SkyWest Airlines 2009 Annual Report Download

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ANNUAL REPORT
TWO THOUSAND NINE
Notice of 2010 Annual Meeting and Proxy Statement
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Table of contents

  • Page 1
    T WO THOUSAND NINE ANNUAL REPORT Notice of 2010 Annual Meeting and Proxy Statement

  • Page 2
    ...%HDFK 0HOERXUQH 6DUDVRWD *UDQG%DKDPDV,VODQG )RUW/DXGHUGDOH 1DVVDX .H\:HVW /RV&DERV *XDGDODMDUD 6N\:HVW *URXQG+DQGOHG2QO\ 6N\:HVW6HDVRQDO Pacific Mountain 9:00 (Arizona does not observe Daylight Savings) Central 10:00 Eastern .LQJVWRQ 11:00 Atlantic NOON 8:00 ())(&7,9(0$5&+

  • Page 3
    ... primarily due to reduced utilization for our Delta Connection operations • Unplanned expenditures in our labor and maintenance costs • Early termination of our Midwest Airlines Services Agreement During the year, we acquired 25 new regional jets. These additional aircraft helped offset the...

  • Page 4
    ...2009 and we ended the year with $732.4 million in cash and marketable securities. We believe we are well capitalized and well positioned not only to survive in challenging times... service to our customers and partners. Sincerely, 13MAR200820562581 Jerry C. Atkin Chairman and Chief Executive Officer

  • Page 5
    ... year ended December 31, 2009 OR អ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-14719 SKYWEST, INC. Incorporated under the Laws of Utah 444 South River Road St. George, Utah 84790 (435) 634-3000...

  • Page 6
    ... Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information ...PART III Item 10. Directors, Executive Officers and Corporate Governance ...Item 11. Executive Compensation ...Item 12. Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 7
    ...-share partners, capacity reductions and other restructurings by major and regional carriers, including Delta Air Lines (''Delta''), United Air Lines, Inc. (''United''), Midwest Airlines, Inc. (''Midwest'') and AirTran Airways, Inc. (''AirTran''); • labor costs; • security-related and insurance...

  • Page 8
    ...-90-seat Bombardier CRJ900 Regional Jet (the ''CRJ900''), and one type of turboprop aircraft, the 30-seat Embraer Brasilia EMB-120 turboprop (the ''Brasilia turboprop''). We were incorporated in Utah in 1972. Our principal executive offices are located at 444 South River Road, St. George, Utah 84790...

  • Page 9
    .... SkyWest Airlines' United code-share operations are conducted under a United Express Agreement pursuant to which SkyWest Airlines is paid primarily on a fee-per-completed block hour and departure basis plus a margin based on performance incentives (the ''SkyWest Airlines United Express Agreement...

  • Page 10
    ... are code-share agreement terms, customer service, aircraft types, fare pricing, flight schedules and markets and routes served. The combined operations of SkyWest Airlines and ASA represent the largest regional airline operation in the United States. However, some of the major and low-cost carriers...

  • Page 11
    ... to market and advertise its status as a carrier for the code-share partner. For example, SkyWest Airlines flies out of Chicago (O'Hare), Denver, Los Angeles and San Francisco as United Express and out of Salt Lake City as Delta Connection and Milwaukee as an AirTran carrier. ASA operates as Delta...

  • Page 12
    ... to market our status as Delta Connection, United Express. Midwest Connect or AirTran. Under each of our code-share agreements, our passengers participate in the major partner's frequent flyer program, and the major partner provides additional services such as reservations, ticket issuance, ground...

  • Page 13
    ... the existing scheduled termination dates as contained in the Delta Connection Agreement. ASA operates these aircraft to provide Delta Connection service between Delta hubs and destinations designated by Delta. As of December 31, 2009, ASA was operating more than 780 Delta Connection flights per day...

  • Page 14
    ...for each aircraft delivered and incentive payments based upon performance, including on-time arrival performance and completion percentage rates. Additionally, Delta has agreed to reimburse SkyWest Airlines or ASA, as applicable, for certain operating costs under this Delta Connection Agreement. 10

  • Page 15
    ..., Los Angeles, San Francisco, Portland and Seattle/ Tacoma and designated outlying destinations. Generally, under the United Express Agreement, United retains all air fares, cargo rates, mail charges and other revenues associated with each flight. In exchange for providing the designated number of...

  • Page 16
    ... of Midwest service by January 2010. Markets and Routes As of December 31, 2009, SkyWest Airlines and ASA scheduled the following daily flights as Delta Connection carriers: 754 flights to or from Hartsfield- Jackson Atlanta International Airport, 388 flights to or from Salt Lake City International...

  • Page 17
    ... code-share agreements to be reimbursed by our major partners, thereby reducing our exposure to fuel price fluctuations. United purchased fuel directly from a fuel vendor for our United Express aircraft under contract operated out of Chicago, San Francisco, Los Angeles and Denver; Midwest purchased...

  • Page 18
    ... flight operations, maintenance programs, record keeping and training programs are conducted under FAA approved procedures. SkyWest Airlines and ASA do not currently operate at any airports where landing slots are restricted. All air carriers are required to comply with federal laws and regulations...

  • Page 19
    ... may deteriorate, the trading price of our common stock may decline and investors could lose all or part of their investment in us. Risks Related to Our Operations We are highly dependent on Delta and United. If any of our code-share agreements with Delta or United are terminated, we would be...

  • Page 20
    ... on-time arrivals. We currently use Delta's and United's systems, facilities and services to support a significant portion of our operations, including airport and terminal facilities and operations, information technology support, ticketing and reservations, scheduling, dispatching, fuel purchasing...

