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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, ~~and~~ “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

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

As of ~~October 31, 2017,~~July 26, 2019, there were ~~25,594,642~~24,828,384 shares of common stock, $0.001 par value, issued and outstanding.

	September 30, 2017			December 31, 2016			June 29, 2019			December 29, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	44,041		$	47,062		$	94,035		$	110,951
Marketable securities		96,316			82,899			50,947			40,841
Accounts receivable, net of allowances of $69 and $73, respectively		41,261			39,457
Accounts receivable, net of allowances of $209 and $170, respectively								51,602			50,854
Inventories		55,020			38,837			66,630			61,915
Inventories-delivered systems		3,320			2,457			1,010			180
Prepaid expenses and other		9,910			5,667			7,955			6,140
Total current assets		249,868			216,379			272,179			270,881
Property, plant and equipment, net		42,317			44,226			52,779			47,900
Operating lease - right of use assets, net								10,767		—
Goodwill		10,099			8,940			26,310			26,372
Intangible assets, net		2,258			412			25,811			27,326
Deferred income tax assets		16,472			17,399			2,807			2,569
Other assets		389			474			446			582
Total assets	$	321,403		$	287,830		$	391,099		$	375,630
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	17,180		$	11,342		$	19,459		$	16,540
Accrued payroll and related expenses		10,260			12,656			10,361			21,658
Deferred revenue		7,229			9,168			9,865			8,990
Operating lease liabilities								2,845		—
Other current liabilities		7,704			8,047			7,308			9,421
Income taxes payable		1,689			813			1,117			3,164
Total current liabilities		44,062			42,026			50,955			59,773
Deferred revenue		1,551			816			1,616			1,753
Income taxes payable		907			841			1,150			871
Deferred tax liability		21			20
Deferred tax liabilities								163			162
Operating lease liabilities								8,017		—
Other long-term liabilities		377			353			218			219
Total liabilities		46,918			44,056			62,119			62,778
Commitments and contingencies (Note 9)
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: 25,567,220 and 25,070,889, respectively, issued and outstanding		26			25
Common stock, $0.001 par value, 47,000,000 shares authorized: 24,828,384 and 24,372,193, respectively, issued and outstanding								25			24
Additional paid-in capital		278,722			271,969			256,503			247,983
Accumulated deficit		(1,685	)		(22,174	)
Accumulated other comprehensive income (loss)		(2,578	)		(6,046	)
Retained earnings								74,305			67,402
Accumulated other comprehensive loss								(1,853	)		(2,557	)
Total stockholders’ equity		274,485			243,774			328,980			312,852
Total liabilities and stockholders’ equity	$	321,403		$	287,830		$	391,099		$	375,630

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30, 2017			September 24, 2016			September 30, 2017			September 24, 2016			June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Net revenues:
Products	$	45,571		$	49,631		$	147,322		$	136,290		$	52,541		$	76,704		$	106,396		$	147,723
Service		11,104			9,083			33,094			25,680			15,079			11,900			28,324			23,194
Total net revenues		56,675			58,714			180,416			161,970			67,620			88,604			134,720			170,917
Costs of net revenues:
Cost of products		21,349			22,810			72,164			62,625			24,294			31,235			50,193			59,828
Cost of service		4,614			5,066			15,368			14,714			7,683			6,443			14,631			12,597
Amortization of intangible assets		52			434			156			1,311			471			35			936			70
Total costs of net revenues		26,015			28,310			87,688			78,650			32,448			37,713			65,760			72,495
Gross profit		30,660			30,404			92,728			83,320		��	35,172			50,891			68,960			98,422
Operating expenses:
Research and development		8,825			7,868			26,658			23,447			14,098			12,491			27,085			22,693
Selling		7,553			7,495			22,730			22,567			8,244			10,151			17,526			19,175
General and administrative		6,798			5,975			19,696			17,150			7,885			7,465			15,790			15,206
Merger expenses														907			-			907			-
Amortization of intangible assets		—			-			-			24			289			-			578			-
Total operating expenses		23,176			21,338			69,084			63,188			31,423			30,107			61,886			57,074
Income from operations		7,484			9,066			23,644			20,132			3,749			20,784			7,074			41,348
Other income (expense):
Interest income		2			12			6			33
Interest expense		(25	)		(92	)		(84	)		(276	)
Other income, net		59			229			330			60
Interest expense, net														(15	)		(48	)		(106	)		(141	)
Other income (expense), net														828			(166	)		1,098			186
Total other income (expense), net		36			149			252			(183	)		813			(214	)		992			45
Income before income taxes		7,520			9,215			23,896			19,949			4,562			20,570			8,066			41,393
Provision for income taxes		1,756			1,332			4,492			2,568			632			2,895			1,163			7,337
Net income	$	5,764		$	7,883		$	19,404		$	17,381		$	3,930		$	17,675		$	6,903		$	34,056
Net income per share:
Basic	$	0.23		$	0.32		$	0.77		$	0.71		$	0.16		$	0.74		$	0.28		$	1.42
Diluted	$	0.22		$	0.31		$	0.75		$	0.70		$	0.16		$	0.72		$	0.28		$	1.39
Weighted average shares used in per share calculation:
Basic		25,494			24,826			25,320			24,550			24,525			23,953			24,530			24,008
Diluted		25,932			25,282			25,933			24,979			24,843			24,442			24,850			24,488

	Three Months Ended				Nine Months Ended					Three Months Ended						Six Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017			September 24, 2016		June 29, 2019			June 30, 2018			June 29, 2019		June 30, 2018
Net income	$	5,764	$	7,883	$	19,404		$	17,381	$	3,930		$	17,675		$	6,903	$	34,056
Other comprehensive income (loss):
Other comprehensive income:
Change in foreign currency translation adjustment		764		519		3,470			2,018		(42	)		(2,555	)		602		(568	)
Net change on unrealized gains (losses) on available-for-sale investments		15		1		(2	)		73
Other comprehensive income:		779		520		3,468			2,091
Net change in unrealized gains (losses) on available-for-sale investments											44			52			102		(37	)
Other comprehensive income											2			(2,503	)		704		(605	)
Comprehensive income	$	6,543	$	8,403	$	22,872		$	19,472	$	3,932		$	15,172		$	7,607	$	33,451

	Common Stock				Additional Paid-In			Retained		Accumulated Other Comprehensive			Total Stockholders’
Three Months Ended June 29, 2019	Shares		Amount		Capital			Earnings		Loss			Equity
Balance as of March 30, 2019		24,534,582	$	25	$	251,841		$	70,375	$	(1,855	)	$	320,386
Net income		—		—		—			3,930		—			3,930
Foreign currency translation adjustments		—		—		—			—		(42	)		(42	)
Unrealized gain on investments, net of tax		—		—		—			—		44			44
Issuance of common stock under stock-based compensation plans, net of taxes paid		293,802		—		1,462			—		—			1,462
Stock-based compensation expense		—		—		3,200			—		—			3,200
Balance as of June 29, 2019		24,828,384	$	25	$	256,503		$	74,305	$	(1,853	)	$	328,980

	Common Stock				Additional Paid-In			Retained		Accumulated Other Comprehensive			Total Stockholders’
Three Months Ended June 30, 2018	Shares		Amount		Capital			Earnings		Loss			Equity
Balance as of March 31, 2018		23,890,563	$	24	$	234,793		$	26,136	$	(226	)	$	260,727
Net income		—		—		—			17,675		—			17,675
Foreign currency translation adjustments		—		—		—			—		(2,555	)		(2,555	)
Unrealized gain on investments, net of tax		—		—		—			—		52			52
Issuance of common stock under stock-based compensation plans, net of taxes paid		175,805		—		(94	)		—		—			(94	)
Stock-based compensation expense		—		—		2,679			—		—			2,679
Balance as of June 30, 2018		24,066,368	$	24	$	237,378		$	43,811	$	(2,729	)	$	278,484

