SHAREHOLDERS' EQUITY AND STOCK OPTIONS

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) at December 31, 2013 were as follows:



(Dollars in thousands)	December 31, 2013			December 31, 2012
Foreign currency translation adjustments	$	22,756		$	12,585
Funded status of pension plans and other postretirement benefits, net of tax of $2,900 and $22,371.	(33,997		)	(70,158		)
Unrealized gain (loss) on derivative instruments, net of tax of $110 and $127	(209		)	(235		)
Accumulated other comprehensive income (loss)	(11,450		)	(57,808		)

Capital Stock and Equity Compensation Awards

Under the Rogers Corporation 2009 Long-Term Equity Compensation Plan, we may grant stock options to officers, directors, and other key employees at exercise prices that are at least equal to the fair market value of our stock on the date of grant. Under our older plans, stock options to officers, directors, and other key employees could be granted at exercise prices that were as low as 50% of the fair market value of our stock as of the date of grant. However, in terms of these older plans, virtually all such options were granted at exercise prices equal to the fair market value of our stock as of the date of grant. With shareholder approval of the Rogers Corporation 2009 Long-Term Equity Compensation Plan, no new equity awards will be granted from our older plans. Regular options granted to employees in the United States generally become exercisable over a four-year period from the grant date and expire ten years after such grant. Stock option grants were also made under the older plans to non-management directors, on a semi-annual basis, with the last of such grants being made in June 2008.

Beginning in December 2008, each non-management director was awarded deferred stock units instead of stock options. Such deferred stock units permit non-management directors to receive, at a later date, one share of Rogers stock for each deferred stock unit with no payment of any consideration by the director at the time the shares are received. For director stock options, the exercise price was equal to the fair market value of our stock as of the grant date, are immediately exercisable, and expire ten years after the date of grant. Our 2005 Equity Compensation Plan and our 2009 Long-Term Equity Compensation Plan also permit the granting of restricted stock and certain other forms of equity awards to officers and other key employees, although, as mentioned above, no new equity awards are being made pursuant to the 2005 plan. Stock grants in lieu of cash compensation are also made to non-management directors and the Stock Acquisition Program, approved in 2009, is now being used for such grants if a non-management director chooses to receive Rogers stock in lieu of cash compensation.

Bruce D. Hoechner, President and Chief Executive Officer, was granted three equity awards when he joined Rogers as our new President and Chief Executive Officer in October of 2011. This consisted of two time-based restricted stock unit awards with different vesting schedules and a non-qualified stock option award. The Board of Directors (including a majority of its independent directors) approved these equity inducement awards in reliance on an employment inducement exception to shareholder approval provided for in the New York Stock Exchange governance rules.

Shares of capital stock reserved for possible future issuance are as follows:



	December 31, 2013	December 31, 2012
Stock acquisition program	120,883	120,883
Stock options and restricted stock	1,328,414	2,081,116
Shares available for issuance	479,307	659,292
Rogers Employee Savings and Investment Plan	169,044	249,490
Rogers Corporation Global Stock Ownership Plan for Employees	181,617	201,676
Deferred compensation to be paid in stock	14,558	49,090
Total	2,293,823	3,361,547

Each outstanding share of Rogers capital (common) stock has attached to it a stock purchase right. One stock purchase right entitles the holder to buy one share of Rogers capital (common) stock at an exercise price of $240.00 per share. The rights become exercisable only under certain circumstances related to a person or group acquiring or offering to acquire a substantial block of Rogers capital (common) stock. In certain circumstances, holders may acquire Rogers stock, or in some cases the stock of an acquiring entity, with a value equal to twice the exercise price. The rights expire on March 30, 2017, but may be exchanged or redeemed earlier. If such rights are redeemed, the redemption price would be $0.01 per right.

Stock Options

Stock options have been granted under various equity compensation plans. While we may grant options to employees that become exercisable at different times or within different periods, we have generally granted options to employees that vest and become exercisable in one-third increments on the 2^nd, 3^rd and 4^th anniversaries of the grant dates. The maximum contractual term for all options is normally ten years.