  • Page 21
    ... Delta Connection Agreements. On October 23, 2009, Delta sent letters to SkyWest Airlines and ASA requiring them to either adjust the rates payable under their respective Delta Connection Agreements or accept termination of those agreements. Delta also notified SkyWest Airlines and ASA of Delta...

  • Page 22
    ... management's interpretation, our operating results and financial condition may be negatively impacted. The SkyWest Airlines and ASA Delta Connection Agreements provide that, beginning with the fifth anniversary of the execution of the agreements (September 8, 2010), Delta has the right to require...

  • Page 23
    ...adverse effect on our operating results and financial condition. SkyWest and its subsidiaries have entered into code-share agreements with Delta and United. For the year ended December 31, 2009, more than 98% of our ASMs were attributable to flights we flew under those agreements. We anticipate that...

  • Page 24
    ... services to airlines other than Delta and United. Additional growth opportunities within the Delta and United flight systems are limited by various factors. Except as currently contemplated by our existing code-share agreements, we cannot assure that Delta or United will contract with us to fly...

  • Page 25
    ...on our financial condition, results of operations or the price of our common stock. Additionally, our code-share agreements limit our ability to provide airline services to other airlines in certain major airport hubs of each of Delta and United. Under the SkyWest Airlines Delta Connection Agreement...

  • Page 26
    ... our business. Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel. Labor costs constitute a significant percentage of our total operating costs. For example, during the year ended December 31, 2009, our salary, wage and benefit costs...

  • Page 27
    ...are unable to reach labor agreements with any current or future unionized work groups, we may be subject to work interruptions or stoppages, which may adversely affect our ability to conduct our operations and may even allow Delta or United to terminate their respective code-share agreement. We have...

  • Page 28
    ... the same time, these insurers significantly increased the premiums for aviation insurance in general. The U.S. government has agreed to provide commercial war-risk insurance for U.S.-based airlines through August 31, 2010, covering losses to employees, passengers, third parties and aircraft. If the...

  • Page 29
    ... maintenance and support services we require, which could have a material adverse impact on our operations and financial condition. We rely on a limited number of aircraft types, and are dependent on Bombardier as the sole manufacturer of our regional jets. For the year ended December 31, 2009...

  • Page 30
    ... affected airlines operating in the region, including ASA. We operate a significant number of flights to and from airports with particular weather difficulties, including Atlanta, Salt Lake City, Chicago, Milwaukee and Denver. A significant interruption or disruption in service at one of our hubs...

  • Page 31
    ...owned by or operated as code-share partners of major airlines, but we also face competition from low-cost carriers and major airlines on many of our routes. Low-cost carriers such as Southwest, JetBlue, US Airways and Frontier among others, operate at many of our hubs, resulting in significant price...

  • Page 32
    ... governmental regulation. All interstate air carriers, including SkyWest Airlines and ASA, are subject to regulation by the DOT, the FAA and other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA requires operating, air worthiness...

  • Page 33
    ... that we will continue our practice of paying dividends on our common stock or that we will have the financial resources to pay such dividends. Provisions of our charter documents and code-share agreements may limit the ability or desire of others to gain control of our company. Our ability to issue...

  • Page 34
    ... December 31, 2009, SkyWest Airlines operated 51 Brasilia turboprops out of Los Angeles, San Francisco, Salt Lake City, Seattle/Tacoma and Portland. SkyWest Airlines' Brasilia turboprops are generally used in its California markets, which are characterized by high frequency service on shorter stage...

  • Page 35
    ...square-foot office facility in Salt Lake City, Utah. • SkyWest Airlines leases a 90,000 square-foot maintenance hangar and a 15,000 square-foot office facility in Fresno, California. • SkyWest Airlines leases a 70,000 square-foot maintenance hangar in Tucson, Arizona. • SkyWest Airlines leases...

  • Page 36
    ... 20, 2010. • ASA leases ticket counter, check-in, boarding and support facilities in the passenger terminal areas in the majority of the airports it serves and staffs those facilities with ASA personnel. Other airlines, including Delta, provide ticket handling and/or ground support services for...

  • Page 37
    ... based on legal arguments set forth in Delta's memorandum in support of its motion. On January 22, 2010, the Court granted Delta's motion in part, dismissing the claims under Georgia law for voluntary payment and mutual departure from the strict terms of the Connection Agreements. SkyWest Airlines...

  • Page 38
    ... of our Executive Stock Incentive Plan, our All Share Stock Option Plan, our SkyWest Inc. Long Term Incentive Plan, and our Employee Stock Purchase Plan. See Note 9 to our Consolidated Financial Statements for the fiscal year ended December 31, 2009, included in Item 8 of this Report, for additional...

  • Page 39
    ...The Peer Group consists of regional and major passenger airlines with U.S operations that have equity securities traded on the Nasdaq Stock Market. The members of the Peer Group are: Air France-KLM-ADR; Air T, Inc.; Air Transport Services Group; Allegiant Travel Co.; Baltia Air Lines, Inc.; British...

  • Page 40
    ... financial statements and related notes included elsewhere in this Report. Selected Consolidated Financial Data (amounts in thousands, except per share data): Year Ended December 31, 2007 2006 2009 2008 2005(2) Operating revenues ...Operating income ...Net income ...Net income per common share...

  • Page 41
    .... SkyWest Airlines has been a code-share partner with Delta in Salt Lake City and United in Los Angeles since 1987 and 1997, respectively. In 1998, SkyWest Airlines expanded its relationship with United to provide service in Portland, Seattle/Tacoma, San Francisco and additional Los Angeles markets...

