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EX-32.2 - EXHIBIT 32.2 - SIGNET JEWELERS LTDfy18q3exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - SIGNET JEWELERS LTDfy18q3exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - SIGNET JEWELERS LTDfy18q3exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - SIGNET JEWELERS LTDfy18q3exhibit311.htm
EX-10.1 - EXHIBIT 10.1 - SIGNET JEWELERS LTDfy18q3exhibit101.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 28, 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 Shares, $0.18 par value, 60,516,066 shares as of November 28, 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
 
39 weeks ended
 
 
(in millions, except per share amounts)
October 28, 2017
 
October 29, 2016
 
October 28, 2017
 
October 29, 2016
 
Notes
Sales
$
1,156.9

 
$
1,186.2

 
$
3,959.9

 
$
4,138.5

 
5
Cost of sales
(835.8
)
 
(836.2
)
 
(2,689.7
)
 
(2,723.2
)
 
 
Gross margin
321.1

 
350.0

 
1,270.2

 
1,415.3

 
 
Selling, general and administrative expenses
(375.9
)
 
(386.5
)
 
(1,237.7
)
 
(1,264.9
)
 
 
Credit transaction, net
(12.2
)
 

 
2.6

 

 
3
Other operating income, net
72.5

 
68.6

 
221.3

 
213.6

 
 
Operating income
5.5

 
32.1

 
256.4

 
364.0

 
5
Interest expense, net
(16.6
)
 
(12.7
)
 
(42.7
)
 
(36.4
)
 
 
(Loss) income before income taxes
(11.1
)
 
19.4

 
213.7

 
327.6

 
 
Income taxes
7.2

 
(2.4
)
 
(45.7
)
 
(81.9
)
 
10
Net (loss) income
$
(3.9
)
 
$
17.0

 
$
168.0

 
$
245.7

 
 
Dividends on redeemable convertible preferred shares
(8.2
)
 
(2.2
)
 
(24.6
)
 
(2.2
)
 
7
Net (loss) income attributable to common shareholders
$
(12.1
)
 
$
14.8

 
$
143.4

 
$
243.5

 
 
 
 
 
 
 
 
 
 
 
 
(Loss) earnings per common share:
 
 
 
 
 
 
 
 
 
Basic
$
(0.20
)
 
$
0.20

 
$
2.24

 
$
3.19

 
8
Diluted
$
(0.20
)
 
$
0.20

 
$
2.24

 
$
3.18

 
8
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
60.1

 
73.5

 
64.0

 
76.4

 
8
Diluted
60.1

 
73.6

 
64.1

 
76.5

 
8
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.31

 
$
0.26

 
$
0.93

 
$
0.78

 
7
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 28, 2017
 
October 29, 2016
(in millions)
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
 
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
Net (loss) income
 
 
 
 
$
(3.9
)
 
 
 
 
 
$
17.0
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(6.5
)
 
$
 
 
(6.5
)
 
$
(28.9
)
 
$

 
(28.9
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss
(0.2
)
 
 
 
(0.2
)
 
(0.4
)
 
0.2

 
(0.2
)
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain
1.3

 
(0.4
)
 
0.9

 
1.9
 
 

 
1.9
 
Reclassification adjustment for (gains) to net income
(0.8
)
 
0.2
 
 
(0.6
)
 
(0.2
)
 
0.1

 
(0.1
)
Pension plan:
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
(1.1
)
 
0.2
 
 
(0.9
)
 
 
 

 
 
Reclassification adjustment to net income for amortization of actuarial losses
0.7

 
(0.1
)
 
0.6

 
0.4
 
 

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

 
(0.4
)
Net curtailment gain and settlement loss
(3.7
)
 
0.7
 
 
(3.0
)
 
 
 

 
 
Total other comprehensive loss
$
(10.7
)
 
$
0.6
 
 
$
(10.1
)
 
$
(27.7
)
 
$
0.4

 
$
(27.3
)
Total comprehensive loss
 
 
 
 
$
(14.0
)
 
 
 
 
 
$
(10.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39 weeks ended
 
October 28, 2017
 
October 29, 2016
(in millions)
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
 
Pre-tax
amount
 
Tax
(expense)
benefit
 
After-tax
amount
Net income
 
 
 
 
$
168.0

 
 
 
 
 
$
245.7
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
18.6

 
$
 
 
18.6

 
$
(38.0
)
 
$

 
(38.0
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain
0.6

 
(0.3
)
 
0.3

 
0.3
 
 
(0.1
)
 
0.2
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain
4.5

 
(1.8
)
 
2.7

 
11.2
 
 
(3.0
)
 
8.2
 
Reclassification adjustment for (gains) losses to net income
(4.1
)
 
