SIG), the world's largest specialty retail jeweler, today
announced its results for 13 weeks ("third quarter") and 39 weeks ("year to
date") ended October 30, 2010.
Third Quarter Highlights:
-- Same store sales: up 7.2%, US division up 9.7%
-- Income before income taxes: $12.0 million, up $25.3 million
-- Basic and diluted earnings per share: $0.07, up $0.17
-- Prepayment of private placement notes announced, which will improve
financial and operational flexibility
-- Free cash flow(1) now anticipated to be at upper end of previously
announced $225 million to $275 million target range for Fiscal 2011(2),
before the prepayment of private placement notes and resultant
$47 million 'Make Whole' payment
(1) Net cash provided by operating activities less net cash flows used
in investing activities.
(2) Fiscal 2010 is the 52 weeks ended January 30, 2010 and Fiscal 2011
is the 52 weeks ending January 29, 2011.
Terry Burman, Chief Executive of Signet, commented: "We are delighted with
our third quarter results, reflecting the ongoing success of our
competitive advantages and strong balance sheet. In particular, the 9.7%
US same store sales increase was a very good performance, which drove
strong operating leverage and a return to third quarter profitability.
The economic environment remains challenging for the very important fourth
quarter. However, we are confident that we are well prepared to compete in
both the US and the UK markets."
Signet is the world's largest specialty retail jeweler and operated 1,886
stores at October 30, 2010; these included 1,342 stores in the US, where it
trades as "Kay Jewelers," "Jared The Galleria Of Jewelry" and under a
number of regional names. At that date Signet also operated 544 stores in
the UK division, where it trades as "H.Samuel," "Ernest Jones" and "Leslie
Davis." Further information on Signet is available at
www.signetjewelers.com. See also www.kay.com, www.jared.com,
www.hsamuel.co.uk and www.ernestjones.co.uk.
Conference call
There will be a conference call today at 8.30 a.m. EST (1.30 p.m. GMT and
5.30 a.m. Pacific Time) and a simultaneous audio webcast and slide
presentation available at www.signetjewelers.com. The slides are available
to be downloaded from the website ahead of the conference call. To help
ensure the conference call begins in a timely manner, all participants
should dial in 5 to 10 minutes prior to the scheduled start time. The call
details are:
US dial-in: +1 212 444 0896 Access code: 9045681
European dial-in: +44 (0)20 7138 0845 Access code: 9045681
A replay of the conference call and a transcript of the call will be posted
on Signet's website as soon as is practical after the call has ended.
RESULTS OF OPERATIONS
The consumer environment in both the US and the UK remained challenging in
the third quarter, however the business continued to utilize its
competitive advantages and strong balance sheet to improve sales and
enhance operating margins. As a result, Signet's third quarter results
returned to a profit in Fiscal 2011, after reporting a loss for the third
quarters of Fiscal 2009 and 2010.
Sales and operating income
Same store sales were up 7.2%, compared to a decline of 1.8% in the third
quarter last year. In the year to date, same store sales increased 5.8%,
compared to a decline of 3.4% in the comparable period last year. Total
sales rose by 5.0% to $641.8 million in the third quarter (13 weeks to
October 31, 2009: $611.4 million), reflecting an underlying increase of
6.0% at constant exchange rates; non-GAAP measure, see Note 14. In the
year to date, total sales rose by 4.3% to $2,166.9 million (39 weeks to
October 31, 2009: $2,076.8 million). The increase at constant exchange
rates was 4.9%; non-GAAP measure, see Note 14. The breakdown of the sales
performance is set out in Table 1 below.
Table 1 Third Quarter Year To Date
---------------------------- ----------------------------
US UK Signet US UK Signet
Sales, million $ 497.0 $ 144.8 $ 641.8 $1,737.2 $ 429.7 $2,166.9
% of total 77.4% 22.6% 100.0% 80.2% 19.8% 100.0%
Change in sales US UK Signet US UK Signet
% % % % % %
-------- -------- -------- -------- -------- --------
Same store sales 9.7 (0.6) 7.2 7.5 (0.5) 5.8
Change in store
space (0.9) (2.0) (1.2) (0.7) (1.6) (0.9)
-------- -------- -------- -------- -------- --------
Total at
constant
exchange rates 8.8 (2.6) 6.0 6.8 (2.1) 4.9
Exchange
translation(1) -- (3.6) (1.0) -- (2.5) (0.6)
-------- -------- -------- -------- -------- --------
Change in total
sales as
reported 8.8 (6.2) 5.0 6.8 (4.6) 4.3
-------- -------- -------- -------- -------- --------
(1) See Note 14.
Gross margin was $193.6 million for the third quarter (13 weeks to October
31, 2009: $163.0 million) and $724.4 million for the year to date (39 weeks
to October 31, 2009: $634.2 million), up by 18.8% and by 14.2%
respectively. Gross margin rate increased by 350 basis points in the third
quarter and by 290 basis points in the year to date, see Table 2 below.
The gross merchandise margin improved by 70 basis points in the third
quarter and by 80 basis points in the year to date, driven by price
increases, and lower diamond costs which more than offset the impact of
higher gold costs and the weakness of pound sterling against the US dollar.
The net bad debt to sales ratio again improved compared to the comparable
quarter last year. Leverage of store occupancy costs in the US also
benefited gross margin.
Selling, general and administrative expenses were $201.5 million for the
third quarter (13 weeks to October 31, 2009: $197.3 million) and $643.7
million for the year to date (39 weeks to October 31, 2009: $633.9
million), up by 2.1% and 1.5% respectively. Selling, general and
administrative expenses as a percentage of sales decreased by 90 basis
points in the quarter and by 80 basis points in the year to date compared
to the comparable periods in Fiscal 2010. Tight expense control combined
with leverage of selling expenses more than made up for a non-recurring
$5.0 million benefit to expenses in the third quarter of Fiscal 2010 and
$15 million in the 39 weeks to October 31, 2009, due to a change in
vacation entitlement policy. In the fourth quarter of Fiscal 2010, there
was a non-recurring charge of $1.6 million due to this change.
Table 2 Third Quarter Year To Date
------------------ ------------------
Fiscal Fiscal Fiscal Fiscal
2011 2010 2011 2010
% % % %
-------- -------- -------- --------
Sales 100.0 100.0 100.0 100.0
Cost of sales (69.8) (73.3) (66.6) (69.5)
-------- -------- -------- --------
Gross margin 30.2 26.7 33.4 30.5
Selling, general and administrative
expenses (31.4) (32.3) (29.7) (30.5)
Other operating income 4.1 4.6 3.8 4.2
-------- -------- -------- --------
Operating income/(loss), net 2.9 (1.0) 7.5 4.2
Net financing costs (1.0) (1.2) (1.0) (1.3)
-------- -------- -------- --------
Income/(loss) before income taxes 1.9 (2.2) 6.5 2.9
Income taxes (1.0) 0.8 (2.1) (0.9)
-------- -------- -------- --------
Net income/(loss) 0.9 (1.4) 4.4 2.0
-------- -------- -------- --------
Other operating income was $26.4 million in the third quarter (13 weeks to
October 31, 2009: $28.4 million). For the year to date, other operating
income was $81.3 million (39 weeks to October 31, 2009: $87.0 million).
The reduction in both the third quarter and the year to date primarily
reflected the adverse impact of amendments to the Truth in Lending Act.
The estimated net direct adverse impact on operating income from the
amendments remains $15 million to $17 million in Fiscal 2011.
Third quarter operating income was $18.5 million (13 weeks to October 31,
2009: loss $5.9 million), and operating margin was 2.9% (13 weeks to
October 31, 2009: (1.0)%). For the year to date, operating income
increased by 85.6% to $162.0 million (39 weeks to October 31, 2009: $87.3
million), up 84.9% at constant exchange rates; non-GAAP measure, see Note
14. Operating margin was 7.5% for the year to date (39 weeks to October
31, 2009: 4.2%).
Interest income and expense
Interest income was $0.3 million for the third quarter (13 weeks to October
31, 2009: $nil) and $0.6 million for the year to date (39 weeks to October
31, 2009: $0.7 million). Very low interest rates meant that the increase
in cash had little impact on interest income. Interest expense declined by
$0.6 million to $6.8 million for the third quarter (13 weeks to October 31,
2009: $7.4 million). Interest expense for the year to date was $21.8
million (39 weeks to October 31, 2009: $27.2 million). Interest expense
largely related to Private Placement Notes incurring a blended fixed rate
of interest of 8.11%. Both the third quarter and the year to date
benefited from the repayment of $50.9 million of Private Placement Notes on
March 9, 2010, and lower fees.