  • Page 42
    ... code-share agreement has a three-year term; however, after May 15, 2010, either party may terminate the agreement upon 120 days written notice. As of December 31, 2009, SkyWest Airlines operated as a Delta Connection carrier in Salt Lake City, a United Express carrier in Los Angeles, San Francisco...

  • Page 43
    ...calculating the average rate of the carriers within the Delta Connection Program under the revenue recognition accounting guidance and recorded revenue under those agreements based on management's understanding of the applicable terms in the Delta Connection Agreements and management's best estimate...

  • Page 44
    ...a deferral fee of 8%, payable weekly. United's right to defer such payments is scheduled to terminate in ten years. On November 4, 2009, SkyWest Airlines entered into a code-share agreement with AirTran. Under the terms of the code-share agreement, SkyWest Airlines has agreed to operate five CRJ200s...

  • Page 45
    ... to the code-share agreements, contract modifications resulting from contract renegotiations and our ability to earn incentive payments contemplated under applicable agreements. In the event contracted rates are not finalized at a quarterly or annual financial statement date, we record that period...

  • Page 46
    ... be necessary in the future. Stock-Based Compensation Expense We estimate the fair value of stock options as of the grant date using the Black-Scholes option pricing model. We use historical data to estimate option exercises and employee termination in the option pricing model. The expected term of...

  • Page 47
    ... high number of flight cancellations in part due to significant weather related cancellations in its Atlanta hub during the three months ended March 31, 2009. Additionally, on March 31, 2009, as a result of an internal audit, ASA grounded 60 CRJ200s in order to perform engine safety inspections...

  • Page 48
    ...calculating the average rate of the carriers within the Delta Connection Program under the revenue recognition accounting guidance and recorded revenue under those agreements based on management's understanding of the applicable terms in the Delta Connection Agreements and management's best estimate...

  • Page 49
    ... 31, 2009, United purchased fuel directly from a fuel vendor for our United Express aircraft under contract operated out of Chicago, San Francisco, Los Angeles and Denver; Midwest purchased all of the fuel for our Midwest aircraft directly from Midwest's fuel vendors and Delta purchased the majority...

  • Page 50
    ... maintenance events on our aging CRJ200 and CRJ700 fleets. Under the SkyWest Airlines United Express Agreement (and pursuant to the Midwest Services Agreement prior to its termination on January 1, 2010), we recognize revenue in our consolidated statement of income at a fixed hourly rate for...

  • Page 51
    ... 31, 2009, compared to the year ended December 31, 2008. We are reimbursed for our actual fuel costs by our major partners under our contract flying arrangements. We record the amount of those reimbursements as revenue. Under the SkyWest, SkyWest Airlines and ASA Delta Connection Agreements, we...

  • Page 52
    ... for our actual fuel costs by our major partners under our contract flying arrangements. For financial reporting purposes, we record these reimbursements as operating revenue. Under the SkyWest Airlines and ASA Delta Connection Agreements, we are reimbursed for our engine overhaul expenses. We also...

  • Page 53
    ... of income. The decrease was primarily related to the lower volume of flights serviced under ground handling contracts with United and Delta, whereby we perform ground handling services for several other regional airlines. Individual expense components are expressed in the following table on the...

  • Page 54
    ...was mitigated by United purchasing fuel directly from a fuel vendor for our United Express aircraft operated out of Chicago, San Francisco, Los Angeles and Denver. Midwest also purchased all of its fuel directly from fuel vendors, which reduced our total fuel costs and related passenger revenue. The...

  • Page 55
    ... of customer service functions in Atlanta and United transitioning 16 stations from SkyWest Airlines to other ground handlers during the second quarter of 2008. Other expenses. Other expense, primarily consisting of property taxes, hull and liability insurance, crew simulator training and crew hotel...

  • Page 56
    ... employee stock purchase plans and $0.7 million from repayment of the United note receivable. We invested $82.1 million in marketable securities, invested $419.0 million in flight equipment, made principal payments on long-term debt of $147.3 million, repurchased $18.4 million of outstanding shares...

  • Page 57
    ... aircraft through 2010, 18 of which SkyWest Airlines has placed into operation under the SkyWest Airlines United Express Agreement as part of an aircraft transition plan, allowing United to remove 23 30-seat Brasilia turboprops from the contract reimbursement model contemplated by the United Express...

  • Page 58
    ... the obligations of SkyWest Airlines under the SkyWest Airlines Delta Connection Agreement and the obligations of ASA under the ASA Delta Connection Agreement. New Accounting Standards In June 2009, the Financial Accounting Standards Board (''FASB'') issued Accounting Standards Codification (''ASC...

  • Page 59
    ... economic risk of fuel price fluctuations on our contracted United Express flights. On our Delta Connection regional jet flights, Delta has agreed to bear the economic risk of fuel price fluctuations. We bear the economic risk of fuel price fluctuations on our pro-rate operations. For the year ended...

  • Page 60
    ... consolidated financial statements appearing in Item 8 of this Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information set forth below should be read together with the ''Management's Discussion and Analysis of Financial Condition and Results of Operations,'' appearing elsewhere...

  • Page 61
    ..., 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2010 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Salt Lake City, Utah February 22, 2010...

  • Page 62
    ... SHEETS (Dollars in thousands) ASSETS December 31, 2009 December 31, 2008 CURRENT ASSETS: Cash and cash equivalents Marketable securities ...Restricted cash ...Income tax receivable ...Receivables, net ...Inventories, net ...Prepaid aircraft rents ...Deferred tax assets ...Other current assets...

  • Page 63
    ...(Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 2009 December 31, 2008 CURRENT LIABILITIES: Current maturities of long-term debt . Accounts payable ...Accrued salaries, wages and benefits . Accrued aircraft rents ...Taxes other than income taxes ...Other current liabilities...

