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EX-31.1 - EXHIBIT 31.1 - SIGNET JEWELERS LTDfy16q3exhibit311.htm
EX-32.1 - EXHIBIT 32.1 - SIGNET JEWELERS LTDfy16q3exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - SIGNET JEWELERS LTDfy16q3exhibit312.htm
EX-32.2 - EXHIBIT 32.2 - SIGNET JEWELERS LTDfy16q3exhibit322.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

 
(Mark One)
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
for the quarterly period ended October 31, 2015 or
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to
Commission file number 1-32349
 
SIGNET JEWELERS LIMITED
(Exact name of Registrant as specified in its charter)

 
Bermuda
 
Not Applicable
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
(441) 296 5872
(Address and telephone number including area code of principal executive offices)
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one).
Large accelerated filer   x          Accelerated filer   ¨         Non-accelerated filer   ¨         Smaller reporting company   ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   ¨     No   x

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date
Common Stock, $0.18 par value, 79,531,968 shares as of November 30, 2015


1


SIGNET JEWELERS LIMITED
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
PAGE
 
 
 
 
 
 
 
 
PART I
 
FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
 
Financial Statements (Unaudited)
 
 
 
 
 
 
Condensed Consolidated Statements of Operations
 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Loss)
 
 
 
 
 
Condensed Consolidated Balance Sheets
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows
 
 
 
 
 
Condensed Consolidated Statement of Shareholders' Equity
 
 
 
 
 
Notes to the Condensed Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
ITEM 3.
 
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
ITEM 4.
 
Controls and Procedures
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II
 
OTHER INFORMATION
 
 
 
 
ITEM 1.
 
Legal Proceedings
 
 
 
ITEM 1A.
 
Risk Factors
 
 
 
ITEM 2.
 
Unregistered Sales of Equity and Securities and Use of Proceeds
 
 
 
ITEM 6.
 
Exhibits
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SIGNET JEWELERS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
13 weeks ended
 
39 weeks ended
 
 
(in millions, except per share amounts)
October 31, 2015
 
November 1, 2014
 
October 31, 2015
 
November 1, 2014
 
Notes
Sales
$
1,216.4

 
$
1,177.9

 
$
4,157.6

 
$
3,459.9

 
4
Cost of sales
(848.7
)
 
(832.0
)
 
(2,733.2
)
 
(2,297.8
)
 
 
Gross margin
367.7

 
345.9

 
1,424.4

 
1,162.1

 
 
Selling, general and administrative expenses
(395.0
)
 
(388.7
)
 
(1,301.0
)
 
(1,078.4
)
 
 
Other operating income, net
60.9

 
53.5

 
187.2

 
161.2

 
 
Operating income
33.6

 
10.7

 
310.6

 
244.9

 
4
Interest expense, net
(11.7
)
 
(12.6
)
 
(33.8
)
 
(28.1
)
 
 
Income (loss) before income taxes
21.9

 
(1.9
)
 
276.8

 
216.8

 
 
Income taxes
(6.9
)
 
0.6

 
(80.8
)
 
(63.5
)
 
8
Net income (loss)
$
15.0

 
$
(1.3
)
 
$
196.0

 
$
153.3

 
 
Basic earnings (loss) per share
$
0.19

 
$
(0.02
)
 
$
2.46

 
$
1.92

 
5
Diluted earnings (loss) per share
$
0.19

 
$
(0.02
)
 
$
2.45

 
$
1.91

 
5
Basic weighted average common shares outstanding
79.3

 
79.9

 
79.7

 
79.9

 
5
Diluted weighted average common shares outstanding
79.5

 
79.9

 
79.9

 
80.2

 
5
Dividends declared per share
$
0.22

 
$
0.18

 
$
0.66

 
$
0.54

 
6
The accompanying notes are an integral part of these condensed consolidated financial statements.

3


SIGNET JEWELERS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
13 weeks ended
 
October 31, 2015
 
November 1, 2014
(in millions)
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
 
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
Net income (loss)
 
 
 
 
$
15.0

 
 
 
 
 
$
(1.3
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(4.2
)
 
$
 
 
(4.2
)
 
$
(21.4
)
 
$

 
(21.4
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on securities, net
(0.1
)
 
 
 
(0.1
)
 
 
 

 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain (loss)
2.2

 
(1.1
)
 
1.1

 
(2.7
)
 
1.2

 
(1.5
)
Reclassification adjustment of losses to net income (loss)
1.1

 
(0.2
)
 
0.9

 
2.7
 
 
(0.8
)
 
1.9
 
Pension plan:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment to net income for amortization of actuarial losses
0.9

 
(0.2
)
 
0.7

 
0.5
 
 
(0.1
)
 
0.4
 
Reclassification adjustment to net income for amortization of prior service credits
(0.6
)
 
0.1
 
 
(0.5
)
 
(0.4
)
 
0.1

 
(0.3
)
Total other comprehensive (loss) income
$
(0.7
)
 
$
(1.4
)

$
(2.1
)
 
$
(21.3
)

$
0.4

 
$
(20.9
)
Total comprehensive income (loss)
 
 
 
 
$
12.9

 
 
 
 
 
$
(22.2
)
 
39 weeks ended
 
October 31, 2015
 
November 1, 2014
(in millions)
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
 
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
Net income
 
 
 
 
$
196.0

 
 
 
 
