SkyWest Airlines 2009 Annual Report Download - page 86

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2009
(9) Capital Transactions (Continued)
Company’s common stock remained outstanding under the Prior Plans and 3,025,949 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.
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, 2009, the Company granted
457,397 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, 2009,
2008 and 2007.
2009 2008 2007
Expected annual dividend rate ....................... 1.05% 0.47% 0.45%
Risk-free interest rate ............................. 1.67% 2.39% 4.77%
Average expected life (years) ........................ 4.6 4.3 4.5
Expected volatility of common stock ................... 0.351 0.264 0.272
Forfeiture rate ................................... 1.0% 4.4% 4.7%
Weighted average fair value of option grants ............. $4.42 $6.32 $8.06
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, 2009, the Company granted 201,204 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 weighted average fair value of the restricted stock on the date of grants made during the year
ended December 31, 2009 was $15.24 per share. Additionally, the Company granted 26,247 fully-vested
shares of common stock to the Company’s directors with a weighted average grant-date fair value of
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