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EX-32.2 - EXHIBIT 32.2 - SIGNET JEWELERS LTDfy18q2exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - SIGNET JEWELERS LTDfy18q2exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - SIGNET JEWELERS LTDfy18q2exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - SIGNET JEWELERS LTDfy18q2exhibit311.htm
EX-10.4 - EXHIBIT 10.4 - SIGNET JEWELERS LTDfy18q2exhibit104.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 July 29, 2017 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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, 60,460,721 shares as of August 25, 2017


1


SIGNET JEWELERS LIMITED
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
PAGE
 
 
 
 
 
 
 
 
PART I
 
FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
 
Financial Statements (Unaudited)
 
 
 
 
 
 
Condensed Consolidated Income Statements
 
 
 
 
 
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 INCOME STATEMENTS
(Unaudited)
 
13 weeks ended
 
26 weeks ended
 
 
(in millions, except per share amounts)
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
 
Notes
Sales
$
1,399.6

 
$
1,373.4

 
$
2,803.0

 
$
2,952.3

 
4
Cost of sales
(941.7
)
 
(908.5
)
 
(1,853.9
)
 
(1,887.0
)
 
 
Gross margin
457.9

 
464.9

 
949.1

 
1,065.3

 
 
Selling, general and administrative expenses
(409.0
)
 
(415.7
)
 
(861.8
)
 
(878.4
)
 
 
Credit transaction, net
14.8

 

 
14.8

 

 
3
Other operating income, net
71.9

 
70.7

 
148.8

 
145.0

 
 
Operating income
135.6

 
119.9

 
250.9

 
331.9

 
4
Interest expense, net
(13.5
)
 
(11.9
)
 
(26.1
)
 
(23.7
)
 
 
Income before income taxes
122.1

 
108.0

 
224.8

 
308.2

 
 
Income taxes
(28.7
)
 
(26.1
)
 
(52.9
)
 
(79.5
)
 
9
Net income
$
93.4

 
$
81.9

 
$
171.9

 
$
228.7

 
 
Dividends on redeemable convertible preferred shares
(8.2
)
 

 
(16.4
)
 

 
6
Net income attributable to common shareholders
$
85.2

 
$
81.9

 
$
155.5

 
$
228.7

 
 
 
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
Basic
$
1.34

 
$
1.06

 
$
2.36

 
$
2.94

 
7
Diluted
$
1.33

 
$
1.06

 
$
2.36

 
$
2.94

 
7
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
63.8

 
77.1

 
65.9

 
77.8

 
7
Diluted
70.5

 
77.2

 
66.0

 
77.9

 
7
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.31

 
$
0.26

 
$
0.62

 
$
0.52

 
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
 
July 29, 2017
 
July 30, 2016
(in millions)
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
 
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
Net income
 
 
 
 
$
93.4

 
 
 
 
 
$
81.9
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
24.6

 
$
 
 
24.6

 
$
(39.9
)
 
$

 
(39.9
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain
0.5

 
(0.2
)
 
0.3

 
0.3
 
 
(0.1
)
 
0.2
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain
(1.3
)
 
0.4
 
 
(0.9
)
 
3.4
 
 
(0.7
)
 
2.7
 
Reclassification adjustment for (gains) losses to net income
(1.4
)
 
0.3
 
 
(1.1
)
 
1.0
 
 
(0.4
)
 
0.6
 
Pension plan:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment to net income for amortization of actuarial losses
0.8

 
(0.2
)
 
0.6

 
0.4
 
 
(0.1
)
 
0.3
 
Reclassification adjustment to net income for amortization of net prior service credits
(0.5
)
 
0.1
 
 
(0.4
)
 
(0.5
)
 
0.1

 
(0.4
)
Total other comprehensive income (loss)
$
22.7

 
$
0.4
 
 
$
23.1

 
$
(35.3
)
 
$
(1.2
)
 
$
(36.5
)
Total comprehensive income
 
 
 
 
$
116.5

 
 
 
 
 
$
45.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26 weeks ended
 
July 29, 2017
 
July 30, 2016
(in millions)
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
 
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
Net income
 
 
 
 
$
171.9

 
 
 
 
 
$
228.7
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
25.1

 
$
 
 
25.1

 
$
(9.1
)
 
$

 
(9.1
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain
0.8

 
(0.3
)
 
0.5

 
0.7
 
 
(0.3
)
 
0.4
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain
3.2

 
(1.4
)
 
1.8

 
9.3
 
 
(3.0
)
 
6.3
 
Reclassification adjustment for (gains) losses to net income
(3.3
)
 
