10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

___________________________ 

FORM 10-Q

_____________________________________ 

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 27, 2014

OR

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 0-13470

___________________________________

NANOMETRICS INCORPORATED

(Exact name of registrant as specified in its charter)

__________________________________ 

Delaware	94-2276314
(State or other jurisdiction of incorporation or organization)	(I. R. S. Employer Identification No.)

1550 Buckeye Drive, Milpitas, CA	95035
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (408) 545-6000

___________________________________ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  Q    No  £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such file)    Yes  Q    No  £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   o  No  x

As of October 24, 2014, there were 24,158,015 shares of common stock, $0.001 par value, issued and outstanding.

NANOMETRICS INCORPORATED

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR QUARTER ENDED SEPTEMBER 27, 2014

			Page
PART I. FINANCIAL INFORMATION			3
	Item 1.	Financial Statements	3
		Condensed Consolidated Balance Sheets as of September 27, 2014 and December 28, 2013 (Unaudited)	3
		Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 27, 2014 and September 28, 2013 (Unaudited)	4
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Month Periods Ended September 27, 2014 and September 28, 2013 (Unaudited)	5
		Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 27, 2014 and September 28, 2013 (Unaudited)	6
		Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
	Item 4.	Controls and Procedures	29
PART II. OTHER INFORMATION			31
	Item 1A.	Risk Factors	31
	Item 6.	Exhibits	31
	Signatures		33

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

	September 27, 2014			December 28, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	35,625		$	44,765
Marketable securities	48,748			48,097
Accounts receivable, net of allowances of $253 and $293, respectively	26,061			31,436
Inventories	35,762			34,520
Inventories-delivered systems	501			6,901
Prepaid expenses and other	9,356			10,519
Deferred income tax assets	2,922			14,516
Total current assets	158,975			190,754
Property, plant and equipment, net	50,736			47,439
Goodwill	11,039			11,743
Intangible assets, net	5,255			7,864
Deferred income tax assets	362			4,338
Other assets	593			696
Total assets	$	226,960		$	262,834
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,948		$	10,604
Accrued payroll and related expenses	8,395			7,853
Deferred revenue	5,944			21,749
Other current liabilities	7,834			7,993
Income taxes payable	639			758
Total current liabilities	28,760			48,957
Deferred revenue	3,253			3,718
Income taxes payable	635			1,171
Deferred tax liability	2,701			—
Other long-term liabilities	1,673			1,615
Total liabilities	37,022			55,461
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $0.001 par value; 3,000,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.001 par value, 47,000,000 shares authorized; 24,156,554 shares and 23,537,275 shares, respectively, issued and outstanding	24			24
Additional paid-in capital	255,036			244,733
Accumulated deficit	(64,475		)	(37,996		)
Accumulated other comprehensive income (loss)	(647		)	612
Total stockholders’ equity	189,938			207,373
Total liabilities and stockholders’ equity	$	226,960		$	262,834

See Notes to Condensed Consolidated Financial Statements

3

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Net revenues:
Products	$	19,487		$	30,164		$	101,991		$	69,776
Service	7,646			8,880			24,747			28,372
Total net revenues	27,133			39,044			126,738			98,148
Costs of net revenues:
Cost of products	10,737			18,116			52,165			40,908
Cost of service	4,292			4,469			14,061			14,510
Amortization of intangible assets	688			658			2,039			1,963
Total costs of net revenues	15,717			23,243			68,265			57,381
Gross profit	11,416			15,801			58,473			40,767
Operating expenses:
Research and development	8,037			8,926			25,724			24,695
Selling	6,389			6,758			20,443			20,303
General and administrative	5,781			5,424			18,120			16,442
Amortization of intangible assets	103			195			318			588
Restructuring charge	1,715			1,740			1,715			1,740
Total operating expenses	22,025			23,043			66,320			63,768
Loss from operations	(10,609		)	(7,242		)	(7,847		)	(23,001		)
Other income (expense):
Interest income	13			7			37			51
Interest expense	(90		)	(118		)	(286		)	(549		)
Other income (expense), net	(57		)	(334		)	111			(930		)
Total other expense, net	(134		)	(445		)	(138		)	(1,428		)
Loss before income taxes	(10,743		)	(7,687		)	(7,985		)	(24,429		)
Provision for (benefit from) income taxes	17,919			(3,133		)	18,494			(9,727		)
Net loss	$	(28,662	)	$	(4,554	)	$	(26,479	)	$	(14,702	)
Net loss per share:
Basic	$	(1.19	)	$	(0.20	)	$	(1.11	)	$	(0.63	)
Diluted	$	(1.19	)	$	(0.20	)	$	(1.11	)	$	(0.63	)
Weighted shares used in per share calculation:
Basic	24,132			23,261			23,928			23,247
Diluted	24,132			23,261			23,928			23,247

See Notes to Condensed Consolidated Financial Statements

4

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Net loss	$	(28,662	)	$	(4,554	)	$	(26,479	)	$	(14,702	)
Other comprehensive income (loss):
Change in foreign currency translation adjustment	(1,637		)	1,142			(1,252		)	(837		)
Net change on unrealized gains on available-for-sale investments	(15		)	20			(7		)	17
Other comprehensive income (loss)	(1,652		)	1,162			(1,259		)	(820		)
Comprehensive loss	$	(30,314	)	$	(3,392	)	$	(27,738	)	$	(15,522	)

See Notes to Condensed Consolidated Financial Statements

5

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	September 27, 2014			September 28, 2013
Cash flows from operating activities:
Net loss	$	(26,479	)	$	(14,702	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization	8,660			6,536
Stock-based compensation	5,115			5,912
Excess tax benefit from equity awards	—			467
Loss on disposal of fixed assets	80			173
Provision for doubtful accounts receivable	11			—
Inventory write-down	1,109			6,307
Deferred income taxes	20,776			(9,659		)
Changes in fair value of contingent consideration	118			1,045
Changes in assets and liabilities:
Accounts receivable	4,871			(1,818		)
Inventories	(7,998		)	(7,173		)
Inventories-delivered systems	6,400			(300		)
Prepaid expenses and other	1,751			820
Accounts payable, accrued and other liabilities	(4,535		)	6,798
Deferred revenue	(16,270		)	2,044
Income taxes payable	(3,158		)	(363		)
Net cash used in operating activities	(9,549		)	(3,913		)
Cash flows from investing activities:
Maturities of marketable securities	25,570			38,030
Purchases of marketable securities	(26,810		)	(40,797		)
Purchases of property, plant and equipment	(2,800		)	(3,516		)
Net cash used in investing activities	(4,040		)	(6,283		)
Cash flows from financing activities:
Payments to Zygo Corporation related to acquisition	(470		)	(735		)
Repayments of debt obligations	—			(5,224		)
Proceeds from sale of shares under employee stock option and purchase plans	5,852			3,192
Excess tax benefit from equity awards	—			(467		)
Taxes paid on net issuance of stock awards	(664		)	(86		)
Repurchases of common stock	—			(5,000		)
Net cash provided by (used in) financing activities	4,718			(8,320		)
Effect of exchange rate changes on cash and cash equivalents	(269		)	(566		)
Net decrease in cash and cash equivalents	(9,140		)	(19,082		)
Cash and cash equivalents, beginning of period	44,765			62,915
Cash and cash equivalents, end of period	$	35,625		$	43,833
Supplemental disclosure of non-cash investing activities:
Transfer of inventory to property, plant and equipment, net	$	4,627		$	3,106

See Notes to Condensed Consolidated Financial Statements

6

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Business and Basis of Presentation

Description of Business – Nanometrics Incorporated (“Nanometrics” or the “Company”) and its wholly-owned subsidiaries, design, manufacture, market, sell and support thin film, optical critical dimension and overlay dimension metrology and inspection systems used primarily in the manufacturing of semiconductors, solar photovoltaics (“solar PV”) and high-brightness LEDs (“HB-LED”), as well as by customers in the silicon wafer and data storage industries. Nanometrics' metrology systems precisely measure a wide range of film types deposited on substrates during manufacturing to control manufacturing processes and increase production yields in the fabrication of integrated circuits. The thin film metrology systems use a broad spectrum of wavelengths, high-sensitivity optics, proprietary software, and patented technology to measure the thickness and uniformity of films deposited on silicon and other substrates as well as their chemical composition. The Company’s optical critical dimension technology is a patented critical dimension measurement technology that is used to precisely determine the dimensions on the semiconductor wafer that directly control the resulting performance of the integrated circuit devices. The overlay metrology systems are used to measure the overlay accuracy of successive layers of semiconductor patterns on wafers in the photolithography process. Nanometrics' inspection systems are used to find defects on patterned and unpatterned wafers at nearly every stage of the semiconductor production flow. The corporate headquarters of Nanometrics is located in Milpitas, California.

Basis of Presentation – The accompanying condensed consolidated financial statements ("financial statements") have been prepared on a consistent basis with the audited consolidated financial statements as of December 28, 2013, and include all normal recurring adjustments necessary to fairly present the information set forth therein. All significant intercompany accounts and transactions have been eliminated in consolidation.

The financial statements have been prepared in accordance with the regulations of the United States Securities and Exchange Commission (“SEC”) for interim periods in accordance with S-X Article 10, and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The operating results for interim periods are not necessarily indicative of the operating results that may be expected for the entire year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2013, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2014.

Fiscal Period – The Company uses a 52/53 week fiscal year ending on the last Saturday of the calendar year. All references to the quarter refer to Nanometrics' fiscal quarter. The fiscal quarters presented herein include 13 weeks.

Reclassification – Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. Estimates are used for, but not limited to, revenue recognition, the provision for doubtful accounts, the provision for excess, obsolete, or slow moving inventories, valuation of intangible and long-lived assets, warranty accruals, income taxes, valuation of stock-based compensation and contingencies.

Revenue Recognition – The Company derives revenue from the sale of process control metrology systems (“product revenue”) as well as spare part sales, billable service, service contracts and upgrades (together “service revenue”). Upgrades are a group of parts and/or software that change the existing configuration of a product and are included in service revenue. They are distinguished from product revenue, which consists of complete, advanced process control metrology and inspection systems (the “system(s)”). Nanometrics' systems consist of hardware and software components that function together to deliver the essential functionality of the system. Arrangements for sales of systems often include defined customer-specified acceptance criteria.

In summary, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price is fixed or determinable, and collectability is reasonably assured.

7

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

For product sales to existing customers, revenue recognition occurs at the time title and risk of loss transfer to the customer, which usually occurs upon shipment from the Company's manufacturing location, if it can be reliably demonstrated that the product has successfully met the defined customer specified acceptance criteria and all other recognition criteria has been met. For initial sales where the product has not previously met the defined customer specified acceptance criteria, product revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the contractual acceptance period. In Japan, where contractual terms with the customer specify risk of loss and title transfers upon customer acceptance, revenue is recognized upon receipt of written customer acceptance, provided that all other recognition criteria have been met.

The Company warrants its products against defects in manufacturing. Upon recognition of product revenue, a liability is recorded for anticipated warranty costs. On occasion, customers request a warranty period longer than the Company's standard warranty. In those instances where extended warranty services are separately quoted to the customer, the associated revenue is deferred and recognized as service revenue ratably over the term of the contract. The portion of service contracts and extended warranty services agreements that are uncompleted at the end of any reporting period are included in deferred revenue.

As part of its customer services, the Company sells software that is considered to be an upgrade to a customer's existing systems. These standalone software upgrades are not essential to the tangible product's functionality and are accounted for under software revenue recognition rules which require vendor specific objective evidence ("VSOE") of fair value to allocate revenue in a multiple element arrangement. Revenue from upgrades is recognized when the upgrades are delivered to the customer, provided that all other recognition criteria have been met.

Revenue related to spare parts is recognized upon shipment. Revenue related to billable services is recognized as the services are performed. Service contracts may be purchased by the customer during or after the warranty period and revenue is recognized ratably over the service contract period.

Frequently, the Company delivers products and various services in a single transaction. The Company's deliverables consist of tools, installation, upgrades, billable services, spare parts, and service contracts. The Company's typical multi-element arrangements include a sale of one or multiple tools that include installation and standard warranty. Other arrangements consist of a sale of tools bundled with service elements or delivery of different types of services. The Company's tools, upgrades, and spare parts are generally delivered to customers within a period of up to six months from order date. Installation is usually performed soon after delivery of the tool. The portion of revenue associated with installation is deferred based on relative selling price and that revenue is recognized upon completion of the installation. Billable services are billed on a time and materials basis and performed as requested by customers. Under service contract arrangements, services are provided as needed over the fixed arrangement term. The Company does not grant its customers a general right of return or any refund terms and imposes a penalty on orders canceled prior to the scheduled shipment date.

The Company regularly evaluates its revenue arrangements to identify deliverables and to determine whether these deliverables are separable into multiple units of accounting. In accordance with revenue recognition guidance, the Company allocates the arrangement consideration among the deliverables based on relative selling prices. The Company has established VSOE for some of its products and services when a substantial majority of selling prices falls within a narrow range when sold separately. For deliverables with no established VSOE, the Company uses best estimate of selling price to determine standalone selling price for such deliverable. The Company does not use third party evidence to determine standalone selling price since this information is not widely available in the market as the Company's products contain a significant element of proprietary technology and the solutions offered differ substantially from competitors. The Company has established a process for developing estimated selling prices, which incorporates historical selling prices, the effect of market conditions, gross margin objectives, pricing practices, as well as entity-specific factors. The Company monitors and evaluates estimated selling price on a regular basis to ensure that changes in circumstances are accounted for in a timely manner.

When certain elements in multiple-element arrangements are not delivered or accepted at the end of a reporting period, the relative selling prices of undelivered elements are deferred until these elements are delivered and/or accepted. If deliverables cannot be accounted for as separate units of accounting, the entire arrangement is accounted for as a single unit of accounting and revenue is deferred until all elements are delivered and all revenue recognition requirements are met.

8

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 2. Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) ("ASU 2013-11"), which provides that a liability related to an unrecognized tax benefit would be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations in which a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the financial statements as a liability and will not be combined with deferred tax assets. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. ASU 2013-11 is effective for fiscal years and interim periods beginning after December 15, 2013. The Company adopted this standard during the three months ended March 29, 2014, resulting in a one-time tax benefit of $0.3 million, a reduction in deferred tax assets of $0.3 million, and a reduction in long-term income taxes payable of $0.6 million.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

Note 3. Fair Value Measurements and Disclosures

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability, and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability.

The Company determines the fair values of its financial instruments based on the fair value hierarchy established in ASC 820, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into the following three levels that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 — Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Such unobservable inputs include an estimated discount rate used in the Company's discounted present value analysis of future cash flows, which reflects the Company's estimate of debt with similar terms in the current credit markets. As there is currently minimal activity in such markets, the actual rate could be materially different.

9

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following tables present the Company’s assets and liabilities measured at estimated fair value on a recurring basis, excluding accrued interest components, categorized in accordance with the fair value hierarchy (in thousands), as of the following dates:

	September 27, 2014								December 28, 2013
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	549	$	—	$	—	$	549	$	876	$	—	$	—	$	876
Commercial paper	—		650		—		650		—		750		—		750
Total cash equivalents	549		650		—		1,199		876		750		—		1,626
Marketable securities:
U.S. Treasury, U.S. Government and U.S. Government agency debt securities	2,498		18,687		—		21,185		5,036		11,980		—		17,016
Commercial paper, municipal securities and corporate debt securities	—		27,563		—		27,563		—		31,081		—		31,081
Total marketable securities	2,498		46,250		—		48,748		5,036		43,061		—		48,097
Total (1)	$	3,047	$	46,900	$	—	$	49,947	$	5,912	$	43,811	$	—	$	49,723
Liabilities:
Contingent consideration payable	$	—	$	—	$	2,431	$	2,431	$	—	$	—	$	2,783	$	2,783

⁽¹⁾ Excludes cash of $34.4 million and $43.1 million held in operating accounts as of September 27, 2014 and December 28, 2013, respectively.

The fair values of the marketable securities that are classified as Level 1 in the table above were derived from quoted market prices for identical assets or liabilities that the Company has the ability to access. The fair value of marketable securities that are classified as Level 2 in the table above were derived from: non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data. There were no transfers of instruments between Level 1, Level 2 and Level 3 during the financial periods presented.

Changes in Level 3 liabilities (in thousands)
Fair value at December 28, 2013	$	2,783
Payments made to Zygo Corporation	(470		)
Change in fair value included in earnings	118
Fair Value at September 27, 2014	$	2,431

As of September 27, 2014, the Company had liabilities of $2.4 million resulting from the acquisition of certain assets from Zygo Corporation (“Zygo”), which are measured at fair value on a recurring basis, with changes in fair value recorded in other income (expense), net. Of the $2.4 million of Zygo liabilities at September 27, 2014, $0.9 million was a current liability and $1.5 million was a long-term liability. As of December 28, 2013, the liabilities totaled $2.8 million of which $1.3 million was a current liability and $1.5 million was a long-term liability. The fair values of these liabilities were determined using Level 3 inputs applying a discounted cash flow model incorporating assumptions that market participants would use in their estimates of fair value. Some of these assumptions included estimates for discount rate, and timing and the amount of cash flows.

10

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 4. Cash and Investments

The following table presents cash, cash equivalents, and available-for-sale investments as of the following dates (in thousands):

	September 27, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	34,426	—		$	—		$	34,426
Cash equivalents:
Money market funds	549		—		—			549
Commercial paper	650		—		—			650
Marketable securities:
Commercial paper	700		—		—			700
U.S. Treasury securities	2,497		1		—			2,498
U.S. Government agency securities	18,685		6		(4		)	18,687
Municipal securities	5,014		3		(2		)	5,015
Corporate debt securities	21,850		9		(11		)	21,848
Total cash, cash equivalents, and marketable securities	$	84,371	$	19	$	(17	)	$	84,373
	December 28, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	43,139	$	—	$	—		$	43,139
Cash equivalents:
Money market funds	876		—		—			876
Commercial paper	750		—		—			750
Marketable securities:
U.S. Treasury Securities	5,036		—		—			5,036
U.S. Government agency securities	11,980		4		(4		)	11,980
Municipal securities	9,756		11		(4		)	9,763
Corporate debt securities	21,316		7		(5		)	21,318
Total cash, cash equivalents, and marketable securities	$	92,853	$	22	$	(13	)	$	92,862

Available-for-sale marketable securities, readily convertible to cash, with maturity dates of 90 days or less are classified as cash equivalents, while those with maturity dates greater than 90 days are classified as marketable securities within short-term assets. All marketable securities as of September 27, 2014 and December 28, 2013, were available-for-sale and

11

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

reported at fair value based on the estimated or quoted market prices as of the balance sheet date. Unrealized gains or losses, net of tax effect, are recorded in accumulated other comprehensive income (loss) within stockholders' equity. Both the gross unrealized gains and gross unrealized losses for the three and nine months ended September 27, 2014 and September 28, 2013, were insignificant and no marketable securities had other than temporary impairment. All marketable securities as of September 27, 2014 and December 28, 2013, had maturity dates of less than two years and were not invested in foreign entities.

Note 5. Accounts Receivable

The Company maintains arrangements under which eligible accounts receivables in Japan are sold without recourse to unrelated third party financial institutions. These receivables were not included in the consolidated balance sheets as the criteria for sale treatment had been met. The Company pays administrative fees as well as interest ranging in total from 1.19% to 1.68% based on the anticipated length of time between the date the sale is consummated and the expected collection date of the receivables sold. The Company sold $1.3 million and $0.6 million of receivables during the three months ended September 27, 2014 and September 28, 2013, respectively, and sold $2.9 million and $5.2 million of receivables during the nine months ended September 27, 2014 and September 28, 2013, respectively. There were no material gains or losses on the sale of such receivables. There were no amounts due from such third party financial institutions at September 27, 2014 and December 28, 2013, respectively.

Note 6. Inventories

Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. Inventories consist of the following as of the following dates (in thousands):

	September 27, 2014		December 28, 2013
Raw materials and sub-assemblies	$	18,836	$	19,655
Work in process	6,366		7,597
Finished goods	10,560		7,268
Inventories	35,762		34,520
Inventories-delivered systems	501		6,901
Total inventories	$	36,263	$	41,421

The Company reflects the cost of systems that were invoiced upon shipment but deferred for revenue recognition purposes separate from its inventory held for sale as "Inventories-delivered systems."

Note 7. Property, Plant and Equipment

Property, plant and equipment, net, consist of the following as of the following dates (in thousands):

	September 27, 2014			December 28, 2013
Land	$	15,575		$	15,569
Building and improvements	19,826			19,403
Machinery and equipment	31,569			27,820
Furniture and fixtures	2,343			2,308
Software	7,844			1,851
Capital in progress	3,070			5,833
Total property, plant and equipment, gross	80,227			72,784
Accumulated depreciation and amortization	(29,491		)	(25,345		)
Total property, plant and equipment, net	$	50,736		$	47,439

Total depreciation and amortization expense for the three months ended September 27, 2014 and September 28, 2013, was $1.7 million and $1.4 million, respectively. Total depreciation and amortization expense on property, plant and equipment for the nine months ended September 27, 2014 and September 28, 2013, was $4.9 million and $4.0 million, respectively.

12

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 8. Goodwill and Intangible Assets

The following table summarizes the activity in the Company’s goodwill during the nine months ended September 27, 2014 (in thousands):

Balance as of December 28, 2013	$	11,743
Foreign currency movements	(704		)
Balance as of September 27, 2014	$	11,039

Finite-lived intangible assets are recorded at cost, less accumulated amortization. Finite-lived intangible assets consisted of the following as of the following dates (in thousands):

	September 27, 2014
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	17,471	$	(12,647	)	$	4,824
Customer relationships	9,510		(9,444		)	66
Brand names	1,927		(1,776		)	151
Patented technology	2,252		(2,038		)	214
Trademark	80		(80		)	—
	$	31,240	$	(25,985	)	$	5,255

	December 28, 2013
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	18,095	$	(11,032	)	$	7,063
Customer relationships	9,573		(9,263		)	310
Brand names	1,927		(1,700		)	227
Patented technology	2,252		(1,988		)	264
Trademark	80		(80		)	—
	$	31,927	$	(24,063	)	$	7,864

The amortization of finite-lived intangibles is computed using the straight-line method. Estimated lives of finite-lived intangibles range from 2 to 10 years. Total amortization expense for each of the three months ended September 27, 2014 and September 28, 2013 was $0.8 million and $0.9 million, respectively. Total amortization expense for each of the nine months ended September 27, 2014 and September 28, 2013, was $2.3 million and $2.6 million, respectively.

