BAE Systems 157 Annual Report 2017 7. Earnings per share Key Performance Indicator – Underlying earnings per share Definition Basic earnings per share excluding amortisation and impairment of intangible assets, non-cash finance movements on pensions and financial derivatives, non-recurring items and, in 2017, the impact of US tax reform enacted in December 2017. Purpose Provides a measure of underlying performance that is comparable over time. Amortisation and impairment of intangible assets are excluded because they are not related to the in-year operational performance of the business, being driven by the timing and quantum of investment in acquired businesses and software. Non-cash finance movements on pensions are excluded because they are driven by external factors, such as corporate bond yields and inflation. Non-cash finance movements on financial derivatives are excluded because they are driven by external factors, such as foreign exchange rates and interest rates. Non-recurring items are not relevant to an understanding of the Group’s underlying performance. The impact of US tax reform enacted in December 2017 has been excluded because it does not reflect the Group’s in-year underlying tax rate. 2017 2016 Basic Diluted Basic Diluted pence pence pence pence £m per share per share £m per share pershare Profit for the year attributable to equity shareholders 854 26.8 26.7 913 28.8 28.7 Add back/(deduct): Amortisation and impairment of intangible assets, post tax1 68 69 Impairment of goodwill 384 – Non-cash movements, being net interest expense on retirement benefit obligations, post tax1 137 140 Non-cash movements, being fair value and foreign exchange adjustments on financial instruments and investments, post tax1 (30) 146 Non-recurring items, post tax1 10 9 Impact of US tax reform enacted in December 2017 (40) – Underlying earnings, post tax 1,383 43.5 43.3 1,277 40.3 40.1 Millions Millions Millions Millions Weighted average number of shares used in calculating basic earnings per share 3,182 3,182 3,171 3,171 Incremental shares in respect of employee share schemes 15 14 Weighted average number of shares used in calculating diluted earnings per share 3,197 3,185 1.The tax impact is calculated using the underlying effective tax rate of 21% (2016 21%).