SkyWest Airlines 2007 Annual Report Download - page 57

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Common Stock
On April 17, 2006, the Company completed a public offering of 4,000,000 shares of common stock at a price of
$26.05 per share. The Company received approximately $95.3 million in net proceeds which were used to pay off two
revolving lines of credit, to provide working capital and for general corporate purposes.
Stock Compensation
Effective January 1, 2001, the Company adopted two stock option plans: the Executive Stock Incentive Plan (the
“Executive Plan”) and the 2001 Allshare Stock Option Plan (the “Allshare Plan”). These plans replaced the Company’ s
Combined Incentive and Non-Statutory Stock Option Plans (the “Prior Plans”). There are no additional shares of common
stock available for issuance under these plans. However, as of December 31, 2007, options to purchase approximately
626,363 shares of the Company’ s common stock remained outstanding under the Prior Plans and 3,398,097 shares of the
Company’ s common stock remained outstanding under the Executive Plan and the Allshare Plan.
On May 2, 2006, the Company’ s shareholders approved the adoption of the SkyWest Inc. Long-Term Incentive
Plan, which provides for the issuance of up to 6,000,000 shares of common stock to the Company’ s directors, employees,
consultants and advisors (the “2006 Incentive Plan”). The 2006 Incentive Plan provides for awards in the form of options to
acquire shares of common stock, stock appreciation rights, restricted stock grants and performance awards. The 2006
Incentive Plan is administered by the Compensation Committee of the Company’ s Board of Directors (the “Compensation
Committee”) who is authorized to designate option grants as either incentive or non-statutory. Incentive stock options are
granted at not less than 100% of the market value of the underlying common stock on the date of grant. Non-statutory stock
options are granted at a price as determined by the Compensation Committee.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), using
the modified-prospective transition method. Under the modified-prospective transition method, compensation cost
recognized during the years ended December 31, 2007 and 2006 includes compensation cost for all share-based payments
granted to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the
original provisions of SFAS No. 123. Results for prior periods have not been restated.
The fair value of stock options has been estimated as of the grant date using the Black-Scholes option pricing model.
The Company uses historical data to estimate option exercises and employee termination in the option pricing model. The
expected term of options granted is derived from the output of the option pricing model and represents the period of time that
options granted are expected to be outstanding. The expected volatilities are based on the historical volatility of the
Company’ s traded stock and other factors. During the year ended December 31, 2007, the Company granted 382,467 stock
options to employees under the 2006 Incentive Plan. The following table shows the assumptions used and weighted average
fair value for grants in the years ended December 31, 2007, 2006 and 2005.
2007 2006 2005
Expected annual dividend rate..................................................................................................... 0.45% 0.70% 0.70%
Risk-free interest rate................................................................................................................... 4.77% 4.31% 3.87%
Average expected life (years) ...................................................................................................... 4.5 4.1 6.0
Expected volatility of common stock .......................................................................................... 0.272 0.294 0.391
Forfeiture rate .............................................................................................................................. 4.7% 6.0% 6.7%
Weighted average fair value of option grants .............................................................................. $8.06 $6.80 $7.04
As required by SFAS No. 123(R), the Company recorded share-based compensation expense only for those options
that are expected to vest. The estimated fair value of the stock options is amortized over the vesting period of the respective
stock option grants.
During the year ended December 31, 2007, the Company granted 311,211 shares of restricted stock to the
Company’ s employees under the 2006 Incentive Plan. The restricted stock has a three-year vesting period, during which the
recipient must remain employed with the Company or its subsidiaries. The fair value of the restricted stock on the date of
grants made during the year ended December 31, 2007 was $26.84 per share. Additionally, the Company granted 14,413
fully-vested shares of common stock to the Company’ s directors with a weighted average grant-date fair value of $26.89. The
following table summarizes the restricted stock activity as of December 31, 2007 and 2006: