SIGNET JEWELERS LTD, 10-K filed on 4/2/2018
Annual Report
v3.8.0.1
Document and Entity Information - USD ($)
12 Months Ended
Feb. 03, 2018
Mar. 28, 2018
Jul. 29, 2017
Document And Entity Information [Abstract]      
Document type 10-K    
Amendment flag false    
Document period end date Feb. 03, 2018    
Document fiscal year focus 2018    
Document fiscal period focus FY    
Trading symbol SIG    
Entity registrant name SIGNET JEWELERS LTD    
Entity Central Index Key 0000832988    
Current Fiscal Year End Date --01-28    
Entity Well-known Seasoned Issuer Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Large Accelerated Filer    
Entity Common Stock, Shares outstanding   59,005,252  
Entity Public Float     $ 2,543,283,372
v3.8.0.1
Consolidated Income Statements - USD ($)
shares in Millions, $ in Millions
3 Months Ended 12 Months Ended
Feb. 03, 2018
Oct. 28, 2017
Jul. 29, 2017
Apr. 29, 2017
Jan. 28, 2017
Oct. 29, 2016
Jul. 30, 2016
Apr. 30, 2016
Jan. 30, 2016
Oct. 31, 2015
Aug. 01, 2015
May 02, 2015
Feb. 03, 2018
Jan. 28, 2017
Jan. 30, 2016
Income Statement [Abstract]                              
Sales $ 2,293.1 $ 1,156.9 $ 1,399.6 $ 1,403.4 $ 2,269.9 $ 1,186.2 $ 1,373.4 $ 1,578.9         $ 6,253.0 $ 6,408.4 $ 6,550.2
Cost of sales                         (4,063.0) (4,047.6) (4,109.8)
Gross margin 919.8 321.1 457.9 491.2 945.5 350.0 464.9 600.4         2,190.0 2,360.8 2,440.4
Selling, general and administrative expenses                         (1,872.2) (1,880.2) (1,987.6)
Credit transaction, net                         1.3 0.0 0.0
Other operating income, net                         260.8 282.6 250.9
Operating income                         579.9 763.2 703.7
Interest expense, net                         (52.7) (49.4) (45.9)
Income before income taxes                         527.2 713.8 657.8
Income taxes                         (7.9) (170.6) (189.9)
Net income $ 343.0 $ (12.1) $ 85.2 $ 70.3 $ 287.8 $ 14.8 $ 81.9 $ 146.8         519.3 543.2 467.9
Dividends on redeemable convertible preferred shares                         (32.9) (11.9) 0.0
Net income attributable to common shareholders                         $ 486.4 $ 531.3 $ 467.9
Earnings per common share:                              
Earnings per share: basic (usd per share) $ 5.70 $ (0.20) $ 1.34 $ 1.03 $ 4.17 $ 0.20 $ 1.06 $ 1.87         $ 7.72 $ 7.13 $ 5.89
Earnings per share: diluted (usd per share) 5.24 (0.20) 1.33 1.03 3.92 0.20 1.06 1.87         $ 7.44 $ 7.08 $ 5.87
Weighted average common shares outstanding:                              
Weighted average common shares outstanding: basic (in shares)                         63.0 74.5 79.5
Weighted average common shares outstanding: diluted (in shares)                         69.8 76.7 79.7
Dividends declared per common share (usd per share) $ 0.31 $ 0.31 $ 0.31 $ 0.31 $ 0.26 $ 0.26 $ 0.26 $ 0.26 $ 0.22 $ 0.22 $ 0.22 $ 0.22 $ 1.24 $ 1.04 $ 0.88
v3.8.0.1
Consolidated Statements Of Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Feb. 03, 2018
Jan. 28, 2017
Jan. 30, 2016
Pre-tax amount      
Foreign currency translation adjustments $ 50.9 $ (25.6) $ (40.2)
Available-for-sale securities:      
Unrealized gain (loss) 0.5 0.0 (0.7)
Cash flow hedges:      
Unrealized gain (loss) 3.4 8.8 (17.2)
Reclassification adjustment for losses to net income (4.6) (0.7) 4.9
Pension plan:      
Actuarial gain (loss) 0.0 (16.9) 13.8
Reclassification adjustment to net income for amortization of actuarial losses 2.8 1.5 3.4
Prior service costs (0.6) (0.5) (0.6)
Reclassification adjustment to net income for amortization of net prior service credits (1.4) (1.9) (2.2)
Net curtailment gain and settlement loss (3.7) 0.0 0.0
Total other comprehensive (loss) income 47.3 (35.3) (38.8)
Tax (expense) benefit      
Foreign currency translation adjustments 0.0 0.0 0.0
Available-for-sale securities:      
Unrealized gain (loss) (0.2) 0.0 0.3
Cash flow hedges:      
Unrealized gain (loss) (1.6) (1.9) 5.4
Reclassification adjustment for losses to net income 1.1 0.1 (1.4)
Pension plan:      
Actuarial gain (loss) 0.0 3.3 (2.9)
Reclassification adjustment to net income for amortization of actuarial losses (0.6) (0.3) (0.7)
Prior service costs 0.1 0.1 0.1
Reclassification adjustment to net income for amortization of net prior service credits 0.3 0.4 0.5
Net curtailment gain and settlement loss 0.7 0.0 0.0
Total other comprehensive (loss) income (0.2) 1.7 1.3
After-tax amount      
Net income 519.3 543.2 467.9
Foreign currency translation adjustments 50.9 (25.6) (40.2)
Available-for-sale securities:      
Unrealized gain (loss) 0.3 0.0 (0.4)
Cash flow hedges:      
Unrealized gain (loss) 1.8 6.9 (11.8)
Reclassification adjustment for losses to net income (3.5) (0.6) 3.5
Pension plan:      
Actuarial gain (loss) 0.0 (13.6) 10.9
Reclassification adjustment to net income for amortization of actuarial losses 2.2 1.2 2.7
Prior service costs (0.5) (0.4) (0.5)
Reclassification adjustment to net income for amortization of net prior service credits (1.1) (1.5) (1.7)
Net curtailment gain and settlement loss (3.0) 0.0 0.0
Total other comprehensive (loss) income 47.1 (33.6) (37.5)
Total comprehensive income $ 566.4 $ 509.6 $ 430.4
v3.8.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Feb. 03, 2018
Jan. 28, 2017
Current assets:    
Cash and cash equivalents $ 225.1 $ 98.7
Accounts receivable, net 692.5 1,858.0
Other receivables 87.2 95.9
Other current assets 158.2 136.3
Income taxes 2.6 4.4
Inventories 2,280.5 2,449.3
Total current assets 3,446.1 4,642.6
Non-current assets:    
Property, plant and equipment, net 877.9 822.9
Goodwill 821.7 517.6
Intangible assets, net 481.5 417.0
Other assets 171.2 165.1
Deferred tax assets 1.4 0.7
Retirement benefit asset 39.8 31.9
Total assets 5,839.6 6,597.8
Current liabilities:    
Loans and overdrafts 44.0 91.1
Accounts payable 237.0 255.7
Accrued expenses and other current liabilities 448.0 478.2
Deferred revenue 288.6 276.9
Income taxes 19.6 101.8
Total current liabilities 1,037.2 1,203.7
Non-current liabilities:    
Long-term debt 688.2 1,317.9
Other liabilities 239.6 213.7
Deferred revenue 668.9 659.0
Deferred tax liabilities 92.3 101.4
Total liabilities 2,726.2 3,495.7
Commitments and contingencies
Series A redeemable convertible preferred shares of $0.01 par value: 500 shares authorized, 0.625 shares outstanding   611.9
Shareholders’ equity:    
Common shares of $0.18 par value: authorized 500 shares, 60.5 shares outstanding (2017: 68.3 outstanding) 15.7 15.7
Additional paid-in capital 290.2 280.7
Other reserves 0.4 0.4
Treasury shares at cost: 26.7 shares (2017: 18.9 shares) (1,942.1) (1,494.8)
Retained earnings 4,396.2 3,995.9
Accumulated other comprehensive loss (260.6) (307.7)
Total shareholders’ equity 2,499.8 2,490.2
Total liabilities, redeemable convertible preferred shares and shareholders’ equity 5,839.6 6,597.8
Series A Redeemable Convertible Preferred Stock    
Non-current liabilities:    
Series A redeemable convertible preferred shares of $0.01 par value: 500 shares authorized, 0.625 shares outstanding $ 613.6 $ 611.9
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Feb. 03, 2018
Jan. 28, 2017
Common shares, par value (usd per share) $ 0.18 $ 0.18
Common shares, authorized 500,000,000 500,000,000
Common shares, outstanding 60,500,000 68,300,000
Treasury shares, shares 26,700,000 18,900,000
Series A Redeemable Convertible Preferred Stock    
Preferred shares, par value (usd per share) $ 0.01  
Preferred shares, authorized 500,000,000  
Preferred shares, outstanding 625,000  
v3.8.0.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Feb. 03, 2018
Jan. 28, 2017
Jan. 30, 2016
Cash flows from operating activities:      
Net income $ 519.3 $ 543.2 $ 467.9
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 203.4 188.8 175.3
Amortization of unfavorable leases and contracts (13.0) (19.7) (28.7)
Pension benefit (3.5) (1.6) 0.0
Share-based compensation 16.1 8.0 16.4
Deferred taxation (33.4) 27.7 25.0
Excess tax benefit from exercise of share awards 0.0 (2.4) (6.9)
Amortization of debt discount and issuance costs 3.7 2.8 3.6
Credit transaction, net (30.9) 0.0 0.0
Other non-cash movements 2.4 0.4 3.6
Changes in operating assets and liabilities:      
Decrease (increase) in accounts receivable 242.1 (102.7) (189.8)
Proceeds from Sale of Finance Receivables 952.5 0.0 0.0
Decrease (increase) in other receivables and other assets 11.0 (20.4) (44.1)
(Increase) decrease in other current assets (17.0) 13.5 (26.5)
Decrease (increase) in inventories 210.9 (9.7) (46.0)
Decrease in accounts payable (51.4) (7.0) (6.4)
Increase (decrease) in accrued expenses and other liabilities 3.9 (21.8) 51.8
Increase in deferred revenue 10.0 43.6 76.3
(Decrease) increase in income taxes payable (82.4) 38.9 (25.7)
Pension plan contributions (3.2) (3.3) (2.5)
Net cash provided by operating activities 1,940.5 678.3 443.3
Investing activities      
Purchase of property, plant and equipment (237.4) (278.0) (226.5)
Purchase of available-for-sale securities (2.4) (10.4) (6.2)
Proceeds from sale of available-for-sale securities 2.2 10.0 4.0
Acquisition of R2Net Inc., net of cash acquired (331.8)    
Net cash used in investing activities (569.4) (278.4) (228.7)
Financing activities      
Dividends paid on common shares (76.5) (75.6) (67.1)
Dividends paid on redeemable convertible preferred shares (34.7) 0.0 0.0
Proceeds from issuance of common shares 0.3 2.1 5.0
Repurchase of common shares (460.0) (1,000.0) (130.0)
Proceeds from issuance of redeemable convertible preferred shares, net of issuance costs 0.0 611.3 0.0
Net settlement of equity based awards (2.9) (4.9) (8.3)
Excess tax benefit from exercise of share awards 0.0 2.4 6.9
Proceeds from revolving credit facility 814.0 1,270.0 316.0
Repayments of revolving credit facility (870.0) (1,214.0) (316.0)
Payment of debt issuance costs (1.4) (2.7) 0.0
Principal payments under capital lease obligations 0.0 (0.2) (1.0)
Repayments of bank overdrafts (0.1) (10.2) (47.1)
Net cash used in financing activities (1,253.6) (438.2) (266.6)
Cash and cash equivalents at beginning of period 98.7 137.7 193.6
Increase (decrease) in cash and cash equivalents 117.5 (38.3) (52.0)
Effect of exchange rate changes on cash and cash equivalents 8.9 (0.7) (3.9)
Cash and cash equivalents at end of period 225.1 98.7 137.7
Non-cash investing activities:      
Capital expenditures in accounts payable 7.0 9.2 9.3
Supplemental cash flow information:      
Interest paid 50.2 47.1 41.6
Income taxes paid 122.3 104.0 180.1
Term Loan      
Financing activities      
Proceeds from debt 350.0 0.0 0.0
Repayments of debt (372.3) (16.4) (25.0)
Securitization facility      
Financing activities      
Proceeds from debt 1,745.9 2,404.1 2,303.9
Repayments of debt (2,345.9) (2,404.1) (2,303.9)
R2Net Inc.      
Investing activities      
Acquisition of R2Net Inc., net of cash acquired $ (331.8) $ 0.0 $ 0.0
v3.8.0.1
Consolidated Statements Of Shareholders' Equity - USD ($)
$ in Millions
Total
Common shares at par value
Additional paid-in capital
Other reserves
Treasury shares
Retained earnings
Accumulated other comprehensive (loss) income
Balance at Jan. 31, 2015 $ 2,810.4 $ 15.7 $ 265.2 $ 0.4 $ (370.0) $ 3,135.7 $ (236.6)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net income 467.9 0.0 0.0 0.0 0.0 467.9 0.0
Other comprehensive income (loss) (37.5) 0.0 0.0 0.0 0.0 0.0 (37.5)
Dividends on common shares (70.2) 0.0 0.0 0.0 0.0 (70.2) 0.0
Repurchase of common shares (130.0) 0.0 0.0 0.0 (130.0) 0.0 0.0
Net settlement of equity based awards (1.3) 0.0 (1.5) 0.0 (1.1) 1.3 0.0
Share options exercised 5.0 0.0 (0.2) 0.0 5.3 (0.1) 0.0
Share-based compensation expense 16.4 0.0 16.4 0.0 0.0 0.0 0.0
Balance at Jan. 30, 2016 3,060.7 15.7 279.9 0.4 (495.8) 3,534.6 (274.1)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net income 543.2 0.0 0.0 0.0 0.0 543.2 0.0
Other comprehensive income (loss) (33.6) 0.0 0.0 0.0 0.0 0.0 (33.6)
Dividends on common shares (75.9) 0.0 0.0 0.0 0.0 (75.9) 0.0
Dividends on redeemable convertible preferred shares (11.9)         (11.9)  
Repurchase of common shares (1,000.0) 0.0 0.0 0.0 (1,000.0) 0.0 0.0
Net settlement of equity based awards (2.4) 0.0 (7.2) 0.0 (1.1) 5.9 0.0
Share options exercised 2.1 0.0 0.0 0.0 2.1 0.0 0.0
Share-based compensation expense 8.0 0.0 8.0 0.0 0.0 0.0 0.0
