Deciphering Financial Statements (Cadbury Schweppes)
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 2004 annual report are similar to the requirements of FASB Statement No. 128.
Earnings per Ordinary Share
(a) Basic Earnings per Share (“EPS”)
Basic EPS is calculated on the weighted average of 2,027 million shares (2003: 2,013 million shares; 2002: 2,003 million shares) in issue during the year.
(b) Underlying EPS
The reconciliation between Basic EPS and underlying EPS, and between the earnings figures used in calculating them, is as follows:
|
|
|
Earnings |
|
|
EPS |
|
|
|
2004 |
2003 |
2002 |
2004 |
2003 |
2002 |
|
|
£m |
£m |
£m |
pence |
pence |
pence |
|
Earnings/Basic EPS |
4310 |
3663 |
5481 |
213 |
182 |
274 |
|
Goodwill/intangible amortisation |
1389 |
1293 |
635 |
68 |
64 |
32 |
|
Operating exceptional items |
1714 |
2237 |
530 |
84 |
111 |
26 |
|
Non operating exceptional items |
(188) |
48 |
(117) |
(09) |
03 |
(06) |
|
Underlying earnings/Underlying EPS |
6613 |
6434 |
6401 |
326 |
320 |
320 |
(c) Diluted EPS
Diluted EPS has been calculated based on the Basic EPS Earnings amount above. A reconciliation between the shares used in calculating Basic and Diluted EPS is as follows:
|
|
2004 |
2003 |
2002 |
|
|
million |
million |
million |
|
Average shares used in Basic EPS calculation |
2,027 |
2,013 |
2,003 |
|
Dilutive share options outstanding |
14 |
6 |
14 |
|
Shares used in Diluted EPS calculation |
2,041 |
2,019 |
2,017 |
Share options not included in the diluted EPS calculation because they were non dilutive in the period totaled 35 million in 2004 (2003: 77 million; 2002: 41 million), as the exercise price of these share options was below the average share price for the relevant year.
Review Cadbury Schweppes’ note disclosures and answer the following questions.
1. How does Cadbury Schweppes’“underlying EPS”differ from basic EPS? From diluted EPS?
2. For each year in the 3 year period 2002–2004, compute the percentage of total stock options that were dilutive.