1.0
 
 
(3.1
)
 
2.4
 
 
(0.8
)
 
1.6
 
Pension plan:
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
(1.1
)
 
0.2
 
 
(0.9
)
 
 
 

 
 
Reclassification adjustment to net income for amortization of actuarial losses
2.2

 
(0.4
)
 
1.8

 
1.2
 
 
(0.2
)
 
1.0
 
Reclassification adjustment to net income for amortization of net prior service credits
(1.3
)
 
0.2
 
 
(1.1
)
 
(1.5
)
 
0.3

 
(1.2
)
Net curtailment gain and settlement loss
(3.7
)
 
0.7
 
 
(3.0
)
 
 
 

 
 
Total other comprehensive income (loss)
$
15.7

 
$
(0.4
)
 
$
15.3

 
$
(24.4
)
 
$
(3.8
)
 
$
(28.2
)
Total comprehensive income
 
 
 
 
$
183.3

 
 
 
 
 
$
217.5
 
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 28, 2017
 
January 28, 2017
 
October 29, 2016
 
Notes
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
113.4

 
$
98.7

 
$
82.7

 
 
Accounts receivable, net
640.1

 
1,858.0

 
1,581.1

 
11
Other receivables
80.3

 
95.9

 
74.2

 
 
Other current assets
145.0

 
136.3

 
146.8

 
 
Income taxes
17.3

 
4.4

 
20.8

 
 
Inventories
2,466.1

 
2,449.3

 
2,649.4

 
12
Total current assets
3,462.2

 
4,642.6

 
4,555.0

 
 
Non-current assets:
 
 
 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $1,162.7, $1,049.4 and $1,015.4, respectively
855.1

 
822.9

 
791.1

 
 
Goodwill
867.1

 
517.6

 
517.0

 
13
Intangible assets, net
410.4

 
417.0

 
419.8

 
13
Other assets
169.1

 
165.1

 
157.5

 
14
Deferred tax assets
1.3

 
0.7

 

 
 
Retirement benefit asset
35.5

 
31.9

 
47.1

 
22
Total assets
$
5,800.7

 
$
6,597.8

 
$
6,487.5

 
 
Liabilities and Shareholders’ equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Loans and overdrafts
$
291.8

 
$
91.1

 
$
288.8

 
17
Accounts payable
324.9

 
255.7

 
382.2

 
 
Accrued expenses and other current liabilities
430.5

 
478.2

 
402.9

 
 
Deferred revenue
270.3

 
276.9

 
256.7

 
18
Income taxes

 
101.8

 
4.4

 
 
Total current liabilities
1,317.5

 
1,203.7

 
1,335.0

 
 
Non-current liabilities:
 
 
 
 
 
 
 
Long-term debt
696.8

 
1,317.9

 
1,324.2

 
17
Other liabilities
244.4

 
213.7

 
219.9

 
 
Deferred revenue
646.1

 
659.0

 
632.1

 
18
Deferred tax liabilities
143.8

 
101.4

 
133.4

 
 
Total liabilities
3,048.6

 
3,495.7

 
3,644.6

 
 
Commitments and contingencies


 


 


 
21
Series A redeemable convertible preferred shares of $.01 par value: authorized 500 shares, 0.625 shares outstanding (January 28, 2017 and October 29, 2016: 0.625 shares outstanding)
613.1

 
611.9

 
611.7

 
6
Shareholders’ equity:
 
 
 
 
 
 
 
Common shares of $0.18 par value: authorized 500 shares, 60.4 shares outstanding (January 28, 2017: 68.3 outstanding; October 29, 2016: 69.6 outstanding)
15.7

 
15.7

 
15.7

 
 
Additional paid-in capital
285.6

 
280.7

 
128.5

 
 
Other reserves
0.4

 
0.4

 
0.4

 
 
Treasury shares at cost: 26.8 shares (January 28, 2017: 18.9 shares; October 29, 2016: 17.6 shares)
(1,945.2
)
 
(1,494.8
)
 
(1,338.9
)
 
7
Retained earnings
4,074.9

 
3,995.9

 
3,727.8

 
 
Accumulated other comprehensive loss
(292.4
)
 
(307.7
)
 
(302.3
)
 
9
Total shareholders’ equity
2,139.0

 
2,490.2

 
2,231.2

 
 
Total liabilities, redeemable convertible preferred shares and shareholders’ equity
$
5,800.7

 
$
6,597.8

 
$
6,487.5

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

5


SIGNET JEWELERS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
39 weeks ended
(in millions)
October 28, 2017
 
October 29, 2016
Cash flows from operating activities
 
 
 
