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 March 26, 2016

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: 000-13470

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 Number)
1550 Buckeye Drive Milpitas, California	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  x    No   o

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 for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   o

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. (Check one):

Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	o

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

As of April 22, 2016, there were 24,399,157 shares of common stock, $0.001 par value, issued and outstanding.

NANOMETRICS INCORPORATED

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 26, 2016

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets at March 26, 2016 and December 26, 2015 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the Three Month Periods Ended March 26, 2016 and March 28, 2015 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income for the Three Month Periods Ended March 26, 2016 and March 28, 2015 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 26, 2016 and March 28, 2015 (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	28
Item 4.	Controls and Procedures	30
PART II. OTHER INFORMATION
Item 1A.	Risk Factors	31
Item 6.	Exhibits	32
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)

	March 26, 2016			December 26, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	38,673		$	38,154
Marketable securities		44,672			44,931
Accounts receivable, net of allowances of $145 and $150, respectively		44,482			37,832
Inventories		49,893			47,749
Inventories-delivered systems		4,138			2,856
Prepaid expenses and other		6,060			6,592
Total current assets		187,918			178,114
Property, plant and equipment, net		43,068			44,493
Goodwill		9,592			9,415
Intangible assets, net		1,425			1,867
Deferred income tax assets		1,191			1,118
Other assets		525			533
Total assets	$	243,719		$	235,540
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,212		$	11,675
Accrued payroll and related expenses		8,592			10,097
Deferred revenue		16,010			12,790
Other current liabilities		8,978			8,878
Income taxes payable		704			1,771
Total current liabilities		47,496			45,211
Deferred revenue		250			827
Income taxes payable		805			775
Deferred tax liability		563			521
Other long-term liabilities		859			878
Total liabilities		49,973			48,212
Commitments and contingencies (Note 11)
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: 24,371,657    and 24,224,286, respectively, issued and outstanding		24			24
Additional paid-in capital		260,679			258,715
Accumulated deficit		(62,742	)		(66,209	)
Accumulated other comprehensive income		(4,215	)		(5,202	)
Total stockholders’ equity		193,746			187,328
Total liabilities and stockholders’ equity	$	243,719		$	235,540

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
	March 26, 2016			March 28, 2015
Net revenues:
Products	$	39,214		$	38,339
Service		8,275			12,037
Total net revenues		47,489			50,376
Costs of net revenues:
Cost of products		18,079			19,992
Cost of service		4,484			6,373
Amortization of intangible assets		435			632
Total costs of net revenues		22,998			26,997
Gross profit		24,491			23,379
Operating expenses:
Research and development		8,068			8,159
Selling		7,249			7,116
General and administrative		5,420			5,767
Amortization of intangible assets		24			38
Restructuring charge		—			58
Total operating expenses		20,761			21,138
Income from operations		3,730			2,241
Other (income) expense:
Interest income		9			10
Interest expense		(117	)		(82	)
Other income, net		225			704
Total other income, net		117			632
Income before income taxes		3,847			2,873
Provision for income taxes		380			317
Net income	$	3,467		$	2,556
Net income per share:
Basic	$	0.14		$	0.11
Diluted	$	0.14		$	0.11
Weighted average shares used in per share calculation:
Basic		24,308			23,866
Diluted		24,597			24,257

See Notes to Condensed Consolidated Financial Statements

4

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended
	March 26, 2016		March 28, 2015
Net income	$	3,467	$	2,556
Other comprehensive income (loss):
Change in foreign currency translation adjustment		952		(1,727	)
Net change on unrealized gains on available-for-sale investments		35		29
Other comprehensive income (loss):		987		(1,698	)
Comprehensive income	$	4,454	$	858

See Notes to Condensed Consolidated Financial Statements

5

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	March 26, 2016			March 28, 2015
Cash flows from operating activities:
Net income	$	3,467		$	2,556
Reconciliation of net income to net cash provided    by (used in) operating activities:
Depreciation and amortization		2,176			2,324
Stock-based compensation		1,689			1,571
Disposal of fixed assets		99			485
Inventory write-down		651			403
Deferred income taxes		(30	)		55
Changes in fair value of contingent payments to Zygo Corporation		55			35
Changes in assets and liabilities:
Accounts receivable		(5,197	)		(13,340	)
Inventories		(1,871	)		(2,442	)
Inventories-delivered systems		(1,283	)		1,164
Prepaid expenses and other		605			(94	)
Accounts payable, accrued and other liabilities		(1,468	)		3,947
Deferred revenue		2,643			(2,468	)
Income taxes payable		(1,037	)		(70	)
Net cash provided by (used in) operating activities		499			(5,874	)
Cash flows from investing activities:
Sales of marketable securities		—			1,082
Maturities of marketable securities		13,153			9,592
Purchases of marketable securities		(12,953	)		(10,613	)
Purchases of property, plant and equipment		(610	)		(502	)
Net cash used in investing activities		(410	)		(441	)
Cash flows from financing activities:
Payments to Zygo Corporation related to acquisition		(84	)		(224	)
Proceeds from sale of shares under employee stock option    plans and purchase plan		934			2,357
Taxes paid on net issuance of stock awards		(658	)		(764	)
Repurchases of common stock		-			(1,721	)
Net cash provided by (used in) financing activities		192			(352	)
Effect of exchange rate changes on cash and cash equivalents		238			(74	)
Net increase (decrease) in cash and cash equivalents		519			(6,741	)
Cash and cash equivalents, beginning of period		38,154			34,676
Cash and cash equivalents, end of period	$	38,673		$	27,935
Supplemental disclosure of non-cash investing activities:
Transfer of inventory to property, plant and equipment, net	$	—		$	435
Transfer of property, plant and equipment to inventory, net	$	491		$	—

See Notes to 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 optical critical dimension (“OCD”), thin film  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 Company’s OCD 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 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 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 26, 2015, and include all normal recurring adjustments necessary to fairly state 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 26, 2015, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2016.

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 reported herein are comprised of 13 week periods.

Upgrade Revenue and Related Cost - During the first quarter of 2016, revenues associated with upgrade sales are now included under Products Revenues, and the related costs in Cost of Products Revenue. This change was due to the types of upgrades currently being sold, which are primarily system software and hardware performance upgrades to extend the features and functionality of a product. Previously upgrades consisted of a group of parts and/or software that change the existing configuration of a product. For the three months ended March 28, 2015, $4.6 million related to upgrade sales, and $1.8 million of costs, are included in Service Revenues and Costs of Service Revenues, respectively, in the accompanying Condensed Consolidated Statement of Operations.

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP 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 and inspection systems and related upgrades (“product revenue”) as well as spare part sales, billable service and service contracts (together “service revenue”). Upgrades are system software and hardware performance upgrades that extend the features and functionality of a product. As discussed above, commencing in the first quarter of 2016, they are included in 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.

7

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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 have 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.

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, which terms can be up to twelve months. The Company does not grant its customers a general right of return or any refund terms and imposes a penalty on orders cancelled 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.  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 CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 2. Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that simplifies several aspects of the accounting for share-based payment award transactions, including income tax consequences, classification of awards as equity or liability, and classification on the statement of cash flows.  The new standard is effective for public companies for annual reporting periods beginning after December 16, 2016, and interim periods within those annual periods.  Early adoption is permitted.  The Company is currently evaluating the timing and effects of the adoption of this standard on its consolidated financial statements.

In March 2016, the FASB issued an accounting standards update that clarifies the implementation guidance on principal versus agent considerations to improve operability and understandability of the revenue recognition guidance.  The amendments in this update affect the recently issued guidance in accounting standards update 2014-09, Revenue from Contracts with Customers, which is effective for public companies for annual reporting periods beginning after December 15, 2017 and interim periods within those fiscal years.  Thus, the effective date and transition requirements for the amendments in this Update are the same.  This updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method.  The Company has not yet selected a transition method and is currently evaluating the timing and effects of the adoption of this standard and related updates on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued an accounting standards update which requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). For lessees, leases will continue to be classified as either operating or financing in the income statement. The new standard is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years.  This standard is required to be applied with a modified retrospective transition approach.  Early adoption is permitted. The Company is currently evaluating the effect of this standard on its Consolidated Financial Statements and related disclosures.

Note 3. Fair Value Measurements and Disclosures

The Company determines the fair values of its financial instruments based on the fair value hierarchy established in FASB Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, 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.

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.

9

NANOMETRICS INCORPORATED

NOTES TO 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:

	March 26, 2016								December 26, 2015
	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	$	1,075	$	—	$	—	$	1,075	$	590	$	—	$	—	$	590
Commercial paper and corporate debt    securities		—		4,452		—		4,452		—		4,568		—		4,568
Total cash equivalents	$	1,075	$	4,452	$	—	$	5,527	$	590	$	4,568	$	—	$	5,158
Marketable securities:
U.S. Treasury, U.S. Government and U.S.    Government agency debt securities		6,973		23,227		—		30,200		4,401		20,164		—		24,565
Commercial paper, municipal securities    and corporate debt securities		—		14,473		—		14,473		—		20,366		—		20,366
Total marketable securities	$	6,973	$	37,700	$	—	$	44,673	$	4,401	$	40,530	$	—	$	44,931
Total(1)	$	8,048	$	42,152	$	—	$	50,200	$	4,991	$	45,098	$	—	$	50,089
Liabilities:
Contingent consideration payable	$	—	$	—	$	1,461	$	1,461	$	—	$	—	$	1,490	$	1,490

⁽¹⁾ Excludes $33.1 million and $33.0 million held in operating accounts as of March 26, 2016 and December 26, 2015, 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 in active markets 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 26, 2015	$	1,490
Payments made to Zygo Corporation		(84	)
Change in fair value included in earnings		55
Fair value at  March 26, 2016	$	1,461

As of March 26, 2016, the Company had liabilities of $1.5 million resulting from the acquisition of certain assets from Zygo Corporation, a wholly-owned subsidiary of AMETEK, Inc. (“Zygo”), which are measured at fair value on a recurring basis, and changes in fair value recorded in other income (expense), net. Of the $1.4 million of Zygo liabilities at March 26, 2016, $1.0 million was a current liability and $0.5 million was a long-term liability. As of December 26, 2015, the liabilities totaled $1.5 million of which $0.9 million was a current liability and $0.6 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.

Derivatives

The Company uses foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in foreign currencies. These derivatives are carried at fair value

10

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

with changes recorded in other income (expense), net in the consolidated statements of operations. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. The derivatives have maturities of approximately 30 days.

The loss on settlement of forward foreign currency contracts included in the three months ended March 26, 2016 and March 28, 2015 was $0.5 million and zero, respectively and are included in other income (expense), net, in the consolidated statements of operations.

The following table summarizes the Company’s outstanding derivative instruments on a gross basis as of March 26, 2016:

	Notional Principal
	(in millions)
Undesignated Hedges:
Forward Foreign Currency Contracts	$	23.3

Note 4. Cash and Investments

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

	March 26, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	33,145	$	—	$	—		$	33,145
Cash equivalents:
Money market funds		1,075		—		—			1,075
Commercial paper and corporate debt securities		4,452		—		—			4,452
Marketable securities:
Commercial paper		699		—		—			699
U.S. Treasury securities		6,971		2		—			6,973
U.S. Government agency securities		23,231		4		(8	)		23,227
Municipal securities		2,634		—		(3	)		2,631
Corporate debt securities		11,147		2		(6	)		11,143
Total cash, cash equivalents, and marketable securities	$	83,354	$	8	$	(17	)	$	83,345
	December 26, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	32,996	$	—	$	—		$	32,996
Cash equivalents:
Money market funds		590		—		—			590
Commercial paper and corporate debt securities		4,568		—		—			4,568
Marketable securities:
Commercial paper		1,884		—		—			1,884
U.S. Treasury securities		4,411		—		(10	)		4,401
U.S. Government agency securities		20,193		1		(29	)		20,165
Municipal securities		3,747		1		(3	)		3,745
Corporate debt securities		14,759		—		(23	)		14,736
Total cash, cash equivalents, and marketable securities	$	83,148	$	2	$	(65	)	$	83,085

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

11

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

marketable securities as of March 26, 2016 and December 26, 2015, were available-for-sale and reported at fair value based on the estimated or quoted market prices as of the balance sheet date.  Gross realized gains and losses on sale of securities are recorded in other income, net, in our statement of operations.  Net realized gains and losses for three months ended March 26, 2016 and March 28, 2015 were $0.1 million and $0.1 million, respectively.

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 months ended March 26, 2016 and March 28, 2015 were insignificant and no marketable securities had other than temporary impairment. All marketable securities as of March 26, 2016 and December 26, 2015, 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 receivable 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 from 0.82% 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 $14.2 million and $1.1 million of receivables during the three months ended March 26, 2016 and March 28, 2015, 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 March 26, 2016 and December 26, 2015.