We use the Black-Scholes option-pricing model to calculate the grant-date fair value of an option. We did not grant any stock options in 2013. The fair value of options granted in 2012 and 2011 were calculated using the following weighted average assumptions:



	December 31, 2012			December 31, 2011
Options granted	46,950			131,750
Weighted average exercise price	$	41.27		$	46.29
Weighted-average grant date fair value	19.08			21.08

Assumptions:
Expected volatility	47.70		%	46.92		%
Expected term (in years)	5.9			5.6
Risk-free interest rate	1.43		%	2.13		%
Expected dividend yield	—			—

Expected volatility – In determining expected volatility, we have considered a number of factors, including historical volatility and implied volatility.

Expected term – We use historical employee exercise data to estimate the expected term assumption for the Black-Scholes valuation.

Risk-free interest rate – We use the yield on zero-coupon U.S. Treasury securities for a period commensurate with the expected term assumption as the risk-free interest rate.

Expected dividend yield – We do not currently pay dividends on our common stock; therefore, a dividend yield of 0% was used in the Black-Scholes model.

In most cases, we recognize expense using the straight-line attribution method for stock option grants. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. We currently expect, based on an analysis of our historical forfeitures, an annual forfeiture rate of approximately 3% and applied that rate to the grants issued. This assumption will be reviewed periodically and the rate will be adjusted as necessary based on these reviews. Ultimately, the actual expense recognized over the vesting period will only be for those options that vest.

Our employee stock option agreements contain a retirement provision, which results in the vesting of any unvested options immediately upon retirement. This provision affects the timing of option expense recognition for options meeting the criteria for retirement. We recognize compensation expense over the period from the date of grant to the date retirement eligibility is met, if it is shorter than the required service period, or upon grant if the employee is eligible for retirement on that date.

A summary of the activity under our stock option plans as of December 31, 2013 and changes during the year then ended, is presented below:



	Options Outstanding		Weighted- Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Options outstanding at December 31, 2012	1,765,947		$	40.58	1.3	19,557,233
Options granted	—		—
Options exercised	(847,340	)	37.82
Options cancelled	(25,468	)	39.04
Options outstanding at December 31, 2013	893,139		43.23		3.9	16,403,816
Options exercisable at December 31, 2013	721,645		44.62		3.2	12,270,104
Options vested or expected to vest at December 31, 2013*	887,994		43.27		3.9	16,279,805

* In addition to the vested options, we expect a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.

During the years ended December 31, 2013 and 2012, the total intrinsic value of options exercised (i.e. the difference between the market price at time of exercise and the price paid by the individual to exercise the options) was $13.6 million and $8.9 million, respectively. The total amount of cash received from the exercise of these options was $32.4 million and $17.0 million, respectively. The total grant-date fair value of stock options that vested during the years ended December 31, 2013 and 2012 was approximately $0.4 million and $2.0 million, respectively.

As of December 31, 2013, there was $0.6 million of total unrecognized compensation cost related to unvested stock option awards. That cost is expected to be recognized over a weighted-average period of 1.4 years.

We recognized $0.4 million, $2.0 million and $3.6 million of compensation expense related to stock options for the years ended December 31, 2013, 2012 and 2011, respectively.

A summary of the activity under our stock option plans as for the fiscal years ended 2013, 2012 and 2011, is presented below:



	2013				2012				2011
	Options Outstanding		Weighted- Average Exercise Price Per Share		Options Outstanding		Weighted- Average Exercise Price Per Share		Options Outstanding		Weighted- Average Exercise Price Per Share
Outstanding at beginning of year	1,765,947		$	40.58	2,401,809		$	37.54	2,626,371		$	36.63
Options granted	—		—		46,950		41.27		131,750		46.29
Options exercised	(847,340	)	37.82		(614,263	)	42.97		(329,964	)	33.61
Options cancelled	(25,468	)	39.04		(68,549	)	43.57		(26,348	)	30.77
Outstanding at year-end	893,139		43.23		1,765,947		40.58		2,401,809		37.54
Options exercisable at year-end	721,645				1,274,340				1,609,982