 
$
153.3
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(1.4
)
 
$
 
 
(1.4
)
 
$
(14.1
)
 
$

 
(14.1
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on securities, net
(0.4
)
 
 
 
(0.4
)
 
(0.2
)
 

 
(0.2
)
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss
(15.0
)
 
4.7
 
 
(10.3
)
 
(2.2
)
 
0.9

 
(1.3
)
Reclassification adjustment of losses to net income
2.9

 
(0.7
)
 
2.2

 
15.2
 
 
(5.2
)
 
10.0
 
Pension plan:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment to net income for amortization of actuarial losses
2.6

 
(0.5
)
 
2.1

 
1.5
 
 
(0.3
)
 
1.2
 
Reclassification adjustment to net income for amortization of prior service credits
(1.7
)
 
0.3
 
 
(1.4
)
 
(1.3
)
 
0.3

 
(1.0
)
Total other comprehensive (loss) income
$
(13.0
)
 
$
3.8
 
 
$
(9.2
)
 
$
(1.1
)
 
$
(4.3
)
 
$
(5.4
)
Total comprehensive income
 
 
 
 
$
186.8

 
 
 
 
 
$
147.9
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


SIGNET JEWELERS LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions, except par value per share amount)
October 31, 2015
 
January 31, 2015
 
November 1, 2014
 
Notes
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
77.2

 
$
193.6

 
$
87.6

 
 
Accounts receivable, net
1,451.5

 
1,567.6

 
1,292.1

 
9
Other receivables
55.4

 
63.6

 
56.7

 
 
Other current assets
143.2

 
137.2

 
133.7

 
 
Deferred tax assets
3.6

 
4.5

 
1.6

 
 
Income taxes
24.6

 
1.8

 
21.6

 
 
Inventories
2,727.0

 
2,439.0

 
2,674.6

 
10
Total current assets
4,482.5

 
4,407.3

 
4,267.9

 
 
Non-current assets:
 
 
 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $939.7, $852.1 and $839.0, respectively
718.0

 
665.9

 
658.8

 
 
Goodwill
517.6

 
519.2

 
524.3

 
11
Intangible assets, net
434.3

 
447.1

 
461.3

 
11
Other assets
144.5

 
140.0

 
133.5

 
12
Deferred tax assets
132.1

 
111.1

 
72.8

 
 
Retirement benefit asset
40.7

 
37.0

 
59.9

 
16
Total assets
$
6,469.7

 
$
6,327.6

 
$
6,178.5

 
 
Liabilities and Shareholders’ equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Loans and overdrafts
$
249.8

 
$
97.5

 
$
221.8

 
17
Accounts payable
371.4

 
277.7

 
396.2

 
 
Accrued expenses and other current liabilities
408.0

 
482.4

 
422.7

 
 
Deferred revenue
241.4

 
248.0

 
221.6

 
18
Deferred tax liabilities
170.5

 
145.8

 
151.2

 
 
Income taxes
0.7

 
86.9

 
3.6

 
 
Total current liabilities
1,441.8

 
1,338.3

 
1,417.1

 
 
Non-current liabilities:
 
 
 
 
 
 
 
Long-term debt
1,338.7

 
1,363.8

 
1,371.3

 
17
Other liabilities
226.6

 
230.2

 
227.2

 
 
Deferred revenue
597.5

 
563.9

 
518.8

 
18
Deferred tax liabilities
20.1

 
21.0

 
1.8

 
 
Total liabilities
3,624.7

 
3,517.2

 
3,536.2

 
 
Commitments and contingencies


 


 


 
21
Shareholders’ equity:
 
 
 
 
 
 
 
Common shares of $0.18 par value: authorized 500 shares, 79.5 shares outstanding (January 31, 2015: 80.3 outstanding; November 1, 2014: 80.2 outstanding)
15.7

 
15.7

 
15.7

 
 
Additional paid-in capital
274.7

 
265.2

 
261.2

 
 
Other reserves
0.4

 
0.4

 
0.4

 
 
Treasury shares at cost: 7.7 shares (January 31, 2015: 6.9 shares; November 1, 2014: 7.0 shares)
(480.3
)
 
(370.0
)
 
(373.2
)
 
6
Retained earnings
3,280.3

 
3,135.7

 
2,922.1

 
 
Accumulated other comprehensive loss
(245.8
)
 
(236.6
)
 
(183.9
)
 
7
Total shareholders’ equity
2,845.0

 
2,810.4

 
2,642.3

 
 
Total liabilities and shareholders’ equity
$
6,469.7

 
$
6,327.6

 
$
6,178.5

 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5


SIGNET JEWELERS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
13 weeks ended
 
39 weeks ended
(in millions)
October 31, 2015
 
November 1, 2014
 
October 31, 2015
 
November 1, 2014
Cash flows from operating activities
 
 
 
 
 
 
 
Net income (loss)
$
15.0

 
$
(1.3
)
 
$
196.0

 
$
153.3

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
45.0

 
40.3

 
129.5

 
104.8

Amortization of unfavorable leases and contracts
(7.0
)
 
(8.9
)
 
(24.6
)
 
(14.8
)
Pension benefit

 
(0.6
)
 

 
(1.8
)
Share-based compensation
4.7

 
3.5

 
11.8

 
10.7

Deferred taxation
(5.9
)
 
(28.0
)
 