0.8
 
 
(2.5
)
 
2.6
 
 
(0.9
)
 
1.7
 
Pension plan:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment to net income for amortization of actuarial losses
1.5

 
(0.3
)
 
1.2

 
0.8
 
 
(0.2
)
 
0.6
 
Reclassification adjustment to net income for amortization of net prior service credits
(0.9
)
 
0.2
 
 
(0.7
)
 
(1.0
)
 
0.2

 
(0.8
)
Total other comprehensive income (loss)
$
26.4

 
$
(1.0
)
 
$
25.4

 
$
3.3
 
 
$
(4.2
)
 
$
(0.9
)
Total comprehensive income
 
 
 
 
$
197.3

 
 
 
 
 
$
227.8
 
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)
July 29, 2017
 
January 28, 2017
 
July 30, 2016
 
Notes
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
119.1

 
$
98.7

 
$
118.7

 
 
Accounts receivable, held for sale
1,055.6

 

 

 
3
Accounts receivable, net
664.5

 
1,858.0

 
1,650.6

 
10
Other receivables
91.2

 
95.9

 
66.9

 
 
Other current assets
128.5

 
136.3

 
152.0

 
 
Income taxes
1.8

 
4.4

 
1.4

 
 
Inventories
2,282.1

 
2,449.3

 
2,418.3

 
11
Total current assets
4,342.8

 
4,642.6

 
4,407.9

 
 
Non-current assets:
 
 
 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $1,131.4, $1,049.4 and $1,003.1, respectively
836.6

 
822.9

 
739.5

 
 
Goodwill
519.9

 
517.6

 
518.1

 
12
Intangible assets, net
413.9

 
417.0

 
424.7

 
12
Other assets
165.1

 
165.1

 
158.0

 
13
Deferred tax assets

 
0.7

 

 
 
Retirement benefit asset
35.5

 
31.9

 
49.8

 
 
Total assets
$
6,313.8

 
$
6,597.8

 
$
6,298.0

 
 
Liabilities and Shareholders’ equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Loans and overdrafts
$
939.4

 
$
91.1

 
$
238.6

 
16
Accounts payable
148.2

 
255.7

 
195.1

 
 
Accrued expenses and other current liabilities
426.6

 
478.2

 
417.6

 
 
Deferred revenue
262.3

 
276.9

 
254.5

 
17
Income taxes
33.5

 
101.8

 
38.3

 
 
Total current liabilities
1,810.0

 
1,203.7

 
1,144.1

 
 
Non-current liabilities:
 
 
 
 
 
 
 
Long-term debt
705.3

 
1,317.9

 
1,330.5

 
16
Other liabilities
247.1

 
213.7

 
223.8

 
 
Deferred revenue
658.8

 
659.0

 
639.9

 
17
Deferred tax liabilities
103.3

 
101.4

 
79.8

 
 
Total liabilities
3,524.5

 
3,495.7

 
3,418.1

 
 
Commitments and contingencies


 


 


 
20
Series A redeemable convertible preferred shares of $.01 par value: authorized 500 shares, 0.625 shares outstanding (January 28, 2017: 0.625 shares outstanding)
612.7

 
611.9

 

 
5
Shareholders’ equity:
 
 
 
 
 
 
 
Common shares of $0.18 par value: authorized 500 shares, 60.3 shares outstanding (January 28, 2017: 68.3 outstanding; July 30, 2016: 75.6 outstanding)
15.7

 
15.7

 
15.7

 
 
Additional paid-in capital
282.2

 
280.7

 
281.2

 
 
Other reserves
0.4

 
0.4

 
0.4

 
 
Treasury shares at cost: 26.9 shares (January 28, 2017: 18.9 shares; July 30, 2016: 11.6 shares)
(1,949.7
)
 
(1,494.8
)
 
(869.7
)
 
6
Retained earnings
4,110.3

 
3,995.9

 
3,727.3

 
 
Accumulated other comprehensive loss
(282.3
)
 
(307.7
)
 
(275.0
)
 
8
Total shareholders’ equity
2,176.6

 
2,490.2

 
2,879.9

 
 
Total liabilities, redeemable convertible preferred shares and shareholders’ equity
$
6,313.8

 
$
6,597.8

 
$
6,298.0

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

5


SIGNET JEWELERS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
26 weeks ended
(in millions)
July 29, 2017
 
July 30, 2016
Cash flows from operating activities
 
 
 
Net income
$
171.9

 
$
228.7

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
98.4

 
91.8

Amortization of unfavorable leases and contracts
(8.6
)
 