Income before income taxes
Income before income taxes was $12.0 million for the third quarter (13
weeks to October 31, 2009: loss $13.3 million). Income before income taxes
was $140.8 million for the year to date (39 weeks to October 31, 2009:
$60.8 million), an increase of 131.6%.
Provision for income taxes
The charge to income taxes for the year to date was $45.8 million (39 weeks
to October 31, 2009: $19.2 million), being an effective tax rate of 32.5%,
which reflects the recognition of $4.5 million previously unrecognized tax
benefit in the second quarter of Fiscal 2011. The charge to income taxes
in the third quarter was $6.0 million (13 weeks to October 31, 2009: $4.6
million credit), being an effective tax rate of 50.0%. The anticipated
effective tax rate for Fiscal 2011 is currently estimated to be 32.5%
(Fiscal 2010: 31.8%).
Net income
Net income was $6.0 million for the third quarter (13 weeks to October 31,
2009: loss $8.7 million), and $95.0 million for the year to date (39 weeks
to October 31, 2009: $41.6 million), an increase of 128.4%.
Earnings per share
Basic and diluted earnings per share were both $0.07 for the third quarter
(13 weeks to October 31, 2009: both $0.10 loss per share). Basic and
diluted earnings per share were $1.11 and $1.10 for the year to date (39
weeks to October 31, 2009: both $0.49), an increase of 126.5% and 124.5%
from the comparable prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Table 3 39 weeks to
Summary Statement of Cash Flows October October
30, 2010 31, 2009
-------- --------
$million $million
Net income 95.0 41.6
Adjustments to reconcile net income to net cash
provided by operations 94.5 95.0
-------- --------
Net income adjusted for non-cash items(1) 189.5 136.6
Changes in operating assets and liabilities 7.4 212.5
-------- --------
Net cash provided by operating activities 196.9 349.1
Net cash flows used in investing activities (39.5) (30.3)
-------- --------
Free cash flow(2) 157.4 318.8
Facility fees paid (1.3) (9.3)
Net change in Common Shares(3) 2.0 0.9
-------- --------
158.1 310.4
(Net debt(4)) at start of period (7.9) (470.7)
Effect of exchange rate changes on cash & cash
equivalents (2.0) 3.6
Effect of exchange rate changes on debt - (4.0)
-------- --------
Net cash/(net debt(4)) 148.2 (160.7)
-------- --------
(1) Net income adjusted to reconcile net income to cash provided by
operations; non-GAAP measure, see Note 14.
(2) Net cash provided by operating activities less net cash flows used in
investing activities, non-GAAP measure; see Note 14.
(3) Proceeds from issuance of Common Shares less purchase of treasury
shares.
(4) Net total of cash and cash equivalents, loans and overdrafts, and
long-term debt; non-GAAP measure, see Note 14.
During the 39 weeks to October 30, 2010, net income and net income adjusted
for non-cash items was $95.0 million and $189.5 million (39 weeks to
October 31, 2009: $41.6 million and $136.6 million); non-GAAP measure, see
Note 14. The $53.4 million increase in net income reflected the improved
operating performance of the business. Changes in operating assets and
liabilities generated cash flows of $7.4 million (39 weeks to October 31,
2009: $212.5 million). Inventories increased by $125.9 million (39 weeks
to October 31, 2009: decreased by $86.5 million) as a result of
seasonality. In Fiscal 2010, an inventory realignment program was
undertaken by management. Accounts receivable decreased by $87.6 million
(39 weeks to October 31, 2009: $95.5 million), primarily reflecting
seasonality partly offset by sales growth.
Year to date net cash flow used in investing activities was $39.5 million
(39 weeks to October 31, 2009: $30.3 million), nearer to a maintenance
level of investment. The US division used $33.5 million (39 weeks to
October 31, 2009: $22.8 million) and the UK division used $6.0 million (39
weeks to October 31, 2009: $7.5 million).
Year to date positive free cash flow was $157.4 million (39 weeks to
October 31, 2009: $318.8 million); non-GAAP measure, see Note 14, with the
increase in net income adjusted for non-cash items offset by a lower inflow
from changes in operating assets and liabilities. In the fourth quarter of
Fiscal 2011, accounts receivable are expected to increase due to the
seasonal nature of sales. Reflecting better than planned net income in the
year to date and an expectation that in the balance of the year working
capital will continue to be tightly managed, positive free cash flow for
Fiscal 2011, before the prepayment of Private Placement Notes and resultant
$47 million 'Make Whole' payment, is now anticipated to be towards the top
end of the previously indicated range of $225 million to $275 million.
During the 39 weeks to October 30, 2010, $2.0 million (39 weeks to October
31, 2009: $0.9 million) was received for the issuance of Common Shares
pursuant to Signet's equity compensation programs.
Debt at October 30, 2010 was $266.7 million (October 31, 2009: $300.3
million), with cash and cash equivalents of $414.9 million (October 31,
2009: $139.6 million). Net cash at October 30, 2010 was $148.2 million
(October 31, 2009: net debt $160.7 million); non-GAAP measure, see Note 14.
On
March 9, 2010, Signet made a repayment at par of $50.9 million of Private
Placement Notes.
Signet maintains a $300 million revolving credit facility expiring in June,
2013. On March 9, 2010, the facility was reduced from $370 million to its
current level. In October 2010, this facility was amended to eliminate the
obligation to reduce the amount of the facility by 60% of any reduction in
net debt from the prior year end, revise the fixed charge cover covenant as
defined in the agreement to 1.55:1 for the remaining duration of the
agreement, delete the annual limit on capital expenditure, increase the
aggregate cost of assets that may be acquired in any fiscal year to $50.0
million and remove any restrictions on payment of dividends or share
repurchases. The facility was undrawn at October 30, 2010 and at October
31, 2009.
On October 27, 2010, Signet notified the holders of its Private Placement
Notes (the "Notes") that it was exercising its right to prepay in full the
$229.1 million of outstanding Notes on November 26, 2010 (the "Prepayment
Date"). This will result in a reduction in interest expense of $101.7
million over the remaining term of the Notes. The prepayment requires the
payment of all accrued interest up to the Prepayment Date plus a premium as
determined by the "Make Whole" provision contained in the agreement
governing the Notes. The Make Whole premium is determined on November 23,
2010, is dependent on medium term US Treasury yields, and is expected to be
approximately $47 million, including an associated cost of hedging this
payment against movements in US Treasury yields. The payment will be
reflected in Signet's results for the fourth quarter of Fiscal 2011 and is
anticipated to have a net $0.32 adverse impact on diluted earnings per
share. The impact on earnings in Fiscal 2011 includes a $0.02 per share
benefit from the elimination of interest expense on the Notes from November
26, 2010 as a result of the prepayment. In the fiscal year ending January
28, 2012 ("Fiscal 2012"), the prepayment is estimated to result in a
benefit to diluted earnings per share of $0.13.
The Notes were the only material borrowings by Signet during the quarter.
Signet has significant amounts of cash and cash equivalents invested in
several 'AAA' rated liquidity funds and at a number of financial
institutions. The amount invested in each liquidity fund or at each
financial institution takes into account the credit rating and size of the
liquidity fund or financial institution and are for various durations of up
to one month and have an average duration of under seven days.
Correction of immaterial error
During the third quarter of Fiscal 2011, Signet changed the period of
revenue and cost deferral for its extended service plans. Signet has
adjusted in this quarter for the affected prior periods. Additional
information regarding the correction of the immaterial error is given in
Note 1.
OPERATING REVIEW
US division (~80% of annual sales)
In the third quarter of Fiscal 2011, the US division's sales were $497.0
million (13 weeks to October 31, 2009: $457.0 million) up by 8.8%, and same
store sales rose by 9.7% compared to a decline of 2.3% in the third quarter
last year. In the year to date, sales were up by 6.8% to $1,737.2 million
(39 weeks to October 31, 2009: $1,626.4 million) and same store sales rose
by 7.5% compared to a decline of 3.5% in the prior year period. See Table
4 below for analysis.
