Capital Transactions

12 Months Ended

Dec. 31, 2020

Capital Transactions

Capital Transactions

(10) 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 7, 2019, the Company’s shareholders approved the adoption of the SkyWest, Inc. 2019 Long-Term Incentive Plan, which provides for the issuance of up to 4,500,000 shares of common stock to the Company’s directors, employees, consultants and advisors (the “2019 Incentive Plan”). The 2019 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 2019 Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). As of December 31, 2020, the 2019 Incentive Plan had 4.1 million shares remaining available for future issuance.

Stock Options

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 years ended December 31, 2020, 2019 and 2018, the Company did not grant any options to purchase shares of common stock to its employees.

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 of grant and no stock option shall be exercisable after seven 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, 2020, 2019 and 2018.

	2020							2019			2018
				Weighted
		Weighted		Average			Aggregate		Weighted			Weighted
		Average		Remaining			Intrinsic		Average			Average
	Number of	Exercise		Contractual			Value	Number of	Exercise		Number of	Exercise
	Options	Price		Term			($000)	Options	Price		Options	Price
Outstanding at beginning of year	60,231		14.74	3.1	years	$	3,005.1	300,580	$	13.70	458,103	$	13.73
Granted	—		—					—		—	—		—
Exercised	(2,578)		14.78					(232,514)		13.36	(157,523)		13.80
Cancelled	—		—					(7,835)		15.86	—		—
Outstanding at end of year	57,653		14.74	2.1	years	$	1,474.5	60,231		14.74	300,580		13.70
Exercisable at December 31, 2020	57,653		14.74	2.1	years	$	1,474.5
Exercisable at December 31, 2019	60,231		14.74	3.1	years	$	3,005.1

The total intrinsic value of options to acquire shares of the Company’s common stock that were exercised during the years ended December 31, 2020, 2019 and 2018 was $0.1 million, $10.5 million and $7.1 million, respectively. All of the Company’s stock options were vested as of December 31, 2020.

The following table summarizes information about the Company’s stock options outstanding at December 31, 2020:

			Options Outstanding					Options Exercisable
				Weighted Average
			Number	Remaining		Weighted Average		Number	Weighted Average
Range of Exercise Prices			Outstanding	Contractual Life		Exercise Price		Exercisable	Exercise Price
$13.00	to	$13.99	2,034	0.1	years	$	13.51	2,034	$	13.51
$14.00	to	$15.00	55,619	1.1	years		14.78	55,619		14.78
$13.00	to	$15.00	57,653	1.1	years	$	14.74	57,653	$	14.74

Restricted Stock Units (“RSUs”)

During the year ended December 31, 2020, the Company granted 82,505 restricted stock units to certain of the Company’s employees under the 2019 Incentive Plan. The restricted stock units granted during the year ended December 31, 2020 have a three-year cliff-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 at the date of grants made during the year ended December 31, 2020 was $61.45 per share.

The following table summarizes the activity of restricted stock units granted to certain Company employees for the years ended December 31, 2020, 2019 and 2018:

			Weighted-Average
			Grant-Date Fair
	Number of RSUs		Value
Non-vested RSUs outstanding at December 31, 2017	815,590	$	18.35
Granted	115,044		53.40
Vested	(330,580)		13.57
Cancelled	(24,273)		27.77
Non-vested RSUs outstanding at December 31, 2018	575,781	$	27.71
Granted	104,120		48.65
Vested	(251,853)		14.79
Cancelled	(143,362)		30.85
Non-vested RSUs outstanding at December 31, 2019	284,686	$	45.21
Granted	82,505		61.45
Vested	(103,231)		35.81
Cancelled	(25,983)		52.31
Non-vested RSUs outstanding at December 31, 2020	237,977	$	54.15

Performance Stock Units (“PSUs”)

During the year ended December 31, 2020, the Compensation Committee granted performance share units, which are performance based restricted stock units, to certain Company employees. The PSUs are based on cumulative three-year performance-based metrics ending December 31, 2022 that the Company must meet before those awards may be measured and earned. The Company’s compensation expense for performance share units is based upon the projected number of performance share units estimated to be awarded at the conclusion of the performance period. During 2020, the Compensation Committee awarded 83,042 additional shares of stock related to the performance share grant in 2017 based on the Company’s performance for the three years ended December 31, 2019 measured against the pre-established targets for the same period. The Compensation Committee will determine the achievement of performance results and corresponding vesting of performance shares for each year’s grant in 2018, 2019 and 2020 following the conclusion of the respective performance period. At the end of each performance period, the number of shares awarded can range from 0% to 200% of the original granted amount for performance share units granted in 2020, 2019 and 2018.

The following table summarizes the activity of performance share units granted at target as of December 31, 2020:

			Weighted-Average
			Grant-Date
	Number of  PSUs		Fair Value
Non-vested PSUs outstanding at December 31, 2017	468,576	$	19.70
Granted	90,264		53.41
Additional PSUs awarded from the 2015 grant	92,335		13.62
Vested	(277,029)		13.62
Cancelled	(3,229)		30.09
Non-vested PSUs outstanding at December 31, 2018	370,917	$	30.84
Granted	87,864		48.81
Additional PSUs awarded from the 2016 grant	67,853		14.80
Vested	(203,582)		14.80
Cancelled	(89,481)		34.70
Non-vested PSUs outstanding at December 31, 2019	233,571	$	45.44
Granted	69,132		61.45
Additional PSUs awarded from the 2017 grant	83,042		35.81
Vested	(166,084)		35.81
Cancelled	(23,052)		53.66
Non-vested PSUs outstanding at December 31, 2020	196,609	$	54.17

During the years ended December 31, 2020, 2019 and 2018 the Company granted fully-vested shares of common stock to the Company’s directors in the amounts of 14,643, 18,576 and 15,165 shares, respectively, with a weighted average grant-date fair value of $61.45, $48.45, and $53.40 respectively.

During the year ended December 31, 2020, 2019 and 2018, the Company recorded equity-based compensation expense of $6.8 million, $10.3 million and $13.1 million, respectively. Additionally, the Company incurred $7.9 million of employee severance related costs associated with the sale of ExpressJet, partially offset by a forfeiture credit of $4.5 million, primarily resulting from stock-based compensation awards that terminated upon the sale of ExpressJet during 2019.

As of December 31, 2020, the Company had $9.2 million of total unrecognized compensation cost related to non-vested restricted stock grants and non-vested performance stock units. 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.

Taxes

The Company’s treatment of stock option grants of non-qualified options, restricted stock units and performance shares results in the creation of a deferred tax asset, which is a temporary difference, until the time that the option is exercised or the restrictions lapse.

Warrants

During the year ended December 31, 2020 the Company issued to Treasury warrants to purchase 370,720 shares of the Company’s common stock as part of the CARES Act payroll support. The warrants were issued with an exercise price of $28.38 per share for a five-year term from the date of issuance. The fair value of the warrants issued to Treasury was estimated as of the grant date using the Black-Scholes option pricing model. The Company estimated a weighted average fair value of the warrants issued to Treasury at $13.57 per share.

Additionally, the Company issued to Treasury warrants to purchase 211,416 shares of the Company’s common stock in conjunction with the Company’s $60 million borrowing under the CARES Act Secured Loan facility. The

warrants were issued with an exercise price of $28.38 per share for a five-year term from the date of issuance. The weighted average fair value of these warrants was estimated at $15.22 per share using the Black-Scholes option pricing model.