	Common Stock						Additional Paid-In			Retained		Accumulated Other Comprehensive			Total Stockholders’
Six Months Ended June 29, 2019	Shares			Amount			Capital			Earnings		Loss			Equity
Balance as of December 29, 2018		24,372,193		$	24		$	247,983		$	67,402	$	(2,557	)	$	312,852
Net income		—			—			—			6,903		—			6,903
Foreign currency translation adjustments		—			—			—			—		602			602
Unrealized gain on investments, net of tax		—			—			—			—		102			102
Issuance of common stock under stock-based compensation plans, net of taxes paid		456,191			1			2,206			—		—			2,207
Stock-based compensation expense		—			—			6,314			—		—			6,314
Balance as of June 29, 2019		24,828,384		$	25		$	256,503		$	74,305	$	(1,853	)	$	328,980

	Common Stock						Additional Paid-In			Retained		Accumulated Other Comprehensive			Total Stockholders’
Six Months Ended June 30, 2018	Shares			Amount			Capital			Earnings		Loss			Equity
Balance as of December 30, 2017		24,628,722		$	26		$	255,368		$	9,113	$	(2,124	)	$	262,383
Net income		—			—			—			34,056		—			34,056
Adjustment due to adoption of ASU 2014-09 Revenue from Contracts with Customers, net of tax		—			—			—			642		—			642
Foreign currency translation adjustments		—			—			—			—		(568	)		(568	)
Unrealized loss on investments, net of tax		—			—			—			—		(37	)		(37	)
Issuance of common stock under stock-based compensation plans, net of taxes paid		333,833			(2	)		(20	)		—		—			(22	)
Stock-based compensation expense		—			—			5,017			—		—			5,017
Repurchases and retirement of common stock under share repurchase plans		(896,187	)		—			(22,987	)		—		—			(22,987	)
Balance as of June 30, 2018		24,066,368		$	24		$	237,378		$	43,811	$	(2,729	)	$	278,484

	Nine Months Ended						Six Months Ended
	September 30, 2017			September 24, 2016			June 29, 2019			June 30, 2018
Cash flows from operating activities:
Net income	$	19,404		$	17,381		$	6,903		$	34,056
Reconciliation of net income to net cash provided by operating activities:
Reconciliation of net income to net cash from operating activities:
Depreciation and amortization		5,219			6,440			5,061			3,326
Stock-based compensation		6,775			5,432			6,314			5,017
Disposal of fixed assets		98			162			(861	)		51
Inventory write-down		1,412			1,451			2,922			269
Deferred income taxes		2,153			(14	)		—			4,320
Changes in fair value of contingent payments to Zygo Corporation		—			158
Changes in assets and liabilities:
Accounts receivable		1,418			(986	)		473			7,193
Inventories		(16,828	)		6,652			(8,290	)		(1,722	)
Inventories-delivered systems		(864	)		(1,560	)		(830	)		(322	)
Prepaid expenses and other		(3,850	)		889			(1,974	)		(3,422	)
Operating lease - right of use assets								1,077			—
Accounts payable, accrued and other liabilities		709			(4,310	)		(10,941	)		7,204
Deferred revenue		(1,204	)		3,825			738			2,464
Operating lease liabilities								(888	)		—
Income taxes payable		942			(1,419	)		(2,007	)		537
Net cash provided by operating activities		15,384			34,101
Net cash provided by (used in) operating activities								(2,303	)		58,971
Cash flows from investing activities:
Payments to acquire certain assets		(2,000	)		—			—			(2,000	)
Sales of marketable securities		28,624			2,093			1,627			18,507
Maturities of marketable securities		62,923			25,461			24,700			17,345
Purchases of marketable securities		(104,984	)		(63,840	)		(36,093	)		(16,320	)
Purchases of property, plant and equipment		(2,342	)		(3,349	)		(8,314	)		(1,761	)
Net cash used in investing activities		(17,779	)		(39,635	)
Proceeds from sale of property, plant and equipment								896			—
Net cash provided by (used in) investing activities								(17,184	)		15,771
Cash flows from financing activities:
Payments to Zygo Corporation related to acquisition		—			(315	)
Proceeds from sale of shares under employee stock option plans and purchase plan		3,678			5,984			4,535			2,709
Taxes paid on net issuance of stock awards		(3,838	)		(1,578	)		(2,328	)		(2,731	)
Repurchases of common stock under share repurchase plans								—			(22,987	)
Net cash provided by (used in) financing activities		(160	)		4,091			2,207			(23,009	)
Effect of exchange rate changes on cash and cash equivalents		(466	)		710			364			(431	)
Net decrease in cash and cash equivalents		(3,021	)		(733	)
Net increase (decrease) in cash and cash equivalents								(16,916	)		51,302
Cash and cash equivalents, beginning of period		47,062			38,154			110,951			34,899
Cash and cash equivalents, end of period	$	44,041		$	37,421		$	94,035		$	86,201

Supplemental disclosure of non-cash investing activities:
Transfer of inventory to property, plant and equipment, net	$	—		$	1,208
Transfer of property, plant and equipment to inventory, net	$	205		$	—
Transfers between inventory and property, plant and equipment, net							$	755		$	73
Unpaid property, plant and equipment								662			555

Note 1. Nature of Business, ~~and~~ Basis of Presentation and Significant Accounting Policies

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~~provide advanced, high-performance process control metrology and inspection systems used primarily in the ~~manufacturing~~fabrication of semiconductors ~~solar photovoltaics (“solar PV”)~~ and ~~high-brightness LEDs (“HB-LED”),~~other solid-state devices as well as ~~by customers in the silicon wafer~~industrial and ~~data storage industries. Nanometrics’~~scientific applications. 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~~optical critical dimension (“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’~~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 ~~31, 2016,~~29, 2018 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 ~~31, 2016,~~29, 2018, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on ~~March 3, 2017.~~February 25, 2019.

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 13 week periods.

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.

Except for the change below, the Company has consistently applied its accounting policies to all periods presented in these financial statements.

Leases - The Company ~~derives revenue~~adopted the new accounting standard Topic 842, Leases and all related amendments, as of December 30, 2018, the first day of its 2019 fiscal year, by electing to use the additional optional transition method permitted under the Topic of applying the new leases standard at the adoption date for all then-active leases and prospectively to leasing arrangements entered after the adoption date. The Company’s reporting for the comparative period presented in the financial statements continues to follow prior U.S. GAAP.

The main impact of Topic 842 was to increase the transparency and comparability of the Company’s financial statements by requiring the recognition of right of use assets (“ROU assets”) and lease liabilities on the Company’s balance sheet for leases classified as operating leases under which the Company is lessee. Under the Topic, disclosures are required to meet the objective of enabling users of the Company’s financial statements to assess the amount, timing, and uncertainty of cash flows arising from such leases.

Classifying the ~~features and functionality of~~lease – Once the Company identifies a ~~product. Upgrades are included~~lease, it then applies judgment in product revenue, which consists of sales of complete, advanced process control metrology and inspection systems (the “system(s)”). Nanometrics’ systems consist of hardware and software components that function togetherevaluating the contract to ~~deliver~~determine how the ~~essential functionality~~lease should be classified. If any of the ~~system. Arrangements for sales of systems and upgrades 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 repeat 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 recognitionfollowing criteria have been ~~met. For initial sales where~~met the ~~product~~lease is classified as a financing lease, otherwise it is classified as an operating lease.

The Company 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~~entered into any contracts that transfer ownership of the ~~contractual acceptance period. In Japan, where contractual terms with~~underlying identified asset to the ~~customer specify risk~~Company by the end of ~~loss~~the lease term and ~~title transfers upon customer acceptance, revenue is recognized upon receipt~~there are only a small number of ~~written customer acceptance, provided~~individually insignificant leases that contain a purchase option, none of which the Company intends to exercise. The Company has evaluated its contracts under these criteria and has determined that all ~~other recognition criteria have been met.~~such contracts are operating leases.