Table 4 Change from previous year
Third quarter Fiscal 2011 -------------------------------
Average Average
unit Same unit
selling Total store selling
Sales price(1) sales sales price(1)
--------- --------- --------- --------- ---------
Kay $ 276.3m $ 413 7.4% 8.6% 6.6%
Regional brands $ 56.3m $ 413 (5.0)% 2.6% 4.6%
Jared $ 164.4m $ 867 16.9% 14.3% 6.9%
---------
US division $ 497.0m $ 484 8.8% 9.7% 8.0%
---------
Year to date Fiscal 2011
Kay $ 984.1m $ 352 4.3% 4.9% 5.9%
Regional brands $ 197.0m $ 362 (6.6)% 2.2% 0.9%
Jared $ 556.1m $ 784 17.8% 14.8% 5.3%
---------
US division $1,737.2m $ 415 6.8% 7.5% 4.5%
---------
(1) Excludes the charm bracelet category, a product with an average unit
selling price considerably lower, and a multiple purchase and frequency
of purchase much greater, than products historically sold by the
division.
In the third quarter and the year to date, the US division benefited from
its competitive advantages, with many of its middle market competitors
being operationally or financially constrained. The bridal category and
differentiated products performed well. Jared also benefited from a
recovery in spending among US households with above average incomes and the
expansion of the Pandora range in November 2009.
In the third quarter, the US division's operating income increased by $23.7
million to $25.7 million (13 weeks to October 31, 2009: $2.0 million, which
included a $5.0 million non-recurring, favorable impact from a change in
vacation entitlement policy). In the year to date, US operating income
increased by 69.7% to $174.8 million (39 weeks to October 31, 2009: $103.0
million, which included a $15.0 million non-recurring, favorable impact
from a change in vacation entitlement policy). The net direct adverse
impact of amendments to the Truth in Lending Act was $3.0 million in the
third quarter and $9.8 million in the year to date. The operating margin
in the third quarter was 5.2% (13 weeks to October 31, 2009: 0.4%) and
10.1% in the year to date (39 weeks to October 31, 2009: 6.3%).
In the third quarter and in the year to date, the US division's gross
merchandise margin rate was up compared to the prior year period by 90
basis points and 110 basis points respectively. The gross merchandise
margin rate benefited from selective price increases implemented in the
first and third quarters of Fiscal 2010, lower average diamond inventory
costs, and reduced price discounting; more than offsetting a higher cost of
gold. It is now expected that the US division's gross merchandise margin
rate in Fiscal 2011 will be at least at the same level as in Fiscal 2010.
Credit participation was 60.0% in the third quarter (13 weeks to October
31, 2009: 59.7%) and 55.7% year to date (39 weeks to October 31, 2009:
55.6%). The net bad debt to total sales ratio was 5.9% in the third
quarter (13 weeks to October 31, 2009: 8.4%). In the year to date, the
ratio was 4.4% (39 weeks to October 31, 2009: 6.0%). The reduction
reflected a more stable rate of employment and a continuation of the
improved receivables performance that began in the fourth quarter of Fiscal
2010. The average monthly collection rate was 12.1% in the third quarter
and 12.8% in the year to date (13 weeks to October 31, 2009: 12.0% and 39
weeks to October 31, 2009: 12.6%). US net accounts receivable at October
30, 2010 was $763.9 million (October 31, 2009: $722.1 million), reflecting
higher sales in the US division.
Selling, general and administrative expenses were tightly controlled in
both the quarter and the year to date, but were impacted by variable
expenses, including compensation, related to the level of sales growth
achieved. In the fourth quarter, the level of advertising expenditure will
be increased from previously anticipated levels.
Stores opened and closed in the 39 weeks to October 30, 2010, together with
planned changes for the balance of Fiscal 2011 are set out in Table 5
below.
Table 5 Annual
net
Kay Kay space
mall Off-mall Regionals Jared(1) Total change
------- -------- --------- -------- ----- --------
January 30, 2010 794 129 260 178 1,361 (1)%
Opened 1 1 -- 2 4
Closed (11) (3) (9) -- (23)
------- -------- --------- -------- ----- --------
October 30, 2010 784 127 251 180 1,342
Openings, planned 2 1 -- -- 3
Closures, forecast (2) -- (26) -- (28)
------- -------- --------- -------- ----- --------
January 29, 2011 784 128 225 180 1,317 (2)%
------- -------- --------- -------- ----- --------
(1) A Jared store is equivalent in size to just over four mall stores.
UK division (~20% of annual sales)
In the third quarter of Fiscal 2011, the UK division's sales were down by
6.2% to $144.8 million (13 weeks to October 31, 2009: $154.4 million),
reflecting an underlying decrease of 2.6% at constant exchange rates;
non-GAAP measure, see Note 14. Same store sales were down 0.6%, similar to
the decline of 0.2% in the prior year period. In the year to date, sales
were down by 4.6% to $429.7 million (39 weeks to October 31, 2009: $450.4
million), and down 2.1% at constant exchange rates; non-GAAP measure, see
Note 14. Same store sales decreased by 0.5%, compared to a decline of 3.0%
in the prior year period. See Table 6 below for analysis. There was an
operating loss of $1.6 million in the third quarter (13 weeks to October
31, 2009: loss $3.6 million) and an operating profit of $1.7 million in the
year to date (39 weeks to October 31, 2009: loss $3.9 million).
H.Samuel's and Ernest Jones' same store sales performance in the third
quarter of Fiscal 2011 were both similar to the first half. The charm
bracelet category continued to perform well, as did gold rings. In the
third quarter, average unit selling price, excluding the charm bracelet
category, increased by 10.6%, and by 11.4% in the year to date, primarily
reflecting the impact of price increases implemented to largely counter
pressure on gross merchandise margin.
In the third quarter, the UK division's gross merchandise margin was
unchanged from the prior year period, and was down by 30 basis points year
to date. The impact of a weak pound sterling to US dollar exchange rate,
an increase in the cost of gold and a higher value added tax rate were
largely offset by a number of price increases in the past year. For Fiscal
2011, the gross merchandise margin expectation remains somewhat below that
of Fiscal 2010. Selling, general and administrative expenses were tightly
controlled in both the quarter and the year to date.
Table 6
Third quarter Fiscal 2011 Change from previous year
-------------------------------
Sales at
Average constant Average
unit exchange Same Unit
selling Total rates store Selling
Sales price(1,2) Sales (3,4) sales price(2)
--------- --------- --------- --------- --------- ---------
H.Samuel $ 76.0m GBP 58 (6.4)% (2.8)% (1.6)% 8.3%
Ernest
Jones(5) $ 68.8m GBP 267 (3.3)% 0.4% 0.4% 7.8%
---------
UK
division $ 144.8m GBP 93 (6.2)% (2.6)% (0.6)% 10.6%
---------
Year to date Fiscal 2011
H.Samuel $ 224.0m GBP 57 (5.3)% (2.8)% (1.6)% 10.0%
Ernest
Jones(5) $ 205.7m GBP 260 (1.9)% 0.7% 0.8% 9.6%
---------
UK
division $ 429.7m GBP 92 (4.6)% (2.1)% (0.5)% 11.4%
---------
(1) The average unit selling price(2) in the third quarter for H.Samuel was
$89, for Ernest Jones was $409 and for the UK division was $142. The
average unit selling price(2) in the year to date for H.Samuel was $87,
for Ernest Jones was $398 and for the UK division was $141.
(2) Excludes the charm bracelet category, a product with an average unit
selling price considerably lower, and a multiple purchase and frequency
of purchase much greater, than product historically sold by the
division.
(3) Non-GAAP measure, see Note 14.
(4) The exchange translation impact on the total sales of H.Samuel was
(3.6)% and (2.5)%, and for Ernest Jones was (3.7)% and (2.6)%,
respectively for the three and nine months ended October 30, 2010.
(5) Includes stores trading as Leslie Davis.
Stores closed in the 39 weeks to October 30, 2010, together with planned
changes for the balance of Fiscal 2011 are set out in Table 7 below.
Table 7 Annual net
H.Samuel Ernest Jones(1) Total space change
----------- -------------- ----------- ------------
January 30, 2010 347 205 552 (1)%
Opened -- -- --
Closed (5) (3) (8)
----------- -------------- -----------
October 30, 2010 342 202 544
Openings, planned -- -- --
Closures, forecast (5) (2) (7)
----------- -------------- -----------
January 29, 2011 337 200 537 (2)%
----------- -------------- -----------
(1) Includes stores trading as Leslie Davis.
