- Part 2: For the preceeding part double click ID
Net income 52.0 26.3
Foreign currency translation (11.2) 4.0
Changes in fair value of derivative instruments 5.2 (2.3)
Actuarial gain 1.2 1.1
Prior service cost (0.3) (0.2)
Deferred tax on items recognized in equity (2.0) 0.3
Comprehensive income 44.9 29.2
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
Notes to the interim unaudited condensed consolidated financial statements
1. Principal accounting policies and basis of preparation
Basis of preparation
Signet Jewelers Limited (the "Company") and its subsidiary undertakings (collectively, "Signet") is a leading retailer
of
jewelry, watches and associated services. Signet manages its business as two geographical segments, being the United
States of America (the "US") and the United Kingdom (the "UK"). The US segment operates retail stores under brands
including Kay Jewelers, Jared the Galleria of Jewelry and various regional brands while the UK segment's retail stores
operate under brands including H.Samuel and Ernest Jones.
These interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in the Company's Form 10-K for the year ended January 30, 2010,
filed
with the Securities and Exchange Commission ("SEC") on March 30, 2010.
These interim financial statements of the Group are unaudited. They have been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP") for interim financial information.
Accordingly,
certain information and footnote disclosures normally included in complete consolidated financial statements prepared in
accordance with US GAAP have been condensed or omitted from these interim financial statements. However, these interim
financial statements include all adjustments (consisting of normal recurring accruals and adjustments) that are, in the
opinion of management, necessary to fairly state the results of the interim periods. Subsequent events have been
evaluated
up to the date of issue of these interim financial statements.
Use of estimates in interim financial statements
The preparation of interim 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 consolidated interim financial statements and
reported
amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Estimates
and assumptions are primarily made in relation to the valuation of receivables, the valuation of inventory, depreciation
and asset impairment, the valuation of employee benefits, income taxes and contingencies.
Seasonality
Signet's business is highly seasonal with a very significant proportion of its sales and operating profit generated
during
its fourth quarter, which includes the Christmas season. Management expects such a seasonal fluctuation in sales and
profit
to continue. Therefore, operating results for interim periods are not necessarily indicative of the results that may be
expected for the full year.
New accounting pronouncements to be adopted in future periods
Revenue recognition - multi-deliverable arrangements
In October 2009, the FASB issued ASU 2009-13, which amends ASC 605-25 "Revenue Recognition - Multi-Deliverable
Arrangements". ASU 2009-13 requires arrangement consideration to be allocated to all deliverables at inception using a
relative selling price method and establishes a selling price hierarchy for determining the selling price of a
deliverable.
The update also expands the disclosure requirements to include additional detail regarding the deliverables, method of
calculation of selling price and the timing of revenue recognition. ASU 2009-13 is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The adoption of
this
amendment is not expected to have a material impact on Signet.
2. Segmental information
The consolidated sales are derived from the retailing of jewelry, watches, other products and services. Signet is
managed
as two geographical operating segments, being the US and UK divisions. These segments represent channels of distribution
that offer similar merchandise and service and have similar marketing and distribution strategies. Both divisions are
managed by executive committees, which report through a divisional Chief Executive to Signet's Chief Executive who in
turn
reports to the Board. Each divisional executive committee is responsible for operating decisions within parameters set
by
the Board. The performance of each segment is regularly evaluated based on sales and operating income. The operating
segments do not include certain central costs which is consistent with the treatment in Signet's management accounts.
There are no material transactions between the operating segments.
13 weeks endedMay 1, 2010 13 weeks endedMay 2, 2009
$million $million
Sales:
US 667.1 624.9
UK 142.9 137.7
Total sales 810.0 762.6
Operating income, net:
US 91.1 56.4
UK (1.4) (1.3)
Unallocated(1) (4.2) (2.7)
Total operating income, net 85.5 52.4
May 1, 2010 May 2, 2009 January 30, 2010
$million $million $million
Total assets:
US 2,220.1 2,411.6 2,280.7
UK 342.8 377.3 383.6
Unallocated 348.5 30.6 259.9
Total assets 2,911.4 2,819.5 2,924.2
(1) Unallocated principally relates to central costs.