(9.9
)
Pension benefit

 
(0.9
)
Share-based compensation
6.7

 
8.8

Deferred taxation
2.6

 
7.3

Excess tax benefit from exercise of share awards

 
(1.3
)
Credit transaction, net
(20.7
)
 

Amortization of debt discount and issuance costs
1.1

 
1.6

Other non-cash movements
0.6

 
0.3

Changes in operating assets and liabilities:
 
 
 
Decrease in accounts receivable
159.1

 
105.1

Decrease in other receivables and other assets
6.3

 
15.4

Decrease in other current assets
9.3

 
4.3

Decrease in inventories
180.0

 
33.8

Decrease in accounts payable
(104.4
)
 
(71.7
)
Decrease in accrued expenses and other liabilities
(6.4
)
 
(75.5
)
(Decrease) increase in deferred revenue
(17.1
)
 
2.7

Decrease in income taxes payable
(67.4
)
 
(29.7
)
Pension plan contributions
(1.6
)
 
(1.6
)
Net cash provided by operating activities
409.8

 
309.2

Investing activities
 
 
 
Purchase of property, plant and equipment
(105.7
)
 
(101.0
)
Purchase of available-for-sale securities
(1.3
)
 
(2.6
)
Proceeds from sale of available-for-sale securities
0.6

 
3.1

Net cash used in investing activities
(106.4
)
 
(100.5
)
Financing activities
 
 
 
Dividends paid on common shares
(39.0
)
 
(37.9
)
Dividends paid on redeemable convertible preferred shares
(19.1
)
 

Proceeds from issuance of common shares
0.2

 
0.4

Excess tax benefit from exercise of share awards

 
1.3

Repayments of term loan
(9.0
)
 
(7.5
)
Proceeds from securitization facility
1,242.9

 
1,278.9

Repayments of securitization facility
(1,242.9
)
 
(1,278.9
)
Proceeds from revolving credit facility
550.0

 
318.0

Repayments of revolving credit facility
(303.0
)
 
(118.0
)
Payment of debt issuance costs

 
(2.7
)
Repurchase of common shares
(460.0
)
 
(375.0
)
Net settlement of equity based awards
(3.2
)
 
(4.8
)
Principal payments under capital lease obligations

 
(0.1
)
Repayments of short-term borrowings
(3.1
)
 
(2.3
)
Net cash used in financing activities
(286.2
)
 
(228.6
)
Cash and cash equivalents at beginning of period
98.7

 
137.7

Increase (decrease) in cash and cash equivalents
17.2

 
(19.9
)
Effect of exchange rate changes on cash and cash equivalents
3.2

 
0.9

Cash and cash equivalents at end of period
$
119.1

 
$
118.7

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 28, 2017
$
15.7

 
$
280.7

 
$
0.4

 
$
(1,494.8
)
 
$
3,995.9

 
$
(307.7
)
 
$
2,490.2

Net income

 

 

 

 
171.9

 

 
171.9

Other comprehensive income

 

 

 

 

 
25.4

 
25.4

Dividends on common shares

 

 

 

 
(40.0
)
 

 
(40.0
)
Dividends on redeemable convertible preferred shares

 

 

 

 
(16.4
)
 

 
(16.4
)
Repurchase of common shares

 

 

 
(460.0
)
 

 

 
(460.0
)
Net settlement of equity based awards

 
(5.2
)
 

 
4.9

 
(1.1
)
 

 
(1.4
)
Share options exercised

 

 

 
0.2

 

 

 
0.2

Share-based compensation expense

 
6.7

 

 

 

 

 
6.7

Balance at July 29, 2017
$
15.7

 
$
282.2

 
$
0.4

 
$
(1,949.7
)
 
$
4,110.3

 
$
(282.3
)
 
$
2,176.6

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 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 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 approximately 40% to 45% of the Sterling Jewelers division’s annual operating income.
Basis of preparation
The condensed consolidated financial statements of Signet are 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 US generally accepted accounting principles (“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 fiscal year ended January 28, 2017 filed with the SEC on March 16, 2017.
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 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.
Fiscal year
The Company’s fiscal year ends on the Saturday nearest to January 31st. Fiscal 2018 and Fiscal 2017 refer to the 53 week period ending February 3, 2018 and the 52 week period ending January 28, 2017, respectively. Within these condensed consolidated financial statements, the second quarter of the relevant fiscal years 2018 and 2017 refer to the 13 and 26 weeks ended July 29, 2017 and July 30, 2016, respectively.
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 income statements.
See Note 8 for additional information regarding the Company’s foreign currency translation.