  • Page 64
    ... and other ...Total operating revenues ...OPERATING EXPENSES: Aircraft fuel ...Salaries, wages and benefits ...Aircraft maintenance, materials and repairs Aircraft rentals ...Depreciation and amortization ...Station rentals and landing fees ...Ground handling services ...Other, net ... $2,582,238 31...

  • Page 65
    ..., net of tax $596 . . Net unrealized appreciation on marketable securities net of tax of $2,158 ...Total comprehensive income ...Exercise of common stock options and issuance of restricted stock ...Sale of common stock under employee stock purchase plan ...Stock based compensation expense related to...

  • Page 66
    ...decrease) in accounts payable and accrued aircraft rents ...Increase (decrease) in other current liabilities ...NET CASH PROVIDED BY OPERATING ACTIVITIES ...CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities ...Sales of marketable securities ...Issuance of United Air Lines note...

  • Page 67
    ...Airlines operated as a Delta Connection carrier in Salt Lake City, a United Express carrier in Los Angeles, San Francisco, Denver, Chicago and the Pacific Northwest, a Midwest Connect carrier and an AirTran carrier in Milwaukee operating more than 1,500 total daily flights. ASA has been a code-share...

  • Page 68
    ...Continued) DECEMBER 31, 2009 (1) Nature of Operations and Summary of Significant Accounting Policies (Continued) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates...

  • Page 69
    SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2009 (1) Nature of Operations and Summary of Significant Accounting Policies (Continued) them as ''Other assets'' in the Company's consolidated balance sheet as of December 31, 2009 (see Note 6). ...

  • Page 70
    ... flying agreements based upon the portion of the pro-rate passenger fare the Company anticipates that it will receive. The Delta Connection Agreements executed by SkyWest Airlines and ASA provide for fifteen-year terms, subject to early termination by Delta, SkyWest Airlines or ASA, as applicable...

  • Page 71
    ... a Delta Connection Agreement with Delta, pursuant to which SkyWest Airlines and ASA provide contract flight services for Delta. In the event that the contractual rates under those agreements have not been finalized at quarterly or annual financial statement dates, the Company records revenues based...

  • Page 72
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2009 (1) Nature of Operations and Summary of Significant Accounting Policies (Continued) Connection Agreements. SkyWest Airlines and ASA and Delta have exchanged subsequent correspondence, and SkyWest Airlines and ASA continue...

  • Page 73
    ... 2009 (1) Nature of Operations and Summary of Significant Accounting Policies (Continued) AirTran under a pro-rate arrangement. SkyWest Airlines commenced AirTran service with two aircraft in December 2009 and added three additional aircraft in January and February of 2010. The code-share agreement...

  • Page 74
    SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2009 (1) Nature of Operations and Summary of Significant Accounting Policies (Continued) Net Income Per Common Share Basic net income per common share (''Basic EPS'') excludes dilution and is computed...

  • Page 75
    ...in assessing performance. Management believes that the Company has only one reportable segment in accordance with accounting guidance because the Company's business consists of scheduled regional airline service. New Accounting Standards In June 2009, the Financial Accounting Standards Board (''FASB...

  • Page 76
    ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2009 (1) Nature of Operations and Summary of Significant Accounting Policies (Continued) Transactions Are Participating Securities) on April 1, 2009. ASC 260 addresses whether instruments granted in share-based payment transactions...

  • Page 77
    ... of long-term debt related to the purchase of 14 new CRJ 700s and one CRJ900. Certain of the Company's long-term debt arrangements contain limitations on, among other things, the sale or lease of assets and ratio of long-term debt to tangible net worth. As of December 31, 2009, the Company was in...

  • Page 78
    SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2009 (4) Income Taxes The provision for income taxes includes the following components (in thousands): Year ended December 31, 2009 2008 2007 Current tax provision (benefit): Federal ...State ......

  • Page 79
    ... leases 284 aircraft, as well as airport facilities, office space, and various other property and equipment under non-cancelable operating leases which are generally on a long-term net rent basis where the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to...

  • Page 80
    ... regional jet aircraft through 2010, 18 of which SkyWest Airlines has begun operating under its United Express Agreement as part of an aircraft transition plan, allowing United to remove 23 30-seat Brasilia turboprops from the contract reimbursement model contemplated by the United Express Agreement...

  • Page 81
    ... for United Express flying. Additionally, SkyWest Airlines exchanged four CRJ200s for four CRJ900s in its Delta Connection operations. These four 50-seat CRJ200s were placed into service under other capacity purchase agreements. In November 2007, SkyWest Airlines placed a firm order with Bombardier...

  • Page 82
    ...'s total revenues. Employees As of December 31, 2009 the Company and SkyWest Airlines collectively employed 8,654 full-time equivalent employees consisting of 4,232 pilots and flight attendants, 2,833 customer service personnel, 1,106 mechanics and other maintenance personnel, and 483 administration...

  • Page 83
    ...) As of December 31, 2009, ASA employed approximately 3,604 full-time equivalent employees consisting of 2,227 pilots and flight attendants, 240 customer service personnel, 901 mechanics and other maintenance personnel, and 236 administration and support personnel. Three of ASA's employee groups are...

  • Page 84
    ...) DECEMBER 31, 2009 (6) Fair Value Measurements (Continued) all of its auction rate security instruments. Any future fluctuations in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous write downs, would be recorded to accumulated...

  • Page 85
    ... 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...

  • Page 86
    ... as determined by the Compensation Committee. 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...

  • Page 87
    SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2009 (9) Capital Transactions (Continued) $15.24. The following table summarizes the restricted stock activity as of December 31, 2009, 2008 and 2007: Number of Shares Weighted-Average Grant-Date Fair...