13

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

At September 27, 2014, estimated future amortization expense of intangible assets were as follows (in thousands):

Fiscal years	Amount
2014 (remaining three months)	$	734
2015	2,293
2016	1,816
2017	206
2018	140
Thereafter	66
Total future amortization expense	$	5,255

Note 9. Other Current Liabilities

Other current liabilities consist of the following as of the following dates (in thousands):

	September 27, 2014		December 28, 2013
Accrued warranty	$	2,990	$	3,426
Accrued professional services	726		545
Customer deposits	3		867
Fair value of contingent payments to Zygo Corporation related to acquisition - current portion	930		1,344
Other	3,185		1,811
Total other current liabilities	$	7,834	$	7,993

Note 10. Restructuring

The Company recorded a restructuring charge of approximately $1.7 million during the three months ended September 27, 2014 as a result of its decision to consolidate a portion of its operations in the United Kingdom. This amount includes charges primarily related to employee severance, other expenses and early termination costs of a facility lease due to expire in 2017 in the amounts of $0.6 million, $0.3 million and $0.8 million, respectively. The Company expects to complete this restructuring plan by March 2015. Other related costs will be recognized as incurred.

The Company had recorded a restructuring charge of $1.7 million during the three months ended September 28, 2013 as a result of its decision to consolidate a portion of its European operations. As of December 28, 2013, the Company had completed and settled in full all cash payments related to the employee severance expenses and non-cash items related to the acceleration of vesting of RSUs.

As of September 27, 2014 and September 28, 2013, respectively, the components of the Company's restructuring reserves were included in other current liabilities and were as follows (in thousands):

	Employee severance and benefits			Facility termination costs		Other			Total
Balance as of June 28, 2014	$	—		$	—	$	—		$	—
Charges	560			846		309			1,715
Cash Payments	(152		)	—		(280		)	(432		)
Balance as of September 27, 2014	$	408		$	846	$	29		$	1,283

14

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

	Employee severance and benefits			Facility termination costs		Other		Total
Balance as of June 29, 2013	$	—		$	—	$	—	—
Charges	1,740			—		—		1,740
Cash Payments	—			—		—		—
Non-cash items	(896		)	—		—		(896		)
Balance as of September 28, 2013	$	844		$	—	$	—	$	1,740

Note 11. Line of Credit and Debt Obligations

Line of Credit - On May 30, 2014, the Company amended its revolving line of credit facility (i) to extend the maturity date of such facility by two years to May 30, 2016, and (ii) to increase the minimum amount available to borrow to $12.0 million. The instrument governing the line of credit facility includes certain financial covenants regarding tangible net worth. The revolving line of credit agreement includes a provision for the issuance of commercial or standby letters of credit by the bank on behalf of the Company. The value of all letters of credit outstanding reduces the total line of credit available. The revolving line of credit is collateralized by a blanket lien on all of the Company’s domestic assets excluding intellectual property and real estate. The minimum borrowing interest rate is 3.00% per annum. Borrowing is limited to the lesser of (a) $12.0 million plus the borrowing base, or (b) $20.0 million. The total borrowing available as of September 27, 2014, was $15.9 million. As of September 27, 2014, the Company was not in breach of any restrictive covenants in connection with this line of credit. There were no outstanding amounts drawn on this facility as of September 27, 2014. Although management has no current plans to request advances under this credit facility, the Company may use the proceeds of any future borrowing for general corporate purposes, future acquisitions or expansion of the Company's business.

Mortgage Loan - In July 2008, the Company entered into a mortgage loan agreement with General Electric Commercial Finance ("GE") pursuant to which it borrowed $13.5 million, secured, in part, by a lien on and security interest in the building and land comprising the Company's principal offices in Milpitas, California. The loan initially bore interest at the rate of 7.18% per annum, which rate was scheduled to reset in August 2013 to 3.03% over the weekly average yield of five-year U.S Dollar Interest Rate Swaps as published by the Federal Reserve. Monthly principal and interest payments were based on a 20 year amortization for the first 60 months and 15 year amortization thereafter. The remaining principal balance of the loan and any accrued but unpaid interest will be due on August 1, 2018. According to the terms of the loan agreement, the Company could make annual pre-payments of up to 20% of the outstanding principal balance without incurring any penalty. GE subsequently sold the mortgage on March 31, 2011 to Sterling Saving Bank; however, no changes were made to the terms of the original loan agreement with GE as a result of the sale. In July 2012, the Company prepaid $1.4 million of the loan, representing 20% of the outstanding balance at the time of prepayment. On July 18, 2013, the Company repaid $4.8 million of the loan, representing the entire outstanding principal balance of the loan and all accrued interest. The Company did not incur any fees associated with the prepayment of the loan. As of September 27, 2014, there was no outstanding balance and no available amounts to borrow on the loan.

Note 12. Net Income (Loss) Per Share

The Company presents both basic and diluted net income (loss) per share on the face of its condensed consolidated statements of operations. Basic net income (loss) per share are computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted net income (loss) per share are computed using the weighted-average number of shares of common stock outstanding plus the effect of all dilutive securities representing potential shares of common stock outstanding during the period.

Since the Company had a net loss for the three and nine months ended September 27, 2014 and September 28, 2013, potentially dilutive securities of 0.4 million shares were not included in the computation of diluted shares for the nine months ended September 27, 2014 and the three and nine months ended September, 28, 2013, and 0.3 million shares for three months ended September 27, 2014, since inclusion of such shares would have been anti-dilutive. Accordingly, basic and diluted net loss per share were the same for the three and nine months ended September 27, 2014 and September 28, 2013.    

Note 13. Equity and Stock Based Compensation Plans

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Options

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 life 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 the Company's 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 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Stock Options
Expected life	—		4.6 years		4.6 years		4.5 years
Expected volatility	—		64.38	%	54.86	%	71.04	%
Risk-free interest rate	—		1.52	%	1.54	%	1.00	%
Dividends	—		—		—		—
Employee Stock Purchase Plan
Expected life	0.5 years		0.5 years		0.5 years		0.5 years
Expected volatility	29.64	%	25.94	%	32.60	%	26.75	%
Risk-free interest rate	0.06	%	0.10	%	0.54	%	0.11	%
Dividends	—		—		—		—

No stock options were awarded during the three months ended September 27, 2014. The weighted average fair value per share of the stock options awarded in the three months September 28, 2013 was $7.75, and in the nine months ended September 27, 2014 and September 28, 2013, was $8.13 and $8.55, 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 months ended September 27, 2014 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 28, 2013	1,909,039		$	13.22	4.02	$	10,341
Exercised	(395,940	)	$	10.54
Granted	74,300		$	17.56
Cancelled	(104,781	)	$	15.64
Outstanding at September 27, 2014	1,482,618		$	13.98	3.65	$	3,521
Exercisable at September 27, 2014	1,038,707		$	13.03	2.92	$	3,346

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $15.70 as of September 26, 2014, the last trading day of the quarter, 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 months ended September 27, 2014 and September 28, 2013, was $0.4 million and $0.2 million, respectively, and during the nine months ended September 27, 2014 and September 28, 2013, was $2.9 million and $1.7 million, respectively.

16

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Restricted Stock Units ("RSUs")

A summary of activity for RSUs during the nine months ended September 27, 2014, is as follows:

	Number of RSUs		Weighted Average Fair Value
Outstanding RSUs at December 28, 2013	334,444		$	18.61
Granted	399,475		$	17.61
Released	(136,959	)	$	17.89
Cancelled	(63,711	)	$	16.75
Outstanding RSUs at September 27, 2014	533,249		$	18.27

Stock-based Compensation Expense

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 was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Cost of products	$	70	$	55	$	199	$	153
Cost of service	53		74		227		204
Research and development	331		412		967		1,092
Selling	490		476		1,353		1,418
General and administrative	761		789		2,369		2,149
Restructuring	—		896		—		896
Total stock-based compensation expense	$	1,705	$	2,702	$	5,115	$	5,912

Note 14. Components of Accumulated Other Comprehensive Income (Loss)

The following table shows a summary of changes in components of accumulated other comprehensive income (loss) for the nine months ended September 27, 2014 (in thousands):

	Defined Benefit Pension Plans			Foreign Currency Translations			Unrealized Gain on Investment			Total
Balance at December 28, 2013	$	(28	)	$	631		$	9		$	612
Other comprehensive income (loss)	—			(1,252		)	(7		)	(1,259		)
Balance at September 27, 2014	$	(28	)	$	(621	)	$	2		$	(647	)

Note 15. Warranties

The Company sells the majority of its products with a 12 months repair or replacement warranty from the date of acceptance or shipment date. The Company provides an accrual for estimated future warranty costs based upon the historical relationship of warranty costs to the cost of products sold. The estimated future warranty obligations related to product sales are recorded in the period in which the related revenue is recognized. The estimated future warranty obligations are affected by the warranty periods, sales volumes, product failure rates, material usage, and labor and replacement costs incurred in correcting a product failure. If actual product failure rates, material usage, labor or replacement costs were to differ from the Company’s estimates, revisions to the estimated warranty obligations would be required. For new product introductions where limited or no historical information exists, the Company may use warranty information from other previous product introductions to guide it

17

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

in estimating its warranty accrual. The warranty accrual represents the best estimate of the amount necessary to settle future and existing claims on products sold as of the balance sheet date. The Company periodically assesses the adequacy of its reported warranty reserve and adjusts such amounts in accordance with changes in these factors.

Components of the warranty accrual, which were included in the accompanying condensed consolidated balance sheets within other current liabilities, were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Balance at beginning of the period	$	3,484		$	3,519		$	3,426		$	4,203
Accruals for warranties	1,242			1,161			4,459			2,886
Settlements during the period	(1,736		)	(1,278		)	(4,895		)	(3,687		)
Balance at end of the period	$	2,990		$	3,402		$	2,990		$	3,402

Note 16. Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, Accounting for Income Taxes. The Company adjusts its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company also records the tax effect of unusual or infrequently occurring discrete items, including changes in judgment about valuation allowances and effects of changes in tax laws or tax rates, in the interim period in which they occur. The Company's effective tax rate reflects the impact of a portion of its earnings being taxed in foreign jurisdictions as well as a valuation allowance maintained on certain deferred tax assets.

The Company recorded a tax provision of $17.9 million and a tax benefit of $3.1 million for the three months ended September 27, 2014 and September 28, 2013, respectively, and a tax provision of $18.5 million and a tax benefit of $9.7 million for the nine months ended September 27, 2014 and September 28, 2013, respectively. The change during the three and nine months ended September 27, 2014, compared to the corresponding period in 2013, was primarily related to a one-time charge of $21.1 million related to the establishment of a valuation allowance against the Company's U.S. deferred tax assets during the three months ended September 27, 2014, partially offset by a one-time benefit of $0.6 million recorded during the nine months ended September 28, 2013 related to the retroactive reinstatement of the 2012 Federal R&D tax credit.

The realization of deferred tax assets is primarily dependent on the Company generating sufficient U.S. and foreign taxable income in future fiscal years. The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, the Company considers its cumulative loss in the U.S. as a significant piece of negative evidence. During the three month period ended September 27, 2014, the Company recorded a $21.1 million valuation allowance against its U.S. deferred tax assets as it determined, within the period, it would not meet the more likely than not threshold. The Company continued to maintain valuation allowances against certain foreign deferred tax assets as a result of uncertainties regarding the realization of the asset due to cumulative losses and uncertainty of future taxable income. The Company will continue to assess the realizability of the deferred tax assets in each of the applicable jurisdictions and maintain the valuation allowances until sufficient positive evidence exists to support a reversal. In the event that the Company determines that the deferred tax assets are realizable, an adjustment to the valuation allowances will be reflected in the tax provision for the period such determination is made.

The Company is subject to taxation in the U.S. and various states including California, and foreign jurisdictions including South Korea, Japan and United Kingdom. Due to tax attribute carry-forwards, the Company is subject to examination for tax years from 2003 forward for U.S. tax purposes. The Company is also subject to examination in various states for tax years from 2002 forward. The Company is subject to examination for tax years from 2006 forward for various foreign jurisdictions.

On September 13, 2013, the U.S. Treasury Department and the IRS issued final regulations that address costs incurred in acquiring, producing, or improving tangible property (the "tangible property regulations"). The tangible property regulations are generally effective for tax years beginning on or after January 1, 2014, and may be adopted in earlier years. The tangible property regulations required the Company to make additional tax accounting method changes as of January 1, 2014. The impact of these changes was not material to the Company’s consolidated financial position or its results of operations.

18

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of accrued penalties and interest was immaterial for the three and nine months ended September 27, 2014. During the next twelve months, the Company anticipates increases in its unrecognized tax benefits of approximately $0.2 million.

Note 17. Commitments and Contingencies

Intellectual Property Indemnification Obligations – The Company will, from time to time, in the normal course of business, agree to indemnify certain customers, vendors or others against third party claims that the Company’s products, when used for their intended purpose(s), or the Company's intellectual property, infringe the intellectual property rights of such third parties or other claims made against parties with which it enters into contractual relationships. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim. Historically, the Company has not made payments under these obligations and believes that the estimated fair value of these agreements is immaterial. Accordingly, no liabilities have been recorded for these obligations in the accompanying condensed consolidated balance sheets as of September 27, 2014 and December 28, 2013.    

Note 18. Geographic and Significant Customer Information

The Company has one operating segment, which is the sale, design, manufacture, marketing and support of thin film and optical critical dimension systems. The following tables summarize total net revenues (based on the deployments and service location of the systems) and long-lived assets (excluding intangible assets) attributed to significant geographic regions (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
United States	$	5,511	$	15,665	$	25,554	$	41,426
Japan	4,099		2,387		10,005		9,617
Taiwan	640		3,737		11,337		6,959
China	2,848		901		27,694		6,952
South Korea	6,327		9,805		30,589		18,946
Other	7,708		6,549		21,559		14,248
Total net revenues	$	27,133	$	39,044	$	126,738	$	98,148

	At
	September 27, 2014		December 28, 2013
United States	$	50,061	$	44,775
Japan	82		125
South Korea	337		445
All Other	256		2,094
Total long-lived tangible assets	$	50,736	$	47,439

The following customers accounted for 10% or more of total accounts receivable as of the following dates:

19

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

	September 27, 2014		December 28, 2013
SK Hynix	26	%	22	%
Taiwan Semiconductor Mfg. Co.	***		12	%
Global Foundries	14	%	***
Samsung Electronics Co. Ltd.	***		27	%
Intel Corporation	***		14	%
Micron Technology, Inc.	12	%	***

*** The customer accounted for less than 10% of total accounts receivable as of that period end.

The following customers accounted for 10% or more of total net revenues:

	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Intel Corporation	***		34	%	14	%	30	%
SK Hynix	27	%	23	%	16	%	18	%
Samsung Electronics Co. Ltd.	***		***		28	%	***
Micron Technology, Inc.	25	%	***		***		***

*** The customer accounted for less than 10% of total net revenues for that period.

20

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this document that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding future periods, financial results, revenues, margins, growth, customers, tax rates, product performance, and the impact of accounting rules on our business and the future implications of our statements regarding goals, strategy, and similar terms. We may identify these statements by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” "intend," "likely," “may,” “might,” "plan," "potential," "predict," "project," "should," “will,” "would," and other similar expressions. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements, except as may otherwise be required by law.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain risks, uncertainties and changes in circumstances, many of which may be difficult to predict or beyond our control, including those factors referenced in Part II, Item 1A, Risk Factors, and elsewhere in this document, and in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 28, 2013. In particular our results could vary significantly based on: changes in customer and industry spending; rate and extent of changes in product mix; adoption of new products; timing of orders, shipments, and acceptance of products; our ability to secure volume supply agreements; and general economic conditions. In evaluating our business, investors should carefully consider these factors in addition to any other risks and uncertainties set forth elsewhere. The occurrence of the events described in the risk factors and elsewhere in this report as well as other risks and uncertainties could materially and adversely affect our business, operating results and financial condition. While management believes that the discussion and analysis in this report is adequate for a fair presentation of the information presented, we recommend that you read this discussion and analysis in conjunction with (i) our audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2013, which were included in our 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 7, 2014, and (ii) our other filings with the SEC.

We are an innovator in the field of metrology and inspection systems for semiconductor manufacturing and other industries. Our systems are designed to precisely monitor film thickness and critical dimensions that are necessary to control the manufacturing process and to identify defects that can affect production yields and performance.

Principal factors that impact our revenue growth include capital expenditures by manufacturers of semiconductors to increase capacity and to enable their development of new technologies, and our ability to gain market share. The increasing complexity of the manufacturing processes for semiconductors is an important factor in the demand for our innovative metrology systems, as are the adoption of optical critical dimension metrology across fabrication processes, the adoption of immersion lithography and double patterning, the adoption of new types of thin film materials, the adoption of advanced packaging strategies and wafer backside inspection, and the need for improved process control to drive process efficiencies. Our strategy is to continue to innovate organically as well as to evaluate strategic acquisitions to address business challenges and opportunities.

Our revenues are primarily derived from product sales but are also derived from customer service and system upgrades ("services'') for the installed base of our products. For the nine months ended September 27, 2014, we derived 80% of our total net revenues from product sales and 20% of our total net revenues from services.

Overview

Together with our subsidiaries, we are a leading provider of advanced, high-performance process control metrology and inspection systems used primarily in the fabrication of integrated circuits, high-brightness LEDs (“HB-LED”), discrete components and data storage devices. Our automated and integrated systems address numerous process control applications, including critical dimension and film thickness measurement, device topography, defect inspection, overlay registration, and analysis of various other film properties such as optical, electrical and material characteristics. Our process control solutions are deployed throughout the fabrication process, from front-end-of-line substrate manufacturing, to high-volume production of semiconductors and other devices, to advanced wafer-scale packaging applications. Our systems enable device manufacturers to improve yields, increase productivity and lower their manufacturing costs. Our defect inspection systems locate large area and microscopic defects on patterned and unpatterned wafers. This system can be used for inspection at nearly every stage of the semiconductor production flow.

21

Nanometrics Products

We offer a diverse line of systems to address the broad range of process control requirements of the semiconductor manufacturing industry. In addition, we believe that our engineering expertise, strategic acquisitions, supplier alliances and short-cycle production strategies enable us to develop and offer advanced process control solutions in the future that should address industry advancement and trends. We categorize our systems as follows:

Automated Standalone Systems

Our automated systems are made up of both semi-automated and fully automated metrology systems which are employed in both high-volume and low-volume production environments. The Atlas^® II, Atlas II+, Atlas XP/Atlas XP+and Atlas-M represent our line of high-performance metrology systems providing optical critical dimension (“OCD”^®), thin film metrology and wafer stress for transistor and interconnect metrology applications. The OCD technology is supported by our NanoCD^® suite of solutions including our NanoDiffract^® software and NanoGen^TMscalable computing engine that enables visualization, modeling, and analysis of complex structures. The UniFire^TM system enables users to measure multiple parameters at any given process step in the advanced packaging process flow for critical dimension, overlay, and topography applications. Our SPARK^TMdefect inspection system, offers ultra-fast inspection of patterned and unpatterned semiconductor wafers.

We continue to offer automated products for 200mm factories running at 90nm nodes and above, as well as systems supporting micro-electrical mechanical systems (“MEMS”).

System Platform

The Lynx^® platform enables cluster metrology factory automation for improved cost of ownership to our customers by combining our Atlas^® II and IMPULSE^®, UniFire metrology and SPARK inspectionsystems in configurations to provide high throughput, reduced footprint systems for leading 300mm wafer metrology applications including OCD and thin film process control.

Integrated Systems

Our integrated metrology (“IM”) systems are installed directly onto wafer processing equipment to provide near real-time measurements for improved process control and maximum throughput. Our IM systems are sold directly to end customers and through OEM channels. The IMPULSE^®system is our latest metrology platform for OCD and thin film metrology, and has been successfully qualified on numerous OEM platforms. Our 90x0 system is qualified for OEM and direct sales supporting thin film and OCD applications. Our NanoCD solutions suite is sold in conjunction with our IMPULSE^® and legacy 90x0 systems. Our Trajectory® system provides in-line measurement of layers in thin film thickness and composition in semiconductor applications.

Materials Characterization

Our Materials Characterization products include systems that are used to monitor the physical, optical, electrical and material characteristics of discrete electronic industry, HB-LED, solar Photo-Voltaics ("PV"), compound semiconductor, strained silicon and silicon-on-insulator (“SOI”) devices, including composition, crystal structure, layer thickness, dopant concentration, contamination and electron mobility.

Our Vertex™ is a photoluminescence (“PL”) mapping system designed for high-volume compound semiconductor metrology applications including power control and photonics applications. The RPMBlue™ is our latest PL mapping system designed specifically for the HB-LED market. We sell Fourier-Transform Infrared (“FTIR”) automated and manual systems in the QS2200/3300 and QS1200 respectively. The FTIR systems are spectrometers designed for non-destructive wafer analysis for various applications. The NanoSpec^®line, including the NanoSpec II products supporting thin film measurement across all applications in both low volume production and research applications.

We are continually working to strengthen our competitive position by developing new technologies and products in our market segment. In furtherance of our goals, we have:

• Introduced new products in every core product line and primary market served;

• Diversified our product line and addressed new markets through acquisitions, such as the 2011 acquisition of Nanda Technologies GmbH, a supplier of high sensitivity, high throughput defect inspection systems;

• Continued development of new measurement and inspection technologies for advanced fabrication processes; and

22

• Researched and developed innovative applications of existing technology to new market opportunities within the solar PV, HB-LED, and data storage industries.