8.0

 
(32.2
)
Excess tax benefit from exercise of share awards

 

 
(5.1
)
 
(7.7
)
Amortization of debt discount and issuance costs
1.0

 
1.0

 
2.6

 
6.5

Other non-cash movements
0.7

 
0.6

 
2.7

 
0.7

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Decrease in accounts receivable
41.6

 
23.5

 
116.3

 
81.8

Decrease (increase) in other receivables and other assets
2.1

 
(0.9
)
 
1.6

 
(4.9
)
Increase in other current assets
(17.6
)
 
(13.9
)
 
(12.8
)
 
(36.7
)
Increase in inventories
(317.7
)
 
(338.2
)
 
(289.3
)
 
(321.1
)
Increase in accounts payable
174.4

 
161.8

 
93.6

 
132.9

(Decrease) increase in accrued expenses and other liabilities
(31.9
)
 
4.0

 
(60.5
)
 
(15.0
)
Increase in deferred revenue
1.0

 
8.2

 
25.0

 
29.2

Decrease in income taxes payable
(26.8
)
 
(58.2
)
 
(104.1
)
 
(106.7
)
Pension plan contributions
(0.5
)
 
(1.0
)
 
(2.0
)
 
(3.2
)
Net cash (used in) provided by operating activities
(121.9
)
 
(208.1
)
 
88.7

 
(24.2
)
Investing activities
 
 
 
 
 
 
 
Purchase of property, plant and equipment
(71.9
)
 
(75.1
)
 
(170.8
)
 
(165.1
)
Purchase of available-for-sale securities
(1.9
)
 
(3.0
)
 
(3.8
)
 
(4.2
)
Proceeds from sale of available-for-sale securities

 
1.5

 
3.6

 
2.5

Acquisition of Zale Corporation, net of cash acquired

 

 

 
(1,429.2
)
Net cash used in investing activities
(73.8
)
 
(76.6
)
 
(171.0
)
 
(1,596.0
)
Financing activities
 
 
 
 
 
 
 
Dividends paid
(17.5
)
 
(14.4
)
 
(49.6
)
 
(40.8
)
Proceeds from issuance of common shares
3.1

 
2.2

 
3.3

 
4.2

Excess tax benefit from exercise of share awards

 

 
5.1

 
7.7

Proceeds from senior notes

 

 

 
398.4

Proceeds from term loan

 

 

 
400.0

Repayments of term loan
(7.5
)
 
(5.0
)
 
(17.5
)
 
(5.0
)
Proceeds from securitization facility
542.6

 
493.4

 
1,738.9

 
1,424.0

Repayments of securitization facility
(542.6
)
 
(493.4
)
 
(1,738.9
)
 
(824.0
)
Proceeds from revolving credit facility
177.0

 
145.0

 
177.0

 
145.0

Repayments of revolving credit facility
(30.0
)
 

 
(30.0
)
 

Payment of debt issuance costs

 
(2.1
)
 

 
(20.5
)
Repurchase of common shares
(30.0
)
 
(7.4
)
 
(111.9
)
 
(29.8
)
Net settlement of equity based awards

 
(3.0
)
 
(8.3
)
 
(18.1
)
Principal payments under capital lease obligations
(0.2
)
 
(0.3
)
 
(0.8
)
 
(0.5
)
Proceeds from (repayment of) short-term borrowings
18.5

 
43.0

 
(1.5
)
 
20.8

Net cash provided by (used in) financing activities
113.4

 
158.0

 
(34.2
)
 
1,461.4

 
 
 
 
 
 
 
 
Cash and cash equivalents at beginning of period
159.8

 
215.0

 
193.6

 
247.6

Decrease in cash and cash equivalents
(82.3
)
 
(126.7
)
 
(116.5
)
 
(158.8
)
Effect of exchange rate changes on cash and cash equivalents
(0.3
)
 
(0.7
)
 
0.1

 
(1.2
)
Cash and cash equivalents at end of period
$
77.2

 
$
87.6

 
$
77.2

 
$
87.6

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


SIGNET JEWELERS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(in millions)
Common
shares at
par value
 
Additional
paid-in
capital
 
Other
reserves
 
Treasury
shares
 
Retained
earnings
 
Accumulated
other
comprehensive
loss
 
Total
shareholders’
equity
Balance at January 31, 2015
$
15.7

 
$
265.2

 
$
0.4

 
$
(370.0
)
 
$
3,135.7

 
$
(236.6
)
 
$
2,810.4

Net income

 

 

 

 
196.0

 

 
196.0

Other comprehensive loss

 

 

 

 

 
(9.2
)
 
(9.2
)
Dividends

 

 

 

 
(52.7
)
 

 
(52.7
)
Repurchase of common shares

 

 

 
(111.9
)
 

 

 
(111.9
)
Net settlement of equity based awards

 
(3.0
)
 

 
(1.1
)
 
1.4

 

 
(2.7
)
Share options exercised

 
0.7

 

 
2.7

 
(0.1
)
 

 
3.3

Share-based compensation expense

 
11.8

 

 

 

 

 
11.8

Balance at October 31, 2015
$
15.7

 
$
274.7

 
$
0.4

 
$
(480.3
)
 
$
3,280.3

 
$
(245.8
)
 