  • Page 88
    ... following table summarizes the status of the Company's non-vested stock options as of December 31, 2009: Number of Shares Weighted-Average Grant-Date Fair Value Non-vested shares at beginning Granted ...Vested ...Cancelled ... of ... year ... ... ... ... ... ... ... ... ... ... ... ... ... ... 920...

  • Page 89
    ... matching contributions based on length of service. Employee Stock Purchase Plans In May 2009, the Company's Board of Directors approved the SkyWest, Inc. 2009 Employee Stock Purchase Plan (the ''2009 Stock Purchase Plan''). All employees who have completed 90 days of employment with the Company...

  • Page 90
    ..., no compensation expense was recorded for the year ended December 31, 2009. The 1995 Stock Purchase Plan was a compensatory plan under the accounting guidance because the shares were purchased semi-annually at a 15% discount based on the lower of the beginning or the end of the period price. During...

  • Page 91
    ... Financial Data (Unaudited) Unaudited summarized financial data by quarter for 2009 and 2008 is as follows (in thousands, except per share data): First Quarter Year Ended December 31, 2009 Second Third Fourth Quarter Quarter Quarter Year Operating revenues (000) ...Operating income (000) ...Net...

  • Page 92
    ... for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those written policies and procedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and...

  • Page 93
    operational effectiveness of our internal control over financial reporting. Our management reviewed the results of its assessment with the Audit Committee of our Board of Directors. Based on this assessment, our management determined that, as of December 31, 2009, we maintained effective internal ...

  • Page 94
    ... of Independent Registered Public Accounting Firm The Board of Directors and Stockholders SkyWest, Inc. We have audited SkyWest, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by...

  • Page 95
    ... BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PRINCIPAL ACCOUNTANT FEES AND SERVICES ''Election of Directors'', ''Corporate Governance'' and ''Executive Compensation'' ''Executive Compensation'' and ''Compensation Committee Report...

  • Page 96
    ... SkyWest, Inc. 2009 Employee Stock Purchase Plan Subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm Certification of Chief Executive Officer Certification of Chief Financial Officer Certification of Chief Executive Officer Certification of Chief Financial Officer...

  • Page 97
    ... exhibits to the Registrant's Form 10-K filed February 28, 2008. (13) Incorporated by reference to the exhibits to the Registrant's Form 10-K filed February 23, 2009. 93

  • Page 98
    ...our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Salt Lake City, Utah February 22, 2010 94

  • Page 99
    SKYWEST, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2009, 2008 and 2007 (Dollars in thousands) Balance at Beginning of Year Additions Charged to Costs and Expenses Description Deductions Balance at End of Year Year Ended December 31, 2009...

  • Page 100
    ..., thereunto duly authorized, on February 22, 2010. SKYWEST, INC. By: /s/ BRADFORD R. RICH Bradford R. Rich Executive Vice President and Chief Financial Officer ADDITIONAL SIGNATURES Pursuant to the requirement of the Securities Act of 1934, as amended, this Annual Report on Form 10-K has been signed...

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    SkyWest, Inc. 444 South River Road ɀ St. George, UT 84790 March 15, 2010 Dear Shareholder: You are invited to attend the Annual Meeting of Shareholders of SkyWest, Inc. scheduled to be held at 11:00 a.m., Tuesday, May 4, 2010, at our headquarters located at 444 South River Road, St. George, Utah. ...

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    ... River Road ɀ St. George, UT 84790 NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS OF SKYWEST, INC. Date: Time: Place: Tuesday, May 4, 2010 11:00 a.m., Mountain Daylight Time (MDT) SkyWest, Inc. Headquarters 444 South River Road St. George, Utah 84790 1. To elect nine directors to serve on the Board...

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    ... ...Proposal 1-Election of Directors ...Executive Officers ...Corporate Governance ...Meetings and Committees of the Board ...Compensation Discussion and Analysis ...Compensation Committee Report ...Summary Compensation Table ...Grants of Plan-Based Awards for 2009 ...Outstanding Equity Awards at...

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    ...This Proxy Statement, the accompanying Notice of Annual Meeting, proxy card and the Annual Report to Shareholders of SkyWest, Inc. (the ''Company'' or ''SkyWest'') are being mailed on or about March 15, 2010. The Board of Directors of the Company (the ''Board'') is soliciting your proxy to vote your...

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    ... available when you access the Internet website or place your telephone call. To vote your proxy by mail, mark your vote on the enclosed proxy card, then follow the instructions on the card. What are the Board's recommendations on how I should vote my shares? The Board recommends that you vote your...

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    ... the accompanying Proxy Statement, 2009 Annual Report to Shareholders and a form of proxy card or voting instruction card. All shareholders who do not receive a Notice will receive a paper copy of the proxy materials by mail. The Company believes this new process will allow it to provide its...

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    ... Steven F. Udvar-Hazy • James L. Welch • Michael K. Young The Board Recommends That Shareholders Vote FOR All Nine Nominees Listed Below. Nominees for Election as Directors At the Meeting, the Company proposes to elect nine directors to hold office until the 2011 Annual Meeting of Shareholders...

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    ... time, in light of the Company's business and structure, is set forth below: Jerry C. Atkin Age: Director Since: Committees: Principal Occupation: 61 1974 None Chairman of the Board and Chief Executive Officer of the Company and its two operating subsidiaries, SkyWest Airlines, Inc. (''SkyWest...

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    ...as the Chief Executive Officer of Ghana Airlines, the national carrier of the Republic of Ghana, and Chief Executive Officer of Euro Sky, a company organized to explore the feasibility of operating a regional airline in Austria. From March 1991 to January 1993, Mr. Atkin was Director of Business and...