Balance at Jan. 28, 2017 2,490.2 15.7 280.7 0.4 (1,494.8) 3,995.9 (307.7)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net income 519.3 0.0 0.0 0.0 0.0 519.3 0.0
Other comprehensive income (loss) 47.1 0.0 0.0 0.0 0.0 0.0 47.1
Dividends on common shares (77.5) 0.0 0.0 0.0 0.0 (77.5) 0.0
Dividends on redeemable convertible preferred shares (32.9)         (32.9)  
Repurchase of common shares (460.0) 0.0 0.0 0.0 (460.0) 0.0 0.0
Net settlement of equity based awards (2.8) 0.0 (6.5) 0.0 12.3 (8.6) 0.0
Share options exercised 0.3 0.0 (0.1) 0.0 0.4 0.0 0.0
Share-based compensation expense 16.1 0.0 16.1 0.0 0.0 0.0 0.0
Balance at Feb. 03, 2018 $ 2,499.8 $ 15.7 $ 290.2 $ 0.4 $ (1,942.1) $ 4,396.2 $ (260.6)
v3.8.0.1
Organization and summary of significant accoutning policies
12 Months Ended
Feb. 03, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and summary of significant accoutning policies
Organization and summary of significant accounting policies
Signet Jewelers Limited (“Signet” or the “Company”), a holding company incorporated in Bermuda, is the world’s largest retailer of diamond jewelry. The Company operates through its 100% owned subsidiaries with sales primarily in the United States (“US”), United Kingdom (“UK”) and Canada. Signet manages its business as five reportable segments: the Sterling Jewelers division, the Zale division, which consists of the Zale Jewelry and Piercing Pagoda segments, the UK Jewelry division and Other. The “Other” reportable segment consists of all non-reportable segments, including subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones and unallocated corporate administrative functions. See Note 5 for additional discussion of the Company’s segments.
On September 12, 2017, the Company completed the acquisition of R2Net Inc., a Delaware corporation (“R2Net”). See Note 4 for additional information regarding the acquisition.
In October 2017, the Company, through its subsidiary Sterling Jewelers Inc. (“Sterling”), completed the sale of the prime-only quality portion of Sterling’s in-house finance receivable portfolio to Comenity Bank (“Comenity”). See Note 3 for additional information regarding the transaction.
Signet’s sales are seasonal, with the first quarter slightly exceeding 20% of annual sales, the second and third quarters each approximating 20% and the fourth quarter accounting for almost 40% of annual sales, with December being by far the most important month of the year. The “Holiday Season” consists of results for the months of November and December. As a result, approximately 45% to 55% of Signet’s annual operating income normally occurs in the fourth quarter, comprised of nearly all of the UK Jewelry and Zale divisions’ annual operating income and about 40% to 45% of the Sterling Jewelers division’s annual operating income.
The Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. There are no material related party transactions. The following accounting policies have been applied consistently in the preparation of the Company’s financial statements.
(a) Basis of preparation
The consolidated financial statements of Signet are prepared in accordance with US generally accepted accounting principles (“US GAAP”) and include the results for the 53 week period ended February 3, 2018 (“Fiscal 2018”), as Signet’s fiscal year ends on the Saturday nearest to January 31. The comparative periods are for the 52 week period ended January 28, 2017 (“Fiscal 2017”) and the 52 week period ended January 30, 2016 (“Fiscal 2016”). Intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.
(b) Use of estimates
The preparation of these consolidated financial statements, in conformity with US GAAP and US Securities and Exchange Commission (“SEC”) regulations, 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 financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Estimates and assumptions are primarily made in relation to the valuation of accounts receivable, inventories, deferred revenue, derivatives, employee benefits, income taxes, contingencies, asset impairments, indefinite-lived intangible assets, as well as depreciation and amortization of long-lived assets.
The reported results of operations are not indicative of results expected in future periods.
(c) Foreign currency translation
The financial position and operating results of certain foreign operations, including the UK Jewelry division and the Canadian operations of the Zale Jewelry segment, are consolidated using the local currency as the functional currency. Assets and liabilities are translated at the rates of exchange on the balance sheet date, and revenues and expenses are translated at the monthly average rates of exchange during the period. Resulting translation gains or losses are included in the accompanying consolidated statements of shareholders’ equity as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains or losses resulting from foreign currency transactions are included within the consolidated income statements, whereas translation adjustments and gains or losses related to intercompany loans of a long-term investment nature are recognized as a component of AOCI.
See Note 9 for additional discussion of the Company’s foreign currency translation.
(d) Revenue recognition
The Company recognizes revenue when there is persuasive evidence of an arrangement, delivery of products has occurred or services have been rendered, the sale price is fixed and determinable, and collectability is reasonably assured. The Company’s revenue streams and their respective accounting treatments are discussed below.
Merchandise sale and repairs
Store sales are recognized when the customer receives and pays for the merchandise at the store with cash, in-house customer finance, private label credit card programs, a third party credit card or a lease purchase option. For online sales shipped to customers, sales are recognized at the estimated time the customer has received the merchandise. Amounts related to shipping and handling that are billed to customers are reflected in sales and the related costs are reflected in cost of sales. Revenues on the sale of merchandise are reported net of anticipated returns and sales tax collected. Returns are estimated based on previous return rates experienced. Any deposits received from a customer for merchandise are deferred and recognized as revenue when the customer receives the merchandise. Revenues derived from providing replacement merchandise on behalf of insurance organizations are recognized upon receipt of the merchandise by the customer. Revenues on repair of merchandise are recognized when the service is complete and the customer collects the merchandise at the store.
Extended service plans and lifetime warranty agreements (“ESP”)
The Company recognizes revenue related to ESP sales in proportion to when the expected costs will be incurred. The deferral period for ESP sales in each division 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 utilized. A significant change in estimates related to the time period or pattern in which warranty-related costs are expected to be incurred could materially impact revenues. 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 in the consolidated balance sheets.
The Sterling Jewelers division sells ESP, subject to certain conditions, to perform repair work over the life of the product. Revenue from the sale of the lifetime ESP is recognized consistent with the estimated pattern of claim costs expected to be incurred by the Company in connection with performing under the ESP obligations. Based on an evaluation of historical claims data, management currently estimates that substantially all claims will be incurred within 17 years of the sale of the warranty contract.
In the second quarter of Fiscal 2016, an operational change related to the Sterling Jewelers division’s ESP associated with ring sizing was made to further align Zale and Sterling ESP policies. As a result, revenue from the sale of these lifetime ESP in the Sterling Jewelers division is deferred and recognized over 17 years for all plans, with approximately 57% of revenue recognized within the first two years for plans sold on or after May 2, 2015 (January 28, 2017: 57%; January 30, 2016: 57%) and 42% of revenue recognized within the first two years for plans sold prior to May 2, 2015 (January 28, 2017: 42%; January 30, 2016: 42%).
The Zale division also sells ESP. Zale Jewelry customers are offered lifetime warranties on certain products that cover sizing and breakage with an option to purchase theft protection for a two-year period. Revenue from the sale of lifetime ESP is deferred and recognized over 10 years, with approximately 69% of revenue recognized within the first two years (January 28, 2017: 69%; January 30, 2016: 69%). Revenues related to the optional theft protection are deferred and recognized in proportion to when the expected claims costs will be incurred over the two-year contract period. Zale Jewelry customers are also offered a two-year watch warranty and a one-year warranty that covers breakage. Piercing Pagoda customers are also offered a one-year warranty that covers breakage. Revenue from the two-year watch warranty and one-year breakage warranty is recognized on a straight-line basis over the respective contract terms.
The Sterling Jewelers division also sells a Jewelry Replacement Plan (“JRP”). The JRP is designed to protect customers from damage or defects of purchased merchandise for a period of three years. If the purchased merchandise is defective or becomes damaged under normal use in that time period, the item will be replaced. JRP revenue is deferred and recognized on a straight-line basis over the period of expected claims costs.
Signet also sells warranty agreements in the capacity of an agent on behalf of a third-party. The commission that Signet receives from the third-party is recognized at the time of sale less an estimate of cancellations based on historical experience.
Sale vouchers
Certain promotional offers award sale vouchers to customers who make purchases above a certain value, which grant a fixed discount on a future purchase within a stated time frame. The Company accounts for such vouchers by allocating the fair value of the voucher between the initial purchase and the future purchase using the relative-selling-price method. Sale vouchers are not sold on a stand-alone basis. The fair value of the voucher is determined based on the average sales transactions in which the vouchers were issued, when the vouchers are expected to be redeemed and the estimated voucher redemption rate. The fair value allocated to the future purchase is recorded as deferred revenue.
Consignment inventory sales
Sales of consignment inventory are accounted for on a gross sales basis as the Company is the primary obligor providing independent advice, guidance and after-sales service to customers. The products sold from consignment inventory are indistinguishable from other products that are sold to customers and are sold on the same terms. Supplier products are selected at the discretion of the Company. The Company is responsible for determining the selling price, physical security of the products and collections of accounts receivable.
(e) Cost of sales and selling, general and administrative expenses
Cost of sales includes merchandise costs net of discounts and allowances, freight, processing and distribution costs of moving merchandise from suppliers to distribution centers and stores inclusive of payroll, inventory shrinkage, store operating and occupancy costs, net bad debts and charges for late payments under the in-house customer finance programs. Store operating and occupancy costs include utilities, rent, real estate taxes, common area maintenance charges and depreciation. Selling, general and administrative expenses include store staff and store administrative costs; centralized administrative expenses, including information technology and cost of in-house credit prior to the Company’s outsourcing initiatives and third-party servicing of receivables subsequent to the outsourcing initiative; advertising and promotional costs and other operating expenses not specifically categorized elsewhere in the consolidated income statements.
Compensation and benefits costs included within cost of sales and selling, general and administrative expenses were as follows:
(in millions)
Fiscal 2018
 