Important Themes and Significant Trends

The semiconductor equipment industry is characterized by cyclical growth. Changing trends in the semiconductor industry continue to drive the need for metrology as a major component of manufacturing systems. These trends include:

• Proliferation of Optical Critical Dimension Metrology across Fabrication Processes. Our customers use photolithographic processes to create patterns on wafers. Critical dimensions must be carefully controlled during this process. In advanced node device definition, additional monitoring of thickness and profile dimensions on these patterned structures at CMP, Etch, and Thin Film processing is driving broader OCD adoption. Our proprietary OCD systems can provide the critical process control of these circuit dimensions that is necessary for successful manufacturing of these state-of-the-art devices. Nanometrics OCD technology is broadly adopted across NAND, DRAM, HDD, and logic semiconductor manufacturing processes.

• Adoption of Advanced Packaging Processes. Our customers use photolithographic, etching, metallization and wafer thinning to enable next generation advanced packaging solutions for semiconductor devices. The new packaging leads to increased functionality in smaller, less expensive form factors.  Advanced packages can be broken down into high density flip chip or bump packages that increase pin density allowing for more complex I/O on advanced CPU parts. Similar or different devices can be stacked at the wafer level using a Through Silicon Via ("TSV") process. The TSV process enables high density small form factor parts, being primarily driven by mobile consumer products (e.g. cellular telephones with integrated CMOS camera sensors). Increasingly advanced packaging technologies are being adopted by our end customers.

• Adoption of New Types of Thin Film Materials. The need for ever increasing device circuit speed coupled with lower power consumption has pushed semiconductor device manufacturers to begin the replacement of the traditional aluminum etch back interconnect flows as well as conventional gate dielectric materials, all which drive a broader adoption of thin film and OCD metrology systems. To achieve greater semiconductor device speed, manufacturers have adopted copper in Logic/IDM and it is now proliferating in next generation DRAM and Flash nodes. Additionally, to achieve improved transistor performance in logic devices and higher cell densities in memory devices, new materials including high dielectric constant (or high-k) gate materials are increasingly being substituted for traditional silicon-oxide gate dielectric materials. High-k materials comprise complex thin films including layers of hafnium oxide and a bi-layer of thin film metals. Our advanced metrology and inspection solutions are required for control of process steps, which are critical to enable the device performance improvements that these new materials allow.

• Development of 3D Transistor Architectures. Our end customers continue to improve device density and performance by scaling front-end-of-line transistor architectures. Many of these designs, including FinFET transistors and 3D-NAND have buried features and high aspect ratio stacked features that enable improved performance and density. The advanced designs require additional process control to manage the complex shapes and materials properties, driving additional applications for both OCD and our UniFire systems.

• Need for Improved Process Control to Drive Process Efficiencies. Competitive forces influencing semiconductor device manufacturers, such as price-cutting and shorter product life cycles, place pressure on manufacturers to rapidly achieve production efficiency. Device manufacturers are using our integrated and automated systems throughout the fabrication process to ensure that manufacturing processes scale rapidly, are accurate and can be repeated on a consistent basis.

• Increased Customer Concentration. Our market is characterized by continued consolidation in the customer base. Our largest customer accounted for 28.0% of our total revenue in the nine months ended September 27, 2014, and 29.8% of our total revenue in the nine months ended September 28, 2013.

Critical Accounting Policies

The preparation of our financial statements conforms to accounting principles generally accepted in the United States of America, which requires management, in applying our accounting policies, to make estimates and judgments that have an important impact on our reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of our financial statements. On an ongoing basis, management evaluates its estimates including those related to bad debts, inventory valuations, warranty obligations, impairment and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from management’s estimates. There were no significant changes in our critical accounting policies during the nine months ended September 27, 2014. Please refer to Item 7, "Management's Discussion and Analysis of

23

Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the fiscal year ended December 28, 2013 for a complete discussion of our critical accounting policies.

Recent Accounting Pronouncements

See Note 2 of the Unaudited Condensed Consolidated Financial Statements for a description of recent accounting pronouncements, including the respective dates of adoption and effects or anticipated effects on our results of operations and financial condition.

Results of Operations

Net Revenues

Our net revenues by category were as follows (in thousands, except percentages):

	Three Months Ended									Nine Months Ended
	September 27, 2014		September 28, 2013		Changes In					September 27, 2014		September 28, 2013		Changes In
					Amount			%						Amount			%
Automated Systems	$	15,950	$	22,965	$	(7,015	)	(31	)%	$	83,286	$	51,593	$	31,693		61	%
Integrated Systems	1,570		4,453		(2,883		)	(65	)%	11,084		8,369		2,715			32	%
Materials Characterization	1,967		2,746		(779		)	(28	)%	7,621		9,814		(2,193		)	(22	)%
Total product revenues	19,487		30,164		(10,677		)	(35	)%	101,991		69,776		32,215			46	%
Service revenues	7,646		8,880		(1,234		)	(14	)%	24,747		28,372		(3,625		)	(13	)%
Total net revenues	$	27,133	$	39,044	$	(11,911	)	(31	)%	$	126,738	$	98,148	$	28,590		29	%

For the three months ended September 27, 2014, total net revenues decreased by $11.9 million relative to the comparable 2013 period. This decrease was primarily due to a significant pause in spending at our two largest customers. For the nine months ended September 27, 2014, total net revenues increased by $28.6 million relative to the comparable 2013 period. This increase was primarily from an industry-wide improvement in memory-related semiconductor capital spending and from an increase in foundry penetration, supported by the adoption of multiple Atlas^®, UniFire^TM and IMPULSE^® systems by several customers during the first half of the year partially offset by the decline in process control metrology spending that occurred in the third quarter of 2014.

For the three months ended September 27, 2014, product revenues decreased by $10.7 million relative to the comparable 2013 period. The decrease was characterized by decreases in all product categories including $7.0 million in Automated Systems and $2.9 million in Integrated Systems. For the nine months ended September 27, 2014, product revenues increased by $32.2 million relative to the comparable 2013 period led primarily by increases of $31.7 million in Automated Systems sales (primarily from Atlas^® II, followed by UniFire^TM ) and $2.7 million in Integrated Systems sales (primarily from IMPULSE^® systems), for the reasons cited above.

Service revenues decreased by $1.2 million and $3.6 million, respectively, during the three and nine months ended September 27, 2014, relative to the comparable 2013 periods, primarily due to a decrease in upgrade revenue due to lower demand for upgrades of installed tools during the first and third quarter of 2014. Upgrades tend to fluctuate from quarter-to-quarter based on availability of new functionality from upgrades and customer production cycles, which determine when customers purchase available upgrades.

With a significant portion of the world's semiconductor manufacturing capacity located in Asia, a substantial portion of our revenues continue to be generated in that region. Although sales to customers within individual countries of that region will vary from time to time, we expect that a substantial portion of our revenues will continue to be generated in Asia.

24

Gross Margin

Our gross margin for product and services were as follows:  

	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Product	41.4	%	37.8	%	46.9	%	38.6	%
Services	43.9	%	49.7	%	43.2	%	48.9	%

The calculation of product gross margin includes both cost of products and amortization of intangible assets. Product gross margin for the three and nine months ended September 27, 2014, was 41.4% and 46.9%, respectively, reflecting an increase of 3.6 percentage points and 8.3 percentage points, respectively, from the comparable periods in 2013. The increase in the three months ended September 27, 2014, compared to the same period in the prior fiscal year, was primarily driven by the more favorable mix of higher margin product and a write-off of inventory in the quarter ended September 28, 2013, offset in part by lower current quarter revenues against fixed costs. The increase in the nine months ended September 27, 2014, compared to the same period in the prior fiscal year, was primarily driven by a write-off of inventory in the quarter ended September 28, 2013, and by higher revenues for the nine months ended September 27, 2014 against lower fixed costs for the comparable period in 2013.

The gross margin for our services business was 43.9% and 43.2%, respectively, for the three and nine months ended September 27, 2014, reflecting decreases of 5.8 percentage points and 5.7 percentage points, respectively, from the comparable periods in 2013. The decreases in the three and nine months ended September 27, 2014, as compared to the same period in 2013, were due principally to a decrease in upgrade revenues, which typically have higher margins than core service revenue.

Operating Expenses

Our operating expenses comprised the following (in thousands, except percentages):

	Three Months Ended									Nine Months Ended
					Changes in									Changes in
	September 27, 2014		September 28, 2013		Amount			%		September 27, 2014		September 28, 2013		Amount			%
Research and development	$	8,037	$	8,926	$	(889	)	(10	)%	$	25,724	$	24,695	$	1,029		4	%
Selling	6,389		6,758		(369		)	(5	)%	20,443		20,303		140			1	%
General and administrative	5,781		5,424		357			7	%	18,120		16,442		1,678			10	%
Amortization of intangible assets	103		195		(92		)	(47	)%	318		588		(270		)	(46	)%
Restructuring	1,715		1,740		(25		)	(1	)%	1,715		1,740		(25		)	(1	)%
Total operating expenses	$	22,025	$	23,043	$	(1,018	)	(4	)%	$	66,320	$	63,768	$	2,552		4	%

Research and development. Research and development expenses decreased by $0.9 million for the three months ended September 27, 2014, over the comparable period in 2013, primarily due to the:

•decrease in materials purchases used in the development of new products; and the

•decrease in use of outside consultants.

Research and development expenses increased by $1.0 million for the nine months ended September 27, 2014, over the comparable period in 2013, primarily due to the:

•increase in personnel related costs, primarily related to increased headcount and personnel-related benefit costs;

•increase in spending for non-recurring engineering projects, including product design and prototype development, along with related material spending; and the

•increase in facilities allocation; partially offset by the

25

•decrease in use of outside consultants.

Selling. Selling expenses decreased by $0.4 million for the three months ended September 27, 2014, over the comparable period in 2013 primarily due to a decrease in customer demonstration equipment expense. Selling expenses were unchanged for the nine months ended September 27, 2014, over the comparable period in 2013.

General and administrative. General and administrative expenses increased by $0.4 million for the three months ended September 27, 2014, over the comparable period in 2013, primarily due to the increase in consulting, and software license fees and amortization related to the implementation of a new Enterprise Resource Planning ("ERP") system in the first quarter of 2014. General and administrative expenses increased by $1.7 million for the nine months ended September 27, 2014, over the comparable periods in 2013, primarily due to a $1.3 million increase in consulting, and software license fees and amortization related to the implementation of the ERP system in the first quarter of 2014.

Amortization of intangible assets. Amortization of intangible assets decreased for the three and nine months ended September 27, 2014, compared to the same periods in 2013, as a result of the reduction in amortization due to intangible assets that became fully amortized in 2013 and 2014.

Restructuring. We recorded a restructuring charge of $1.7 million during the three months ended September 27, 2014 to consolidate a portion of our operations in the United Kingdom to maximize efficiencies. This amount includes charges primarily related to employee severance, other expenses and early termination costs related to a facility lease due to expire in 2017 in the amounts of $0.6 million, $0.3 million and $0.8 million respectively. We will measure and recognize the exit liability associated with this lease at the cease-use date. We expect to complete this restructuring plan by March 2015. Other related costs will be recognized as incurred. We had recorded a restructuring charge of $1.7 million during the three months ended September 28, 2013 as a result of our decision to consolidate a portion of our European operations to maximize efficiencies.

Other Income (expense), net. Our other income (expense), net, consisted of the following categories (in thousands, except percentages):

	Three Months Ended										Nine Months Ended
							Changes in										Changes in
	September 27, 2014			September 28, 2013			Amount		%		September 27, 2014			September 28, 2013			Amount			%
Interest income	$	13		$	7		$	6	86	%	$	37		$	51		$	(14	)	(27	)%
Interest expense	(90		)	(118		)	28		(24	)%	(286		)	(549		)	263			(48	)%
Other income (expense), net	(57		)	(334		)	277		(83	)%	111			(930		)	1,041			(112	)%
Total other income (expense), net	$	(134	)	$	(445	)	$	311	(70	)%	$	(138	)	$	(1,428	)	$	1,290		(90	)%

Interest expense for the three and nine months ended September 27, 2014, was lower than the comparable prior year period due to the repayment of the entire outstanding balance of the mortgage on our headquarters during 2013. The decrease in other expense, net, during the three and nine months ended September 27, 2014, compared to the same periods in 2013, was primarily due to a change in fair value of contingent consideration payable as a result of fluctuation of unobservable inputs, which resulted in an increase of $0.3 million and $1.0 million in other income (expense) during the three and nine months ended September 28, 2013, compared to a nominal adjustment during the three and nine months ended September 27, 2014.

Income Taxes

We account for income taxes under the provisions of ASC 740, Accounting for Income Taxes. We adjust the effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We also record the tax effect of unusual or infrequently occurring discrete items, including changes in judgment about valuation allowances and effects of changes in tax laws or tax rates, in the interim period in which they occur. Our effective tax rate reflects the impact of a portion of its earnings being taxed in foreign jurisdictions as well as a valuation allowance maintained on certain deferred tax assets.

We recorded a tax provision of $17.9 million and a tax benefit of $3.1 million for the three months ended September 27, 2014 and September 28, 2013, respectively, and a tax provision of $18.5 million and a tax benefit of $9.7 million for the nine months ended September 27, 2014 and September 28, 2013, respectively. The change during the three and nine months ended September 27, 2014, compared to the corresponding period in 2013, was primarily related to a one-time charge of $21.1 million related to the establishment of a valuation allowance against our U.S. deferred tax assets during the three months ended

26

September 27, 2014, partially offset by a one-time benefit of $0.6 million recorded during the nine months ended September 28, 2013 related to the retroactive reinstatement of the 2012 Federal R&D tax credit.

The realization of deferred tax assets is primarily dependent on us generating sufficient U.S. and foreign taxable income in future fiscal years. We regularly assess the need for a valuation allowance against our deferred tax assets. In making that assessment, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, we consider our cumulative loss in the U.S. as a significant piece of negative evidence. During the three month period ended September 27, 2014, we recorded a $21.1 million valuation allowance against our U.S. deferred tax assets as we determined, within the period, it would not meet the more likely than not threshold. We continue to maintain valuation allowances against certain foreign deferred tax assets as a result of uncertainties regarding the realization of the asset due to cumulative losses and uncertainty of future taxable income. We will continue to assess the realizability of the deferred tax assets in each of the applicable jurisdictions and maintain the valuation allowances until sufficient positive evidence exists to support a reversal. In the event we determine that the deferred tax assets are realizable, an adjustment to the valuation allowances will be reflected in the tax provision for the period such determination is made.

We are subject to taxation in the United States and various states including California, and foreign jurisdictions including South Korea, Japan and the United Kingdom. Due to tax attribute carry-forwards, we are subject to examination by the IRS for tax years beginning from the 2003 tax year for U.S. tax purposes. We are also subject to examination in various states for tax years beginning from the 2002 tax year. We are also subject to examination in various foreign jurisdictions beginning from the 2006 tax year.

On September 13, 2013, the U.S. Treasury Department and the IRS issued final regulations that address costs incurred in acquiring, producing, or improving tangible property (the "tangible property regulations"). The tangible property regulations are generally effective for tax years beginning on or after January 1, 2014. The tangible property regulations required us to make additional tax accounting method changes as of January 1, 2014. The impact of these changes was not material to our consolidated financial position or our results of operations.

We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. The total amount of accrued penalties and interest was immaterial for the three and nine months ended September 27, 2014. During the next twelve months, we anticipate increases in our unrecognized tax benefits of approximately $0.2 million.

Liquidity and Capital Resources

We maintain an ongoing investment strategy of maintaining a portion of our cash and investments in available-for-sale investments with the objective of preserving capital and maintaining liquidity while mitigating concentration risk and increasing yields. Our policy is to maintain a marketable securities portfolio consisting of highly rated investments that may include: obligations issued by the U.S. Treasury and its agencies, corporate bonds and commercial paper, tax exempt debt obligations of U.S. municipalities, and time deposits at commercial banks. Our policy is that, with the exception of U.S. treasury and agency issues, no single issue at the time of purchase, may exceed 5% of the total portfolio or have a duration exceeding two years. At September 27, 2014, our cash and cash equivalents, and marketable securities totaled $84.4 million and working capital was $130.2 million, compared to $92.9 million and $141.8 million, respectively, as of December 28, 2013.

Our principal cash requirements include working capital, capital expenditures, and payment of taxes. In addition, we regularly evaluate our ability to repurchase our common stock and acquire other businesses and technologies. Our principal sources of liquidity are from our cash, cash equivalents and marketable securities, cash flow generated from our operations, and, to a lesser extent, available borrowings from a line of credit. Our liquidity is affected by many factors, including those that relate to our specific operations and those that relate to the uncertainties of global and regional economies and the sectors of the semiconductor industry which we operate in. Although our cash requirements will fluctuate based on the timing and extent of these factors, we believe our existing cash, cash equivalents and marketable securities, and borrowing availability, combined with cash currently projected to be generated from our operations, will be sufficient to meet our liquidity needs through at least the next twelve months.

Cash Flows from Operating Activities

Cash used in operating activities for the nine months ended September 27, 2014, was $9.5 million, which resulted primarily from the following factors: Net loss of $26.5 million and non-cash items of $35.9 million, offset in part by an $18.9 million reduction in non-cash working capital. Non-cash items primarily consisted of depreciation and amortization expense of $8.7 million, stock based compensation of $5.1 million, inventory write-down of $1.1 million, and a $20.8 million increase in deferred income taxes. The reduction in non-cash working capital as of September 27, 2014, compared to December 28, 2013, was

27

primarily due to a $16.3 million decrease in deferred revenue, a $4.5 million decrease in accounts payables, accrued and other liabilities, a $3.2 million decrease in income taxes payable and an $8.0 million increase in inventory, offset in part by a $6.4 million decrease in inventory - delivered systems, a $4.9 million decrease in accounts receivables, and a $1.8 million decrease in prepaid expenses and other.

Cash used by operating activities for the nine months ended September 28, 2013, was $3.9 million, which resulted primarily from the following factors: net loss of $14.7 million offset by an increase in non-cash items of $10.8 million. Non-cash items primarily consisted of depreciation and amortization expense of $6.5 million, stock based compensation of $5.9 million, inventory write down of $6.3 million, and a $1.0 million increase in the fair value of contingent consideration, offset in part by $9.7 million of deferred income taxes. The change in non-cash working capital as of September 28, 2013, from December 29, 2012, was primarily due to an $1.8 million increase in accounts receivable during the nine months ended September 28, 2013, and a $7.2 million increase in inventory (this amount includes a $4.0 million non-cash transfer of inventory to fixed assets), partially offset by a $2.0 million increase in deferred revenue and a $6.8 million increase in accounts payable.

Cash Flows from Investing Activities

For the nine months ended September 27, 2014, $26.8 million of cash was used for purchases of marketable securities, and $2.8 million for capital asset purchases. These outflows were offset in part by $25.6 million cash received from maturities of marketable securities.

For the nine months ended September 28, 2013, $40.8 million of cash was used for purchases of marketable securities, and $3.5 million for capital asset purchases. These outflows were offset by $38.0 million cash received from maturities of marketable securities.

Cash Flows from Financing Activities

For the nine months ended September 27, 2014, $4.7 million was provided by financing activities primarily from $5.9 million, net of tax, received from the issuance of common stock from employee stock option exercises and stock purchased under the employee stock purchase program, partially offset by a $0.7 million reduction related to employee taxes paid on net issuances of stock awards and $0.5 million paid to Zygo related to royalties and sustaining engineering payments.

For the nine months ended September 28, 2013, $8.3 million was used for financing activities primarily composed of $5.0 million used to repurchase common stock, $5.2 million used to repay debt obligations, $0.7 million paid to Zygo related to royalties and sustaining engineering payments and a $0.5 million reduction related to the effect of excess tax benefits from the exercise of stock options. These payments were partially offset by $3.2 million, net of tax, received from the issuance of common stock from employee stock option exercises and stock purchased under the employee stock purchase program.

Line of Credit

On May 30, 2014, we amended our revolving line of credit facility with Comerica Bank principally (i) to extend the maturity date of such facility by two years to May 30, 2016, and (ii) to increase the minimum amount available to borrow to $12.0 million. The instrument governing the line of credit facility includes certain financial covenants regarding tangible net worth. The revolving line of credit agreement includes a provision for the issuance of commercial or standby letters of credit by the bank on our behalf. The value of all letters of credit outstanding reduces the total line of credit available. The revolving line of credit is collateralized by a blanket lien on all of our domestic assets excluding intellectual property and real estate. The minimum borrowing interest rate is 3.00% per annum. Borrowing is limited to the lesser of (a) $12.0 million plus the borrowing base, or (b) $20.0 million. The total borrowing available as of September 27, 2014 was $15.9 million. As of September 27, 2014, we were not in breach of any restrictive covenants in connection with this line of credit. There were no outstanding amounts drawn on this facility as of September 27, 2014. Although we have no current plans to request advances under this credit facility, we may use the proceeds of any future borrowing for general corporate purposes, future acquisitions or expansion of our business.

Mortgage Loan

In July 2008, we entered into a loan agreement with General Electric Commercial Finance ("GE") pursuant to which we borrowed $13.5 million, secured, in part, by a lien on and security interest in the building and land comprising our principal offices in Milpitas, California. The loan initially bore interest at the rate of 7.18% per annum which rate was scheduled to reset in August 2013 to 3.03% over the weekly average yield of five-year U.S. Dollar Interest Rate Swaps as published by the Federal Reserve. Monthly principal and interest payments were based on a 20 year amortization for the first 60 months and 15 year amortization thereafter. The remaining principal balance of the loan and any accrued but unpaid interest was due on August 1, 2018. According to the terms of the loan agreement, we could make annual pre-payments of up to 20% of the outstanding principal balance without incurring any penalty. GE subsequently sold the mortgage on March 31, 2011 to Sterling Saving Bank; however, no changes were made to the terms of the original loan agreement with GE as a result of the sale. In July 2012, we

28

prepaid $1.4 million of the loan, respectively, representing 20% of the outstanding balance at the time of prepayment. On July 18, 2013, we repaid $4.8 million of the loan, representing the entire outstanding principal balance of the loan and all accrued interest. We did not incur any fees associated with the prepayment of the loan. As of September 27, 2014, there was no outstanding balance and no available amount to borrow under the loan.

