GAAP and Non-GAAP Measures

The discussion and analysis of Signet’s results of operations, financial condition and liquidity contained throughout this website are based upon the consolidated financial statements of Signet which are prepared in accordance with US GAAP and should be read in conjunction with Signet’s financial statements and the related notes included in Item 8 of Form 10-K. 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. In particular, the terms “underlying” and “underlying at constant exchange rates” are used in a number of places. “Underlying” is used to indicate where adjustments for significant, unusual and non-recurring items have been made and “underlying at constant exchange rates” indicates where the underlying items have been further adjusted to eliminate the impact of exchange rate movements on translation of pound sterling amounts to US dollars.

Management does not, nor does it suggest investors should, consider such non-GAAP measures in isolation from, or in substitute for, financial information prepared in accordance with GAAP.

Exchange translation impact

Movements in the US dollar to pound sterling exchange rate have an impact on the results. The UK division is managed in pounds sterling as sales and costs are incurred in that currency and its results are then translated into US dollars for external reporting purposes. Management believes it is inappropriate to hedge this exposure as the UK division’s sales and costs are both incurred in pounds sterling, and therefore believes it assists in understanding the performance of Signet and its UK division if constant currency figures are given. This is particularly so in periods when exchange rates are volatile.

The constant currency amounts are calculated by retranslating the prior year figures using the current year’s exchange rate.

1. Underlying operating income, underlying income before income tax, underlying net income, underlying earnings per share and underlying operating margin percentage

In fiscal 2009, the following non-recurring costs were included in operating income: $516.9 million for impairment of goodwill; and $10.5 million of relisting costs in respect of the move in primary listing to the NYSE. In fiscal 2010, the US division benefited by $13.4 million due to a change in its vacation entitlement policy. This benefit will not recur in subsequent fiscal years. Management considers it useful to exclude these significant, unusual and non-recurring items to analyze and explain changes and trends in Signet’s and its divisions’ results. These underlying amounts are also shown excluding the impact of movements in the pound sterling to US dollar exchange rate.

(a) Fiscal 2010 reconciliation to underlying results

(b) Fiscal 2009 reconciliation to underlying results and constant exchange rates

(c) Fiscal 2010 percentage change in underlying results and at constant exchange rates

(d) Fiscal 2009 percentage change in underlying results and at constant exchange rates

(e) Fourth quarter fiscal 2010 percentage change in underlying results and at constant exchange rates

The underlying results are reported results adjusted for an unfavourable $1.6 million movement in the fourth
quarter vacation entitlement accrual in fiscal 2010 and $408.0 million and $108.9 million impairment of goodwill
for the US and UK divisions respectively during fiscal 2009.

2. Cost of sales, gross margin and selling, general and administrative expenses at constant exchange rates

Management considers it useful to exclude the impact of exchange rate movements to analyze and explain changes and trends in Signet’s costs.

3. Net debt

Net debt is the total of loans, overdrafts and long term debt less cash

4. Net debt to shareholders equity excluding goodwill (“Gearing”)

Gearing is the ratio of net debt to shareholders equity excluding goodwill, and is a useful measure for understanding the financial leverage of the business on a consistent basis.

5. Return on capital employed excluding goodwill (“ROCE”)

ROCE is calculated by dividing the annual operating income by the average monthly capital employed excluding goodwill for that year, expressed as a percentage. Capital employed includes other intangible assets, property, plant and equipment, other non-current receivables, inventories, trade and other receivables; less trade and other payables, deferred income and retirement benefit obligations. This is a key performance indicator used by management for assessing the effective operation of the business and is considered a useful disclosure for investors as it provides a measure of the return on Signet’s and the divisions’ operating assets and has historically been used for some performance awards.

6. Fixed charge cover; net debt to earnings before interest, taxes, depreciation and amortization; and net tangible asset value

These non-GAAP measures are calculated exactly in accordance with Signet’s debt covenants as defined in the original and amended material Note Purchase and Facility Agreements. They are reported to the Note Holders and the lending banks and need to be met in order to maintain these funding facilities. The reporting of these measures provides an investor with an understanding of Signet’s ability to meet these conditions, which are described in Item 7 of Form 10-K.

7. 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.

8. 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 this 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.