Unallocated costs
In the third quarter, unallocated costs, principally central costs not
allocated to the US or UK division in Signet's management accounts, were
$5.6 million (13 weeks to October 31, 2009: $4.3 million) and were $14.5
million in the year to date (39 weeks to October 31, 2009: $11.8 million).
In Fiscal 2011, there are anticipated to be additional costs of about $2
million related to the relocation of certain central functions to the US
from the UK. In the fourth quarter of Fiscal 2011, an additional expense,
currently estimated at $7 million to $9 million, will be incurred primarily
arising from the appointment of a new chief executive officer, whose
contract includes compensation for amounts foregone from his prior
employment.
MANAGEMENT SUCCESSION
On September 29, 2010, Michael ("Mike") Barnes was appointed Chief
Executive Officer, effective January 30, 2011. He will join Signet on
December 1, 2010 as Chief Executive Officer Designate and will be based in
Akron, Ohio. He will succeed Terry Burman who will retire, as previously
announced, on January 29, 2011. Mike Barnes has been with Fossil, Inc. (a
global design, marketing and distribution company that specializes in
consumer fashion accessories including; watches, jewelry, handbags, small
leather goods, belts, sunglasses and clothing) for over twenty-five years,
most recently serving as President, Chief Operating Officer and a Director.
INVESTOR RELATIONS PROGRAM DETAILS
Christmas Trading Statement
The Christmas Trading Statement is expected to be announced at 7.30 a.m.
EST (12.30 p.m. GMT) on Tuesday, January 11, 2011. There will be a
conference call at 8.30 a.m. EST (1.30 p.m. GMT and 5.30 a.m. Pacific Time)
and a simultaneous audio webcast available at www.signetjewelers.com.
13th Annual ICR XChange Conference, Wednesday, January 12, 2011
Signet will be taking part in the ICR XChange Conference on Wednesday,
January 12, 2011 at the St. Regis Monarch Beach Resort, Dana Point,
California. Present will be Mike Barnes, Chief Executive Designate and Ron
Ristau, CFO. Mike Barnes, Ron Ristau and Tim Jackson, Investor Relations
Director will also be available for meetings at the conference on Thursday,
January 13, 2011.
This release contains statements which are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements, based upon management's beliefs and expectations as well
as on assumptions made by and data currently available to management,
appear in a number of places throughout this release and include statements
regarding, among other things, Signet's results of operation, financial
condition, liquidity, prospects, growth, strategies and the industry in
which Signet operates. The use of the words "expects," "intends,"
"anticipates," "estimates," "predicts," "believes," "should," "potential,"
"may," "forecast," "objective," "plan," or "target," and other similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to a number of risks and uncertainties, including but not limited
to general economic conditions, the merchandising, pricing and inventory
policies followed by Signet, the reputation of Signet and its brands, the
level of competition in the jewelry sector, the cost and availability of
diamonds, gold and other precious metals, regulations relating to consumer
credit, seasonality of Signet's business, financial market risks,
deterioration in consumers' financial condition, exchange rate
fluctuations, changes in consumer attitudes regarding jewelry, management
of social, ethical and environmental risks, inadequacy in and disruptions
to internal controls and systems, changes in assumptions used in
calculating pension assets, and risks relating to Signet being a Bermuda
corporation.
For a discussion of these and other risks and uncertainties which could
cause actual results to differ materially, see the "Risk Factors" section
of Signet's Fiscal 2010 Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission on March 30, 2010. Actual results may
differ materially from those anticipated in such forward-looking
statements. Signet undertakes no obligation to update or revise any
forward-looking statements to reflect subsequent events or circumstances,
except as required by law.
Unaudited condensed consolidated income statements
13 weeks ended 39 weeks ended
October 30, October 31, October 30, October 31,
2010 2009 2010 2009
$million $million $million $million Notes
---------- ---------- ---------- ---------- ----------
Sales 641.8 611.4 2,166.9 2,076.8 2
Cost of sales (448.2) (448.4) (1,442.5) (1,442.6)
---------- ---------- ---------- ---------- ----------
Gross margin 193.6 163.0 724.4 634.2
Selling,
general and
administrative
expenses (201.5) (197.3) (643.7) (633.9)
Other operating
income, net 26.4 28.4 81.3 87.0
---------- ---------- ---------- ---------- ----------
Operating
income/(loss),
net 18.5 (5.9) 162.0 87.3 2
Interest income 0.3 -- 0.6 0.7
Interest
expense (6.8) (7.4) (21.8) (27.2)
---------- ---------- ---------- ---------- ----------
Income/(loss)
before income
taxes 12.0 (13.3) 140.8 60.8
Income taxes (6.0) 4.6 (45.8) (19.2)
---------- ---------- ---------- ---------- ----------
Net income/(loss) 6.0 (8.7) 95.0 41.6
---------- ---------- ---------- ---------- ----------
Earnings/(loss)
per share
- basic $ 0.07 $ (0.10) $ 1.11 $ 0.49 5
- diluted $ 0.07 $ (0.10) $ 1.10 $ 0.49 5
---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these interim unaudited
condensed consolidated financial statements.
Unaudited condensed consolidated balance sheets
October 30, January 30, October 31,
2010 2010 2009
$million $million $million Notes
---------- ---------- ---------- ----------
Assets
Current assets:
Cash and cash equivalents 414.9 316.2 139.6
Accounts receivable, net 769.5 858.0 730.3
Other receivables 22.2 27.9 23.9
Other current assets 77.8 75.8 68.4
Deferred tax assets 1.6 2.2 --
Income taxes recoverable 0.9 -- --
Inventories 1,297.4 1,173.1 1,306.0 6
---------- ---------- ---------- ----------
Total current assets 2,584.3 2,453.2 2,268.2
---------- ---------- ---------- ----------
Non-current assets:
Property, plant and
equipment, net of
accumulated depreciation
of $602.6 million, $566.0
million and $585.9
million, respectively 363.3 396.9 413.6
Other intangible assets,
net 26.3 24.2 24.9
Other assets 56.5 58.3 55.1
Retirement benefit asset 3.2 -- --
Deferred tax assets 114.0 112.3 110.5
---------- ---------- ---------- ----------
Total assets 3,147.6 3,044.9 2,872.3 2
---------- ---------- ---------- ----------
Liabilities and
Shareholders' equity
---------- ---------- ---------- ----------
Current liabilities:
Loans and overdrafts 266.7 44.1 20.3
Accounts payable 179.3 66.2 140.9
Accrued expenses and other
current liabilities 245.3 272.1 230.7
Deferred revenue 128.1 137.7 121.2 7
Deferred tax liabilities 97.7 74.7 54.9
Income taxes payable -- 44.1 21.1
---------- ---------- ---------- ----------
Total current liabilities 917.1 638.9 589.1
---------- ---------- ---------- ----------
Non-current liabilities:
Long-term debt -- 280.0 280.0
Other liabilities 84.8 79.6 78.0
Deferred revenue 336.7 338.0 322.0 7
Retirement benefit
obligation -- 4.8 8.9
---------- ---------- ---------- ----------
Total liabilities 1,338.6 1,341.3 1,278.0
---------- ---------- ---------- ----------
Commitments and
contingencies (see note
10)
---------- ---------- ---------- ----------
Shareholders' equity:
Common shares of $0.18 par
value: authorized 500
million shares, 85.7
million shares issued and
outstanding (January 30,
2010: 85.5 million shares
issued and outstanding;
October 31, 2009: 85.5
million shares issued and
outstanding) 15.4 15.4 15.4
Additional paid-in capital 178.5 169.9 168.8
Other reserves 235.2 235.2 235.2
Treasury shares -- (1.1) (1.2)
Retained earnings 1,556.9 1,462.4 1,346.9
Accumulated other
comprehensive loss (177.0) (178.2) (170.8)
---------- ---------- ---------- ----------
Total shareholders' equity 1,809.0 1,703.6 1,594.3
---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity 3,147.6 3,044.9 2,872.3
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these interim unaudited
condensed consolidated financial statements.