The Company ~~warrants its products against defects~~does not reassess the lease classification after the commencement date unless (a) the contract is modified, and the modification is not accounted for as a separate contract, (b) there is a change in ~~manufacturing. Upon recognition~~the lease term, or (c) there is a change in the assessment of ~~product revenue,~~whether the Company is reasonably certain to exercise an option to purchase the underlying asset.

Measuring the lease – Topic 842 requires the Company to record a ROU Asset and a lease liability ~~is recorded~~at the lease commencement date for ~~anticipated warranty costs. On occasion, customers request~~all leases. The Company does this by measuring and recording a ~~warranty period longer than the Company's standard warranty. In those instances, where extended warranty services are separately quoted~~lease liability equal to the ~~customer,~~present value of all remaining lease payments. The Company applies judgment in estimating the ~~associated revenue~~remaining lease term. For its offices, data centers, colocation agreements, ISP services and logistics it assesses the current life of the lease, defined renewal periods in the contract (if any), the strategic plan for maintaining (or replacing) the asset among other factors in determining the future lease term when measuring the lease. While implementing Topic 842, the Company noted that none of its leases contained residual value guarantees, variable lease payments or any restrictions or covenants imposed by the lessors, outside of standard restrictions on subletting office space.

Under Topic 842, if the interest rate implicit in the lease is ~~deferred and recognized as service revenue ratably over~~or can be known, the Company is required to use such rate. The rate implicit in the lease is not known for any of the Company’s leases, so the Company bases its interest rate on its incremental borrowing rate, using significant judgment to adjust its incremental borrowing rate to align with the term of the ~~extended warranty period. The portion~~lease and the incremental borrowing rates in the countries in which the Company operates.

Once the Company has calculated the initial lease liability, it uses such measurement as the starting point for determining the ROU asset value. Any lease payments made to the lessor at or before the lease commencement date (for which the underlying service period has not expired) are added to the value of ~~service contracts and extended warranty services agreements that are uncompleted~~the initial lease liability along with any initial direct costs (such as broker’s commissions) incurred by the Company to arrive at the ~~end~~initial ROU asset value.

The Company initially measures the lease as of ~~any reporting period~~the lease commencement date, and except as noted below, it does not remeasure the lease. The Company applies significant judgment in considering all relevant factors that create an economic benefit (e.g.; contract-based, asset-based, entity-based, and market-based, among others) as of the commencement date in determining the initial lease term and future lease payments. For example, the Company exercises judgment in determining whether renewal periods will be exercised during the initial measurement process. If the Company believes it will exercise the renewal option, and the lease payments associated with the renewal periods are known or calculable, such renewal lease payments would be included in ~~deferred revenue.~~the initial measurement of the lease liability. Otherwise, even if the Company believes that it will exercise the renewal period, if the renewal payments are unknown or not calculable, they would not be included until they became known or calculable at which time the Company would remeasure the remaining lease payments similar to a lease modification.

At the implementation date, the Company measured its initial lease liability as $11.5 million for all leases in effect at such date. The Company ~~sells software that is considered~~determined it had made $0.1 million of lease payments to ~~be an upgrade~~lessors at or before the implementation date for which the underlying service period had not expired; consequently, the Company initially recognized $11.6 million as a right 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 software sales is recognized when the software is delivered to the customer, provided that all other recognition criteria have been met.

~~The majority of other upgrades are sold based on published specifications. For basic upgrades, revenue is recognized~~use asset at the ~~time title~~implementation date. During the three and ~~risk~~six-month periods ended June 29, 2019, the Company recognized $0.0 million and $0.7 million of ~~loss transfer to the customer which is usually upon shipment. For complex~~lease liabilities and ~~extensive upgrades, specific acceptance or prior acceptance for a similar upgrade is required in order to recognize revenue.~~

~~Revenue~~right of use assets related to ~~spare parts is recognized upon shipment. Revenue related to billable services is recognized as~~contracts entered into during 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~~respective period.

~~Frequently,~~Generally, 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 and receipt of final acceptance. 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~~reassess lease terms or ~~any refund terms and imposes a penalty on orders cancelled prior to the scheduled shipment date.~~

purchase options, nor does it remeasure lease payments unless certain circumstances occur. The Company ~~evaluates~~reassesses the lease term or its ~~revenue arrangements~~option to ~~identify deliverables~~purchase the underlying asset only if and at the point in time that (a) there is a significant event of change in circumstances within the Company’s control that directly impacts the lease, (b) an event occurs that is written into the lease that obliges the Company to exercise an option, (c) the Company elects to exercise an option that it did not previously determine ~~whether these deliverables are separable into multiple units of accounting.~~it was going to exercise, or (d) the Company decides to not exercise an option that it previously had determined it was going to exercise. The Company ~~allocates~~remeasures the ~~arrangement consideration among~~lease payments if and at 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,point in time that (a) 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 informationlease is ~~not widely available in the market as the Company's products contain a significant element of proprietary technology~~modified 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~~modification is 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 separate contract, (b) a contingency is resolved that causes variable lease payments to meet the definition of fixed lease payments, (c) the lease term changes, (d) the Company changes its assessment as to whether it will exercise an option to purchase the leased asset, or (e) there is a change in amounts probable of being owed under a residual guarantee value clause.

Accounting for the lease – Topic 842 requires the Company to recognize a ROU asset and a lease liability, initially measured as set forth above, for each of its operating leases in its statement of financial position. At adoption of Topic 842, any difference in the initial measurement of the ROU asset and the lease liability was charged to opening retained earnings as a cumulative effect adjustment; however, no such adjustment was recorded by the Company as the initial measurement resulted in no such difference. Topic 842 also requires the Company to recognize a single ~~unit~~lease cost, calculated so that the cost of ~~accounting~~the lease is allocated over the lease term on a straight-line basis in the statement of operations. The Company uses the effective interest rate method to accrete interest on the lease liability.

The components of lease expense for the three and ~~revenue is deferred until all elements~~six months ended June 29, 2019 were as follows (in thousands):

Other information related to leases as of and for the six months ended June 29, 2019 was as follows (in thousands, except as indicated):

The following table presents a maturity analysis of the Company’s leases (all of which are ~~delivered and all revenue recognition requirements are met.~~

~~(Unaudited)~~operating leases), showing the undiscounted annual cash flows for each of the periods presented with a reconciliation to the operating lease liabilities recognized in the Statement of Financial Position as of June 29, 2019 (in thousands):

Future minimum lease payments as of December 29, 2018 for the leases then in effect, as reported under previous guidance, was as follows (in thousands):

~~In March 2016, the FASB~~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 requires adoption of certain amendments relevant to the Company to be applied using a modified retrospective transition method by means of cumulative effect adjustment to retained earnings as of the beginning of the fiscal year 2017.

The new standard permits entities to make an accounting policy election related to how forfeitures will impact the recognition of compensation cost for stock-based compensation. The Company has elected to account for forfeitures as they occur and adopted this change on a modified retrospective basis. The cumulative effect of this change resulted in a $0.1 million increase to accumulated deficit as of January 1, 2017.

Furthermore, the standard requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled rather than paid-in capital. The Company recorded the cumulative effect of this change as a $1.2 million reduction to accumulated deficit in the first quarter of fiscal 2017 to reflect the recognition of excess tax benefits in prior years, with a corresponding adjustment to deferred tax assets and long-term tax liabilities. The Company adopted the guidance related to the recognition of excess tax benefits and deficiencies as income tax expense or benefit on a modified retrospective basis. In addition, the Company elected to report cash flows related to excess tax benefits on a prospective basis. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to the Company’s statement of cash flows since such cash flows have historically been presented as a financing activity.

~~In July 2015, the FASB issued an accounting standards~~ update which simplifies the ~~measurement~~accounting for nonemployee share-based payment transactions. The accounting for share-based payments to nonemployees and employees will be substantially aligned because of ~~inventory by requiring inventory to be measured at the lower~~this update. The standard is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of cost and net realizable value. The new standard applies only to inventories for which cost is determined by methods other than last-in-first-out and the retail inventory method. Effective in the first quarter of fiscal 2017, the Company adopted this guidance.Topic 606. The adoption of this guidance did not have a significant impact on the Company’s consolidated results of operations or consolidated statement of cash flows.