Fiscal 2017
 
Fiscal 2016
Wages and salaries
$
1,140.3

 
$
1,183.2

 
$
1,222.8

Payroll taxes
93.8

 
96.5

 
101.1

Employee benefit plans
13.0

 
19.3

 
17.5

Share-based compensation
16.1

 
8.0

 
16.4

Total compensation and benefits
$
1,263.2

 
$
1,307.0

 
$
1,357.8


(f) Store opening costs
The opening costs of new locations are expensed as incurred.
(g) Advertising and promotional costs
Advertising and promotional costs are expensed within selling, general and administrative expenses. Production costs are expensed at the first communication of the advertisements, while communication expenses are recognized each time the advertisement is communicated. For catalogs and circulars, costs are all expensed at the first date they can be viewed by the customer. Point of sale promotional material is expensed when first displayed in the stores. Gross advertising costs totaled $360.5 million in Fiscal 2018 (Fiscal 2017: $380.6 million; Fiscal 2016: $384.2 million).
(h) In-house customer finance programs
Sterling Jewelers division operates customer in-house finance programs that allow customers to finance merchandise purchases from its stores. Finance charges are recognized in accordance with the contractual agreements. Gross interest earned is recorded as other operating income in the consolidated income statements. See Note 11 for additional discussion of the Company’s other operating income. In addition to interest-bearing accounts, a portion of credit sales are made using interest-free financing for one year or less, subject to certain conditions.
Prior to the fourth quarter of Fiscal 2018, the accrual of interest was suspended when accounts became more than 90 days aged on a recency basis. Upon suspension of the accrual of interest, interest income was subsequently recognized to the extent cash payments are received. Accrual of interest was resumed when receivables are removed from the non-accrual status.
As a result of the credit transaction in Note 3, including the processes utilized by the service provider for the Company’s remaining in-house finance receivable portfolio, it is the Company’s policy to suspend the accrual of interest when accounts become more than 120 days past due on a contractual basis.
(i) Income taxes
Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are recognized by applying statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized, based on management’s evaluation of all available evidence, both positive and negative, including reversals of deferred tax liabilities, projected future taxable income and results of recent operations.
The Company does not recognize tax benefits related to positions taken on certain tax matters unless the position is more likely than not to be sustained upon examination by tax authorities. At any point in time, various tax years are subject to or are in the process of being audited by various taxing authorities. The Company records a reserve for uncertain tax positions, including interest and penalties. To the extent that management’s estimates of settlements change, or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made.
See Note 10 for additional discussion of the Company’s income taxes.
(j) Cash and cash equivalents
Cash and cash equivalents are comprised of cash on hand, money market deposits and amounts placed with external fund managers with an original maturity of three months or less. Cash and cash equivalents are carried at cost which approximates fair value. In addition, receivables from third-party credit card issuers typically converted to cash within 5 days of the original sales transaction are considered cash equivalents.
The following table summarizes the details of the Company’s cash and cash equivalents:
(in millions)
February 3, 2018
 
January 28, 2017
Cash and cash equivalents held in money markets and other accounts
$
182.6