Unaudited condensed consolidated statements of cash flows
13 weeks ended 39 weeks ended
October 30, October 31, October 30, October 31,
2010 2009 2010 2009
$million $million $million $million
---------- ---------- ---------- ----------
Cash flows from operating
activities
Net income/(loss) 6.0 (8.7) 95.0 41.6
Adjustments to reconcile
net income to cash flows
provided by operations:
Depreciation of
property, plant and
equipment 22.0 25.3 65.5 74.7
Amortization of other
intangible assets 1.8 2.0 5.8 5.5
Pension (1.2) (1.4) (5.0) (2.8)
Share-based compensation 3.2 1.2 7.7 4.3
Deferred taxation 16.4 (2.8) 20.1 (2.9)
Facility amendment fees
included in net income 0.6 0.6 3.2 4.0
Other non-cash movements (0.2) 3.9 (1.9) 11.8
(Gain)/loss on disposal
of property, plant and
equipment -- -- (0.9) 0.4
Changes in operating assets
and liabilities:
Decrease in accounts
receivable 27.9 35.9 87.6 95.5
Decrease/(increase) in
other receivables 3.6 -- 6.1 54.2
(Increase)/decrease in
other current assets (6.3) (2.3) 1.8 (16.8)
(Increase)/decrease in
inventories (166.2) (30.1) (125.9) 86.5
Increase in accounts
payable 63.9 47.9 112.0 94.9
Increase/(decrease) in
accrued expenses and other
liabilities 11.2 14.8 (20.5) (48.2)
Decrease in deferred
revenue (7.0) (8.6) (10.9) (17.9)
Decrease in income taxes (33.1) (23.6) (43.6) (34.3)
Effect of exchange rate
changes on currency swaps (0.3) -- 0.8 (1.4)
---------- ---------- ---------- ----------
Net cash (used in)/provided
by operating activities (57.7) 54.1 196.9 349.1
---------- ---------- ---------- ----------
Investing activities
Purchase of property, plant
and equipment (21.7) (9.6) (33.3) (24.4)
Purchase of other
intangible assets (3.4) (3.3) (7.9) (6.0)
Proceeds from sale of
property, plant and
equipment -- 0.1 1.7 0.1
---------- ---------- ---------- ----------
Net cash flows used in
investing activities (25.1) (12.8) (39.5) (30.3)
---------- ---------- ---------- ----------
Financing activities
Proceeds from issue of
common shares 1.0 0.9 2.0 0.9
Facility fees paid (0.3) -- (1.3) (9.3)
Proceeds from/(repayment
of) short-term borrowings 12.8 3.6 (6.5) (171.2)
Repayment of long-term debt -- -- (50.9) (100.0)
---------- ---------- ---------- ----------
Net cash flows provided
by/(used in) financing
activities 13.5 4.5 (56.7) (279.6)
---------- ---------- ---------- ----------
Cash and cash equivalents
at beginning of period 485.4 92.8 316.2 96.8
(Decrease)/increase in cash
and cash equivalents (69.3) 45.8 100.7 39.2
Effect of exchange rate
changes on cash and cash
equivalents (1.2) 1.0 (2.0) 3.6
---------- ---------- ---------- ----------
Cash and cash equivalents
at end of period 414.9 139.6 414.9 139.6
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these interim unaudited
condensed consolidated financial statements.
Unaudited condensed consolidated statement of shareholders' equity
Accumulated
Common other Total
shares Additional compre- share-
at par paid-in Other Treasury Retained hensive holders'
value capital reserves shares earnings loss equity
$million $million $million $million $million $million $million
-------- -------- -------- -------- -------- -------- --------
Balance at
January
30, 2010 15.4 169.9 235.2 (1.1) 1,462.4 (178.2) 1,703.6
Net income -- -- -- -- 95.0 -- 95.0
Foreign
currency
translation -- -- -- -- -- (2.3) (2.3)
Changes in
fair value
of derivative
instruments,
net -- -- -- -- -- 1.5 1.5
Pension
plan, net -- -- -- -- -- 2.0 2.0
Share
options
exercised -- 1.4 -- 1.1 (0.5) -- 2.0
Share-based
compensation
expense -- 7.2 -- -- -- -- 7.2
-------- -------- -------- -------- -------- -------- --------
Balance at
October
30, 2010 15.4 178.5 235.2 -- 1,556.9 (177.0) 1,809.0
-------- -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these interim unaudited
condensed consolidated financial statements
Unaudited condensed consolidated statements of comprehensive income/(loss)
13 weeks ended 39 weeks ended
October 30, October 31, October 30, October 31,
2010 2009 2010 2009
$million $million $million $million
---------- ---------- ---------- ----------
Net income/(loss) 6.0 (8.7) 95.0 41.6
Foreign currency
translation 3.6 (5.8) (2.3) 26.4
Changes in fair value of
derivative instruments 5.6 5.4 2.5 (5.1)
Pension plan 1.0 0.9 2.8 2.7
Deferred tax on items
recognized in equity (2.3) (1.7) (1.8) 0.7
---------- ---------- ---------- ----------
Comprehensive income/(loss) 13.9 (9.9) 96.2 66.3
---------- ---------- ---------- ----------
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 subsidiaries (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 operates retail stores 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 Signet's Annual Report on 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 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 audited consolidated financial statements 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.
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, inventory and deferred revenue,
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.
Correction of immaterial error
During the third quarter of Fiscal 2011, Signet changed its accounting for
extended service plans. Previously, revenue from the sale of extended
service plans was deferred, net of direct costs arising from the sale, and
was recognized in proportion to the historical actual claims incurred.
Signet has conducted a review of the claims cost patterns, including
estimates of future claims costs expected to be incurred, and concluded
that the deferral period required extension and that claims cost is a more
appropriate basis for revenue recognition than the number of claims
incurred. In addition, Signet now defers all revenues and recognizes direct
costs in proportion to the revenue recognized. These changes are in
accordance with ASC 605-20-25. The impact resulted in an overstatement of
extended service plan revenue and an understatement of deferred revenue.
These plans are only sold by the US division and therefore only affect the
US segment reporting.
Signet has evaluated the effects individually and in the aggregate and
determined that its prior period financial statements are not materially
misstated. However, Signet has determined that the cumulative effect of
adjusting this in the third quarter of Fiscal 2011 would be material to the
Fiscal 2011 financial statements. Therefore, Signet has adjusted the
affected prior periods and presented the results in this quarterly report.
As a result of applying this correction, the following consolidated balance
sheet, consolidated income statement and consolidated statement of cash
flows were impacted as follows:
Impact on consolidated
balance sheet January 30, 2010 October 31, 2009
$million $million
----------------------- -----------------------
Amounts Amounts
previously As previously As
reported corrected reported corrected
----------- ----------- ----------- -----------
Assets
Current assets:
Other current assets 58.4 75.8 52.1 68.4
Total current assets 2,435.8 2,453.2 2,251.9 2,268.2
Non-current assets:
Other assets 12.6 58.3 12.5 55.1
Deferred tax assets 54.7 112.3 53.9 110.5
Total assets 2,924.2 3,044.9 2,756.8 2,872.3
Liabilities and
Shareholders' equity
Current liabilities:
Deferred revenue 120.1 137.7 103.0 121.2
Total current liabilities 621.3 638.9 570.9 589.1
Non-current liabilities:
Deferred revenue 140.9 338.0 132.4 322.0
Total liabilities 1,126.6 1,341.3 1,070.2 1,278.0
Total shareholders' equity 1,797.6 1,703.6 1,686.6 1,594.3
Total liabilities and
shareholders' equity 2,924.2 3,044.9 2,756.8 2,872.3
----------- ----------- ----------- -----------
Impact on consolidated
income statement 13 weeks ended 39 weeks ended
October 31, 2009 October 31, 2009
$million $million
---------------------- ----------------------
Amounts Amounts
previously As previously As
reported corrected reported corrected
---------- ---------- ---------- ----------
Sales 613.7 611.4 2,087.1 2,076.8
Cost of sales (447.9) (448.4) (1,444.3) (1,442.6)
Gross margin 165.8 163.0 642.8 634.2
Operating (loss)/income (3.1) (5.9) 95.9 87.3
(Loss)/income before income
taxes (10.5) (13.3) 69.4 60.8
Income taxes 3.5 4.6 (22.5) (19.2)
Net (loss)/income (7.0) (8.7) 46.9 41.6
(Loss)/earnings per share
- basic $ (0.08) $ (0.10) $ 0.55 $ 0.49
- diluted $ (0.08) $ (0.10) $ 0.55 $ 0.49
---------- ---------- ---------- ----------
Impact on consolidated
statement of cash flows 13 weeks ended 39 weeks ended
October 31, 2009 October 31, 2009
$million $million
----------------------- -----------------------
Amounts Amounts
previously As previously As
reported corrected reported corrected
----------- ----------- ----------- -----------
Cash flows from operating
activities:
Net (loss)/income (7.0) (8.7) 46.9 41.6
Adjustments to reconcile
net (loss)/income to cash
flows provided by
operations:
Deferred income taxes (1.7) (2.8) 0.4 (2.9)
Changes in operating assets
and liabilities:
Changes in other
receivables (0.4) -- 55.4 54.2
Changes in other current
assets (2.4) (2.3) (16.3) (16.8)
Decrease in deferred
revenue (10.9) (8.6) (28.2) (17.9)
Net cash provided by
operating activities 54.1 54.1 349.1 349.1
----------- ----------- ----------- -----------
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.