$
2,845.0

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


SIGNET JEWELERS LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and principal 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 US, 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 the Other reportable segment.
The Sterling Jewelers division operates retail stores in all 50 US states in malls, outlets and off-mall locations under brands including Kay Jewelers, Kay Jewelers Outlet, Jared The Galleria Of Jewelry, Jared Vault and various mall-based regional brands. The Zale division primarily operates in shopping malls throughout the US, Canada and Puerto Rico. Zale Jewelry retail stores operate under brands including Zales Jewelers, Zales Outlet, Peoples Jewellers and various regional brands, while Piercing Pagoda operates through mall-based kiosks. The UK Jewelry division's retail stores operate in major regional shopping malls and off-mall "high street" locations (main shopping thoroughfares with high pedestrian traffic) under brands including 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 and unallocated corporate administrative functions. See Note 4 for additional discussion of the Company’s segments.
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.
Basis of preparation
These condensed consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in Signet’s Annual Report on Form 10-K for the year-ended January 31, 2015 filed with the SEC on March 26, 2015.
Use of estimates
The preparation of these condensed consolidated financial statements, in conformity with US GAAP and SEC regulations for interim reporting, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are primarily made in relation to the valuation of accounts receivables, inventories, deferred revenue, derivatives, employee benefits, income taxes, contingencies, asset impairments, depreciation and amortization of long-lived assets as well as accounting for business combinations.
Fiscal year
The Company’s fiscal year ends on the Saturday nearest to January 31st. Fiscal 2016 is the 52 week year ending January 30, 2016 and Fiscal 2015 was the 52 week year ended January 31, 2015. Within these condensed consolidated financial statements, the third quarter and year to date of the relevant fiscal years 2016 and 2015 refer to the 13 and 39 weeks ended October 31, 2015 and November 1, 2014, respectively.

8


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 condensed consolidated statements of equity as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains or losses resulting from foreign currency transactions are included within the condensed consolidated statements of operations, whereas translation adjustments and gains or losses related to intercompany loans of a long-term investment nature are recognized as a component of AOCI.
Revenue recognition
Extended service plans and lifetime warranty agreements
The Company recognizes revenue related to lifetime warranty sales in proportion to when the expected costs will be incurred. The deferral period for lifetime warranty 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.
The Sterling Jewelers division sells extended service plans, subject to certain conditions, to perform repair work over the life of the product. Revenue from the sale of these lifetime extended service plans is recognized consistent with the estimated pattern of claim costs expected to be incurred by the Company in connection with performing under the extended service plan 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 extended service plans associated with ring sizing was made to further align Zale and Sterling ESP policies. As a result, revenue from the sale of these lifetime extended service plans 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 and 42% of revenue recognized within the first two years for plans sold prior to May 2, 2015 (January 31, 2015: 45%; November 1, 2014: 45%).
The Zale division also sells extended service plans. 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 extended service plans is deferred and recognized over 10 years, with approximately 69% of revenue recognized within the first two years (January 31, 2015: 69%; November 1, 2014: 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.
Reclassification
The Company has reclassified the presentation of certain prior year amounts in the statements of cash flows to conform to the current year presentation.


9


2. New accounting pronouncements
New accounting pronouncements to be adopted in future periods
Revenue recognition
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The new guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). 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. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers-Deferral of the Effective Date.” The new guidance defers the effective date of ASU No. 2014-09 by one year. As a result, ASU No. 2014-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016, including interim periods within that annual period. Signet is currently assessing the impact, if any, as well as the available methods of implementation, that the adoption of this accounting pronouncement will have on the Company's financial position or results of operations.
Share-based compensation
In June 2014, the FASB issued ASU No. 2014-12, “Compensation — Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The new guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU No. 2014-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. Signet does not expect the adoption of this guidance to have a material impact on the Company's financial position or results of operations.
Debt issuance costs
In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The new guidance requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. In August 2015, the FASB issued ASU No. 2015-15, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The new guidance provides clarity that the SEC would not object to the deferral and presentation of debt issuance costs related to line-of-credit arrangements as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. ASU Nos. 2015-03 and 2015-15 are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. Signet does not expect the adoption of this guidance to have a material impact on the Company's financial position or results of operations.
Inventory
In July 2015, the FASB issued 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” and options that currently exist for “market value” will be eliminated. 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.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted and should be applied prospectively. Signet is currently assessing the impact, if any, that that adoption of this guidance will have on the Company's financial position or results of operations.
Income Taxes
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. ASU No. 2015-17 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. Signet does not expect the adoption of this guidance to have a material impact on the Company's financial position or results of operations.


10


3. Acquisitions
Zale Corporation
On May 29, 2014, the Company acquired 100% of the outstanding shares of Zale Corporation, making the entity a wholly-owned consolidated subsidiary of Signet (the "Zale Acquisition" or "Acquisition"). Under the terms of the Agreement and Plan of Merger, Zale Corporation shareholders received $21 per share in cash for each outstanding share of common stock and the vesting, upon consummation of the Acquisition, of certain outstanding Zale Corporation restricted stock units and stock options, which converted into the right to receive the merger consideration of $1,458.0 million, including $478.2 million to extinguish Zale Corporation’s existing debt. The Acquisition was funded by the Company through existing cash and the issuance of $1,400.0 million of long-term debt, including: (a) $400.0 million of senior unsecured notes due in 2024, (b) $600.0 million of two-year revolving asset-backed variable funding notes and (c) a $400.0 million five-year senior unsecured term loan facility. See Note 17 for additional information related to the Company’s long-term debt instruments.
The transaction was accounted for as a business combination during the second quarter of Fiscal 2015. The Acquisition aligns with the Company’s strategy to expand its footprint. The following table summarizes the consideration transferred in conjunction with the Acquisition as of May 29, 2014:
(in millions, except per share amounts)
Amount
Cash consideration paid to Zale Corporation shareholders ($21 per share)
$
910.2