Repurchases of Common Stock

On May 29, 2012, our Board of Directors approved a program to repurchase up to $20.0 million of our common stock, referred to as the 2012 program. Stock repurchases under this program may be made through open market and privately negotiated transactions, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased is dependent on a variety of factors including price, corporate and regulatory requirements and other market conditions. During the three months ended March 30, 2013, we repurchased and retired 332,771 shares of our common stock under this approved program at the weighted average price of $15.03 per share. We made no repurchases of our common stock during the nine months ended September 27, 2014. As of September 27, 2014, $11.5 million remained available for the future repurchase of shares of our common stock under the 2012 program.

Business Partnership

On June 17, 2009, we announced a strategic business relationship with Zygo under which we purchased inventory and certain other assets including the UniFire system from Zygo and the two companies entered into a supply agreement. We will make payments to Zygo (with an estimated present value of $2.4 million as of September 27, 2014, compared to $2.8 million as of December 28, 2013) over a period of time as acquired inventory is sold and other aspects of the supply agreement are executed. We made royalty and sustaining engineering payments of $0.5 million and $0.7 million to Zygo in each of the nine months ended September 27, 2014 and September 28, 2013, respectively.

We have evaluated and will continue to evaluate the acquisitions of products, technologies or businesses that are complementary to our business. These activities may result in product and business investments, which may affect our cash position and working capital balances. Some of these activities might require significant cash outlays.

We believe our cash, cash equivalents, marketable securities, and borrowing availability will be sufficient to meet our needs through at least the next twelve months. Our ability to fund our working capital needs, planned capital expenditures and scheduled debt payments, as well as to comply with all of the financial covenants under our debt agreements, depends on our future operating performance and cash flow, which in turn are subject to prevailing economic conditions, and to financial, business and other factors, some of which are beyond our control.

Off-Balance Sheet Arrangements

As of September 27, 2014, we had no off-balance sheet arrangements or obligations.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk does not differ materially from that discussed in our Annual Report on Form 10-K for the fiscal year ended December 28, 2013, filed with the SEC on March 7, 2014. However, we cannot give any assurance as to the effect that future changes in interest rates or foreign currency rates will have on our consolidated financial position, results of operations or cash flows.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer, Timothy J. Stultz, and our Chief Financial Officer, Jeffrey Andreson, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 27, 2014, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 were (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and reported to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely discussions regarding required disclosures.

29

Changes in Internal Control over Financial Reporting

During the first quarter of 2014, we implemented a new enterprise resource planning or ERP system. The new ERP system was designed and implemented, in part, to enhance the overall system of internal control over financial reporting through further automation and integration of business processes and was not implemented in response to any identified deficiency or material weakness in the Company’s internal control over financial reporting. This implementation was significant in scale and complexity and significantly affected certain accounting functions. Both during and after the implementation, the Company attempted to maintain its internal control design to achieve all key financial reporting assertions. During the quarter ended September 27, 2014, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, has designed our disclosure controls and procedures and our internal control over financial reporting to provide reasonable assurances that the controls' objectives will be met. However, management does not expect that disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within Nanometrics have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any system's design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of a system's control effectiveness into future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

30

PART II — OTHER INFORMATION

ITEM 1A. RISK FACTORS

Investing in our securities involves a high degree of risk. In assessing these risks, you should carefully consider the information included in or incorporated by reference into this report, including our financial statements and the related notes thereto. You should carefully review and consider all of the risk factors set forth in Part l, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 28, 2013, filed with the SEC on March 7, 2014. The risks described in our Annual Report on Form 10-K are not the only ones we face. Additional risks and uncertainties that are not presently known to us or that we currently believe are immaterial may also impair our business operations. Our business, operating results and financial conditions could be materially harmed by any of these risks. The trading price of our common stock could decline due to any of these risks and investors may lose all or part of their investment. There have been no material changes in our risk factors from those discussed in our Annual Report on Form 10-K for the fiscal year ended December 28, 2013.

ITEM 6. EXHIBITS

The following exhibits are filed, furnished or incorporated by reference with this Quarterly Report on Form 10-Q:

31

Exhibit No.	Description
3(i)	Certificate of Incorporation
3.1(1)	Certificate of Incorporation of the Registrant
3(ii)	Bylaws
3.2(2)	Bylaws of the Registrant
4	See Exhibits 3.1 and 3.2
10	Material Contracts
	All Other Material Contracts
10.1(3)	Employment Agreement by and between Jeffrey Andreson and Nanometrics Incorporated dated September 22, 2014.
31	Rule 13a-14(a)/15d-14(a) Certifications
31.1(3)	Certification of Timothy J. Stultz, principal executive officer of the Registrant, pursuant to rule 13a-14(a) or rule 15a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2(3)	Certification of Jeffrey Andreson, principal financial officer of the Registrant, pursuant to rule 13a-14(a) or rule 15a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Section 1350 Certifications
32.1(3)	Certification of Timothy J. Stultz, principal executive officer of the Registrant, and Jeffrey Andreson, principal financial officer of the Registrant, pursuant to rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101(4)	The following financial statements, formatted in XBRL: (i) Condensed Consolidated Balance Sheets at September 27, 2014, and December 28, 2013, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 27, 2014 and September 28, 2013, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 27, 2014 and September 28, 2013, and (v) Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text. The information in Exhibit 101 is “furnished” and not “filed”, as provided in Rule 402 of Regulation S-T.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 __________________

(1) Incorporated by reference to Exhibit 3.1 filed with the Registrant's Current Report on Form 8-K (SEC File No. 000-13470) filed with the Securities and Exchange Commission (“SEC”) on October 5, 2006.

(2) Incorporated by reference to Exhibit 3.1 filed with the Registrant's Current Report on Form 8-K (SEC File No. 000-13470) filed with the SEC on April 12, 2012.

(3) Filed herewith.

(4) Furnished herewith.

32

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NANOMETRICS INCORPORATED
(Registrant)
By:	/S/    JEFFREY ANDRESON
	Jeffrey Andreson
	Chief Financial Officer
	(Duly Authorized and Principal Financial Officer)

Dated: October 30, 2014

33

EXHIBIT INDEX

Exhibit No.	Description
3(i)	Certificate of Incorporation
3.1(1)	Certificate of Incorporation of the Registrant
3(ii)	Bylaws
3.2(2)	Bylaws of the Registrant
4	See Exhibits 3.1 and 3.2
10	Material Contracts
	All Other Material Contracts
10.1(3)	Employment Agreement by and between Jeffrey Andreson and Nanometrics Incorporated dated September 22, 2014.
31	Rule 13a-14(a)/15d-14(a) Certifications
31.1(3)	Certification of Timothy J. Stultz, principal executive officer of the Registrant, pursuant to rule 13a-14(a) or rule 15a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2(3)	Certification of Jeffrey Andreson, principal financial officer of the Registrant, pursuant to rule 13a-14(a) or rule 15a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Section 1350 Certifications
32.1(3)	Certification of Timothy J. Stultz, principal executive officer of the Registrant, and Jeffrey Andreson, principal financial officer of the Registrant, pursuant to rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101(4)	The following financial statements, formatted in XBRL: (i) Condensed Consolidated Balance Sheets at September 27, 2014, and December 28, 2013, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 27, 2014 and September 28, 2013, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 27, 2014 and September 28, 2013, and (v) Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text. The information iin Exhibit 101 is “furnished” and not “filed”, as provided in Rule 402 of Regulation S-T.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 __________________

(1) Incorporated by reference to Exhibit 3.1 filed with the Registrant's Current Report on Form 8-K (SEC File No. 000-13470) filed with the Securities and Exchange Commission (“SEC”) on October 5, 2006.

(2) Incorporated by reference to Exhibit 3.1 filed with the Registrant's Current Report on Form 8-K (SEC File No. 000-13470) filed with the SEC on April 12, 2012.

(3) Filed herewith.

(4) Furnished herewith.

34

EX-10.1

Exhibit 10.1

NANOMETRICS INCORPORATED

JEFFREY ANDRESON EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is entered into as of September __, 2014 by and between Nanometrics Incorporated (the “Company”) and Jeff Andreson (“Executive”), effective as of September 22, 2014 the date hereof (the “Effective Date”).

WHEREAS, the Compensation Committee (the “Compensation Committee”) of the Board of Directors of the Company (the “Board”) recognizes that the possibility of Executive’s involuntary termination without Cause (as defined herein) or resignation for Good Reason (as defined herein), including in connection with a Change of Control (as defined herein), can result in significant distractions to the Executive;

WHEREAS, the Compensation Committee considers the continued service of Executive to be in the best interest of the Company and its stockholders and desires to assure the continued services of the Executive on behalf of the Company on an objective and impartial basis and without distraction or conflict of interest, and to provide the Executive with reasonable compensation and benefit arrangements upon Executive’s involuntary termination without Cause or resignation for Good Reason, including in connection with a Change of Control;

NOW, THEREFORE, the parties hereby agree as follows:

1.Duties and Scope of Employment.

(a)Position and Duties. Executive will serve as Chief Financial Officer reporting to Company’s President and Chief Executive Officer (the “CEO”). Executive will render such business and professional services in the performance of their duties, consistent with Executive’s position within the Company, as will reasonably be assigned to by the CEO. The period Executive is employed by the Company under this Agreement is referred to herein as the “Employment Term”.

(b)Obligation. During the Employment Term, Executive will devote Executive’s full business efforts and time to the Company and will use good faith efforts to discharge Executive’s obligations under this Agreement to the best of Executive’s ability and in accordance with each of the Company’s corporate guidance and ethics guidelines, conflict of interests policies and code of conduct. For the duration of the Employment Term, Executive agrees not to actively engage in any other employment, occupation, or consulting activity for any direct or indirect remuneration without the prior approval of the CEO. Executive hereby represents and warrants to the Company that Executive is not party to any contract, understanding, agreement or policy, written or otherwise, that would be breached by Executive’s entering into, or performing services under, this Agreement.

2.At-Will Employment. Executive and the Company agree that Executive’s employment with the Company constitutes “at-will” employment. Executive and the Company

acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without good cause or for any or no cause, at the option either of the Company or Executive. However, as described in this Agreement, Executive may be entitled to severance benefits depending upon the circumstances of Executive’s termination of employment.

3.Compensation.

(a)Base Salary. As of the Effective Date, the Company will pay Executive an annual salary of $330,000.00 as compensation for services (such annual salary, as is then effective, to be referred to herein as “Base Salary”). The Base Salary will be paid periodically in accordance with the Company’s normal payroll practices and be subject to the usual, required withholdings.

(b)Annual Incentive. Beginning in 2015, Executive shall be eligible to participate in an annual Executive Performance Bonus Plan (the “Performance Bonus”) with a target bonus of fifty-five percent (55%) of Base Salary. The actual earned cash incentive payable to Executive for any performance period will depend on extent to which applicable performance goals are achieved. Any bonus that actually is earned will be paid as soon as reasonably practicable after the date earned, but no later than sixty (60) days after the end of the fiscal quarter. Bonus payments will be subject to all applicable withholding taxes.

(c)Initial Bonus.     Executive shall be eligible for a one-time initial bonus of up to $75,000, subject to meeting certain objectives established by the CEO and approved by Compensation Committee. The initial bonus will be determined by the Compensation Committee in or about February 2015 and paid no later than March 31, 2015. Executive must be actively employed by the Company at the time the bonus is paid to earn the bonus.

(d)Equity Incentive. Subject to the approval of the Compensation Committee of the Board of Directors and the terms of the 2005 Equity Plan, as amended, you will receive a grant of 40,000 RSUs which shall vest in annually in three equal installments.

(e)Employee Benefits. During the Employment Term, Executive will be eligible to participate in all Company employee benefit plans, policies and arrangements that are applicable to other executive officers and employees of the Company, as such plans, policies and arrangements may exist from time to time and in accordance with their terms. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time.

4.Expenses. The Company will reimburse Executive for reasonable travel, entertainment and other expenses incurred by Executive in the furtherance of the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.

5.Termination of Employment.

In the event Executive’s employment with the Company terminates for any reason, Executive will be entitled to any (a) unpaid Base Salary accrued up to the effective date of termination, (b) unpaid, but earned and accrued annual incentive for any completed fiscal year (or other performance

period, as applicable) as of termination of employment, (c) pay for accrued but unused paid time off that the Company is legally obligated to pay Executive, (d) benefits or compensation as provided under the terms of any employee benefit and compensation agreements or plans applicable to Executive, (e) unreimbursed business expenses required to be reimbursed to Executive, and (f) rights to indemnification Executive may have under the Company’s Certificate of Incorporation, Bylaws or separate indemnification agreement, as applicable, and each as may be amended from time to time. In addition, if the termination by the Company is either without Cause within one year of the Effective Date or as a result of a change of Control or by the Executive with Good Reason as a result of a Change of Control, Executive will be entitled to the amounts specified in Section 6.

6.Severance.

(a)Termination Without Cause.    In the event the Company terminates Executive’s employment with the Company without Cause on or before the one-year anniversary of the Effective Date, Executive will be entitled to an amount equivalent to one year’s Base Salary in a one-time lump sum payment, subject to sections 7, 8, and 10 below.

(b)Termination without Cause or Resignation for Good Reason as a Result ofChange of Control. If Executive’s employment is terminated by the Company without Cause or Executive resigns for Good Reason, and such termination occurs within twelve (12) months of a Change of Control, then, subject to Sections 7, 8 and 10, Executive will receive (i) payment of Base Salary (as in effect immediately prior to such separation from employment) in a one-time lump sum payment; (ii) payment of an amount equal to one hundred percent (100%) of the most recent bonus actually received by Executive, in a one-time lump sum payment; (iii) subject to Executive timely electing to receive continuation coverage under Title X of the Consolidated Budget Reconciliation Act of 1985 (“COBRA”), reimbursement for premiums paid (payable when such premiums are due) for continued health benefits for Executive (and any eligible dependents) under the Company’s health plans until the earlier of (A) twelve (12) months following termination, (B) the date upon which Executive and Executive’s eligible dependents become covered under any other health plans, and (C) the date upon which Executive and Executive’s eligible dependents cease to be eligible for coverage under COBRA; and (iv) one hundred percent (100%) of the unvested shares subject to Executive’s then outstanding, unvested equity awards will immediately vest and, if applicable, become exercisable (such equity awards, the “Exercisable Awards”); provided, that, if Executive is unable to exercise all or a portion of the Exercisable Awards during the applicable exercise period due to a contractual, legal or regulatory restriction that prohibits the exercise of the Company’s equity awards, the exercise period of such Exercisable Award shall be automatically extended for an additional ninety (90) days following the termination of such contractual, legal or regulatory restriction. If Executive’s separation is for Cause or s/he relinquishes their positions voluntarily without Good Reason, s/he shall be due no separation payment pursuant to this Section 6(a). Notwithstanding anything herein to the contrary, the maximum amount that Executive shall be entitled to receive pursuant to this Section 6(a)(i) and Section 6(a)(ii) shall be two (2) times Executive’s then-current Base Salary.

(c)Voluntary Termination or Termination for Cause Other Than By Changeof Control. Except as provided in sections 6(a) and (b) above, if Executive’s employment is

terminated voluntarily with or without Good Reason, including due to death or Disability, or is terminated with or without Cause by the Company, then, (i) all further vesting of Executive’s outstanding equity awards will terminate in accordance with the provisions of the stock option plan; (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately upon termination, and (iii) Executive will be eligible for severance benefits only in accordance with the Company’s then established plans, programs and practices.

7.Conditions to Receipt of Severance; No Duty to Mitigate. The severance payments and benefits provided herein shall be conditioned on the following:

(a)The receipt of any severance or other benefits pursuant to this Employment Agreement will be subject to (i) Executive signing and not revoking a release of claims in a form acceptable to the Company; (ii) Executive’s promptly resigning from all positions with the Company as requested; and (iii) Executive continuing to comply with the terms of any Confidential Information Agreement by which s/he is then bound. No severance or other benefits will be paid or provided until the release agreement becomes effective.

The requirement for a release in this Section 7(a) shall be construed in accordance with Section 409A, and Executive shall not have the ability to determine the timing of any payments under this Agreement that are subject to Section 409A (“409A Payments”) by virtue of the time the Executive executes and delivers the release. To the extent that Executive is required to execute and deliver a release to receive a 409A Payment and this Agreement provides for such 409A Payment to be provided prior to the 60th day following the Executive’s “separation from service” pursuant to Section 409A (“Separation from Service”), such 409A Payment will be provided upon the 60th day following Executive’s Separation from Service provided the release has been executed, delivered and effective prior to such time. To the extent that Executive is required to execute and deliver a release to receive a 409A Payment and this Agreement provides for such 409A Payment to be provided in accordance with Section 10, such 409A Payment will be provided as set forth in Section 10 provided the release has been executed, delivered and effective prior to such time. If a release is required for a 409A Payment and such release is not executed, delivered and effective by the date six (6) months after the Executive’s Separation from Service if such 409A Payment is subject to the limitations set forth in Section 10 or the 60th day following Executive’s Separation from Service if such 409A Payment is not subject to the limitations set forth in Section 10, such 409A Payment shall not be provided to the Executive to the extent that providing such 409A Payment would cause such 409A Payment to fail to comply with Section 409A. To the extent that any payments or benefits under this Agreement are intended to be exempt from Section 409A as a short-term deferral pursuant to Treasury Regulations §1.409A-1(b)(4) (or any successor thereto) or otherwise and require Executive to provide a release to obtain such payments or benefits, any release required for such payment or benefit must be provided no later than March 11th of the calendar year following the calendar year of the Executive’s Separation from Service.

(b)During the period of Executive’s employment with the Company and the twelve (12) months following the termination of Executive’s employment with the Company, Executive will not knowingly and materially disparage, criticize, or otherwise make any derogatory statements regarding the Company or any officer, director or agent of the Company nor will the

Company knowingly and materially disparage, criticize, or otherwise make any derogatory statements regarding Executive. Notwithstanding the foregoing, nothing contained in this Employment Agreement will be deemed to restrict Executive, the Company or any of the Company’s current or former officers and/or directors from providing information to any governmental or regulatory agency (or in any way limit the content of any such information) to the extent they are requested or required to provide such information pursuant to applicable law or regulation.

(c)Executive acknowledges that the nature of the Company’s business is such that if Executive were to become employed by, or substantially involved in, the business of a competitor of the Company during the six (6) months following the termination of the Executive’s employment with the Company, it would be very difficult for Executive not to rely on or use the Company’s trade secrets and confidential information. Thus, to avoid the inevitable disclosure of the Company’s trade secrets and confidential information, Executive agrees and acknowledges that Executive’s right to receive the separation payments set forth in Section 6 of this Employment Agreement shall be conditioned upon Executive not directly or indirectly engaging in (whether as an employee, consultant, agent, proprietor, principal, partner, stockholder, corporate officer, director or otherwise), nor having any ownership interested in or participating in the financing, operation, management or control of, any person, firm, corporation or business that competes with Company or is a customer of the Company; provided, however, that nothing contained in this Section 7(c) shall be construed to prohibit Executive from purchasing and owning (directly or indirectly) up to two percent (2%) of the capital stock or other securities of any competitor corporation or other or other entity whose stock or securities are traded on any national or regional securities exchange or the national over-the-counter market and such ownership shall be excluded from the prohibition set forth in this Section 7(c). Upon any breach of this section, all severance payments pursuant to this Employment Agreement shall immediately cease.

(d)Until the date six (6) months after the termination of Executive’s employment with the Company for any reason, Executive agrees and acknowledges that Executive’s right to receive the separation payments set forth in Section 6 of this Employment Agreement shall be conditioned upon Executive not either directly or indirectly soliciting, inducing, attempting to hire, recruiting, encouraging, taking away, hiring any employee of the Company or causing an employee to leave his or her employment either for Executive or for any other entity or person.

8.Limitation on Payments. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for this Section 8, would be subject to the excise tax imposed by Section 4999 of the Code, the Executive’s severance benefits under Section 6 will be either:

(a)delivered in full; or

(b)delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code;

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Executive on an

after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and Executive otherwise agree in writing, any determination required under this Section will be made in writing by the independent public accountants who are primarily used by the Company immediately prior to Change of Control (the “Accountants”), whose determination will be conclusive and binding upon Executive and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Executive will furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company will bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section. Any reduction in payments and/or benefits required by this Section 8 shall occur in the following order unless Executive elects in writing a different order prior to the date on which the event that triggers the severance payments and benefits due hereunder occurs: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits paid to Executive. In the event that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant for Executive’s equity awards unless Executive elects in writing a different order prior to the triggering event.

9.Definitions.

(a)Cause. For purposes of this Agreement, “Cause” means:    (i) Executive’s willful gross misconduct; (ii) Executive’s unjustifiable neglect of his duties (as determined in the good faith judgment of the Board); (iii) Executive’s acting in any manner that has a direct, substantial and adverse effect on the Company or its reputation; (iv) Executive’s repeated material failure or repeated refusal to comply with reasonable written policies, standards and regulations established by the Company from time to time which failure, if curable, is not cured to the reasonable satisfaction of the Board during the thirty (30) day period following written notice of such failure from the Company; (v) any tortuous act, unlawful act or malfeasance which causes or reasonably could cause (for example, if it became publicly known) material harm to the Company’s standing, condition or reputation; (vi) any material breach by Executive of the provisions of any confidential information agreement with the Company or other material improper disclosure of the Company’s confidential or proprietary information; (vii) Executive’s theft, dishonesty, or falsification of any Company records; (viii) Executive’s being found liable in any Securities and Exchange Commission or other civil or criminal securities law action or entering any cease and desist order with respect to such action (regardless of whether or not Executive admits or denies liability); or (ix) Executive (A) obstructing or impeding; (B) endeavoring to influence, obstruct or impede, or (C) failing to materially cooperate with, any investigation authorized by the Board or any governmental or self-regulatory entity (an “Investigation”). However, Executive’s failure to waive attorney-client privilege relating to communications with Executive’s own attorney in connection with an Investigation will not constitute “Cause.”

(b)Change in Control. For purposes of this Agreement, “Change of Control” means the occurrence of any of the following: (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by, or 50% or more of the fair value of, the Company’s then outstanding voting power represented by, or 50% or more of the fair value of, the Company’s then outstanding voting securities; (ii) any action or event occurring within a two-year period, as a result of which less than a majority of the directors are Incumbent Directors. “Incumbent Directors” will mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); (iii) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted in to voting securities of the surviving or resulting entity, including any parent holding company) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving or resulting entity outstanding immediately after such merger or consolidation; or (iv) The consummation of the sale, lease or other disposition by the Company of all or substantially all the Company’s assets.