8


2. 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 9 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 collectibility. 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 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 an update (ASU No. 2015-14) that defers the effective date 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.
The FASB has recently issued updates to certain aspects of the guidance to address implementation issues. In March 2016, the FASB issued additional guidance concerning “Principal versus Agent” considerations (reporting revenue gross versus net); in April 2016, the FASB issued additional guidance on identifying performance obligations and licensing; and in May 2016, the FASB issued additional guidance on collectibility, noncash consideration, presentation of sales tax, and transition. These updates are intended to improve the operability and understandability of the implementation guidance and have the same effective date and transition requirements as ASU No. 2014-09 guidance discussed above.  Management continues to evaluate the impact this ASU, the related amendments and the interpretive guidance will have on the Company's consolidated financial statements
Signet is in the process of evaluating contracts with customers under the new guidance and cannot currently estimate the financial statement impact of adoption. The Company expects to progress through its assessment during Fiscal 2018 and will adopt this guidance in the first quarter of our fiscal year ending February 2, 2019. The Company is evaluating the impact of the standard through a cross-functional approach to analyze the impacts of the guidance across all of its revenue streams. This includes the review of current accounting policies and practices to identify potential differences that would result from applying the guidance. The majority of the Company’s revenue is generated from sales of finished products, which will continue to be recognized when control is transferred to the customer. The Company intends to adopt the standard using the modified retrospective method.


9


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, with early adoption permitted. Signet is currently assessing the timing of adoption which is effective for the first quarter of our fiscal year ending February 1, 2020 and 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 is currently assessing the timing of adoption and the impact this guidance will have 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, 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.

10


3. Credit transaction, net
On May 25, 2017, the Company, through its subsidiary Sterling Jewelers Inc. (“Sterling”), entered into a Sale and Purchase Agreement with Comenity Bank (“Comenity”) to sell the prime-only credit quality portion of Sterling’s existing in-house finance receivable portfolio and the assumption from Sterling of certain liabilities related to Sterling’s in-house finance receivable portfolio. The purchase price will be settled in cash for an amount equal to the gross value of the outstanding receivables (“par”) at the time of closing, which is currently estimated to be $1 billion. The transaction is subject to the defeasance of the balance outstanding under the asset-backed securitization facility as disclosed in Note 16. The Sale and Purchase Agreement contains customary representations, warranties and covenants.
In addition, the Company and Comenity entered into a Credit Card Program Agreement (“Program Agreement”) to provide 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 will establish 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 will be 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 will be 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 after the sale is completed under an economic profit sharing agreement. The Program Agreement contains customary representations, warranties and covenants.
The Company’s in-house finance receivables have historically been “held for investment” and recorded at par value less an allowance for credit losses. During the second quarter of Fiscal 2018, the portion of the in-house finance receivables meeting the criteria for sale to Comenity were reclassified to “held for sale” in accordance with US GAAP. As a result, these receivables are recorded at the lower of cost (par) or fair value. See Note 15 for the fair value measurement of these held for sale receivables. Additionally, the reclassification of these receivables resulted in the reversal of the related allowance for credit losses of $20.7 million. This reversal was recorded in credit transaction, net in the condensed consolidated income statement for the 13 weeks ended July 29, 2017.
Upon closing, the Company expects to receive gross proceeds of approximately $1.0 billion which will be utilized to repay the $600 million balance outstanding on the asset backed securitization facility and to repay the short-term loan associated with the acquisition of R2Net, Inc. as disclosed in Note 21 and other borrowings under the revolving credit facility. The credit transaction is subject to regulatory approvals and other customary conditions, and is expected to close in October 2017.
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 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.
The Zale division operates jewelry stores (Zale Jewelry) and kiosks (Piercing Pagoda), located primarily in shopping malls throughout the US, Canada and Puerto Rico. 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 the Gordon’s Jewelers and Mappins regional brands. 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.

