Share-Based Compensation

3 Months Ended

Mar. 31, 2015

Share-Based Compensation

Share-Based Compensation

Note C — Share-Based Compensation

The fair value of stock options granted by the Company 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 three months ended March 31, 2015, the Company granted options to purchase 237,240 shares of common stock under the SkyWest, Inc. 2010 Long-Term Incentive Plan (the “2010 Incentive Plan”).  The following table shows the assumptions used and weighted average fair value for stock option grants during the three months ended March 31, 2015.

Expected annual dividend rate	1.18		%
Risk-free interest rate	1.62		%
Average expected life (years)	5.7
Expected volatility of common stock	0.401
Forfeiture rate	0.0		%
Weighted average fair value of option grants	$	4.75

During the three months ended March 31, 2015, the Company granted 386,401 restricted stock units and 202,505 performance restricted stock units to the Company’s employees under the 2010 Incentive Plan.  Both the restricted stock and performance restricted stock units have a three-year vesting period, during which the recipient must remain employed with the Company or one of the Company’s subsidiaries.  In addition to the three-year vesting period, certain profit metrics of the Company must be met before the recipient will receive any shares of stock attributable to the performance restricted stock units.  Upon vesting, a restricted stock unit and a performance restricted stock unit will be replaced with a share of common stock. Additionally, during the three months ended March 31, 2015, the Company granted 31,088 fully-vested shares of common stock to the Company’s directors.  The fair value of the shares of restricted stock on the date of grant was $13.51 per share.

The Company records share-based compensation expense only for those options and restricted and performance restricted stock units that are expected to vest.  The estimated fair value of the stock options and restricted stock units is amortized over the applicable vesting periods.  During the three months ended March 31, 2015 and 2014, the Company recorded pre-tax share-based compensation expense of $1.5 million and $1.7 million, respectively.