(9) 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 shareholders 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

On May 4, 2010, the Company's shareholders approved the adoption of the SkyWest Inc. 2010 Long-Term Incentive Plan, which provides for the issuance of up to 5,150,000 shares of common stock to the Company's directors, employees, consultants and advisors (the "2010 Incentive Plan"). The 2010 Incentive Plan provides for awards in the form of options to acquire shares of common stock, stock appreciation rights, restricted stock grants, restricted stock units and performance awards. The 2010 Incentive Plan is administered by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee"), which is authorized to designate option grants as either incentive stock options for income tax purposes ("ISO") or non-statutory stock options ISOs 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.

In prior years, the Company adopted three stock option plans: the Executive Stock Incentive Plan (the "Executive Plan"), the 2001 Allshare Stock Option Plan (the "Allshare Plan") and SkyWest Inc. Long-Term Incentive Plan (the "2006 Incentive Plan"). As of December 31, 2014, options to purchase an aggregate 1,821,804 shares of the Company's common stock remained outstanding under the Executive Plan, the Allshare Plan and the 2006 Incentive Plan. There are no additional shares of common stock available for issuance under these plans.

The fair value of stock options awarded under the Company's stock option plans 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. The Company granted 255,503, 173,560 and 200,115 stock options to employees under the 2010 Incentive Plan during the years ended December 31, 2014, 2013 and 2012, respectively. The following table shows the assumptions used and weighted average fair value for grants in the years ended December 31, 2014, 2013 and 2012.

	2014			2013			2012
Expected annual dividend rate		1.32	%		1.21	%		1.23	%
Risk-free interest rate		1.50	%		0.92	%		0.81	%
Average expected life (years)		5.8			6.0			5.6
Expected volatility of common stock		0.431			0.446			0.409
Forfeiture rate		0.0	%		0.0	%		0.0	%
Weighted average fair value of option grants	$	4.47		$	5.04		$	4.43

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, 2014, the Company granted 312,749 shares of restricted stock units to the Company's employees under the 2010 Incentive Plan. The restricted stock units granted during the year ended December 31, 2014 have 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 units on the date of grants made during the year ended December 31, 2014 was $12.01 per share. Additionally, during the year ended December 31, 2014 the Company granted 44,631 fully-vested shares of common stock to the Company's directors with a weighted average grant-date fair value of $12.10. The following table summarizes the activity of restricted stock units granted to employees and fully-vested common shares granted to the Company's directors as of December 31, 2014, 2013 and 2012:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Non-vested shares outstanding at December 31, 2011		611,602		$	15.08
Granted		318,139			13.04
Vested		(212,841	)		14.95
Cancelled		(18,015	)		14.20

Non-vested shares outstanding at December 31, 2012		698,885			14.21
Granted		312,104			13.41
Vested		(231,465	)		14.35
Cancelled		(45,933	)		13.69

Non-vested shares outstanding at December 31, 2013		733,591			13.79
Granted		357,380			12.01
Vested		(329,522	)		14.38
Cancelled		(38,273	)		12.83

Non-vested shares outstanding at December 31, 2014		723,176			12.70

During the year ended December 31, 2014, 2013 and 2012, the Company recorded equity-based compensation expense of $5.3 million, $4.4 million and $4.7 million, respectively.

As of December 31, 2014, the Company had $4.0 million of total unrecognized compensation cost related to non-vested stock options and non-vested restricted stock grants. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize this cost over a weighted average period of 1.2 years.

Options are exercisable for a period as defined by the Compensation Committee on the date granted; however, no stock option will be exercisable before six months have elapsed from the date it is granted and no incentive stock option shall be exercisable after ten years from the date of grant. The following table summarizes the stock option activity for all of the Company's plans for the years ended December 31, 2014, 2012 and 2011:

	2014								2013					2012
	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value ($000)		Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price
Outstanding at beginning of year		3,407,575		$	17.99	1.8 years				3,653,859		$	18.44		4,176,673		$	19.26
Granted		255,503			11.96					173,560			13.24		200,115			13.06
Exercised		(6,701	)		12.10					(75,080	)		10.91		(179,204	)		10.57
Cancelled		(768,303	)		6.81					(344,764	)		20.67		(543,725	)		25.35

Outstanding at end of year		2,888,074			16.46	1.7 years		—		3,407,575			17.99		3,653,859			18.44


Exercisable at December 31, 2014		2,324,336			17.39	0.8 years		—
Exercisable at December 31, 2013		2,818,464			18.83	1.1 years		—

The total intrinsic value of options to acquire shares of the Company's common stock that were exercised during the years ended December 31, 2014, 2013 and 2012 was $30,000, $172,000 and $191,000, respectively.

The following table summarizes the status of the Company's non-vested stock options as of December 31, 2014:

	Number of Shares			Weighted-Average Grant-Date Fair Value
Non-vested shares at beginning of year		589,111		$	5.07
Granted		255,503		$	4.36
Vested		(217,918	)		5.58
Cancelled		(62,958	)		4.74

Non-vested shares at end of year		563,738		$	4.56

The following table summarizes information about the Company's stock options outstanding at December 31, 2014:

	Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$8 to $16		1,482,592	3.2 years	$	14.09		918,584	$	14.98
$17 to $22		1,108,895	0.1 years		17.13		1,108,895		17.13
$23 to $28		296,587	0.1 years		25.80		296,587		25.80

$8 to $28		2,888,074	1.7 years	$	16.46		2,324,336	$	17.39

Taxes

A portion of the Company's granted options qualify as ISOs for income tax purposes. As such, a tax benefit is not recorded at the time the compensation cost related to the options is recorded for book purposes due to the fact that an ISO does not ordinarily result in a tax benefit unless there is a disqualifying disposition. Stock option grants of non-qualified options result in the creation of a deferred tax asset, which is a temporary difference, until the time that the option is exercised. Due to the treatment of incentive stock options for tax purposes, the Company's effective tax rate from year to year is subject to variability.