Disclosures about the credit quality of financing receivables
In July 2010, the FASB issued ASU 2010-20 "Disclosures About the Credit
Quality of Financing Receivables and the Allowance for Credit Losses" (ASU
2010-20), which requires entities to provide disclosures designed to
facilitate financial statement users' evaluation of (i) the nature of
credit risk inherent in the entity's portfolio of financing receivables,
(ii) how that risk is analyzed and assessed in arriving at the allowance
for credit losses and (iii) the changes and reasons for those changes in
the allowance for credit losses. Disclosures must be disaggregated by
portfolio segment, the level at which an entity develops and documents a
systematic method for determining its allowance for credit losses, and
class of financing receivable, which is generally a disaggregation of
portfolio segment. The required disclosures include, among other things, a
roll forward of the allowance for credit losses as well as information
about modified, impaired, non-accrual and past due loans and credit quality
indicators. ASU 2010-20 will be effective for the Company's financial
statements as of January 29, 2011, as it relates to disclosures required as
of the end of a reporting period. Disclosures that relate to activity
during a reporting period will be required for the Company's consolidated
financial statements that include periods beginning on or after January 30,
2011. Management is currently evaluating the effect that ASU 2010-20 will
have on the Company's future consolidated financial statements.
2. Segment 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 ended 39 weeks ended
October 30, October 31, October 30, October 31,
2010 2009 2010 2009
$million $million $million $million
----------- ----------- ----------- -----------
Sales:
US 497.0 457.0 1,737.2 1,626.4
UK, Channel Islands and
Republic of Ireland 144.8 154.4 429.7 450.4
----------- ----------- ----------- -----------
Total sales 641.8 611.4 2,166.9 2,076.8
----------- ----------- ----------- -----------
Operating
income/(loss), net:
US 25.7 2.0 174.8 103.0
UK, Channel Islands and
Republic of Ireland (1.6) (3.6) 1.7 (3.9)
Unallocated(1) (5.6) (4.3) (14.5) (11.8)
----------- ----------- ----------- -----------
Total operating income,
net 18.5 (5.9) 162.0 87.3
----------- ----------- ----------- -----------
October 30, January 30, October 31,
2010 2010 2009
$million $million $million
----------- ----------- -----------
Total assets:
US 2,438.1 2,401.4 2,372.3
UK, Channel Islands and
Republic of Ireland 399.8 383.6 422.1
Unallocated 309.7 259.9 77.9
----------- ----------- -----------
Total assets 3,147.6 3,044.9 2,872.3
----------- ----------- -----------
(1) Unallocated principally relates to central costs that are not
allocated to the US and UK divisions in Signet's management accounts.
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:
39 weeks 52 weeks 39 weeks
ended ended ended
October 30, January 30, October 31,
2010 2010 2009
----------- ----------- -----------
Income statement (average rate) 1.53 1.59 1.57
Balance sheet (closing rate) 1.60 1.60 1.64
----------- ----------- -----------
The year-to-date average exchange rate is used to prepare the income
statement for the 39 weeks ended October 30, 2010 and is calculated from
the weekly average exchange rates weighted by sales of the UK division. The
income statement for the 13 weeks ended October 30, 2010 is calculated as
the difference between the income statement for the 39 weeks ended October
30, 2010 and the previously reported income statement for the 26 weeks
ended July 31, 2010. Therefore, the third quarter's income statement
includes the impact of the change in the year-to-date exchange rates
between these quarter ends.
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 28, 2006 and is subject to
examination by the UK tax authority for tax years after January 31, 2008.
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.
During the 39 weeks ended October 30, 2010, agreement was reached in
respect of the treatment of certain financing arrangements in the UK and a
cash settlement was paid of approximately $1.7 million, excluding interest
thereon. A benefit of approximately $2.7 million has been recognized in
income tax expense for the 39 weeks ended October 30, 2010.
During the 39 weeks ended October 30, 2010, the statute of limitations
expired in the US in respect of the tax year ended October 28, 2006 with no
adjustment to taxable income. A benefit of approximately $1.8 million has
been recognized in income tax expense for the 39 weeks ended October 30,
2010.
Apart from the above, there has been no material change in the amount of
unrecognized tax benefits in respect of uncertain tax positions during the
39 weeks ended October 30, 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 $2.2 million and there has
been no material change in the amount of accrued interest as of October 30,
2010.
Over the next twelve months, management believes that it is reasonably
possible that there could be a reduction of substantially all of the
unrecognized tax benefits as of January 30, 2010, due to settlement of the
uncertain tax positions with the tax authorities.
5. Earnings per share
13 weeks ended 39 weeks ended
October 30, October 31, October 30, October 31,
2010 2009 2010 2009
------------ ------------ ------------ ------------
Net income/(loss)
($million) 6.0 (8.7) 95.0 41.6
------------ ------------ ------------ ------------
Basic weighted
average number of
shares in issue
(million) 85.7 85.4 85.6 85.3
Dilutive effect of
share options
(million) 0.6 -- 0.6 0.3
------------ ------------ ------------ ------------
Diluted weighted
average number of
shares in issue
(million) 86.3 85.4 86.2 85.6
------------ ------------ ------------ ------------
Earnings/(loss) per
share - basic $ 0.07 $ (0.10) $ 1.11 $ 0.49
Earnings/(loss) per
share - diluted $ 0.07 $ (0.10) $ 1.10 $ 0.49
------------ ------------ ------------ ------------
The basic weighted average number of shares excludes shares held by the
Employee Stock Ownership Trust or as Treasury Shares 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 and 39 week periods
ended October 30, 2010 by 10,748 and 11,490 shares respectively (13 and 39
week periods ended October 31, 2009: 60,803 and 74,882 shares
respectively). The calculation of fully diluted earnings per share for the
13 and 39 week periods ended October 30, 2010 excludes options to purchase
928,000 and 941,178 shares respectively (13 and 39 week periods ended
October 31, 2009: 3,682,313 and 2,787,864 shares respectively) on the basis
that their effect on earnings per share was anti-dilutive.
6. Inventories
October 30, January 30, October 31,
2010 2010 2009
$million $million $million
------------ ------------ ------------
Raw materials 7.5 9.5 5.4
Finished goods 1,289.9 1,163.6 1,300.6
------------ ------------ ------------
Total inventory 1,297.4 1,173.1 1,306.0
------------ ------------ ------------
7. Deferred revenue
October 30, January 30, October 31,
2010 2010 2009
$million $million $million
------------ ------------ ------------
Warranty deferred revenue 458.4 458.3 436.1
Other 6.4 17.4 7.1
------------ ------------ ------------
Total deferred revenue 464.8 475.7 443.2
------------ ------------ ------------
Disclosed as:
Current liabilities 128.1 137.7 121.2
Non-current liabilities 336.7 338.0 322.0
------------ ------------ ------------
Total deferred revenue 464.8 475.7 443.2
------------ ------------ ------------
13 weeks ended 39 weeks ended
October 30, October 31, October 30, October 31,
2010 2009 2010 2009
$million $million $million $million
----------- ----------- ----------- -----------
Warranty deferred
revenue, beginning of
period 465.9 444.6 458.3 440.6
Warranties sold 29.7 27.1 110.6 101.2
Revenues recognized (37.2) (35.6) (110.5) (105.7)
----------- ----------- ----------- -----------
Warranty deferred
revenue, end of period 458.4 436.1 458.4 436.1
----------- ----------- ----------- -----------
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 of October 30, 2010 was $46.9
million (January 30, 2010: $37.2 million; October 31, 2009: $56.3 million).