In February 2018, the FASB issued an accounting standard update that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”). This accounting standard update eliminates the stranded tax effects from the TCJA and improves the usefulness of information reported to users of the Company’s financial statements. This standard is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s financial statements as an election was not made to reclassify such income tax effects from accumulated other comprehensive income to retained earnings.

In August 2018, the FASB issued an accounting standard update to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this update should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect of this update on its consolidated financial condition and results of ~~operation.~~operations.

In August 2018, the FASB issued an accounting standard update which improves the effectiveness of fair value measurement disclosures in the notes to the financial statements. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Certain amendments within the update should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. Entities are permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated results of operations or consolidated statement of cash flows.

In January 2017, the ~~Financial Accounting Standards Board (the "FASB")~~FASB issued an accounting standard update which simplifies the subsequent measurement of goodwill and removes step 2 from the goodwill impairment test. Instead, an entity should record an impairment charge based on excess of a reporting unit’s carrying amount over its fair value. The standard is effective for public companies for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial condition and results of operations.

In ~~October~~June 2016, the FASB issued an accounting standard update which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This standard will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting period within those annual periods. Early adoption is permitted. This standard update is required to be adopted using the modified retrospective approach, with a cumulative catch-up adjustment to retained earnings in the period of adoption. The Company is currently evaluating the impact of adopting this standard on its consolidated financial condition and results of operations.

In August 2016, the FASB issued an accounting standard which addresses eight specific cash flow classification issues. This update is effective for public companies for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted, including in an interim period. If early adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period, and all the amendments must be adopted in the same period. The standard is to be applied through a retrospective transition method to each period presented. If it is impracticable to apply retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated statement of cash flows.

~~In June 2016, the FASB issued an accounting standard~~ which requires measurement and timely recognition of expected credit losses for financial assets. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard is to be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the effect of this update on its consolidated financial condition and results of operations.

On November 15, 2018, the ~~FASB issued~~Company completed the acquisition of 4D Technology Corporation (“4D”), an ~~accounting standards update~~Arizona-based supplier of high-performance interferometric measurement inspection systems, for $42.5 million.

4D’s Dynamic Interferometry® solutions are used in a variety of industries to provide accurate shape and surface measurement data, which ~~requires lessees~~provides feedback to ~~record a right-of-use asset~~customers of optical quality, machine finish, and ~~a corresponding lease liability on~~surface defectivity, to improve manufacturing yield and performance. The addition of 4D’s technology added new technology to the ~~balance sheet (with the exception of short-term leases). For lessees, leases will continue to be classified as either operating or financing~~Company’s portfolio, expanded its served markets with new applications in the ~~income statement.~~scientific research, aerospace, industrial and optics manufacturing markets.

During the three-month period ended June 29, 2019, an immaterial purchase price adjustment was recorded resulting in an immaterial decrease to Goodwill for the 4D acquisition in 2018. The ~~standard is effective for public companies for annual reporting periods beginning after December~~following table presents the purchase price allocation as of November 15, 2018 ~~including interim periods within those fiscal years. Early adoption is permitted. This standard is required to be applied with a modified retrospective transition approach.~~ (in thousands):

The Company ~~generally does not finance purchases~~disaggregates its revenue from contracts with customers by geographic location. See Note 15 for further information.

Contract assets and liabilities consisted of ~~equipment or other capital, but does lease some equipment~~the following (in thousands):

During the three and ~~facilities.~~six months ended June 29, 2019 the Company recognized $1.7 million and $3.2 million of revenue related to amounts that had been reported as contract liabilities at December 29, 2018. Net contract liabilities at June 29, 2019 decreased by $1.5 million from December 29, 2018. The Company ~~is currently evaluating the impact of this standard~~classifies its contract liabilities as deferred revenue on its condensed consolidated ~~financial statements and related disclosures but anticipates most its existing operating lease commitments will~~balance sheet.

Most of the Company’s remaining performance obligations on contracts with customers are expected to be recognized as ~~operating lease liabilities and right-of-use assets.~~

~~In May 2014,~~revenue within the ~~FASB issued an accounting standards update which requires an entity~~next six to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The 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. In August 2015, the FASB deferred for one year the effective date of the new revenue standard, with early adoption permitted but not earlier than the original effective date. Consequently, the new standard will be effective for the Company on December 31, 2017 and the Company does not plan to adopt early.twelve months.

Based on the Company’s current assessment, the Company expects to adopt the new guidance in the first quarter of fiscal 2018 by using the modified retrospective method of transition. While the Company continues to assess the impact of the new standard, the Company believes that the timing of revenue recognition for certain systems and performance obligations, will generally occur earlier than under current revenue recognition guidance. Under current U.S. GAAP, revenue for certain systems or performance obligations is delayed until formal customer sign-off has occurred and/or contractual obligations have been met, whereas under the new standard, revenue should be recorded when transfer of control has occurred, which is normally upon shipment. While the Company currently expects revenue related to these arrangements to remain unchanged in total, the nature of when control transfers may change the timing of revenue recognition. Additionally, the Company believes the adoption of the new standard will most likely not result in a different set of performance obligations, when compared to current GAAP. The Company further believes that required changes to its current business processes and IT systems, to comply with the new standard, will be minor in nature. Other aspects of the standard, including the capitalization of costs related to the acquisition and/or fulfillment of the Company’s contracts are still being evaluated, but the Company believes impacts will be either minor or immaterial. The Company is currently evaluating the impact of the new standard on the Company’s contracts with customers and will continue to monitor industry activities and other guidance provided by the accounting profession and regulators and adjust its approach and implementation plans as required.

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:

	September 30, 2017								December 31, 2016								June 29, 2019								December 29, 2018
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types								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		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	812	$	—	$	—	$	812	$	959	$	—	$	—	$	959	$	10,964	$	—	$	—	$	10,964	$	113	$	—	$	—	$	113
Commercial paper and corporate debt securities		—		4,994		—		4,994		—		2,499		—		2,499
Commercial paper																		—		24,937		—		24,937		—		1,993		—		1,993
Certificates of deposit																		—		2,000		—		2,000		—		—		—		—
Total cash equivalents	$	812	$	4,994	$	—	$	5,806	$	959	$	2,499	$	—	$	3,458	$	10,964	$	26,937	$	—	$	37,901	$	113	$	1,993	$	—	$	2,106

Marketable securities:
U.S. Treasury securities and U.S. Government agency debt securities		—		2,497		—		2,497		—		17,072		—		17,072
Certificates of deposits		—		23,298		—		23,298		—		23,019		—		23,019	$	—	$	13,013	$	—	$	13,013	$	—	$	9,497	$	—	$	9,497
Commercial paper		—		17,910		—		17,910		—		22,402		—		22,402		—		14,066		—		14,066		—		7,932		—		7,932
Municipal securities and corporate debt securities		—		45,697		—		45,697		—		14,943		—		14,943
Corporate debt securities																		—		15,301		—		15,301		—		15,730		—		15,730
Asset-backed Securities		—		6,914		—		6,914		—		5,463		—		5,463		—		8,567		—		8,567		—		7,682		—		7,682
Total marketable securities	$	—	$	96,316	$	—	$	96,316	$	-	$	82,899	$	—	$	82,899	$	—	$	50,947	$	—	$	50,947	$	—	$	40,841	$	—	$	40,841
Total⁽¹⁾	$	812	$	101,310	$	—	$	102,122	$	959	$	85,398	$	—	$	86,357	$	10,964	$	77,884	$	—	$	88,848	$	113	$	42,834	$	—	$	42,947

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~~can 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.