12

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 6. Financial Statement Components

The following tables provide details of selected financial statement components as of the following dates (in thousands):

	At
	March 26, 2016			December 26, 2015
Inventories:
Raw materials and sub-assemblies	$	26,819		$	26,784
Work in process		16,094			12,862
Finished goods		6,980			8,103
Inventories		49,893			47,749
Inventories-delivered systems		4,138			2,856
Total inventories	$	54,031		$	50,605
Property, plant and equipment, net:(1)
Land	$	15,569		$	15,569
Building and improvements		20,216			20,158
Machinery and equipment		33,338			32,995
Furniture and fixtures		2,259			2,266
Software		8,245			8,245
Capital in progress		1,278			1,328
Total property, plant and equipment, gross		80,905			80,561
Accumulated depreciation and amortization		(37,837	)		(36,068	)
Total property, plant and equipment, net	$	43,068		$	44,493
(1) Total depreciation and amortization expense for the three months ended March 26, 2016 and March 28, 2015 was $1.7 million for both periods.
Other Current Liabilities:
Accrued warranty	$	4,377		$	4,504
Accrued restructuring		82			256
Accrued professional services		661			481
Fair value of current portion of contingent payments to    Zygo Corporation related to acquisition		940			945
Other		2,918			2,692
Total other current liabilities	$	8,978		$	8,878

Components of Accumulated Other Comprehensive Income (Loss)

	Foreign Currency Translations			Defined Benefit Pension Plans			Unrealized Income (Loss) on Investment			Accumulated Other Comprehensive Income
Balance as of December 26, 2015	$	(4,948	)	$	(210	)	$	(44	)	$	(5,202	)
Current period change		952			—			35			987
Balance as of March 26, 2016	$	(3,996	)	$	(210	)	$	(9	)	$	(4,215	)

The items above, except for unrealized income (loss) on investment, did not impact the Company’s income tax provision. The amounts reclassified from each component of accumulated other comprehensive income into income statement line items were insignificant.

13

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 7. Goodwill and Intangible Assets

The following table summarizes the activity in the Company’s goodwill during the three months ended March 26, 2016 (in thousands):

Balance as of December 26, 2015	$	9,415
Foreign currency movements		177
Balance as of March 26, 2016	$	9,592

Finite-lived intangible assets are recorded at cost, less accumulated amortization. Finite-lived intangible assets as of March 26, 2016 and December 26, 2015 consisted of the following (in thousands):

	March 26, 2016
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	16,251	$	(14,941	)	$	1,310
Customer relationships		9,380		(9,380	)		—
Brand names		1,927		(1,927	)		—
Patented technology		2,252		(2,137	)		115
Trademark		80		(80	)		—
Total	$	29,890	$	(28,465	)	$	1,425

	December 26, 2015
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	16,098	$	(14,387	)	$	1,711
Customer relationships		9,364		(9,364	)		—
Brand names		1,927		(1,903	)		24
Patented technology		2,252		(2,120	)		132
Trademark		80		(80	)		—
Total	$	29,721	$	(27,854	)	$	1,867

The amortization of finite-lived intangibles is computed using the straight-line method. Estimated lives of finite-lived intangibles range from two to ten years. Total amortization expense for the three months ended March 26, 2016 and March 28, 2015 was $0.5 million and $0.7 million, respectively.

There were no impairment charges related to intangible assets recorded during the three months ended March 26, 2016 and March 28, 2015.

The estimated future amortization expense of finite intangible assets as of March 26, 2016 is as follows (in thousands):

Fiscal Years	Amounts
2016 (remaining nine months)	$	1,013
2017		206
2018		140
2019		66
Thereafter		—
Total future amortization expense	$	1,425

14

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 8. 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.

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

	Three Months Ended
	March 26, 2016			March 28, 2015
Balance as of beginning of period	$	4,504		$	2,953
Accruals for warranties issued during period		1,061			1,702
Settlements during the period		(1,188	)		(1,215	)
Balance as of end of period	$	4,377		$	3,440

Note. 9. Restructuring

There were no restructuring charges recorded during the three months ended March 26, 2016.  

The Company recorded a restructuring charge of approximately $0.1 million during the three months ended March 28, 2015 as a result of its decision to consolidate and reorganize certain of its operations, primarily in the U.K. The Company completed this restructuring plan in March 2015. Other related costs will be recognized as incurred.

As of March 26, 2016, 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 December 26, 2015	$	—	$	249		$	7	$	256
Charges		—		—			—		—
Cash Payments		—		(174	)		—		(174	)
Balance as of March 26, 2016	$	—	$	75		$	7	$	82

	Employee severance and benefits			Facility termination costs			Other			Total
Balance as of December 27, 2014	$	383		$	583		$	31		$	997
Charges		45			—			13			58
Cash Payments		(308	)		(106	)		(35	)		(449	)
Balance as of March 28, 2015	$	120		$	477		$	9		$	606

15

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 10. 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 base available as of March 26, 2016 was $18.0 million. As of March 26, 2016, 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 March 26, 2016. 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.

Note 11. 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 whom 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 March 26, 2016 and December 26, 2015.

Note 12. Net Income Per Share

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

A reconciliation of the share denominator of the basic and diluted net income per share computations for three months ended March 26, 2016 and March 28, 2015 is as follows (in thousands):

	Three Months Ended
	March 26, 2016		March 28, 2015
Weighted average common shares outstanding used in    basic net income (loss) per share calculation		24,308		23,866
Potential dilutive common stock equivalents,    using treasury stock method		289		391
Weighted average shares used in diluted net income    (loss) per share calculation		24,597		24,257

16

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 13. Stockholders’ Equity and Stock-Based Compensation

Options and Employee Stock Purchase Plan (“ESPP”) Awards

The fair value of each option and ESPP award is estimated on the grant date using the Black-Scholes valuation model and the assumptions noted in the following table. The expected lives of options granted were calculated using the simplified method allowed by the SAB 107. The risk-free rates were based on the U.S Treasury rates in effect during the corresponding period of grant. The expected volatility was 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.

	March 26, 2016			March 28, 2015
Employee Stock Purchase Plan:
Expected life	0.5 years			0.5 years
Volatility		39.1	%		37.2	%
Risk free interest rate		0.49	%		0.11	%
Dividends		—			—

No stock options were awarded during the three months ended March 26, 2016 and March 28, 2015, respectively.

A summary of activity of stock options during the three months ended March 26, 2016 is as follows:

	Number of Shares Outstanding (Options)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (inThousands)
Options
Outstanding at December 26, 2015		1,051,867		$	14.60		2.46	$	1,916
Exercised		(5,846	)	$	13.74
Cancelled		(137,633	)	$	16.26
Outstanding at March 26, 2016		908,388		$	14.36		2.60	$	1,269
Exercisable at March 26, 2016		799,365		$	14.09		2.34	$	1,265

The aggregate intrinsic value in the above table represents the total pretax intrinsic value, based on the Company’s closing stock price of $14.13 as of March 24, 2016, 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 March 26, 2016 and March 28, 2015 was $3,000 and $0.8 million, respectively. 

Restricted Stock Units (“RSUs”)

Time-based RSUs are valued using the market value of the Company’s common stock on the date of grant, assuming no expectation of dividends paid.

A summary of activity for RSUs is as follows:

Summary of activity for RSUs	Number of RSUs			Weighted Average Fair Value
Outstanding RSUs as of December 26, 2015		713,243		$	15.99
Granted		137,718		$	13.29
Released		(108,305	)	$	17.13
Cancelled		(14,348	)	$	15.48
Outstanding RSUs as of March 26, 2016		728,308		$	15.32

17

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Market-Based Performance Stock Units (“PSUs”)

In addition to granting RSUs that vest on the passage of time only, the Company granted PSUs to an executive. The PSUs will vest in three equal tranches over one, two and three years based on the relative performance of the Company’s stock during those periods, compared to a peer group over the same period. If target stock price performance is achieved, 66.7% of the shares of the Company’s common stock subject to the PSUs will vest, and up to a maximum of 100% of the shares subject to the PSUs will vest if the maximum stock price performance is achieved for each tranche.

A summary of activity for PSUs is as follows:

Summary of activity for PSUs	Number of PSUs			Weighted Average Fair Value
Outstanding PSUs as of December 26, 2015		60,000		$	18.35
Granted		67,500		$	12.78
Released		(13,333	)	$	18.04
Cancelled		(6,667	)	$	18.04
Outstanding PSUs as of March 26, 2016		107,500		$	14.91

The preceding table reflects the maximum awards that can be achieved upon full vesting.

Valuation of PSUs

On the date of grant, the Company estimated the fair value of PSUs using a Monte Carlo simulation model. The assumptions for the valuation of PSUs are summarized as follows:

	2016 Award		2015 Award
Grant Date Fair Value Per Share	$	12.78	$	18.35
Weighted-average assumptions/inputs:
Expected Dividend		—		—
Range of risk-free interest rates		0.92%	0.25%-1.1%
Range of expected volatilities for peer group	22%-93%		23%-65%

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 were as follows (in thousands):

	March 26, 2016		March 28, 2015
Cost of products	$	67	$	73
Cost of service		104		46
Research and development		285		280
Selling		492		500
General and administrative		741		672
Total stock-based compensation expense related to employee    stock options and employee stock purchases	$	1,689	$	1,571

18

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 14. 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 provision for income taxes consists of the following (in thousands):

	Three Months Ended
	March 26, 2016		March 28, 2015
Provision for income taxes	$	380	$	317

The Company recorded a tax provision of $0.4 million and $0.3 million for the three months ended March 26, 2016 and March 28, 2015, respectively. The increase in the tax provision for 2016 from 2015 was primarily related to an increase in foreign earnings for the three months ended March 26, 2016.

As of March 26, 2016, the Company continues to maintain a valuation allowance against its U.S. and 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 the Company determines that the deferred tax assets are realizable, an adjustment to the valuation allowance 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 Korea, Japan, Taiwan, and China. Due to tax attribute carry-forwards, the Company is subject to examination for tax years 2003 forward for U.S. tax purposes. The Company is also subject to examination in various states for tax years 2002 forward. The Company is subject to examination for tax years 2007 forward for various foreign jurisdictions.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes.  The total amount of penalties and interest were not material as of March 26, 2016 and March 28, 2015.  During the next twelve months, the Company anticipates increases in its unrecognized tax benefits of approximately $0.1 million.

Note 15. Segment, Geographic, Product and Significant Customer Information

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

	Three Months Ended
	March 26, 2016		March 28, 2015
Total net revenues (1):
United States	$	7,191	$	9,078
South Korea		8,436		14,643
China		6,506		4,001
Taiwan		5,477		14,428
Singapore		9,902		2,794
Other		9,977		5,432
Total net revenues	$	47,489	$	50,376

19

NANOMETRICS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

	March 26, 2016		December 26, 2015
Long-lived tangible assets:
United States	$	41,281	$	42,581
Japan		63		59
South Korea		664		697
All Other		1,060		1,156
Total long-lived tangible assets	$	43,068	$	44,493

The following customers accounted for 10% or more of total accounts receivable, net:

	At
	March 26, 2016			December 26, 2015
Micron		30.7	%	***
SK Hynix		12.7	%	***
Taiwan Semiconductor Manufacturing Company Limited		12.6	%		25.6	%
Intel		11.1	%	***
Toshiba Corporation		11.1	%		27.1	%
Samsung Electronics Co. Ltd.	***			***

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

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

	Three Months Ended
	March 26, 2016			March 28, 2015
Micron		25.9	%	***
SK Hynix		16.7	%		13.4	%
Intel Corporation		15.7	%	***
Toshiba Corporation		11.9	%	***
Taiwan Semiconductor Manufacturing Company Limited		10.1	%		22.3	%
Samsung Electronics Co. Ltd.	***				30.3	%

*** The customer accounted for less than 10% of total net revenues during the 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,” “may,” “might,” “plan,” “project,” “will,” 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 this document, and in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 26, 2015. 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 26, 2015, which were included in our 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 24, 2016, 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 optical critical dimensions and film thickness 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 improve 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 (“OCD”) metrology across fabrication processes, immersion lithography and multiple patterning, new types of thin film materials, 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 and system upgrades but are also derived from customer service for the installed base of our products. For the three months ended March 26, 2016, we derived 83% of our total net revenues from product sales and upgrades, and 17% 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, sensors, discrete components, high-brightness LEDs (“HB-LED”), 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, 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.

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 enable us to develop and offer advanced process control solutions that, in the future, should address industry advancement and trends.

21

Automated Systems

Our automated systems primarily consist of fully automated metrology systems that are employed in semiconductor production environments. The Atlas^® II, Atlas III, Atlas II+ and Atlas XP/Atlas XP⁺ 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^TM scalable computing engine that enables visualization, modeling, and analysis of complex structures. The UniFire^TM system measures multiple parameters at any given process step in the advanced packaging process flow for critical dimension, overlay, and topography applications and has recently added inspection capabilities for both front-end-of-line (“FEOL”) patterned wafer and advanced packaging  related applications.  

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. The IMPLULSE+ and IMPULSE^® systems represent our latest metrology platform for OCD, and thin film metrology, and have been successfully qualified on numerous independent Wafer Fabrication Equipment Suppliers’ platforms. Our NanoCD suite of solutions is sold in conjunction with our IMPULSE^® systems. Our Trajectory^® system provides in-line measurement of layers in thin film thickness and composition in semiconductor applications and is qualified in production with major device makers.

