Stock options to purchase 7 million, 6 million and 5 million Con Edison common shares for the years ended December 31, 2003, 2002 and 2001, respectively, were not included in the respective period’s computation of diluted earnings per share because the exercise price of the option was greater than the average market price of the common shares. Con Edison accounts for its stock-based compensation plans using the intrinsic value model of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations. All options and units granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. No compensation expense has been reflected in the income statement for any period presented except as shown below and as described in Note N. The following table illus- trates the effect on net income and earnings per share if Con Edison had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – An Amendment of FASB Statement No. 123,” for the purposes of recognizing compensation expense on employee stock-based arrange- ments. Stock-Based Compensation Earnings Per Common Share  Basic and diluted EPS for Con Edison are calculated  as follows:  Potentially dilutive securities for Con Edison consist of  restricted stock and stock options whose exercise price is less than the average market price of the common shares during the reporting period. See Note N.  In accordance with SFAS No. 128, “Earnings per Share,”  Con Edison presents basic and diluted earnings per share on the face of its consolidated income statement. Basic earnings per share is calculated by dividing earnings available to  common shareholders (“Net Income For Common Stock” on Con Edison’s consolidated income statement) by the weighted average number of Con Edison common shares outstanding during the period. In the calculation of diluted EPS, weighted average shares outstanding are increased for additional  shares that would be outstanding if potentially dilutive  securities were converted to common stock. For the Years Ended December 31, (Millions of Dollars/Shares in Millions) 2003 2002 2001 Income before cumulative effect  of changes in accounting principles $ 525 $668 $682 Cumulative effect of changes  in accounting principles, net of tax 3 (22) - Net income for common stock $ 528 $646 $682 Average number  of shares outstanding – Basic 221 213 212 Add: Incremental shares attributable  to effect of potentially dilutive securities 1 1 1 Average number of shares  outstanding – Diluted 222 214 213 Earnings Per Common Share – Basic Before cumulative effect  of changes in  accounting principles $2.37 $3.14 $3.22 Cumulative effect  of changes in  accounting principles 0.02 (0.11) - After cumulative effect  of changes in  accounting principles $2.39 $3.03 $3.22 Earnings Per Common Share – Diluted Before cumulative effect  of changes in  accounting principles $2.36 $3.13 $3.21 Cumulative effect  of changes in  accounting principles 0.02 (0.11) - After cumulative effect  of changes in  accounting principles $2.38 $3.02 $3.21 Con Edison Annual Report 2003 59