Stock-Based Compensation

6 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 12. Stock-Based Compensation

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the following table. The expected term of options granted was calculated using the simplified method. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. The expected volatility is based on the historical volatility of Nanometrics’ stock price. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.

	Three Months Ended						Six Months Ended
	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Stock Options
Expected life		4.2 years			4.5 years			4.5 years			4.5 years
Volatility		78.65	%		77.49	%		78.23	%		76.97	%
Risk free interest rate		0.74	%		1.84	%		0.85	%		2.00	%
Dividends		0			0			0			0
Employee Stock Purchase Plan
Expected life		0.5 years			0.5 years			0.5 years			0.5 years
Volatility		55.93	%		68.27	%		62.74	%		76.20	%
Risk free interest rate		0.06	%		0.21	%		0.06	%		0.20	%
Dividends		0			0			0			0

The weighted average fair value per share of the stock options awarded in the three month and six month periods ended June 30, 2012 was $8.80 and $10.66, respectively, based on the fair market value of the Company’s common stock on the grant dates. The weighted average fair value per share of the stock options awarded in the three month and six month periods ended July 2, 2011 was $9.42 and $9.98, respectively, based on the fair market value of the Company’s common stock on the grant dates.

A summary of activity under the Company’s stock option plans during the six month period ended June 30, 2012 is as follows:

	Number of Shares Outstanding (Options)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in Thousands)
Options
Outstanding at December 31, 2011		2,348,162		$	10.53		4.86	$	18,556
Exercised		(281,450	)		6.32
Granted		200,485			17.72
Cancelled		(49,843	)		14.53
Outstanding at June 30, 2012		2,217,354		$	11.62		4.69	$	9,587
Exercisable at June 30, 2012		1,206,793		$	9.14		4.00	$	7,781

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $15.36 as of June 30, 2012 which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the three month and six month periods ended June 30, 2012 was $0.7 million and $3.4 million, respectively. The total intrinsic value of options exercised during the three month and six month periods ended July 2, 2011 was $3.9 million and $8.3 million, respectively.

During the six month period ended June 30, 2012, 18,534 Restricted Stock Units (“RSUs”) were released, and the Company granted 51,777 RSUs which vest between three and four years after the vesting commencement date identified in the applicable grant document. As of June 30, 2012, there were 333,301 RSUs outstanding.

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

	Three Months Ended				Six Months Ended
	June 30, 2012		July 2, 2011		June 30, 2012		July 2, 2011
Cost of products	$	20	$	28	$	77	$	66
Cost of service		75		43		133		95
Research and development		347		221		666		368
Selling		481		311		922		526
General and administrative		670		352		1,256		722
Total stock-based compensation expense	$	1,593	$	955	$	3,054	$	1,777