Materials Characterization

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

Our Imperia™ is a photoluminescence (“PL”) full wafer imaging and mapping system designed for high-volume compound semiconductor metrology applications including power control and photonics applications adding significant inspection and substrate metrology capability to the established PL fleet. The RPMBlue™ is our latest PL mapping system designed specifically for the HB-LED market, and is complemented by the RPMBlue-FS, enabling a breadth of research and development configurability. 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, supports 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. We have expanded our product offerings to address growing applications within the semiconductor manufacturing and adjacent industries. In pursuit of our goals, we have:

· Introduced new products, applications, and upgrades in every core product line and primary market served;

· Diversified our product line and served markets through acquisitions, such as: the 2006 acquisition of Accent Optical Technologies, Inc., a supplier of overlay and thin film metrology and process control systems; the 2008 acquisition of Tevet Process Control Technologies (“Tevet”), an integrated metrology supplier; the 2009 acquisition of the UniFire™ product line from Zygo Corporation, a wholly owned subsidiary of AMETEK, Inc.; and 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

· Researched and developed innovative applications of existing technology to new market opportunities within the solar PV, HB-LED, discrete device, and data storage industries, and advanced packaging processes.

22

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 device manufacturing. 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 Chemical Mechanical Polishing, 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, and logic semiconductor manufacturing processes.

· Development of 3D Transistor Architectures. Our end customers continue to improve device density and performance by scaling FEOL 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.

· Adoption of Advanced Packaging Processes. Our customers use photolithography, etching, metallization and wafer thinning to enable next generation advanced packaging solutions for semiconductor devices. These new packaging techniques lead 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 traditional aluminum etch back interconnect flows, as well as conventional gate dielectric materials, with new materials and processes that are driving 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.

· Need for Improved Process Control to Drive Process Efficiencies. Competitive forces influencing semiconductor device manufacturers, such as price-cutting, shorter product life cycles and time to market, 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.

Critical Accounting Policies

The preparation of our financial statements conforms to accounting principles generally accepted in the United States of America, which requires management to make estimates and judgments in applying our accounting policies 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 three months ended March 26, 2016. Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2015 for a complete discussion of our critical accounting policies.

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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.

Upgrade Revenue and Related Cost

During the first quarter of 2016, revenues associated with upgrade sales are now included under Products Revenues, and the related costs in Cost of Products Revenue. This change was due to the types of upgrades currently being sold, which are primarily system software and hardware performance upgrades to extend the features and functionality of a product. Previously upgrades consisted of a group of parts and/or software that change the existing configuration of a product. For the three months ended March 28, 2015, $4.6 million related to upgrade sales, and $1.8 million of costs, are in included in Service Revenues and Costs of Service Revenues.

Results of Operations

Net Revenues

Our net revenues comprised the following product lines (in thousands, except percentages):

	Three Months Ended
	March 26, 2016		March 28, 2015		Change
Automated systems	$	28,614	$	30,506	$	(1,892	)	-6.2	%
Integrated systems		8,293		4,725	$	3,568		75.5	%
Materials characterization systems		2,307		3,108	$	(801	)	-25.8	%
Total product revenue		39,214		38,339	$	875		2.3	%
Service		8,275		12,037	$	(3,762	)	-31.3	%
Total net revenues	$	47,489	$	50,376	$	(2,887	)	-5.7	%

For the three months ended March 26, 2016, total net revenues decreased by $2.9 million relative to the comparable 2015 period. For 2016, upgrade sales are included in Product Revenues. For the three months ended March 28, 2015, Product Revenues do not include $4.6 million related to upgrade sales, which are included in Service Revenues. Had upgrade sales been included in Product Revenues in 2015, Product Revenues would have decreased by $3.7 million. The decrease was primarily attributable to sales of our Automated Systems (principally the Atlas® line), which declined by $6.3 million due primarily to a decline in revenue from our customers in the DRAM and Logic markets, partially offset by an increase in revenue from our customers in the 3D-NAND market, and sales of our Materials Characterization systems, which declined by $0.9 million.  The overall decrease was partially offset by a $3.4 million increase in Integrated Systems sales (principally IMPULSE®) due principally to an increase in revenue from our customers in the 3D-NAND market, and a $0.8 million increase in service revenues. Capital spending by our customers is dependent on the timing of new semiconductor fabrication plants, capacity expansion within existing plants, and the adoption of new technology for current and future manufacturing needs. Future results will vary significantly based on changes in any of these factors.

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.

Gross margin

Our gross margin breakdown was as follows:

	Three Months Ended
	March 26, 2016			March 28, 2015
Products		52.8	%		46.2	%
Service		45.8	%		47.1	%

The calculation of product gross margin includes both cost of products, and in 2016, related upgrades, and amortization of intangibles. The gross margin on product revenue increased to 52.8% in the three months ended March 26, 2016 from 46.2% in the three months ended March 28, 2015, reflecting an increase of 6.6 percentage points from the comparable 2015 period. Had upgrade sales and related cost been included in Product Revenues and Cost of Product Revenues, Product Gross Margin for the three months ended March 28, 2015 would have been 47.8%. The increase in 2016 of 5.0 percentage points over this amount was due to a change in product mix to higher margin products and upgrades, as well as improved factory utilization during the three months ended March 26,

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2016. The gross margin on our services business decreased to 45.8% in the three months ended March 26, 2016 from 47.1% in the three months ended March 28, 2015, reflecting a decrease of 1.3 percentage points. Had upgrade sales and related cost been excluded from Service Revenues and Cost of Service Revenues, Service Gross Margin for the three months ended March 28, 2015, would have been 38.4%. The increase in 2016 over this amount was due to increase in the service revenues on relatively flat costs.

Operating expenses

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

	Three Months Ended
	March 26, 2016		March 28, 2015		Change
Research and Development	$	8,068	$	8,159	$	(91	)		-1.1	%
Selling		7,249		7,116		133			1.9	%
General and administrative		5,420		5,767		(347	)		-6.0	%
Amortization of intangible assets		24		38		(14	)		-36.8	%
Restructuring charge		—		58		(58	)	NM*
Total operating expenses	$	20,761	$	21,138	$	(377	)		-1.8	%

* NM = not meaningful

Research and development

Research and development costs decreased by $0.1 million or 1.1% in the three months ended March 26, 2016 compared to the three months ended March 28, 2015 due primarily to a lower level of non-recurring engineering expenses.

Selling

Selling expenses increased by $0.1 million in the three months ended March 26, 2016 compared to the three months ended March 28, 2015 due to an increase in product and service support offset by a decrease in utilization of sales application personnel for installation and warranty, which is included in cost of net revenues.

General and administrative

General and administrative expenses decreased by $0.3 million or 6.0% in the three months ended March 26, 2016 compared to the three months ended March 28, 2015.   The decrease was primarily due to the reduction in professional fees and consulting expenditures.

Amortization of intangible assets

Amortization of intangible assets included in operating expenses in the three months ended March 26, 2016 compared to the three months ended March 28, 2015 decreased as a result of the reduction in amortization due to intangible assets that became fully amortized.

Restructuring charge.

No restructuring charges were recorded during the three months ended March 26, 2016.  

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We recorded a restructuring charge of $0.1 million in the three months ended March 28, 2015 related to our efforts to improve operating efficiencies. We completed the restructuring plan in March 2015.

Other income, net.

Our other income, net, consisted of the following items (in thousands, except percentages):

	Three Months Ended
	March 26, 2016			March 28, 2015			Change
Interest Income	$	9		$	10		$	(1	)	-10.0	%
Interest Expense		(117	)		(82	)		(35	)	42.7	%
Other income (expense)		225			704			(479	)	-68.0	%
Total other income (expense), net	$	117		$	632		$	(515	)	-81.5	%

Other income declined by $0.5 million in the three months ended March 26, 2016 relative to the comparable 2015 period principally due to the revaluation of intercompany balances based on fluctuations in foreign exchange rates relative to the U.S. dollar, and hedging gains and losses.

Provision for income taxes.

We recorded a tax provision of $0.4 million and $0.3 million in three months ended March 26, 2016 and March 28, 2015, respectively. The increase in the tax provision for 2016 from 2015 was primarily related to an increase in foreign earnings for the three months ended March 26, 2016.

Our provision for income taxes for the quarter ended March 26, 2016 of $0.4 million reflects an effective tax rate of 9.9%.  This rate differs from the Federal statutory rate of 35.0% primarily due to all our foreign income being subject to tax at lower rates and a tax benefit associated with a change in our valuation allowance as we continue to utilize our deferred tax assets during the three months ended March 26, 2016.

As of March 26, 2016, we continue to maintain a valuation allowance against our U.S. and 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 allowance will be reflected in the tax provision for the period such determination is made.  It is reasonably possible that within the next 12 months that positive evidence will be sufficient to release a material amount of the Company’s valuation allowance. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company is able to actually achieve. The Company will continue to evaluate the release of the valuation allowance on a quarterly basis.

We are subject to taxation in the U.S. and various states including California, and foreign jurisdictions including Korea, Japan, Taiwan, and China. Due to tax attribute carry-forwards, we are subject to examination for tax years 2003 forward for U.S. tax purposes. We are also subject to examination in various states for tax years 2002 forward. We are subject to examination for tax years 2007 forward for various foreign jurisdictions.

We accrue interest and penalties related to unrecognized tax benefits in our provision for income taxes.  The total amount of penalties and interest were not material as of March 26, 2016 and March 28, 2015.  During the next twelve months, we anticipate increases in our unrecognized tax benefits of approximately $0.1 million.

Liquidity and Capital Resources

The following tables present selected financial information and statistics as of March 26, 2016 and December 26, 2015 and for the three months ended March 26, 2016 and March 28, 2015 (in millions):

	As of
	March 26, 2016		December 26, 2015
Cash, cash equivalents and marketable securities	$	83.3	$	83.1
Working capital	$	140.4	$	132.9

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	Three Months Ended
	March 26, 2016			March 28, 2015
Cash provided by (used in) operating activities	$	0.5		$	(5.9	)
Cash used in investing activities	$	(0.4	)	$	(0.4	)
Cash provided by (used in) financing activities	$	0.2		$	(0.4	)

We believe our existing balances of cash, cash equivalents and marketable securities will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations over the next twelve months.

During the three months ended March 26, 2016, cash provided by operating activities of $0.5 million was a result of $3.5 million of net income, non-cash adjustments to net income of $4.6 million and a net change in operating assets and liabilities of $7.6 million. Cash used in investing activities of $0.4 million during the three months ended March 26, 2016 consisted primarily of cash used to acquire property, plant and equipment of $0.6 million, partially offset by cash provided by maturities of marketable securities, net of purchases, of $0.2 million. Cash provided by financing activities of $0.2 million during the three months ended March 26, 2016 consisted primarily of royalty and other payments to Zygo of $0.1 million, and cash paid for taxes on net issuance of stock awards of $0.7 million, offset by $1.0 million in proceeds from the issuance of common stock from the employee stock purchase program and the exercise of stock options.

During the three months ended March 28, 2015, cash used in operating activities of $5.9 million was a result of $2.6 million of net income, non-cash adjustments to net income of $4.9 million and a net change in operating assets and liabilities of $13.3 million. Cash used in investing activities of $0.4 million during the three months ended March 28, 2015 consisted primarily of cash used to acquire property, plant and equipment of $0.5 million, partially offset by cash provided by maturities of marketable securities, net of purchases, of $0.1 million. Cash used in financing activities of $0.4 million during the three months ended March 28, 2015 consisted primarily of cash used to repurchase common stock of $1.7 million, royalty and other payments to Zygo of $0.2 million, and cash paid for taxes on net issuance of stock awards of $0.8 million, partially offset by $2.4 million in proceeds from the issuance of common stock from the employee stock purchase program and the exercise of stock options.

Debt and Business Partnership Payments

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 March 26, 2016 was $18.0 million. As of March 26, 2016, we were not in breach of any restrictive covenants in connection with this line of credit. There were no borrowings against the line of credit during the three months ended March 26, 2016 and March 28, 2015 and there were no outstanding amounts drawn on this facility as of March 26, 2016. 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.

Business Partnership - On June 17, 2009, we announced a strategic business partnership with Zygo Corporation, a wholly-owned subsidiary of AMETEK, Inc. whereby we have purchased inventory and certain other assets from Zygo Corporation, and the two companies entered into a supply agreement.  We will make payments to Zygo Corporation (with an estimated present value of $1.4 million as of March 26, 2016 and $1.5 million as of December 26, 2015) 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 $0.1 million and $0.2 million to Zygo in three months ended March 26, 2016 and March 28, 2015, 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.

Our principal sources of liquidity are cash and cash equivalents, and marketable securities, cash flow generated from our operations, and, to a lesser extent, 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

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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.

Off-Balance Sheet Arrangements

As of March 26, 2016, we had no off-balance sheet arrangements or obligations.

Contractual Obligations

There have been no material changes outside the ordinary course of our business from those reported in our Annual Report on Form 10-K.

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 26, 2015, filed with the SEC on February 24, 2016.  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.

Foreign Currency Risk

Our exposure to foreign currency exchange rate fluctuations arises in part from intercompany balances in which costs are charged between our U.S. headquarters and our foreign subsidiaries.  On our consolidated balance sheet these intercompany balances are eliminated and thus no consolidated balances are associated with these intercompany balances; however, since each foreign entity's functional currency is generally its respective local currency, there is exposure to foreign exchange risk on a consolidated basis. Intercompany balances are denominated primarily in U.S. dollars and, to a lesser extent, other local currencies. 

We enter into foreign currency forward exchange contracts to protect against currency exchange risks associated with existing assets and liabilities. A foreign currency forward exchange contract acts as a hedge by increasing in value when underlying assets decrease in value or underlying liabilities increase in value due to changes in foreign exchange rates.  Conversely, a foreign currency forward exchange contract decreases in value when underlying assets increase in value or underlying liabilities decrease in value due to changes in foreign exchange rates. These forward contracts are not designated as accounting hedges, so the unrealized gains and losses are recognized in other income, net, in advance of the actual foreign currency cash flows with the fair value of these forward contracts being recorded as accrued liabilities or other current assets.