Net income
$
168.0

 
$
245.7

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
147.1

 
138.8

Amortization of unfavorable leases and contracts
(10.8
)
 
(14.9
)
Pension benefit
(3.6
)
 
(1.3
)
Share-based compensation
11.0

 
14.0

Deferred taxation
41.7

 
60.9

Excess tax benefit from exercise of share awards

 
(1.3
)
Credit transaction, net
(30.9
)
 

Amortization of debt discount and issuance costs
3.2

 
2.2

Other non-cash movements
1.5

 
1.9

Changes in operating assets and liabilities:
 
 
 
Decrease in accounts receivable
286.1

 
174.0

Proceeds from sale of in-house finance receivables
960.2

 

Decrease in other receivables and other assets
19.6

 
9.0

Increase in other current assets
(2.5
)
 
(15.4
)
Decrease (increase) in inventories
4.6

 
(217.0
)
Increase in accounts payable
39.7

 
114.1

Decrease in accrued expenses and other liabilities
(5.4
)
 
(82.2
)
Decrease in deferred revenue
(29.5
)
 
(2.5
)
Decrease in income taxes payable
(115.3
)
 
(62.6
)
Pension plan contributions
(2.4
)
 
(2.5
)
Net cash provided by operating activities
1,482.3

 
360.9

Investing activities
 
 
 
Purchase of property, plant and equipment
(166.1
)
 
(195.6
)
Purchase of available-for-sale securities
(1.7
)
 
(10.4
)
Proceeds from sale of available-for-sale securities
0.9

 
10.0

Acquisition of R2Net Inc., net of cash acquired
(332.4
)
 

Net cash used in investing activities
(499.3
)
 
(196.0
)
Financing activities
 
 
 
Dividends paid on common shares
(57.7
)
 
(57.5
)
Dividends paid on redeemable convertible preferred shares
(26.9
)
 

Proceeds from issuance of redeemable convertible preferred shares, net of issuance costs

 
611.6

Proceeds from term and bridge loans
350.0

 

Repayments of term and bridge loans
(365.7
)
 
(12.0
)
Proceeds from securitization facility
1,745.9

 
1,837.1

Repayments of securitization facility
(2,345.9
)
 
(1,837.1
)
Proceeds from revolving credit facility
605.0

 
598.0

Repayments of revolving credit facility
(405.0
)
 
(339.0
)
Repurchase of common shares
(460.0
)
 
(1,000.0
)
Repayments of bank overdrafts
(5.9
)
 
(13.3
)
Other financing activities
(4.5
)
 
(6.0
)
Net cash used in financing activities
(970.7
)
 
(218.2
)
Cash and cash equivalents at beginning of period
98.7

 
137.7

Increase (decrease) in cash and cash equivalents
12.3

 
(53.3
)
Effect of exchange rate changes on cash and cash equivalents
2.4

 
(1.7
)
Cash and cash equivalents at end of period
$
113.4

 
$
82.7

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

 

 

 

 
168.0

 

 
168.0

Other comprehensive income

 

 

 

 

 
15.3

 
15.3

Dividends on common shares

 

 

 

 
(58.7
)
 

 
(58.7
)
Dividends on redeemable convertible preferred shares

 

 

 

 
(24.6
)
 

 
(24.6
)
Repurchase of common shares

 

 

 
(460.0
)
 

 

 
(460.0
)
Net settlement of equity based awards

 
(6.1
)
 

 
9.4

 
(5.7
)
 

 
(2.4
)
Share options exercised

 

 

 
0.2

 

 

 
0.2

Share-based compensation expense

 
11.0

 

 

 

 

 
11.0

Balance at October 28, 2017
$
15.7

 
$
285.6

 
$
0.4

 
$
(1,945.2
)
 
$
4,074.9

 
$
(292.4
)
 
$
2,139.0

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 United States (“US”), United Kingdom (“UK”) and Canada. Signet manages its business as five reportable segments: the Sterling Jewelers division, the Zale division, which consists of the Zale Jewelry and Piercing Pagoda segments, the UK Jewelry division and Other. The “Other” reportable segment consists of all non-reportable segments, including subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones and unallocated corporate administrative functions. See Note 5 for additional discussion of the Company’s segments.
On September 12, 2017, the Company completed the acquisition of R2Net Inc., a Delaware corporation (“R2Net”). See Note 4 for additional information regarding the acquisition.
In October 2017, the Company, through its subsidiary Sterling Jewelers Inc. (“Sterling”), completed the sale of the prime-only quality portion of Sterling’s in-house finance receivable portfolio to Comenity Bank (“Comenity”). See Note 3 for additional information regarding the transaction.
Signet’s sales are seasonal, with the first quarter slightly exceeding 20% of annual sales, the second and third quarters each approximating 20% and the fourth quarter accounting for almost 40% of annual sales, with December being by far the most important month of the year. The “Holiday Season” consists of results for the months of November and December. As a result, approximately 45% to 55% of Signet’s annual operating income normally occurs in the fourth quarter, comprised of nearly all of the UK Jewelry and Zale divisions’ annual operating income and 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, 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 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 third quarter of the relevant fiscal years 2018 and 2017 refer to the 13 and 39 weeks ended October 28, 2017 and October 29, 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 9 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 10 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
Derivatives and Hedging
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The new guidance expands the types of risk management strategies eligible for hedge accounting, refines the documentation and effectiveness assessment requirements and modifies the presentation and disclosure requirements for hedge accounting activities. ASU No. 2017-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. Signet is currently assessing the timing of adoption and the impact this guidance will have on the Company’s financial position or results of operations.
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.

