic pension benefit (cost) |
$ | 0.1 | $ | (0.8 | ) | $ | 0.2 | $ | (1.6 | ) | ||||||
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During the first quarter of Fiscal 2014, the Company finalized the valuation of net assets acquired. There were no material changes to the valuation of net assets acquired from the initial allocation reported during the fourth quarter of Fiscal 2013. Accordingly, the total consideration paid has been allocated to the net assets acquired based on the final fair values at October 29, 2012 as follows:
(in millions) |
Initial Allocation |
Final Allocation |
Change | |||||||||
Recognized amounts of assets acquired and liabilities assumed: |
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Inventories |
$ | 43.3 | $ | 43.3 | $ | — | ||||||
Other current assets, excluding cash acquired |
3.3 | 3.3 | — | |||||||||
Property and equipment |
12.1 | 12.1 | — | |||||||||
Other assets |
0.3 | 0.3 | — | |||||||||
Current liabilities |
(19.5 | ) | (19.5 | ) | — | |||||||
Other liabilities |
(7.4 | ) | (7.4 | ) | — | |||||||
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Fair value of net assets acquired |
$ | 32.1 | $ | 32.1 | $ | — | ||||||
Goodwill(1) |
24.6 | 23.2 | (1.4 | ) | ||||||||
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Total consideration |
$ | 56.7 | $ | 55.3 | $ | (1.4 | ) | |||||
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(1) | None of the goodwill will be deductible for income tax purposes. The goodwill balance is recorded within other assets in the consolidated balance sheet. |
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