We do not use forward contracts for trading purposes. Our forward contracts generally have maturities of 30 days or less. We enter into foreign currency forward exchange contracts based on estimated future asset and liability exposures, and the effectiveness of our hedging program depends on our ability to estimate these future asset and liability exposures. Recognized gains and losses with respect to our current hedging activities will ultimately depend on how accurately we are able to match the amount of foreign currency forward exchange contracts with actual underlying asset and liability exposures.

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The following table provides information about our foreign currency forward exchange contracts as of March 26, 2016. The information is provided in United States dollar equivalent amounts. The table presents the notional amounts, at contract exchange rates, and the weighted average contractual foreign currency exchange rates expressed as units of the foreign currency per United States dollar, which in some cases may not be the market convention for quoting a particular currency. All of these forward contracts mature during April 2016.

	Notional Principal		Contract Rate
	(in millions)
Forward Contracts
Korean won	$	6.1		1,157
European Union euro		4.2		1.12
Israeli shekel		1.8		3.84
Singapore dollar		2.1		1.36
Chinese yuan		1.6		6.49
Japanese yen		7.5		112.94
Total		23.3
Estimated Fair Value		23.2

This compares to the information about our foreign currency forward contracts as of December 26, 2015, which is set forth in the table below.  All of these forward contracts matured during January 2016.  

	Notional Principal		Contract Rate
	(in millions)
Forward Contracts
Korean won	$	7.0		1,174
European Union euro		4.1		1.10
Israeli shekel		2.1		3.88
Singapore dollar		2.7		1.41
Chinese yuan		1.4		6.52
Japanese yen		13.2		121.27
Total		30.5
Estimated Fair Value		30.4

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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 March 26, 2016, 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.

Changes in Internal Control over Financial Reporting

During the quarter ended March 26, 2016, 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.

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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 26, 2015, filed with the SEC on February 24, 2016. 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 currently 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 26, 2015.

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ITEM 6. EXHIBITS 

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

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
10	Material Contracts
10.1 (5)	Changes in Compensation Arrangement Changes with Named Executive Officers CEO and CFO
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 Section 302 of the Sarbanes-Oxley Act of 2002
31.2(3)	Certification of Jeffrey Andreson, principal financial officer and principal accounting officer of the Registrant, 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 and principal accounting officer of the Registrant 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 March 26, 2016, and December 26, 2015, (ii) Condensed Consolidated Statements of Operations for the three months ended March 26, 2016 and March 28, 2015, (iii) Condensed Consolidated Statements of Cash Flows for the three months March 26, 2016 and March 28, 2015, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
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 (File No. 000-13470) filed on October 5, 2006.

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

(3) Filed herewith.

(4) Furnished herewith.

(5) Incorporated by reference to Item 5.02 of the Registrant’s Current Report on Form 8-K (File No. 000-13470) filed on February 26, 2006.

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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: April 29, 2016

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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
10	Material Contracts
10.1 (5)	Changes in Compensation Arrangement Changes with Named Executive Officers CEO and CFO
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 Section 302 of the Sarbanes-Oxley Act of 2002
31.2(3)	Certification of Jeffrey Andreson, principal financial officer and principal accounting officer of the Registrant, 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 and principal accounting officer of the Registrant 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 March 26, 2016, and December 26, 2015, (ii) Condensed Consolidated Statements of Operations for the three months ended March 26, 2016 and March 28, 2015, (iii) Condensed Consolidated Statements of Cash Flows for the three months March 26, 2016 and March 28, 2015, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
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 (File No. 000-13470) filed on October 5, 2006.

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

(3) Filed herewith.

(4) Furnished herewith.

(5) Incorporated by reference to Item 5.02 of the Registrant’s Current Report on Form 8-K (File No. 000-13470) filed on February 26, 2006.

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EX-31.1

Exhibit 31.1

I, Timothy J. Stultz, the Chief Executive Officer of Nanometrics Incorporated, 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 quarterly 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:	April 29, 2016
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 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:	April 29, 2016
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 March 26, 2016 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.

April 29, 2016	/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 March 26, 2016 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.

April 29, 2016	/s/ Jeffrey Andreson
	Jeffrey Andreson
	Chief Financial Officer

This certification accompanies the Quarterly Report on Form 10-Q for the period ended March 26, 2016 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.

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Document and Entity Information - shares	3 Months Ended
	Mar. 26, 2016	Apr. 22, 2016
Document And Entity Information [Abstract]
Entity Registrant Name	NANOMETRICS INC
Entity Central Index Key	0000704532
Document Type	10-Q
Document Period End Date	Mar. 26, 2016
Amendment Flag	false
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Trading Symbol	NANO
Current Fiscal Year End Date	--12-26
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		24,399,157

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 26, 2016	Dec. 26, 2015
Current assets:
Cash and cash equivalents	$ 38,673	$ 38,154
Marketable securities	44,672	44,931
Accounts receivable, net of allowances of $145 and $150, respectively	44,482	37,832
Inventories	49,893	47,749
Inventories-delivered systems	4,138	2,856
Prepaid expenses and other	6,060	6,592
Total current assets	187,918	178,114
Property, plant and equipment, net	43,068	44,493
Goodwill	9,592	9,415
Intangible assets, net	1,425	1,867
Deferred income tax assets	1,191	1,118
Other assets	525	533
Total assets	243,719	235,540
Current liabilities:
Accounts payable	13,212	11,675
Accrued payroll and related expenses	8,592	10,097
Deferred revenue	16,010	12,790
Other current liabilities	8,978	8,878
Income taxes payable	704	1,771
Total current liabilities	47,496	45,211
Deferred revenue	250	827
Income taxes payable	805	775
Deferred tax liability	563	521
Other long-term liabilities	859	878
Total liabilities	$ 49,973	$ 48,212
Commitments and contingencies (Note 11)
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: 24,371,657 and 24,224,286, respectively, issued and outstanding	24	24
Additional paid-in capital	260,679	258,715
Accumulated deficit	(62,742)	(66,209)
Accumulated other comprehensive income	(4,215)	(5,202)
Total stockholders’ equity	193,746	187,328
Total liabilities and stockholders’ equity	$ 243,719	$ 235,540

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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 26, 2016	Dec. 26, 2015
Statement Of Financial Position [Abstract]
Allowances for doubtful accounts	$ 145	$ 150
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	24,371,657	24,224,286
Common stock, shares outstanding	24,371,657	24,224,286

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Condensed Consolidated Statements of Operations - USD ($) shares in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Net revenues:
Products	$ 39,214,000	$ 38,339,000
Service	8,275,000	12,037,000
Total net revenues	47,489,000	50,376,000
Costs of net revenues:
Cost of products	18,079,000	19,992,000
Cost of service	4,484,000	6,373,000
Amortization of intangible assets	435,000	632,000
Total costs of net revenues	22,998,000	26,997,000
Gross profit	24,491,000	23,379,000
Operating expenses:
Research and development	8,068,000	8,159,000
Selling	7,249,000	7,116,000
General and administrative	5,420,000	5,767,000
Amortization of intangible assets	24,000	38,000
Restructuring charge	0	58,000
Total operating expenses	20,761,000	21,138,000
Income from operations	3,730,000	2,241,000
Other (income) expense:
Interest income	9,000	10,000
Interest expense	(117,000)	(82,000)
Other income, net	225,000	704,000
Total other income, net	117,000	632,000
Income before income taxes	3,847,000	2,873,000
Provision for income taxes	380,000	317,000
Net income	$ 3,467,000	$ 2,556,000
Net income per share:
Basic (in dollars per share)	$ 0.14	$ 0.11
Diluted (in dollars per share)	$ 0.14	$ 0.11
Weighted average shares used in per share calculation:
Basic (in shares)	24,308	23,866
Diluted (in shares)	24,597	24,257

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Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 3,467	$ 2,556
Other comprehensive income (loss):
Change in foreign currency translation adjustment	952	(1,727)
Net change on unrealized gains on available-for-sale investments	35	29
Other comprehensive income (loss):	987	(1,698)
Comprehensive income	$ 4,454	$ 858

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Cash flows from operating activities:
Net income	$ 3,467	$ 2,556
Reconciliation of net income to net cash provided by (used in) operating activities:
Depreciation and amortization	2,176	2,324
Stock-based compensation	1,689	1,571
Disposal of fixed assets	99	485
Inventory write-down	651	403
Deferred income taxes	(30)	55
Changes in fair value of contingent payments to Zygo Corporation	55	35
Changes in assets and liabilities:
Accounts receivable	(5,197)	(13,340)
Inventories	(1,871)	(2,442)
Inventories-delivered systems	(1,283)	1,164
Prepaid expenses and other	605	(94)
Accounts payable, accrued and other liabilities	(1,468)	3,947
Deferred revenue	2,643	(2,468)
Income taxes payable	(1,037)	(70)
Net cash provided by (used in) operating activities	499	(5,874)
Cash flows from investing activities:
Sales of marketable securities		1,082
Maturities of marketable securities	13,153	9,592
Purchases of marketable securities	(12,953)	(10,613)
Purchases of property, plant and equipment	(610)	(502)
Net cash used in investing activities	(410)	(441)
Cash flows from financing activities:
Payments to Zygo Corporation related to acquisition	(84)	(224)
Proceeds from sale of shares under employee stock option plans and purchase plan	934	2,357
Taxes paid on net issuance of stock awards	(658)	(764)
Repurchases of common stock		(1,721)
Net cash provided by (used in) financing activities	192	(352)
Effect of exchange rate changes on cash and cash equivalents	238	(74)
Net increase (decrease) in cash and cash equivalents	519	(6,741)
Cash and cash equivalents, beginning of period	38,154	34,676
Cash and cash equivalents, end of period	38,673	27,935
Supplemental disclosure of non-cash investing activities:
Transfer of inventory to property, plant and equipment, net		$ 435
Transfer of property, plant and equipment to inventory, net	$ 491

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Nature of Business and Basis of Presentation

3 Months Ended

Mar. 26, 2016

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Nature of Business and Basis of Presentation

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 optical critical dimension (“OCD”), thin film  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 Company’s OCD 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 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 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 26, 2015, and include all normal recurring adjustments necessary to fairly state 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 26, 2015, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2016.

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 reported herein are comprised of 13 week periods.

Upgrade Revenue and Related Cost - During the first quarter of 2016, revenues associated with upgrade sales are now included under Products Revenues, and the related costs in Cost of Products Revenue. This change was due to the types of upgrades currently being sold, which are primarily system software and hardware performance upgrades to extend the features and functionality of a product. Previously upgrades consisted of a group of parts and/or software that change the existing configuration of a product. For the three months ended March 28, 2015, $4.6 million related to upgrade sales, and $1.8 million of costs, are included in Service Revenues and Costs of Service Revenues, respectively, in the accompanying Condensed Consolidated Statement of Operations.

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP 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 and inspection systems and related upgrades (“product revenue”) as well as spare part sales, billable service and service contracts (together “service revenue”). Upgrades are system software and hardware performance upgrades that extend the features and functionality of a product. As discussed above, commencing in the first quarter of 2016, they are included in 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 have 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.

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, which terms can be up to twelve months. The Company does not grant its customers a general right of return or any refund terms and imposes a penalty on orders cancelled 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.  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.

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Recent Accounting Pronouncements

3 Months Ended

Mar. 26, 2016

Accounting Changes And Error Corrections [Abstract]

Recent Accounting Pronouncements

Note 2. Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that simplifies several aspects of the accounting for share-based payment award transactions, including income tax consequences, classification of awards as equity or liability, and classification on the statement of cash flows.  The new standard is effective for public companies for annual reporting periods beginning after December 16, 2016, and interim periods within those annual periods.  Early adoption is permitted.  The Company is currently evaluating the timing and effects of the adoption of this standard on its consolidated financial statements.

In March 2016, the FASB issued an accounting standards update that clarifies the implementation guidance on principal versus agent considerations to improve operability and understandability of the revenue recognition guidance.  The amendments in this update affect the recently issued guidance in accounting standards update 2014-09, Revenue from Contracts with Customers, which is effective for public companies for annual reporting periods beginning after December 15, 2017 and interim periods within those fiscal years.  Thus, the effective date and transition requirements for the amendments in this Update are the same.  This updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method.  The Company has not yet selected a transition method and is currently evaluating the timing and effects of the adoption of this standard and related updates on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued an accounting standards update which requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). For lessees, leases will continue to be classified as either operating or financing in the income statement. The new standard is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years.  This standard is required to be applied with a modified retrospective transition approach.  Early adoption is permitted. The Company is currently evaluating the effect of this standard on its Consolidated Financial Statements and related disclosures.

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Fair Value Measurements and Disclosures

3 Months Ended

Mar. 26, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements and Disclosures

Note 3. Fair Value Measurements and Disclosures

The Company determines the fair values of its financial instruments based on the fair value hierarchy established in FASB Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, 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.