11


 
13 weeks ended
 
26 weeks ended
(in millions)
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
Sales:
 
 
 
 
 
 
 
Sterling Jewelers
$
868.1

 
$
839.4

 
$
1,739.1

 
$
1,819.8

Zale Jewelry
331.8

 
331.0

 
665.5

 
712.4

Piercing Pagoda
62.3

 
57.0

 
132.0

 
126.0

UK Jewelry
131.9

 
145.2

 
254.4

 
289.2

Other
5.5

 
0.8

 
12.0

 
4.9

Total sales
$
1,399.6

 
$
1,373.4

 
$
2,803.0

 
$
2,952.3

 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
Sterling Jewelers
$
159.4

(1) 
$
140.9

 
$
288.9

(1) 
$
339.2

Zale Jewelry
1.2

 
0.5

 
3.3

 
18.8

Piercing Pagoda
1.0

 
(0.2
)
 
4.2

 
7.6

UK Jewelry
2.3

 
1.7

 
(0.2
)
 
3.0

Other
(28.3
)
(2) 
(23.0
)
 
(45.3
)
(2) 
(36.7
)
Total operating income
$
135.6

 
$
119.9

 
$
250.9

 
$
331.9

(1) 
Includes $20.7 million gain on assets held for sale related to the reversal of the allowance for credit losses. See Note 3 for additional information.
(2) 
Includes $5.9 million of transaction costs related to the credit transaction (see Note 3) and $4.7 million of CEO separation and R2Net acquisition costs.
(in millions)
July 29, 2017
 
January 28, 2017
 
July 30, 2016
Total assets:
 
 
 
 
 
Sterling Jewelers
$
3,807.1

 
$
4,015.4

 
$
3,699.5

Zale Jewelry
1,878.4

 
1,940.7

 
1,931.1

Piercing Pagoda
140.8

 
141.6

 
138.4

UK Jewelry
384.8

 
372.6

 
392.3

Other
102.7

 
127.5

 
136.7

Total assets
$
6,313.8

 
$
6,597.8

 
$
6,298.0

5. Redeemable preferred shares
On October 5, 2016, the Company issued 625,000 shares of Series A Convertible Preference Shares (“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. In connection with the issuance of the preferred shares, the Company incurred direct and incremental expenses of $13.7 million. These direct and incremental expenses originally reduced the preferred shares carrying value, and will be accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date, November 2024. Accumulated accretion recorded in the condensed consolidated balance sheets was $1.4 million as of July 29, 2017 (January 28, 2017: $0.6 million). Accretion of $0.4 million and $0.8 million was recorded to preferred shares in the condensed consolidated balance sheets during the 13 and 26 weeks ended July 29, 2017, respectively.
Pursuant to the preferred shares conversion features, the conversion rate as of July 29, 2017 is 10.7707 (January 28, 2017: 10.6529) common shares per preferred share or a conversion price of $92.8445 (January 28, 2017: $93.8712). As of July 29, 2017 and January 28, 2017, the maximum number of common shares that could be required to be issued if converted was 6.7 million shares. Preferred shareholders are entitled to a cumulative dividend at the rate of 5% per annum, payable quarterly in arrears. Refer to Note 6 for additional discussion of the Company’s dividends on preferred shares. The liquidation preference was $632.8 million as of July 29, 2017.

12


6. Shareholders’ equity
Share repurchases
In February 2016, the Board of Directors authorized the repurchase of Signet’s common shares up to $750.0 million (the “2016 Program”). In August 2016, the Board of Directors 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.
Common shares repurchased during the 26 weeks ended July 29, 2017 and July 30, 2016 were as follows:
 
 
 
26 weeks ended July 29, 2017
 
26 weeks ended July 30, 2016
(in millions, except per share amounts)
Amount
authorized
 
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

 
2.7

 
$
239.4

 
$
88.39

2013 Program(2)
$
350.0

 
n/a

 
n/a

 
n/a

 
1.2

 
135.6

 
$
111.26

Total
 
 
8.1

 
$
460.0

 
$
56.91

 
3.9

 
$
375.0

 
$
95.49

(1) 
The 2016 Program had $50.6 million remaining as of July 29, 2017.
(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.
Dividends on common shares
 
Fiscal 2018
 
Fiscal 2017
(in millions, except per share amounts)
Cash dividend per share
 
Total
dividends
 
Cash dividend
per share
 
Total
dividends
First quarter
$
0.31

 
$
21.3

 
$
0.26

 
$
20.4

Second quarter(1)
0.31

 
18.7

 
0.26

 
19.7

Total
$
0.62

 
$
40.0

 
$
0.52

 
$
40.1

(1) 
Signet’s dividend policy for common shares results in the dividend payment date being a quarter in arrears from the declaration date. As a result, as of July 29, 2017 and July 30, 2016, $18.7 million and $19.7 million, respectively, has been recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets reflecting the cash dividends on common shares declared for the second quarter of Fiscal 2018 and Fiscal 2017, respectively.
In addition, in August 2017, Signet’s Board declared a quarterly dividend of $0.31 per share on its common shares. This dividend will be payable on November 30, 2017 to shareholders of record on October 27, 2017, with an ex-dividend date of October 26, 2017.
Dividends on preferred shares
During the 13 and 26 weeks ended July 29, 2017, cash dividends totaling $7.8 million and $15.6 million were declared by the Company. As of July 29, 2017, dividends on preferred shares totaling $7.8 million have been recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheet reflecting the dividend declared for the second quarter of Fiscal 2018. As disclosed in the condensed consolidated income statements, there were no cumulative undeclared dividends on the preferred shares that reduced net income attributable to common shareholders. In addition, deemed dividends of $0.4 million and $0.8 million related to accretion of issuance costs associated with the preferred shares was recognized during the 13 and 26 weeks ended July 29, 2017. See Note 5 for additional information.