Performance-Based Restricted Stock

In 2006, we began granting performance-based restricted stock awards to certain key executives. We currently have awards from 2011, 2012 and 2013 outstanding. These awards cliff vest at the end of a 3 year measurement period, except for 2011 and 2012 grants to those individuals who are retirement eligible during the grant period, as such awards are subject to accelerated vesting as the grant is earned over the course of the vesting period (i.e. a pro-rata payout occurs based on the retirement date). Participants are eligible to be awarded shares ranging from 0% to 200% of the original award amount, based on certain defined performance measures. Compensation expense is recognized using the straight line method over the vesting period, unless the employee has an accelerated vesting schedule.

The 2011 and 2012 awards have three measurement criteria on which the final payout of the award is based - (i) the three year compounded annual growth rate (CAGR) of net sales, (ii) the three year CAGR of diluted earnings per share, and (iii) the three year average of each year's free cash flow as a percentage of net sales. In accordance with the applicable accounting literature, these measures are treated as performance conditions. The fair value of these awards is determined based on the market value of the underlying stock price at the grant date with cumulative compensation expense recognized to date being increased or decreased based on changes in the forecasted pay out percentages at the end of each reporting period.

The 2013 award has two measurement criteria on which the final payout of the award is based - (i) the three year return on invested capital (ROIC) compared to that of a specified group of peer companies, and (ii) the three year total shareholder return (TSR) on the performance of our common stock as compared to that of a specified group of peer companies. In accordance with the applicable accounting literature, the ROIC portion of the award is considered a performance condition. As such, the fair value of the ROIC portion is determined based on the market value of the underlying stock price at the grant date with cumulative compensation expense recognized to date being increased or decreased based on changes in the forecasted pay out percentage at the end of each reporting period. The TSR portion of the award is considered a market condition. As such, the fair value of this award was determined on the date of grant using a Monte Carlo simulation valuation model with related compensation expense fixed on the grant date and expensed on a straight-line basis over the life of the awards that ultimately vest with no changes for the final projected payout of the award.

Below are the assumptions used in the Monte Carlo calculation:



Expected volatility	37.1	%
Expected term (in years)	3.0
Risk-free interest rate	0.40	%
Expected dividend yield	—

Expected volatility – In determining expected volatility, we have considered a number of factors, including historical volatility.

Expected term – We use the vesting period of the award to determine the expected term assumption for the Monte Carlo simulation valuation model.

Risk-free interest rate – We use an implied "spot rate" yield on U.S. Treasury Constant Maturity rates as of the grant date for our assumption of the risk-free interest rate.

Expected dividend yield – We do not currently pay dividends on our common stock; therefore, a dividend yield of 0% was used in the Monte Carlo simulation valuation model.

Actual performance during the relevant period for the 2011 grant, which vested as of December 31, 2013, met the target performance criteria and shares will be paid out at 108% of target during the first quarter of 2014.

A summary of activity under the performance-based restricted stock plans for the fiscal years ended 2013, 2012 and 2011 is presented below:



	2013				2012				2011
	Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value
Non-vested awards outstanding at beginning of year	73,458		$	38.01	101,730		$	31.19	115,250		$	27.09
Awards granted	47,625		47.10		22,120		41.27		20,630		47.89
Stock issued	(33,538	)	27.43		(43,750	)	23.86		—		—
Awards forfeited or expired	(16,370	)	44.90		(6,642	)	37.67		(34,150	)	27.43
Non-vested awards outstanding at end of year	71,175		$	47.49	73,458		$	38.01	101,730		$	31.19

We recognized $1.3 million, $0.5 million, and $1.7 million of compensation expense related to performance-based restricted stock grants for the years ended December 31, 2013, 2012 and 2011, respectively. The 2013 expense represents a 108% projected payout for the 2011 performance-based grants, a projected payout of 108% for the performance-based awards granted in 2012 and a projected payout of 166% for the performance-based awards granted in 2013. The 2012 expense represents a 200% projected payout for the 2010 performance-based grants, and a projected payout of 100% for the performance-based awards granted in 2011 and 2012, respectively. The 2011 expense represented a 97.4% actual payout for the 2009 performance-based grants, and a projected payout of 200% for the performance-based awards granted in 2010 and 2011, respectively.