 
$
65.6

Cash equivalents from third-party credit card issuers
40.5

 
31.1

Cash on hand
2.0

 
2.0

Total cash and cash equivalents
$
225.1

 
$
98.7


(k) Accounts receivable
Accounts receivable under the customer finance programs are presented net of an allowance for uncollectible amounts. This allowance represents management’s estimate of the expected losses in the accounts receivable portfolio as of the balance sheet date, and is calculated using a model that analyzes factors such as delinquency rates and recovery rates.
Prior to the fourth quarter of Fiscal 2018, the Company calculated the allowance for uncollectible amounts as follows:
Record an allowance for amounts under 90 days aged on a recency measure of delinquency based on historical loss experience and payment performance information. The recency method measured the delinquency level by the number of days since the last qualifying payment was received, with the qualifying payment increasing with delinquency level.
Record a 100% allowance for any amount aged more than 90 days on a recency measure of delinquency and any amount associated with an account the owner of which has filed for bankruptcy.
Signet’s recency method of aging had been in place and unchanged since the inception of the in-house consumer financing program. The delinquency level was measured by the number of days since the last qualifying payment was received, with the qualifying payment increasing with delinquency level. The minimum payment does not decline as the balance declines.
In the fourth quarter of Fiscal 2018, the Company began measuring delinquency under the contractual basis which aligns with the processes and collection strategies utilized by the Company’s third party credit service provider for the remaining in-house finance receivable portfolio beginning in October 2017. Under this measure of delinquency, credit card accounts are considered delinquent if the minimum payment is not received by the specified due date. The aging method is based on the number of completed billing cycles during which the customer has failed to make a minimum payment. Management utilizes the delinquency rates identified within the portfolio when calculating the overall allowance for the portfolio.
The overall allowance continues to be based on the Company’s historical loss experience and payment performance information for accounts with similar credit quality characteristics as the remaining portfolio since the inception of the in-house consumer financing program, which was operated under the Company’s aging and collection methodologies in place prior to October 2017. As a result of the credit transaction disclosed in Note 3, the aging and collection methodologies have been revised to align with contractual method, which may result in different customer payment behaviors. A 100% allowance is made for accounts associated with bankrupt or deceased cardholders, as well as for accounts more than 120 days past due on the contractual basis. The Company’s policy for charging off uncollectible receivables is 180 days.
See Note 12 for additional discussion of the Company’s accounts receivables.
(l) Inventories
Inventories are primarily held for resale and are valued at the lower of cost or net realizable value. Cost is determined using weighted-average cost for all inventories except for inventories held in the Company’s diamond sourcing operations, where cost is determined using specific identification. Cost includes charges directly related to bringing inventory to its present location and condition. Such charges would include warehousing, security, distribution and certain buying costs. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventory reserves are recorded for obsolete, slow moving or defective items and shrinkage. Inventory reserves for obsolete, slow moving or defective items are calculated as the difference between the cost of inventory and its estimated market value based on targeted inventory turn rates, future demand, management strategy and market conditions. Due to the inventory being primarily comprised of precious stones and metals including gold, the age of the inventory has a limited impact on the estimated market value. Inventory reserves for shrinkage are estimated and recorded based on historical physical inventory results, expectations of future inventory losses and current inventory levels. Physical inventories are taken at least once annually for all store locations and distribution centers.
See Note 13 for additional discussion of the Company’s inventories.
(m) Vendor contributions
Contributions are received from vendors through various programs and arrangements including cooperative advertising. Where vendor contributions related to identifiable promotional events are received, contributions are matched against the costs of promotions. Vendor contributions received as general contributions and not related to specific promotional events are recognized as a reduction of inventory costs.
(n) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation, amortization and impairment charges. Maintenance and repair costs are expensed as incurred. Depreciation and amortization are recognized on the straight-line method over the estimated useful lives of the related assets as follows:
Buildings
 
30 – 40 years when land is owned or the remaining term of lease, not to exceed 40 years
Leasehold improvements
 