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 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:

	March 26, 2016								December 26, 2015
	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	$	1,075	$	—	$	—	$	1,075	$	590	$	—	$	—	$	590
Commercial paper and corporate debt    securities		—		4,452		—		4,452		—		4,568		—		4,568
Total cash equivalents	$	1,075	$	4,452	$	—	$	5,527	$	590	$	4,568	$	—	$	5,158
Marketable securities:
U.S. Treasury, U.S. Government and U.S.    Government agency debt securities		6,973		23,227		—		30,200		4,401		20,164		—		24,565
Commercial paper, municipal securities    and corporate debt securities		—		14,473		—		14,473		—		20,366		—		20,366
Total marketable securities	$	6,973	$	37,700	$	—	$	44,673	$	4,401	$	40,530	$	—	$	44,931
Total(1)	$	8,048	$	42,152	$	—	$	50,200	$	4,991	$	45,098	$	—	$	50,089
Liabilities:
Contingent consideration payable	$	—	$	—	$	1,461	$	1,461	$	—	$	—	$	1,490	$	1,490

⁽¹⁾ Excludes $33.1 million and $33.0 million held in operating accounts as of March 26, 2016 and December 26, 2015, 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 in active markets 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 26, 2015	$	1,490
Payments made to Zygo Corporation		(84	)
Change in fair value included in earnings		55
Fair value at  March 26, 2016	$	1,461

As of March 26, 2016, the Company had liabilities of $1.5 million resulting from the acquisition of certain assets from Zygo Corporation, a wholly-owned subsidiary of AMETEK, Inc. (“Zygo”), which are measured at fair value on a recurring basis, and changes in fair value recorded in other income (expense), net. Of the $1.4 million of Zygo liabilities at March 26, 2016, $1.0 million was a current liability and $0.5 million was a long-term liability. As of December 26, 2015, the liabilities totaled $1.5 million of which $0.9 million was a current liability and $0.6 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.

Derivatives

The Company uses foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in foreign currencies. These derivatives are carried at fair value with changes recorded in other income (expense), net in the consolidated statements of operations. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. The derivatives have maturities of approximately 30 days.

The loss on settlement of forward foreign currency contracts included in the three months ended March 26, 2016 and March 28, 2015 was $0.5 million and zero, respectively and are included in other income (expense), net, in the consolidated statements of operations.

The following table summarizes the Company’s outstanding derivative instruments on a gross basis as of March 26, 2016:

	Notional Principal
	(in millions)
Undesignated Hedges:
Forward Foreign Currency Contracts	$	23.3

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Cash and Investments

3 Months Ended

Mar. 26, 2016

Investments Debt And Equity Securities [Abstract]

Cash and Investments

Note 4. Cash and Investments

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

	March 26, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	33,145	$	—	$	—		$	33,145
Cash equivalents:
Money market funds		1,075		—		—			1,075
Commercial paper and corporate debt securities		4,452		—		—			4,452
Marketable securities:
Commercial paper		699		—		—			699
U.S. Treasury securities		6,971		2		—			6,973
U.S. Government agency securities		23,231		4		(8	)		23,227
Municipal securities		2,634		—		(3	)		2,631
Corporate debt securities		11,147		2		(6	)		11,143
Total cash, cash equivalents, and marketable securities	$	83,354	$	8	$	(17	)	$	83,345
	December 26, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	32,996	$	—	$	—		$	32,996
Cash equivalents:
Money market funds		590		—		—			590
Commercial paper and corporate debt securities		4,568		—		—			4,568
Marketable securities:
Commercial paper		1,884		—		—			1,884
U.S. Treasury securities		4,411		—		(10	)		4,401
U.S. Government agency securities		20,193		1		(29	)		20,165
Municipal securities		3,747		1		(3	)		3,745
Corporate debt securities		14,759		—		(23	)		14,736
Total cash, cash equivalents, and marketable securities	$	83,148	$	2	$	(65	)	$	83,085

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 March 26, 2016 and December 26, 2015, were available-for-sale and reported at fair value based on the estimated or quoted market prices as of the balance sheet date.  Gross realized gains and losses on sale of securities are recorded in other income, net, in our statement of operations.  Net realized gains and losses for three months ended March 26, 2016 and March 28, 2015 were $0.1 million and $0.1 million, respectively.

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 months ended March 26, 2016 and March 28, 2015 were insignificant and no marketable securities had other than temporary impairment. All marketable securities as of March 26, 2016 and December 26, 2015, had maturity dates of less than two years and were not invested in foreign entities.

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Accounts Receivable

3 Months Ended

Mar. 26, 2016

Receivables [Abstract]

Accounts Receivable

Note 5. Accounts Receivable

The Company maintains arrangements under which eligible accounts receivable 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 from 0.82% 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 $14.2 million and $1.1 million of receivables during the three months ended March 26, 2016 and March 28, 2015, 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 March 26, 2016 and December 26, 2015.

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Financial Statement Components

3 Months Ended

Mar. 26, 2016

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Financial Statement Components

Note 6. Financial Statement Components

The following tables provide details of selected financial statement components as of the following dates (in thousands):

	At
	March 26, 2016			December 26, 2015
Inventories:
Raw materials and sub-assemblies	$	26,819		$	26,784
Work in process		16,094			12,862
Finished goods		6,980			8,103
Inventories		49,893			47,749
Inventories-delivered systems		4,138			2,856
Total inventories	$	54,031		$	50,605
Property, plant and equipment, net:(1)
Land	$	15,569		$	15,569
Building and improvements		20,216			20,158
Machinery and equipment		33,338			32,995
Furniture and fixtures		2,259			2,266
Software		8,245			8,245
Capital in progress		1,278			1,328
Total property, plant and equipment, gross		80,905			80,561
Accumulated depreciation and amortization		(37,837	)		(36,068	)
Total property, plant and equipment, net	$	43,068		$	44,493
(1) Total depreciation and amortization expense for the three months ended March 26, 2016 and March 28, 2015 was $1.7 million for both periods.
Other Current Liabilities:
Accrued warranty	$	4,377		$	4,504
Accrued restructuring		82			256
Accrued professional services		661			481
Fair value of current portion of contingent payments to    Zygo Corporation related to acquisition		940			945
Other		2,918			2,692
Total other current liabilities	$	8,978		$	8,878

Components of Accumulated Other Comprehensive Income (Loss)

	Foreign Currency Translations			Defined Benefit Pension Plans			Unrealized Income (Loss) on Investment			Accumulated Other Comprehensive Income
Balance as of December 26, 2015	$	(4,948	)	$	(210	)	$	(44	)	$	(5,202	)
Current period change		952			—			35			987
Balance as of March 26, 2016	$	(3,996	)	$	(210	)	$	(9	)	$	(4,215	)

The items above, except for unrealized income (loss) on investment, did not impact the Company’s income tax provision. The amounts reclassified from each component of accumulated other comprehensive income into income statement line items were insignificant.

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Goodwill and Intangible Assets

3 Months Ended

Mar. 26, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Note 7. Goodwill and Intangible Assets

The following table summarizes the activity in the Company’s goodwill during the three months ended March 26, 2016 (in thousands):

Balance as of December 26, 2015	$	9,415
Foreign currency movements		177
Balance as of March 26, 2016	$	9,592

Finite-lived intangible assets are recorded at cost, less accumulated amortization. Finite-lived intangible assets as of March 26, 2016 and December 26, 2015 consisted of the following (in thousands):

	March 26, 2016
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	16,251	$	(14,941	)	$	1,310
Customer relationships		9,380		(9,380	)		—
Brand names		1,927		(1,927	)		—
Patented technology		2,252		(2,137	)		115
Trademark		80		(80	)		—
Total	$	29,890	$	(28,465	)	$	1,425

	December 26, 2015
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	16,098	$	(14,387	)	$	1,711
Customer relationships		9,364		(9,364	)		—
Brand names		1,927		(1,903	)		24
Patented technology		2,252		(2,120	)		132
Trademark		80		(80	)		—
Total	$	29,721	$	(27,854	)	$	1,867

The amortization of finite-lived intangibles is computed using the straight-line method. Estimated lives of finite-lived intangibles range from two to ten years. Total amortization expense for the three months ended March 26, 2016 and March 28, 2015 was $0.5 million and $0.7 million, respectively.

There were no impairment charges related to intangible assets recorded during the three months ended March 26, 2016 and March 28, 2015.

The estimated future amortization expense of finite intangible assets as of March 26, 2016 is as follows (in thousands):

Fiscal Years	Amounts
2016 (remaining nine months)	$	1,013
2017		206
2018		140
2019		66
Thereafter		—
Total future amortization expense	$	1,425

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Warranties

3 Months Ended

Mar. 26, 2016

Product Warranties Disclosures [Abstract]

Warranties

Note 8. 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.

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

	Three Months Ended
	March 26, 2016			March 28, 2015
Balance as of beginning of period	$	4,504		$	2,953
Accruals for warranties issued during period		1,061			1,702
Settlements during the period		(1,188	)		(1,215	)
Balance as of end of period	$	4,377		$	3,440

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Restructuring

3 Months Ended

Mar. 26, 2016

Restructuring And Related Activities [Abstract]

Restructuring

Note. 9. Restructuring

There were no restructuring charges recorded during the three months ended March 26, 2016.  

The Company recorded a restructuring charge of approximately $0.1 million during the three months ended March 28, 2015 as a result of its decision to consolidate and reorganize certain of its operations, primarily in the U.K. The Company completed this restructuring plan in March 2015. Other related costs will be recognized as incurred.

As of March 26, 2016, 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 December 26, 2015	$	—	$	249		$	7	$	256
Charges		—		—			—		—
Cash Payments		—		(174	)		—		(174	)
Balance as of March 26, 2016	$	—	$	75		$	7	$	82

	Employee severance and benefits			Facility termination costs			Other			Total
Balance as of December 27, 2014	$	383		$	583		$	31		$	997
Charges		45			—			13			58
Cash Payments		(308	)		(106	)		(35	)		(449	)
Balance as of March 28, 2015	$	120		$	477		$	9		$	606

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Line of Credit and Debt Obligations

3 Months Ended

Mar. 26, 2016

Debt Disclosure [Abstract]

Line of Credit and Debt Obligations

Note 10. 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 base available as of March 26, 2016 was $18.0 million. As of March 26, 2016, 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 March 26, 2016. 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.

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Commitments and Contingencies

3 Months Ended

Mar. 26, 2016

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 11. 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 whom 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 March 26, 2016 and December 26, 2015.

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Net Income Per Share

3 Months Ended

Mar. 26, 2016

Earnings Per Share [Abstract]

Net Income Per Share

Note 12. Net Income Per Share

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

A reconciliation of the share denominator of the basic and diluted net income per share computations for three months ended March 26, 2016 and March 28, 2015 is as follows (in thousands):

	Three Months Ended
	March 26, 2016		March 28, 2015
Weighted average common shares outstanding used in    basic net income (loss) per share calculation		24,308		23,866
Potential dilutive common stock equivalents,    using treasury stock method		289		391
Weighted average shares used in diluted net income    (loss) per share calculation		24,597		24,257

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Stockholders' Equity and Stock-Based Compensation

3 Months Ended

Mar. 26, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stockholders' Equity and Stock-Based Compensation

Note 13. Stockholders’ Equity and Stock-Based Compensation

Options and Employee Stock Purchase Plan (“ESPP”) Awards

The fair value of each option and ESPP award is estimated on the grant date using the Black-Scholes valuation model and the assumptions noted in the following table. The expected lives of options granted were calculated using the simplified method allowed by the SAB 107. The risk-free rates were based on the U.S Treasury rates in effect during the corresponding period of grant. The expected volatility was 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.

	March 26, 2016			March 28, 2015
Employee Stock Purchase Plan:
Expected life	0.5 years			0.5 years
Volatility		39.1	%		37.2	%
Risk free interest rate		0.49	%		0.11	%
Dividends		—			—

No stock options were awarded during the three months ended March 26, 2016 and March 28, 2015, respectively.

A summary of activity of stock options during the three months ended March 26, 2016 is as follows:

	Number of Shares Outstanding (Options)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (inThousands)
Options
Outstanding at December 26, 2015		1,051,867		$	14.60		2.46	$	1,916
Exercised		(5,846	)	$	13.74
Cancelled		(137,633	)	$	16.26
Outstanding at March 26, 2016		908,388		$	14.36		2.60	$	1,269
Exercisable at March 26, 2016		799,365		$	14.09		2.34	$	1,265

The aggregate intrinsic value in the above table represents the total pretax intrinsic value, based on the Company’s closing stock price of $14.13 as of March 24, 2016, 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 March 26, 2016 and March 28, 2015 was $3,000 and $0.8 million, respectively. 

Restricted Stock Units (“RSUs”)

Time-based RSUs are valued using the market value of the Company’s common stock on the date of grant, assuming no expectation of dividends paid.

A summary of activity for RSUs is as follows:

Summary of activity for RSUs	Number of RSUs			Weighted Average Fair Value
Outstanding RSUs as of December 26, 2015		713,243		$	15.99
Granted		137,718		$	13.29
Released		(108,305	)	$	17.13
Cancelled		(14,348	)	$	15.48
Outstanding RSUs as of March 26, 2016		728,308		$	15.32

Market-Based Performance Stock Units (“PSUs”)

In addition to granting RSUs that vest on the passage of time only, the Company granted PSUs to an executive. The PSUs will vest in three equal tranches over one, two and three years based on the relative performance of the Company’s stock during those periods, compared to a peer group over the same period. If target stock price performance is achieved, 66.7% of the shares of the Company’s common stock subject to the PSUs will vest, and up to a maximum of 100% of the shares subject to the PSUs will vest if the maximum stock price performance is achieved for each tranche.

