Acquisitions

Zale Corporation

On May 29, 2014, the Company acquired 100% of the outstanding shares of Zale Corporation, making the entity a wholly-owned consolidated subsidiary of Signet (the "Zale Acquisition" or "Acquisition"). Under the terms of the Agreement and Plan of Merger, Zale Corporation shareholders received $21 per share in cash for each outstanding share of common stock and the vesting, upon consummation of the Acquisition, of certain outstanding Zale Corporation restricted stock units and stock options, which converted into the right to receive the merger consideration of $1,458.0 million, including $478.2 million to extinguish Zale Corporation’s existing debt. The Acquisition was funded by the Company through existing cash and the issuance of $1,400.0 million of long-term debt, including: (a) $400.0 million of senior unsecured notes due in 2024, (b) $600.0 million of two-year revolving asset-backed variable funding notes and (c) a $400.0 million five-year senior unsecured term loan facility. See Note 17 for additional information related to the Company’s long-term debt instruments.

The transaction was accounted for as a business combination during the second quarter of Fiscal 2015. The Acquisition aligns with the Company’s strategy to expand its footprint. The following table summarizes the consideration transferred in conjunction with the Acquisition as of May 29, 2014:



(in millions, except per share amounts)	Amount
Cash consideration paid to Zale Corporation shareholders ($21 per share)	$	910.2
Cash consideration paid for settlement of Zale Corporation stock options, restricted share awards and long term incentive plan awards	69.6
Cash paid to extinguish Zale Corporation outstanding debt as of May 29, 2014	478.2
Total consideration transferred	$	1,458.0

Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed are recorded at acquisition date fair values. During the fourth quarter of Fiscal 2015, the Company finalized the valuation of net assets acquired. The following table summarizes the fair values identified for the assets acquired and liabilities assumed in the Acquisition as of May 29, 2014:



(in millions)	Fair values
Cash and cash equivalents	$	28.8
Inventories	856.7
Other current assets	22.4
Property, plant and equipment	103.6
Intangible assets:
Trade names	417.0
Favorable leases	50.2
Deferred tax assets	132.8
Other assets	25.4
Current liabilities⁽¹⁾	(206.3		)
Deferred revenue	(93.3		)
Unfavorable leases	(50.5		)
Unfavorable contracts	(65.6		)
Deferred tax liabilities	(234.0		)
Other liabilities	(28.6		)
Fair value of net assets acquired	958.6
Goodwill	499.4
Total consideration transferred	$	1,458.0

⁽¹⁾ Includes loans and overdrafts, accounts payable, income taxes payable, accrued expenses and other current liabilities.

The excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed was recognized as goodwill. The goodwill attributable to the Acquisition is not deductible for tax purposes. See Note 11.

The following unaudited consolidated pro forma information summarizes the results of operations of the Company as if the Acquisition and related issuance of $1,400.0 million of long-term debt (see Note 17) had occurred as of February 2, 2013. The unaudited consolidated pro forma financial information was prepared in accordance with the acquisition method of accounting under existing standards and is not necessarily indicative of the results of operations that would have occurred if the Acquisition had been completed on the date indicated, nor is it indicative of the future operating results of the Company.



	13 weeks ended		39 weeks ended
(in millions, except per share amounts)	November 1, 2014		November 1, 2014
Pro forma sales	$	1,183.1	$	4,041.3
Pro forma net income	$	15.1	$	213.9
Pro forma earnings per share – basic	$	0.19	$	2.68
Pro forma earnings per share – diluted	$	0.19	$	2.67

The unaudited pro forma information gives effect to actual operating results prior to the Acquisition and has been adjusted with respect to certain aspects of the Acquisition to reflect the following:

•

Acquisition accounting adjustments to reset deferred revenue associated with extended service plans sold by Zale Corporation prior to the Acquisition to fair value as of the acquisition date. The fair value of deferred revenue is determined based on the estimated costs remaining to be incurred for future obligations associated with the outstanding plans at the time of the Acquisition, plus a reasonable profit margin on the estimated costs. These adjustments also reflect the impact of deferring the revenue associated with the lifetime extended service plans over a 10-year period as disclosed in Note 1.


•	Additional depreciation and amortization expenses that would have been recognized assuming fair value adjustments to the existing Zale Corporation assets acquired and liabilities assumed, including intangible assets, favorable and unfavorable leases, and unfavorable contracts and expense associated with the fair value step-up of inventory acquired.


•	Tax impact of the Company’s amended capital structure as a result of the Acquisition and related issuance of $1,400.0 million of long-term debt.


•	Adjustment of valuation allowances associated with US and Canadian deferred tax assets, including net operating loss carryforwards.

•

Exclusion of acquisition-related costs of $9.4 million and $48.6 million, which were included in the Company’s net income during the 13 and 39 weeks ended November 1, 2014, respectively. Also excluded were costs associated with the unsecured bridge facility discussed in Note 17 of $4.0 million, which were included in the Company's net income during the 39 weeks ended November 1, 2014. All amounts were reported within the Other segment.

The unaudited pro forma results do not reflect future events that either have occurred or may occur after the Acquisition, including, but not limited to, the anticipated realization of expected operating synergies in subsequent periods. They also do not give effect to acquisition-related costs that the Company expects to incur in connection with the Acquisition, including, but not limited to, additional professional fees, employee integration, retention and severance costs.