Cash consideration paid for settlement of Zale Corporation stock options, restricted share awards and long term incentive plan awards
69.6

Cash paid to extinguish Zale Corporation outstanding debt as of May 29, 2014
478.2

Total consideration transferred
$
1,458.0

Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed are recorded at acquisition date fair values. During the fourth quarter of Fiscal 2015, the Company finalized the valuation of net assets acquired. The following table summarizes the fair values identified for the assets acquired and liabilities assumed in the Acquisition as of May 29, 2014:
(in millions)
 
Fair values
 
     Cash and cash equivalents
 
$
28.8

 
     Inventories
 
856.7

 
     Other current assets
 
22.4

 
     Property, plant and equipment
 
103.6

 
     Intangible assets:
 
 
 
          Trade names
 
417.0

 
          Favorable leases
 
50.2

 
Deferred tax assets
 
132.8

 
Other assets
 
25.4

 
  Current liabilities(1)
 
(206.3
)
 
Deferred revenue
 
(93.3
)
 
Unfavorable leases
 
(50.5
)
 
Unfavorable contracts
 
(65.6
)
 
Deferred tax liabilities
 
(234.0
)
 
Other liabilities
 
(28.6
)
 
Fair value of net assets acquired
 
958.6

 
Goodwill
 
499.4

 
Total consideration transferred
 
$
1,458.0

 
(1) Includes loans and overdrafts, accounts payable, income taxes payable, accrued expenses and other current liabilities.

11


The excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed was recognized as goodwill. The goodwill attributable to the Acquisition is not deductible for tax purposes. See Note 11.
The following unaudited consolidated pro forma information summarizes the results of operations of the Company as if the Acquisition and related issuance of $1,400.0 million of long-term debt (see Note 17) had occurred as of February 2, 2013. The unaudited consolidated pro forma financial information was prepared in accordance with the acquisition method of accounting under existing standards and is not necessarily indicative of the results of operations that would have occurred if the Acquisition had been completed on the date indicated, nor is it indicative of the future operating results of the Company.
 
 
13 weeks ended
 
39 weeks ended
(in millions, except per share amounts)
 
November 1, 2014
 
November 1, 2014
Pro forma sales
 
$
1,183.1

 
$
4,041.3

Pro forma net income
 
$
15.1

 
$
213.9

Pro forma earnings per share – basic
 
$
0.19

 
$
2.68

Pro forma earnings per share – diluted
 
$
0.19

 
$
2.67

The unaudited pro forma information gives effect to actual operating results prior to the Acquisition and has been adjusted with respect to certain aspects of the Acquisition to reflect the following:
Acquisition accounting adjustments to reset deferred revenue associated with extended service plans sold by Zale Corporation prior to the Acquisition to fair value as of the acquisition date. The fair value of deferred revenue is determined based on the estimated costs remaining to be incurred for future obligations associated with the outstanding plans at the time of the Acquisition, plus a reasonable profit margin on the estimated costs. These adjustments also reflect the impact of deferring the revenue associated with the lifetime extended service plans over a 10-year period as disclosed in Note 1.
Additional depreciation and amortization expenses that would have been recognized assuming fair value adjustments to the existing Zale Corporation assets acquired and liabilities assumed, including intangible assets, favorable and unfavorable leases, and unfavorable contracts and expense associated with the fair value step-up of inventory acquired.
Tax impact of the Company’s amended capital structure as a result of the Acquisition and related issuance of $1,400.0 million of long-term debt.
Adjustment of valuation allowances associated with US and Canadian deferred tax assets, including net operating loss carryforwards.
Exclusion of acquisition-related costs of $9.4 million and $48.6 million, which were included in the Company’s net income during the 13 and 39 weeks ended November 1, 2014, respectively. Also excluded were costs associated with the unsecured bridge facility discussed in Note 17 of $4.0 million, which were included in the Company's net income during the 39 weeks ended November 1, 2014. All amounts were reported within the Other segment.
The unaudited pro forma results do not reflect future events that either have occurred or may occur after the Acquisition, including, but not limited to, the anticipated realization of expected operating synergies in subsequent periods. They also do not give effect to acquisition-related costs that the Company expects to incur in connection with the Acquisition, including, but not limited to, additional professional fees, employee integration, retention and severance costs.
4. 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 the "Other" reportable segment. Other 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 that are below the quantifiable threshold for separate disclosure as a reportable segment. See Note 1 for additional information.