A summary of activity for PSUs is as follows:

Summary of activity for PSUs	Number of PSUs			Weighted Average Fair Value
Outstanding PSUs as of December 26, 2015		60,000		$	18.35
Granted		67,500		$	12.78
Released		(13,333	)	$	18.04
Cancelled		(6,667	)	$	18.04
Outstanding PSUs as of March 26, 2016		107,500		$	14.91

The preceding table reflects the maximum awards that can be achieved upon full vesting.

Valuation of PSUs

On the date of grant, the Company estimated the fair value of PSUs using a Monte Carlo simulation model. The assumptions for the valuation of PSUs are summarized as follows:

	2016 Award		2015 Award
Grant Date Fair Value Per Share	$	12.78	$	18.35
Weighted-average assumptions/inputs:
Expected Dividend		—		—
Range of risk-free interest rates		0.92%	0.25%-1.1%
Range of expected volatilities for peer group	22%-93%		23%-65%

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 were as follows (in thousands):

	March 26, 2016		March 28, 2015
Cost of products	$	67	$	73
Cost of service		104		46
Research and development		285		280
Selling		492		500
General and administrative		741		672
Total stock-based compensation expense related to employee    stock options and employee stock purchases	$	1,689	$	1,571

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Income Taxes

3 Months Ended

Mar. 26, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Note 14. 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 provision for income taxes consists of the following (in thousands):

	Three Months Ended
	March 26, 2016		March 28, 2015
Provision for income taxes	$	380	$	317

The Company recorded a tax provision of $0.4 million and $0.3 million for the three months ended March 26, 2016 and March 28, 2015, respectively. The increase in the tax provision for 2016 from 2015 was primarily related to an increase in foreign earnings for the three months ended March 26, 2016.

As of March 26, 2016, the Company continues to maintain a valuation allowance against its U.S. and 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 the Company determines that the deferred tax assets are realizable, an adjustment to the valuation allowance 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 Korea, Japan, Taiwan, and China. Due to tax attribute carry-forwards, the Company is subject to examination for tax years 2003 forward for U.S. tax purposes. The Company is also subject to examination in various states for tax years 2002 forward. The Company is subject to examination for tax years 2007 forward for various foreign jurisdictions.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes.  The total amount of penalties and interest were not material as of March 26, 2016 and March 28, 2015.  During the next twelve months, the Company anticipates increases in its unrecognized tax benefits of approximately $0.1 million.

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Segment, Geographic, Product and Significant Customer Information

3 Months Ended

Mar. 26, 2016

Segment Reporting [Abstract]

Geographic And Significant Customer Information Text Block

Note 15. Segment, Geographic, Product and Significant Customer Information

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

	Three Months Ended
	March 26, 2016		March 28, 2015
Total net revenues (1):
United States	$	7,191	$	9,078
South Korea		8,436		14,643
China		6,506		4,001
Taiwan		5,477		14,428
Singapore		9,902		2,794
Other		9,977		5,432
Total net revenues	$	47,489	$	50,376

	March 26, 2016		December 26, 2015
Long-lived tangible assets:
United States	$	41,281	$	42,581
Japan		63		59
South Korea		664		697
All Other		1,060		1,156
Total long-lived tangible assets	$	43,068	$	44,493

The following customers accounted for 10% or more of total accounts receivable, net:

	At
	March 26, 2016			December 26, 2015
Micron		30.7	%	***
SK Hynix		12.7	%	***
Taiwan Semiconductor Manufacturing Company Limited		12.6	%		25.6	%
Intel		11.1	%	***
Toshiba Corporation		11.1	%		27.1	%
Samsung Electronics Co. Ltd.	***			***

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

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

	Three Months Ended
	March 26, 2016			March 28, 2015
Micron		25.9	%	***
SK Hynix		16.7	%		13.4	%
Intel Corporation		15.7	%	***
Toshiba Corporation		11.9	%	***
Taiwan Semiconductor Manufacturing Company Limited		10.1	%		22.3	%
Samsung Electronics Co. Ltd.	***				30.3	%

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

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Nature of Business and Basis of Presentation (Policies)

3 Months Ended

Mar. 26, 2016

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 optical critical dimension (“OCD”), thin film  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 Company’s OCD 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 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 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 26, 2015, and include all normal recurring adjustments necessary to fairly state 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 26, 2015, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2016.

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 reported herein are comprised of 13 week periods.

Upgrade Revenue and Related Cost

Upgrade Revenue and Related Cost - During the first quarter of 2016, revenues associated with upgrade sales are now included under Products Revenues, and the related costs in Cost of Products Revenue. This change was due to the types of upgrades currently being sold, which are primarily system software and hardware performance upgrades to extend the features and functionality of a product. Previously upgrades consisted of a group of parts and/or software that change the existing configuration of a product. For the three months ended March 28, 2015, $4.6 million related to upgrade sales, and $1.8 million of costs, are included in Service Revenues and Costs of Service Revenues, respectively, in the accompanying Condensed Consolidated Statement of Operations.

Use of Estimates

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP 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 and inspection systems and related upgrades (“product revenue”) as well as spare part sales, billable service and service contracts (together “service revenue”). Upgrades are system software and hardware performance upgrades that extend the features and functionality of a product. As discussed above, commencing in the first quarter of 2016, they are included in 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 have 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.

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, which terms can be up to twelve months. The Company does not grant its customers a general right of return or any refund terms and imposes a penalty on orders cancelled 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.  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.

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Fair Value Measurements and Disclosures (Tables)

3 Months Ended

Mar. 26, 2016

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:

	March 26, 2016								December 26, 2015
	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	$	1,075	$	—	$	—	$	1,075	$	590	$	—	$	—	$	590
Commercial paper and corporate debt    securities		—		4,452		—		4,452		—		4,568		—		4,568
Total cash equivalents	$	1,075	$	4,452	$	—	$	5,527	$	590	$	4,568	$	—	$	5,158
Marketable securities:
U.S. Treasury, U.S. Government and U.S.    Government agency debt securities		6,973		23,227		—		30,200		4,401		20,164		—		24,565
Commercial paper, municipal securities    and corporate debt securities		—		14,473		—		14,473		—		20,366		—		20,366
Total marketable securities	$	6,973	$	37,700	$	—	$	44,673	$	4,401	$	40,530	$	—	$	44,931
Total(1)	$	8,048	$	42,152	$	—	$	50,200	$	4,991	$	45,098	$	—	$	50,089
Liabilities:
Contingent consideration payable	$	—	$	—	$	1,461	$	1,461	$	—	$	—	$	1,490	$	1,490

⁽¹⁾ Excludes $33.1 million and $33.0 million held in operating accounts as of March 26, 2016 and December 26, 2015, respectively.

Fair value measurement on recurring basis, unobservable input reconciliation

Changes in Level 3 liabilities	(in thousands)
Fair value at  December 26, 2015	$	1,490
Payments made to Zygo Corporation		(84	)
Change in fair value included in earnings		55
Fair value at  March 26, 2016	$	1,461

Outstanding derivative instruments

The following table summarizes the Company’s outstanding derivative instruments on a gross basis as of March 26, 2016:

	Notional Principal
	(in millions)
Undesignated Hedges:
Forward Foreign Currency Contracts	$	23.3

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Cash and Investments (Tables)

3 Months Ended

Mar. 26, 2016

Investments Debt And Equity Securities [Abstract]

Cash, Cash Equivalents and Available-for-Sale Investments

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

	March 26, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	33,145	$	—	$	—		$	33,145
Cash equivalents:
Money market funds		1,075		—		—			1,075
Commercial paper and corporate debt securities		4,452		—		—			4,452
Marketable securities:
Commercial paper		699		—		—			699
U.S. Treasury securities		6,971		2		—			6,973
U.S. Government agency securities		23,231		4		(8	)		23,227
Municipal securities		2,634		—		(3	)		2,631
Corporate debt securities		11,147		2		(6	)		11,143
Total cash, cash equivalents, and marketable securities	$	83,354	$	8	$	(17	)	$	83,345
	December 26, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	32,996	$	—	$	—		$	32,996
Cash equivalents:
Money market funds		590		—		—			590
Commercial paper and corporate debt securities		4,568		—		—			4,568
Marketable securities:
Commercial paper		1,884		—		—			1,884
U.S. Treasury securities		4,411		—		(10	)		4,401
U.S. Government agency securities		20,193		1		(29	)		20,165
Municipal securities		3,747		1		(3	)		3,745
Corporate debt securities		14,759		—		(23	)		14,736
Total cash, cash equivalents, and marketable securities	$	83,148	$	2	$	(65	)	$	83,085

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Financial Statement Components (Tables)

3 Months Ended

Mar. 26, 2016

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Selected financial statement components

The following tables provide details of selected financial statement components as of the following dates (in thousands):

	At
	March 26, 2016			December 26, 2015
Inventories:
Raw materials and sub-assemblies	$	26,819		$	26,784
Work in process		16,094			12,862
Finished goods		6,980			8,103
Inventories		49,893			47,749
Inventories-delivered systems		4,138			2,856
Total inventories	$	54,031		$	50,605
Property, plant and equipment, net:(1)
Land	$	15,569		$	15,569
Building and improvements		20,216			20,158
Machinery and equipment		33,338			32,995
Furniture and fixtures		2,259			2,266
Software		8,245			8,245
Capital in progress		1,278			1,328
Total property, plant and equipment, gross		80,905			80,561
Accumulated depreciation and amortization		(37,837	)		(36,068	)
Total property, plant and equipment, net	$	43,068		$	44,493
(1) Total depreciation and amortization expense for the three months ended March 26, 2016 and March 28, 2015 was $1.7 million for both periods.
Other Current Liabilities:
Accrued warranty	$	4,377		$	4,504
Accrued restructuring		82			256
Accrued professional services		661			481
Fair value of current portion of contingent payments to    Zygo Corporation related to acquisition		940			945
Other		2,918			2,692
Total other current liabilities	$	8,978		$	8,878

Components of accumulated other comprehensive income (loss)

Components of Accumulated Other Comprehensive Income (Loss)

	Foreign Currency Translations			Defined Benefit Pension Plans			Unrealized Income (Loss) on Investment			Accumulated Other Comprehensive Income
Balance as of December 26, 2015	$	(4,948	)	$	(210	)	$	(44	)	$	(5,202	)
Current period change		952			—			35			987
Balance as of March 26, 2016	$	(3,996	)	$	(210	)	$	(9	)	$	(4,215	)

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 26, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of goodwill

The following table summarizes the activity in the Company’s goodwill during the three months ended March 26, 2016 (in thousands):

Balance as of December 26, 2015	$	9,415
Foreign currency movements		177
Balance as of March 26, 2016	$	9,592

Summary of finite-lived intangible assets

Finite-lived intangible assets are recorded at cost, less accumulated amortization. Finite-lived intangible assets as of March 26, 2016 and December 26, 2015 consisted of the following (in thousands):

	March 26, 2016
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	16,251	$	(14,941	)	$	1,310
Customer relationships		9,380		(9,380	)		—
Brand names		1,927		(1,927	)		—
Patented technology		2,252		(2,137	)		115
Trademark		80		(80	)		—
Total	$	29,890	$	(28,465	)	$	1,425

	December 26, 2015
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	16,098	$	(14,387	)	$	1,711
Customer relationships		9,364		(9,364	)		—
Brand names		1,927		(1,903	)		24
Patented technology		2,252		(2,120	)		132
Trademark		80		(80	)		—
Total	$	29,721	$	(27,854	)	$	1,867

Estimated future amortization expense

The estimated future amortization expense of finite intangible assets as of March 26, 2016 is as follows (in thousands):

Fiscal Years	Amounts
2016 (remaining nine months)	$	1,013
2017		206
2018		140
2019		66
Thereafter		—
Total future amortization expense	$	1,425

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Warranties (Tables)

3 Months Ended

Mar. 26, 2016

Product Warranties Disclosures [Abstract]

Components of the warranty accrual

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

	Three Months Ended
	March 26, 2016			March 28, 2015
Balance as of beginning of period	$	4,504		$	2,953
Accruals for warranties issued during period		1,061			1,702
Settlements during the period		(1,188	)		(1,215	)
Balance as of end of period	$	4,377		$	3,440

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Restructuring (Tables)

3 Months Ended

Mar. 26, 2016

Restructuring And Related Activities [Abstract]

Components of the restructuring reserve

As of March 26, 2016, 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 December 26, 2015	$	—	$	249		$	7	$	256
Charges		—		—			—		—
Cash Payments		—		(174	)		—		(174	)
Balance as of March 26, 2016	$	—	$	75		$	7	$	82

	Employee severance and benefits			Facility termination costs			Other			Total
Balance as of December 27, 2014	$	383		$	583		$	31		$	997
Charges		45			—			13			58
Cash Payments		(308	)		(106	)		(35	)		(449	)
Balance as of March 28, 2015	$	120		$	477		$	9		$	606

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Net Income Per Share (Tables)

3 Months Ended

Mar. 26, 2016

Earnings Per Share [Abstract]

Reconciliation of the basic and diluted net income per share computations

A reconciliation of the share denominator of the basic and diluted net income per share computations for three months ended March 26, 2016 and March 28, 2015 is as follows (in thousands):

	Three Months Ended
	March 26, 2016		March 28, 2015
Weighted average common shares outstanding used in    basic net income (loss) per share calculation		24,308		23,866
Potential dilutive common stock equivalents,    using treasury stock method		289		391
Weighted average shares used in diluted net income    (loss) per share calculation		24,597		24,257