These contracts have been designated as cash flow hedges and will be
settled over the next 15 months (January 30, 2010: 17 months; October 31,
2009: 21 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 of October 30, 2010
was $75.3 million (January 30, 2010: $100.0 million; October 31, 2009:
$47.4 million). These contracts have been designated as cash flow hedges
and will be settled over the next 15 months (January 30, 2010: 12 months;
October 31, 2009: 15 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.
On October 28, 2010 Signet entered into an interest rate protection
agreement in relation to the prepayment of the $229.1 million of
outstanding Fixed Rate Investor Certificate Notes (the "Private Placement
Notes") on November 26, 2010. This prepayment requires the payment of a
premium determined by the 'Make Whole' provision in the agreement governing
the Private Placement Notes. The 'Make Whole' will be determined by
reference to medium term US Treasury yields on November 23, 2010 and
therefore without this protection agreement Signet would have been exposed
to the changes in US Treasury yields between October 27, 2010, the
notification date of the prepayment, and November 23, 2010, the date the
'Make Whole' is determined.
The notional value of the interest rate protection agreement is $267.9
million and as at October 30, 2010 the fair value of the agreement was $0.0
million. The agreement terminates on November 23, 2010.
The bank counterparties to the derivative contracts expose Signet to
credit-related losses in the event of their nonperformance. However, to
mitigate that risk, Signet only contracts with counterparties that meet
certain minimum requirements under its counterparty risk assessment
process. As of October 30, 2010, the Company believes that this 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
---------------------------------------------------
Fair value
--------------------------------------
Balance sheet October 30, January 30, October 31,
location 2010 2010 2009
$million $million $million
------------ ------------ ------------ ------------
Derivatives designated
as hedging
instruments:
Other
Foreign currency current
contracts assets 0.3 0.6 2.2
Other
current
Commodity contracts assets 6.9 2.4 5.4
------------ ------------ ------------ ------------
7.2 3.0 7.6
------------ ------------ ------------ ------------
Derivatives not
designated as hedging
instruments:
Other
Foreign currency current
contracts assets -- -- --
------------ ------------ ------------ ------------
-- -- --
------------ ------------ ------------ ------------
Total derivative assets 7.2 3.0 7.6
------------ ------------ ------------ ------------
Derivative liabilities
---------------------------------------------------
Fair value
--------------------------------------
Balance sheet October 30, January 30, October 31,
location 2010 2010 2009
$million $million $million
------------ ----------- ----------- -----------
Derivatives designated
as hedging
instruments:
Other
Foreign currency current
contracts liabilities (1.0) (0.4) (1.3)
Other
current
Commodity contracts liabilities -- (1.6) (0.1)
------------ ----------- ----------- -----------
(1.0) (2.0) (1.4)
------------ ----------- ----------- -----------
Derivatives not
designated as hedging
instruments:
Other
Foreign currency current
contracts liabilities (0.4) -- (0.1)
------------ ----------- ----------- -----------
(0.4) -- (0.1)
------------ ----------- ----------- -----------
Total derivative
liabilities (1.4) (2.0) (1.5)
------------ ----------- ----------- -----------
The following tables summarize the effect of derivative instruments on the
unaudited condensed consolidated income statements:
Amount of
Amount of gain/(loss)
gain/(loss) reclassified from
recognized in OCI accumulated OCI
on derivatives into income
(Effective portion) Location of (Effective portion)
---------------------- gain/loss ----------------------
reclassified from
13 weeks ended accumulated 13 weeks ended
October 30, October 31, OCI into October 30, October 31,
2010 2009 income 2010 2009
$million $million (Effective $million $million
---------- ---------- portion) ---------- ----------
Derivatives in
cash flow hedging
relationships:
Foreign currency Cost of
contracts (1.0) 0.9 sales 1.0 0.8
Cost of
Commodity contracts 10.6 6.7 sales 3.0 1.4
---------- ---------- ---------- ---------- ----------
Total 9.6 7.6 4.0 2.2
---------- ---------- ---------- ---------- ----------
Amount of
Amount of gain/(loss)
gain/(loss) reclassified from
recognized in OCI accumulated OCI
on derivatives into income
(Effective portion) Location of (Effective portion)
---------------------- gain/loss ----------------------
reclassified from
39 weeks ended accumulated 39 weeks ended
October 30, October 31, OCI into October 30, October 31,
2010 2009 income 2010 2009
$million $million (Effective $million $million
---------- ---------- portion) ---------- ----------
Derivatives in
cash flow hedging
relationships:
Foreign currency Cost of
contracts (0.5) (5.1) sales 3.9 5.1
Cost of
Commodity contracts 17.0 4.6 sales 10.1 (0.5)
---------- ---------- ---------- ---------- ----------
Total 16.5 (0.5) 14.0 4.6
---------- ---------- ---------- ---------- ----------
The ineffective portion of hedging instruments taken into other operating
income, net in the 13 and 39 weeks ended October 30, 2010 was $0.0 million
and a $0.4 million profit respectively (13 and 39 weeks ended October 31,
2009: $0.0 million).
Amount of gain/(loss)
recognized in
income on derivatives
------------------------
Location of 13 weeks ended
gain/(loss) recognized October 30, October 31,
in income on 2010 2009
derivatives $million $million
---------------------- ----------- -----------
Derivatives not designated
as hedging instruments:
Other operating
Foreign currency contracts income, net 0.1 --
---------------------- ----------- -----------
Total 0.1 --
---------------------- ----------- -----------
Amount of gain/(loss)
recognized in
income on derivatives
------------------------
Location of 39 weeks ended
gain/(loss) recognized October 30, October 31,
in income on 2010 2009
derivatives $million $million
---------------------- ----------- -----------
Derivatives not designated
as hedging instruments:
Other operating
Foreign currency contracts income, net (0.4) --
---------------------- ----------- -----------
Total (0.4) --
---------------------- ----------- -----------
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:
October 30, 2010 January 30, 2010 October 31, 2009
$million $million $million
------------------ ------------------ ------------------
Carry- Significant Carry- Significant Carry- Significant
ing other ing other ing other
Value observable Value observable Value observable
inputs inputs inputs
(Level 2) (Level 2) (Level 2)
-------- -------- -------- -------- -------- --------
Assets:
Forward foreign
currency
contracts and
swaps 0.3 0.3 0.6 0.6 2.2 2.2
Forward
commodity
contracts 6.9 6.9 2.4 2.4 5.4 5.4
Liabilities:
Borrowings (266.7) (311.9) (324.1) (371.3) (300.3) (317.8)
Forward foreign
currency
contracts and
swaps (1.4) (1.4) (0.4) (0.4) (1.4) (1.4)
Forward
commodity
contracts -- -- (1.6) (1.6) (0.1) (0.1)
-------- -------- -------- -------- -------- --------
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 15 months. At October 30, 2010,
Signet held $229.1 million (January 30, 2010 and October 31, 2009: $280.0
million) of 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. See Notes 12 and 13.
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 39 weeks ended
October 30, October 31, October 30, October 31,
2010 2009 2010 2009
$million $million $million $million
----------- ----------- ----------- -----------
Components of net
periodic benefit cost:
Service cost 1.3 1.1 3.9 3.2
Interest cost 2.6 2.7 7.5 7.9
Expected return on
Group Scheme assets (3.2) (2.8) (9.2) (8.2)
Amortization of
unrecognized prior
service credit (0.2) (0.3) (0.7) (0.8)
Amortization of
unrecognized actuarial
loss 1.2 1.3 3.5 3.5
----------- ----------- ----------- -----------
Net periodic benefit
cost 1.7 2.0 5.0 5.6
----------- ----------- ----------- -----------
In the 39 weeks to October 30, 2010, Signet contributed $10.0 million to
the Group Scheme and expects to contribute a minimum aggregate of $13.3
million at current exchange rates to the Group Scheme in Fiscal 2011. These
contributions are in accordance with a deficit recovery plan that was in
response to the funding deficit indicated by the April 5, 2009 actuarial
valuation.
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 $3.2 million and
$7.7 million for the 13 and 39 weeks ended October 30, 2010 respectively
($1.2 million and $4.3 million for the 13 and 39 weeks ended October 31,
2009 respectively). This is after charging $0.5 million and $0.5 million
for the 13 and 39 weeks ended October 30, 2010 respectively ($0.0 million
and $0.1 million for the 13 and 39 weeks ended October 31, 2009
respectively), that relates to the change in fair value during the period
of certain awards that have an inflation related performance condition and
are accounted for as liability awards.