9


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.
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
In October 2017, Signet, through its subsidiary Sterling, completed the sale of the prime-only credit quality portion of Sterling’s in-house finance receivable portfolio to Comenity. The following events summarize the credit transaction:
Receivables reclassification: In the second quarter of Fiscal 2018, certain in-house finance receivables that met the criteria for sale to Comenity were reclassified from "held for investment" to "held for sale." Accordingly, the receivables were recorded at the lower of cost (par) or fair value, resulting in the reversal of the related allowance for credit losses of $20.7 million. This reversal was recorded in credit transaction, net in the condensed consolidated income statements for the 39 weeks ended October 28, 2017.
Proceeds received: In October 2017, the Company received $960.2 million in cash consideration reflecting the par value of the receivables sold. In addition, the Company recognized a beneficial interest asset of $10.2 million representing the present value of the cash flows the Company expects to receive under the economic profit sharing agreement related to the receivables sold. The gain upon recognition of the beneficial interest asset was recorded in credit transaction, net in the condensed consolidated income statements for the 13 and 39 weeks ended October 28, 2017.
Expenses: During the 39 weeks ended October 28, 2017, the Company incurred $28.3 million of transaction-related costs. These costs were recorded in credit transaction, net in the condensed consolidated income statements.
Asset-backed securitization facility termination: In October 2017, the Company terminated the asset-backed securitization facility in order to transfer the receivables free and clear. The asset-backed securitization facility had a principal balance outstanding of $600.0 million at the time of termination. The payoff was funded through the proceeds received from the par value of receivables sold. See Note 17 for additional information regarding the asset-backed securitization facility.
Program agreement: Comenity provides credit to prime-only credit quality customers with an initial term of seven years and, unless terminated by either party, additional renewal terms of two years. Under the Program Agreement, Comenity established a program to issue Sterling credit cards to be serviced, marketed and promoted in accordance with the terms of the agreement. Subject to limited exceptions, Comenity is the exclusive issuer of private label credit cards or an installment or other closed end loan product in the United States bearing specified Company trademarks, including “Kay”, “Jared” and specified regional brands, but excluding “Zale”, during the term of the agreement. The pre-existing arrangement with Comenity for the issuing of Zale credit cards 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 under an economic profit sharing agreement. The Program Agreement contains customary representations, warranties and covenants.
Additionally, Signet and Genesis Financial Solutions (“Genesis”) entered into a five-year servicing agreement in October 2017, under which Genesis will provide credit servicing functions for Signet’s existing non-prime accounts receivable, as well as future non-prime account originations. Signet will retain the existing non-prime accounts receivable on its balance sheet and continue to originate the majority of new accounts until the expected completion of the second phase of credit outsourcing.
4. Acquisition
On September 12, 2017, the Company acquired the outstanding shares of R2Net, the owner of online jewelry retailer JamesAllen.com and Segoma Imaging Technologies. The acquisition rapidly enhanced the Company’s digital capabilities and accelerated its OmniChannel strategy, while adding a millennial-focused online retail brand to the Company’s portfolio. The Company paid $332.4 million, net of acquired cash of $47.3 million, for R2Net. The merger agreement provides for a post-closing working capital adjustment which is anticipated to be finalized during the fourth quarter of Fiscal 2018. The total consideration paid was funded with a $350 million bridge loan. See Note 17 for additional information regarding the bridge loan.
The transaction was accounted for as a business combination during the third quarter of Fiscal 2018 with R2Net becoming a wholly-owned consolidated subsidiary of Signet. Prior to closing the acquisition, the Company incurred approximately $9.4 million of acquisition-related costs for professional services during the 39 weeks ended October 28, 2017. Acquisition-related costs were recorded as selling, general and administrative expenses in the condensed consolidated income statements. The results of R2Net subsequent to the acquisition date are reported as a component of the results of the Sterling Jewelers division. See Note 5 for segment information. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results was not material.