The Company uses foreign currency exchange 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 condensed 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 settlement result of forward foreign currency contracts included in the three and six months ended ~~September 30, 2017 and September 24, 2016~~June 29, 2019 was a ~~gain~~loss of ~~$0.3 million and $0.1 million, respectively. The settlement of forward foreign currency contracts included in the~~

~~nine months ended September 30, 2017 and September 24, 2016 was a gain of $1.0~~$0.5 million and a loss of ~~$1.2~~$0.7 million, ~~respectively. These are included in other income (expense), net, in~~respectively, and for the ~~consolidated statements~~three and six months ended June 30, 2018 was a loss of ~~operations.~~$0.7 million and a loss of $1.7 million, respectively.

The following table presents the notional amounts and fair values of the Company’s outstanding derivative instruments in U.S. Dollar equivalent as of the following dates (in millions):

	As of September 30, 2017						As of December 31, 2016						June 29, 2019						December 29, 2018
			Fair Value						Fair Value						Fair Value						Fair Value
	Notional Amount		Asset		Liability		Notional Amount		Asset		Liability		Notional Amount		Asset		Liability		Notional Amount		Asset		Liability
Undesignated Hedges:
Forward Foreign Currency Contracts
Purchase	$	21.6		—	$	0.1	$	12.6		—		—	$	27.4	$	—	$	0.1	$	25.9	$	—	$	—
Sell	$	16.6		—	$	0.1	$	1.3		—		—	$	—	$	—	$	—	$	21.8	$	—	$	0.2

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

	September 30, 2017									June 29, 2019								December 29, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Market Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	38,235	$	—	$	—		$	38,235	$	56,134	$	—	$	—	$	56,134	$	108,845	$	—	$	—		$	108,845
Cash equivalents:
Money market funds		812		—		—			812		10,964		—		—		10,964		113		—		—			113
Commercial paper and corporate debt securities		4,994		—		—			4,994
Commercial paper											24,937		—		—		24,937		1,993		—		—			1,993
Certificates of deposit											2,000		—		—		2,000		—		—		—			—
Marketable securities:
U.S. Treasury securities		501		—		—			501
U.S. Government agency securities		2,001		—		(5	)		1,996
Certificate of deposits		23,298		—		—			23,298
Certificates of deposit											13,003		10		—		13,013		9,500		—		(3	)		9,497
Commercial paper		17,907		3		—			17,910		14,063		3		—		14,066		7,933		—		(1	)		7,932
Corporate debt securities		45,701		—		(4	)		45,697		15,281		20		—		15,301		15,788		—		(58	)		15,730
Asset-backed securities		6,916		—		(2	)		6,914		8,550		17		—		8,567		7,706		—		(24	)		7,682
Total cash, cash equivalents, and marketable securities	$	140,365	$	3	$	(11	)	$	140,357	$	144,932	$	50	$	—	$	144,982	$	151,878	$	—	$	(86	)	$	151,792

	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	43,604	$	—	$	—		$	43,604
Cash equivalents:
Money market funds		959		—		—			959
Commercial paper and corporate debt securities		2,499		—		—			2,499
Marketable securities:
U.S. Treasury securities		5,667		—		—			5,667
U.S. Government agency securities		11,412		—		(7	)		11,405
Certificates of deposits		23,000		19		—			23,019
Commercial paper		22,402		—		—			22,402
Corporate debt securities		14,194		—		(6	)		14,188
Municipal securities		756		—		(1	)		755
Asset-backed securities		5,466		—		(3	)		5,463
Total cash, cash equivalents, and marketable securities	$	129,959	$	19	$	(17	)	$	129,961

Available-for-sale marketable securities, readily convertible to cash, with maturity dates of 90 days or less are classified as cash equivalents, while those with maturity dates greater than 90 days are classified as marketable securities within short-term assets. All marketable securities as of ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016,~~29, 2018, were available-for-sale and reported at fair value based on the estimated or quoted market prices as of the balance sheet date.

Realized gains and losses on sale of securities are recorded in other income (expense), net, in the Company’s condensed consolidated statement of operations. For the three and six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016,~~2018, net realized gains and losses were not material. ~~For the nine months ended September 30, 2017 and September 24, 2016, net realized gains and losses were $0.9 million and $0.3 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 and ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016~~2018 were not material, and no marketable securities had other than temporary impairment.

All marketable securities as of ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016,~~29, 2018 had maturity dates of less than ~~two years.~~33 months.

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 condensed consolidated balance sheets as the criteria for sale treatment had been met. The Company pays administrative fees as well as interest, ~~ranging from 0.61%~~which ranged 0.63% to 1.68% during the six months ended June 29, 2019, 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 ~~$6.1~~$2.1 million and ~~$10.1~~$11.6 million of receivables during the three months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016,~~2018, respectively, and ~~$15.5~~$14.2 million and ~~$29.6~~$33.5 million of receivables during the ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016. There were no material gains or losses on the sale of such receivables.~~2018, respectively. There were no amounts due from such ~~third party~~third-party financial institutions at ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016.~~29, 2018.

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

	At							At
	September 30, 2017			December 31, 2016				June 29, 2019			December 29, 2018
Inventories:
Raw materials and sub-assemblies	$	31,772		$	23,506			$	35,880		$	31,434
Work in process		18,280			10,347				21,061			22,383
Finished goods		4,968			4,984				9,689			8,098
Inventories		55,020			38,837				66,630			61,915
Inventories-delivered systems		3,320			2,457				1,010			180
Total inventories	$	58,340		$	41,294			$	67,640		$	62,095

Property, plant and equipment, net:⁽¹⁾
Land	$	15,571		$	15,568			$	15,570		$	15,571
Machinery and equipment									37,608			39,898
Building and improvements		20,649			20,532				26,344			21,354
Machinery and equipment		35,428			35,659
Software									10,377			10,116
Furniture and fixtures		2,289			2,282				2,471			2,551
Software		9,261			9,756
Leasehold improvements									1,774			-
Capital in progress		1,825			2,748				4,505			6,027
Total property, plant and equipment, gross		85,023			86,545				98,649			95,517
Accumulated depreciation and amortization		(42,706	)		(42,319	)			(45,870	)		(47,617	)
Total property, plant and equipment, net	$	42,317		$	44,226			$	52,779		$	47,900
⁽¹⁾Total depreciation and amortization expense was $1.6 million and $1.7 million for the three months ended September 30, 2017 and September 24, 2016, respectively, and $5.1 million for both nine months ended September 30, 2017 and September 24, 2016.

⁽¹⁾Depreciation and amortization expense of property, plant and equipment was $1.9 million and $1.6 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $3.5 million and $3.3 million for the six months ended June 29, 2019 and June 30, 2018, respectively.							⁽¹⁾Depreciation and amortization expense of property, plant and equipment was $1.9 million and $1.6 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $3.5 million and $3.3 million for the six months ended June 29, 2019 and June 30, 2018, respectively.

Other Current Liabilities:
Accrued warranty	$	4,542		$	3,838			$	3,755		$	4,379
Accrued taxes									965			1,738
Customer deposits		67			581				388			293
Retrofit liability		353			432
Accrued professional services		784			424				625			448
Accrued royalties		60			1,233
Third party commissions									249			1,382
Other		1,898			1,539				1,326			1,181
Total other current liabilities	$	7,704		$	8,047			$	7,308		$	9,421

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 (loss) into income statement line items were insignificant.

~~The following table summarizes~~Goodwill is recorded at cost and tested for potential impairment at least annually. Goodwill was $26.3 million as of June 29, 2019 and $26.4 million as of December 29, 2018. During the ~~activity~~three-month period ended June 29, 2019 an immaterial purchase price adjustment was recorded resulting in an immaterial decrease to Goodwill for the ~~Company’s goodwill during the nine months ended September 30, 2017:~~4D acquisition in 2018.