13


7. 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:
 
13 weeks ended
 
26 weeks ended
(in millions, except per share amounts)
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
Numerator:
 
 
 
 
 
 
 
Net income attributable to common shareholders
$
85.2

 
$
81.9

 
$
155.5

 
$
228.7

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
63.8

 
77.1

 
65.9

 
77.8

EPS – basic
$
1.34

 
$
1.06

 
$
2.36

 
$
2.94

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, only in the periods in which such effect is dilutive. Additionally, in periods in which preferred shares are dilutive, cumulative dividends and accretion for issuance costs associated with the preferred shares are added back to net income attributable to common shareholders. See Note 5 for additional discussion of the Company’s preferred shares. The computation of diluted EPS is outlined in the table below:
 
13 weeks ended
 
26 weeks ended
(in millions, except per share amounts)
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
Numerator:
 
 
 
 
 
 
 
Net income attributable to common shareholders
$
85.2

 
$
81.9

 
$
155.5

 
$
228.7

Add: Dividends on preferred shares
8.2

 
n/a

 

 
n/a

Numerator for diluted EPS
$
93.4

 
$
81.9

 
$
155.5

 
$
228.7

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
63.8

 
77.1

 
65.9

 
77.8

Plus: Dilutive effect of share awards

 
0.1

 
0.1

 
0.1

Plus: Dilutive effect of preferred shares
6.7

 
n/a

 

 
n/a

Diluted weighted average common shares outstanding
70.5

 
77.2

 
66.0

 
77.9

 
 
 
 
 
 
 
 
EPS – diluted
$
1.33

 
$
1.06

 
$
2.36

 
$
2.94

n/a
Not applicable as preferred shares were issued in October 2016. See Note 5 for additional information.
The calculation of diluted EPS excludes the following items for each respective period on the basis that their effect would be anti-dilutive.
(in millions)
July 29, 2017
 
July 30, 2016
Share awards
0.3

 
0.2

Potential impact of preferred shares
6.7

 
n/a

Total anti-dilutive shares
7.0

 
0.2

n/a
Not applicable as preferred shares were issued in October 2016. See Note 5 for additional information.

14


8. 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 28, 2017
$
(263.4
)
 
$
(0.4
)
 
$
2.4

 
$
(55.5
)
 
$
9.2

 
$
(307.7
)
Other comprehensive income (“OCI”) before reclassifications
25.1

 
0.5

 
1.8

 

 

 
27.4

Amounts reclassified from AOCI to net income

 

 
(2.5
)
 
1.2

 
(0.7
)
 
(2.0
)
Net current period OCI
25.1

 
0.5

 
(0.7
)
 
1.2

 
(0.7
)
 
25.4

Balance at July 29, 2017
$
(238.3
)
 
$
0.1

 
$
1.7

 
$
(54.3
)
 
$
8.5

 
$
(282.3
)
The amounts reclassified from AOCI were as follows:
 
Amounts reclassified from AOCI
 
 
 
13 weeks ended
 
26 weeks ended
 
 
(in millions)
July 29, 2017
 
July 30, 2016
 
July 29, 2017
 
July 30, 2016
 
Income statement caption
(Gains) losses on cash flow hedges:
 
 
 
 
 
 
 
 
 
Foreign currency contracts
$
(1.2
)
 
$
(0.4
)
 
$
(2.2
)
 
$
(0.6
)
 
Cost of sales (see Note 14)
Interest rate swaps
0.1

 
0.6

 
0.4

 
1.2

 
Interest expense, net
(see Note 14)
Commodity contracts
(0.3
)
 
0.8

 
(1.5
)
 
2.0

 
Cost of sales (see Note 14)
Total before income tax
(1.4
)
 
1.0

 
(3.3
)
 
2.6

 
 
Income taxes
0.3

 
(0.4
)
 
0.8

 
(0.9
)
 
 
Net of tax
(1.1
)
 