11


Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed are recorded at their estimated fair values on the acquisition date, with the remaining unallocated net purchase price recorded as goodwill. Goodwill generated from the acquisition is primarily attributable to expected synergies and will not be deductible for tax purposes. As of October 28, 2017, the Company is in the process of finalizing the net assets acquired in the acquisition, most notably, the identification and valuation of intangible assets, including tradenames and technology-related assets. The following table summarizes the preliminary fair values identified for the assets acquired and liabilities assumed in the R2Net acquisition as of September 12, 2017:
(in millions)
Initial amounts
Cash and cash equivalents
$
47.3

Inventories
12.1

Other current assets
9.7

Property, plant and equipment
3.5

Current liabilities
(41.4
)
Fair value of net assets acquired
31.2

Goodwill(1)
348.5

Total consideration transferred
$
379.7

(1) 
The amount of goodwill generated will be adjusted for any additional assets or liabilities identified by the Company or for any adjustments to the preliminary fair values identified for the assets acquired and liabilities assumed in the R2Net acquisition reflected above.
5. Segment information
Financial information for each of Signet’s reportable segments is presented in the tables below. Signet’s chief operating decision maker utilizes sales and operating income, after the elimination of any inter-segment transactions, to determine resource allocations and performance assessment measures. Signet’s sales are derived from the retailing of jewelry, watches, other products and services as generated through the management of its five reportable segments: the Sterling Jewelers division, the Zale division, which consists of the Zale Jewelry and Piercing Pagoda segments, the UK Jewelry division and Other.
The Sterling Jewelers division operates in all 50 US states. Its stores operate nationally in malls and off-mall locations principally as Kay (Kay Jewelers and Kay Jewelers Outlet) and Jared (Jared The Galleria Of Jewelry and Jared Vault). The division also operates a variety of mall-based regional brands and the JamesAllen.com website, which was acquired in the R2Net acquisition. The results for the Sterling Jewelers division include R2Net results for the 47 day period since September 12, 2017, the date of acquisition. See Note 4 for additional information.
The Zale division operates jewelry stores (Zale Jewelry) and kiosks (Piercing Pagoda), located primarily in shopping malls throughout the US, 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. Acquisition-related costs incurred prior to closing the R2Net transaction are reported within the Other reportable segment.

12


 
13 weeks ended
 
39 weeks ended
(in millions)
October 28, 2017
 
October 29, 2016
 
October 28, 2017
 
October 29, 2016
Sales:
 
 
 
 
 
 
 
Sterling Jewelers
$
698.7

 
$
712.5

 
$
2,437.8

 
$
2,532.3

Zale Jewelry
268.2

 
282.4

 
933.7

 
994.8

Piercing Pagoda
55.4

 
53.4

 
187.4

 
179.4

UK Jewelry
128.4

 
130.3

 
382.8

 
419.5

Other
6.2

 
7.6

 
18.2

 
12.5

Total sales
$
1,156.9

 
$
1,186.2

 
$
3,959.9

 
$
4,138.5

 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
Sterling Jewelers
$
73.7

(1) 
$
78.6

 
$
362.6

(2) 
$
417.8

Zale Jewelry
(15.7
)
 
(19.3
)
 
(12.4
)
 
(0.5
)
Piercing Pagoda
(4.2
)
 
(5.4
)
 

 
2.2

UK Jewelry
(1.7
)
 

 
(1.9
)
 
3.0

Other
(46.6
)
(3) 
(21.8
)
 
(91.9
)
(4) 
(58.5
)
Total operating income
$
5.5

 
$
32.1

 
$
256.4

 
$
364.0

(1) 
For the 13 weeks ended October 28, 2017, amount includes $10.2 million gain upon recognition of beneficial interest in connection with the sale of the prime portion of in-house receivables. See Note 3 for additional information.
(2) 
For the 39 weeks ended October 28, 2017, amount includes $20.7 million gain related to the reversal of the allowance for credit losses for the in-house receivables sold, as well as the $10.2 million gain upon recognition of beneficial interest in connection with the sale of the prime portion of in-house receivables. See Note 3 for additional information.
(3) 
For the 13 weeks ended October 28, 2017, amount includes $22.4 million of transaction costs related to the credit transaction and $8.1 million of R2Net acquisition costs. See Note 3 and Note 4 for additional information regarding credit transaction and acquisition of R2Net, respectively.
(4) 
For the 39 weeks ended October 28, 2017, amount includes $28.3 million of transaction costs related to the credit transaction, $9.4 million of R2Net acquisition costs, and $3.4 million of CEO transition costs. See Note 3 and Note 4 for additional information regarding credit transaction and acquisition of R2Net, respectively.
(in millions)
October 28, 2017
 