(c)Disability. For purposes of this Agreement, “Disability” will mean Executive’s absence from responsibilities with the Company on a full-time basis for 120 calendar days in any consecutive twelve (12) months period as a result of Executive’s mental or physical illness or injury. The Board will determine whether a Disability exists based on evidence provided by one or more physicians selected by the Board

(d)Good Reason. For purposes of this Agreement, “Good Reason” for Executive to resign means Executive’s resignation of employment within sixty (60) days after any of the following undertaken by the Company without Executive’s written consent: (i) a material diminution in Executive’s base compensation, (ii) a material diminution in Executive’s authority, duties or responsibilities; or (iii) the relocation of Executive to a facility that is more than fifty (50) miles from Executive’s current location. Notwithstanding the foregoing, Good Reason shall not exist based on conduct described above unless Executive provides the Board with written notice specifying the particulars of the conduct constituting Good Reason, and the conduct described has not been cured within fifteen (15) days following the receipt by the Board of such notice.

10.Section 409A. Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A of the Code (as defined herein) and any final regulations and guidance promulgated thereunder (“Section 409A”) at the time of Executive’s separation from employment, then any severance payments payable pursuant to this Agreement and any other severance payments or separation benefits which may be considered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”) otherwise due to Executive on or within the six (6) month period following Executive’s

separation from employment will accrue during such six (6) month period and will become payable in a lump sum payment on the date six (6) months and one (1) day following the date of Executive’s separation from employment. All subsequent payments, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if Executive dies following termination but prior to the six month anniversary of the date of termination, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of Executive’s death and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to each payment or benefit. It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply.

To the extent that the severance payments under the Existing Agreement constitute deferred compensation under Section 409A, the change in payment form from installments to lump sum after a Change of Control set forth in Section 6 shall be effective only to the extent that the change in payment form does not subject the severance payments to additional tax imposed under Section 409A. To the extent that the severance payments under the Existing Agreement constitute deferred compensation under Section 409A and it is necessary to do so in order not to subject the severance payments to additional tax imposed under Section 409A, it is intended that the Company shall and the Company hereby agrees to use its best efforts to terminate and pay out on or within twelve (12) months following a Change of Control that constitutes a change of control event as defined in Treasury Regulations §1.409A-3(i)(5)(v) (or any successor thereto) (“409A Change of Control”) in accordance with Treasury Regulations §1.409A-3(j)(4)(ix) (or any successor thereto) all arrangements which constitute separation pay plans as described in Treasury Regulations §1 .409A-1(c)(2)(i)(D) (or any successor thereto) to facilitate the payment of the lump sum provided in Section 6 without subjecting the amount to additional tax imposed under Section 409A and payment in such lump sum shall be limited to situations constituting a 409A Change of Control.

11.Confidential Information. Executive shall execute the Company’s standard Employee Non Disclosure, Invention and Assignment Agreement (the “Confidential Information Agreement”) at the commencement of employment hereunder.

12.Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive’s death, and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation, or other business entity which at any time, whether by purchase, merger, or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance, or other disposition of Executive’s right to compensation or other benefits will be null and void.

13.Notices. All notices, requests, demands and other communications called for hereunder will be in writing and will be deemed given (a) on the date of delivery if delivered personally, (b) one (1) day after being sent overnight by a well established commercial overnight service, or (c) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

If to the Company:

Attn: Chairman of the Compensation Committee

c/o Corporate Secretary

Nanometrics Incorporated

1550 Buckeye Drive

Milpitas, CA 95035

If to Executive

At the last residence address known by the Company

14.Severability. If any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable, or void, this Agreement will continue in full force and effect without said provisions.

15.Arbitration.

(a)General. In consideration of Executive’s service to the Company, its’ promise to arbitrate all employment related disputes and Executive’s receipt of the compensation, pay raises and other benefits paid to Executive by the Company, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer, director, stockholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive’s service to the Company, including any breach of this Agreement, shall be subject to binding arbitration under the Arbitration Rules set forth in California Code of Civil Procedure Section 1280 through 1294.2, including Section 1283.05 (the “Rules”) and pursuant to California laws. Disputes which Executive agrees to arbitrate, and thereby agrees to waive any right to a trial by jury, include any statutory claims under state or federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the California Fair Employment and Housing Act, the California Labor Code, claims of harassment, discrimination or wrongful termination and any statutory claims. Executive further understands that this Agreement to arbitrate also applies to any disputes that the Company may have with Executive.

(b)Procedure. Executive agrees that any arbitration will be administered by Judicial Arbitration & Mediation Services, Inc. (“JAMS”) and that a neutral arbitrator will be selected in a manner consistent with its Employment Arbitration Rules & Procedures (the “JAMS Rules”). The arbitration proceedings will allow for discovery according to the rules set forth in the

JAMS Rules or California Code of Civil Procedure. Executive agrees that the arbitrator will have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. Executive agrees that the arbitrator will issue a written decision on the merits. Executive also agrees that the arbitrator will have the power to award any remedies, including attorneys’ fees and costs, available under applicable law. Executive and the Company agree that the Company will pay for any administrative or hearing fees charged by the arbitrator or JAMS except that Executive will pay any filing fees associated with any arbitration that Executive initiates, but only so much of the filing fees agrees that the arbitrator will administer and conduct any arbitration in a manner consistent with the Rules and that to the extent that the JAMS Rules conflict with the Rules, the Rules will take precedence. The Company and Executive agree that the arbitration proceedings will take place in San Jose, California.

(c)Remedy. Except as provided by the Rules, arbitration shall be the sole, exclusive and final remedy for any dispute between Executive and the Company. Accordingly, except as provided for by the Rules, neither Executive nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator shall not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted.

(d)Availability of Injunctive Relief. In addition to the right under the Rules to petition the court for provisional relief, Executive agrees that any party may also petition the court for injunctive relief where either party alleges or claims a violation of this Agreement or the Confidential Information Agreement or any other agreement regarding trade secrets, confidential information, non solicitation or Labor Code §2870. In the event either party seeks injunctive relief, the prevailing party shall be entitled to recover reasonable costs and attorneys fees.

(e)Administrative Relief. Executive understands that this Agreement does not prohibit Executive from pursuing an administrative claim with a local, state or federal administrative body such as the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission or the workers’ compensation board. This Agreement does, however, preclude Executive from pursuing court action regarding any such claim.

(f)Voluntary Nature of Agreement. Executive acknowledges and agrees that Executive is executing this Agreement voluntarily and without any duress or undue influence by the Company or anyone else. Executive further acknowledges and agrees that Executive has carefully read this Agreement and the Executive has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understand it, including that Executive is waiving Executive’s right to a jury trial.

16.Waiver of Breach. The waiver of a breach of any term or provision of this Agreement, which must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement.

17.Survival. The Confidential Information Agreement and the Company’s and Executive’s responsibilities under Section 7 will survive the termination of this Agreement.

18.Headings. All captions and Section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.

19.Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.

20.Governing Law. This Agreement will be governed by the laws of the State of California without regard to its conflict of laws provisions.

21.Acknowledgment. Executive acknowledges that s/he has the opportunity to discuss this matter with and obtain advice from a private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

22.Conditions. This offer is conditioned upon Executive providing to Company references relating to Executive’s employment in a form acceptable to the Company, and Company’s satisfactory review of such references.

23.Counterparts. This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original, and will constitute an effective, binding agreement on the part of each of the undersigned

24.Entire Agreement.    This Agreement, together with the Nanometrics Incorporated At-Will Employment, Non-Disclosure and Invention Assignment Agreement, in affect for Executive, represent the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral, including, without limitation, the Existing Agreement and any offer letters. No waiver, alteration or modification of this Agreement will be binding unless agreed to in a writing signed by duly authorized representatives of the parties hereto.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, each of the parties has executed this Employment Agreement, in the case of the Company by a duly authorized officer, as of the day and year written below.

COMPANY

NANOMETRICS INCORPORATED

/s/ Timothy J. Stultz	Date: 9/3/2014
Timothy J. Stultz
Chief Executive Officer

EXECUTIVE

/s/ Jeff Andreson	Date: 9/3/2014
Jeff Andreson

IN WITNESS WHEREOF, each of the parties has executed this Employment Agreement, in the case of the Company by a duly authorized officer, as of the day and year written below.

COMPANY

NANOMETRICS INCORPORATED

_______________________________        Date:

Timothy J. Stultz, Ph.D.

Chief Executive Officer

EXECUTIVE

_______________________________        Date:

Jeff Andreson

EX-31.1

Exhibit 31.1

I, Timothy J. Stultz, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nanometrics Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 30, 2014

By:	/s/ Timothy J. Stultz
	Timothy J. Stultz
	Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Jeffrey Andreson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nanometrics Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 30, 2014

By:	/s/ Jeffrey Andreson
	Jeffrey Andreson
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy J. Stultz, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Quarterly Report of Nanometrics Incorporated on Form 10-Q for the quarterly period ended September 27, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Nanometrics Incorporated.

October 30, 2014	/s/ Timothy J. Stultz
	Timothy J. Stultz
	Chief Executive Officer

I, Jeffrey Andreson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Quarterly Report of Nanometrics Incorporated on Form 10-Q for the quarterly period ended September 27, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Nanometrics Incorporated.

October 30, 2014	/s/ Jeffrey Andreson
	Jeffrey Andreson
	Chief Financial Officer

This certification accompanies the Quarterly Report on Form 10-Q for the period ended September 27, 2014 of Nanometrics Incorporated (the “Company”) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company or incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, made before or after the date of this Quarterly Report and irrespective of any general incorporation language contained in such filing.

XML

Fair Value Measurements and Disclosures (Details) (USD $) In Thousands, unless otherwise specified	Sep. 27, 2014	Dec. 28, 2013
Assets:
Total marketable securities	$ 84,373	$ 92,862
Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	1,199	1,626
Total marketable securities	48,748	48,097
Total assets	49,947	49,723
Liabilities:
Contingent consideration payable	2,431	2,783
Fair Value, Measurements, Recurring [Member] | Money market funds [Member]
Assets:
Total cash equivalents	549	876
Fair Value, Measurements, Recurring [Member] | U.S. Treasury, U.S. Government and U.S. Government agency debt securities [Member]
Assets:
Total marketable securities	21,185	17,016
Fair Value, Measurements, Recurring [Member] | Commercial paper [Member]
Assets:
Total cash equivalents	650	750
Fair Value, Measurements, Recurring [Member] | Commercial paper, municipal securities and corporate debt securities [Member]
Assets:
Total marketable securities	27,563	31,081
Fair Value, Measurements, Recurring [Member] | Cash [Member]
Assets:
Total cash equivalents	34,400	43,100
Fair Value, Measurements, Recurring [Member] | Level 1 [Member]
Assets:
Total cash equivalents	549	876
Total marketable securities	2,498	5,036
Total assets	3,047	5,912
Liabilities:
Contingent consideration payable	0	0
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Money market funds [Member]
Assets:
Total cash equivalents	549	876
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | U.S. Treasury, U.S. Government and U.S. Government agency debt securities [Member]
Assets:
Total marketable securities	2,498	5,036
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Commercial paper [Member]
Assets:
Total cash equivalents	0	0
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Commercial paper, municipal securities and corporate debt securities [Member]
Assets:
Total marketable securities	0	0
Fair Value, Measurements, Recurring [Member] | Level 2 [Member]
Assets:
Total cash equivalents	650	750
Total marketable securities	46,250	43,061
Total assets	46,900	43,811
Liabilities:
Contingent consideration payable	0	0
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Money market funds [Member]
Assets:
Total cash equivalents	0	0
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | U.S. Treasury, U.S. Government and U.S. Government agency debt securities [Member]
Assets:
Total marketable securities	18,687	11,980
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Commercial paper [Member]
Assets:
Total cash equivalents	650	750
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Commercial paper, municipal securities and corporate debt securities [Member]
Assets:
Total marketable securities	27,563	31,081
Fair Value, Measurements, Recurring [Member] | Level 3 [Member]
Assets:
Total cash equivalents	0	0
Total marketable securities	0	0
Total assets	0	0
Liabilities:
Contingent consideration payable	2,431	2,783
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Money market funds [Member]
Assets:
Total cash equivalents	0	0
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | U.S. Treasury, U.S. Government and U.S. Government agency debt securities [Member]
Assets:
Total marketable securities	0	0
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Commercial paper [Member]
Assets:
Total cash equivalents	0	0
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Commercial paper, municipal securities and corporate debt securities [Member]
Assets:
Total marketable securities	$ 0	$ 0

XML

Net Income (Loss) Per Share (Details) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013
Earnings Per Share [Abstract]
Antidilutive securities excluded from computation of earnings per share	0.3	0.4	0.4	0.4

XML

Goodwill and Intangible Assets (Finite-lived Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 27, 2014	Dec. 28, 2013
Summary of Finite-lived intangible assets
Adjusted cost	$ 31,240	$ 31,927
Accumulated amortization	(25,985)	(24,063)
Net carrying amount	5,255	7,864
Developed technology [Member]
Summary of Finite-lived intangible assets
Adjusted cost	17,471	18,095
Accumulated amortization	(12,647)	(11,032)
Net carrying amount	4,824	7,063
Customer relationships [Member]
Summary of Finite-lived intangible assets
Adjusted cost	9,510	9,573
Accumulated amortization	(9,444)	(9,263)
Net carrying amount	66	310
Brand names [Member]
Summary of Finite-lived intangible assets
Adjusted cost	1,927	1,927
Accumulated amortization	(1,776)	(1,700)
Net carrying amount	151	227
Patented technology [Member]
Summary of Finite-lived intangible assets
Adjusted cost	2,252	2,252
Accumulated amortization	(2,038)	(1,988)
Net carrying amount	214	264
Trademark [Member]
Summary of Finite-lived intangible assets
Adjusted cost	80	80
Accumulated amortization	(80)	(80)
Net carrying amount	$ 0	$ 0

XML

Equity and Stock Based Compensation Plans (Details)	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013
Stock Options [Member]
Assumption of stock option's fair value
Expected life		4 years 7 months 6 days	4 years 7 months 6 days	4 years 6 months
Expected volatility		64.38%	54.86%	71.04%
Risk-free interest rate		1.52%	1.54%	1.00%
Dividends		0.00%	0.00%	0.00%
Employee Stock Purchase Plan [Member]
Assumption of stock option's fair value
Expected life	6 months	6 months	6 months	6 months
Expected volatility	29.64%	25.94%	32.60%	26.75%
Risk-free interest rate	0.06%	0.10%	0.54%	0.11%
Dividends	0.00%	0.00%	0.00%	0.00%

XML

Property, Plant and Equipment (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013	Dec. 28, 2013
Components of property, plant and equipment
Total property, plant and equipment, gross	$ 80,227,000		$ 80,227,000		$ 72,784,000
Accumulated depreciation and amortization	(29,491,000)		(29,491,000)		(25,345,000)
Total property, plant and equipment, net	50,736,000		50,736,000		47,439,000
Depreciation expense	1,700,000	1,400,000	4,900,000	4,000,000
Land [Member]
Components of property, plant and equipment
Total property, plant and equipment, gross	15,575,000		15,575,000		15,569,000
Building and improvements [Member]
Components of property, plant and equipment
Total property, plant and equipment, gross	19,826,000		19,826,000		19,403,000
Machinery and equipment [Member]
Components of property, plant and equipment
Total property, plant and equipment, gross	31,569,000		31,569,000		27,820,000
Furniture and fixtures [Member]
Components of property, plant and equipment
Total property, plant and equipment, gross	2,343,000		2,343,000		2,308,000
Software [Member]
Components of property, plant and equipment
Total property, plant and equipment, gross	7,844,000		7,844,000		1,851,000
Capital in progress [Member]
Components of property, plant and equipment
Total property, plant and equipment, gross	$ 3,070,000		$ 3,070,000		$ 5,833,000

XML

Equity and Stock Based Compensation Plans (Tables)

9 Months Ended

Sep. 27, 2014

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Assumption of stock option's fair value

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 life 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 the Company's 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 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Stock Options
Expected life	—		4.6 years		4.6 years		4.5 years
Expected volatility	—		64.38	%	54.86	%	71.04	%
Risk-free interest rate	—		1.52	%	1.54	%	1.00	%
Dividends	—		—		—		—
Employee Stock Purchase Plan
Expected life	0.5 years		0.5 years		0.5 years		0.5 years
Expected volatility	29.64	%	25.94	%	32.60	%	26.75	%
Risk-free interest rate	0.06	%	0.10	%	0.54	%	0.11	%
Dividends	—		—		—		—

Stock-based compensation expense for all share-based payment awards

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 was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Cost of products	$	70	$	55	$	199	$	153
Cost of service	53		74		227		204
Research and development	331		412		967		1,092
Selling	490		476		1,353		1,418
General and administrative	761		789		2,369		2,149
Restructuring	—		896		—		896
Total stock-based compensation expense	$	1,705	$	2,702	$	5,115	$	5,912

Stock Options [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock option plans activity

A summary of activity under the Company’s stock option plans during the nine months ended September 27, 2014 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 28, 2013	1,909,039		$	13.22	4.02	$	10,341
Exercised	(395,940	)	$	10.54
Granted	74,300		$	17.56
Cancelled	(104,781	)	$	15.64
Outstanding at September 27, 2014	1,482,618		$	13.98	3.65	$	3,521
Exercisable at September 27, 2014	1,038,707		$	13.03	2.92	$	3,346

Restricted Stock Units (RSUs) [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock option plans activity

A summary of activity for RSUs during the nine months ended September 27, 2014, is as follows:

	Number of RSUs		Weighted Average Fair Value
Outstanding RSUs at December 28, 2013	334,444		$	18.61
Granted	399,475		$	17.61
Released	(136,959	)	$	17.89
Cancelled	(63,711	)	$	16.75
Outstanding RSUs at September 27, 2014	533,249		$	18.27

XML

Equity and Stock Based Compensation Plans (Details 1) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 27, 2014	Sep. 27, 2014	Dec. 28, 2013
Options, Outstanding [Roll Forward]
Number of Shares Outstanding (Options), Beginning Balance		1,909,039
Number of Shares Outstanding (Options), Exercised		(395,940)
Number of Shares Outstanding (Options), Granted	0	74,300
Number of Shares Outstanding (Options), Cancelled		(104,781)
Number of Shares Outstanding (Options), Ending Balance	1,482,618	1,482,618	1,909,039
Number of Shares Outstanding (Options), Exercisable	1,038,707	1,038,707
Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Weighted Average Exercise Price, Beginning Balance (in dollars per share)		$ 13.22
Weighted Average Exercise Price, Exercised (in dollars per share)		$ 10.54
Weighted Average Exercise Price, Granted (in dollars per share)		$ 17.56
Weighted Average Exercise Price, Cancelled (in dollars per share)		$ 15.64
Weighted Average Exercise Price, Ending Balance (in dollars per share)	$ 13.98	$ 13.98	$ 13.22
Weighted Average Exercise Price, Exercisable (in dollars per share)	$ 13.03	$ 13.03
Weighed Average Remaining Contractual Term (Years), Outstanding		3 years 7 months 24 days	4 years 0 months 7 days
Weighed Average Remaining Contractual Term (Years), Exercisable		2 years 11 months 1 day
Aggregate Intrinsic Value, Outstanding	$ 3,521	$ 3,521	$ 10,341
Aggregate Intrinsic Value, Exercisable	$ 3,346	$ 3,346

XML

Nature of Business and Basis of Presentation (Policies)

9 Months Ended

Sep. 27, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business

Description of Business – Nanometrics Incorporated (“Nanometrics” or the “Company”) and its wholly-owned subsidiaries, design, manufacture, market, sell and support thin film, optical critical dimension and overlay dimension metrology and inspection systems used primarily in the manufacturing of semiconductors, solar photovoltaics (“solar PV”) and high-brightness LEDs (“HB-LED”), as well as by customers in the silicon wafer and data storage industries. Nanometrics' metrology systems precisely measure a wide range of film types deposited on substrates during manufacturing to control manufacturing processes and increase production yields in the fabrication of integrated circuits. The thin film metrology systems use a broad spectrum of wavelengths, high-sensitivity optics, proprietary software, and patented technology to measure the thickness and uniformity of films deposited on silicon and other substrates as well as their chemical composition. The Company’s optical critical dimension technology is a patented critical dimension measurement technology that is used to precisely determine the dimensions on the semiconductor wafer that directly control the resulting performance of the integrated circuit devices. The overlay metrology systems are used to measure the overlay accuracy of successive layers of semiconductor patterns on wafers in the photolithography process. Nanometrics' inspection systems are used to find defects on patterned and unpatterned wafers at nearly every stage of the semiconductor production flow. The corporate headquarters of Nanometrics is located in Milpitas, California.

Basis of Presentation

Basis of Presentation – The accompanying condensed consolidated financial statements ("financial statements") have been prepared on a consistent basis with the audited consolidated financial statements as of December 28, 2013, and include all normal recurring adjustments necessary to fairly present the information set forth therein. All significant intercompany accounts and transactions have been eliminated in consolidation.

The financial statements have been prepared in accordance with the regulations of the United States Securities and Exchange Commission (“SEC”) for interim periods in accordance with S-X Article 10, and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The operating results for interim periods are not necessarily indicative of the operating results that may be expected for the entire year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2013, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2014.

Fiscal Period

Fiscal Period – The Company uses a 52/53 week fiscal year ending on the last Saturday of the calendar year. All references to the quarter refer to Nanometrics' fiscal quarter. The fiscal quarters presented herein include 13 weeks.

Reclassification

Reclassification – Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. Estimates are used for, but not limited to, revenue recognition, the provision for doubtful accounts, the provision for excess, obsolete, or slow moving inventories, valuation of intangible and long-lived assets, warranty accruals, income taxes, valuation of stock-based compensation and contingencies.