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Stockholders' Equity and Stock-Based Compensation (Tables)

3 Months Ended

Mar. 26, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Employee stock purchase plan assumptions

	March 26, 2016			March 28, 2015
Employee Stock Purchase Plan:
Expected life	0.5 years			0.5 years
Volatility		39.1	%		37.2	%
Risk free interest rate		0.49	%		0.11	%
Dividends		—			—

Stock option plans activity

A summary of activity of stock options during the three months ended March 26, 2016 is as follows:

	Number of Shares Outstanding (Options)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (inThousands)
Options
Outstanding at December 26, 2015		1,051,867		$	14.60		2.46	$	1,916
Exercised		(5,846	)	$	13.74
Cancelled		(137,633	)	$	16.26
Outstanding at March 26, 2016		908,388		$	14.36		2.60	$	1,269
Exercisable at March 26, 2016		799,365		$	14.09		2.34	$	1,265

Summary of activity for RSUs

A summary of activity for RSUs is as follows:

Summary of activity for RSUs	Number of RSUs			Weighted Average Fair Value
Outstanding RSUs as of December 26, 2015		713,243		$	15.99
Granted		137,718		$	13.29
Released		(108,305	)	$	17.13
Cancelled		(14,348	)	$	15.48
Outstanding RSUs as of March 26, 2016		728,308		$	15.32

Summary of activity for PSUs

A summary of activity for PSUs is as follows:

Summary of activity for PSUs	Number of PSUs			Weighted Average Fair Value
Outstanding PSUs as of December 26, 2015		60,000		$	18.35
Granted		67,500		$	12.78
Released		(13,333	)	$	18.04
Cancelled		(6,667	)	$	18.04
Outstanding PSUs as of March 26, 2016		107,500		$	14.91

PSUs valuation assumptions

The assumptions for the valuation of PSUs are summarized as follows:

	2016 Award		2015 Award
Grant Date Fair Value Per Share	$	12.78	$	18.35
Weighted-average assumptions/inputs:
Expected Dividend		—		—
Range of risk-free interest rates		0.92%	0.25%-1.1%
Range of expected volatilities for peer group	22%-93%		23%-65%

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 were as follows (in thousands):

	March 26, 2016		March 28, 2015
Cost of products	$	67	$	73
Cost of service		104		46
Research and development		285		280
Selling		492		500
General and administrative		741		672
Total stock-based compensation expense related to employee    stock options and employee stock purchases	$	1,689	$	1,571

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Income Taxes (Tables)

3 Months Ended

Mar. 26, 2016

Income Tax Disclosure [Abstract]

Provision for income taxes

The provision for income taxes consists of the following (in thousands):

	Three Months Ended
	March 26, 2016		March 28, 2015
Provision for income taxes	$	380	$	317

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Segment, Geographic, Product and Significant Customer Information (Tables)

3 Months Ended

Mar. 26, 2016

Segment Reporting [Abstract]

Total net revenue

The following tables summarize total net revenues and long-lived assets (excluding intangible assets) attributed to significant countries (in thousands)

	Three Months Ended
	March 26, 2016		March 28, 2015
Total net revenues (1):
United States	$	7,191	$	9,078
South Korea		8,436		14,643
China		6,506		4,001
Taiwan		5,477		14,428
Singapore		9,902		2,794
Other		9,977		5,432
Total net revenues	$	47,489	$	50,376

Long-lived tangible assets

	March 26, 2016		December 26, 2015
Long-lived tangible assets:
United States	$	41,281	$	42,581
Japan		63		59
South Korea		664		697
All Other		1,060		1,156
Total long-lived tangible assets	$	43,068	$	44,493

Customers accounted for 10% or more of total accounts receivable

The following customers accounted for 10% or more of total accounts receivable, net:

	At
	March 26, 2016			December 26, 2015
Micron		30.7	%	***
SK Hynix		12.7	%	***
Taiwan Semiconductor Manufacturing Company Limited		12.6	%		25.6	%
Intel		11.1	%	***
Toshiba Corporation		11.1	%		27.1	%
Samsung Electronics Co. Ltd.	***			***

*** The customer accounted for less than 10% of total accounts receivable, net, 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
	March 26, 2016			March 28, 2015
Micron		25.9	%	***
SK Hynix		16.7	%		13.4	%
Intel Corporation		15.7	%	***
Toshiba Corporation		11.9	%	***
Taiwan Semiconductor Manufacturing Company Limited		10.1	%		22.3	%
Samsung Electronics Co. Ltd.	***				30.3	%

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

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Nature of Business and Basis of Presentation - Textual (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Accounting Policies [Line Items]
Fiscal year/fiscal quarter duration	91 days	91 days
Products	$ 39,214	$ 38,339
Cost of products	$ 18,079	19,992
Maximum period of delivery to customers	6 months
Maximum period services are provided over the fixed arrangement term	12 months
Reclassification [Member]
Accounting Policies [Line Items]
Products		4,600
Cost of products		$ 1,800
Minimum [Member]
Accounting Policies [Line Items]
Fiscal year/fiscal quarter duration	364 days
Maximum [Member]
Accounting Policies [Line Items]
Fiscal year/fiscal quarter duration	371 days

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Fair Value Measurements and Disclosures - Measured at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 26, 2016	Dec. 26, 2015
Assets:
Total marketable securities	$ 44,672	$ 44,931
Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	5,527	5,158
Total marketable securities	44,673	44,931
Total	50,200	50,089
Liabilities:
Contingent consideration payable	1,461	1,490
Money market funds [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	1,075	590
Commercial paper and corporate debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	4,452	4,568
U.S. Treasury, U.S. Government and U.S. Government agency debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total marketable securities	30,200	24,565
Commercial paper, municipal securities and corporate debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total marketable securities	14,473	20,366
Cash [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	33,100	33,000
Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	1,075	590
Total marketable securities	6,973	4,401
Total	8,048	4,991
Liabilities:
Contingent consideration payable	0	0
Level 1 [Member] | Money market funds [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	1,075	590
Level 1 [Member] | Commercial paper and corporate debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	0	0
Level 1 [Member] | U.S. Treasury, U.S. Government and U.S. Government agency debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total marketable securities	6,973	4,401
Level 1 [Member] | Commercial paper, municipal securities and corporate debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total marketable securities	0	0
Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	4,452	4,568
Total marketable securities	37,700	40,530
Total	42,152	45,098
Liabilities:
Contingent consideration payable	0	0
Level 2 [Member] | Money market funds [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	0	0
Level 2 [Member] | Commercial paper and corporate debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	4,452	4,568
Level 2 [Member] | U.S. Treasury, U.S. Government and U.S. Government agency debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total marketable securities	23,227	20,164
Level 2 [Member] | Commercial paper, municipal securities and corporate debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total marketable securities	14,473	20,366
Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	0	0
Total marketable securities	0	0
Total	0	0
Liabilities:
Contingent consideration payable	1,461	1,490
Level 3 [Member] | Money market funds [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	0	0
Level 3 [Member] | Commercial paper and corporate debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total cash equivalents	0	0
Level 3 [Member] | U.S. Treasury, U.S. Government and U.S. Government agency debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total marketable securities	0	0
Level 3 [Member] | Commercial paper, municipal securities and corporate debt securities [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Total marketable securities	$ 0	$ 0

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Fair Value Measurements and Disclosures - Unobservable Input Reconciliation (Details) - Level 3 [Member] $ in Thousands	3 Months Ended
	Mar. 26, 2016 USD ($)
Fair value measurement on recurring basis, unobservable input reconciliation [Roll Forward]
Fair value, beginning balance	$ 1,490
Change in fair value included in earnings	55
Fair Value, ending balance	1,461
Zygo Corporation [Member]
Fair value measurement on recurring basis, unobservable input reconciliation [Roll Forward]
Payments made to Zygo Corporation	$ (84)

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Fair Value Measurements and Disclosures - Textual (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015	Dec. 26, 2015
Forward Foreign Currency Contracts [Member]
Fair Value Measurements and Disclosures (Textual) [Abstract]
Derivative term	30 days
Forward Foreign Currency Contracts [Member] | Other Income (Expense), Net [Member]
Fair Value Measurements and Disclosures (Textual) [Abstract]
Gain (loss) on settlement of derivatives	$ (0.5)	$ 0.0
Fair Value, Measurements, Recurring [Member] | Zygo Corporation [Member]
Fair Value Measurements and Disclosures (Textual) [Abstract]
Liabilities resulting from the acquisition of certain assets from acquisitions, measured at fair value	1.5		$ 1.5
Current liability at fair value	1.0		0.9
Long-term liability at fair value	$ 0.5		$ 0.6

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Fair Value Measurements and Disclosures - Outstanding Derivative Instruments (Details)	Mar. 26, 2016 USD ($)
Not Designated as Hedging Instrument [Member] | Forward Foreign Currency Contracts [Member]
Derivatives Fair Value [Line Items]
Notional Principal	$ 23,300,000

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Cash and Investments (Details) - USD ($) $ in Thousands	Mar. 26, 2016	Dec. 26, 2015
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	$ 83,354	$ 83,148
Gross Unrealized Gains	8	2
Gross Unrealized Losses	(17)	(65)
Estimated Fair Market Value	83,345	83,085
Commercial paper [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	699	1,884
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	699	1,884
U.S. Government agency securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	23,231	20,193
Gross Unrealized Gains	4	1
Gross Unrealized Losses	(8)	(29)
Estimated Fair Market Value	23,227	20,165
Corporate debt securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	11,147	14,759
Gross Unrealized Gains	2	0
Gross Unrealized Losses	(6)	(23)
Estimated Fair Market Value	11,143	14,736
Cash [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	33,145	32,996
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	33,145	32,996
Money market funds [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	1,075	590
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	1,075	590
U.S. Treasury securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	6,971	4,411
Gross Unrealized Gains	2	0
Gross Unrealized Losses	0	(10)
Estimated Fair Market Value	6,973	4,401
Commercial paper and corporate debt securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	4,452
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Estimated Fair Market Value	4,452
Commercial paper and corporate debt securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost		4,568
Gross Unrealized Gains		0
Gross Unrealized Losses		0
Estimated Fair Market Value		4,568
Municipal securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	2,634	3,747
Gross Unrealized Gains	0	1
Gross Unrealized Losses	(3)	(3)
Estimated Fair Market Value	$ 2,631	$ 3,745

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Cash and Investments - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		12 Months Ended
	Mar. 26, 2016	Mar. 28, 2015	Dec. 26, 2015
Investments Debt And Equity Securities [Abstract]
Net realized gain and losses	$ 0.1	$ 0.1
Investment maturity period, less than	2 years		2 years

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Accounts Receivable - Textual (Details) - USD ($)	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015	Dec. 26, 2015
Accounts Receivable (Additional Textual) [Abstract]
Sold receivables amount	$ 14,200,000	$ 1,100,000
Gains or losses on sale of accounts receivables	0	$ 0
Due from unrelated third parties	$ 0		$ 0
Minimum [Member]
Accounts Receivable (Textual) [Abstract]
Administrative fees as well as interest percent	0.82%
Maximum [Member]
Accounts Receivable (Textual) [Abstract]
Administrative fees as well as interest percent	1.68%

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Financial Statement Components - Selected Financial Statement Components (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015	Dec. 26, 2015
Inventories:
Raw materials and sub-assemblies	$ 26,819		$ 26,784
Work in process	16,094		12,862
Finished goods	6,980		8,103
Inventories	49,893		47,749
Inventories-delivered systems	4,138		2,856
Total inventories	54,031		50,605
Property, plant and equipment, net:
Total property, plant and equipment, gross	80,905		80,561
Accumulated depreciation and amortization	(37,837)		(36,068)
Total property, plant and equipment, net	43,068		44,493
Depreciation and amortization expense	1,700	$ 1,700
Accrued warranty	4,377		4,504
Accrued restructuring	82		256
Accrued professional services	661		481
Fair value of current portion of contingent payments to Zygo Corporation related to acquisition	940		945
Other	2,918		2,692
Total other current liabilities	8,978		8,878
Land [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	15,569		15,569
Building and improvements [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	20,216		20,158
Machinery and equipment [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	33,338		32,995
Furniture and fixtures [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	2,259		2,266
Software [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	8,245		8,245
Capital in progress [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	$ 1,278		$ 1,328

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Financial Statement Components - Components of Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning of period	$ (5,202)
Current period change	987	$ (1,698)
End of period	(4,215)
Foreign Currency Translations [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning of period	(4,948)
Current period change	952
End of period	(3,996)
Defined Benefit Pension Plans [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning of period	(210)
End of period	(210)
Unrealized Income (Loss) on Investment [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning of period	(44)
Current period change	35
End of period	$ (9)

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Goodwill and Intangible Assets - Goodwill (Details) $ in Thousands	3 Months Ended
	Mar. 26, 2016 USD ($)
Goodwill [Roll Forward]
Beginning balance	$ 9,415
Foreign currency movements	177
Ending balance	$ 9,592