January 28, 2017
 
October 29, 2016
Total assets:
 
 
 
 
 
Sterling Jewelers
$
3,260.0

 
$
4,015.4

 
$
3,715.6

Zale Jewelry
1,885.0

 
1,940.7

 
2,061.7

Piercing Pagoda
139.8

 
141.6

 
136.1

UK Jewelry
404.8

 
372.6

 
407.1

Other
111.1

 
127.5

 
167.0

Total assets
$
5,800.7

 
$
6,597.8

 
$
6,487.5

6. 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. Preferred shareholders are entitled to a cumulative dividend at the rate of 5% per annum, payable quarterly in arrears. Refer to Note 7 for additional discussion of the Company’s dividends on preferred shares.
(in millions, except conversion rate and conversion price)
October 28, 2017
 
January 28, 2017
 
October 29, 2016
Conversion rate
10.7707

 
10.6529

 
10.6529

Conversion price
$
92.8445

 
$
93.8712

 
$
93.8712

Potential impact of preferred shares if-converted to common shares
6.7

 
6.7

 
6.7

Liquidation preference
$
632.8

 
$
636.3

 
$
627.1


13


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 $1.8 million as of October 28, 2017 (January 28, 2017 and October 29, 2016: $0.6 million and $0.1 million, respectively). Accretion of $0.4 million and $1.2 million was recorded to preferred shares in the condensed consolidated balance sheets during the 13 and 39 weeks ended October 28, 2017, respectively ($0.1 million for the 13 and 39 weeks ended October 29, 2016).
7. 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 39 weeks ended October 28, 2017 and October 29, 2016 were as follows:
 
 
 
39 weeks ended October 28, 2017
 
39 weeks ended October 29, 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

 
8.7

 
$
706.9

 
$
81.32

2013 Program(2)
$
350.0

 
n/a

 
n/a

 
n/a

 
1.2

 
135.6

 
$
111.26

Total
 
 
8.1

 
$
460.0

 
$
56.91

 
9.9

 
$
842.5

 
$
85.00

(1) 
The 2016 Program had $50.6 million remaining as of October 28, 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. The total authorization remaining under all authorized programs as of October 28, 2017 was $650.6 million.
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
0.31

 
18.7

 
0.26

 
19.7

Third quarter(1)
0.31

 
18.7

 
0.26

 
18.1

Total
$
0.93

 
$
58.7

 
$
0.78

 
$
58.2

(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 October 28, 2017 and October 29, 2016, $18.7 million and $18.1 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 third quarter of Fiscal 2018 and Fiscal 2017, respectively.
Dividends on preferred shares
 
Fiscal 2018
 
Fiscal 2017
(in millions)
Total cash
dividends
 
Total cash
dividends
First quarter
$
7.8

 
$

Second quarter
7.8

 

Third quarter(1)
7.8

 

Total
$
23.4

 
$

(1) 
Signet’s preferred shares dividends results in the dividend payment date being a quarter in arrears from the declaration date. As a result, as of October 28, 2017 and October 29, 2016, $7.8 million and $2.1 million, respectively, has been recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets reflecting the cash dividends on preferred shares declared for the third quarter of Fiscal 2018 and Fiscal 2017, respectively.

14


There were no cumulative undeclared dividends on the preferred shares that reduced net (loss) income attributable to common shareholders during the 13 and 39 weeks ended October 28, 2017 ($2.1 million for the 13 and 39 weeks ended October 29, 2016). In addition, deemed dividends of $0.4 million and $1.2 million related to accretion of issuance costs associated with the preferred shares was recognized during the 13 and 39 weeks ended October 28, 2017, respectively ($0.1 million for the 13 and 39 weeks ended October 29, 2016). See Note 6 for additional discussion of the Company’s preferred shares.
8. Earnings (loss) per common share (EPS)
During Fiscal 2018, basic EPS is computed by dividing net (loss) 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
 
39 weeks ended
(in millions, except per share amounts)
October 28, 2017
 
October 29, 2016
 
October 28, 2017
 
October 29, 2016
Numerator:
 
 
 
 
 
 
 
Net (loss) income attributable to common shareholders
$
(12.1
)
 
$
14.8

 
$
143.4

 
$
243.5

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
60.1

 
73.5

 
64.0

 
76.4

EPS – basic
$
(0.20
)
 
$
0.20

 
$
2.24

 
$
3.19

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 (loss) income attributable to common shareholders. See Note 6 for additional discussion of the Company’s preferred shares. The computation of diluted EPS is outlined in the table below:
 