Revenue Recognition

Revenue Recognition – The Company derives revenue from the sale of process control metrology systems (“product revenue”) as well as spare part sales, billable service, service contracts and upgrades (together “service revenue”). Upgrades are a group of parts and/or software that change the existing configuration of a product and are included in service revenue. They are distinguished from product revenue, which consists of complete, advanced process control metrology and inspection systems (the “system(s)”). Nanometrics' systems consist of hardware and software components that function together to deliver the essential functionality of the system. Arrangements for sales of systems often include defined customer-specified acceptance criteria.

In summary, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price is fixed or determinable, and collectability is reasonably assured.

For product sales to existing customers, revenue recognition occurs at the time title and risk of loss transfer to the customer, which usually occurs upon shipment from the Company's manufacturing location, if it can be reliably demonstrated that the product has successfully met the defined customer specified acceptance criteria and all other recognition criteria has been met. For initial sales where the product has not previously met the defined customer specified acceptance criteria, product revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the contractual acceptance period. In Japan, where contractual terms with the customer specify risk of loss and title transfers upon customer acceptance, revenue is recognized upon receipt of written customer acceptance, provided that all other recognition criteria have been met.

The Company warrants its products against defects in manufacturing. Upon recognition of product revenue, a liability is recorded for anticipated warranty costs. On occasion, customers request a warranty period longer than the Company's standard warranty. In those instances where extended warranty services are separately quoted to the customer, the associated revenue is deferred and recognized as service revenue ratably over the term of the contract. The portion of service contracts and extended warranty services agreements that are uncompleted at the end of any reporting period are included in deferred revenue.

As part of its customer services, the Company sells software that is considered to be an upgrade to a customer's existing systems. These standalone software upgrades are not essential to the tangible product's functionality and are accounted for under software revenue recognition rules which require vendor specific objective evidence ("VSOE") of fair value to allocate revenue in a multiple element arrangement. Revenue from upgrades is recognized when the upgrades are delivered to the customer, provided that all other recognition criteria have been met.

Revenue related to spare parts is recognized upon shipment. Revenue related to billable services is recognized as the services are performed. Service contracts may be purchased by the customer during or after the warranty period and revenue is recognized ratably over the service contract period.

Frequently, the Company delivers products and various services in a single transaction. The Company's deliverables consist of tools, installation, upgrades, billable services, spare parts, and service contracts. The Company's typical multi-element arrangements include a sale of one or multiple tools that include installation and standard warranty. Other arrangements consist of a sale of tools bundled with service elements or delivery of different types of services. The Company's tools, upgrades, and spare parts are generally delivered to customers within a period of up to six months from order date. Installation is usually performed soon after delivery of the tool. The portion of revenue associated with installation is deferred based on relative selling price and that revenue is recognized upon completion of the installation. Billable services are billed on a time and materials basis and performed as requested by customers. Under service contract arrangements, services are provided as needed over the fixed arrangement term. The Company does not grant its customers a general right of return or any refund terms and imposes a penalty on orders canceled prior to the scheduled shipment date.

The Company regularly evaluates its revenue arrangements to identify deliverables and to determine whether these deliverables are separable into multiple units of accounting. In accordance with revenue recognition guidance, the Company allocates the arrangement consideration among the deliverables based on relative selling prices. The Company has established VSOE for some of its products and services when a substantial majority of selling prices falls within a narrow range when sold separately. For deliverables with no established VSOE, the Company uses best estimate of selling price to determine standalone selling price for such deliverable. The Company does not use third party evidence to determine standalone selling price since this information is not widely available in the market as the Company's products contain a significant element of proprietary technology and the solutions offered differ substantially from competitors. The Company has established a process for developing estimated selling prices, which incorporates historical selling prices, the effect of market conditions, gross margin objectives, pricing practices, as well as entity-specific factors. The Company monitors and evaluates estimated selling price on a regular basis to ensure that changes in circumstances are accounted for in a timely manner.

When certain elements in multiple-element arrangements are not delivered or accepted at the end of a reporting period, the relative selling prices of undelivered elements are deferred until these elements are delivered and/or accepted. If deliverables cannot be accounted for as separate units of accounting, the entire arrangement is accounted for as a single unit of accounting and revenue is deferred until all elements are delivered and all revenue recognition requirements are met.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) ("ASU 2013-11"), which provides that a liability related to an unrecognized tax benefit would be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations in which a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the financial statements as a liability and will not be combined with deferred tax assets. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. ASU 2013-11 is effective for fiscal years and interim periods beginning after December 15, 2013. The Company adopted this standard during the three months ended March 29, 2014, resulting in a one-time tax benefit of $0.3 million, a reduction in deferred tax assets of $0.3 million, and a reduction in long-term income taxes payable of $0.6 million.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

XML

Goodwill and Intangible Assets (Future Amortization Expense) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 27, 2014	Dec. 28, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
2014 (remaining three months)	$ 734
2015	2,293
2016	1,816
2017	206
2018	140
Thereafter	66
Net carrying amount	$ 5,255	$ 7,864

XML

Cash and Investments (Details) (USD $) In Thousands, unless otherwise specified	Sep. 27, 2014	Dec. 28, 2013
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 84,371	$ 92,853
Gross Unrealized Gains	19	22
Gross Unrealized Losses	(17)	(13)
Estimated Fair Market Value	84,373	92,862
Cash and Cash equivalents [Member] | Cash [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	34,426	43,139
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	34,426	43,139
Cash and Cash equivalents [Member] | Money market funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	549	876
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	549	876
Cash and Cash equivalents [Member] | Commercial paper [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	650	750
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	650	750
Short-term investments [Member] | Commercial paper [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	700
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Estimated Fair Market Value	700
Short-term investments [Member] | U.S. Treasury securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,497	5,036
Gross Unrealized Gains	1	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	2,498	5,036
Short-term investments [Member] | U.S. Government agency securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	18,685	11,980
Gross Unrealized Gains	6	4
Gross Unrealized Losses	(4)	(4)
Estimated Fair Market Value	18,687	11,980
Short-term investments [Member] | Municipal securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	5,014	9,756
Gross Unrealized Gains	3	11
Gross Unrealized Losses	(2)	(4)
Estimated Fair Market Value	5,015	9,763
Short-term investments [Member] | Corporate debt securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	21,850	21,316
Gross Unrealized Gains	9	7
Gross Unrealized Losses	(11)	(5)
Estimated Fair Market Value	$ 21,848	$ 21,318

XML

Nature of Business and Basis of Presentation (Details Textual)	9 Months Ended
	Sep. 27, 2014
Accounting Policies [Line Items]
Number of weeks in fiscal quarter (in days)	91 days
Maximum Period of Delivery to Customers	6 months
Minimum [Member]
Accounting Policies [Line Items]
Number of weeks in fiscal year (in days)	364 days
Maximum [Member]
Accounting Policies [Line Items]
Number of weeks in fiscal year (in days)	371 days

XML

Restructuring (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013
Restructuring Reserve [Roll Forward]
Beginning balance	$ 0	$ 0
Charges	1,715	1,740	1,715	1,740
Cash Payments	(432)	0
Non-cash items		(896)
Ending balance	1,283	1,740	1,283	1,740
Employee severance and benefits [Member]
Restructuring Reserve [Roll Forward]
Beginning balance	0	0
Charges	560	1,740
Cash Payments	(152)	0
Non-cash items		(896)
Ending balance	408	844	408	844
Facility termination costs [Member]
Restructuring Reserve [Roll Forward]
Beginning balance	0	0
Charges	846	0
Cash Payments	0	0
Non-cash items		0
Ending balance	846	0	846	0
Other [Member]
Restructuring Reserve [Roll Forward]
Beginning balance	0	0
Charges	309	0
Cash Payments	(280)	0
Non-cash items		0
Ending balance	$ 29	$ 0	$ 29	$ 0

XML

Geographic and Significant Customer Information (Details 2) (Accounts Receivable [Member])	9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013
SK Hynix [Member]
Revenue, Major Customer [Line Items]
Customers accounted for 10% or more of total accounts receivable	26.00%	22.00%
Taiwan Semiconductor Mfg. Co. [Member]
Revenue, Major Customer [Line Items]
Customers accounted for 10% or more of total accounts receivable		12.00%
Global Foundries [Member]
Revenue, Major Customer [Line Items]
Customers accounted for 10% or more of total accounts receivable	14.00%
Samsung Electronics Co. Ltd. [Member]
Revenue, Major Customer [Line Items]
Customers accounted for 10% or more of total accounts receivable		27.00%
Intel Corporation [Member]
Revenue, Major Customer [Line Items]
Customers accounted for 10% or more of total accounts receivable		14.00%
Micron Technology, Inc. [Member]
Revenue, Major Customer [Line Items]
Customers accounted for 10% or more of total accounts receivable	12.00%

XML

Warranties (Details Textual)	9 Months Ended
	Sep. 27, 2014
Product Warranties Disclosures [Abstract]
Product warranty period	12 months

XML

Goodwill and Intangible Assets (Goodwill) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 27, 2014
Goodwill [Roll Forward]
Goodwill, Beginning Balance	$ 11,743
Foreign currency movements	(704)
Goodwill, Ending Balance	$ 11,039

XML

Fair Value Measurements and Disclosures

9 Months Ended

Sep. 27, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements and Disclosures

Fair Value Measurements and Disclosures

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability, and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability.

The Company determines the fair values of its financial instruments based on the fair value hierarchy established in ASC 820, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into the following three levels that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 — Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Such unobservable inputs include an estimated discount rate used in the Company's discounted present value analysis of future cash flows, which reflects the Company's estimate of debt with similar terms in the current credit markets. As there is currently minimal activity in such markets, the actual rate could be materially different.

The following tables present the Company’s assets and liabilities measured at estimated fair value on a recurring basis, excluding accrued interest components, categorized in accordance with the fair value hierarchy (in thousands), as of the following dates:

	September 27, 2014								December 28, 2013
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	549	$	—	$	—	$	549	$	876	$	—	$	—	$	876
Commercial paper	—		650		—		650		—		750		—		750
Total cash equivalents	549		650		—		1,199		876		750		—		1,626
Marketable securities:
U.S. Treasury, U.S. Government and U.S. Government agency debt securities	2,498		18,687		—		21,185		5,036		11,980		—		17,016
Commercial paper, municipal securities and corporate debt securities	—		27,563		—		27,563		—		31,081		—		31,081
Total marketable securities	2,498		46,250		—		48,748		5,036		43,061		—		48,097
Total (1)	$	3,047	$	46,900	$	—	$	49,947	$	5,912	$	43,811	$	—	$	49,723
Liabilities:
Contingent consideration payable	$	—	$	—	$	2,431	$	2,431	$	—	$	—	$	2,783	$	2,783

⁽¹⁾ Excludes cash of $34.4 million and $43.1 million held in operating accounts as of September 27, 2014 and December 28, 2013, respectively.

The fair values of the marketable securities that are classified as Level 1 in the table above were derived from quoted market prices for identical assets or liabilities that the Company has the ability to access. The fair value of marketable securities that are classified as Level 2 in the table above were derived from: non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data. There were no transfers of instruments between Level 1, Level 2 and Level 3 during the financial periods presented.

Changes in Level 3 liabilities (in thousands)
Fair value at December 28, 2013	$	2,783
Payments made to Zygo Corporation	(470		)
Change in fair value included in earnings	118
Fair Value at September 27, 2014	$	2,431

As of September 27, 2014, the Company had liabilities of $2.4 million resulting from the acquisition of certain assets from Zygo Corporation (“Zygo”), which are measured at fair value on a recurring basis, with changes in fair value recorded in other income (expense), net. Of the $2.4 million of Zygo liabilities at September 27, 2014, $0.9 million was a current liability and $1.5 million was a long-term liability. As of December 28, 2013, the liabilities totaled $2.8 million of which $1.3 million was a current liability and $1.5 million was a long-term liability. The fair values of these liabilities were determined using Level 3 inputs applying a discounted cash flow model incorporating assumptions that market participants would use in their estimates of fair value. Some of these assumptions included estimates for discount rate, and timing and the amount of cash flows.

XML

Warranties (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013
Components of the warranty accrual
Balance at beginning of the period	$ 3,484	$ 3,519	$ 3,426	$ 4,203
Accruals for warranties	1,242	1,161	4,459	2,886
Settlements during the period	(1,736)	(1,278)	(4,895)	(3,687)
Balance at end of the period	$ 2,990	$ 3,402	$ 2,990	$ 3,402

XML

Cash and Investments (Details Textual)	9 Months Ended	12 Months Ended
	Sep. 27, 2014	Dec. 28, 2013
Investments, Debt and Equity Securities [Abstract]
Maximum maturity period of Available-for-sale marketable securities, classified as cash equivalents	90 days
Minimum maturity period of Available-for-sale marketable securities, classified as marketable securities	90 days
Maximum period of available for sale securities debt maturities	2 years	2 years

XML

Property, Plant and Equipment (Tables)

9 Months Ended

Sep. 27, 2014

Property, Plant and Equipment [Abstract]

Components of property, plant and equipment

Property, plant and equipment, net, consist of the following as of the following dates (in thousands):

	September 27, 2014			December 28, 2013
Land	$	15,575		$	15,569
Building and improvements	19,826			19,403
Machinery and equipment	31,569			27,820
Furniture and fixtures	2,343			2,308
Software	7,844			1,851
Capital in progress	3,070			5,833
Total property, plant and equipment, gross	80,227			72,784
Accumulated depreciation and amortization	(29,491		)	(25,345		)
Total property, plant and equipment, net	$	50,736		$	47,439

XML

Inventories (Tables)

9 Months Ended

Sep. 27, 2014

Inventory Disclosure [Abstract]

Component of inventories

Inventories consist of the following as of the following dates (in thousands):

	September 27, 2014		December 28, 2013
Raw materials and sub-assemblies	$	18,836	$	19,655
Work in process	6,366		7,597
Finished goods	10,560		7,268
Inventories	35,762		34,520
Inventories-delivered systems	501		6,901
Total inventories	$	36,263	$	41,421

XML

Equity and Stock Based Compensation Plans (Details Textual) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013	Sep. 26, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock options awarded	0		74,300
Weighted average fair value per share of stock options (in dollars per share)		$ 7.75	$ 8.13	$ 8.55
Closing stock price of options (in dollars per share)					$ 15.70
Intrinsic value of options exercised	$ 0.4	$ 0.2	$ 2.9	$ 1.7

XML

Accounts Receivable (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013	Dec. 28, 2013
Accounts Receivable (Additional Textual) [Abstract]
Sold receivables amount	$ 1,300,000	$ 600,000	$ 2,900,000	$ 5,200,000
Amounts due from financial institutions	$ 0		$ 0		$ 0
Minimum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Administrative fees as well as interest percent			1.19%
Maximum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Administrative fees as well as interest percent			1.68%

XML

Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 27, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The following table summarizes the activity in the Company’s goodwill during the nine months ended September 27, 2014 (in thousands):

Balance as of December 28, 2013	$	11,743
Foreign currency movements	(704		)
Balance as of September 27, 2014	$	11,039

Summary of Finite-lived intangible assets

Finite-lived intangible assets consisted of the following as of the following dates (in thousands):

	September 27, 2014
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	17,471	$	(12,647	)	$	4,824
Customer relationships	9,510		(9,444		)	66
Brand names	1,927		(1,776		)	151
Patented technology	2,252		(2,038		)	214
Trademark	80		(80		)	—
	$	31,240	$	(25,985	)	$	5,255

	December 28, 2013
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	18,095	$	(11,032	)	$	7,063
Customer relationships	9,573		(9,263		)	310
Brand names	1,927		(1,700		)	227
Patented technology	2,252		(1,988		)	264
Trademark	80		(80		)	—
	$	31,927	$	(24,063	)	$	7,864

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

At September 27, 2014, estimated future amortization expense of intangible assets were as follows (in thousands):

Fiscal years	Amount
2014 (remaining three months)	$	734
2015	2,293
2016	1,816
2017	206
2018	140
Thereafter	66
Total future amortization expense	$	5,255

XML

Other Current Liabilities (Tables)

9 Months Ended

Sep. 27, 2014

Other Liabilities Disclosure [Abstract]

Summary of other current liabilities

Other current liabilities consist of the following as of the following dates (in thousands):

	September 27, 2014		December 28, 2013
Accrued warranty	$	2,990	$	3,426
Accrued professional services	726		545
Customer deposits	3		867
Fair value of contingent payments to Zygo Corporation related to acquisition - current portion	930		1,344
Other	3,185		1,811
Total other current liabilities	$	7,834	$	7,993

XML

Recent Accounting Pronouncements

9 Months Ended

Sep. 27, 2014

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) ("ASU 2013-11"), which provides that a liability related to an unrecognized tax benefit would be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations in which a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the financial statements as a liability and will not be combined with deferred tax assets. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. ASU 2013-11 is effective for fiscal years and interim periods beginning after December 15, 2013. The Company adopted this standard during the three months ended March 29, 2014, resulting in a one-time tax benefit of $0.3 million, a reduction in deferred tax assets of $0.3 million, and a reduction in long-term income taxes payable of $0.6 million.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

XML

Restructuring (Tables)

9 Months Ended

Sep. 27, 2014

Restructuring and Related Activities [Abstract]

Components of the restructuring reserve

As of September 27, 2014 and September 28, 2013, respectively, the components of the Company's restructuring reserves were included in other current liabilities and were as follows (in thousands):

	Employee severance and benefits			Facility termination costs		Other			Total
Balance as of June 28, 2014	$	—		$	—	$	—		$	—
Charges	560			846		309			1,715
Cash Payments	(152		)	—		(280		)	(432		)
Balance as of September 27, 2014	$	408		$	846	$	29		$	1,283

	Employee severance and benefits			Facility termination costs		Other		Total
Balance as of June 29, 2013	$	—		$	—	$	—	—
Charges	1,740			—		—		1,740
Cash Payments	—			—		—		—
Non-cash items	(896		)	—		—		(896		)
Balance as of September 28, 2013	$	844		$	—	$	—	$	1,740

XML

Fair Value Measurements and Disclosures (Details 1) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 27, 2014
Fair value measurement on recurring basis, unobservable input reconciliation
Fair value at December 28, 2013	$ 2,783
Payments made to Zygo Corporation	(470)
Change in fair value included in earnings	118
Fair Value at September 27, 2014	$ 2,431

XML

Line of Credit and Debt Obligations (Details Textual) (USD $)	0 Months Ended		1 Months Ended		9 Months Ended					0 Months Ended
	May 30, 2014	Jul. 18, 2013	Jul. 31, 2012	Jul. 31, 2008	Sep. 27, 2014	Sep. 28, 2013	May 30, 2014	Aug. 31, 2013 Residential Mortgage [Member]	Jul. 31, 2008 Residential Mortgage [Member]	May 30, 2014 Minimum [Member]	May 30, 2014 Revolving line of credit facility [Member]
Debt Instrument [Line Items]
Extension of maturity period on amendment of existing credit facility											2 years
Maturity date	May 30, 2016
Limited borrowing amount							$ 12,000,000
Minimum borrowing interest rate										3.00%
Borrowing base							20,000,000
Total borrowing available					15,900,000
Amounts outstanding drawn on facility					0
Mortgage agreement, borrowed amount									13,500,000
Mortgage bears interest rate initially									7.18%
Mortgage bears interest rate after five year								3.03%
Amortization period of mortgage loan for sixty month				20 years
Loan Principal and Interest Payment Amortization Basis Period				60 months
Amortization period of mortgage loan after sixty month				15 years
Early Repayment Percent of Outstanding Debt			20.00%	20.00%
Debt instrument pre payment			1,400,000
Repayments of Long-term Debt		$ 4,800,000			$ 0	$ 5,224,000

XML

Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 27, 2014	Dec. 28, 2013
Current assets:
Cash and cash equivalents	$ 35,625	$ 44,765
Marketable securities	48,748	48,097
Accounts receivable, net of allowances of $253 and $293, respectively	26,061	31,436
Inventories	35,762	34,520
Inventories-delivered systems	501	6,901
Prepaid expenses and other	9,356	10,519
Deferred income tax assets	2,922	14,516
Total current assets	158,975	190,754
Property, plant and equipment, net	50,736	47,439
Goodwill	11,039	11,743
Intangible assets, net	5,255	7,864
Deferred income tax assets	362	4,338
Other assets	593	696
Total assets	226,960	262,834
Current liabilities:
Accounts payable	5,948	10,604
Accrued payroll and related expenses	8,395	7,853
Deferred revenue	5,944	21,749
Other current liabilities	7,834	7,993
Income taxes payable	639	758
Total current liabilities	28,760	48,957
Deferred revenue	3,253	3,718
Income taxes payable	635	1,171
Deferred tax liability	2,701	0
Other long-term liabilities	1,673	1,615
Total liabilities	37,022	55,461
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $0.001 par value; 3,000,000 shares authorized; no shares issued or outstanding	0	0
Common stock, $0.001 par value, 47,000,000 shares authorized; 24,156,554 shares and 23,537,275 shares, respectively, issued and outstanding	24	24
Additional paid-in capital	255,036	244,733
Accumulated deficit	(64,475)	(37,996)
Accumulated other comprehensive income (loss)	(647)	612
Total stockholders’ equity	189,938	207,373
Total liabilities and stockholders’ equity	$ 226,960	$ 262,834

XML

Inventories (Details) (USD $) In Thousands, unless otherwise specified	Sep. 27, 2014	Dec. 28, 2013
Component of inventories
Raw materials and sub-assemblies	$ 18,836	$ 19,655
Work in process	6,366	7,597
Finished goods	10,560	7,268
Inventories	35,762	34,520
Inventories-delivered systems	501	6,901
Total inventories	$ 36,263	$ 41,421

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013
Cash flows from operating activities:
Net loss	$ (26,479)	$ (14,702)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization	8,660	6,536
Stock-based compensation	5,115	5,912
Excess tax benefit from equity awards	0	467
Loss on disposal of fixed assets	80	173
Provision for doubtful accounts receivable	11	0
Inventory write-down	1,109	6,307
Deferred income taxes	20,776	(9,659)
Changes in fair value of contingent consideration	118	1,045
Changes in assets and liabilities:
Accounts receivable	4,871	(1,818)
Inventories	(7,998)	(7,173)
Inventories-delivered systems	6,400	(300)
Prepaid expenses and other	1,751	820
Accounts payable, accrued and other liabilities	(4,535)	6,798
Deferred revenue	(16,270)	2,044
Income taxes payable	(3,158)	(363)
Net cash used in operating activities	(9,549)	(3,913)
Cash flows from investing activities:
Maturities of marketable securities	25,570	38,030
Purchases of marketable securities	(26,810)	(40,797)
Purchases of property, plant and equipment	(2,800)	(3,516)
Net cash used in investing activities	(4,040)	(6,283)
Cash flows from financing activities:
Payments to Zygo Corporation related to acquisition	(470)	(735)
Repayments of debt obligations	0	(5,224)
Proceeds from sale of shares under employee stock option and purchase plans	5,852	3,192
Excess tax benefit from equity awards	0	(467)
Taxes paid on net issuance of stock awards	(664)	(86)
Repurchases of common stock	0	(5,000)
Net cash provided by (used in) financing activities	4,718	(8,320)
Effect of exchange rate changes on cash and cash equivalents	(269)	(566)
Net decrease in cash and cash equivalents	(9,140)	(19,082)
Cash and cash equivalents, beginning of period	44,765	62,915
Cash and cash equivalents, end of period	35,625	43,833
Supplemental disclosure of non-cash investing activities:
Transfer of inventory to property, plant and equipment, net	$ 4,627	$ 3,106

XML

Equity and Stock Based Compensation Plans (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 1,705	$ 2,702	$ 5,115	$ 5,912
Cost of products [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	70	55	199	153
Cost of service [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	53	74	227	204
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	331	412	967	1,092
Selling [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	490	476	1,353	1,418
General and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	761	789	2,369	2,149
Restructuring [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 0	$ 896	$ 0	$ 896

XML

Warranties (Tables)

9 Months Ended

Sep. 27, 2014

Product Warranties Disclosures [Abstract]

Components of the warranty accrual

Components of the warranty accrual, which were included in the accompanying condensed consolidated balance sheets within other current liabilities, were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Balance at beginning of the period	$	3,484		$	3,519		$	3,426		$	4,203
Accruals for warranties	1,242			1,161			4,459			2,886
Settlements during the period	(1,736		)	(1,278		)	(4,895		)	(3,687		)
Balance at end of the period	$	2,990		$	3,402		$	2,990		$	3,402

XML

Geographic and Significant Customer Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014 segment	Sep. 28, 2013
Segment Reporting [Abstract]
Number of operating segments			1
Revenues from External Customers and Long-Lived Assets [Line Items]
Total net revenues	$ 27,133	$ 39,044	$ 126,738	$ 98,148
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total net revenues	5,511	15,665	25,554	41,426
Japan [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total net revenues	4,099	2,387	10,005	9,617
Taiwan [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total net revenues	640	3,737	11,337	6,959
China [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total net revenues	2,848	901	27,694	6,952
South Korea [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total net revenues	6,327	9,805	30,589	18,946
Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total net revenues	$ 7,708	$ 6,549	$ 21,559	$ 14,248

XML

Income Taxes

9 Months Ended

Sep. 27, 2014

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, Accounting for Income Taxes. The Company adjusts its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company also records the tax effect of unusual or infrequently occurring discrete items, including changes in judgment about valuation allowances and effects of changes in tax laws or tax rates, in the interim period in which they occur. The Company's effective tax rate reflects the impact of a portion of its earnings being taxed in foreign jurisdictions as well as a valuation allowance maintained on certain deferred tax assets.

