Cadbury Schweppes manufactures beverages and confectionary candies. Because the company is based in the United Kingdom, it is not required to comply with U.S. GAAP. However, the standards relating to EPS under which Cadbury Schweppes prepared its 2007 annual report are similar to the requirements of FASB Statement No. 128. Note: As of May 7, 2008, Cadbury Schweppes completed a demerger of its Americas Beverages business to Dr. Pepper Snapple Group, and the company€™s name is now just Cadbury.

1In addition to tax on above items, includes £21 million charge arising on certain re-organizations carried out in preparation for the separation of Americas Beverages.
2In addition to tax on above items, includes £17 million (2005: £11 million) deferred tax credit arising on the intra-group transfer of retained brands.
(ii) Diluted EPS
Diluted EPS has been calculated based on the reported and underlying earnings amounts above. The diluted reported and underlying EPS are set out below (in pence):

A reconciliation between the shares used in calculating basic and diluted EPS is as follows (in millions of shares):

Share options not included in the diluted EPS calculation because they were non-dilutive in the period totaled nil in 2007 (2006: 1 million; 2005 1 million), as the exercise price of these share options was above the average share price for the relevant year.
Review Cadbury Schweppes€™ note disclosures and answer the following questions.
1. How does Cadbury Schweppes€™ €œunderlying EPS€ differ from basic EPS? From diluted EPS?
2. For each year in the 3-year period 2005€“2007, compute the percentage of total stock options that weredilutive.

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Earnings per share Set out below are earnings per share figures for statutory earnings measure and underlying earnings. IAS 33 specifically permits the inclusion of an alternative component of earnings provided these are presented with equal prominence and a reconcilation is provided between the component used and the line item from the income statement. (i) Basic EPS An explanation of the use of an alternative EPS meaure is given in Note ). The reconciliation between reported and underlying EPS, and between the earnings figures used in calculating them, is as follows (Earnings in Em; EPS in pence): Earnings EPS Earnings EPS Earnings EPS 2007 2007 2006 2006 2005 2005 Reported continuing and discontinued Restructuring costs Amortisation and impairment 405 19.4 ,169 564 765 37.3 200 9.6 4.2 6.4 1.8 18 (67) (323) (6) 08) 1.4 133 86 42 38 2.0 38 0.3 Non-trading items Contract termination gain UK product recall Nigeria adjustments IAS 39 adjustment Effect of tax on above items Release of disposal tax provisions Recognition of UK deferred tax asset Underlying continuing and discontinued 30 23 (20) (0.9) (26 .2) (18) (09 () 25) (104) (5.1) 630 302 654 31.6 696 33.9 2007 20062005 55.9 29.9 31.3335 19.2 Diluted reported continuing and discontinued Diluted underlying-continuing and discontinued 36.9 2007 2006 2005 Average shares used in Basic EPS calculation Dilutive share options outstanding Shares used in diluted EPS calculation 2,087 2072 2,05 23 2,108 20 2074 21 19