Stock-Based Compensation

Equity Compensation Awards

Performance-Based Restricted Stock Units

As of September 30, 2017, we had performance-based restricted stock awards from 2015, 2016 and 2017 outstanding. These awards generally cliff vest at the end of a three year measurement period. However, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed during the vesting period. 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 2015 awards have two measurement criteria on which the final payout of each 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 capital stock as compared to that of a specified group of peer companies. The 2016 and 2017 awards have one measurement criteria: the three year TSR on the performance of our capital stock as compared to that of a specified group of peer companies. In accordance with the applicable accounting literature, the ROIC measurement criteria of the 2015 awards 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 measurement criteria of the awards is considered a market condition. As such, the fair value of this measurement criteria 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 and with no changes for the final projected payout of the awards.

Below were the assumptions used in the Monte Carlo calculation:



	September 30, 2017	September 30, 2016
Expected volatility	33.6%	29.6%
Expected term (in years)	3.0	3.0
Risk-free interest rate	1.38%	0.93%

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.

Forfeiture Rate – We previously estimated the forfeiture rate based on historical experience and our expectations regarding future terminations. To the extent our actual forfeiture rate was different from our estimate, stock-based compensation expense was adjusted accordingly. In accordance with the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, on January 1, 2017, we now account for forfeitures as they occur. The adoption of this standard, with respect to treatment of forfeitures, did not have a material impact on our condensed consolidated financial statements in the period of adoption.

The following table summarizes the change in number of non-vested performance-based restricted stock awards outstanding since December 31, 2016:



	Performance-Based Restricted Stock Awards
Non-vested awards outstanding at December 31, 2016	151,769
Awards granted	56,147
Stock issued	(34,442	)
Awards forfeited	(4,047	)
Non-vested awards outstanding at September 30, 2017	169,427

During the three and nine months ended September 30, 2017, we recognized compensation expense for performance-based stock awards of approximately $1.4 million and $2.9 million, respectively. During the three and nine months ended and September 30, 2016, we recognized compensation expense for performance-based stock awards of approximately $1.1 million and $3.2 million respectively.

Time-Based Restricted Stock

As of September 30, 2017, we had time-based restricted stock grants from 2014, 2015, 2016 and 2017 outstanding. The 2014, 2015, 2016 and 2017 grants all 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.

The following table summarizes the change in number of non-vested time-based restricted stock awards outstanding since December 31, 2016:



	Time-Based Restricted Stock Awards
Non-vested awards outstanding at December 31, 2016	239,189
Awards granted	77,505
Stock issued	(132,373	)
Awards forfeited	(5,500	)
Non-vested awards outstanding at September 30, 2017	178,821

During the three and nine months ended September 30, 2017 we recognized compensation expense for time-based restricted stock awards of approximately $1.6 million and $4.2 million, respectively. 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.

Forfeiture Rate – We previously estimated the forfeiture rate based on historical experience and our expectations regarding future terminations. To the extent our actual forfeiture rate was different from our estimate, stock-based compensation expense was adjusted accordingly. In accordance with the adoption of ASU 2016-09 on January 1, 2017, we now account for forfeitures as they occur. The adoption of this standard, with respect to treatment of forfeitures, did not have a material impact on our condensed consolidated financial statements in the period of adoption.

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’ capital stock. The grant of deferred stock units is typically done annually during 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.

The following table summarizes the change in number of deferred stock units outstanding since December 31, 2016:



	Deferred Stock Units
Awards outstanding at December 31, 2016	11,900
Awards granted	9,250
Stock issued	(11,900	)
Awards outstanding at September 30, 2017	9,250

During the three and nine month periods ended September 30, 2017, we recognized compensation expense associated with the deferred stock units of $0.1 million and $1.0 million, respectively. During the three months ended September 30, 2016, we recognized no compensation expense associated with the deferred stock units. During the nine months ended September 30, 2016, we recognized $0.7 million of compensation expense associated with the deferred stock units.

Stock Options

Stock options have been granted under various equity compensation plans, and they generally became exercisable in one-third increments on the second, third and fourth anniversaries of the grant dates. The maximum contractual term for all options was normally ten years. We used the Black-Scholes option-pricing model to calculate the grant-date fair value of an option. We have not granted any stock options since the first quarter of 2012.

A summary of the activity under our stock option plans during the three and nine month periods ended September 30, 2017 and changes during the 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, 2017	64,958		$	37.01	3.0	$	4,651,550
Options exercised	(1,400	)	$	24.20
Options forfeited	—		$	—
Options outstanding at September 30, 2017	63,558		$	37.29	2.8	$	6,100,702
Options exercisable at September 30, 2017	63,558		$	37.29	2.8	$	6,100,702
Options vested at September 30, 2017	63,558		$	37.29	2.8	$	6,100,702



	Options Outstanding		Weighted- Average Exercise Price Per Share
Options outstanding at December 31, 2016	116,575		$	37.76
Options exercised	(53,017	)	$	36.33
Options forfeited	—		$	—
Options outstanding at September 30, 2017	63,558		$	37.29

During the nine months ended September 30, 2017, 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 $3.0 million, and the total amount of cash received from the exercise of these options was $1.9 million.

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 shares of our capital 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 month periods ended September 30, 2017 and 2016 and approximately $0.3 million of compensation expense associated with each of the nine month periods ended September 30, 2017 and 2016.