Remaining term of lease, not to exceed 10 years
Furniture and fixtures
 
Ranging from 3 – 10 years
Equipment and software
 
Ranging from 3 – 5 years

Computer software purchased or developed for internal use is stated at cost less accumulated amortization. Signet’s policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, Signet also capitalizes certain payroll and payroll-related costs for employees directly associated with internal use computer projects. Amortization is charged on a straight-line basis over periods from three to five years.
Property, plant and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Potentially impaired assets or asset groups are identified by reviewing the cash flows of individual stores. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset, based on the Company’s internal business plans. If the undiscounted cash flow is less than the asset’s carrying amount, the impairment charge recognized is determined by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value. The Company utilizes historical experience, internal business plans and an appropriate discount rate to estimate the fair value. Property and equipment at stores planned for closure are depreciated over a revised estimate of their useful lives.
See Note 14 for additional discussion of the Company’s property, plant and equipment.
(o) Goodwill and intangibles
In a business combination, the Company estimates and records the fair value of identifiable intangible assets and liabilities acquired. The fair value of these intangible assets and liabilities is estimated based on management’s assessment, including determination of appropriate valuation technique and consideration of any third party appraisals, when necessary. Significant estimates in valuing intangible assets and liabilities acquired include, but are not limited to, future expected cash flows associated with the acquired asset or liability, expected life and discount rates. The excess purchase price over the estimated fair values of the assets acquired and liabilities assumed is recognized as goodwill. Goodwill is recorded by the Company’s reporting units based on the acquisitions made by each. Goodwill is evaluated for impairment annually and more frequently if indicators of impairment arise. In evaluating goodwill for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value (including goodwill). If the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then no further testing is required. However, if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the two-step goodwill impairment test is performed to identify a potential goodwill impairment and measure the amount of impairment to be recognized, if any. The two-step impairment test involves estimating the fair value of all assets and liabilities of the reporting unit, including the implied fair value of goodwill, through either estimated discounted future cash flows or market-based methodologies.
The annual testing date for goodwill allocated to the Sterling Jewelers reporting unit is the last day of the fourth quarter. The annual testing date for goodwill allocated to the reporting units associated with the Zale division and the Other reporting unit is May 31. There have been no goodwill impairment charges recorded during the fiscal periods presented in the consolidated financial statements as financial results for the reporting units have met or exceeded financial projections developed at the time of the acquisitions. If future economic conditions are different than those projected by management, future impairment charges may be required.
Intangible assets with definite lives are amortized and reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. If the estimated undiscounted future cash flows related to the asset are less than the carrying amount, the Company recognizes an impairment charge equal to the difference between the carrying value and the estimated fair value, usually determined by the estimated discounted future cash flows of the asset.
Intangible assets with indefinite lives are reviewed for impairment each year in the second quarter and may be reviewed more frequently if certain events occur or circumstances change. The Company first performs a qualitative assessment to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired. If the Company determines that it is more likely than not that the fair value of the asset is less than its carrying amount, the Company estimates the fair value, usually determined by the estimated discounted future cash flows of the asset, compares that value with its carrying amount and records an impairment charge, if any. If future economic conditions are different than those projected by management, future impairment charges may be required.
See Note 15 for additional discussion of the Company’s goodwill and intangibles.
(p) Derivatives and hedge accounting
The Company 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 fair value, as either assets or liabilities, with an offset to net income or other comprehensive income (“OCI”), depending on whether the derivative qualifies as an effective hedge.
If a derivative instrument meets certain criteria, it may be designated as a cash flow hedge on the date it is entered into. For cash flow hedge transactions, the effective portion of the changes in fair value of the derivative instrument is recognized directly in equity as a component of AOCI and is recognized in the consolidated income statements in the same period(s) and on the same financial statement line in which the hedged item affects net income. Amounts excluded from the effectiveness calculation and any ineffective portions of the change in fair value of the derivatives 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.
In the normal course of business, the Company may terminate cash flow hedges prior to the occurrence of the underlying forecasted transaction. For cash flow hedges terminated prior to the occurrence of the underlying forecasted transaction, management monitors the probability of the associated forecasted cash flow transactions to assess whether any gain or loss recorded in AOCI should be immediately recognized in net income. Cash flows from derivative contracts are included in net cash provided by operating activities.
See Note 18 for additional discussion of the Company’s derivatives and hedge activities.
(q) Employee Benefits
Signet operates a defined benefit pension plan in the UK (the “UK Plan”) which ceased to admit new employees effective April 2004. The UK Plan provides benefits to participating eligible employees. Beginning in Fiscal 2014, a change to the benefit structure was implemented and members’ benefits that accumulate after that date are now based upon career average salaries, whereas previously, all benefits were based on salaries at retirement. The UK Plan’s assets are held by the UK Plan.
The net periodic pension cost of the UK Plan is measured on an actuarial basis using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of return on plan assets. Other material assumptions include rates of participant mortality, the expected long-term rate of compensation and pension increases, and rates of employee attrition. Gains and losses occur when actual experience differs from actuarial assumptions. If such gains or losses exceed 10% of the greater of plan assets or plan liabilities, Signet amortizes those gains or losses over the average remaining service period of the employees. The net periodic pension cost is charged to selling, general and administrative expenses in the consolidated income statements.
The funded status of the UK Plan is recognized on the balance sheet, and is the difference between the fair value of plan assets and the projected benefit obligation measured at the balance sheet date. Gains or losses and prior service costs or credits that arise and are not included as components of net periodic pension cost are recognized, net of tax, in OCI.
Signet also operates a defined contribution plan in the UK and a defined contribution retirement savings plan in the US. Contributions made by Signet to these pension arrangements are charged primarily to selling, general and administrative expenses in the consolidated income statements as incurred.
See Note 20 for additional discussion of the Company’s employee benefits.
(r) Borrowing costs
Borrowings include interest-bearing bank loans, accounts receivable securitization program and bank overdrafts. Borrowing costs are capitalized and amortized into interest expense over the contractual term of the related loan.
See Note 21 for additional discussion of the Company’s borrowing costs.
(s) Share-based compensation
Signet measures share-based compensation cost for awards classified as equity at the grant date based on the estimated fair value of the award and recognizes the cost as an expense on a straight-line basis (net of estimated forfeitures) over the requisite service period of employees. Certain share plans include a condition whereby vesting is contingent on growth exceeding a given target, and therefore awards granted with this condition are considered to be performance-based awards.
Signet estimates fair value using a Black-Scholes model for awards granted under the Omnibus Plan and the binomial valuation model for awards granted under the Share Saving Plans. Deferred tax assets for awards that result in deductions on the income tax returns of subsidiaries are recorded by Signet based on the amount of compensation cost recognized and the subsidiaries’ statutory tax rate in the jurisdiction in which it will receive a deduction.
Share-based compensation is primarily recorded in selling, general and administrative expenses in the consolidated income statements, along with the relevant salary cost.
See Note 25 for additional discussion of the Company’s share-based compensation plans.
(t) Contingent liabilities
Provisions for contingent liabilities are recorded for probable losses when management is able to reasonably estimate the loss or range of loss. When it is reasonably possible that a contingent liability may result in a loss or additional loss, the range of the loss is disclosed.
See Note 26 for additional discussion of the Company’s contingencies.
(u) Leases
Signet’s operating leases generally include retail store locations. Certain operating leases include predetermined rent increases, which are charged to the income statement on a straight-line basis over the lease term, including any construction period or other rental holiday. Other amounts paid under operating leases, such as contingent rentals, taxes and common area maintenance, are charged to the income statement as incurred. Premiums paid to acquire short-term leasehold properties and inducements to enter into a lease are recognized on a straight-line basis over the lease term. In addition, certain leases provide for contingent rentals that are not measurable at inception. These contingent rentals are primarily based on a percentage of sales in excess of a predetermined level. These amounts are excluded from minimum rent and are included in the determination of rent expense when it is probable that the expense has been incurred and the amount is reasonably estimable.
See Note 26 for additional discussion of the Company’s leases.
(v) Dividends
Dividends on common shares are reflected as a reduction of retained earnings in the period in which they are formally declared by the Board of Directors (the “Board”). In addition, the cumulative dividends on preferred shares, whether or not declared, are reflected as a reduction of retained earnings.
v3.8.0.1
New Accounting Pronouncements
12 Months Ended
Feb. 03, 2018
Accounting Policies [Abstract]  
New accounting pronouncements
New accounting pronouncements
New accounting pronouncements adopted during the period
Inventory
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” The new guidance states that inventory will be measured at the lower of cost and net realizable value. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The adoption of this guidance in the first quarter of Fiscal 2018 did not have a material impact on the Company’s financial position or results of operations.
Share-based compensation
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted all aspects of this guidance prospectively in the first quarter of Fiscal 2018 with a policy election to continue to estimate expected forfeitures in determining the amount of share-based compensation expense to be recognized. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations. See Note 25 for additional information regarding the impact on the Company’s results of operations in the first quarter of Fiscal 2018.
New accounting pronouncements to be adopted in future periods
Credit losses
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The new guidance requires entities to measure and recognize expected credit losses for financial assets measured at amortized cost basis. The estimate of expected credit losses should consider historical information, current information, and reasonable and supportable forecasts of expected losses over the remaining contractual life that affect collectability. ASU No. 2016-13 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. Signet currently expects to adopt this guidance when effective, and continues to assess the impact the adoption of this guidance will have on the Company’s financial position or results of operations.
Revenue recognition
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 provides alternative methods of retrospective adoption. The FASB has issued several updates to the standard that i) defer the original effective date; ii) clarify the application of principal versus agent guidance; iii) clarify the guidance on inconsequential and perfunctory promises and licensing; and iv) clarify the guidance on the de-recognition of non-financial assets. ASU 2014‑09 and the related updates are effective for fiscal years beginning after December 15, 2017.
Signet adopted ASU 2014‑09 and related updates effective February 4, 2018 using the modified retrospective approach applied only to contracts not completed as of the date of adoption with no restatement of prior periods and by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of equity. As a result of the Company’s evaluation of existing contracts with customers, the Company has identified that the new standard will require the Company to adjust its presentation related to customer trade-ins, accounting for returns reserves and treatment of the amortization of certain bonus and profit-sharing arrangements related to third party credit card programs. After the adoption of ASU 2014-09, the fair value of customer trade-ins will be considered non-cash consideration when determining the transaction price, and therefore classified as revenue rather than its previous classification as a reduction to cost of goods sold. Also, upon adoption of ASU 2014-09, the Company will record its current sales return reserve within separate refund liability and asset for recovery accounts. Further, subsequent to the adoption of the new accounting guidance, the Company anticipates that the amortization of certain signing bonuses and receipt of funds in connection with economic profit sharing arrangements will be recognized as a component of sales rather than as an offset to selling, general and administrative expense. The Company anticipates that the adoption will result in incremental revenue and incremental costs of goods sold and selling general and administrative expense due to these reclassifications.  We consider the impact of these adjustments immaterial to the overall consolidated financial statements.
Financial instruments
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The new guidance primarily impacts accounting for equity investments and financial liabilities under the fair value option, as well as, the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments will generally be measured at fair value, with subsequent changes in fair value recognized in net income. ASU No. 2016-01 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Signet plans to adopt this guidance in the first quarter of our fiscal year ending February 2, 2019. Signet does not expect the adoption of this guidance to have a material impact on the Company’s financial position or results of operations.
Leases
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The new guidance primarily impacts lessee accounting by requiring the recognition of a right-of-use asset and a corresponding lease liability on the balance sheet for long-term lease agreements. The lease liability will be equal to the present value of all reasonably certain lease payments. The right-of-use asset will be based on the liability, subject to adjustment for initial direct costs. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. In general, leases will be amortized on a straight-line basis with the exception of finance lease agreements. ASU No. 2016-02 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, which is effective for the first quarter of our fiscal year ending February 1, 2020. Signet is currently assessing the impact that adopting this guidance will have on the Company’s financial position or results of operations.
Liabilities
In March 2016, the FASB issued ASU No. 2016-04, “Liabilities - Extinguishments of Liabilities (Subtopic 405-20).” The new guidance addresses diversity in practice related to the derecognition of a prepaid stored-value product liability. Liabilities related to the sale of prepaid stored-value products within the scope of this update are financial liabilities. ASU No. 2016-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. Signet plans to adopt this guidance in the first quarter of our fiscal year ending February 2, 2019. Signet does not expect the adoption of this guidance to have a material impact on the Company’s financial position or results of operations.
Intangibles
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment.” The new guidance requires a single-step quantitative test to identify and measure goodwill impairment based on the excess of a reporting unit's carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. ASU No. 2017-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. Signet plans to adopt this guidance in the first quarter of our fiscal year ending February 2, 2019. Signet does not expect the adoption of this guidance to have a material impact on the Company’s financial position or results of operations.
Retirement Benefits
In March 2017, the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The new guidance requires entities to present the service cost component of the net periodic pension cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Entities will present the other components of net benefit cost separately from the service cost component and outside of operating profit within the income statement. In addition, only the service cost component will be eligible for capitalization in assets. ASU No. 2017-07 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Signet plans to adopt this guidance in the first quarter of our fiscal year ending February 2, 2019. Signet does not expect the adoption of this guidance to have a material impact on the Company’s financial position or results of operations.
Derivatives and Hedging
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The new guidance expands the types of risk management strategies eligible for hedge accounting, refines the documentation and effectiveness assessment requirements and modifies the presentation and disclosure requirements for hedge accounting activities. ASU No. 2017-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. Signet is currently assessing the timing of adoption and the impact this guidance will have on the Company’s financial position or results of operations.
v3.8.0.1
Acquisitions
12 Months Ended
Feb. 03, 2018
Business Combinations [Abstract]  
Acquisitions
Acquisitions
On September 12, 2017, the Company acquired the outstanding shares of R2Net, the owner of online jewelry retailer JamesAllen.com and Segoma Imaging Technologies. The acquisition rapidly enhanced the Company’s digital capabilities and accelerated its OmniChannel strategy, while adding a millennial-focused online retail brand to the Company’s portfolio. The Company paid $331.7 million, net of acquired cash of $47.3 million, for R2Net. The total consideration paid was funded with a $350.0 million bridge loan. See Note 21 for additional information regarding the bridge loan.
The transaction was accounted for as a business combination during the third quarter of Fiscal 2018 with R2Net becoming a wholly-owned consolidated subsidiary of Signet. Prior to closing the acquisition, the Company incurred approximately $8.6 million of acquisition-related costs for professional services in Fiscal 2018. Acquisition-related costs were recorded as selling, general and administrative expenses in the consolidated income statements. The results of R2Net subsequent to the acquisition date are reported as a component of the results of the Sterling Jewelers division. See Note 5 for segment information. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results was not material.
Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed are recorded at their estimated fair values on the acquisition date, with the remaining unallocated net purchase price recorded as goodwill. The following table summarizes the preliminary fair values identified for the assets acquired and liabilities assumed in the R2Net acquisition as of September 12, 2017:
(in millions)
Initial amounts
Cash and cash equivalents
$
47.3

Inventories
12.1

Other current assets
9.7

Property, plant and equipment
3.5

Intangible assets:
 
Trade name
70.6

Current liabilities
(42.4
)
Deferred tax liabilities
(23.5
)
Fair value of net assets acquired
77.3

Goodwill(1)
301.7

Total consideration transferred
$
379.0

(1) 
The amount of goodwill generated will be adjusted for any additional assets or liabilities identified by the Company or for any adjustments to the preliminary fair values identified for the assets acquired and liabilities assumed in the R2Net acquisition reflected above.
As of February 3, 2018, the Company is in the process of finalizing the net assets acquired in the acquisition, most notably, the valuation of intangible assets, including technology-related assets and income taxes. The estimates and assumptions utilized in the preliminary valuation are subject to change within the measurement period as additional information is obtained. The Company expects to finalize the valuation within one year from the date of acquisition. The goodwill generated from the acquisition is primarily attributable to expected synergies and will not be deductible for tax purposes.
v3.8.0.1
Segment Information
12 Months Ended
Feb. 03, 2018
Segment Reporting [Abstract]  
Segment information
Segment information
Financial information for each of Signet’s reportable segments is presented in the tables below. Signet’s chief operating decision maker utilizes sales and operating income, after the elimination of any inter-segment transactions, to determine resource allocations and performance assessment measures. Signet’s sales are derived from the retailing of jewelry, watches, other products and services as generated through the management of its five reportable segments: the Sterling Jewelers division, the Zale division, which consists of the Zale Jewelry and Piercing Pagoda segments, the UK Jewelry division and Other.
The Sterling Jewelers division operates in all 50 US states. Its stores operate nationally in malls and off-mall locations principally as Kay (Kay Jewelers and Kay Jewelers Outlet) and Jared (Jared The Galleria Of Jewelry and Jared Vault). The division also operates a variety of mall-based regional brands and the JamesAllen.com website, which was acquired in the R2Net acquisition. The results for the Sterling Jewelers division include R2Net results for the period since September 12, 2017, the date of acquisition. See Note 4 for additional information.
The Zale division operates jewelry stores (Zale Jewelry) and kiosks (Piercing Pagoda), located primarily in shopping malls throughout the US and Canada. Zale Jewelry includes the US store brand Zales (Zales Jewelers and Zales Outlet), which operates in all 50 US states, and the Canadian store brand Peoples Jewellers, which operates in nine provinces. The division also operates regional brands Gordon’s Jewelers and Mappins. Piercing Pagoda operates through mall-based kiosks.
The UK Jewelry division operates stores in the UK, Republic of Ireland and Channel Islands. Its stores operate in shopping malls and off-mall locations (i.e. high street) principally as H.Samuel and Ernest Jones.
The Other reportable segment consists of all non-reportable segments, including subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones, that are below the quantifiable threshold for separate disclosure as a reportable segment and unallocated corporate administrative functions.
During the first quarter of Fiscal 2019, the Company realigned its organizational structure. The new structure will allow for further integration of operational and product development processes and support growth strategies. In accordance with this organizational change, beginning with quarterly reporting for the 13 weeks ended May 5, 2018, the Company will report three reportable segments as follows: North America, International, and Other.
(in millions)
Fiscal 2018
 