~~Finite-lived intangible~~Intangible assets are recorded at cost, less accumulated amortization. ~~Finite-lived~~Certain of the Company’s intangible assets are denominated in foreign currencies. The aggregate $68,000 increase in the adjusted cost basis of the Company’s intangible assets as of ~~September 30, 2017~~June 29, 2019, as compared with December 29, 2018, was due to foreign currency movements. Such foreign currency movements also increased the June 29, 2019 balance of accumulated amortization of intangible assets by $68,000 as compared with December 29, 2018. During the three months ended June 29, 2019 the Company reclassified $0.5 million of in-process research and development to developed technology as the underlying technology was complete and incorporated into certain products sold. Intangible assets as of June 29, 2019 and December ~~31, 2016~~29, 2018 consisted of the following (in thousands):

	September 30, 2017							June 29, 2019
	Adjusted cost		Accumulated amortization			Net carrying amount		Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	18,758	$	(16,517	)	$	2,241	$	36,512	$	(17,527	)	$	18,985
Customer relationships		9,426		(9,426	)		—		6,541		(2,057	)		4,484
Brand names		1,927		(1,927	)		—
Patented technology		2,252		(2,235	)		17
Trademark		80		(80	)		—
Trade name									1,500		(58	)		1,442
In-process research and development									900		—			900
Total	$	32,443	$	(30,185	)	$	2,258	$	45,453	$	(19,642	)	$	25,811

	December 31, 2016							December 29, 2018
	Adjusted cost		Accumulated amortization			Net carrying amount		Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	15,726	$	(15,380	)	$	346	$	35,954	$	(16,532	)	$	19,422
Customer relationships		9,322		(9,322	)		—		6,531		(1,519	)		5,012
Brand names		1,927		(1,927	)		—
Patented technology		2,252		(2,186	)		66
Trademark		80		(80	)		—
Trade name									1,500		(8	)		1,492
In-process research and development									1,400		—			1,400
Total	$	29,307	$	(28,895	)	$	412	$	45,385	$	(18,059	)	$	27,326

The amortization of finite-lived intangibles is computed using the straight-line method. Estimated remaining lives of finite-lived intangibles range from ~~two~~less than one year to ~~ten~~fifteen years. The total intangible amortization expense for the three and six months ended ~~September 30, 2017 and September 24, 2016~~June 29, 2019 was ~~$0.1~~$0.8 million and ~~$0.4~~$1.5 million, ~~respectively. Total amortization expense~~respectively, and for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2018 was $35,000 and ~~September 24, 2016 was $0.2 million and $1.3 million,~~$70,000, respectively.

There were no impairment charges related to intangible assets recorded during the ~~three and nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016.~~2018.

The estimated future amortization expense of finite intangible assets as of ~~September 30, 2017~~June 29, 2019 is as follows (in thousands):

Fiscal Years	Amounts		Amounts
2017 (remaining three months)		52
2018		283
2019		352
2019 (remainder)			$	1,376
2020		286		2,960
2021				2,960
2022				2,960
2023				2,960
Thereafter		1,285		11,695
Total future amortization expense	$	2,258	$	24,911

In-process research and development of $0.9 million has been omitted from the above table as its estimated useful life is indeterminant at June 29, 2019. It will be tested for potential impairment, along with Goodwill, until its estimated useful life becomes finite.

The Company generally sells its products with a 12 months repair or replacement warranty from the date of acceptance or shipment date. The Company ~~provides an accrual for~~accrues 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						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30, 2017			September 24, 2016			September 30, 2017			September 24, 2016			June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Balance as of beginning of period	$	4,602		$	4,556		$	3,838		$	4,504		$	3,848		$	4,643		$	4,379		$	4,863
Accruals for warranties issued during period		1,020			1,100			3,800			3,529			910			1,450			1,870			2,895
Settlements during the period		(1,080	)		(1,471	)		(3,096	)		(3,848	)		(1,003	)		(1,187	)		(2,494	)		(2,852	)
Balance as of end of period	$	4,542		$	4,185		$	4,542		$	4,185		$	3,755		$	4,906		$	3,755		$	4,906

Merger – Rudolph Technologies, Inc. – On June 23, 2019, the Company entered into an Agreement and Plan of Merger (“Merger”) with Rudolph Technologies, Inc. (“Rudolph”) and PV Equipment Inc., a wholly-owned subsidiary of the Company. Consummation of the merger is subject to certain closing conditions including regulatory approvals and shareholder approval from both the Company’s shareholders and those of Rudolph. Under the terms and subject to the conditions set forth in the Merger, at the effective time of the Merger, each outstanding share of common stock, par value $0.001 per share, of Rudolph will be converted into 0.8042 shares of common stock, par value $0.001, of the Company. At the effective time of the Merger, Rudolph’s common stockholders will own approximately 50%, and the Company’s common stockholders will own approximately 50%, of the outstanding shares of common stock of the combined company on a fully diluted basis. The Agreement and Plan of Merger, as well as other related documents were included in the Company’s Current Report of Form 8-K filed with the SEC on June 24, 2019.

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 ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016.~~29, 2018.

Legal Proceedings - From time to time, the Company is subject to various legal proceedings or claims arising in the ordinary course of business.

On August 2, 2017, the Company was named as defendant in a complaint filed in New Hampshire Superior Court (“Complaint”). The Complaint, brought by Optical Solutions, Inc. (“OSI”), alleges claims arising from a purported exclusive purchase contract between OSI and the Company pertaining to certain product. On September 18, 2017, the Company removed the action to the United States District Court for the District of New Hampshire. On September 25, 2017, the Company moved to transfer the Complaint to the District Court for the Northern District of California. On December 20, 2017, the Company filed its complaint against OSI in the California Superior Court for the County of Santa Clara alleging claims arising from OSI’s breach of certain purchase orders. The Company’s complaint was later removed by OSI to the Northern District of California. On May 29, 2018, the District Court of New Hampshire issued an order granting the Company’s motion to transfer OSI’s Complaint to the Northern District of California and denying the Company’s motion to dismiss ~~all claims in~~ the Complaint ~~for lack of personal jurisdiction and~~without prejudice. On June 14, 2018, OSI’s Complaint was consolidated with the Company’s complaint against OSI. On August 9, 2018, OSI filed an Amended Complaint. On September 19, 2018, the Company filed a motion to dismiss OSI’s Amended Complaint for failure to state a claim. The Company’s motion to dismiss was heard on February 28, 2019. On ~~September 27, 2017,~~ March 5, 2019 the Court granted the Company’s motion to dismiss with leave to amend.

OSI filed a Second Amended Complaint on March 29, 2019. The Company filed a motion to ~~remand. OSI has not yet responded to~~dismiss the Second Amended Complaint on May 31, 2019. A hearing on the Company’s ~~motions~~motion to ~~transfer or dismiss.~~dismiss the Second Amended Complaint is scheduled for November 14, 2019. Trial has been set for May 16, 2022.

The Company records a provision for a loss when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Based on current information, the Company believes it does not have any probable and reasonably estimable losses related to any current legal proceedings and claims. Although it is difficult to predict the outcome of legal proceedings, the Company believes that any liability that may ultimately arise from the resolution of these ordinary course matters will not have a material adverse effect on the business, financial condition and results of operations.

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 and ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016~~2018 is as follows (in thousands):

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 Staff Accounting Bulletin No. 107, Share-Based Payment. 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.

	Three Months Ended				Nine Months Ended					Three Months Ended		Six Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017			September 24, 2016		June 29, 2019	June 30, 2018	June 29, 2019	June 30, 2018
Employee Stock Purchase Plan:
Expected life	0.5 years		0.5 years		0.5 years			0.5 years		0.5 years	0.5 years	0.5 years	0.5 years
Volatility		38.9%		38.2%		37.2	%		38.7%	41.3%	27.2%	39.1%	37.2%
Risk free interest rate		1.13%		0.37%		0.91	%		0.44%	2.51%	1.61%	1.86%	0.91%
Dividends		—		—		—			—	—	—	—	—

No stock options were awarded during the ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016, respectively.~~2018.