As of December 31, 2013, there was $2.4 million of total unrecognized compensation cost related to unvested performance-based restricted stock. That cost is expected to be recognized over a weighted-average period of 1.4 years.

Time-Based Restricted Stock

In 2011, we began granting time-based restricted stock awards to certain key executives and other key members of the Company’s management team. We currently have grants from 2011, 2012 and 2013 outstanding. The 2011 and 2012 grants cliff vest at the end of the three year vesting period. The 2013 grants ratably vest on the first, second and third anniversaries of the original grant date. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period. The fair value of the award is determined based on the market value of the underlying stock price at the grant date.



	2013				2012				2011
	Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted-Average Grant Date Fair Value
Non-vested awards outstanding at beginning of year	115,139		$	43.27	86,707		$	44.55	2,500		$	20.01
Awards granted	156,665		51.78		51,790		40.99		84,667		45.29
Stock issued	(12,436	)	43.97		(16,620	)	41.64		—		—
Awards forfeited or expired	(28,342	)	47.07		(6,738	)	46.21		(460	)	47.89
Non-vested awards outstanding at end of year	231,026		$	48.54	115,139		$	43.27	86,707		$	44.55

We recognized $2.5 million, $1.6 million, and $1.6 million of compensation expense related to time-based restricted stock for years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, there was $6.9 million of total unrecognized compensation cost related to unvested time-based restricted stock. That cost is expected to be recognized over a weighted-average period of 1.9 years.

Deferred Stock Units

We grant deferred stock units to non-management directors. These awards are fully vested on the date of grant and the related shares are generally issued on the 13^th month anniversary of the grant date unless the individual elects to defer the receipt of these shares. Each deferred stock unit results in the issuance of one share of Rogers’ stock. The grant of deferred stock units is typically done annually in the second quarter of each year. The fair value of the award is determined based on the market value of the underlying stock price at the grant date.



	2013				2012				2011
	Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted- Average Grant Date Fair Value		Awards Outstanding		Weighted-Average Grant Date Fair Value
Non-vested awards outstanding at beginning of year	30,150		$	26.13	27,350		$	28.80	30,250		$	28.98
Awards granted	16,800		41.67		17,600		38.64		16,650		45.95
Stock issued	(15,400	)	41.77		(14,800	)	45.95		(19,550	)	43.69
Non-vested awards outstanding at end of year	31,550		$	26.77	30,150		$	26.13	27,350		$	28.8

We recognized compensation expense related to deferred stock units of $0.7 million, $0.7 million and $0.7 million, for the years ended December 31, 2013, 2012 and 2011, respectively.

Employee Stock Purchase Plan

We have an employee stock purchase plan (ESPP) that allows eligible employees to purchase, through payroll deductions, shares of our common stock at a discount to fair market value. The ESPP has two 6 month offering periods each year, the first beginning in January and ending in June and the second beginning in July and ending in December. The ESPP contains a look-back feature that allows the employee to acquire stock at a 15% discount from the underlying market price at the beginning or end of the applicable period, whichever is lower. We recognize compensation expense on this plan ratably over the offering period based on the fair value of the anticipated number of shares that will be issued at the end of each offering period. Compensation expense is adjusted at the end of each offering period for the actual number of shares issued. Fair value is determined based on two factors: (i) the 15% discount amount on the underlying stock’s market value on the first day of the applicable offering period, and (ii) the fair value of the look-back feature determined by using the Black-Scholes model. We recognized approximately $0.5 million of compensation expense associated with the plan for the year ended December 31, 2013 and $0.5 million for the year ended December 31, 2012 and $0.5 million for the year ended December 31, 2011.