The Company recorded a tax provision of $17.9 million and a tax benefit of $3.1 million for the three months ended September 27, 2014 and September 28, 2013, respectively, and a tax provision of $18.5 million and a tax benefit of $9.7 million for the nine months ended September 27, 2014 and September 28, 2013, respectively. The change during the three and nine months ended September 27, 2014, compared to the corresponding period in 2013, was primarily related to a one-time charge of $21.1 million related to the establishment of a valuation allowance against the Company's U.S. deferred tax assets during the three months ended September 27, 2014, partially offset by a one-time benefit of $0.6 million recorded during the nine months ended September 28, 2013 related to the retroactive reinstatement of the 2012 Federal R&D tax credit.

The realization of deferred tax assets is primarily dependent on the Company generating sufficient U.S. and foreign taxable income in future fiscal years. The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, the Company considers its cumulative loss in the U.S. as a significant piece of negative evidence. During the three month period ended September 27, 2014, the Company recorded a $21.1 million valuation allowance against its U.S. deferred tax assets as it determined, within the period, it would not meet the more likely than not threshold. The Company continued to maintain valuation allowances against certain foreign deferred tax assets as a result of uncertainties regarding the realization of the asset due to cumulative losses and uncertainty of future taxable income. The Company will continue to assess the realizability of the deferred tax assets in each of the applicable jurisdictions and maintain the valuation allowances until sufficient positive evidence exists to support a reversal. In the event that the Company determines that the deferred tax assets are realizable, an adjustment to the valuation allowances will be reflected in the tax provision for the period such determination is made.

The Company is subject to taxation in the U.S. and various states including California, and foreign jurisdictions including South Korea, Japan and United Kingdom. Due to tax attribute carry-forwards, the Company is subject to examination for tax years from 2003 forward for U.S. tax purposes. The Company is also subject to examination in various states for tax years from 2002 forward. The Company is subject to examination for tax years from 2006 forward for various foreign jurisdictions.

On September 13, 2013, the U.S. Treasury Department and the IRS issued final regulations that address costs incurred in acquiring, producing, or improving tangible property (the "tangible property regulations"). The tangible property regulations are generally effective for tax years beginning on or after January 1, 2014, and may be adopted in earlier years. The tangible property regulations required the Company to make additional tax accounting method changes as of January 1, 2014. The impact of these changes was not material to the Company’s consolidated financial position or its results of operations.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of accrued penalties and interest was immaterial for the three and nine months ended September 27, 2014. During the next twelve months, the Company anticipates increases in its unrecognized tax benefits of approximately $0.2 million.

XML

Geographic and Significant Customer Information (Tables)

9 Months Ended

Sep. 27, 2014

Segment Reporting [Abstract]

Total net revenue

The following tables summarize total net revenues (based on the deployments and service location of the systems) and long-lived assets (excluding intangible assets) attributed to significant geographic regions (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
United States	$	5,511	$	15,665	$	25,554	$	41,426
Japan	4,099		2,387		10,005		9,617
Taiwan	640		3,737		11,337		6,959
China	2,848		901		27,694		6,952
South Korea	6,327		9,805		30,589		18,946
Other	7,708		6,549		21,559		14,248
Total net revenues	$	27,133	$	39,044	$	126,738	$	98,148

Long-lived tangible assets

	At
	September 27, 2014		December 28, 2013
United States	$	50,061	$	44,775
Japan	82		125
South Korea	337		445
All Other	256		2,094
Total long-lived tangible assets	$	50,736	$	47,439

Customers accounted for 10% or more of total accounts receivable

The following customers accounted for 10% or more of total accounts receivable as of the following dates:

	September 27, 2014		December 28, 2013
SK Hynix	26	%	22	%
Taiwan Semiconductor Mfg. Co.	***		12	%
Global Foundries	14	%	***
Samsung Electronics Co. Ltd.	***		27	%
Intel Corporation	***		14	%
Micron Technology, Inc.	12	%	***

*** The customer accounted for less than 10% of total accounts receivable as of that period end.

Customers accounted for 10% or more of total revenue

The following customers accounted for 10% or more of total net revenues:

	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Intel Corporation	***		34	%	14	%	30	%
SK Hynix	27	%	23	%	16	%	18	%
Samsung Electronics Co. Ltd.	***		***		28	%	***
Micron Technology, Inc.	25	%	***		***		***

*** The customer accounted for less than 10% of total net revenues for that period.

XML

Geographic and Significant Customer Information

9 Months Ended

Sep. 27, 2014

Segment Reporting [Abstract]

Geographic and Significant Customer Information

Geographic and Significant Customer Information

The Company has one operating segment, which is the sale, design, manufacture, marketing and support of thin film and optical critical dimension systems. The following tables summarize total net revenues (based on the deployments and service location of the systems) and long-lived assets (excluding intangible assets) attributed to significant geographic regions (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
United States	$	5,511	$	15,665	$	25,554	$	41,426
Japan	4,099		2,387		10,005		9,617
Taiwan	640		3,737		11,337		6,959
China	2,848		901		27,694		6,952
South Korea	6,327		9,805		30,589		18,946
Other	7,708		6,549		21,559		14,248
Total net revenues	$	27,133	$	39,044	$	126,738	$	98,148

	At
	September 27, 2014		December 28, 2013
United States	$	50,061	$	44,775
Japan	82		125
South Korea	337		445
All Other	256		2,094
Total long-lived tangible assets	$	50,736	$	47,439

The following customers accounted for 10% or more of total accounts receivable as of the following dates:

	September 27, 2014		December 28, 2013
SK Hynix	26	%	22	%
Taiwan Semiconductor Mfg. Co.	***		12	%
Global Foundries	14	%	***
Samsung Electronics Co. Ltd.	***		27	%
Intel Corporation	***		14	%
Micron Technology, Inc.	12	%	***

*** The customer accounted for less than 10% of total accounts receivable as of that period end.

The following customers accounted for 10% or more of total net revenues:

	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Intel Corporation	***		34	%	14	%	30	%
SK Hynix	27	%	23	%	16	%	18	%
Samsung Electronics Co. Ltd.	***		***		28	%	***
Micron Technology, Inc.	25	%	***		***		***

*** The customer accounted for less than 10% of total net revenues for that period.

XML

Geographic and Significant Customer Information (Details 3) (Revenues [Member])	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013
Intel Corporation [Member]
Revenue, Major Customer [Line Items]
Customers accounted for 10% or more of total revenue		34.00%	14.00%	30.00%
SK Hynix [Member]
Revenue, Major Customer [Line Items]
Customers accounted for 10% or more of total revenue	27.00%	23.00%	16.00%	18.00%
Samsung Electronics Co. Ltd. [Member]
Revenue, Major Customer [Line Items]
Customers accounted for 10% or more of total revenue			28.00%
Micron Technology, Inc. [Member]
Revenue, Major Customer [Line Items]
Customers accounted for 10% or more of total revenue	25.00%

XML

Nature of Business and Basis of Presentation

9 Months Ended

Sep. 27, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Business and Basis of Presentation

Nature of Business and Basis of Presentation

Description of Business – Nanometrics Incorporated (“Nanometrics” or the “Company”) and its wholly-owned subsidiaries, design, manufacture, market, sell and support thin film, optical critical dimension and overlay dimension metrology and inspection systems used primarily in the manufacturing of semiconductors, solar photovoltaics (“solar PV”) and high-brightness LEDs (“HB-LED”), as well as by customers in the silicon wafer and data storage industries. Nanometrics' metrology systems precisely measure a wide range of film types deposited on substrates during manufacturing to control manufacturing processes and increase production yields in the fabrication of integrated circuits. The thin film metrology systems use a broad spectrum of wavelengths, high-sensitivity optics, proprietary software, and patented technology to measure the thickness and uniformity of films deposited on silicon and other substrates as well as their chemical composition. The Company’s optical critical dimension technology is a patented critical dimension measurement technology that is used to precisely determine the dimensions on the semiconductor wafer that directly control the resulting performance of the integrated circuit devices. The overlay metrology systems are used to measure the overlay accuracy of successive layers of semiconductor patterns on wafers in the photolithography process. Nanometrics' inspection systems are used to find defects on patterned and unpatterned wafers at nearly every stage of the semiconductor production flow. The corporate headquarters of Nanometrics is located in Milpitas, California.

Basis of Presentation – The accompanying condensed consolidated financial statements ("financial statements") have been prepared on a consistent basis with the audited consolidated financial statements as of December 28, 2013, and include all normal recurring adjustments necessary to fairly present the information set forth therein. All significant intercompany accounts and transactions have been eliminated in consolidation.

The financial statements have been prepared in accordance with the regulations of the United States Securities and Exchange Commission (“SEC”) for interim periods in accordance with S-X Article 10, and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The operating results for interim periods are not necessarily indicative of the operating results that may be expected for the entire year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2013, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2014.

Fiscal Period – The Company uses a 52/53 week fiscal year ending on the last Saturday of the calendar year. All references to the quarter refer to Nanometrics' fiscal quarter. The fiscal quarters presented herein include 13 weeks.

Reclassification – Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. Estimates are used for, but not limited to, revenue recognition, the provision for doubtful accounts, the provision for excess, obsolete, or slow moving inventories, valuation of intangible and long-lived assets, warranty accruals, income taxes, valuation of stock-based compensation and contingencies.

Revenue Recognition – The Company derives revenue from the sale of process control metrology systems (“product revenue”) as well as spare part sales, billable service, service contracts and upgrades (together “service revenue”). Upgrades are a group of parts and/or software that change the existing configuration of a product and are included in service revenue. They are distinguished from product revenue, which consists of complete, advanced process control metrology and inspection systems (the “system(s)”). Nanometrics' systems consist of hardware and software components that function together to deliver the essential functionality of the system. Arrangements for sales of systems often include defined customer-specified acceptance criteria.

In summary, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price is fixed or determinable, and collectability is reasonably assured.

For product sales to existing customers, revenue recognition occurs at the time title and risk of loss transfer to the customer, which usually occurs upon shipment from the Company's manufacturing location, if it can be reliably demonstrated that the product has successfully met the defined customer specified acceptance criteria and all other recognition criteria has been met. For initial sales where the product has not previously met the defined customer specified acceptance criteria, product revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the contractual acceptance period. In Japan, where contractual terms with the customer specify risk of loss and title transfers upon customer acceptance, revenue is recognized upon receipt of written customer acceptance, provided that all other recognition criteria have been met.

The Company warrants its products against defects in manufacturing. Upon recognition of product revenue, a liability is recorded for anticipated warranty costs. On occasion, customers request a warranty period longer than the Company's standard warranty. In those instances where extended warranty services are separately quoted to the customer, the associated revenue is deferred and recognized as service revenue ratably over the term of the contract. The portion of service contracts and extended warranty services agreements that are uncompleted at the end of any reporting period are included in deferred revenue.

As part of its customer services, the Company sells software that is considered to be an upgrade to a customer's existing systems. These standalone software upgrades are not essential to the tangible product's functionality and are accounted for under software revenue recognition rules which require vendor specific objective evidence ("VSOE") of fair value to allocate revenue in a multiple element arrangement. Revenue from upgrades is recognized when the upgrades are delivered to the customer, provided that all other recognition criteria have been met.

Revenue related to spare parts is recognized upon shipment. Revenue related to billable services is recognized as the services are performed. Service contracts may be purchased by the customer during or after the warranty period and revenue is recognized ratably over the service contract period.

Frequently, the Company delivers products and various services in a single transaction. The Company's deliverables consist of tools, installation, upgrades, billable services, spare parts, and service contracts. The Company's typical multi-element arrangements include a sale of one or multiple tools that include installation and standard warranty. Other arrangements consist of a sale of tools bundled with service elements or delivery of different types of services. The Company's tools, upgrades, and spare parts are generally delivered to customers within a period of up to six months from order date. Installation is usually performed soon after delivery of the tool. The portion of revenue associated with installation is deferred based on relative selling price and that revenue is recognized upon completion of the installation. Billable services are billed on a time and materials basis and performed as requested by customers. Under service contract arrangements, services are provided as needed over the fixed arrangement term. The Company does not grant its customers a general right of return or any refund terms and imposes a penalty on orders canceled prior to the scheduled shipment date.

The Company regularly evaluates its revenue arrangements to identify deliverables and to determine whether these deliverables are separable into multiple units of accounting. In accordance with revenue recognition guidance, the Company allocates the arrangement consideration among the deliverables based on relative selling prices. The Company has established VSOE for some of its products and services when a substantial majority of selling prices falls within a narrow range when sold separately. For deliverables with no established VSOE, the Company uses best estimate of selling price to determine standalone selling price for such deliverable. The Company does not use third party evidence to determine standalone selling price since this information is not widely available in the market as the Company's products contain a significant element of proprietary technology and the solutions offered differ substantially from competitors. The Company has established a process for developing estimated selling prices, which incorporates historical selling prices, the effect of market conditions, gross margin objectives, pricing practices, as well as entity-specific factors. The Company monitors and evaluates estimated selling price on a regular basis to ensure that changes in circumstances are accounted for in a timely manner.

When certain elements in multiple-element arrangements are not delivered or accepted at the end of a reporting period, the relative selling prices of undelivered elements are deferred until these elements are delivered and/or accepted. If deliverables cannot be accounted for as separate units of accounting, the entire arrangement is accounted for as a single unit of accounting and revenue is deferred until all elements are delivered and all revenue recognition requirements are met.

XML

Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 27, 2014	Dec. 28, 2013
Statement of Financial Position [Abstract]
Allowances for doubtful accounts	$ 253	$ 293
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	3,000,000	3,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	47,000,000	47,000,000
Common stock, shares issued	24,156,554	23,537,275
Common stock, shares outstanding	24,156,554	23,537,275

XML

Line of Credit and Debt Obligations

9 Months Ended

Sep. 27, 2014

Debt Disclosure [Abstract]

Line of Credit and Debt Obligations

Line of Credit and Debt Obligations

Line of Credit - On May 30, 2014, the Company amended its revolving line of credit facility (i) to extend the maturity date of such facility by two years to May 30, 2016, and (ii) to increase the minimum amount available to borrow to $12.0 million. The instrument governing the line of credit facility includes certain financial covenants regarding tangible net worth. The revolving line of credit agreement includes a provision for the issuance of commercial or standby letters of credit by the bank on behalf of the Company. The value of all letters of credit outstanding reduces the total line of credit available. The revolving line of credit is collateralized by a blanket lien on all of the Company’s domestic assets excluding intellectual property and real estate. The minimum borrowing interest rate is 3.00% per annum. Borrowing is limited to the lesser of (a) $12.0 million plus the borrowing base, or (b) $20.0 million. The total borrowing available as of September 27, 2014, was $15.9 million. As of September 27, 2014, the Company was not in breach of any restrictive covenants in connection with this line of credit. There were no outstanding amounts drawn on this facility as of September 27, 2014. Although management has no current plans to request advances under this credit facility, the Company may use the proceeds of any future borrowing for general corporate purposes, future acquisitions or expansion of the Company's business.

Mortgage Loan - In July 2008, the Company entered into a mortgage loan agreement with General Electric Commercial Finance ("GE") pursuant to which it borrowed $13.5 million, secured, in part, by a lien on and security interest in the building and land comprising the Company's principal offices in Milpitas, California. The loan initially bore interest at the rate of 7.18% per annum, which rate was scheduled to reset in August 2013 to 3.03% over the weekly average yield of five-year U.S Dollar Interest Rate Swaps as published by the Federal Reserve. Monthly principal and interest payments were based on a 20 year amortization for the first 60 months and 15 year amortization thereafter. The remaining principal balance of the loan and any accrued but unpaid interest will be due on August 1, 2018. According to the terms of the loan agreement, the Company could make annual pre-payments of up to 20% of the outstanding principal balance without incurring any penalty. GE subsequently sold the mortgage on March 31, 2011 to Sterling Saving Bank; however, no changes were made to the terms of the original loan agreement with GE as a result of the sale. In July 2012, the Company prepaid $1.4 million of the loan, representing 20% of the outstanding balance at the time of prepayment. On July 18, 2013, the Company repaid $4.8 million of the loan, representing the entire outstanding principal balance of the loan and all accrued interest. The Company did not incur any fees associated with the prepayment of the loan. As of September 27, 2014, there was no outstanding balance and no available amounts to borrow on the loan.

XML

Document and Entity Information	9 Months Ended
	Sep. 27, 2014	Oct. 24, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	NANOMETRICS INC
Entity Central Index Key	0000704532
Document Type	10-Q
Document Period End Date	Sep. 27, 2014
Amendment Flag	false
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-27
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		24,158,015

XML

Net Income (Loss) Per Share

9 Months Ended

Sep. 27, 2014

Earnings Per Share [Abstract]

Net Income (Loss) Per Share

Net Income (Loss) Per Share

The Company presents both basic and diluted net income (loss) per share on the face of its condensed consolidated statements of operations. Basic net income (loss) per share are computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted net income (loss) per share are computed using the weighted-average number of shares of common stock outstanding plus the effect of all dilutive securities representing potential shares of common stock outstanding during the period.

Since the Company had a net loss for the three and nine months ended September 27, 2014 and September 28, 2013, potentially dilutive securities of 0.4 million shares were not included in the computation of diluted shares for the nine months ended September 27, 2014 and the three and nine months ended September, 28, 2013, and 0.3 million shares for three months ended September 27, 2014, since inclusion of such shares would have been anti-dilutive. Accordingly, basic and diluted net loss per share were the same for the three and nine months ended September 27, 2014 and September 28, 2013.

XML

Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013
Net revenues:
Products	$ 19,487	$ 30,164	$ 101,991	$ 69,776
Service	7,646	8,880	24,747	28,372
Total net revenues	27,133	39,044	126,738	98,148
Costs of net revenues:
Cost of products	10,737	18,116	52,165	40,908
Cost of service	4,292	4,469	14,061	14,510
Amortization of intangible assets	688	658	2,039	1,963
Total costs of net revenues	15,717	23,243	68,265	57,381
Gross profit	11,416	15,801	58,473	40,767
Operating expenses:
Research and development	8,037	8,926	25,724	24,695
Selling	6,389	6,758	20,443	20,303
General and administrative	5,781	5,424	18,120	16,442
Amortization of intangible assets	103	195	318	588
Restructuring charge	1,715	1,740	1,715	1,740
Total operating expenses	22,025	23,043	66,320	63,768
Loss from operations	(10,609)	(7,242)	(7,847)	(23,001)
Other income (expense):
Interest income	13	7	37	51
Interest expense	(90)	(118)	(286)	(549)
Other income (expense), net	(57)	(334)	111	(930)
Total other expense, net	(134)	(445)	(138)	(1,428)
Loss before income taxes	(10,743)	(7,687)	(7,985)	(24,429)
Provision for (benefit from) income taxes	17,919	(3,133)	18,494	(9,727)
Net loss	$ (28,662)	$ (4,554)	$ (26,479)	$ (14,702)
Net loss per share:
Basic (dollars per share)	$ (1.19)	$ (0.20)	$ (1.11)	$ (0.63)
Diluted (dollars per share)	$ (1.19)	$ (0.20)	$ (1.11)	$ (0.63)
Weighted shares used in per share calculation:
Basic (shares)	24,132	23,261	23,928	23,247
Diluted (shares)	24,132	23,261	23,928	23,247

XML

Inventories

9 Months Ended

Sep. 27, 2014

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. Inventories consist of the following as of the following dates (in thousands):

	September 27, 2014		December 28, 2013
Raw materials and sub-assemblies	$	18,836	$	19,655
Work in process	6,366		7,597
Finished goods	10,560		7,268
Inventories	35,762		34,520
Inventories-delivered systems	501		6,901
Total inventories	$	36,263	$	41,421

The Company reflects the cost of systems that were invoiced upon shipment but deferred for revenue recognition purposes separate from its inventory held for sale as "Inventories-delivered systems."