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    ... August 2005 until November 2008, Ms. Billson was employed in multiple capacities with Eclipse Aviation Corporation (''Eclipse''), including as Chief Operating Officer. At the time of her resignation from Eclipse in November 2008, Ms. Billson was serving as the President and General Manager of the...

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    ... Cumming Age: Director Since: Committees: Principal Occupation: 69 1986 Chairman of Nominating and Corporate Governance Committee; Member of Compensation Committee Chairman and Chief Executive Officer of Leucadia National Corporation, a diversified holding company engaged in a variety of businesses...

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    ...who possesses the unique ability to apply his academic thought and studies to the practical day-to-day challenges of the Company's operations. His thoughtful application of business and legal principles has been a valuable contribution to his service as the Chairman of the Compensation Committee. 9

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    ... National Bank of Arizona. The Board nominated Mr. Sarver, in part, because of his significant knowledge in the areas of financial analysis, business strategy and investment management. In addition to his lengthy service as the Chairman and Chief Executive Officer of Western Alliance Bancorporation...

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    Steven F. Udvar-Hazy Age: Director Since: Committees: Principal Occupation: Experience: 64 1986 Member of Nominating and Corporate Governance Committee; Member of Compensation Committee; Lead Independent Director Chairman and Chief Executive Officer of Air Lease LLC, which leases and finances ...

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    ... groups. That experience includes extensive experience working with organized labor groups, including unions. Mr. Welch's insights have been particularly valuable to the Board as the Company has addressed labor and related issues arising in the operation of SkyWest Airlines and ASA. Mr. Welch also...

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    ... and pursuing business opportunities outside the United States. President Young also has a keen legal mind, which the Board believes is, and will continue to be, very beneficial, given the regulatory environment in which the Company operates. President Young also offers the Company the benefit of...

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    ... flight operations, maintenance and customer service. He also oversees SkyWest Airline's relationships with Delta Air Lines, Inc. (''Delta''), United Airlines, Inc. (''United'') and AirTran Airways, Inc. Mr. Childs was initially employed with the Company in January 2001 as Senior Director/Controller...

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    ... a limit on the number of times that a director may stand for election. Retirement Directors are required to submit their resignation from the Board when their term expires upon reaching the age of 72 years old. The Board will accept the resignation unless the Nominating and Corporate Governance...

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    ... public accounting firm, internal auditors and legal counsel; and • annual performance evaluations of the Company's Chief Executive Officer by the Nominating and Corporate Governance Committee. The Board believes no single leadership model is right for all companies at all times. The Board...

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    ... non-management directors as a group in writing by regular mail. The following address may be used by those who wish to send such communications by regular mail: Board of Directors or Name of Individual Director(s) c/o Corporate Secretary SkyWest, Inc. 444 South River Road St. George, UT 84790 Code...

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    ... diligent performance of his or her duties and to attend all Board, committee and shareholders' meetings. The Board met six times during 2009, four of which were regularly scheduled meetings and two of which were special telephonic meetings. All directors attended at least 75% of the meetings of the...

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    ... for the Company's Chief Executive Officer to the Board and review and approve the Chief Executive Officer's recommendations for the compensation of all other officers of the Company and its subsidiaries; • Administer the Company's incentive and stock-based compensation plans, and discharge the...

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    ...candidate's qualifications and other relevant biographical information and provide confirmation of the candidate's consent to serve as a director. This information should be addressed to Jerry C. Atkin, Chairman and Chief Executive Officer of the Company, 444 South River Road, St. George, Utah 84790...

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    ...the Board and Chief Executive Officer of the Company, SkyWest Airlines and ASA (the ''Chief Executive''); • Bradford R. Rich, Executive Vice President and Chief Financial Officer of the Company, SkyWest Airlines and ASA (the ''CFO''); • Russell A. Childs, President and Chief Operating Officer of...

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    ... and other available data regarding the executive compensation programs of other regional air carriers. The most recent review was in 2007 and included peer airlines Midwest, Pinnacle, Republic, Frontier, Mesa, Horizon, ExpressJet, Air Tran, Jet Blue, Alaska and Southwest Airlines (the ''Peer Group...

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    ... or its operating subsidiaries for the year in question. The Compensation Committee believes net income is a key measure of the financial health of the Company, and reflects the Company's development of shareholder value. The amount of the annual bonus payable to executive officers for a particular...

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    ... of SkyWest Airlines and ASA include quality operational goals such as percentage of flights departing on-time and percentage of scheduled flights completed, as well as cost control and business development goals. The personal goals of the CFO include timely financial reporting, internal control...

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    ... types of awards were used in an effort to link the Named Executives' long-term compensation with the creation of shareholder value. The value of stock options and restricted stock is directly related to the value of the Company's common stock. The Named Executives earn performance units payable...

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    ...price increases over the option term and the Named Executive's employment with the Company continues through the vesting date. The size of the grant for each Named Executive is calculated by determining the number of shares with a theoretical future value equal to the targeted compensation for stock...

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    ... salary and annual bonus compensation for the year. For 2009 none of the Named Executive Officers elected to defer any portion of their salary or annual bonus under the SkyWest Inc. 2002 Deferred Compensation Plan. The Company and its subsidiaries do not maintain any defined benefit pension plans...

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    ... full-time Company employees and their dependents, including the Named Executives and their dependents, may fly without charge on a space-available basis on regularly scheduled flights of aircraft operated by the Company's operating airline subsidiaries. Commitment to Performance Based Compensation...

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    ... long-term incentive awards were provided to the Named Executives on February 3, 2010. Time-Vested Shares/Stock Options Units Performance-Contingent Shares/Stock Other Units Options(1) Units (Cash)(1) Chief Executive Officer ...Chief Financial Officer ...President, SkyWest Airlines President, ASA...

