Note 8 - Stock-Based Compensation

Equity Compensation Awards

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 2nd, 3rd and 4th 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. The fair value of options granted during the three and nine month periods ended September 30, 2011 and 2010 were calculated using the following weighted-average assumptions:

	Three Months Ended					Nine Months Ended
	September 30, 2011			September 30, 2010		September 30, 2011			September 30, 2010
Options granted		50,000			-		108,550			340,150
Weighted average exercise price	$	48.70			-	$	48.26		$	24.26
Weighted-average grant date fair value		21.33			-		21.86			11.40
Assumptions:
Expected volatility		48.17	%		-		46.54	%		45.41	%
Expected term (in years)		5.00			-		5.55			5.86
Risk-free interest rate		1.90	%		-		2.30	%		3.12	%
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 its risk-free interest rate.

Expected dividend yield – We do not 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, a forfeiture rate of approximately 3% and applied that rate to 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 shares that vest.

During the three and nine month periods ended September 30, 2011 we recognized approximately $0.7 million and $2.0 million of stock option compensation expense, respectively. During the three and nine month periods ended September 30, 2010 we recognized approximately $0.6 million and $3.4 million of stock option compensation expense, respectively.

A summary of the activity under our stock option plans as of September 30, 2011 and changes during the three month period then ended, is presented below:

	Options Outstanding			Weighted- Average ExercisePrice Per Share		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Options outstanding at June 30, 2011		2,511,714		$	37.15		5.3	$	28,613,872
Options granted		50,000			48.70
Options exercised		(120,985	)		34.95
Options cancelled		(9,282	)		25.62
Options outstanding at September 30, 2011		2,431,447			37.54		5.2		15,505,292
Options exercisable at September 30, 2011		1,657,253			41.94		3.9		6,003,054
Options vested or expected to vest at September 30, 2011*		2,408,221			37.64		5.2		15,220,225

* 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.

	Options Outstanding			Weighted- Average Exercise Price Per Share
Options outstanding at December 31, 2010		2,626,371		$	36.63
Options granted		108,550			48.26
Options exercised		(288,176	)		33.63
Options cancelled		(15,298	)		30.80
Options outstanding at September 30, 2011		2,431,447

During the nine month period ended September 30, 2011, 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 $3.8 million, and the total amount of cash received from the exercise of these options was $9.7 million.

Restricted Stock

In 2006, we began granting restricted stock to certain key executives. The restricted stock granted is either time-based or performance-based. The performance-based grants award shares of common stock of the Company at the end of a three-year measurement period. Awards associated with this program granted in 2008 cliff vested at the end of the three-year period and eligible participants were eligible to be awarded shares ranging from 0% to 200% of the original award amount, based on defined performance measures associated with earnings per share. The 2008 grant did not meet performance measures and there was no payout. The 2009, 2010 and 2011 grants cliff vest at the end of their respective three-year periods, except for awards granted to those individuals who are retirement eligible during the grant period, which are subject to accelerated vesting as the award is earned over the course of the grant (i.e. a pro-rata payout occurs upon retirement). Eligible participants can be awarded shares ranging from 0% to 200% of the original award amount, based on defined performance measures associated with a combined measure using earnings per share, net sales and free cash flow. In the second quarter of 2011, we granted 20,630 performance-based restricted stock awards.

In the third quarter of 2011, we granted 20,797 time-based restricted stock awards. For the nine months ended September 30, 2011 we granted 63,067 time-based restricted stock awards. These awards cliff vest at the end of a three-year period.

We recognize compensation expense on these awards ratably over the vesting period, or on an accelerated basis if the recipient is retirement eligible at the time of grant. The fair value of the award will be determined based on the market value of the underlying stock price at the grant date. The amount of compensation expense recognized over the vesting period will be based on our projections of the performance measure over the requisite service period and, ultimately, how that performance compares to the defined performance measure. If, at any point during the vesting period, we conclude that the ultimate result of this measure will change from that originally projected, we will cumulatively adjust the compensation expense during that period and recognize future expense ratably over the remaining vesting period based on the new projected payouts.

	Restricted Share Awards
Non-vested awards outstanding at December 31, 2010		117,750
Awards granted		83,697
Stock issued		-
Awards forfeited		(34,540	)
Non-vested awards outstanding at September 30, 2011		166,907

As of the first quarter of 2011, the restricted stock granted in 2008 has been forfeited, due to the performance target not being reached that was required for vesting of this grant.

For the three and nine month periods ended September 30, 2011, we recognized compensation expense for restricted stock awards of $1.3 million and $2.6 million, respectively, and for the three and nine month periods ended September 30, 2010 we recognized compensation expense of $0.9 million and $1.5 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 13th 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.

	Deferred Stock Units
Awards outstanding at December 31, 2010		30,250
Awards granted		16,650
Stock issued		(19,550	)
Awards outstanding at September 30, 2011		27,350

For each of the nine month periods ended September 30, 2011 and 2010, we recognized compensation expense of $0.7 million related to deferred stock units. There was no expense associated with these grants in the first and third quarter of either year.

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 six month offering periods per 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 respective 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 respective 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 respective plan 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 the three month periods ended September 30, 2011 and, 2010, respectively, and approximately $0.3 million of compensation expense associated with the nine month periods ended September 30, 2011 and 2010, respectively.