3. Exchange rates
The exchange rates used in these interim financial statements for the translation of UK pound sterling transactions and
balances into US dollars are as follows:
May 1,2010 May 2, 2009 January 30, 2010
Income statement (average rate) 1.53 1.45 1.59
Balance sheet (closing rate) 1.53 1.49 1.60
4. Taxation
Signet has business activity in all states within the US and files income tax returns for the US federal jurisdiction
and
all applicable states. Signet also files income tax returns in the UK and certain other foreign jurisdictions. Signet is
subject to US federal and state examinations by tax authorities for tax years after October 29, 2005 and is subject to
examination by the UK tax authority for tax years after January 31, 2005.
As of January 30, 2010, Signet had approximately $14.9 million of unrecognized tax benefits in respect of uncertain tax
positions, all of which would favorably affect the effective income tax rate if resolved in Signet's favor. These
unrecognized tax benefits relate to financing arrangements and intra-group charges which are subject to different and
changing interpretations of tax law. There has been no material change in the amount of unrecognized tax benefits in
respect of uncertain tax positions during the 13 weeks ended May 1, 2010.
Signet recognizes accrued interest and, where appropriate, penalties related to unrecognized tax benefits within income
tax
expense. As of January 30, 2010 Signet had accrued interest of $2.2 million and there has been no material change in the
amount of accrued interest as of May 1, 2010.
Over the next twelve months management believes that it is reasonably possible that there could be a reduction of
substantially all of the unrecognized tax benefits as of January 30, 2010, due to settlement of the uncertain tax
positions
with the tax authorities.
5. Earnings per share
13 weeks ended 13 weeks ended
May 1, 2010 May 2, 2009
Net income ($million) 52.0 26.3
Basic weighted average number of shares in issue (million) 85.5 85.2
Dilutive effect of share options (million) 0.7 0.2
Diluted weighted average number of shares in issue (million) 86.2 85.4
Earnings per share - basic $0.61 $0.31
Earnings per share - diluted $0.60 $0.31
The basic weighted average number of shares excludes shares held by the Employee Stock Ownership Trust as such shares
are
not considered outstanding and do not qualify for dividends. The effect of this is to reduce the average number of
shares
in the 13 week period ended May 1, 2010 by 19,175 shares (13 week period ended May 2, 2009: 81,951 shares). The
calculation of fully diluted earnings per share for the 13 week period ended May 1, 2010 excludes options to purchase
985,817 shares (13 week period ended May 2, 2009: 3,162,191 share options) on the basis that their effect on earnings
per
share was anti-dilutive.
6. Inventories
May 1,2010 May 2,2009 January 30, 2010
$million $million $million
Raw materials 4.7 10.8 9.5
Finished goods 1,117.3 1,316.3 1,163.6
Total inventory 1,122.0 1,327.1 1,173.1
7. Deferred revenue
May 1, 2010 May 2, 2009 January 30, 2010
$million $million $million
Warranty deferred revenue 247.4 243.8 243.6
Other 11.6 12.1 17.4
Total deferred revenue 259.0 255.9 261.0
Disclosed as:
Current liabilities 115.9 113.5 120.1
Non-current liabilities 143.1 142.4 140.9
Total deferred revenue 259.0 255.9 261.0
13 weeks ended 13 weeks ended
May 1, 2010 May 2, 2009
$million $million
Warranty deferred revenue, beginning of period 243.6 243.1
Warranties sold 44.8 40.2
Revenues recognized (41.0) (39.5)
Warranty deferred revenue, end of period 247.4 243.8
8. Derivative instruments and hedging activities
Signet is exposed to foreign currency exchange risk arising from various currency exposures. Signet enters into forward
foreign currency exchange contracts and foreign currency option contracts, principally in US dollars, in order to limit
the
impact of movements in foreign exchange rates on its forecast foreign currency purchases. The total notional amount of
these foreign currency contracts outstanding as at May 1, 2010 was $31.5 million (May 2, 2009: $43.6 million; January
30,
2010: $37.2 million). These contracts have been designated as cash flow hedges and will be settled over the next 14
months
(May 2, 2009: 15 months; January 30, 2010: 17 months).