Fiscal 2017
 
Fiscal 2016
Sales:
 
 
 
 
 
Sterling Jewelers
$
3,820.5

 
$
3,930.4

 
$
3,988.7

Zale Jewelry(1)
1,516.2

 
1,549.7

 
1,568.2

Piercing Pagoda
278.5

 
263.1

 
243.2

UK Jewelry
616.7

 
647.1

 
737.6

Other
21.1

 
18.1

 
12.5

Total sales
$
6,253.0

 
$
6,408.4

 
$
6,550.2

 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
Sterling Jewelers(2)
$
576.0

 
$
715.8

 
$
718.6

Zale Jewelry
66.7

 
62.2

 
44.3

Piercing Pagoda
13.4

 
11.2

 
7.8

UK Jewelry
33.1

 
45.6

 
61.5

Other(3)
(109.3
)
 
(71.6
)
 
(128.5
)
Total operating income
$
579.9

 
$
763.2

 
$
703.7

 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
Sterling Jewelers
$
121.8

 
$
112.7

 
$
106.2

Zale Jewelry
55.3

 
49.1

 
44.8

Piercing Pagoda
6.4

 
4.6

 
3.3

UK Jewelry
19.1

 
21.6

 
20.1

Other
0.8

 
0.8

 
0.9

Total depreciation and amortization
$
203.4

 
$
188.8

 
$
175.3

 
 
 
 
 
 
Capital additions:
 
 
 
 
 
Sterling Jewelers
$
134.8

 
$
154.5

 
$
141.6

Zale Jewelry
76.3

 
85.0

 
47.7

Piercing Pagoda
8.6

 
12.7

 
10.2

UK Jewelry
17.6

 
25.7

 
26.4

Other
0.1

 
0.1

 
0.6

Total capital additions
$
237.4

 
$
278.0

 
$
226.5

(1) 
Includes sales of $235.1 million, $234.6 million and $248.7 million generated by Canadian operations in Fiscal 2018, Fiscal 2017 and Fiscal 2016, respectively.
(2) 
For Fiscal 2018, amount includes $20.7 million gain related to the reversal of the allowance for credit losses for the in-house receivables sold, as well as the $10.2 million gain upon recognition of beneficial interest in connection with the sale of the prime portion of in-house receivables. See Note 3 for additional information.
(3) 
For Fiscal 2018, Other includes $29.6 million of transaction costs related to the credit transaction, $8.6 million of R2Net acquisition costs, and $3.4 million of CEO transition costs. See Note 3 and Note 4 for additional information regarding credit transaction and acquisition of R2Net, respectively. For Fiscal 2017, Other includes $28.4 million of integration costs for consulting expenses associated with IT implementations, severance related to organizational changes and expenses associated with the settlement of miscellaneous legal matters pending as of the date of the Zale acquisition. For Fiscal 2016, Other includes $78.9 million of transaction and integration costs primarily attributable to the impact of the appraisal rights legal settlement discussed in Note 26 and expenses associated with legal, tax, accounting, IT implementations and consulting services, as well as severance costs.
(in millions)
February 3, 2018
 
January 28, 2017
Total assets:
 
 
 
Sterling Jewelers
$
3,279.4

 
$
4,015.4

Zale Jewelry
1,879.4

 
1,940.7

Piercing Pagoda
150.2

 
141.6

UK Jewelry
420.3

 
372.6

Other
110.3

 
127.5

Total assets
$
5,839.6

 
$
6,597.8

 
 
 
 
Total long-lived assets:
 
 
 
Sterling Jewelers
$
956.3

 
$
567.3

Zale Jewelry
1,075.6

 
1,050.1

Piercing Pagoda
63.6

 
61.4

UK Jewelry
78.3

 
70.7

Other
7.3

 
8.0

Total long-lived assets
$
2,181.1

 
$
1,757.5

 
 
 
 
Total liabilities:
 
 
 
Sterling Jewelers
$
1,482.4

 
$
2,061.4

Zale Jewelry
439.9

 
524.3

Piercing Pagoda
28.8

 
28.2

UK Jewelry
98.9

 
110.6

Other
676.2

 
771.2

Total liabilities
$
2,726.2

 
$
3,495.7


(in millions)
Fiscal 2018
 
Fiscal 2017
 
Fiscal 2016
Sales by product:
 
 
 
 
 
Diamonds and diamond jewelry
$
3,742.8

 
$
3,853.7

 
$
3,918.1

Gold, silver jewelry, other products and services
2,067.2

 
2,090.0

 
2,116.4

Watches
443.0

 
464.7

 
515.7

Total sales
$
6,253.0

 
$
6,408.4

 
$
6,550.2

v3.8.0.1
Redeemable Preferred Shares
12 Months Ended
Feb. 03, 2018
Temporary Equity Disclosure [Abstract]  
Redeemable Preferred Shares
Redeemable preferred shares
On October 5, 2016, the Company issued 625,000 preferred shares to Green Equity Investors VI, L.P., Green Equity Investors Side VI, L.P., LGP Associates VI-A LLC and LGP Associates VI-B LLC, all affiliates of Leonard Green & Partners, L.P., (together, the “Investors”) for an aggregate purchase price of $625.0 million, or $1,000 per share (the “Stated Value”) pursuant to the investment agreement dated August 24, 2016. The Company's preferred shares are classified as temporary equity within the consolidated balance sheet.
In connection with the issuance of the preferred shares, the Company incurred direct and incremental expenses of $13.7 million, including financial advisory fees, closing costs, legal expenses and other offering-related expenses. These direct and incremental expenses originally reduced the preferred shares carrying value, and are accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date, November 2024. Accumulated accretion relating to these fees of $2.3 million was recorded in the consolidated balance sheet as of February 3, 2018 (January 28, 2017: $0.6 million).
Dividend rights: The preferred shares rank senior to the Company’s common shares, with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The liquidation preference for preferred shares is equal to the greater of (a) the Stated Value per share, plus all accrued but unpaid dividends and (b) the consideration holders would have received if preferred shares were converted into common shares immediately prior to the liquidation. Preferred shareholders are entitled to a cumulative dividend at the rate of 5% per annum, payable quarterly in arrears, commencing on February 15, 2017, either in cash or by increasing the Stated Value at the option of the Company. In addition, preferred shareholders were entitled to receive dividends or distributions declared or paid on common shares on an as-converted basis, other than the Company’s regularly declared quarterly cash dividends not in excess of 130% of the arithmetic average of the regular, quarterly cash dividends per common share, if any, declared by the Company during the preceding four calendar quarters.
On November 2, 2016, the Board of Directors approved certain changes to the rights of the preferred shareholders, including the following: (a) elimination of the right of preferred shareholders to receive dividends or other distributions declared on the Company’s common shares and inclusion of adjustments to the conversion rate in the event of any dividend, distribution, spin-off or certain other events or transactions in respect of the common shares; and (b) addition of a requirement for approval by the holders of the majority of the issued preferred shares for the declaration or payment by the Company of any dividends or other distributions on the common shares other than (i) regularly declared quarterly cash dividends paid on the issued common shares in any calendar quarter in an amount per share that is not more than 130% of the arithmetic average of the regular, quarterly cash dividends per common share, if any, declared by the Company during the preceding four calendar quarters for such quarter and (ii) any dividends or other distributions which are paid or distributed at the same time on the common shares and the preferred shares, provided that the amount paid or distributed to the preferred shares is based on the number of common shares into which such preferred shares could be converted on the applicable record date for such dividends or other distributions.
Conversion features: Preferred shares are convertible at the option of the holders at any time into common shares at the then applicable conversion rate. The conversion rate is subject to certain anti-dilution and other adjustments, including stock split / reverse stock split transactions, regular dividends declared on common shares, share repurchases (excluding amounts through open market transactions or accelerated share repurchases) and issuances of common shares or other securities convertible into common shares. The initial issuance did not include a beneficial conversion feature as the conversion price used to set the conversion ratio at the time of issuance was greater than the Company’s common stock price.
At any time on or after October 5, 2018, all or a portion of outstanding preferred shares are convertible at the option of the Company if the closing price of common shares exceeds 175% of the then applicable conversion price for at least 20 consecutive trading days.
The following table presents certain conversion measures as of February 3, 2018 and January 28, 2017:
(in millions, except conversion rate and conversion price)
February 3, 2018
 
