Signet's principal financial instruments are comprised of cash, cash deposits/investments and overdrafts, accounts receivable and payable, derivatives and a revolving credit facility. Signet does not enter into derivative transactions for trading purposes. Derivative transactions are used by Signet for risk management purposes to address risks inherent in Signet's business operations and sources of finance. The main risks arising from Signet's operations are market risk including foreign currency risk and commodity risk, liquidity risk and interest rate risk. Signet uses these financial instruments to manage and mitigate these risks under policies reviewed and approved by the Board.

Signet generates revenues and incurs expenses in pounds sterling and US dollars. As a portion of Signet's UK division purchases are denominated in US dollars, Signet enters into foreign currency forward exchange contracts, foreign currency option contracts and foreign currency swaps to manage this exposure to the US dollar. The fair value of these contracts is recorded in other assets and other liabilities.

Signet holds a fluctuating amount of pounds sterling cash reflecting the cash generative characteristics of the UK division. Signet's objective is to minimize net foreign exchange exposure to the income statement on pound sterling denominated items through managing this level of cash, pound sterling denominated intercompany balances and US dollar to pound sterling swaps. In order to manage the foreign exchange exposure and minimize the level of pound sterling cash held by Signet, the pound sterling denominated subsidiaries pay dividends regularly to their immediate holding companies and excess pounds sterling are sold in exchange for US dollars.

Signet's policy is to minimize the impact of precious metal commodity price volatility on operating results through the use of outright forward purchases of, or by entering into options to purchase, precious metals within treasury guidelines approved by the Board. In particular, Signet undertakes some hedging of its requirement for gold through the use of options, forward contracts and commodity purchasing, while fluctuations in the cost of diamonds are not hedged.

Signet's objective is to ensure that it has access to, or the ability to generate sufficient cash from either internal or external sources in a timely and cost-effective manner to meet its commitments as they become due and payable. Signet manages liquidity risks as part of its overall risk management policy. Management produces forecasting and budgeting information that is reviewed and monitored by the Board. Cash generated from operations and external financing are the main sources of funding supplementing Signet's resources in meeting liquidity requirements.

The main external source for funding at July 30, 2011 was a $400 million senior unsecured multi-currency five year revolving credit agreement dated as of May 24, 2011, under which there were no borrowings as of July 30, 2011. At January 29, 2011 and July 31, 2010, the previous $300 million unsecured revolving credit facility was in place, under which there were no borrowings as of January 29, 2011 and July 31, 2010 (see Note 13). At July 31, 2010, borrowings of $229.1 million were outstanding under the US Private Placement Notes, which were repaid in full on November 26, 2010.

Signet's operations had been financed principally by fixed rate notes under the US Private Placement Notes until they were prepaid in full on November 26, 2010. In the future, Signet may enter into various interest rate protection agreements in order to limit the impact of movements in interest rates on its cash or borrowings. There were no interest rate protection agreements outstanding at July 30, 2011, January 29, 2011 or July 31, 2010.

Credit risk represents the loss that would be recognized at the reporting date if counterparties failed to perform as contracted. Signet does not anticipate non-performance by counterparties of its financial instruments. Signet does not require collateral or other security to support cash investments or financial instruments with credit risk; however it is Signet's policy to only hold cash and cash equivalent investments and to transact financial instruments with financial institutions with a certain minimum credit rating. Management does not believe Signet is exposed to any significant concentrations of credit risk that arise from cash and cash equivalent investments, derivatives or accounts receivable.

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 July 30, 2011 was $51.0 million (January 29, 2011 and July 31, 2010: $39.5 million and $49.7 million, respectively). These contracts have been designated as cash flow hedges and will be settled over the next 20 months (January 29, 2011 and July 31, 2010: 12 months and 17 months, respectively), with the non-current portion not material to these condensed consolidated financial statements.