0.6

 
(2.5
)
 
1.7

 
 
 
 
 
 
 
 
 
 
 
 
Defined benefit pension plan items:
 
 
 
 
 
 
 
 
 
Amortization of unrecognized actuarial losses
0.8

 
0.4

 
1.5

 
0.8

 
Selling, general and administrative expenses(1)
Amortization of unrecognized net prior service credits
(0.5
)
 
(0.5
)
 
(0.9
)
 
(1.0
)
 
Selling, general and administrative expenses(1)
Total before income tax
0.3

 
(0.1
)
 
0.6

 
(0.2
)
 
 
Income taxes
(0.1
)
 

 
(0.1
)
 

 
 
Net of tax
0.2

 
(0.1
)
 
0.5

 
(0.2
)
 
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications, net of tax
$
(0.9
)
 
$
0.5

 
$
(2.0
)
 
$
1.5

 
 
(1) 
These items are included in the computation of net periodic pension benefit.

15


9. Income taxes
 
26 weeks ended
 
July 29, 2017
 
July 30, 2016
Forecasted annual effective tax rate
23.0
%
 
25.8
%
Discrete items recognized
0.5
%
 
%
Effective tax rate recognized in income statement
23.5
%
 
25.8
%
As disclosed in Note 2, the Company adopted ASU 2016-09 during the first quarter of Fiscal 2018. The Company anticipates the adoption of this accounting guidance related to share-based compensation to increase the periodic volatility in future effective tax rates as it will result in additional discrete items being recognized in future periods when the deduction for tax purposes for share awards does not equal the cumulative compensation costs of the share awards for financial reporting purposes. To the extent there are discrete items that are not included in the forecasted annual effective tax rate, the actual effective tax rate will differ from the forecasted annual effective tax rate. During Fiscal 2018, the Company recognized incremental tax expense for a discrete item related to the tax shortfall associated with share awards vesting subsequent to the adoption of the new share-based compensation accounting guidance in ASC No. 2016-09.
During the 26 weeks ended July 29, 2017, the Company’s forecasted annual effective tax rate was lower than the US federal income tax rate primarily due to the favorable impact of foreign tax rate differences and benefits from global reinsurance and financing arrangements. The forecasted annual effective tax rate excludes the effects of any discrete items that may be recognized in future periods.
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 28, 2017.
10. Accounts receivable, net
Signet’s accounts receivable primarily consist of US customer in-house financing receivables. The accounts receivable portfolio consists of a population that is of similar characteristics and is evaluated collectively for impairment.
On May 25, 2017, the Company entered into an agreement to sell a portion of the Sterling Jewelers customer in-house finance receivables. As a result, these receivables have been classified as “held for sale” in the condensed consolidated balance sheet and recorded at the lower of cost (par) or fair value. As of July 29, 2017, the accounts receivable held for sale were recorded at cost (par) as the fair value approximated cost as disclosed in Note 15.
(in millions)
July 29, 2017
 
January 28, 2017
 
July 30, 2016
Accounts receivable held for investment by portfolio segment, net:
 
 
 
 
 
Sterling Jewelers customer in-house finance receivables
$
622.6

 
$
1,813.3

 
$
1,615.6

Zale customer in-house finance receivables
34.0

 
33.4

 
25.0

Other accounts receivable
7.9

 
11.3

 
10.0

Total accounts receivable, net
$
664.5

 
$
1,858.0

 
$
1,650.6

 
 
 
 
 
 
Accounts receivable, held for sale
$
1,055.6

 
$

 
$

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 July 29, 2017, January 28, 2017 and July 30, 2016.
Other accounts receivable is comprised primarily of accounts receivable relating to the insurance loss replacement business in the UK Jewelry division of $6.9 million (January 28, 2017 and July 30, 2016: $11.0 million and $7.6 million, respectively).

16


As a portion of the Sterling Jewelers customer in-house finance receivables have been reclassified as “held for sale” during the second quarter of Fiscal 2018, the allowance for credit losses associated with these receivables has been reversed as of July 29, 2017. The allowance for credit losses on Sterling Jewelers customer in-house finance receivables “held for investment” is shown below:
 
26 weeks ended
(in millions)
July 29, 2017
 
July 30, 2016
Beginning balance
$
(138.7
)
 
$
(130.0
)
Charge-offs, net
103.9

 
89.5

Recoveries
17.8

 
18.3

Provision
(118.0
)
 
(107.2
)
 
$
(135.0
)
 
$
(129.4
)
Reversal of allowance on receivables held for sale
20.7

 

