Stock-Based Compensation

9 Months Ended

Sep. 29, 2012

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

Stock-Based Compensation

Note 12. Stock-Based Compensation

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.

	Three Months Ended				Nine Months Ended
	September 29, 2012		October 1, 2011		September 29, 2012		October 1, 2011
Stock Options
Expected life	4.6 years		4.6 years		4.5 years		4.5 years
Volatility	75.44	%	77.47	%	77.96	%	77.02	%
Risk free interest rate	0.74	%	1.01	%	0.84	%	1.89	%
Dividends	—		—		—		—
Employee Stock Purchase Plan
Expected life	0.5 years		0.5 years		0.5 years		0.5 years
Volatility	38.58	%	65.91	%	45.47	%	73.41	%
Risk free interest rate	0.16	%	0.17	%	0.12	%	0.19	%
Dividends	—		—		—		—

The weighted average fair value per share of the stock options awarded in the three month and nine month periods ended September 29, 2012 was $8.94 and $10.50, 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 month and nine month periods ended October 1, 2011 was $9.71 and $9.95, respectively, 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 nine month period ended September 29, 2012 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 December 31, 2011	2,348,162		$	10.53	4.86	$	18,556
Exercised	(403,397	)	6.47
Granted	221,785		17.48
Cancelled	(112,087	)	14.72
Outstanding at September 29, 2012	2,054,463		$	11.85	4.53	$	6,642
Exercisable at September 29, 2012	1,206,804		$	9.68	3.83	$	5,811

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $13.81 as of September 29, 2012 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 month and nine month periods ended September 29, 2012 was $1.0 million and $4.5 million, respectively. The total intrinsic value of options exercised during the three month and nine month periods ended October 1, 2011 was $1.3 million and $8.2 million, respectively.

During the nine month period ended September 29, 2012, 18,534 Restricted Stock Units (“RSUs”) were released, and the Company granted 51,777 RSUs which vest between three and four years after the vesting commencement date identified in the applicable grant document. As of September 29, 2012, there were 333,301 RSUs outstanding.

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				Nine Months Ended
	September 29, 2012		October 1, 2011		September 29, 2012		October 1, 2011
Cost of products	$	50	$	45	$	128	$	111
Cost of service	62		51		195		146
Research and development	289		221		952		589
Selling	451		264		1,374		790
General and administrative	630		389		1,886		1,110
Total stock-based compensation expense	$	1,482	$	970	$	4,535	$	2,746