Stock-Based Compensation

Equity Compensation Awards

Stock Options

Stock options have been granted under various equity compensation plans. The maximum contractual term for all options is normally ten years. We have not granted any stock options since the first quarter of 2012.

In most cases, we recognize expense using the straight-line 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 historical analysis, an annual forfeiture rate of approximately 3%.

The first quarter of 2016 was the final quarter in which we recognized stock based compensation expense related to previously issued stock option grants, and the amount of such expense was de minimis. For the three and nine months ended September 30, 2015, we recognized approximately $0.1 million and $0.2 million of stock option compensation expense, respectively.

A summary of the activity under our stock option plans as of September 30, 2016 and changes during the three and nine months 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 June 30, 2016	156,057	$	41.57	3.1	$	3,085,731
Options exercised	—	$	—
Options forfeited	—	$	—
Options outstanding at September 30, 2016	156,057	$	41.57	2.9	$	3,082,880
Options exercisable at September 30, 2016	156,057	$	41.57	2.9	$	3,082,880
Options vested at September 30, 2016	156,057	$	41.57	2.9	$	3,082,880



	Options Outstanding		Weighted- Average Exercise Price Per Share
Options outstanding at December 31, 2015	212,038		$	40.47
Options exercised	(55,631	)	$	36.99
Options forfeited	(350	)	$	44.32
Options outstanding at September 30, 2016	156,057		$	41.57

During the nine months ended September 30, 2016, 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 $1.4 million, and the total amount of cash received from the exercise of these options was $2.1 million.

Performance-Based Restricted Stock

As of September 30, 2016, we had performance-based restricted stock awards from 2014, 2015 and 2016 outstanding. These awards cliff vest at the end of a specified three year measurement period. For these grants employees whose employment terminates during the measurement period due to death or disability, may receive a pro-rata payout based on the number of days they were employed during the vesting period. For the 2015 and 2016 grants, this pro-rata payout also applies to retirement. Participants are eligible to be awarded shares ranging from 0% to 200% of the target award amount, based on certain defined measurement criteria. Compensation expense is recognized using the straight-line method over the vesting period.

The outstanding awards from 2016 have one measurement criterion on which the final payout of each award is based - the three year total shareholder return (TSR) on the performance of our capital stock as compared to that of a specified group of peer companies. TSR is considered a market condition. As such, the fair value of all awards 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 until payment is made.

The amount of performance-based restricted stock 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. We currently expect, based on historical analysis, an annual forfeiture rate of approximately 12%. This assumption is reviewed periodically and the rate is adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those awards that vest.

Below were the assumptions used in the Monte Carlo calculation:



	September 30, 2016	September 30, 2015
Expected volatility	29.6%	28.2%
Expected term (in years)	3.0	3.0
Risk-free interest rate	0.93%	0.96%

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 capital stock; therefore, a dividend yield of 0% was used in the Monte Carlo simulation valuation model.

The following table summarizes the change in number of non-vested performance-based restricted stock awards outstanding since December 31, 2015:



	Performance-Based Restricted Stock Awards
Non-vested awards outstanding at December 31, 2015	107,229
Awards granted	84,443
Stock issued	(25,397	)
Awards forfeited	(10,731	)
Non-vested awards outstanding at September 30, 2016	155,544

During the three and nine months ended September 30, 2016, we recognized compensation expense for performance-based restricted stock awards of approximately $1.1 million and $3.2 million, respectively. During the three and nine months ended September 30, 2015, we recognized compensation expense for performance-based restricted stock awards of approximately $1.2 million and $2.8 million, respectively.

Time-Based Restricted Stock

As of September 30, 2016, we had time-based restricted stock grants from 2013, 2014, 2015 and 2016 outstanding. The grants typically 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.

The amount of time-based restricted stock 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. We currently expect, based on historical analysis, an annual forfeiture rate of approximately 12%. This assumption is reviewed periodically and the rate is adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those awards that vest.

The following table summarizes the change in number of non-vested time-based restricted stock awards outstanding since December 31, 2015:



	Time-Based Restricted Stock Awards
Non-vested awards outstanding at December 31, 2015	208,318
Awards granted	117,960
Stock issued	(51,525	)
Awards forfeited	(19,027	)
Non-vested awards outstanding at September 30, 2016	255,726

During the three and nine months ended September 30, 2016, we recognized compensation expense for time-based restricted stock awards of approximately $1.6 million and $4.3 million, respectively. During the three and nine months ended September 30, 2015, we recognized compensation expense for time-based restricted stock awards of approximately $1.3 million and $3.8 million, respectively.

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 month anniversary of the grant date unless the individual elects to defer the receipt of those 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 during the second quarter. The fair value of the award is determined based on the market value of the underlying stock price at the grant date.

The following table summarizes the change in number of deferred stock units outstanding since December 31, 2015:



	Deferred Stock Units
Awards outstanding at December 31, 2015	23,950
Awards granted	11,900
Stock issued	(22,750	)
Awards outstanding at September 30, 2016	13,100

For the nine months ended September 30, 2016 and 2015 we recognized compensation expense for deferred stock units of $0.7 million and $0.7 million, respectively. There was no expense associated with the deferred stock units in the third quarter of 2016 or 2015.

Employee Stock Purchase Plan

We have an employee stock purchase plan (ESPP) that allows eligible employees to purchase, through payroll deductions, shares of our capital stock at a discount to fair market value. The ESPP has two six 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 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 $0.1 million of compensation expense associated with the plan in each of the three months ended September 30, 2016 and 2015 and approximately $0.3 million of compensation expense associated with each of the nine months ended September 30, 2016 and 2015.