Income taxes



(in millions)	Fiscal 2016		Fiscal 2015			Fiscal 2014
Income before income taxes:
– US	$	426.1	$	380.8		$	493.7
– Foreign	231.7		159.8			72.8
Total income before income taxes	$	657.8	$	540.6		$	566.5

Current taxation:
– US	$	161.7	$	199.5		$	211.8
– Foreign	3.5		7.8			7.1
Deferred taxation:
– US	22.3		(47.9		)	(22.8		)
– Foreign	2.4		(0.1		)	2.4
Total income taxes	$	189.9	$	159.3		$	198.5

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 2016		Fiscal 2015		Fiscal 2014
US federal income tax rates	35.0	%	35.0	%	35.0	%
US state income taxes	2.7	%	2.1	%	2.5	%
Differences between US federal and foreign statutory income tax rates	(0.5	)%	(0.8	)%	(0.9	)%
Expenditures permanently disallowable for tax purposes, net of permanent tax benefits	0.5	%	0.8	%	0.6	%
Disallowable transaction costs	2.1	%	0.7	%	—	%
Impact of global reinsurance arrangements	(2.4	)%	(1.5	)%	(0.2	)%
Impact of global financing arrangements	(8.7	)%	(7.2	)%	(1.9	)%
Other items	0.2	%	0.4	%	(0.1	)%
Effective tax rate	28.9	%	29.5	%	35.0	%

In Fiscal 2016, Signet’s effective tax rate was lower than the US federal income tax rate primarily due to the impact of 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 and the movement in foreign exchange translation rates.

Deferred tax assets (liabilities) consisted of the following:



	January 30, 2016									January 31, 2015
(in millions)	Assets			(Liabilities)			Total			Assets			(Liabilities)			Total
Intangible assets	$	—		$	(156.2	)	$	(156.2	)	$	—		$	(133.0	)	$	(133.0	)
US property, plant and equipment	—			(73.6		)	(73.6		)	—			(50.7		)	(50.7		)
Foreign property, plant and equipment	5.4			—			5.4			7.0			—			7.0
Inventory valuation	—			(252.8		)	(252.8		)	—			(256.4		)	(256.4		)
Allowances for doubtful accounts	54.1			—			54.1			46.0			—			46.0
Revenue deferral	188.5			—			188.5			172.7			—			172.7
Derivative instruments	1.6			—			1.6			—			(2.2		)	(2.2		)
Straight-line lease payments	35.0			—			35.0			31.8			—			31.8
Deferred compensation	13.9			—			13.9			11.1			—			11.1
Retirement benefit obligations	—			(10.3		)	(10.3		)	—			(7.5		)	(7.5		)
Share-based compensation	7.4			—			7.4			5.8			—			5.8
Other temporary differences	52.4			—			52.4			49.8			—			49.8
Net operating losses and foreign tax credits	80.6			—			80.6			91.8			—			91.8
Value of foreign capital losses	13.4			—			13.4			15.0			—			15.0
Total gross deferred tax assets (liabilities)	$	452.3		$	(492.9	)	$	(40.6	)	$	431.0		$	(449.8	)	$	(18.8	)
Valuation allowance	(31.9		)	—			(31.9		)	(32.4		)	—			(32.4		)
Deferred tax assets (liabilities)	$	420.4		$	(492.9	)	$	(72.5	)	$	398.6		$	(449.8	)	$	(51.2	)

Disclosed as:
Non-current assets							$	—								$	2.3
Non-current liabilities							(72.5		)							(53.5		)
Deferred tax assets (liabilities)							$	(72.5	)							$	(51.2	)

As of January 30, 2016, Signet had deferred tax assets associated with net operating loss carry forwards of $56.1 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 2016 and 2033. Deferred tax assets associated with foreign tax credits also subject to Section 382 of the IRC total $13.7 million as of January 30, 2016 which expire between 2016 and 2024 and foreign net operating loss carryforwards of $10.8 million which expire between 2018 and 2036. Additionally, Signet had foreign capital loss carry forward deferred tax assets of $13.4 million (Fiscal 2015: $15.0 million), which are only available to offset future capital gains, if any, over an indefinite period.

The decrease in the total valuation allowance in Fiscal 2016 was $0.5 million (Fiscal 2015: $7.5 million net increase; Fiscal 2014: $0.7 million net decrease). The valuation allowance primarily relates to foreign capital and trading loss carry forwards, foreign tax credits and 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 January 30, 2016 will be offset where permissible by deferred tax liabilities or realized on future tax returns, primarily from the generation of future taxable income.

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, 2010 and is subject to examination by the UK tax authority for tax years ending after February 1, 2014.

As of January 30, 2016, Signet had approximately $11.4 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. If all of these unrecognized tax benefits were settled in Signet's favor, the effective income tax rate would be favorably impacted by $10.3 million.

Signet recognizes accrued interest and, where appropriate, penalties related to unrecognized tax benefits within income tax expense. As of January 30, 2016, Signet had accrued interest of $1.9 million and $0.7 million of accrued penalties.

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, 2016 due to settlement of the uncertain tax positions with the tax authorities.

The following table summarizes the activity related to unrecognized tax benefits:



(in millions)	Fiscal 2016			Fiscal 2015			Fiscal 2014
Unrecognized tax benefits, beginning of period	$	11.4		$	4.6		$	4.5
Acquired existing unrecognized tax benefits	—			4.3			—
Increases related to current year tax positions	2.0			3.5			0.4
Prior year tax positions:
Increases	—			—			0.2
Decreases	—			(0.1		)	—
Cash settlements	—			—			(0.5		)
Lapse of statute of limitations	(1.9		)	(0.4		)	—
Difference on foreign currency translation	(0.1		)	(0.5		)	—
Unrecognized tax benefits, end of period	$	11.4		$	11.4		$	4.6