January 28, 2017
Conversion rate
10.9409

 
10.6529

Conversion price
$
91.4002

 
$
93.8712

Potential impact of preferred shares if-converted to common shares
6.8

 
6.7

Liquidation preference
$
632.8

 
$
636.3


Redemption rights: At any time after November 15, 2024, the Company will have the right to redeem any or all, and the holders of the preferred shares will have the right to require the Company to repurchase any or all, of the preferred shares for cash at a price equal to the Stated Value plus all accrued but unpaid dividends. Upon certain change of control or delisting events involving the Company, preferred shareholders can require the Company to repurchase, subject to certain exceptions, all or any portion of its preferred shares at (a) an amount in cash equal to 101% of the Stated Value plus all accrued but unpaid dividends or (b) the consideration the holders would have received if they had converted their preferred shares into common shares immediately prior to the change of control event.
Voting rights: Preferred shareholders are entitled to vote with the holders of common shares on an as-converted basis. Holders of preferred shares are entitled to a separate class vote with respect to certain designee(s) for election to the Company’s Board of Directors, amendments to the Company’s organizational documents that have an adverse effect on the preferred shareholders and issuances by the Company of securities that are senior to, or equal in priority with, the preferred shares.
Registration rights:  Preferred shareholders have certain customary registration rights with respect to the preferred shares and the shares of common shares into which they are converted, pursuant to the terms of a registration rights agreement.
v3.8.0.1
Credit transaction, net
12 Months Ended
Feb. 03, 2018
Receivables [Abstract]  
Credit transaction, net
Credit transaction, net
In October 2017, Signet, through its subsidiary Sterling, completed the sale of the prime-only credit quality portion of Sterling’s in-house finance receivable portfolio to Comenity. The following events summarize the credit transaction:
Receivables reclassification: In the second quarter of Fiscal 2018, certain in-house finance receivables that met the criteria for sale to Comenity were reclassified from "held for investment" to "held for sale." Accordingly, the receivables were recorded at the lower of cost (par) or fair value, resulting in the reversal of the related allowance for credit losses of $20.7 million. This reversal was recorded in credit transaction, net in the consolidated income statement during the second quarter of Fiscal 2018.
Proceeds received: In October 2017, the Company received $952.5 million in cash consideration reflecting the par value of the receivables sold. In addition, the Company recognized a beneficial interest asset of $10.2 million representing the present value of the cash flows the Company expects to receive under the economic profit sharing agreement related to the receivables sold. The gain upon recognition of the beneficial interest asset was recorded in credit transaction, net in the consolidated income statement during the third quarter of Fiscal 2018.
Expenses: During Fiscal 2018, the Company incurred $29.6 million of transaction-related costs. These costs were recorded in credit transaction, net in the consolidated income statement during Fiscal 2018.
Asset-backed securitization facility termination: In October 2017, the Company terminated the asset-backed securitization facility in order to transfer the receivables free and clear. The asset-backed securitization facility had a principal balance outstanding of $600.0 million at the time of termination. The payoff was funded through the proceeds received from the par value of receivables sold. See Note 21 for additional information regarding the asset-backed securitization facility.
Program agreement: Comenity provides credit to prime-only credit quality customers with an initial term of seven years and, unless terminated by either party, additional renewal terms of two years. Under the Program Agreement, Comenity established a program to issue Sterling credit cards to be serviced, marketed and promoted in accordance with the terms of the agreement. Subject to limited exceptions, Comenity is the exclusive issuer of private label credit cards or an installment or other closed end loan product in the United States bearing specified Company trademarks, including “Kay”, “Jared” and specified regional brands, but excluding “Zale”, during the term of the agreement. The pre-existing arrangement with Comenity for the issuing of Zale credit cards was unaffected by the execution of the Program Agreement. Upon expiration or termination by either party of the Program Agreement, Sterling retains the option to purchase, or arrange the purchase by a third party of, the program assets from Comenity on terms that are no more onerous to Sterling than those applicable to Comenity under the Purchase Agreement, or in the case of a purchase by a third party, on customary terms. Additionally, the Company received a signing bonus, which may be repayable under certain conditions if the Program Agreement is terminated, and a right to receive future payments related to the performance of the credit program under an economic profit sharing agreement. The Program Agreement contains customary representations, warranties and covenants.
Additionally, Signet and Genesis Financial Solutions (“Genesis”) entered into a five-year servicing agreement in October 2017, under which Genesis will provide credit servicing functions for Signet’s existing non-prime accounts receivable, as well as future non-prime account originations.
During March 2018, the Company announced that it entered a definitive agreement with CarVal Investors (“CarVal”) to sell all eligible non-prime in-house accounts receivable. This agreement, in conjunction with the previously executed prime credit transaction with Comenity and the outsourcing of the servicing of the non-prime credit program to Genesis, will complete Signet’s transition to an outsourced credit structure. The sale is expected to close during the second quarter of Fiscal 2019 subject to certain closing conditions. In addition, for a five-year term, Signet will remain the issuer of non-prime credit with investment funds managed by CarVal Investors purchasing forward receivables at a discount rate determined in accordance with the agreement. Servicing of the non-prime receivables, including operational interfaces and customer servicing, will continue to be provided by Genesis.
During the first quarter of Fiscal 2019, the Company will reclassify its existing in-house finance receivables from held for investment to held for sale. The Company expects to recognize a loss of approximately $140.0 million upon reclassification as held for sale receivables are required to be valued at the lower of cost (par) or fair value, which incorporates an expectation of future losses. As of February 3, 2018, the Company’s non-prime accounts receivable are presented net of an allowance for credit losses, which represents management’s estimate of expected losses incurred in the accounts receivable portfolio as of the balance sheet date, as required under US GAAP (Topic 310 of the FASB Accounting Standards Codification). The transaction is expected to close in the second quarter of Signet's Fiscal 2019 subject to certain closing conditions.
Accounts receivable, net
In October 2017, the Company completed the sale of the prime-only credit quality portion of the Sterling Jewelers customer in-house finance receivable portfolio. The receivables sold, which were classified as "held for sale" as of the second quarter of Fiscal 2018, are no longer reported within the consolidated balance sheet. See Note 3 for additional information regarding the sale of these receivables. 
Signet’s accounts receivable primarily consist of US customer in-house financing receivables. The in-house finance receivable portfolio consists of a population that is of similar characteristics and is evaluated collectively for impairment.
(in millions)
February 3, 2018
 
January 28, 2017
Accounts receivable by portfolio segment, net:
 
 
 
Sterling Jewelers customer in-house finance receivables
$
649.4

 
$
1,813.3

Zale customer in-house finance receivables
33.5

 
33.4

Other accounts receivable
9.6

 
11.3

Total accounts receivable, net
$
692.5

 
$
1,858.0


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.
During the third quarter of Fiscal 2016, Signet implemented a program to provide in-house credit to customers in the Zale division’s US locations. The allowance for credit losses associated with Zale customer in-house finance receivables was immaterial as of February 3, 2018 and January 28, 2017. Effective October 20, 2017, the Zale customer in-house financing programs are being underwritten and serviced by a third party for newly originated balances after the effective date.
Other accounts receivable is comprised primarily of accounts receivable relating to the insurance loss replacement business in the UK Jewelry division of $9.3 million (January 28, 2017: $11.0 million).
Sterling Jewelers customer in-house finance receivables
The allowance for credit losses associated with the portion of Sterling Jewelers customer in-house finance receivables sold in October 2017 was reversed during the second quarter of Fiscal 2018. The allowance for credit losses on Sterling Jewelers remaining customer in-house finance receivables is shown below:
(in millions)
Fiscal 2018
 
Fiscal 2017
 
Fiscal 2016
Beginning balance:
$
(138.7
)
 
$
(130.0
)
 
$
(113.1
)
Charge-offs, net
221.2

 
203.4

 
173.6

Recoveries
34.3

 
35.1

 
35.3

Provision
(251.0
)
 
(247.2
)
 
(225.8
)
Reversal of allowance on receivables sold
20.7

 

 

Ending balance
(113.5
)
 
(138.7
)
 
(130.0
)
Ending receivable balance evaluated for impairment
762.9

 
1,952.0

 
1,855.9

Sterling Jewelers customer in-house finance receivables, net
649.4

 
1,813.3

 
1,725.9


Net bad debt expense is defined as the provision expense less recoveries.
As a result of the sale of the prime-only credit portion of the Sterling Jewelers customer in-house finance receivable portfolio and the outsourcing of the credit servicing on the remaining in-house finance receivable portfolio disclosed in Note 3, the Company revised its methodology for measuring delinquency to be based on the contractual basis. The credit quality indicator and age analysis of Sterling Jewelers customer in-house finance receivables are shown below under the contractual basis:
   
February 3, 2018
(in millions)
Gross
 
Valuation
allowance
Performing (accrual status):
 
 
 
0 - 120 days past due
$
703.4

 
$
(54.0
)
121 or more days past due
59.5

 
(59.5
)
 
$
762.9

 
$
(113.5
)
 


 


Valuation allowance as a % of ending receivable balance
 
 
14.9
%
Prior to the fourth quarter of Fiscal 2018, the Company’s calculation of the allowance for credit losses was based on a recency measure of delinquency. The credit quality indicator and age analysis of Sterling Jewelers customer in-house finance receivables prior to the sale of the prime-only credit portion of the in-house receivable portfolio as of January 28, 2017 and January 30, 2016 are shown below under the recency basis:
   
 
January 28, 2017
 
January 30, 2016
(in millions)
 
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
Performing (accrual status):
 
 
 
 
 
 
 
 
Current, aged 0 – 30 days
 
$
1,538.2

 
$
(47.2
)
 
$
1,473.0

 
$
(45.4
)
Past due, aged 31 – 60 days
 
282.0

 
(9.0
)
 
