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Income Taxes | 12 Months Ended
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Feb. 03, 2018
Income Tax Disclosure [Abstract] |
Income taxes | Income taxes
(in millions) | Fiscal 2018 |  | Fiscal 2017 |  | Fiscal 2016
Income before income taxes: |  |  |  |  |
– US | $ | 202.2 |  |  | $ | 424.0 |  |  | $ | 426.1 |
– Foreign | 325.0 |  |  | 289.8 |  |  | 231.7 |
Total income before income taxes | $ | 527.2 |  |  | $ | 713.8 |  |  | $ | 657.8 |
Current taxation: |  |  |  |  |
– US | $ | 35.9 |  |  | $ | 137.6 |  |  | $ | 161.7 |
– Foreign | 6.1 |  |  | 3.9 |  |  | 3.5 |
Deferred taxation: |  |  |  |  |
– US | (34.8 | ) |  | 28.1 |  |  | 22.3 |
– Foreign | 0.7 |  |  | 1.0 |  |  | 2.4 |
Total income taxes | $ | 7.9 |  |  | $ | 170.6 |  |  | $ | 189.9 |
As the statutory rate of corporation tax in Bermuda is 0%, the differences between the US federal income tax rate and the effective tax rates for Signet have been presented below:
| Fiscal 2018 |  | Fiscal 2017 |  | Fiscal 2016
US federal income tax rates | 35.0 | % |  | 35.0 | % |  | 35.0 | %
US state income taxes | 1.9 | % |  | 1.9 | % |  | 2.7 | %
Differences between US federal and foreign statutory income tax rates | (1.0 | )% |  | (0.2 | )% |  | (0.5 | )%
Expenditures permanently disallowable for tax purposes, net of permanent tax benefits | 1.0 | % |  | 0.4 | % |  | 0.5 | %
Disallowable transaction costs | 0.4 | % |  | 0.1 | % |  | 2.1 | %
Impact of global reinsurance arrangements | (8.1 | )% |  | (5.4 | )% |  | (2.4 | )%
Impact of global financing arrangements | (11.4 | )% |  | (8.2 | )% |  | (8.7 | )%
Provisional benefit in current year taxes - the TCJ Act | (4.1 | )% |  | — | % |  | — | %
Provisional remeasurement of deferred taxes - the TCJ Act | (12.3 | )% |  | — | % |  | — | %
Other items | 0.1 | % |  | 0.3 | % |  | 0.2 | %
Effective tax rate | 1.5 | % |  | 23.9 | % |  | 28.9 | %
In Fiscal 2018, Signet’s effective tax rate was lower than the US federal income tax rate primarily due to the impact of US tax reform as well as Signet’s global reinsurance and financing arrangements utilized to fund the acquisition of Zale. Signet’s future effective tax rate is dependent on changes in the geographic mix of income. US Tax Reform On December 22, 2017, the U.S. government enacted “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018”, which is commonly referred to as “The Tax Cuts and Jobs Act” (the “TCJ Act”). The TCJ Act provides for comprehensive tax legislation that reduces the U.S. federal statutory corporate tax rate from 35.0 percent to 21.0 percent effective January 1, 2018, limits certain deductions, including limiting the deductibility of interest expense to 30% of U.S. Earnings Before Interest, Taxes, Depreciation and Amortization, broadens the U.S. federal income tax base, requires companies to pay a one-time repatriation tax on earnings of certain foreign subsidiaries that were previously tax deferred (“transition tax”), and creates new taxes on certain foreign sourced earnings. As we have a 52-53-week tax year ending the Saturday nearest October 31, the lower corporate income tax rate is administratively phased in, resulting in a blended U.S. federal statutory tax rate of approximately 23.4 percent for our fiscal tax year from October 29, 2017 through November 3, 2018, and 21.0 percent for our fiscal tax years thereafter. On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”), expressing its views regarding the FASB's Accounting Standards Codification 740, Income Taxes, in the reporting period that includes the enactment date of the TCJ Act. SAB 118 recognizes that a registrant’s review of certain income tax effects of the TCJ Act may be incomplete at the time financial statements are issued for the reporting period that includes the enactment date, including interim periods therein. Specifically, SAB 118 allows a company to report provisional estimates in the reporting period that includes the enactment date if the company does not have the necessary information available, prepared, or fully analyzed for certain income tax effects of the TCJ Act. The provisional estimates would be adjusted during a measurement period not to exceed 12 months from the enactment date of the TCJ Act, at which time the accounting for the income tax effects of the TCJ Act is required to be completed. We have not completed our accounting for the income tax effects of the enactment of the TCJ Act; however, we have made a reasonable estimate of the effects on our existing deferred tax balances. We expect to complete our analysis of the amounts recorded as of enactment of the TCJ Act within the measurement