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.

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 and performance awards. The 2010 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.

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"). However, as of December 31, 2011, options to purchase 3,754,754 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. During the year ended December 31, 2011, the Company granted 327,617 stock options to employees under the 2010 Incentive Plan. The following table shows the assumptions used and weighted average fair value for grants in the years ended December 31, 2011, 2010 and 2009.

	2011			2010			2009

Expected annual dividend rate		1.04	%		1.10	%		1.05	%
Risk-free interest rate		2.08	%		1.88	%		1.67	%
Average expected life (years)		5.8			4.6			4.6
Expected volatility of common stock		0.404			0.402			0.351
Forfeiture rate		0.0	%		0.0	%		1.0	%
Weighted average fair value of option grants	$	5.74		$	4.78		$	4.42

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, 2011, the Company granted 222,681 shares of restricted stock to the Company's employees under the 2010 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, 2011 was $15.51 per share. Additionally, the Company granted 26,821 fully-vested shares of common stock to the Company's directors with a weighted average grant-date fair value of $15.51. The following table summarizes the restricted stock activity as of December 31, 2011, 2010 and 2009:

			Weighted-Average Grant-Date Fair Value

Non-vested shares outstanding at December 31, 2008	755,127		$	25.50
Granted	227,451			15.24
Vested	(260,575	)		22.94
Cancelled	(35,417	)		24.10

Non-vested shares outstanding at December 31, 2009	686,586		$	23.13
Granted	248,384			14.49
Vested	(256,285	)		25.51
Cancelled	(19,422	)		21.68

Non-vested shares outstanding at December 31, 2010	659,263			18.97
Granted	249,502			15.51
Vested	(238,848	)		25.80
Cancelled	(58,315	)		15.71

Non-vested shares outstanding at December 31, 2011	611,602			15.08

During the year ended December 31, 2011, 2010 and 2009, the Company recorded equity-based compensation expense of $5.4 million, $6.4 million and $7.9 million, respectively.

As of December 31, 2011, the Company had $5.4 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 1.7 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, 2011, 2010 and 2009:

	2011								2010					2009

	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		4,586,979		$	19.96	3.3 years	$	—		4,740,695		$	20.37		4,470,734		$	20.90
Granted		327,617			15.45					320,458			14.49		457,397			15.24
Exercised		(5,941	)		10.57					(4,821	)		10.57		(13,011	)		14.64
Cancelled		(731,982	)		24.73					(469,353	)		20.46		(174,425	)		19.66

Outstanding at end of year		4,176,673			19.26	2.7 years		—		4,586,979			19.96		4,740,695			20.37

Exercisable at December 31, 2011		3,310,143			20.35	2.1 years		—
Exercisable at December 31, 2010		3,468,223			20.52	2.7 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, 2011, 2010 and 2008 was $31,000, $19,000 and $38,000, respectively.

The following table summarizes the status of the Company's non-vested stock options as of December 31, 2011:

			Weighted-Average Grant-Date Fair Value

Non-vested shares at beginning of year	1,118,756		$	5.10
Granted	327,617			5.74
Vested	(340,900	)		6.34
Cancelled	(238,943	)		5.02

Non-vested shares at end of year	866,530		$	4.82

The following table summarizes information about the Company's stock options outstanding at December 31, 2011:

	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
$10 to $15		1,148,921	3.9 years	$	14.01		282,391	$	10.66
$16 to $21		1,698,224	2.8 years		17.70		1,698,224		17.70
$22 to $28		1,329,528	1.5 years		25.79		1,329,528		25.79

$10 to $28		4,176,673	2.7 years		19.26		3,310,143		20.35

A portion of the Company's granted options qualify as incentive stock options (ISO) 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.