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    ... for its executive officers. Stock option grants and long-term performance unit awards in 2009 were intended to constitute ''qualified performance-based compensation'' under Section 162(m) of the Code. The Company's 2009 restricted stock grants, and performance-based and discretionary annual bonuses...

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    ... for each Named Executive's fiscal year performance bonus opportunity are reported in the ''Grants of Plan-Based Awards for 2009'' table below. The amounts of such annual performance bonuses earned in 2009 and paid in 2010 are: Mr. Atkin-$290,400, Mr. Rich-$213,700, Mr. Childs-$208,700 and Mr. Holt...

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    ... dues. (6) All other compensation for Mr. Rich for 2009 consists of: $72,705 of employer credits under the SkyWest Deferred Compensation Plan attributable to compensation earned for 2009; $4,149 in employer-paid health insurance premiums; $13,920 for a personal vehicle allowance; $3,189 for personal...

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    ...Equity Incentive Plan Compensation'' column for 2009 in the Summary Compensation Table and are as follows: Mr. Atkin-$163,654; Mr. Rich-$95,121; Mr. Childs-$84,240; and Mr. Holt-$78,975. (5) The exercise price of the options of $15.24 per share was the market closing price of the Common Stock on the...

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    ... February 6, 2011. (2) Awards vest on February 4, 2012. (3) Stock options awarded prior to 2006 expire ten years from date of grant. Stock options granted after 2005 expire seven years from date of grant. (4) Based on market closing price per share of Common Stock of $16.92 on December 31, 2009. 34

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    .... For 2009 that discretionary employer contribution was 15% of the Named Executive's salary and annual bonus. Participant account balances under the SkyWest and ASA Deferred Compensation Plans are fully vested and will be paid by the Company to each Named Executive upon retirement or separation...

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    ... reflect the notational earnings (losses) during 2009 charged against each Named Executive's account under the SkyWest and ASA Deferred Compensation Plans. These amounts are not reported in the Summary Compensation Table because they are based on market rates determined by reference to mutual funds...

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    ... in control on December 31, 2009. These benefits are in addition to benefits generally available to all salaried employees of the Company in connection with a termination of employment, such as distributions from the 401(k) Plans, disability and life insurance benefits, the value of employee-paid...

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    ... to own at least 5,000 shares of Common Stock. Cash Compensation Paid to Directors For the year ended December 31, 2009, all directors who were not employees of the Company received an annual cash retainer of $32,000 and attendance fees of $1,700 for each board meeting, $1,600 for each Audit...

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    ... and Chief Executive Officer of the Company, is not included in the foregoing table as he is an employee of the Company and receives no monetary compensation for his services as Chairman of the Board. (2) Represents the closing price of the Common Stock awarded on the grant date of February 5, 2009...

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    ... As of March 1, 2010, the Company's records and other information available from outside sources indicated that the following shareholders were beneficial owners of more than five percent of the outstanding shares of Common Stock. The information following is as reported in their filings with the...

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    ... compensation directly to increases in shareholder value. The Company has long had an ownership culture in which its officers, managers and other key employees are granted stock options and other equity-based awards to align their interests with those of non-employee shareholders. The Board believes...

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    ... Recent Market Value per Share: Award Types: Ten years from date of shareholder approval Employees, directors and consultants selected by the Compensation Committee 5,150,000 shares of Common Stock, subject to certain adjustments Approximately 9.2% at March 1, 2010 $15.29 (the closing sales price on...

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    ... maximum under the 2010 Plan. Vesting will be determined by the Compensation Committee at the time of each grant. In the event of a change of control with respect to the Company, unless otherwise provided in the applicable award agreement: (i) stock options and stock appreciation rights become fully...

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    ... to the limitations described above. Stock options give the holder the right to purchase shares of the Common Stock within a specified time at a specified price. Two types of stock options may be granted under the 2010 Plan: incentive stock options, or ''ISOs,'' which are subject to special tax...

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    ... to the fair market value of the corresponding number of shares of Common Stock. A holder of restricted stock units has no voting rights or rights to receive dividends or dividend equivalent amounts with respect to such restricted stock units. Other Share-Based Awards. The Compensation Committee has...

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    ... the Code and the regulations thereunder. With respect to compensation provided under the 2010 Plan, those conditions include shareholder approval of the 2010 Plan, setting limits on the number of awards that any individual may receive, and for awards other than options and stock appreciation rights...

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    ... completed on time; percentage of scheduled flights completed; lost passenger baggage per passenger or per seat mile; aircraft utilization; revenue per employee; and implementation, completion or attainment of measurable objectives with respect to commercialization, projects, service volume levels...

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    ... income tax consequences relating to awards under the 2010 Plan. This summary is not intended to be complete and does not describe state, local, foreign, or other tax consequences. The tax information summarized is not tax advice. Nonqualified Stock Options (''NSOs''). In general, (i) no income will...

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    ...) is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code. Value of Benefits The Company is unable to determine the amount of benefits that may be received by participants under the 2010 Plan if adopted, as grants of awards are discretionary...

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    ..., at 444 South River Road, St. George, Utah 84790. How does the Audit and Finance Committee conduct its meetings? During the year ended December 31, 2009, the Audit and Finance Committee met with the senior members of the Company's financial management team at each of its regular scheduled quarterly...

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    ... reviewed the bases for management's conclusions in that report, and also reviewed the report of the independent registered public accounting firm on internal control over financial reporting. Throughout the year ended December 31, 2009, the Audit and Finance Committee reviewed management's plan...