A summary of activity of stock options during the ~~nine~~six months ended ~~September 30, 2017~~June 29, 2019 is as follows:

	Number of Shares Outstanding (Options)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in Thousands)		Number of Shares Outstanding (Options)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in Thousands)
Options
Outstanding at December 31, 2016		440,545		$	15.06		2.12	$	4,405
Outstanding at December 29, 2018											83,394		$	15.80		1.19	$	988
Exercised		(180,629	)	$	13.58						(70,100	)		15.72
Cancelled		(855	)	$	16.63						—		—
Outstanding at September 30, 2017		259,061		$	16.09		1.81	$	3,293
Exercisable at September 30, 2017		255,665		$	16.06		1.79	$	3,256
Outstanding at June 29, 2019											13,294			16.19		1.05		246
Exercisable at June 29, 2019											13,294		$	16.19		1.05	$	246

The aggregate intrinsic value in the above table represents the total pretax intrinsic value, based on the Company’s closing stock price of ~~$28.80~~$34.71 and $27.65 as of ~~September~~June 29, ~~2017,~~2019 and December 28, 2018, respectively, the last trading day of ~~the quarter,~~each period, which would have been received by the option holders had all option holders exercised their options as of ~~that~~such date. The total intrinsic value of options exercised during the three months ended September 30, 2017 and September 24, 2016 was $1.0 million and $0.5 million, respectively, and during the nine months ended September 30, 2017 and September 24, 2016 was $2.4 and $1.9 million, respectively.

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 during the six months ended June 29, 2019 is as follows:

Summary of activity for RSUs	Number of RSUs			Weighted Average Fair Value		Number of RSUs			Weighted Average Fair Value
Outstanding RSUs as of December 31, 2016		819,785		$	16.79
Outstanding RSUs as of December 29, 2018							769,003		$	31.39
Granted		340,070		$	27.29		339,822			28.68
Released		(356,619	)	$	16.79		(303,127	)		28.47
Cancelled		(44,046	)	$	17.21		(45,576	)		32.36
Outstanding RSUs as of September 30, 2017		759,190		$	21.48
Outstanding RSUs as of June 29, 2019							760,122		$	31.28

In addition to granting RSUs that vest on the passage of time only, the Company granted PSUs to ~~key~~certain executives. The PSUs 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. Up~~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 for the six months ended June 29, 2019 is as follows:

Summary of activity for PSUs	Number of PSUs			Weighted Average Fair Value		Number of PSUs			Weighted Average Fair Value
Outstanding PSUs as of December 31, 2016		107,500		$	9.94
Outstanding PSUs as of December 29, 2018							112,163		$	22.37
Granted		59,550			26.75		43,429			19.09
Released		(38,500	)		10.41		(16,066	)		25.09
Cancelled		(4,000	)		12.64		(1,138	)		26.75
Outstanding PSUs as of September 30, 2017		124,550		$	17.86
Outstanding PSUs as of June 29, 2019							138,388		$	20.99

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

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:

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

	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016		June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Cost of products	$	216	$	116	$	628	$	273	$	272	$	133	$	532	$	231
Cost of service		161		138		463		355		209		186		394		341
Research and development		509		387		1,262		985		739		506		1,511		983
Selling		639		537		1,707		1,492		740		737		1,544		1,270
General and administrative		922		822		2,715		2,327		1,240		1,117		2,333		2,192
Total stock-based compensation expense related to employee stock options and employee stock purchases	$	2,447	$	2,000	$	6,775	$	5,432	$	3,200	$	2,679	$	6,314	$	5,017

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 2017 Tax Act created a new requirement that global intangible low-taxed income (“GILTI”) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. Under U.S. GAAP, the Company was allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company’s selection of an accounting policy in 2018 with respect to the GILTI tax rules was to treat GILTI tax as a current period expense under the period cost method.

The ~~Company recorded a~~decrease in the tax provision ~~of $1.8 million and $1.3 million~~for 2019 from 2018 was primarily related to the Company’s decreased profitability for the three months ended ~~September 30, 2017~~June 29, 2019 and ~~September 24, 2016, respectively. The increase in~~ the tax provision for 2017 from 2016 was primarily related to the additional utilization of U.S. deferred tax assets for the three months ending September 24, 2016 as the Company, at that time, was recording a valuation allowance against its U.S. deferred tax assets.

~~The Company recorded a tax provision of $4.5 million and $2.6 million for the nine~~six months ended ~~September 30, 2017~~June 29, 2019, as well as less U.S. tax required on foreign earnings under the Tax Cuts and September 24, 2016, respectively. The increase in the tax provision for 2017 from 2016 was primarily related to the additional utilization of U.S. deferred tax assets for the nine months ending September 24, 2016 as the Company, at that time, was recording a valuation allowance against its U.S. deferred tax assets. The increase in the tax provision is also due to an increase in Company’s profitability for the nine months ended September 30, 2017.Jobs Act (“TCJA”).

The Company continues to maintain a valuation allowance against its California and ~~certain foreign~~Switzerland deferred tax assets and recorded a valuation allowance against its U.K. deferred tax assets as of June 29, 2019 as a result of uncertainties regarding the realization of the assets 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, China, Singapore, Germany, U.K., Ireland, France, and Israel. 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~~2011 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 ~~September 30, 2017~~June 29, 2019 and ~~September 24, 2016.~~December 29, 2018. During the next twelve months, the Company anticipates increases in its unrecognized tax benefits of approximately ~~$0.4~~$1.2 million.

Note ~~13.~~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				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016		June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Total net revenues^(1):
South Korea	$	22,269	$	15,710	$	72,388	$	35,226
Japan		4,781		11,765		17,400		24,669
Total net revenues:
United States		6,231		8,211		28,101		24,306	$	9,170	$	7,392	$	26,044	$	14,130
China		3,403		7,364		17,420		33,883		25,873		28,333		40,233		36,375
South Korea										13,070		30,980		27,038		68,798
Singapore										8,723		2,380		10,274		14,535
Japan										4,214		15,017		8,531		28,396
Taiwan		2,304		6,334		19,016		16,962		3,650		1,974		14,939		3,034
Singapore		9,774		5,078		12,229		18,645
Other		7,913		4,252		13,862		8,279		2,920		2,528		7,661		5,649
Total net revenues	$	56,675	$	58,714	$	180,416	$	161,970	$	67,620	$	88,604	$	134,720	$	170,917

	September 30, 2017		December 31, 2016		June 29, 2019		December 29, 2018
Long-lived tangible assets:
United States	$	41,002	$	42,688	$	51,365	$	46,325
International		1,315		1,538		1,414		1,575
Total long-lived tangible assets	$	42,317	$	44,226	$	52,779	$	47,900

~~The following customers~~With respect to customer concentration, Micron Technology, Inc., SK hynix, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% orof total sales for the three months ended June 29, 2019, and Intel Corporation, SK hynix, and Taiwan Semiconductor Manufacturing Company Limited each accounted for more than 10% of total sales for the six months ended June 29, 2019. Intel Corporation, Samsung Electronics Co. Ltd., Toshiba Memory Corporation, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total sales for the three months ended June 30, 2018. Intel Corporation, Micron Technology, Inc., Samsung Electronics Co. Ltd., SK hynix, Toshiba Memory Corporation, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total sales for the six months ended June 30, 2018.

With respect to accounts receivable concentration, Micron Technology, Inc., SK hynix, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total accounts receivable ~~net:~~

~~The following customers~~as of June 29, 2019. SK hynix and Toshiba Memory Corporation each accounted for more than 10% ~~or more~~ of total ~~net revenues:~~accounts receivable as of December 29, 2018.

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,” “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, including in Part II, Item 1A, Risk Factors below, and in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016,~~29, 2018, filed with the Securities and Exchange Commission (“SEC”) on ~~March 3, 2017~~February 25, 2019 (our “Annual Report”). 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; uncertainties related to our acquisition of 4D Technology Corporation; 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 of our Annual Report and risk factors 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 ~~31, 2016,~~29, 2018, which were included in our Annual Report, (ii) the section captioned “Risk Factors” in this Quarterly Report and our Annual Report, and (iii) our other filings with the SEC.

