Stock-Based Compensation

6 Months Ended

Jul. 02, 2011

Stock Based Compensation [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Stock-Based Compensation

Stock-based compensation expense for all share-based payment awards made to the Company’s employees and directors pursuant to the employee stock option and employee stock purchase plans by function were as follows (in thousands):

	Three Months Ended				Six Months Ended
	July 2, 2011		July 3, 2010		July 2, 2011		July 3, 2010
Cost of products	$	28	$	34	$	66	$	59
Cost of service	43		58		95		105
Research and development	221		147		368		252
Selling	311		154		526		247
General and administrative	352		809		722		1,468
Total stock-based compensation expense	$	955	$	1,202	$	1,777	$	2,131

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the following table. The expected term of options granted was calculated using the simplified method. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. The expected volatility is based on the historical volatility of Nanometrics’ stock price. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future. The assumptions in the following table do not include the assumptions used in the Option Exchange Program as disclosed in Note 5 of the Company's 2010 Annual Report on Form 10-K filed with the Securities Exchange Commission on March 14, 2011.

	Three Months Ended				Six Months Ended
	July 2, 2011		July 3, 2010		July 2, 2011		July 3, 2010
Stock Options
Expected life	4.5 years		4.5 years		4.5 years		4.5 years
Volatility	77.49	%	73.10	%	76.97	%	73.30	%
Risk free interest rate	1.84	%	2.38	%	2.00	%	2.36	%
Dividends	—		—		—		—
Employee Stock Purchase Plan
Expected life	0.5 years		0.5 years		0.5 years		0.5 years
Volatility	68.27	%	67.43	%	76.20	%	80.34	%
Risk free interest rate	0.21	%	0.22	%	0.20	%	0.20	%
Dividends	—		—		—		—

The weighted average fair value per share of the stock options awarded in the three and six month periods ended July 2, 2011 was $9.42 and $9.98, respectively, based on the fair market value of the Company’s common stock on the grant dates. The weighted average fair value per share of the stock options awarded in the three and six month periods ended July 3, 2010 was $6.06 for both periods, based on the fair market value of the Company’s common stock on the grant dates.

A summary of activity under the Company’s stock option plans during the quarter ended July 2, 2011 is as follows:

	Number of Shares Outstanding (Options)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in Thousands)
Options
Outstanding at January 1, 2011	2,763,686		$	7.43	5.20	$	15,308
Exercised	(607,119	)	6.35
Granted	562,447
Cancelled	(125,321	)
Outstanding at July 2, 2011	2,593,693		$	9.60	5.21	$	27,012
Exercisable at July 2, 2011	1,191,186		$	7.24	4.37	$	15,200

During the six month period ended July 2, 2011, the Company granted 24,292 Restricted Stock Units (“RSUs”), which vest between one and four years after the vesting commencement date identified in the applicable grant document. As of July 2, 2011, there were 66,621 RSUs outstanding.

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $20.01 as of July 1, 2011, which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the three and six month periods ended July 2, 2011 was $3.9 million and $8.3 million, respectively. The total intrinsic value of options exercised during the three and six month periods ended July 3, 2010 was $1.1 million and $1.3 million, respectively.