12


 
13 weeks ended
 
39 weeks ended
(in millions)
October 31, 2015
 
November 1, 2014
 
October 31, 2015
 
November 1, 2014
Sales:
 
 
 
 
 
 
 
Sterling Jewelers
$
733.5

 
$
692.8

 
$
2,536.2

 
$
2,406.7

Zale Jewelry
281.9

 
289.1

 
991.2

 
504.1

Piercing Pagoda
48.0

 
42.3

 
165.1

 
74.8

UK Jewelry
149.4

 
151.0

 
455.0

 
465.6

Other
3.6

 
2.7

 
10.1

 
8.7

Total sales
$
1,216.4

 
$
1,177.9

 
$
4,157.6

 
$
3,459.9

 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
Sterling Jewelers
$
77.2

 
$
68.1

 
$
413.2

 
$
364.3

Zale Jewelry(1)
(18.3
)
 
(26.7
)
 
(9.9
)
 
(34.7
)
Piercing Pagoda(2)
(6.0
)
 
(7.8
)
 
(1.0
)
 
(9.6
)
UK Jewelry

 
(2.7
)
 
3.7

 
(1.6
)
Other(3)
(19.3
)
 
(20.2
)
 
(95.4
)
 
(73.5
)
Total operating income
$
33.6

 
$
10.7

 
$
310.6

 
$
244.9

(1) 
Includes net operating loss of $3.6 million and $17.1 million related to the effects of purchase accounting associated with the acquisition of Zale Corporation for the 13 and 39 weeks ended October 31, 2015 and $11.0 million and $20.4 million for the 13 and 39 weeks ended November 1, 2014, respectively. See Note 3 for additional information.
(2) 
Includes net operating loss of $0.1 million and $3.1 million related to the effects of purchase accounting associated with the acquisition of Zale Corporation for the 13 and 39 weeks ended October 31, 2015 and $2.6 million and $4.7 million for the 13 and 39 weeks ended November 1, 2014, respectively. See Note 3 for additional information.
(3) 
Includes $9.8 million and $59.8 million of transaction-related and integration expenses, including the impact of the appraisal rights legal settlement discussed in Note 21, for the 13 and 39 weeks ended October 31, 2015 and $11.4 million and $50.6 million of transaction-related and integration expenses for the 13 and 39 weeks ended November 1, 2014, respectively. Transaction costs include expenses associated with advisor fees for legal, tax, accounting and consulting services as well as severance costs related to Zale and other management changes.
(in millions)
October 31, 2015
 
January 31, 2015
 
November 1, 2014
Total assets:
 
 
 
 
 
Sterling Jewelers
$
3,756.6

 
$
3,647.3

 
$
3,477.2

Zale Jewelry
1,941.6

 
1,903.6

 
1,942.6

Piercing Pagoda
135.4

 
132.8

 
158.8

UK Jewelry
470.5

 
413.5

 
484.5

Other
165.6

 
230.4

 
115.4

Total assets
$
6,469.7

 
$
6,327.6

 
$
6,178.5

5. Earnings per share
 
13 weeks ended
 
39 weeks ended
(in millions, except per share amounts)
October 31, 2015
 
November 1, 2014
 
October 31, 2015
 
November 1, 2014
Net income (loss)
$
15.0

 
$
(1.3
)
 
$
196.0

 
$
153.3

Basic weighted average number of shares outstanding
79.3

 
79.9

 
79.7

 
79.9

Dilutive effect of share awards
0.2

 

 
0.2

 
0.3

Diluted weighted average number of shares outstanding
79.5

 
79.9

 
79.9

 
80.2

Earnings (loss) per share – basic
$
0.19

 
$
(0.02
)
 
$
2.46

 
$
1.92

Earnings (loss) per share – diluted
$
0.19

 
$
(0.02
)
 
$
2.45

 
$
1.91

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 the Executive Plans. The potential impact is calculated under the treasury stock method. The calculation of fully diluted earnings per share for the 13 and 39 weeks ended October 31, 2015 excludes share awards of 106,570 shares (13 and 39 weeks ended November 1, 2014: 525,561 and 32,504 share awards, respectively) on the basis that their effect would be anti-dilutive.

13


6. Shareholders' equity
Share repurchases
 
 
 
39 weeks ended October 31, 2015
 
39 weeks ended November 1, 2014
 
Amount
authorized
 
Shares
repurchased
 
Amount
repurchased
 
Average
repurchase
price per
share
 
Shares
repurchased
 
Amount
repurchased
 
Average
repurchase
price per
share
 
(in millions)
 
 
 
(in millions)
 
 
 
 
 
(in millions)
 
 
2013 Program(1)
$
350.0

 
868,325

 
$
111.9

 
$
128.91

 
288,393

 
$
29.8

 
$
103.37

(1) 
On June 14, 2013, the Board of Directors authorized the repurchase of up to $350 million of Signet’s common shares (the “2013 Program”). The 2013 Program may be suspended or discontinued at any time without notice. The 2013 Program had $153.7 million remaining as of October 31, 2015.
Dividends
 
Fiscal 2016
 
Fiscal 2015
 
(in millions, except per share amounts)
Cash dividend
per share
 
Total
dividends
 
Cash dividend
per share
 
Total
dividends
 
First quarter
$
0.22

 
$
17.6

 
$
0.18

 
$
14.4

 
Second quarter
$
0.22

 
$
17.6

 
$
0.18

 
$
14.4

 
Third quarter
$
0.22

 
$
17.5

(1) 
$
0.18

 
$
14.4

(1) 
(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 October 31, 2015 and November 1, 2014, $17.5 million and $14.4 million, respectively, has been recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets reflecting the cash dividends declared for the third quarter of Fiscal 2016 and Fiscal 2015, respectively.
7. Accumulated other comprehensive income (loss)
The following tables present the changes in AOCI by component and the reclassifications out of AOCI, net of tax:
 