Signet enters into forward purchase contracts and option purchase contracts for commodities in order to reduce its
exposure
to significant movements in the price of the underlying precious metal raw material. The total notional amount of
commodity contracts outstanding as at May 1, 2010 was $74.8 million (May 2, 2009: $88.9 million; January 30, 2010:
$100.0
million). These contracts have been designated as cash flow hedges and will be settled over the next 9 months (May 2,
2009:
9 months; January 30, 2010: 12 months).
For derivatives that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the
derivative is reported as a component of other comprehensive income ("OCI") and reclassified into earnings in the same
period in which the hedged item affects net income or loss. Gains and losses on derivatives that do not qualify for
hedge
accounting, together with any hedge ineffectiveness, are recognized immediately in other operating income, net. Signet
does not hold derivative contracts for trading purposes.
Foreign currency contracts not designated as cash flow hedges are used to hedge currency flows through Signet's bank
accounts to ensure Signet is not exposed to foreign currency exchange risk in its cash and borrowings.
The bank counterparties to the foreign exchange forward contracts expose the Company to credit-related losses in the
event
of their nonperformance. However, to mitigate that risk, the Company only contracts with counterparties that meet
certain
minimum requirements under its counterparty risk assessment process. As of May 1, 2010 credit risk did not materially
change the fair value of the foreign currency or commodity contracts.
The following table summarizes the fair value and presentation of derivative instruments in the condensed consolidated
balance sheets:
Derivative assets
Balance sheetlocation May 1, 2010Fair value$million May 2,
2009Fair value$million January 30, 2010Fair value$million
Derivatives designated as hedging instruments:
Foreign currency contracts Other current assets 1.6 8.0
0.6
Commodity contracts Other current assets 6.6 5.4
2.4
8.2 13.4
3.0
Derivatives not designated as hedging instruments:
Foreign currency contracts Other current assets - -
-
- -
-
Total derivative assets 8.2 13.4
3.0
Derivative liabilities
Balance sheetlocation May 1, 2010Fair value$million May 2,
2009Fair value$million January 30, 2010Fair value$million
Derivatives designated as hedging instruments:
Foreign currency contracts Other current liabilities - (0.1)
(0.4)
Commodity contracts Other current liabilities - (1.5)
(1.6)
- (1.6)
(2.0)
Derivatives not designated as hedging instruments:
Foreign currency contracts Other current liabilities - -
-
- -
-
Total derivative liabilities - (1.6)
(2.0)
The following tables summarize the effect of derivative instruments on the unaudited condensed consolidated income
statements:
Amount of gain/(loss) recognized in OCI on derivatives(Effective
portion) Location of gain/(loss) reclassified from accumulated OCI into income (Effective portion) Amount of
gain/(loss) reclassified from accumulated OCI into income
(Effective portion)
13 weeks ended May 1, 2010$million 13 weeks ended May 2, 2009$million
13 weeks ended May 1, 2010$million 13 weeks ended May 2,
2009$million
Derivatives in cash flow hedging relationships:
Foreign currency contracts 1.8
0.6 Cost of sales
1.4 0.1
Commodity contracts 8.1
(4.2) Cost of sales
3.3 (1.4)
Total 9.9
(3.6)
4.7 (1.3)
The ineffective portion of hedging instruments taken to other operating income, net was $nil in the current and
comparative
periods.
There was no gain or loss recognized on derivatives not designated as hedging instruments to be reported within other
operating income in the income statement in the current and comparative periods.
The estimated fair value of Signet's financial instruments held or issued to finance Signet's operations is summarized
below. Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown
below
are not necessarily indicative of the amounts that Signet would realize upon disposition nor do they indicate Signet's
intent or ability to dispose of the financial instrument. Assets and liabilities that are carried at fair value are
required to be classified and disclosed in one of the following three categories:
Level 1 - quoted market prices in active markets for identical assets and liabilities
Level 2 - observable market based inputs or unobservable inputs that are corroborated by market data
Level 3 - unobservable inputs that are not corroborated by market data
Signet determines fair value based upon quoted prices when available or through the use of alternative approaches, such
as
discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the
investment. The methods Signet uses to determine fair value on an instrument-specific basis are detailed below:
May 1, 2010 May 2, 2009 January 30,
2010
$million $million $million
CarryingValue Significant other observable inputs (Level 2)
CarryingValue Significant other observable inputs (Level 2) CarryingValue Significant other observable inputs
(Level 2)
Assets:
Forward foreign currency contracts and swaps 1.6 1.6 8.0
8.0 0.6 0.6
Forward commodity contracts 6.6 6.6 5.4
5.4 2.4 2.4
Liabilities:
Borrowings (276.3) (307.6) (359.4)
(354.1) (324.1) (371.3)
Forward foreign currency contracts and swaps - - (0.1)
(0.1) (0.4) (0.4)
Forward commodity contracts - - (1.5)
(1.5) (1.6) (1.6)
The fair value of derivative financial instruments has been determined based on market value equivalents at the balance
sheet date, taking into account the current interest rate environment, current foreign currency forward rates or current
commodity forward rates. These are held as assets and liabilities within other receivables and other payables, and all
contracts have a maturity of less than eighteen months. Signet's long-term debt consists of $229.1 million of fixed rate
investor certificate notes ("Private Placement Notes") under a Note Purchase Agreement. The fair value of this debt is
determined by discounting to present value the known future coupon and final Note redemption amounts at market yields as
of
the balance sheet date. The carrying amounts of cash and cash equivalents, accounts receivable, other receivables,
accounts
payable and accrued liabilities approximate fair value because of the short term maturity of these amounts.
9. Pensions
Signet operates a defined benefit pension scheme in the UK (the "Group Scheme"). The components of net periodic pension
cost were as follows:
13 weeks ended 13 weeks ended
May 1,2010 May 2,2009 Fiscal2010
$million $million $million
Components of net periodic benefit cost:
Service cost 1.3 1.0 4.3
Interest cost 2.5 2.4 10.7
Expected return on Group Scheme assets (3.0) (2.6) (11.2)
Amortization of unrecognized prior service cost (0.3) (0.2) (1.0)
Amortization of unrecognized actuarial loss 1.2 1.1 4.7
Net periodic benefit cost 1.7 1.7 7.5
Signet expects to contribute a minimum of $15.2 million to the Group Scheme in fiscal 2011.
10. Commitments and contingencies
Legal proceedings
In March 2008, private plaintiffs filed a class action lawsuit for an unspecified amount against Sterling Jewelers Inc.
("Sterling"), a subsidiary of Signet, in the U.S. District Court for the Southern District of New York federal court
alleging that US store-level employment practices are discriminatory as to compensation and promotional activities. On
September 23, 2008, the US Equal Employment Opportunities Commission ("EEOC") filed a lawsuit against Sterling in the
U.S.
District Court for the Western District of New York. The EEOC's lawsuit alleges that Sterling engaged in a pattern or
practice of gender discrimination with respect to pay and promotions of female retail store employees from January 1,
2003
to the present. The EEOC asserts claims for unspecified monetary relief and non-monetary relief against the Company on
behalf of a class of female employees subjected to these alleged practices. Sterling denies the allegations from both
parties and intends to defend them vigorously.
11. Share-based compensation expense
Signet recorded net share-based compensation expense of $2.3 million and $0.7 million for the 13 weeks ended May 1, 2010
and May 2, 2009. This is after charging $0.1 million (13 weeks ended May 2, 2009: $nil) that relates to the change in
fair
value during the period of certain awards that have an inflation condition and are accounted for as liability awards.
12. Long-term debt
In accordance with its borrowing agreements, Signet made a prepayment to its private placement note holders on March 9,
2010 of $50.9 million. Following this prepayment there were $229.1 million of private placement notes outstanding. A
change
was agreed with Signet's Revolving Credit Facility banking group that the facility would be reduced to $300 million from
$370 million on March 19, 2010.