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Goodwill and Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 26, 2016	Dec. 26, 2015
Summary of Finite-lived intangible assets
Adjusted cost	$ 29,890	$ 29,721
Accumulated amortization	(28,465)	(27,854)
Finite lived intangible assets, Net carrying amount	1,425	1,867
Developed technology [Member]
Summary of Finite-lived intangible assets
Adjusted cost	16,251	16,098
Accumulated amortization	(14,941)	(14,387)
Finite lived intangible assets, Net carrying amount	1,310	1,711
Customer relationships [Member]
Summary of Finite-lived intangible assets
Adjusted cost	9,380	9,364
Accumulated amortization	(9,380)	(9,364)
Finite lived intangible assets, Net carrying amount	0	0
Brand names [Member]
Summary of Finite-lived intangible assets
Adjusted cost	1,927	1,927
Accumulated amortization	(1,927)	(1,903)
Finite lived intangible assets, Net carrying amount	0	24
Patented technology [Member]
Summary of Finite-lived intangible assets
Adjusted cost	2,252	2,252
Accumulated amortization	(2,137)	(2,120)
Finite lived intangible assets, Net carrying amount	115	132
Trademark [Member]
Summary of Finite-lived intangible assets
Adjusted cost	80	80
Accumulated amortization	(80)	(80)
Finite lived intangible assets, Net carrying amount	$ 0	$ 0

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Goodwill and Intangible Assets - Textual (Details) - USD ($)	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Finite-Lived Intangible Assets [Line Items]
Total amortization expense	$ 500,000	$ 700,000
Impairment charges	$ 0	$ 0
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

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Goodwill and Intangible Assets - Future Amortization (Details) - USD ($) $ in Thousands	Mar. 26, 2016	Dec. 26, 2015
Estimated future amortization expense
2016 (remaining nine months)	$ 1,013
2017	206
2018	140
2019	66
Thereafter	0
Finite lived intangible assets, Net carrying amount	$ 1,425	$ 1,867

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Warranties - Textual (Details)	3 Months Ended
	Mar. 26, 2016
Product Warranties Disclosures [Abstract]
Product warranty period	12 months

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Warranties (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Components of the warranty accrual [Roll Forward]
Balance as of beginning of period	$ 4,504	$ 2,953
Accruals for warranties issued during period	1,061	1,702
Settlements during the period	(1,188)	(1,215)
Balance as of end of period	$ 4,377	$ 3,440

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Restructuring - Textual (Details) - USD ($)	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Restructuring And Related Activities [Abstract]
Restructuring charge	$ 0	$ 58,000

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Restructuring (Details) - USD ($)	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Restructuring Reserve [Roll Forward]
Beginning Balance	$ 256,000	$ 997,000
Charges	0	58,000
Cash Payments	(174,000)	(449,000)
Ending Balance	82,000	606,000
Employee severance and benefits [Member]
Restructuring Reserve [Roll Forward]
Beginning Balance	0	383,000
Charges	0	45,000
Cash Payments	0	(308,000)
Ending Balance	0	120,000
Facility termination costs [Member]
Restructuring Reserve [Roll Forward]
Beginning Balance	249,000	583,000
Charges	0	0
Cash Payments	(174,000)	(106,000)
Ending Balance	75,000	477,000
Other [Member]
Restructuring Reserve [Roll Forward]
Beginning Balance	7,000	31,000
Charges	0	13,000
Cash Payments	0	(35,000)
Ending Balance	$ 7,000	$ 9,000

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Line of Credit and Debt Obligations - Textual (Details) - Revolving line of credit facility [Member] - USD ($)	May. 30, 2014	Mar. 26, 2016
Debt Instrument [Line Items]
Extension of maturity period on amendment of existing credit facility	2 years
Maturity date	May 30, 2016
Amount available to borrow	$ 12,000,000
Line of Credit [Member]
Debt Instrument [Line Items]
Borrowing interest rate, minimum	3.00%
Borrowing, minimum of lesser amount, before addition of borrowing base	$ 12,000,000
Borrowing, maximum of lesser amount	$ 20,000,000
Total borrowing available		$ 18,000,000
Amount outstanding		$ 0

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Commitments and Contingencies - Textual (Details) - USD ($)	Mar. 26, 2016	Dec. 26, 2015
Commitments And Contingencies Disclosure [Abstract]
Liabilities recorded for obligations	$ 0	$ 0

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Net Income Per Share (Details) - shares shares in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Reconciliation of the basic and diluted net income per share computations
Weighted average common shares outstanding used in basic net income (loss) per share calculation	24,308	23,866
Potential dilutive common stock equivalents, using treasury stock method	289	391
Weighted average shares used in diluted net income (loss) per share calculation	24,597	24,257

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Stockholders' Equity and Stock-Based Compensation - Employee Stock Purchase Plan Assumptions (Details) - Employee Stock Purchase Plan [Member]	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Assumption of stock option's fair value
Expected life	6 months	6 months
Volatility	39.10%	37.20%
Risk free interest rate	0.49%	0.11%
Dividends	0.00%	0.00%

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Stockholders' Equity and Stock-Based Compensation - Textual (Details) - USD ($)	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015	Mar. 24, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Shares Outstanding (Options), Granted (in shares)	0	0
Closing stock price (in dollars per share)			$ 14.13
Intrinsic value of options exercised	$ 3,000	$ 800,000
Performance-Based Restricted Stock Units (PSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percent of granted shares that will vest if target stock price performance is achieved	66.70%
Maximum percent of granted shares that will vest if maximum stock price performance is achieved	100.00%
Performance-Based Restricted Stock Units (PSUs) [Member] | Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period of vesting	1 year
Performance-Based Restricted Stock Units (PSUs) [Member] | Tranche Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period of vesting	2 years
Performance-Based Restricted Stock Units (PSUs) [Member] | Tranche Three [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period of vesting	3 years

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Stockholders' Equity and Stock-Based Compensation - Summary of Activity of Stock Options (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 26, 2016	Dec. 26, 2015
Activity of stock option plans [Roll Forward]
Number of Shares Outstanding (Options), Beginning Balance (in shares)	1,051,867
Number of Shares Outstanding (Options), Exercised (in shares)	(5,846)
Number of Shares Outstanding (Options), Cancelled (in shares)	(137,633)
Number of Shares Outstanding (Options), Ending Balance (in shares)	908,388	1,051,867
Number of Shares Outstanding (Options), Exercisable (in shares)	799,365
Weighted average exercise price for stock option plans [Roll Forward]
Weighted Average Exercise Price, Beginning Balance (in dollars per share)	$ 14.60
Weighted Average Exercise Price, Exercised (in dollars per share)	13.74
Weighted Average Exercise Price, Cancelled (in dollars per share)	16.26
Weighted Average Exercise Price, Ending Balance (in dollars per share)	14.36	$ 14.60
Weighted Average Exercise Price, Exercisable (in dollars per share)	$ 14.09
Weighed Average Remaining Contractual Term, Outstanding	2 years 7 months 6 days	2 years 5 months 16 days
Weighed Average Remaining Contractual Term, Exercisable	2 years 4 months 2 days
Aggregate Intrinsic Value, Outstanding	$ 1,269	$ 1,916
Aggregate Intrinsic Value, Exercisable	$ 1,265

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Stockholders' Equity and Stock-Based Compensation - Restricted Stock Unit Activity (Details) - Restricted Stock Units (RSUs) [Member]	3 Months Ended
	Mar. 26, 2016 $ / shares shares
Activity for RSUs [Roll Forward]
Number of units Beginning balance (in shares) | shares	713,243
Number of units, Granted (in shares) | shares	137,718
Number of units, Released (in shares) | shares	(108,305)
Number of units, Cancelled (in shares) | shares	(14,348)
Number of units, Ending balance (in shares) | shares	728,308
Weighted Average Fair Value for RSUs [Roll Forward]
Weighted Average Fair Value, Beginning balance (in dollars per share) | $ / shares	$ 15.99
Weighted Average Fair Value, Granted (in dollars per share) | $ / shares	13.29
Weighted Average Fair Value, Released (in dollars per share) | $ / shares	17.13
Weighted Average Fair Value, Cancelled (in dollars per share) | $ / shares	15.48
Weighted Average Fair Value, Ending balance (in dollars per share) | $ / shares	$ 15.32

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Stockholders' Equity and Stock-Based Compensation - Performance Stock Units Activity (Details) - Performance-Based Restricted Stock Units (PSUs) [Member] - $ / shares	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Activity for PSUs [Roll Forward]
Number of units Beginning balance (in shares)	60,000
Number of units, Granted (in shares)	67,500
Number of units, Released (in shares)	(13,333)
Number of units, Cancelled (in shares)	(6,667)
Number of units, Ending balance (in shares)	107,500
Weighted Average Fair Value for PSUs [Roll Forward]
Weighted Average Fair Value, Beginning balance (in dollars per share)	$ 18.35
Weighted Average Fair Value, Granted (in dollars per share)	12.78	$ 18.35
Weighted Average Fair Value, Released (in dollars per share)	18.04
Weighted Average Fair Value, Cancelled (in dollars per share)	18.04
Weighted Average Fair Value, Ending balance (in dollars per share)	$ 14.91

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Stockholders' Equity and Stock-Based Compensation - Performance Stock Units Valuation Assumptions (Details) - Performance-Based Restricted Stock Units (PSUs) [Member] - $ / shares	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant Date Fair Value Per Share (in dollars per share)	$ 12.78	$ 18.35
Dividends	0.00%	0.00%
Risk free interest rate	0.92%
Range of risk-free interest rates, minimum		0.25%
Range of risk-free interest rates, maximum		1.10%
Range of expected volatilities for peer group, minimum	22.00%	23.00%
Range of expected volatilities for peer group, maximum	93.00%	65.00%

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Stockholders' Equity and Stock-Based Compensation - Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	$ 1,689	$ 1,571
Cost of products [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	67	73
Cost of service [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	104	46
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	285	280
Selling [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	492	500
General and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	$ 741	$ 672

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Income Taxes - Provision for Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 380	$ 317

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Income Taxes - Textual (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Income Taxes (Textual) [Abstract]
Provision for income taxes	$ 380	$ 317
Anticipated increase in unrecognized tax benefits during next twelve months	$ 100

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Segment, Geographic, Product and Significant Customer Information - Revenue Net (Details) $ in Thousands	3 Months Ended
	Mar. 26, 2016 USD ($) segment	Mar. 28, 2015 USD ($)
Revenues From External Customers And Long Lived Assets [Line Items]
Number of operating segments | segment	1
Net revenues:
Total net revenues	$ 47,489	$ 50,376
United States [Member]
Net revenues:
Total net revenues	7,191	9,078
South Korea [Member]
Net revenues:
Total net revenues	8,436	14,643
China [Member]
Net revenues:
Total net revenues	6,506	4,001
Taiwan [Member]
Net revenues:
Total net revenues	5,477	14,428
Singapore [Member]
Net revenues:
Total net revenues	9,902	2,794
Other [Member]
Net revenues:
Total net revenues	$ 9,977	$ 5,432

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Segment, Geographic, Product and Significant Customer Information - Long-lived Tangible Assets (Details) - USD ($) $ in Thousands	Mar. 26, 2016	Dec. 26, 2015
Long-lived tangible assets:
Total long-lived tangible assets	$ 43,068	$ 44,493
United States [Member]
Long-lived tangible assets:
Total long-lived tangible assets	41,281	42,581
Japan [Member]
Long-lived tangible assets:
Total long-lived tangible assets	63	59
South Korea [Member]
Long-lived tangible assets:
Total long-lived tangible assets	664	697
All other [Member]
Long-lived tangible assets:
Total long-lived tangible assets	$ 1,060	$ 1,156

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Segment, Geographic, Product and Significant Customer Information - Customers More Than 10% of Accounts Receivable (Details) - Accounts Receivable [Member] - Customer Concentration Risk	3 Months Ended	12 Months Ended
	Mar. 26, 2016	Dec. 26, 2015
Micron [Member]
Customers accounted for 10% or more of total accounts receivable
Customers accounted for 10% or more of total accounts receivable	30.70%
SK Hynix [Member]
Customers accounted for 10% or more of total accounts receivable
Customers accounted for 10% or more of total accounts receivable	12.70%
Taiwan Semiconductor Manufacturing Company Limited [Member]
Customers accounted for 10% or more of total accounts receivable
Customers accounted for 10% or more of total accounts receivable	12.60%	25.60%
Intel [Member]
Customers accounted for 10% or more of total accounts receivable
Customers accounted for 10% or more of total accounts receivable	11.10%
Toshiba Corporation [Member]
Customers accounted for 10% or more of total accounts receivable
Customers accounted for 10% or more of total accounts receivable	11.10%	27.10%

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Segment, Geographic, Product and Significant Customer Information - Customers More Than 10% of Revenues (Details) - Sales Revenue, Net [Member] - Customer Concentration Risk	3 Months Ended
	Mar. 26, 2016	Mar. 28, 2015
Micron [Member]
Net revenues:
Customers accounted for 10% or more of total revenue	25.90%
SK Hynix [Member]
Net revenues:
Customers accounted for 10% or more of total revenue	16.70%	13.40%
Intel Corporation [Member]
Net revenues:
Customers accounted for 10% or more of total revenue	15.70%
Toshiba Corporation [Member]
Net revenues:
Customers accounted for 10% or more of total revenue	11.90%
Taiwan Semiconductor Manufacturing Company Limited [Member]
Net revenues:
Customers accounted for 10% or more of total revenue	10.10%	22.30%
Samsung Electronics Co. Ltd. [Member]
Net revenues:
Customers accounted for 10% or more of total revenue		30.30%