12. Loans, overdrafts and long-term debt
At October 30, 2010, $229.1 million aggregate principal amount of Private
Placement Notes were outstanding.
Signet maintains a $300 million revolving credit facility with a maturity
date of June 26, 2013. In October 2010, this facility was amended to
eliminate the obligation to reduce the amount of the facility by 60% of any
reduction in net debt from the prior year; revise the fixed charge cover
covenant as defined in the agreement to 1.55:1 for the remaining duration
of the agreement; delete the annual limit on capital expenditure; increase
the aggregate costs of assets that may be acquired in any fiscal year to
$50.0 million and remove any restrictions on payments of dividends and
share repurchases. At October 30, 2010 and October 31, 2009, no amounts
were outstanding under this facility.
13. Subsequent events
On October 27, 2010, Signet notified the holders of its Private Placement
Notes that it was exercising its right to prepay in full the $229.1 million
of outstanding Private Placement Notes on November 26, 2010 (the
"Prepayment Date"). The prepayment requires the payment of all accrued
interest up to the Prepayment Date, plus a premium determined by the 'Make
Whole' provision contained in the agreement governing the Private Placement
Notes. The 'Make Whole' premium will be determined on November 23, 2010, is
dependent on medium term US Treasury yields, and is expected to be
approximately $47 million.
14. 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
substitution for, information prepared in accordance with US GAAP.
Same store sales growth
Same store sales growth is determined by comparison of sales in stores that
were open in both the current and the prior year. Sales from stores that
have been open for less than 12 months are excluded from the comparison
until their 12-month anniversary. Sales from the 12-month anniversary
onwards are compared against the equivalent prior period sales within the
comparable store sales comparison. Stores closed in the current financial
period are included up to the date of closure and the comparative period is
correspondingly adjusted. Stores that have been relocated or expanded, but
remain within the same local geographic market, are included within the
comparison with no adjustment to either the current or comparative period.
Stores that have been refurbished are also included within the comparison
except for the period when the refurbishment is taking place, when those
stores are excluded from the comparison both for the current year and for
the comparative period. Comparisons at divisional level are made in local
currency and consolidated comparisons are made at constant exchange rates
and exclude the effect of exchange rate movements by recalculating the
prior period results as if they had been generated at the weighted average
exchange rate for the current period. E-commerce sales are included in the
calculation of sales for the period and the comparative figures from the
anniversary of the launch of the relevant website.
Exchange translation impact
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 income taxes; net income and earnings per share at
constant exchange rates, including a reconciliation to Signet's US GAAP
results, is analyzed below.
At
13 weeks ended constant Change
October October Change Impact of exchange at
30, 31, as exchange rates constant
2010 2009 reported rate (non-GAAP) exchange
movement rates
(non-GAAP)
$million $million % $million $million %
------- ------- ------- ------- ------- -------
US 497.0 457.0 8.8% -- 457.0 8.8%
UK, Channel Islands
and Republic of
Ireland 144.8 154.4 -6.2% (5.7) 148.7 -2.6%
------- ------- ------- ------- ------- -------
Sales 641.8 611.4 5.0% (5.7) 605.7 6.0%
Cost of sales (448.2) (448.4) 0.0% 4.1 (444.3) 0.9%
------- ------- ------- ------- ------- -------
Gross margin 193.6 163.0 18.8% (1.6) 161.4 20.0%
Selling, general and
administrative
expenses (201.5) (197.3) 2.1% 1.7 (195.6) 3.0%
Other operating
income, net 26.4 28.4 -7.0% -- 28.4 -7.0%
------- ------- ------- ------- ------- -------
Operating
income/(loss), net 18.5 (5.9) nm 0.1 (5.8) nm
Interest income 0.3 -- nm -- -- nm
Interest expense (6.8) (7.4) -8.1% -- (7.4) -8.1%
------- ------- ------- ------- ------- -------
Income/(loss) before
income taxes 12.0 (13.3) nm 0.1 (13.2) nm
Income taxes (6.0) 4.6 nm (0.1) 4.5 nm
------- ------- ------- ------- ------- -------
Net income/(loss) 6.0 (8.7) nm -- (8.7) nm
------- ------- ------- ------- ------- -------
Earnings/(loss) per
share - basic $ 0.07 $ (0.10) nm -- $ (0.10) nm
Earnings/(loss) per
share - diluted $ 0.07 $ (0.10) nm -- $ (0.10) nm
------- ------- ------- ------- ------- -------
Operating income/
(loss), net
US 25.7 2.0 nm -- 2.0 nm
UK, Channel Islands
and Republic of
Ireland (1.6) (3.6) -55.6% -- (3.6) -55.6%
Unallocated (5.6) (4.3) -30.2% 0.1 (4.2) -33.3%
------- ------- ------- ------- ------- -------
Operating income/
(loss), net 18.5 (5.9) nm 0.1 (5.8) nm
------- ------- ------- ------- ------- -------
nm - not material
At
39 weeks ended constant Change
October October Change Impact of exchange at
30, 31, as exchange rates constant
2010 2009 reported rate (non-GAAP) exchange
movement rates
(non-GAAP)
$million $million % $million $million %
-------- -------- ------- ------- -------- -------
US 1,737.2 1,626.4 6.8% -- 1,626.4 6.8%
UK, Channel Islands
and Republic of
Ireland 429.7 450.4 -4.6% (11.5) 438.9 -2.1%
-------- -------- ------- ------- -------- -------
Sales 2,166.9 2,076.8 4.3% (11.5) 2,065.3 4.9%
Cost of sales (1,442.5) (1,442.6) 0.0% 8.4 (1,434.2) 0.6%
-------- -------- ------- ------- -------- -------
Gross margin 724.4 634.2 14.2% (3.1) 631.1 14.8%
Selling, general
and
administrative
expenses (643.7) (633.9) 1.5% 3.4 (630.5) 2.1%
Other operating
income, net 81.3 87.0 -6.6% -- 87.0 -6.6%
-------- -------- ------- ------- -------- -------
Operating income,
net 162.0 87.3 85.6% 0.3 87.6 84.9%
Interest income 0.6 0.7 -14.3% -- 0.7 -14.3%
Interest expense (21.8) (27.2) -19.9% -- (27.2) -19.9%
-------- -------- ------- ------- -------- -------
Income before
income taxes 140.8 60.8 131.6% 0.3 61.1 130.4%
Income taxes (45.8) (19.2) 138.5% (0.1) (19.3) 137.3%
-------- -------- ------- ------- -------- -------
Net income 95.0 41.6 128.4% 0.2 41.8 127.3%
-------- -------- ------- ------- -------- -------
Earnings per share
- basic $ 1.11 $ 0.49 126.5% -- $ 0.49 126.5%
Earnings per share
- diluted $ 1.10 $ 0.49 124.5% -- $ 0.49 124.5%
-------- -------- ------- ------- -------- -------
Operating income,
net
US 174.8 103.0 69.7% -- 103.0 69.7%
UK, Channel Islands
and Republic of
Ireland 1.7 (3.9) nm -- (3.9) nm
Unallocated (14.5) (11.8) 22.9% 0.3 (11.5) 26.1%
-------- -------- ------- ------- -------- -------
Operating income,
net 162.0 87.3 85.6% 0.3 87.6 84.9%
-------- -------- ------- ------- -------- -------
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.
October 30, January 30, October 31,
2010 2010 2009
$million $million $million
------------ ------------ ------------
Long-term debt -- (280.0) (280.0)
Loans and overdrafts (266.7) (44.1) (20.3)
------------ ------------ ------------
(266.7) (324.1) (300.3)
Cash and cash equivalents 414.9 316.2 139.6
------------ ------------ ------------
Net cash/(net debt) 148.2 (7.9) (160.7)
------------ ------------ ------------
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 39 weeks ended
October 30, October 31, October 30, October 31,
2010 2009 2010 2009
$million $million $million $million
----------- ----------- ----------- -----------
Net cash (used in)/
provided by operating
activities (57.7) 54.1 196.9 349.1
Net cash flows used in
investing activities (25.1) (12.8) (39.5) (30.3)
----------- ----------- ----------- -----------
Free cash flow (82.8) 41.3 157.4 318.8
----------- ----------- ----------- -----------