13 weeks ended
 
39 weeks ended
(in millions, except per share amounts)
October 28, 2017
 
October 29, 2016
 
October 28, 2017
 
October 29, 2016
Numerator:
 
 
 
 
 
 
 
Net (loss) income attributable to common shareholders
$
(12.1
)
 
$
14.8

 
$
143.4

 
$
243.5

Add: Dividends on preferred shares

 

 

 

Numerator for diluted EPS
$
(12.1
)
 
$
14.8

 
$
143.4

 
$
243.5

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
60.1

 
73.5

 
64.0

 
76.4

Plus: Dilutive effect of share awards

 
0.1

 
0.1

 
0.1

Diluted weighted average common shares outstanding
60.1

 
73.6

 
64.1

 
76.5

 
 
 
 
 
 
 
 
EPS – diluted
$
(0.20
)
 
$
0.20

 
$
2.24

 
$
3.18

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)
October 28, 2017
 
October 29, 2016
Share awards
0.3

 
0.3

Potential impact of preferred shares
6.7

 
6.7

Total anti-dilutive shares
7.0

 
7.0


15


9. 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
18.6

 
0.3

 
2.7

 
(0.9
)
 

 
20.7

Amounts reclassified from AOCI to net income

 

 
(3.1
)
 
4.0

 
(6.3
)
 
(5.4
)
Net current period OCI
18.6

 
0.3

 
(0.4
)
 
3.1

 
(6.3
)
 
15.3

Balance at October 28, 2017
$
(244.8
)
 
$
(0.1
)
 
$
2.0

 
$
(52.4
)
 
$
2.9

 
$
(292.4
)
The amounts reclassified from AOCI were as follows:
 
Amounts reclassified from AOCI
 
 
 
13 weeks ended
 
39 weeks ended
 
 
(in millions)
October 28, 2017
 
October 29, 2016
 
October 28, 2017
 
October 29, 2016
 
Income statement caption
(Gains) losses on cash flow hedges:
 
 
 
 
 
 
 
 
 
Foreign currency contracts
$
(0.8
)
 
$
(0.4
)
 
$
(3.0
)
 
$
(1.0
)
 
Cost of sales (see Note 15)
Interest rate swaps

 
0.5

 
0.4

 
1.7

 
Interest expense, net
(see Note 15)
Commodity contracts

 
(0.3
)
 
(1.5
)
 
1.7

 
Cost of sales (see Note 15)
Total before income tax
(0.8
)
 
(0.2
)
 
(4.1
)
 
2.4

 
 
Income taxes
0.2

 
0.1

 
1.0

 
(0.8
)
 
 
Net of tax
(0.6
)
 
(0.1
)
 
(3.1
)
 
1.6

 
 
 
 
 
 
 
 
 
 
 
 
Defined benefit pension plan items:
 
 
 
 
 
 
 
 
 
Amortization of unrecognized actuarial losses
0.7

 
0.4

 
2.2

 
1.2

 
Selling, general and administrative expenses(1)
Amortization of unrecognized net prior service credits
(0.4
)
 
(0.5
)
 
(1.3
)
 
(1.5
)
 
Selling, general and administrative expenses(1)
Net curtailment gain and settlement loss
(3.7
)
 

 
(3.7
)
 

 
Selling, general and administrative expenses(1)
Total before income tax
(3.4
)
 
(0.1
)
 
(2.8
)
 
(0.3
)
 
 
Income taxes
0.6

 
0.1

 
0.5

 
0.1

 
 
Net of tax
(2.8
)
 

 
(2.3
)
 
(0.2
)
 
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications, net of tax
$
(3.4
)
 
$
(0.1
)
 
$
(5.4
)
 
$
1.4

 
 
(1) 
These items are included in the computation of net periodic pension benefit. See Note 22 for additional information.

16


10. Income taxes
 
39 weeks ended
 
October 28, 2017
 
October 29, 2016
Forecasted annual effective tax rate
21.2
%
 
25.0
%
Discrete items recognized
0.2
%
 
%
Effective tax rate recognized in income statement
21.4
%
 
25.0
%
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 39 weeks ended October 28, 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.
11. Accounts receivable, net
In October 2017, the Company completed the sale of a portion of the Sterling Jewelers customer in-house finance receivables. The receivables sold, which were classified as "held for sale" as of the second quarter of Fiscal 2018, are no longer reported within the condensed consolidated balance sheets. See Note 3 for additional information regarding the sale of the prime portion of the customer in-house finance receivable portfolio. 
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.
(in millions)
October 28, 2017
 
January 28, 2017
 
October 29, 2016
Accounts receivable by portfolio segment, net:
 
 
 
 
 
Sterling Jewelers customer in-house finance receivables
$
597.7

 
$
1,813.3

 
$
1,546.3

Zale customer in-house finance receivables
32.3

 
33.4

 
26.4

Other accounts receivable
10.1

 
11.3

 
8.4

Total accounts receivable, net
$
640.1

 
$
1,858.0

 
$
1,581.1

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 October 28, 2017, January 28, 2017 and October 29, 2016. Effective October 20, 2017, the Zale customer in-house financing programs are being underwritten and serviced by a third party for newly originated balances after the effective date.
Other accounts receivable is comprised primarily of accounts receivable relating to the insurance loss replacement business in the UK Jewelry division of $6.7 million (January 28, 2017 and October 29, 2016: $11.0 million and $7.7 million, respectively).