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    ..., 2009? Based upon its review and the discussions with management and the Company's independent registered public accounting firm, the Audit and Finance Committee recommended to the Board that the audited consolidated financial statements for the Company be included in the Company's Annual Report on...

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    ...Quarterly Reports on Form 10-Q, audits of the closing balance sheets of certain businesses acquired, and the review of the Company's registration statements. Audit-Related Fees During the years ended December 31, 2009 and 2008, the Company did not pay fees to E&Y for audit-related services. Tax Fees...

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    ... that no reports were required, the Company believes that during 2009 its executive officers, directors and 10% holders complied with all filing requirements of Section 16 of the Securities Exchange Act of 1934, as amended. SHAREHOLDER PROPOSALS FOR THE 2011 ANNUAL MEETING OF SHAREHOLDERS...

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    ... of this Proxy Statement and the Company's 2009 Annual Report to Shareholders should submit a request by writing to Eric D. Christensen, Corporate Secretary of the Company, 444 South River Road, St. George, Utah 84790. Beneficial owners sharing an address who are receiving multiple copies of proxy...

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    ... Restricted Stock Award, Restricted Stock Unit Award, Other Share-Based Award, Performance Award or any other right, interest or option relating to Shares or other property (including cash) granted pursuant to the provisions of the Plan. 2.2. ''Award Agreement'' shall mean any agreement, contract or...

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    ...as an incentive stock option for purposes of Section 422 of the Code. 2.14. ''Limitations'' shall have the meaning set forth in Section 10.5. 2.15. ''Option'' shall mean any right granted to a Participant under the Plan allowing such Participant to purchase Shares at such price or prices and during...

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    ... Company or any Subsidiary combines, to make future awards. 2.36. ''Vesting Period'' shall mean the period of time specified by the Committee during which vesting restrictions for an Award are applicable. 3. SHARES SUBJECT TO THE PLAN 3.1 Number of Shares. (a) Subject to adjustment as provided in...

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    ... the Plan as may from time to time be adopted by the Board, to: (i) select the Employees, Directors and Consultants to whom Awards may from time to time be granted hereunder; (ii) determine the type or types of Awards to be granted to each Participant hereunder; (iii) determine the number of Shares...

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    ... granted pursuant to the Plan at the same time. 5.3. Option Price. Other than in connection with Substitute Awards, the option price per each Share purchasable under any Option granted pursuant to this Article shall not be less than 100% of the Fair Market Value of one Share on the date of grant...

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    ... issuable in connection with the exercise of the Option. In such event, the Company shall deliver to the Participant the number of Shares for which the Option was deemed exercised, less the number of Shares required to be withheld for the payment of the total purchase price and required withholding...

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    ... a grant price per Share of not less than the Fair Market Value of one Share on the date of grant or, if applicable, on the date of grant of an Option with respect to a Stock Appreciation Right granted in exchange for or in tandem with, but subsequent to, the Option (subject to the requirements of...

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    ... Stock and Restricted Stock Units. (a) Unless otherwise provided in the applicable Award Agreement, beginning on the date of grant of the Restricted Stock Award and subject to execution of the Award Agreement, the Participant shall become a stockholder of the Company with respect to all Shares...

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    ... deferred stock units, may be granted hereunder to Participants either alone or in addition to other Awards granted under the Plan. Other Share-Based Awards shall also be available as a form of payment of other Awards granted under the Plan and other earned cash-based compensation. Other Share-Based...

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    ... of Section 409A of the Code. 10. CODE SECTION 162(m) PROVISIONS 10.1. Application. Notwithstanding any other provision of the Plan, if the Committee determines at the time a Restricted Stock Award, a Restricted Stock Unit Award, a Performance Award or an Other Share-Based Award is granted to...

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    ... completed on time; percentage of scheduled flights completed; lost passenger baggage per passenger or per seat mile; aircraft utilization; revenue per employee; and implementation, completion or attainment of measurable objectives with respect to commercialization, projects, service volume levels...

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    ... in the applicable Award Agreement); (ii) the restrictions, limitations and other conditions applicable to Restricted Stock and Restricted Stock Units outstanding as of the date of such termination of employment shall lapse and the Restricted Stock and Restricted Stock Units shall become free of all...

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    ... of the Board (the ''Company Voting Securities''); provided, however, that the event described in this paragraph (b) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (i) by the Company or any Subsidiary; (ii) by any employee benefit plan (or related trust...

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    ... the holders thereof immediately prior to the Business Combination, (ii) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 50% or more of...

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    ... that may be delivered under the Plan, the Limitations, the maximum number of Shares that may be issued pursuant to Incentive Stock Options and, in the aggregate or to any Participant, in the number, class, kind and option or exercise price of securities subject to outstanding Awards granted...

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    ... or affect any right that the Company or any Subsidiary may have to terminate the employment or service of (or to demote or to exclude from future Awards under the Plan) any such Employee, Director or Consultant at any time for any reason ''at will.'' Except as specifically provided by the Committee...

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    ... or business unit of the Company. Any income or gain realized pursuant to Awards under the Plan constitutes a special incentive payment to the Participant and shall not be taken into account, to the extent permissible under applicable law, as compensation for purposes of any of the employee benefit...

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    ... been exercised or terminated, or have expired. 13.14. Foreign Employees and Consultants. Awards may be granted to Participants who are foreign nationals or employed or providing services outside the United States, or both, on such terms and conditions different from those applicable to Awards to...

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    ... South River Road St. George, UT 84790 Tel: (435) 634-3000 www.skywest.com OFFICERS OF SKYWEST AIRLINES, INC. Russell A. Childs President and Chief Operating Officer since 2007. Previously Vice President-Controller and Sr. Director-Controller. 9 years service. James K. Boyd Vice President-Customer...

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