period of one year. In addition to the estimates further described below, we also used assumptions and estimates that may change as a result of future guidance and interpretation from the Internal Revenue Service, other taxing jurisdictions, the SEC, and the FASB. In particular, we anticipate that the U.S. state jurisdictions will continue to determine and announce their conformity or decoupling from the TCJ Act, either in its entirety or with respect to specific provisions. All of these potential legislative and interpretive actions could result in adjustments to our provisional estimates when the accounting for the income tax effects of the TCJ Act is completed. Accordingly, our income tax provision as of February 3, 2018, reflects the current year impacts of the TCJ Act on the effective tax rate, and the following provisional estimates of the adjustments resulting directly from the enactment of the TCJ Act based on information available, prepared, or analyzed as of February 3, 2018 in reasonable detail:
| Fiscal 2018
(in millions) | Income tax benefit (expense)
Net impact on remeasurement of US deferred tax assets and liabilities | $ | 64.7 |
Net impact of reduce US tax rate on income from October 29, 2017 through February 3, 2018 | 21.5 |
Net benefit of the TCJ Act | $ | 86.2 |
Deferred tax assets and liabilities: We remeasured our existing US deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, of which the federal component is approximately 23.4 percent for reversals expected in the tax year from October 29, 2018 through November 3, 2018 and 21.0 percent thereafter. The provisional amount recorded related to the remeasurement of our deferred tax balance is a benefit of $64.7 million. The effect of the remeasurement was recorded in the fourth quarter of Financial Year 2018, consistent with the enactment date of the TCJ Act, and reflected in our provision for income taxes. We determined that the calculation cannot be completed until all of the underlying timing differences as of November 3, 2018, are known, rather than estimated at February 3, 2018. Furthermore, we are still analyzing certain aspects of the TCJ Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new or additional deferred tax amounts. Foreign tax effects: The transition tax is based on total post-1986 earnings and profits which were previously deferred from U.S. income taxes. There is no expected transition tax liability estimated as the earnings and profits of the US foreign subsidiaries are estimated to be in an aggregate deficit position. The transition tax is provisional because numerous components of the computation are estimated as of February 3, 2018. We continue to review the anticipated impacts of the global intangible low-taxed income (“GILTI”) and base erosion and anti-abuse tax (“BEAT”), which are not effective until our tax year beginning November 4, 2018. We have not recorded any impact associated with either GILTI or BEAT in the tax rate during the financial year ended February 3, 2018. The components of the provisional net tax expense recorded in the financial year ended February 3, 2018 are based on currently available information and additional information needs to be prepared, obtained and/or analyzed to determine the final amounts. The provisional tax benefit for the remeasurement of deferred taxes will require additional information necessary for the preparation of our U.S. federal tax return, and further analysis and interpretation of certain provisions of the TCJ Act could impact our deferred tax balance as of February 3, 2018. Deferred taxes Deferred tax assets (liabilities) consisted of the following:
| February 3, 2018 |  | January 28, 2017
(in millions) | Assets |  | (Liabilities) |  | Total |  | Assets |  | (Liabilities) |  | Total
Intangible assets | $ | — |  |  | $ | (130.9 | ) |  | $ | (130.9 | ) |  | $ | — |  |  | $ | (160.1 | ) |  | $ | (160.1 | )
US property, plant and equipment | — |  |  | (65.2 | ) |  | (65.2 | ) |  | — |  |  | (86.2 | ) |  | (86.2 | )
Foreign property, plant and equipment | 6.2 |  |  | — |  |  | 6.2 |  |  | 5.0 |  |  | — |  |  | 5.0 |
Inventory valuation | — |  |  | (193.7 | ) |  | (193.7 | ) |  | — |  |  | (289.4 | ) |  | (289.4 | )
Allowances for doubtful accounts | 34.4 |  |  | — |  |  | 34.4 |  |  | 60.4 |  |  | — |  |  | 60.4 |
Revenue deferral | 147.1 |  |  | — |  |  | 147.1 |  |  | 216.0 |  |  | — |  |  | 216.0 |
Derivative instruments | — |  |  | (0.3 | ) |  | (0.3 | ) |  | — |  |  | — |  |  | — |
Straight-line lease payments | 26.5 |  |  | — |  |  | 26.5 |  |  | 37.5 |  |  | — |  |  | 37.5 |
Deferred compensation | 9.2 |  |  | — |  |  | 9.2 |  |  | 16.5 |  |  | — |  |  | 16.5 |