17


The allowance for credit losses associated with the portion of Sterling Jewelers customer in-house finance receivables previously classified as “held for sale” was reversed during the second quarter of Fiscal 2018. The activity in the allowance for credit losses on Sterling Jewelers customer in-house finance receivables is shown below:
 
39 weeks ended
(in millions)
October 28, 2017
 
October 29, 2016
Beginning balance
$
(138.7
)
 
$
(130.0
)
Charge-offs, net
160.9

 
143.1

Recoveries
30.1

 
26.8

Provision
(181.8
)
 
(172.9
)
Reversal of allowance on receivables previously held for sale
20.7

 

Ending balance
$
(108.8
)
 
$
(133.0
)
Ending receivable balance evaluated for impairment
706.5

 
1,679.3

Sterling Jewelers customer in-house finance receivables, net
$
597.7

 
$
1,546.3

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 are shown below:
   
October 28, 2017
 
January 28, 2017
 
October 29, 2016
(in millions)
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
Performing:
 
 
 
 
 
 
 
 
 
 
 
Current, aged 0 – 30 days
$
586.5

 
$
(50.3
)
 
$
1,538.2

 
$
(47.2
)
 
$
1,294.9

 
$
(39.3
)
Past due, aged 31 – 60 days
40.3

 
(3.5
)
 
282.0

 
(9.0
)
 
250.6

 
(8.1
)
Past due, aged 61 – 90 days
27.1

 
(2.4
)
 
51.6

 
(2.3
)
 
50.7

 
(2.5
)
Non Performing:
 
 
 
 
 
 
 
 
 
 
 
Past due, aged more than 90 days
52.6

 
(52.6
)
 
80.2

 
(80.2
)
 
83.1

 
(83.1
)
 
$
706.5

 
$
(108.8
)
 
$
1,952.0

 
$
(138.7
)
 
$
1,679.3

 
$
(133.0
)
 
October 28, 2017
 
January 28, 2017
 
October 29, 2016
(as a % of the ending receivable balance)
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
 
Gross
 
Valuation
allowance
Performing
 
 
 
 
 
 
 
 
 
 
 
Current, aged 0 – 30 days
83.0
%
 
8.6
%
 
78.8
%
 
3.1
%
 
77.2
%
 
3.0
%
Past due, aged 31 – 60 days
5.7
%
 
8.7
%
 
14.5
%
 
3.2
%
 
14.9
%
 
3.2
%
Past due, aged 61 – 90 days
3.8
%
 
8.9
%
 
2.6
%
 
4.5
%
 
3.0
%
 
4.9
%
Non Performing
 
 
 
 
 
 
 
 
 
 
 
Past due, aged more than 90 days
7.5
%
 
100.0
%
 
4.1
%
 
100.0
%
 
4.9
%
 
100.0
%
 
100.0
%
 
15.4
%
 
100.0
%
 
7.1
%
 
100.0
%
 
7.9
%
Securitized credit card receivables
The Sterling Jewelers division previously securitized its credit card receivables through its Sterling Jewelers Receivables Master Note Trust. As a condition of closing the credit transaction, the Company terminated the asset-backed securitization facility to transfer the receivables free and clear. See Note 17 for additional information regarding the asset-backed securitization facility.

18


12. Inventories
The following table summarizes the Company’s inventory by classification:
(in millions)
October 28, 2017
 
January 28, 2017
 
October 29, 2016
Raw materials
$
68.2

 
$
60.8

 
$
71.2

Finished goods
2,397.9

 
2,388.5

 
2,578.2

Total inventories
$
2,466.1

 
$
2,449.3

 
$
2,649.4

13. Goodwill and intangibles
In connection with the acquisition of R2Net on September 12, 2017, the Company recognized $348.5 million of goodwill, which is reported in the Sterling Jewelers segment. The amount of goodwill generated will be adjusted for any additional assets or liabilities identified by the Company or for any adjustments to the preliminary fair values identified for the assets acquired and liabilities assumed in the R2Net acquisition.
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</