SkyWest Airlines 2008 Annual Report Download - page 80

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SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2008
(7) Capital Transactions
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock in one or more series
without shareholder approval. No shares of preferred stock are presently outstanding. The Company’s
Board of Directors is authorized, without any further action by the stockholders of the Company, to
(i) divide the preferred stock into series; (ii) designate each such series; (iii) fix and determine dividend
rights; (iv) determine the price, terms and conditions on which shares of preferred stock may be
redeemed; (v) determine the amount payable to holders of preferred stock in the event of voluntary or
involuntary liquidation; (vi) determine any sinking fund provisions; and (vii) establish any conversion
privileges.
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, 2008, options to purchase approximately 436,000 shares of the
Company’s common stock remained outstanding under the Prior Plans and 3,114,283 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, 2008, 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, 2008, the Company granted
357,716 stock options to employees under the 2006 Incentive Plan. The following table shows the
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