 
 
 
 
 
 
Pension plan
 
 
(in millions)
Foreign
currency
translation
 
Losses on available-for-sale securities, net
 
Gains (losses)
on cash flow
hedges
 
Actuarial
losses
 
Prior
service
credits
 
Accumulated
other
comprehensive
loss
Balance at January 31, 2015
$
(197.6
)
 
$

 
$
4.4

 
$
(56.7
)
 
$
13.3

 
$
(236.6
)
Other comprehensive income (loss) ("OCI") before reclassifications
(1.4
)
 
(0.4
)
 
(10.3
)
 

 

 
(12.1
)
Amounts reclassified from AOCI to earnings

 

 
2.2

 
2.1

 
(1.4
)
 
2.9

Net current-period OCI
(1.4
)
 
(0.4
)
 
(8.1
)
 
2.1

 
(1.4
)
 
(9.2
)
Balance at October 31, 2015
$
(199.0
)
 
$
(0.4
)
 
$
(3.7
)
 
$
(54.6
)
 
$
11.9

 
$
(245.8
)

14


 The amounts reclassified from AOCI, by individual component, were as follows:
 
 
Amounts reclassified from AOCI
 
 
 
 
13 weeks ended
 
39 weeks ended
 
 
(in millions)
 
October 31, 2015
 
November 1, 2014
 
October 31, 2015
 
November 1, 2014
 
Statement of operations caption
Losses on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts
 
$
(0.1
)
 
$
0.3

 
$

 
$
0.6

 
Cost of sales (see Note 14)
Interest rate swaps
 
0.8

 

 
1.9

 

 
Interest expense, net (see Note 14)
Commodity contracts
 
0.4

 
2.4

 
1.0

 
14.6

 
Cost of sales (see Note 14)
Total before income tax
 
1.1

 
2.7

 
2.9

 
15.2

 
 
Income taxes
 
(0.2
)
 
(0.8
)
 
(0.7
)
 
(5.2
)
 
 
Net of tax
 
0.9

 
1.9

 
2.2

 
10.0

 
 
 
 
 
 
 
 
 
 
 
 
 
Defined benefit pension plan items:
 
 
 
 
 
 
 
 
 
 
Amortization of unrecognized net prior service credits
 
(0.6
)
 
(0.4
)
 
(1.7
)
 
(1.3
)
 
Selling, general and administrative expenses(1)
Amortization of unrecognized actuarial losses
 
0.9

 
0.5

 
2.6

 
1.5

 
Selling, general and administrative expenses(1)
Total before income tax
 
0.3

 
0.1

 
0.9

 
0.2

 
 
Income taxes
 
(0.1
)
 

 
(0.2
)
 

 
 
Net of tax
 
0.2

 
0.1

 
0.7

 
0.2

 
 
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications, net of tax
 
$
1.1

 
$
2.0

 
$
2.9

 
$
10.2

 
 
(1)
These items are included in the computation of net periodic pension benefit (cost). See Note 16 for additional information.
8. Income taxes
Signet has business activity in all states within the US and files income tax returns for the US federal jurisdiction and all applicable states. Signet also files income tax returns in the UK, Canada and certain other foreign jurisdictions. The provision for income taxes is based on the current estimate of the consolidated annual effective tax rate. As of October 31, 2015, the Company expects its annual effective tax rate to be approximately 29.0% compared to 29.3% as of November 1, 2014.  The estimated effective tax rates exclude the effects of any discrete items that may be recognized in future periods.
During the third quarter of Fiscal 2016, there has been no material change in the amounts of unrecognized tax benefits, or the related accrued interest and penalties (where appropriate), in respect of uncertain tax positions identified as of January 31, 2015.
9. Accounts receivable, net
Signet’s accounts receivable primarily consist of Sterling Jewelers’ customer in-house financing receivables. The accounts receivable portfolio consists of a population that has similar characteristics and is evaluated collectively for impairment. The allowance is an estimate of the expected losses as of the balance sheet date, and is calculated using a proprietary model that analyzes factors such as delinquency rates and recovery rates. A 100% allowance is made for any amount that is more than 90 days aged on a recency basis and any amount associated with an account the owner of which has filed for bankruptcy, as well as an allowance for those amounts 90 days aged and under based on historical loss information and payment performance. The calculation is reviewed by management to assess whether, based on economic events, additional analyses are required to appropriately estimate losses inherent in the portfolio.
(in millions)
October 31, 2015
 
January 31, 2015
 
November 1, 2014
Accounts receivable by portfolio segment, net:
 
 
 
 
 
Sterling Jewelers customer in-house finance receivables
$
1,437.2

 
$
1,552.9

 
$
1,280.3

Other accounts receivable
14.3

 
14.7

 
11.8

Total accounts receivable, net
$
1,451.5

 
$
1,567.6

 
$
1,292.1


15


Signet grants credit to customers based on a variety of credit quality indicators, including consumer financial information and prior payment experience. On an ongoing basis, management monitors the credit exposure based on past due status and collection experience, as it has found a meaningful correlation between the past due status of customers and the risk of loss.
Other accounts receivable is comprised primarily of gross accounts receivable relating to the insurance loss replacement business in the UK Jewelry division of $9.9 million (January 31, 2015 and November 1, 2014: $13.7 million and $9.5 million, respectively), with a corresponding valuation allowance of $0.6 million (January 31, 2015 and November 1, 2014: $0.5 million and $0.3 million, respectively). The credit function for the Zale division is primarily outsourced and, as such, no material accounts receivable exist as of October 31, 2015, January 31, 2015 or November 1, 2014.
The allowance for credit losses on Sterling Jewelers' customer in-house finance receivables is shown below:
 
39 weeks ended
(in millions)
October 31, 2015
 
November 1, 2014
Beginning balance:
$
(113.1
)
 
$
(97.8
)
Charge-offs
121.5

 
101.0

Recoveries
27.0

 
22.1

Provision
(157.6
)
 
(127.9
)
Ending balance
$
(122.2
)
 
$
(102.6
)
Ending receivable balance evaluated for impairment
1,559.4

 
1,382.9

Sterling Jewelers customer in-house finance receivables, net
$
1,437.2

 
$
1,280.3

Net bad debt expense is defined as the provision expense less recoveries.
The following tables summarize the credit quality indicator and age analysis of past due Sterling Jewelers' customer in-house finance receivables:
   
October 31, 2015
 
January 31, 2015
 
November 1, 2014
(in millions)
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
Performing:
 
 
 
 
 
 
 
 
 
 
 
Current, aged 0 – 30 days
$
1,212.2

 
$
(36.8
)
 
$
1,332.2

 
$
(41.1
)
 
$
1,087.9

 
$
(33.2
)
Past due, aged 31 – 90 days
271.2

 
(9.4
)
 
271.1

 
(9.3
)
 
233.8

 
(8.2
)
Non Performing:
 
 
 
 
 
 
 
 
 
 
 
Past due, aged more than 90 days
76.0

 
(76.0
)
 
62.7

 
(62.7
)
 
61.2

 
(61.2
)
 
$
1,559.4

 
$
(122.2
)
 
$
1,666.0

 
$
(113.1
)
 
$
1,382.9

 
$
(102.6
)
 
October 31, 2015
 
January 31, 2015
 
November 1, 2014
(as a % of the ending receivable balance)
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
Performing
95.1
%
 
3.1
%
 
96.2
%
 
3.1
%
 
95.6
%
 
3.1
%
Non Performing
4.9
%
 
100.0
%
 
3.8
%
 
100.0
%
 
4.4
%
 
100.0
%
 
100.0
%
 
7.8
%
 
100.0
%
 
6.8
%
 
100.0
%
 
7.4
%
Securitized credit card receivables
The Sterling Jewelers division securitizes its credit card receivables through its Sterling Jewelers Receivables Master Note Trust established on May 15, 2014. See Note 17 for additional information regarding this asset-backed securitization facility.

16


10. Inventories
The following table summarizes the details of the Company's inventory:
(in millions)
October 31, 2015
 
January 31, 2015
 
November 1, 2014
Raw materials
$
101.6

 
$
75.2

 
$
69.9

Finished goods
2,625.4

 
2,363.8

 
2,604.7

Total inventories
$
2,727.0

 
$
2,439.0

 
$
2,674.6

11. Goodwill and intangibles
Goodwill
The following table summarizes the Company’s goodwill by reportable segment:
(in millions)
Sterling
Jewelers
 
Zale
Jewelry
 
Piercing
Pagoda
 
UK Jewelry
 
Other
 
Total
Balance at February 1, 2014
$
23.2

 
$

 
$

 
$

 
$
3.6

 
$
26.8

Acquisitions

 
499.4

 

 

 

 
499.4

Impact of foreign exchange

 
(7.0
)
 

 

 

 
(7.0
)
Balance at January 31, 2015
23.2

 
492.4

 

 

 
3.6

 
519.2

Impact of foreign exchange

 
(1.6
)
 

 

 

 
(1.6
)
Balance at October 31, 2015
$
23.2

 
$
490.8

 
$

 
$

 
$
3.6

 
$
517.6

There have been no goodwill impairment losses recognized during the fiscal periods presented in the condensed consolidated statements of operations. If future economic conditions are different than those projected by management, future impairment charges may be required.
Intangibles
Intangible assets with indefinite and definite lives represent Zale trade names and favorable leases acquired, while intangible liabilities with definite lives represent unfavorable leases and contract rights acquired in the Zale Acquisition. No other intangible assets or liabilities were recognized prior to the acquisition of Zale Corporation on May 29, 2014. The following table provides additional detail regarding the composition of intangible assets and liabilities.
 
 
 
October 31, 2015
 
January 31, 2015
 
November 1, 2014
(in millions)
Balance sheet location
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
Intangible assets, net
 
$
1.5

 
$
(0.4
)
 
$
1.1

 
$
1.5

 
$
(0.2
)
 
$
1.3

 
$
1.6

 
$
(0.1
)
 
$
1.5

Favorable leases
Intangible assets, net
 
47.6

 
(19.2
)
 
28.4

 
48.1

 
(9.1
)
 
39.0

 
49.7

 
(5.9
)
 
43.8

Total definite-lived intangible assets
 
 
49.1

 
(19.6
)
 
29.5

 
49.6

 
(9.3
)
 
40.3

 
51.3

 
(6.0
)
 
45.3

Indefinite-lived trade names
Intangible assets, net
 
404.8

 

 
404.8