Ending balance
$
(114.3
)
 
$
(129.4
)
Ending receivable balance evaluated for impairment
736.9

 
1,745.0

Sterling Jewelers customer in-house finance receivables, net
$
622.6

 
$
1,615.6

Net bad debt expense is defined as the provision expense less recoveries.
The credit quality indicator and age analysis of Sterling Jewelers customer in-house finance receivables “held for investment” and “held for sale” are shown below:
   
July 29, 2017
 
January 28, 2017
 
July 30, 2016
(in millions)
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
Performing:
 
 
 
 
 
 
 
 
 
 
 
Current, aged 0 – 30 days
$
1,394.2

 
$
(42.8
)
 
$
1,538.2

 
$
(47.2
)
 
$
1,350.7

 
$
(41.3
)
Past due, aged 31 – 60 days
264.6

 
(8.6
)
 
282.0

 
(9.0
)
 
264.1

 
(8.6
)
Past due, aged 61 – 90 days
52.5

 
(2.4
)
 
51.6

 
(2.3
)
 
53.2

 
(2.5
)
Non Performing:
 
 
 
 
 
 
 
 
 
 
 
Past due, aged more than 90 days
81.2

 
(81.2
)
 
80.2

 
(80.2
)
 
77.0

 
(77.0
)
 
$
1,792.5

 
$
(135.0
)
 
$
1,952.0

 
$
(138.7
)
 
$
1,745.0

 
$
(129.4
)
Less: Amounts attributable to accounts receivable held for sale
1,055.6

 
(20.7
)
 

 

 

 

Accounts receivable held for investment
$
736.9

 
$
(114.3
)
 
$
1,952.0

 
$
(138.7
)
 
$
1,745.0

 
$
(129.4
)
 
July 29, 2017
 
January 28, 2017
 
July 30, 2016
(as a % of the ending receivable balance)
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
Performing
 
 
 
 
 
 
 
 
 
 
 
Current, aged 0 – 30 days
77.8
%
 
3.1
%
 
78.8
%
 
3.1
%
 
77.4
%
 
3.1
%
Past due, aged 31 – 60 days
14.8
%
 
3.3
%
 
14.5
%
 
3.2
%
 
15.1
%
 
3.3
%
Past due, aged 61 – 90 days
2.9
%
 
4.6
%
 
2.6
%
 
4.5
%
 
3.1
%
 
4.7
%
Non Performing
 
 
 
 
 
 
 
 
 
 
 
Past due, aged more than 90 days
4.5
%
 
100.0
%
 
4.1
%
 
100.0
%
 
4.4
%
 
100.0
%
 
100.0
%
 
7.5
%
 
100.0
%
 
7.1
%
 
100.0
%
 
7.4
%
See Note 3 for additional information regarding the anticipated sale of a portion of the US customer in-house finance receivable portfolio, as well as the agreement to outsource the servicing function for the Company’s remaining in-house finance receivables.
Securitized credit card receivables
The Sterling Jewelers division securitizes its credit card receivables through its Sterling Jewelers Receivables Master Note Trust. See Note 16 for additional information regarding this asset-backed securitization facility.

17


11. Inventories
The following table summarizes the Company’s inventory by classification:
(in millions)
July 29, 2017
 
January 28, 2017
 
July 30, 2016
Raw materials
$
56.1

 
$
60.8

 
$
75.4

Finished goods
2,226.0

 
2,388.5

 
2,342.9

Total inventories
$
2,282.1

 
$
2,449.3

 
$
2,418.3

12. 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 January 30, 2016
$
23.2

 
$
488.7

 
$

 
$

 
$
3.6

 
$
515.5

Impact of foreign exchange

 
2.1

 

 

 

 
2.1

Balance at January 28, 2017
23.2

 
490.8

 

 

 
3.6

 
517.6

Impact of foreign exchange

 
2.3

 

 

 

 
2.3

Balance at July 29, 2017
$
23.2

 
$
493.1

 
$

 
$

 
$
3.6

 
$
519.9

There have been no goodwill impairment losses recognized during the fiscal periods presented in the condensed consolidated income statements.
Intangibles
The following table provides detail regarding the composition of intangible assets and liabilities:
 
 
 
July 29, 2017
 
January 28, 2017
 
July 30, 2016
(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

 
$
(0.9
)
 
$
0.6

 
$
1.4

 
$
(0.8
)
 
$
0.6

 
$
1.4

 
$
(0.6
)
 
$
0.8

Favorable leases
Intangible assets, net
 
48.3

 
(42.7
)
 
5.6

 
47.6