Retirement benefit obligations | — |  |  | (7.6 | ) |  | (7.6 | ) |  | — |  |  | (6.1 | ) |  | (6.1 | )
Share-based compensation | 4.4 |  |  | — |  |  | 4.4 |  |  | 5.7 |  |  | — |  |  | 5.7 |
Other temporary differences | 47.1 |  |  | — |  |  | 47.1 |  |  | 51.0 |  |  | — |  |  | 51.0 |
Net operating losses and foreign tax credits | 56.9 |  |  | — |  |  | 56.9 |  |  | 69.2 |  |  | — |  |  | 69.2 |
Value of foreign capital losses | 12.0 |  |  | — |  |  | 12.0 |  |  | 11.3 |  |  | — |  |  | 11.3 |
Total gross deferred tax assets (liabilities) | $ | 343.8 |  |  | $ | (397.7 | ) |  | $ | (53.9 | ) |  | $ | 472.6 |  |  | $ | (541.8 | ) |  | $ | (69.2 | )
Valuation allowance | (37.0 | ) |  | — |  |  | (37.0 | ) |  | (31.5 | ) |  | — |  |  | (31.5 | )
Deferred tax assets (liabilities) | $ | 306.8 |  |  | $ | (397.7 | ) |  | $ | (90.9 | ) |  | $ | 441.1 |  |  | $ | (541.8 | ) |  | $ | (100.7 | )
Disclosed as: |  |  |  |  |  |  |  |  |  |  |
Non-current assets |  |  |  |  | $ | 1.4 |  |  |  |  |  |  | $ | 0.7 |
Non-current liabilities |  |  |  |  | (92.3 | ) |  |  |  |  |  | (101.4 | )
Deferred tax assets (liabilities) |  |  |  |  | $ | (90.9 | ) |  |  |  |  |  | $ | (100.7 | )
As of February 3, 2018, Signet had deferred tax assets associated with net operating loss carry forwards of $31.7 million, which are subject to ownership change limitations rules under Section 382 of the Internal Revenue Code (“IRC”) and various US state regulations, and expire between 2018 and 2037. Deferred tax assets associated with foreign tax credits also subject to Section 382 of the IRC total $13.7 million as of February 3, 2018, which expire between 2018 and 2024 and foreign net operating loss carryforwards of $11.5 million, which expire between 2018 and 2038. Additionally, Signet had foreign capital loss carry forward deferred tax assets of $12.0 million (Fiscal 2017: $11.3 million), which are only available to offset future capital gains, if any, over an indefinite period. The increase in the total valuation allowance in Fiscal 2018 was $5.5 million (Fiscal 2017: $0.4 million net decrease; Fiscal 2016: $0.5 million net increase). The valuation allowance primarily relates to foreign capital and trading loss carry forwards, foreign tax credits and state net operating losses that, in the judgment of management, are not more likely than not to be realized. Signet believes that it is more likely than not that deferred tax assets not subject to a valuation allowance as of February 3, 2018 will be offset where permissible by deferred tax liabilities or realized on future tax returns, primarily from the generation of future taxable income. Uncertain tax positions The following table summarizes the activity related to the Company’s unrecognized tax benefits for US federal, US state and non-US tax jurisdictions:
(in millions) | Fiscal 2018 |  | Fiscal 2017 |  | Fiscal 2016
Unrecognized tax benefits, beginning of period | $ | 12.0 |  |  | $ | 11.4 |  |  | $ | 11.4 |
Increases related to current year tax positions | 2.3 |  |  | 2.4 |  |  | 2.0 |
Lapse of statute of limitations | (2.4 | ) |  | (1.9 | ) |  | (1.9 | )
Difference on foreign currency translation | 0.1 |  |  | 0.1 |  |  | (0.1 | )
Unrecognized tax benefits, end of period | $ | 12.0 |  |  | $ | 12.0 |  |  | $ | 11.4 |
As of February 3, 2018, Signet had approximately $12.0 million of unrecognized tax benefits in respect to uncertain tax positions. The unrecognized tax benefits relate primarily to financing arrangements and intra-group charges which are subject to different and changing interpretations of tax law. Signet recognizes accrued interest and, where appropriate, penalties related to unrecognized tax benefits within income tax expense. As of February 3, 2018, Signet had accrued interest of $2.7 million and $0.7 million of accrued penalties. If all of these unrecognized tax benefits were settled in Signet’s favor, the effective income tax rate would be favorably impacted by $13.1 million. Over the next twelve months management believes that it is reasonably possible that there could be a reduction of some or all of the unrecognized tax benefits as of February 3, 2018 due to settlement of the uncertain tax positions with the tax authorities. 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, Canada and certain other foreign jurisdictions. Signet is subject to examinations by the US federal and state and Canadian tax authorities for tax years ending after November 1, 2011 and is subject to examination by the UK tax authority for tax years ending after February 1, 2014.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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