XML

Accounts Receivable

9 Months Ended

Sep. 27, 2014

Receivables [Abstract]

Accounts Receivable

Accounts Receivable

The Company maintains arrangements under which eligible accounts receivables in Japan are sold without recourse to unrelated third party financial institutions. These receivables were not included in the consolidated balance sheets as the criteria for sale treatment had been met. The Company pays administrative fees as well as interest ranging in total from 1.19% to 1.68% based on the anticipated length of time between the date the sale is consummated and the expected collection date of the receivables sold. The Company sold $1.3 million and $0.6 million of receivables during the three months ended September 27, 2014 and September 28, 2013, respectively, and sold $2.9 million and $5.2 million of receivables during the nine months ended September 27, 2014 and September 28, 2013, respectively. There were no material gains or losses on the sale of such receivables. There were no amounts due from such third party financial institutions at September 27, 2014 and December 28, 2013, respectively.

XML

Commitments and Contingencies

9 Months Ended

Sep. 27, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Intellectual Property Indemnification Obligations – The Company will, from time to time, in the normal course of business, agree to indemnify certain customers, vendors or others against third party claims that the Company’s products, when used for their intended purpose(s), or the Company's intellectual property, infringe the intellectual property rights of such third parties or other claims made against parties with which it enters into contractual relationships. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim. Historically, the Company has not made payments under these obligations and believes that the estimated fair value of these agreements is immaterial. Accordingly, no liabilities have been recorded for these obligations in the accompanying condensed consolidated balance sheets as of September 27, 2014 and December 28, 2013.

XML

Equity and Stock Based Compensation Plans

9 Months Ended

Sep. 27, 2014

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

Equity and Stock Based Compensation Plans

Equity and Stock Based Compensation Plans

Options

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 life 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 the Company's 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 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Stock Options
Expected life	—		4.6 years		4.6 years		4.5 years
Expected volatility	—		64.38	%	54.86	%	71.04	%
Risk-free interest rate	—		1.52	%	1.54	%	1.00	%
Dividends	—		—		—		—
Employee Stock Purchase Plan
Expected life	0.5 years		0.5 years		0.5 years		0.5 years
Expected volatility	29.64	%	25.94	%	32.60	%	26.75	%
Risk-free interest rate	0.06	%	0.10	%	0.54	%	0.11	%
Dividends	—		—		—		—

No stock options were awarded during the three months ended September 27, 2014. The weighted average fair value per share of the stock options awarded in the three months September 28, 2013 was $7.75, and in the nine months ended September 27, 2014 and September 28, 2013, was $8.13 and $8.55, 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 months ended September 27, 2014 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 28, 2013	1,909,039		$	13.22	4.02	$	10,341
Exercised	(395,940	)	$	10.54
Granted	74,300		$	17.56
Cancelled	(104,781	)	$	15.64
Outstanding at September 27, 2014	1,482,618		$	13.98	3.65	$	3,521
Exercisable at September 27, 2014	1,038,707		$	13.03	2.92	$	3,346

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $15.70 as of September 26, 2014, the last trading day of the quarter, 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 months ended September 27, 2014 and September 28, 2013, was $0.4 million and $0.2 million, respectively, and during the nine months ended September 27, 2014 and September 28, 2013, was $2.9 million and $1.7 million, respectively.

Restricted Stock Units ("RSUs")

A summary of activity for RSUs during the nine months ended September 27, 2014, is as follows:

	Number of RSUs		Weighted Average Fair Value
Outstanding RSUs at December 28, 2013	334,444		$	18.61
Granted	399,475		$	17.61
Released	(136,959	)	$	17.89
Cancelled	(63,711	)	$	16.75
Outstanding RSUs at September 27, 2014	533,249		$	18.27

Stock-based Compensation Expense

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 was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Cost of products	$	70	$	55	$	199	$	153
Cost of service	53		74		227		204
Research and development	331		412		967		1,092
Selling	490		476		1,353		1,418
General and administrative	761		789		2,369		2,149
Restructuring	—		896		—		896
Total stock-based compensation expense	$	1,705	$	2,702	$	5,115	$	5,912

XML

Other Current Liabilities

9 Months Ended

Sep. 27, 2014

Other Liabilities Disclosure [Abstract]

Other Current Liabilities

Other Current Liabilities

Other current liabilities consist of the following as of the following dates (in thousands):

	September 27, 2014		December 28, 2013
Accrued warranty	$	2,990	$	3,426
Accrued professional services	726		545
Customer deposits	3		867
Fair value of contingent payments to Zygo Corporation related to acquisition - current portion	930		1,344
Other	3,185		1,811
Total other current liabilities	$	7,834	$	7,993

XML

Components of Accumulated Other Comprehensive Income (Loss) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 27, 2014
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Balance at December 28, 2013	$ 612
Other comprehensive income	(1,259)
Balance at September 27, 2014	(647)
Defined Benefit Pension Plans [Member]
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Balance at December 28, 2013	(28)
Other comprehensive income	0
Balance at September 27, 2014	(28)
Foreign Currency Translations [Member]
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Balance at December 28, 2013	631
Other comprehensive income	(1,252)
Balance at September 27, 2014	(621)
Unrealized Gain on Investment [Member]
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Balance at December 28, 2013	9
Other comprehensive income	(7)
Balance at September 27, 2014	$ 2

XML

Property, Plant and Equipment

9 Months Ended

Sep. 27, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment, net, consist of the following as of the following dates (in thousands):

	September 27, 2014			December 28, 2013
Land	$	15,575		$	15,569
Building and improvements	19,826			19,403
Machinery and equipment	31,569			27,820
Furniture and fixtures	2,343			2,308
Software	7,844			1,851
Capital in progress	3,070			5,833
Total property, plant and equipment, gross	80,227			72,784
Accumulated depreciation and amortization	(29,491		)	(25,345		)
Total property, plant and equipment, net	$	50,736		$	47,439

Total depreciation and amortization expense for the three months ended September 27, 2014 and September 28, 2013, was $1.7 million and $1.4 million, respectively. Total depreciation and amortization expense on property, plant and equipment for the nine months ended September 27, 2014 and September 28, 2013, was $4.9 million and $4.0 million, respectively.

XML

Goodwill and Intangible Assets

9 Months Ended

Sep. 27, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The following table summarizes the activity in the Company’s goodwill during the nine months ended September 27, 2014 (in thousands):

Balance as of December 28, 2013	$	11,743
Foreign currency movements	(704		)
Balance as of September 27, 2014	$	11,039

Finite-lived intangible assets are recorded at cost, less accumulated amortization. Finite-lived intangible assets consisted of the following as of the following dates (in thousands):

	September 27, 2014
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	17,471	$	(12,647	)	$	4,824
Customer relationships	9,510		(9,444		)	66
Brand names	1,927		(1,776		)	151
Patented technology	2,252		(2,038		)	214
Trademark	80		(80		)	—
	$	31,240	$	(25,985	)	$	5,255

	December 28, 2013
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	18,095	$	(11,032	)	$	7,063
Customer relationships	9,573		(9,263		)	310
Brand names	1,927		(1,700		)	227
Patented technology	2,252		(1,988		)	264
Trademark	80		(80		)	—
	$	31,927	$	(24,063	)	$	7,864

The amortization of finite-lived intangibles is computed using the straight-line method. Estimated lives of finite-lived intangibles range from 2 to 10 years. Total amortization expense for each of the three months ended September 27, 2014 and September 28, 2013 was $0.8 million and $0.9 million, respectively. Total amortization expense for each of the nine months ended September 27, 2014 and September 28, 2013, was $2.3 million and $2.6 million, respectively.

At September 27, 2014, estimated future amortization expense of intangible assets were as follows (in thousands):

Fiscal years	Amount
2014 (remaining three months)	$	734
2015	2,293
2016	1,816
2017	206
2018	140
Thereafter	66
Total future amortization expense	$	5,255

XML

Restructuring

9 Months Ended

Sep. 27, 2014

Restructuring and Related Activities [Abstract]

Restructuring

Restructuring

The Company recorded a restructuring charge of approximately $1.7 million during the three months ended September 27, 2014 as a result of its decision to consolidate a portion of its operations in the United Kingdom. This amount includes charges primarily related to employee severance, other expenses and early termination costs of a facility lease due to expire in 2017 in the amounts of $0.6 million, $0.3 million and $0.8 million, respectively. The Company expects to complete this restructuring plan by March 2015. Other related costs will be recognized as incurred.

The Company had recorded a restructuring charge of $1.7 million during the three months ended September 28, 2013 as a result of its decision to consolidate a portion of its European operations. As of December 28, 2013, the Company had completed and settled in full all cash payments related to the employee severance expenses and non-cash items related to the acceleration of vesting of RSUs.

As of September 27, 2014 and September 28, 2013, respectively, the components of the Company's restructuring reserves were included in other current liabilities and were as follows (in thousands):

	Employee severance and benefits			Facility termination costs		Other			Total
Balance as of June 28, 2014	$	—		$	—	$	—		$	—
Charges	560			846		309			1,715
Cash Payments	(152		)	—		(280		)	(432		)
Balance as of September 27, 2014	$	408		$	846	$	29		$	1,283

	Employee severance and benefits			Facility termination costs		Other		Total
Balance as of June 29, 2013	$	—		$	—	$	—	—
Charges	1,740			—		—		1,740
Cash Payments	—			—		—		—
Non-cash items	(896		)	—		—		(896		)
Balance as of September 28, 2013	$	844		$	—	$	—	$	1,740

XML

Commitments and Contingencies (Details Textual) (USD $)	Sep. 27, 2014	Dec. 28, 2013
Commitments and Contingencies Disclosure [Abstract]
Liabilities recorded for obligations	$ 0	$ 0

XML

Geographic and Significant Customer Information (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 27, 2014	Dec. 28, 2013
Revenues from External Customers and Long-Lived Assets [Line Items]
Total long-lived tangible assets	$ 50,736	$ 47,439
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total long-lived tangible assets	50,061	44,775
Japan [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total long-lived tangible assets	82	125
South Korea [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total long-lived tangible assets	337	445
All Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total long-lived tangible assets	$ 256	$ 2,094

XML

Income Taxes (Details Textual) (USD $)	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013
Income Tax Disclosure [Abstract]
Income tax provision (benefit)	$ 17,919,000	$ (3,133,000)	$ 18,494,000	$ (9,727,000)
Increase in valuation allowance for deferred tax assets	21,100,000
Research tax credit				600,000
Anticipated increase in unrecognized tax benefits in the next twelve months	$ 200,000		$ 200,000

XML

Components of Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 27, 2014

Equity [Abstract]

Changes in components of accumulated other comprehensive income (loss)

The following table shows a summary of changes in components of accumulated other comprehensive income (loss) for the nine months ended September 27, 2014 (in thousands):

	Defined Benefit Pension Plans			Foreign Currency Translations			Unrealized Gain on Investment			Total
Balance at December 28, 2013	$	(28	)	$	631		$	9		$	612
Other comprehensive income (loss)	—			(1,252		)	(7		)	(1,259		)
Balance at September 27, 2014	$	(28	)	$	(621	)	$	2		$	(647	)

XML

Other Current Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 27, 2014	Dec. 28, 2013
Summary of other current liabilities
Accrued warranty	$ 2,990	$ 3,426
Accrued professional services	726	545
Customer deposits	3	867
Fair value of contingent payments to Zygo Corporation related to acquisition - current portion	930	1,344
Other	3,185	1,811
Total other current liabilities	$ 7,834	$ 7,993

XML

Warranties

9 Months Ended

Sep. 27, 2014

Product Warranties Disclosures [Abstract]

Warranties

Warranties

The Company sells the majority of its products with a 12 months repair or replacement warranty from the date of acceptance or shipment date. The Company provides an accrual for estimated future warranty costs based upon the historical relationship of warranty costs to the cost of products sold. The estimated future warranty obligations related to product sales are recorded in the period in which the related revenue is recognized. The estimated future warranty obligations are affected by the warranty periods, sales volumes, product failure rates, material usage, and labor and replacement costs incurred in correcting a product failure. If actual product failure rates, material usage, labor or replacement costs were to differ from the Company’s estimates, revisions to the estimated warranty obligations would be required. For new product introductions where limited or no historical information exists, the Company may use warranty information from other previous product introductions to guide it in estimating its warranty accrual. The warranty accrual represents the best estimate of the amount necessary to settle future and existing claims on products sold as of the balance sheet date. The Company periodically assesses the adequacy of its reported warranty reserve and adjusts such amounts in accordance with changes in these factors.

Components of the warranty accrual, which were included in the accompanying condensed consolidated balance sheets within other current liabilities, were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Balance at beginning of the period	$	3,484		$	3,519		$	3,426		$	4,203
Accruals for warranties	1,242			1,161			4,459			2,886
Settlements during the period	(1,736		)	(1,278		)	(4,895		)	(3,687		)
Balance at end of the period	$	2,990		$	3,402		$	2,990		$	3,402

XML

Fair Value Measurements and Disclosures (Tables)

9 Months Ended

Sep. 27, 2014

Fair Value Disclosures [Abstract]

Assets and liabilities measurements at estimated fair value on recurring basis excluding accrued interest components

The following tables present the Company’s assets and liabilities measured at estimated fair value on a recurring basis, excluding accrued interest components, categorized in accordance with the fair value hierarchy (in thousands), as of the following dates:

	September 27, 2014								December 28, 2013
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	549	$	—	$	—	$	549	$	876	$	—	$	—	$	876
Commercial paper	—		650		—		650		—		750		—		750
Total cash equivalents	549		650		—		1,199		876		750		—		1,626
Marketable securities:
U.S. Treasury, U.S. Government and U.S. Government agency debt securities	2,498		18,687		—		21,185		5,036		11,980		—		17,016
Commercial paper, municipal securities and corporate debt securities	—		27,563		—		27,563		—		31,081		—		31,081
Total marketable securities	2,498		46,250		—		48,748		5,036		43,061		—		48,097
Total (1)	$	3,047	$	46,900	$	—	$	49,947	$	5,912	$	43,811	$	—	$	49,723
Liabilities:
Contingent consideration payable	$	—	$	—	$	2,431	$	2,431	$	—	$	—	$	2,783	$	2,783

⁽¹⁾ Excludes cash of $34.4 million and $43.1 million held in operating accounts as of September 27, 2014 and December 28, 2013, respectively.

Fair value measurement on recurring basis, unobservable input reconciliation

Changes in Level 3 liabilities (in thousands)
Fair value at December 28, 2013	$	2,783
Payments made to Zygo Corporation	(470		)
Change in fair value included in earnings	118
Fair Value at September 27, 2014	$	2,431

XML

Goodwill and Intangible Assets (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013
Finite-Lived Intangible Assets [Line Items]
Total amortization expense	$ 0.8	$ 0.9	$ 2.3	$ 2.6
Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangibles estimated lives			2 years
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangibles estimated lives			10 years

XML

Fair Value Measurements and Disclosures (Details Textual) (USD $)	Sep. 27, 2014	Dec. 28, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value liabilities, unobservable inputs	$ 2,431,000	$ 2,783,000
Fair Value, Measurements, Recurring [Member] | Zygo Corporation [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities resulting from the acquisition of certain assets from Zygo Corporation measured at fair value	2,400,000	2,800,000
Current liability at fair value	900,000	1,300,000
Long-term liability at fair value	$ 1,500,000	$ 1,500,000

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013
Statement of Comprehensive Income [Abstract]
Net loss	$ (28,662)	$ (4,554)	$ (26,479)	$ (14,702)
Other comprehensive income (loss):
Change in foreign currency translation adjustment	(1,637)	1,142	(1,252)	(837)
Net change on unrealized gains on available-for-sale investments	(15)	20	(7)	17
Other comprehensive income (loss)	(1,652)	1,162	(1,259)	(820)
Comprehensive loss	$ (30,314)	$ (3,392)	$ (27,738)	$ (15,522)

XML

Cash and Investments

9 Months Ended

Sep. 27, 2014

Investments, Debt and Equity Securities [Abstract]

Cash and Investments

Cash and Investments

The following table presents cash, cash equivalents, and available-for-sale investments as of the following dates (in thousands):

	September 27, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	34,426	—		$	—		$	34,426
Cash equivalents:
Money market funds	549		—		—			549
Commercial paper	650		—		—			650
Marketable securities:
Commercial paper	700		—		—			700
U.S. Treasury securities	2,497		1		—			2,498
U.S. Government agency securities	18,685		6		(4		)	18,687
Municipal securities	5,014		3		(2		)	5,015
Corporate debt securities	21,850		9		(11		)	21,848
Total cash, cash equivalents, and marketable securities	$	84,371	$	19	$	(17	)	$	84,373
	December 28, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	43,139	$	—	$	—		$	43,139
Cash equivalents:
Money market funds	876		—		—			876
Commercial paper	750		—		—			750
Marketable securities:
U.S. Treasury Securities	5,036		—		—			5,036
U.S. Government agency securities	11,980		4		(4		)	11,980
Municipal securities	9,756		11		(4		)	9,763
Corporate debt securities	21,316		7		(5		)	21,318
Total cash, cash equivalents, and marketable securities	$	92,853	$	22	$	(13	)	$	92,862

Available-for-sale marketable securities, readily convertible to cash, with maturity dates of 90 days or less are classified as cash equivalents, while those with maturity dates greater than 90 days are classified as marketable securities within short-term assets. All marketable securities as of September 27, 2014 and December 28, 2013, were available-for-sale and reported at fair value based on the estimated or quoted market prices as of the balance sheet date. Unrealized gains or losses, net of tax effect, are recorded in accumulated other comprehensive income (loss) within stockholders' equity. Both the gross unrealized gains and gross unrealized losses for the three and nine months ended September 27, 2014 and September 28, 2013, were insignificant and no marketable securities had other than temporary impairment. All marketable securities as of September 27, 2014 and December 28, 2013, had maturity dates of less than two years and were not invested in foreign entities.

XML

Equity and Stock Based Compensation Plans (Details 2) (Restricted Stock Units (RSUs) [Member], USD $)	9 Months Ended
	Sep. 27, 2014
Restricted Stock Units (RSUs) [Member]
Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Number of RSU, Beginning balance (in shares)	334,444
Number of RSU, Granted (in shares)	399,475
Number of RSU, Released (in shares)	(136,959)
Number of RSU, Cancelled (in shares)	(63,711)
Number of RSU, Ending balance (in shares)	533,249
Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Weighted Average Fair Value, Beginning balance (in dollars per share)	$ 18.61
Weighted Average Fair Value, Granted (in dollars per share)	$ 17.61
Weighted Average Fair Value, Released (in dollars per share)	$ 17.89
Weighted Average Fair Value, Cancelled (in dollars per share)	$ 16.75
Weighted Average Fair Value, Ending balance (in dollars per share)	$ 18.27

XML

Cash and Investments (Tables)

9 Months Ended

Sep. 27, 2014

Investments, Debt and Equity Securities [Abstract]

Cash, Cash Equivalents and Available-for-sale Investments

The following table presents cash, cash equivalents, and available-for-sale investments as of the following dates (in thousands):

	September 27, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	34,426	—		$	—		$	34,426
Cash equivalents:
Money market funds	549		—		—			549
Commercial paper	650		—		—			650
Marketable securities:
Commercial paper	700		—		—			700
U.S. Treasury securities	2,497		1		—			2,498
U.S. Government agency securities	18,685		6		(4		)	18,687
Municipal securities	5,014		3		(2		)	5,015
Corporate debt securities	21,850		9		(11		)	21,848
Total cash, cash equivalents, and marketable securities	$	84,371	$	19	$	(17	)	$	84,373
	December 28, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	43,139	$	—	$	—		$	43,139
Cash equivalents:
Money market funds	876		—		—			876
Commercial paper	750		—		—			750
Marketable securities:
U.S. Treasury Securities	5,036		—		—			5,036
U.S. Government agency securities	11,980		4		(4		)	11,980
Municipal securities	9,756		11		(4		)	9,763
Corporate debt securities	21,316		7		(5		)	21,318
Total cash, cash equivalents, and marketable securities	$	92,853	$	22	$	(13	)	$	92,862

XML

Recent Accounting Pronouncements (Details) (USD $)	3 Months Ended		9 Months Ended		3 Months Ended
	Sep. 27, 2014	Sep. 28, 2013	Sep. 27, 2014	Sep. 28, 2013	Mar. 29, 2014 Accounting Standards Update 2013-11 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Income tax expense (benefit)	$ 17,919,000	$ (3,133,000)	$ 18,494,000	$ (9,727,000)	$ (300,000)
Increase (reduction) in deferred tax assets					(300,000)
Increase (reduction) in income taxes payable			$ (3,158,000)	$ (363,000)	$ (600,000)

XML

Components of Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 27, 2014

Equity [Abstract]

Components of Accumulated Other Comprehensive Income (Loss)

Components of Accumulated Other Comprehensive Income (Loss)

The following table shows a summary of changes in components of accumulated other comprehensive income (loss) for the nine months ended September 27, 2014 (in thousands):

	Defined Benefit Pension Plans			Foreign Currency Translations			Unrealized Gain on Investment			Total
Balance at December 28, 2013	$	(28	)	$	631		$	9		$	612
Other comprehensive income (loss)	—			(1,252		)	(7		)	(1,259		)
Balance at September 27, 2014	$	(28	)	$	(621	)	$	2		$	(647	)