Income taxes

12 Months Ended

Feb. 01, 2020



(in millions)	Fiscal 2020		Fiscal 2019			Fiscal 2018
Income (loss) before income taxes:
– US	$	32.3	$	(1,135.8	)	$	202.2
– Foreign	97.4		333.2			325.0
Total income (loss) before income taxes	$	129.7	$	(802.6	)	$	527.2

Current taxation:
– US	$	3.0	$	(55.2	)	$	35.9
– Foreign	1.9		15.8			6.1
Deferred taxation:
– US	17.0		(85.8		)	(34.8		)
– Foreign	2.3		(20.0		)	0.7
Total income tax expense (benefit)	$	24.2	$	(145.2	)	$	7.9

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 2020		Fiscal 2019		Fiscal 2018
US federal income tax rates	21.0	%	21.0	%	35.0	%
US state income taxes	3.1	%	2.3	%	1.9	%
Differences between US federal and foreign statutory income tax rates	1.3	%	0.3	%	(1.0	)%
Expenditures permanently disallowable for tax purposes, net of permanent tax benefits	3.3	%	(0.8	)%	1.4	%
Impact of global reinsurance arrangements	(20.3	)%	3.1	%	(8.1	)%
Impact of global financing arrangements	—	%	4.2	%	(11.4	)%
Benefit in current taxes - the TCJ Act	—	%	—	%	(4.1	)%
Remeasurement of deferred taxes - the TCJ Act	—	%	—	%	(12.3	)%
Impairment of goodwill	7.5	%	(13.4	)%	—	%
Out of period adjustment	—	%	1.4	%	—	%
Other items	2.8	%	—	%	0.1	%
Effective tax rate	18.7	%	18.1	%	1.5	%

In Fiscal 2020, Signet’s effective tax rate was lower than the US federal income tax rate primarily due to the impact of Signet’s global reinsurance arrangement partially offset by nondeductible goodwill impairment charges and other nondeductible expenses. Signet’s future effective tax rate is largely dependent on changes in the geographic mix of income.

Deferred taxes

Deferred tax assets (liabilities) consisted of the following:



	February 1, 2020									February 2, 2019
(in millions)	Assets			(Liabilities)			Total			Assets			(Liabilities)			Total
Intangible assets	$	—		$	(63.0	)	$	(63.0	)	$	—		$	(63.8	)	$	(63.8	)
US property, plant and equipment	—			(55.4		)	(55.4		)	—			(68.2		)	(68.2		)
Foreign property, plant and equipment	6.5			—			6.5			6.5			—			6.5
Inventory valuation	—			(203.1		)	(203.1		)	—			(179.1		)	(179.1		)
Revenue deferral	102.5			—			102.5			122.0			—			122.0
Derivative instruments	—			(4.3		)	(4.3		)	—			(1.3		)	(1.3		)
Lease assets	—			(358.2		)	(358.2		)	—			—			—
Lease liabilities	380.6			—			380.6			26.2			—			26.2
Deferred compensation	7.3			—			7.3			7.5			—			7.5
Retirement benefit obligations	—			(6.7		)	(6.7		)	—			(5.8		)	(5.8		)
Share-based compensation	4.1			—			4.1			3.5			—			3.5
Other temporary differences	77.7			—			77.7			46.7			—			46.7
Net operating losses and foreign tax credits	137.0			—			137.0			151.8			—			151.8
Value of capital losses	12.9			—			12.9			13.9			—			13.9
Total gross deferred tax assets (liabilities)	$	728.6		$	(690.7	)	$	37.9		$	378.1		$	(318.2	)	$	59.9
Valuation allowance	(38.4		)	—			(38.4		)	(38.9		)	—			(38.9		)
Deferred tax assets (liabilities)	$	690.2		$	(690.7	)	$	(0.5	)	$	339.2		$	(318.2	)	$	21.0

Disclosed as:
Non-current assets							$	4.7								$	21.0
Non-current liabilities							(5.2		)							—
Deferred tax assets (liabilities)							$	(0.5	)							$	21.0

As of February 1, 2020, Signet had deferred tax assets associated with net operating loss carry forwards of $109.2 million, of which $15.1 million are subject to ownership change limitations rules under Section 382 of the Internal Revenue Code (“IRC”) and various US state regulations and expire between 2020 and 2039. Deferred tax assets associated with foreign tax credits also subject to Section 382 of the IRC total $13.7 million as of February 1, 2020, which expire between 2020 and 2024 and foreign net operating loss carryforwards of $14.1 million, which expire between 2020 and 2039. Additionally, Signet had foreign capital loss carryforward deferred tax assets of $10.5 million (Fiscal 2019: $11.6 million), which can be carried forward over an indefinite period and US capital loss carryforwards of $3.0 million which expire in 2022, both of which are only available to offset future capital gains.

The decrease in the total valuation allowance in Fiscal 2020 was $0.5 million. The valuation allowance primarily relates to capital and operating loss carry forwards and foreign tax credits 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 1, 2020 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 2020			Fiscal 2019			Fiscal 2018
Unrecognized tax benefits, beginning of period	$	18.1		$	12.0		$	12.0
Increases related to current year tax positions	2.0			2.5			2.3
Increases related to prior year tax positions	6.0			6.2			—
Lapse of statute of limitations	(2.6		)	(2.4		)	(2.4		)
Difference on foreign currency translation	—			(0.2		)	0.1
Unrecognized tax benefits, end of period	$	23.5		$	18.1		$	12.0

As of February 1, 2020, Signet had approximately $23.5 million of unrecognized tax benefits in respect to uncertain tax positions. The unrecognized tax benefits relate primarily to intercompany deductions including 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 in the consolidated statement of operations. As of February 1, 2020, Signet had accrued interest of $3.9 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 $25.5 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 1, 2020 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.