NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Warrants NOTE I — STOCK OPTIONS AND WARRANTS — (continued) EMCOR applies APB 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized in the accompanying Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 for stock options granted during those years, as EMCOR grants stock options at fair market value. Had compensation cost for these options been determined consistent with SFAS 123, EMCOR’s Net income, Basic EPS and Diluted EPS would have been reduced from the following as reported amounts to the following pro forma amounts (in thousands, except per share amounts): The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2001, 2000 and 1999: risk-free interest rates of 4.1% to 6.6% (representing the risk-free interest rate at the date of the grant); expected dividend yields of zero percent; expected terms of 3.3 to 3.9 years; and expected volatility of 83.5%, 71.2%, 73.6% and 87.3% for options granted during 2001, 2000, 1999 and 1998, respectively. Pursuant to EMCOR’s bankruptcy reorganization, when it was formerly known as JWP, Inc., EMCOR issued to the holders of $7,040,000 principal amount of its pre- bankruptcy petition 7.75% convertible subordinated debentures and $9,600,000 principal amounts of its  pre-bankruptcy petition 12.0% Subordinated Notes, their  pro rata share of each of two series of five-year Warrants  to purchase shares of Common Stock, namely Series X Warrants and Series Y Warrants, with an exercise price of $12.55 per share and $17.55 per share, respectively. In addition, approximately 28,000 Series X Warrants and 28,000 Series Y Warrants, were issued to Belmont Capital Partners II, L. P. as a portion of additional interest under a debtor-in-possession credit facility. During 1999, 600,603 Series X and 141,944 Series Y Warrants were exercised. All unexercised Series X and Series Y Warrants expired  on December 15, 1999. 39 EMCOR ANNUAL REPORT 2001  2001 2000 1999 Net income: As reported $ 50,012 $ 40,089 $ 27,821 Pro forma $ 45,240 $ 37,204 $ 25,597 Basic EPS: As reported $ 3.86 $ 3.84 $ 2.86 Pro forma $ 3.49 $ 3.56 $ 2.63 Diluted EPS: As reported $ 3.40 $ 2.95 $ 2.21 Pro forma $ 3.08 $ 2.76 $ 2.06