Capital Stock and Equity Compensation

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement, Noncash Expense [Abstract]

Note 9 – Capital Stock and Equity Compensation

Equity Compensation

Performance-Based Restricted Stock Units

As of September 30, 2019, we had performance-based restricted stock units from 2019, 2018 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 measurement period. Participants are eligible to be awarded shares ranging from 0% to 200% of the original award amount, based on certain defined performance measures.

The outstanding awards have one measurement criterion: the three year total shareholder return (TSR) on our capital stock as compared to that of a specified group of peer companies. The TSR measurement criterion of the awards is considered a market condition. As such, the fair value of this measurement criterion was determined on the grant date using a Monte Carlo simulation valuation model. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period with no changes for final projected payout of the awards. We account for forfeitures as they occur.

Below are the assumptions used in the Monte Carlo calculation on the respective grant dates for awards granted in 2019 and 2018:



	June 3, 2019	February 7, 2019	September 17, 2018	February 8, 2018
Expected volatility	39.7%	36.7%	36.6%	34.8%
Expected term (in years)	2.6	2.9	3.0	3.0
Risk-free interest rate	1.78%	2.43%	2.85%	2.28%

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 performance-based restricted stock units outstanding for the nine months ended September 30, 2019:



	Performance-Based Restricted Stock Units
Awards outstanding as of December 31, 2018	142,434
Awards granted	112,160
Stock issued	(131,650	)
Awards forfeited	(11,549	)
Awards outstanding as of September 30, 2019	111,395

We recognized $1.5 million and $3.5 million of compensation expense for performance-based restricted stock units during the three and nine months ended September 30, 2019, respectively. We recognized $1.3 million and $3.1 million of compensation expense for performance-based restricted stock units during the three and nine months ended September 30, 2018, respectively.

Time-Based Restricted Stock Units

As of September 30, 2019, we had time-based restricted stock unit awards from 2019, 2018 and 2017 outstanding. The outstanding awards all ratably vest on the first, second and third anniversaries of the original grant date. 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 subsequent to the last grant anniversary date. Each time-based restricted stock unit represents a right to receive one share of Rogers’ capital stock at the end of the vesting period. The fair value of the award is determined by the market value of the underlying stock price at the grant date. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period. We account for forfeitures as they occur.

A summary of activity of the outstanding time-based restricted stock units for the nine months ended September 30, 2019 is presented below:



	Time-Based Restricted Stock Units
Awards outstanding as of December 31, 2018	117,476
Awards granted	61,455
Stock issued	(65,887	)
Awards forfeited	(7,815	)
Awards outstanding as of September 30, 2019	105,229

We recognized $1.5 million and $4.4 million of compensation expense for time-based restricted stock units during the three and nine months ended September 30, 2019, respectively. We recognized $1.4 million and $4.2 million of compensation expense for time-based restricted stock units during the three and nine months ended September 30, 2018, 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’ 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 by 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 during the nine months ended September 30, 2019:



	Deferred Stock Units
Awards outstanding as of December 31, 2018	8,400
Awards granted	5,950
Stock issued	(7,200	)
Awards outstanding as of September 30, 2019	7,150

We recognized no compensation expense related to deferred stock units during the three months ended September 30, 2019 and 2018, respectively. We recognized $1.1 million and $0.9 million of compensation expense related to deferred stock units during the nine months ended September 30, 2019 and 2018, respectively.

Stock Options

Stock options have been granted under various equity compensation plans. The maximum contractual term for all options is normally 10 years. All outstanding options are fully vested and exercisable. We have not granted any stock options since the first quarter of 2012.

During the nine months ended September 30, 2019, 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 $1.6 million, and the total amount of cash received from the exercise of these options was $0.3 million.

A summary of the activity under our stock option plans for the nine months ended September 30, 2019 is presented below:



	Options Outstanding		Weighted- Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Options outstanding, vested and exercisable as of December 31, 2018	10,950		$	31.99	2.0	$	734,469
Options exercised	(10,650	)	$	32.21
Options expired	(300	)	$	23.86
Options outstanding, vested and exercisable as of September 30, 2019	—		$	—	0.0	$	—

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 an immaterial amount of equity compensation expense associated with the ESPP during each of the three- and nine-month periods ended September 30, 2019 and 2018.