259.6

 
(8.3
)
Past due, aged 61 – 90 days
 
51.6

 
(2.3
)
 
49.2

 
(2.2
)
Non Performing (nonaccrual status):
 
 
 
 
 
 
 
 
Past due, aged more than 90 days
 
80.2

 
(80.2
)
 
74.1

 
(74.1
)
 
 
$
1,952.0

 
$
(138.7
)
 
$
1,855.9

 
$
(130.0
)
 
 
 
 
 
 
 
 
 
Valuation allowance as a % of ending receivable balance
 
 
 
7.1
%
 
 

7.0
%

As a result of the sale of the prime-only credit portion of the in-house finance receivable portfolio, the change in measure of delinquency during the fourth quarter of Fiscal 2018, and the difference in collection strategies (including minimum payments and customer contact schedules) utilized by the outsourced service provider in the fourth quarter of Fiscal 2018 as compared to the in-house collection methodologies applied by Signet in prior periods, the comparability of the portfolio performance and aging may be limited.
Securitized credit card receivables
The Sterling Jewelers division previously securitized its credit card receivables through its Sterling Jewelers Receivables Master Note Trust. As a condition of closing the credit transaction during the third quarter of Fiscal 2018, the Company terminated the asset-backed securitization facility to transfer the receivables free and clear. See Note 21 for additional information regarding this asset-backed securitization facility.
v3.8.0.1
Common Shares, Treasury Shares, Reserves and Dividends
12 Months Ended
Feb. 03, 2018
Equity [Abstract]  
Common Shares, Treasury Shares, Reserves and Dividends
Common shares, treasury shares, reserves and dividends
Common shares
The par value of each Common Share is 18 cents. The consideration received for common shares relating to options issued during Fiscal 2018 was $0.3 million (Fiscal 2017: $2.1 million; Fiscal 2016: $5.0 million).
Treasury shares
Signet may from time to time repurchase common shares under various share repurchase programs authorized by Signet’s Board. Repurchases may be made in the open market, through block trades, accelerated share repurchase agreements or otherwise. The timing, manner, price and amount of any repurchases will be determined by the Company at its discretion, and will be subject to economic and market conditions, stock prices, applicable legal requirements and other factors. The repurchase programs are funded through Signet’s existing cash reserves and liquidity sources. Repurchased shares are held as treasury shares and may be used by Signet for general corporate purposes.
Treasury shares represent the cost of shares that the Company purchased in the market under the applicable authorized repurchase program, shares forfeited under the Omnibus Incentive Plan and those previously held by the Employee Stock Ownership Trust (“ESOT”) to satisfy options under the Company’s share option plans.
In February 2016, the Board authorized the repurchase of Signet’s common shares up to $750.0 million (the “2016 Program”). In August 2016, the Board increased its authorized share repurchase program by $625.0 million, bringing the total authorization for the 2016 Program to $1,375.0 million. The 2016 Program may be suspended or discontinued at any time without notice.
On October 5, 2016, the Company entered into an accelerated share repurchase agreement (“ASR”) with a large financial institution to repurchase $525.0 million of the Company’s common shares. At inception, the Company paid $525.0 million to the financial institution and took delivery of 4.7 million shares with an initial estimated cost of $367.5 million. In December 2016, the ASR was finalized and the Company received an additional 1.3 million shares. Total shares repurchased under the ASR were 6.0 million shares at an average purchase price of $87.01 per share based on the volume-weighted average price of the Company’s common shares traded during the pricing period, less an agreed discount.
The Company reflected shares delivered as treasury shares as of the date the shares were physically delivered in computing the weighted average common shares outstanding for both basic and diluted earnings per share. The ASR was accounted for as a treasury stock transaction and a forward stock purchase contract. The forward stock purchase contract was determined to be indexed to the Company’s own stock and met all of the applicable criteria for equity classification.
The share repurchase activity is outlined in the table below:
 
 
 
Fiscal 2018
 
Fiscal 2017
 
Fiscal 2016
(in millions, expect per share amounts)
Amount
authorized
 
Shares
repurchased
 
Amount
repurchased
 
Average
repurchase
price per
share
 
Shares
repurchased
 
Amount
repurchased
 
Average
repurchase
price per
share
 
Shares
repurchased
 
Amount
repurchased
 
Average
repurchase
price per
share
2016 Program(1)
$
1,375.0

 
8.1

 
$
460.0

 
$
56.91

 
10.0

 
$
864.4

 
$
86.40

 
n/a

 
n/a

 
n/a

2013 Program(2)
$
350.0

 
n/a

 
n/a

 
n/a

 
1.2

 
$
135.6

 
$
111.26

 
1.0

 
$
130.0

 
$
127.63

Total
 
 
8.1

 
$
460.0

 
$
56.91

 
11.2

 
$
1,000.0

 
$
89.10

 
1.0

 
$
130.0

 
$
127.63

(1) 
The 2016 Program had $50.6 million remaining as of February 3, 2018.
(2) 
The 2013 Program was completed in May 2016.
n/a
Not applicable.
In June 2017, the Board of Directors authorized a new program to repurchase $600.0 million of Signet’s common shares (the “2017 Program”). The 2017 Program may be suspended or discontinued at any time without notice. The total authorization remaining under all authorized programs as of February 3, 2018 was $650.6 million. Shares were reissued in the amounts of 0.3 million and 0.1 million, net of taxes and forfeitures, in Fiscal 2018 and Fiscal 2017, respectively, to satisfy awards outstanding under existing share-based compensation plans.
Dividends on common shares
 
Fiscal 2018
 
Fiscal 2017
 
Fiscal 2016
(in millions, except per share amounts)
Cash dividend
per share
 
Total
dividends
 
Cash dividend
per share
 
Total
dividends
 
Cash dividend
per share
 
Total
dividends
First quarter
$
0.31

 
$
21.3

 
$
0.26

 
$
20.4

 
$
0.22

 
$
17.6

Second quarter
0.31

 
18.7

 
0.26

 
19.7

 
0.22

 
17.6

Third quarter
0.31

 
18.7

 
0.26

 
18.1

 
0.22

 
17.5

Fourth quarter
0.31

 
18.8

(1) 
0.26

 
17.7

(1) 
0.22

 
17.5

Total
$
1.24

 
$
77.5

 
$
1.04

 
$
75.9

 
$
0.88

 
$
70.2

(1) 
Signet’s dividend policy results in the dividend payment date being a quarter in arrears from the declaration date. As a result, as of February 3, 2018 and January 28, 2017, $18.8 million and $17.7 million, respectively, has been recorded in accrued expenses and other current liabilities in the consolidated balance sheets reflecting the cash dividends declared for the fourth quarter of Fiscal 2018 and Fiscal 2017, respectively.
In addition, on March 14, 2018, Signet’s Board declared a quarterly dividend of $0.37 per share on its common shares. This dividend will be payable on June 1, 2018 to shareholders of record on May 4, 2018, with an ex-dividend date of May 3, 2018.
Dividends on preferred shares
 
Fiscal 2018
 
Fiscal 2017
(in millions)
Total cash
dividends
 
Total cash
dividends
First quarter
$
7.8

 
$

Second quarter
7.8

 

Third quarter
7.8

 

Fourth quarter(1)
7.8

 
11.3

Total
$
31.2

 
$
11.3

(1) 
Signet’s preferred shares dividends results in the dividend payment date being a quarter in arrears from the declaration date. As a result, as of February 3, 2018 and January 28, 2017, $7.8 million and $11.3 million, respectively, has been recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets reflecting the cash dividends on preferred shares declared for the fourth quarter of Fiscal 2018 and Fiscal 2017, respectively.
There were no cumulative undeclared dividends on the preferred shares that reduced net income attributable to common shareholders during Fiscal 2018. In addition, deemed dividends of $1.7 million and $0.6 million related to accretion of issuance costs associated with the preferred shares were recognized in Fiscal 2018 and Fiscal 2017, respectively.
v3.8.0.1
Earnings Per Common Share
12 Months Ended
Feb. 03, 2018
Earnings Per Share [Abstract]  
Earnings per common share
Earnings per common share (“EPS”)
Basic EPS is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding for the period. The computation of basic EPS is outlined in the table below:
(in millions, except per share amounts)
Fiscal 2018
 
Fiscal 2017
 
Fiscal 2016
Numerator:
 
 
 
 
 
Net income attributable to common shareholders
$
486.4

 
$
531.3

 
$
467.9

Denominator:
 
 
 
 
 
Weighted average common shares outstanding
63.0

 
74.5

 
79.5

EPS – basic
$
7.72

 
$
7.13

 
$
5.89


The dilutive effect of share awards represents the potential impact of outstanding awards issued under the Company’s share-based compensation plans, including restricted shares and restricted stock units issued under the Omnibus Plan and stock options issued under the Share Saving Plans and Executive Plans. The dilutive effect of preferred shares represents the potential impact for common shares that would be issued upon conversion. Potential common share dilution related to share awards and preferred shares is determined using the treasury stock and if-converted methods, respectively. Under the if-converted method, the preferred shares are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted EPS calculation for the entire period being presented. Additionally, cumulative dividends and accretion for issuance costs associated with the preferred shares are added back to net income attributable to common shareholders. See Note 6 for additional discussion of the Company’s preferred shares. The computation of diluted EPS is outlined in the table below:
(in millions, except per share amounts)
Fiscal 2018
 
Fiscal 2017
 
Fiscal 2016
Numerator:
 
 
 
 
 
Net income attributable to common shareholders
$
486.4

 
$
531.3

 
$
467.9

Add: Dividends on preferred shares
32.9

 
11.9

 

Numerator for diluted EPS
$
519.3

 
$
543.2

 
$
467.9