Share-Based Compensation and Stock Repurchases

9 Months Ended

Sep. 30, 2015

Share-Based Compensation and Stock Repurchases

Share-Based Compensation and Stock Repurchases

Note C — Share-Based Compensation and Stock Repurchases

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 nine months ended September 30, 2015, the Company granted options to purchase 266,304 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 nine months ended September 30, 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 nine months ended September 30, 2015, the Company granted 36,950 fully-vested shares of common stock to the Company’s directors. Additionally, during the nine months ended September 30, 2015, the Company granted 407,042 restricted stock units and 224,869 performance restricted stock units to employees of the Company and its subsidiaries 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.   The fair value of the restricted stock units 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 September 30, 2015 and 2014, the Company recorded pre-tax share-based compensation expense of $1.1 million and $0.9 million, respectively.  During the nine months ended September 30, 2015 and 2014, the Company recorded pre-tax share-based compensation expense of $4.0 million and $3.7 million, respectively.

The Company repurchased 1.25 million shares of its common stock for $18.7 million during the nine months ended September 30, 2015.  The Company repurchased 670,000 shares of its common stock for $8.4 million during the nine months ended September 30, 2014.