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 July 30, 2011 was $195.5 million (January 29, 2011 and July 31, 2010: $154.3 million and $98.1 million, respectively). These contracts have been designated as cash flow hedges and will be settled over the next 18 months (January 29, 2011 and July 31, 2010: both 12 months), with the non-current portion not material to these condensed consolidated financial statements.

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 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.

Foreign currency contracts not designated as cash flow hedges are used to hedge currency flows through Signet's bank accounts to mitigate Signet's exposure to foreign currency exchange risk in its cash and borrowings.

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 July 30, 2011, Signet 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
location

July 30,
2011
$million

January 29,
2011
$million

July 31,
2010
$million

Derivatives designated as hedging instruments:

Foreign currency contracts

Other current assets

—

0.2

0.8

Commodity contracts

Other current assets

22.7

2.4

2.8

Total derivative assets

22.7

2.6

3.6


	Derivative liabilities
			Fair value
	Balance sheet location		July 30, 2011 $million			January 29, 2011 $million			July 31, 2010 $million
Derivatives designated as hedging instruments:
Foreign currency contracts		Other current liabilities		(1.5	)		(0.6	)		(0.8	)
Commodity contracts		Other current liabilities		—			(2.5	)		(2.1	)

				(1.5	)		(3.1	)		(2.9	)

Derivatives not designated as hedging instruments:
Foreign currency contracts		Other current liabilities		(0.3	)		—			(0.5	)

				(0.3	)		—			(0.5	)

Total derivative liabilities				(1.8	)		(3.1	)		(3.4	)

The following tables summarize the effect of derivative instruments on the condensed consolidated income statements:

Amount of gain/(loss)
in OCI on
derivatives
(Effective portion)

Location of
gain/(loss)
reclassified from
accumulated OCI
into income
(Effective portion)

Amount of gain/(loss) reclassified
from accumulated OCI into
income
(Effective portion)

13 weeks ended

July 30,
2011
$million

July 31,
2010
$million

July 30,
2011
$million

July 31,
2010
$million

Derivatives in cash flow hedging relationships:

Foreign currency contracts

1.1

(1.3

)

Cost of sales

—

1.5

Commodity contracts

14.3

(1.7

)

Cost of sales

3.4

3.8

Total

15.4

(3.0

)

3.4

5.3

Amount of gain/(loss)
in OCI on
derivatives
(Effective portion)

Location of
gain/(loss)
reclassified from
accumulated OCI
into income
(Effective portion)

Amount of gain/(loss) reclassified
from accumulated OCI into
income
(Effective portion)

26 weeks ended

July 30,
2011
$million

July 31,
2010
$million

July 30,
2011
$million

July 31,
2010
$million

Derivatives in cash flow hedging relationships:

Foreign currency contracts

(0.7

)

0.5

Cost of sales

(0.1

)

2.9

Commodity contracts

33.1

6.4

Cost of sales

6.4

7.1

Total

32.4

6.9

6.3

10.0

The ineffective portion of hedging instruments taken into other operating income, net in the 13 and 26 weeks ended July 30, 2011 was a $0.4 million gain (13 and 26 weeks ended July 31, 2010: both $0.4 million gain).

Amount of gain/(loss) recognized in income
on derivatives

Location of gain/(loss)
recognized in income on
derivatives

Amount of gain/(loss) recognized in income
on derivatives

13 weeks ended

26 weeks ended

July 30,
2011
$million

July 31,
2010
$million

July 30,
2011
$million

July 31,
2010
$million

Derivatives not designated as hedging instruments:

Foreign currency contracts

0.3

(0.5

)

Other operating

income, net

0.7

(0.5

)

Total

0.3

(0.5

)

0.7

(0.5

)

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

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:

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 20 months. At July 31, 2010, Signet held $229.1 million of US Private Placement Notes. The fair value of this debt was determined by discounting to present value the known future coupon and final Note redemption amounts at market yields as of the balance sheet date. These US Private Placement Notes were paid in full as of November 26, 2010 (see Note 12). 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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
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Reference 5: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
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-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
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Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 11: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
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Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
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Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

+ Details