13. Non-GAAP measures
A number of non-GAAP measures are used by management to analyze and manage the performance of the business, and the
required disclosures for these non-GAAP measures are given below. Management does not, nor does it suggest investors
should
consider such non-GAAP measures in isolation from, or in substitute for, information prepared in accordance with GAAP.
Exchange translation impact
In particular, Signet has historically used constant exchange rates to compare period-to-period changes in certain
financial data. Management considers this a useful measure for analyzing and explaining changes and trends in Signet's
results. The impact of the re-calculation of sales; cost of sales; gross margin; selling, general and administrative
expenses; operating income; income before taxes; net income and earnings per share at constant exchange rates, including
a
reconciliation to Signet's GAAP results, is analyzed below.
13 weeks ended May 1, 2010 13 weeks ended May 2, 2009 Change as
reported Impact of exchange rate movement At constant exchange rates (non-GAAP) Change at constant exchange rates
(non-GAAP)
$million $million %
$million $million %
US 667.1 624.9 6.8%
- 624.9 6.8%
UK 142.9 137.7 3.8%
7.6 145.3 -1.7%
Sales 810.0 762.6 6.2%
7.6 770.2 5.2%
Cost of sales (513.7) (507.1) 1.3%
(5.5) (512.6) 0.2%
Gross margin 296.3 255.5 16.0%
2.1 257.6 15.0%
Selling, general and administrative expenses (238.5) (232.8) 2.4%
(2.3) (235.1) 1.4%
Other operating income, net 27.7 29.7 -6.7%
- 29.7 -6.7%
Operating income, net 85.5 52.4 63.2%
(0.2) 52.2 63.8%
Interest income 0.1 0.6 -83.3%
- 0.6 -83.3%
Interest expense (8.8) (11.6) -24.1%
- (11.6) -24.1%
Income before income taxes 76.8 41.4 85.5%
(0.2) 41.2 86.4%
Income taxes (24.8) (15.1) 64.2%
0.1 (15.0) 65.3%
Net income 52.0 26.3 97.7%
(0.1) 26.2 98.5%
Earnings per share - basic $0.61 $0.31 96.8%
- $0.31 96.8%
Earnings per share - diluted $0.60 $0.31 93.5%
- $0.31 93.5%
Operating income/(loss), net
US 91.1 56.4 61.5% - 56.4 61.5%
UK (1.4) (1.3) 7.7% (0.1) (1.4) -
Unallocated (4.2) (2.7) 55.6% (0.1) (2.8) 50.0%
Operating income, net 85.5 52.4 63.2% (0.2) 52.2 63.8%
Net income adjusted for non-cash items
Net income adjusted for non-cash items shows the amount of net cash flow generated from Signet's operating activities
before changes in operating assets and liabilities. It is a useful measure to summarize the cash generated from
activities
reported in the income statement.
Net cash or net debt
Net cash or net debt is the total of loans and overdrafts, long term debt and cash and cash equivalents, and it is
helpful
in providing a measure of indebtedness of the business.
May 1, 2010 May 2,2009 January 30, 2010
$million $million $million
Long-term debt (229.1) (280.0) (280.0)
Loans and overdrafts (47.2) (79.4) (44.1)
(276.3) (359.4) (324.1)
Cash and cash equivalents 447.1 69.2 316.2
Net cash/(net debt) 170.8 (290.2) (7.9)
Free cash flow
Free cash flow is a non-GAAP measure defined as the net cash provided by operating activities less net cash flows used
in
investing activities. Management considers that it is helpful in understanding how the business is generating cash from
its
operating and investing activities that can be used to meet the financing needs of the business. Free cash flow does
not
represent the residual cash flow available for discretionary expenditure.
13 weeks ended May 1, 2010 13 weeks ended May 2, 2009
$million $million
Net cash provided by operating activities 184.2 198.0
Net cash flows used in investing activities (6.3) (8.4)
Free cash flow 177.9 189.6
This information is provided by RNS
The company news service from the London Stock Exchange
|