Together with our subsidiaries, we are ~~a leading provider~~an innovator in the field of ~~advanced, high-performance process control~~optical metrology ~~and~~systems, optical inspection systems ~~used primarily in the fabrication of semiconductors~~and advanced analytics for semiconductor manufacturing and other ~~solid-state devices, including sensors, optoelectronic devices, high-brightness LEDs (“HB-LED”), discretes,~~industries. Our systems and ~~data storage components. Our automated and integrated metrology systems measure~~solutions are designed to precisely monitor optical critical dimensions, ~~device structures, topography and various thin film properties, including three-dimensional features and~~ film thickness, as well as optical, electrical and material properties. 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,~~parameters that are necessary to ~~advanced three-dimensional wafer-level packaging applications. Our systems enable advanced~~control the manufacturing process, ~~control for~~identify defects, and detect manufacturing equipment anomalies that can affect production yields and device ~~manufacturers, providing improved device yield at reduced manufacturing cycle time, supporting accelerated product life cycles in the semiconductor and other device markets.~~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. Our strategy is to continue to innovate organically as well as to evaluate strategic acquisitions to address business challenges and opportunities.

~~Our~~In June 2019 we announced that we had entered into an Agreement and Plan of Merger with Rudolph Technologies, Inc. and PV Equipment Inc., a wholly-owned subsidiary of ours. The Agreement and Plan of Merger, as well as other related documents were included in the Current Report on Form 8-K that we filed with the SEC on June 24, 2019.

In November of 2018 we acquired 4D Technology Corporation (“4D”), based in Tucson Arizona. The 4D business unit offers a line of interferometry systems for the measurement and inspection of high precision surfaces. 4D’s solutions are used primarily in the manufacture of advanced aerospace and industrial systems as well as for scientific research and semiconductor applications.

We derive our revenues ~~are derived~~ primarily from product ~~and software~~ sales but ~~are~~ also ~~derived~~ from customer service ~~upgrades~~ and ~~software~~system upgrades for the installed base of our products. For the ~~nine~~six months ended ~~September 30, 2017,~~June 29, 2019, we derived ~~82%~~79% of our total net revenues from product, upgrade and software sales, and ~~18%~~21% of our total net revenues from services.

We offer a diverse line of systems to address the broad range of process control requirements of the semiconductor device and industrial manufacturing ~~industry.~~markets. In addition, we believe that our product development and engineering expertise ~~as well as~~and strategic acquisitions will enable us to develop and offer advanced process control solutions that, in the future, should address industry advancement and trends.

Our automated systems primarily consist of fully automated metrology systems that are employed in semiconductor production environments. The Atlas^® ~~III, Atlas II+~~ ~~and~~ ~~Atlas XP~~⁺family of products represent our line of high-performance metrology systems providing optical critical dimension (“~~OCD~~OCD”^®”), technology, thin film metrology and wafer stress metrology for transistor and interconnect metrology applications. The thin film and OCD technology is supported by our NanoCD^® suite of solutions including our ~~NanoDiffract~~^®, ~~SpectraProbe~~^TMNanoDiffract® software, SpectraProbe™ software and ~~NanoGen~~^TMNanoGen™ 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.

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 user customers. The ~~IMPULSE+~~ ~~and~~ IMPULSE^® ~~represent our~~ family of products include the latest ~~metrology platform~~technology 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.~~

~~NanoDiffract~~^®NanoDiffract® is a modeling, visualization and analysis software that takes signals from the ~~automated and integrated~~ metrology systems, providing critical dimension, thickness, and optical properties from ~~in line~~in-line measurements. The software has an intuitive three-dimensional modeling interface to provide visualization of today’s advanced and complex semiconductor devices. There are proprietary fitting algorithms in NanoDiffract that enable very accurate and very fast calculations for signal processing for high fidelity ~~model based~~model-based measurements.

~~SpectraProbe™~~ SpectraProbe is a model-less fitting engine that enables fast time to solution for in-line excursion detection and control.�� SpectraProbe complements the high-fidelity modeling of NanoDiffract with a simple machine learning interface for rapid recipe deployment. ~~SpectraProbe expands the types of structures that can be used for metrology and control including in-die and on-device areas. Both analysis packages are~~The software is supported by NanoGen, an enterprise scale computing hardware system that is deployed to run the ~~automated~~computing intensive analysis software. NanoGen utilizes commercial server chips and ~~integrated systems, can be deployed in run-time environments~~networking architecture and is optimized to support ~~off-line processing as part~~the workload of ~~a factory control solution when deployed on NanoCentral~~NanoDiffract and ~~NanoGen servers.~~SpectraProbe analysis.

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 (high brightness LEDs), solar ~~photovoltaics,~~PV (solar photovoltaics), compound semiconductor, strained silicon and silicon-on-insulator (“SOI”) devices, including composition, crystal structure, layer thickness, dopant concentration, contamination and electron mobility.

~~The~~ ~~RPMBlue™ is our~~We have a broad portfolio of products for materials characterization including photoluminescence 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”) spectroscope in automated and manual systems ~~in the~~ ~~QS2200/3300~~for substrate quality and ~~QS1200~~ ~~respectively.~~epitaxial thickness metrology. The NanoSpec^® line ~~including the~~ ~~NanoSpec II,~~ supports thin film measurement across all applications in both low volume production and research applications.

In November of 2018 we acquired 4D Technology Corporation, based in Tucson Arizona. The 4D business unit offers a line of interferometry systems for the measurement and inspection of high precision surfaces. End markets include high precision optics surfaces and components, aerospace and defense components, and unique research and scientific instrumentation that requires the unique high-speed results of the 4D systems.

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:

The semiconductor equipment industry is characterized by new manufacturing processes (node) coming to market every two to three years. At every new node in the semiconductor industry, our customers drive the need for metrology as a major component of device manufacturing. These trends include:

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~~Except for the changes noted below, there were no significant changes in our critical accounting policies during the ~~nine~~six months ended ~~September 30, 2017.~~June 29, 2019. 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 filed with the SEC on February 25, 2019 for a complete discussion of our critical accounting policies.

Change in Accounting for Leases (Adoption of ASU 2016-02 Leases) - We adopted the new accounting standard ASC 842 and related amendments in the first quarter of fiscal 2019 using the alternative optional transition method. As such, we recognized the cumulative effect of initially applying the new lease standard as an adjustment to the opening balance of retained earnings for fiscal 2019. Comparative financial statements for fiscal 2018 have been prepared under the previous accounting standard. Please refer to Note 1. Nature of Business, Basis of Presentation and Significant Accounting Policies for further discussion of this change.

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.

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

Three Months Ended

Nine Months Ended

September 30, 2017

September 24, 2016

Change

September 30, 2017

September 24, 2016

Change

Automated systems

$
31,038

$
34,914

$
(3,876
)

-11.1
%

$
104,445

$
90,502

$
13,943

15.4
%
Integrated systems

7,655

10,233

(2,578
)

-25.2
%

27,534

37,038

(9,504
)

-25.7
%
Materials characterization systems

6,878

4,484

2,394

53.4
%

15,343

8,750

6,593

75.3
%
Total product revenue

45,571

49,631

(4,060
)

-8.2
%

147,322

136,290

11,032

8.1
%
Service

11,104

9,083

2,021

22.3
%

33,094

25,680

7,414

28.9
%
Total net revenues

$
56,675

$
58,714

$
(2,039
)

-3.5
%

$
180,416

$
161,970

$
18,446

11.4
%

	Three Months Ended									Six Months Ended
	June 29, 2019		June 30, 2018		Change					June 29, 2019		June 30, 2018		Change
Product	$	52,541	$	76,704	$	(24,163	)	-31.5	%	$	106,396	$	147,723	$	(41,327	)	-28.0	%
Service		15,079		11,900		3,179		26.7	%		28,324		23,194		5,130		22.1	%
Total net revenues	$	67,620	$	88,604	$	(20,984	)	-23.7	%	$	134,720	$	170,917	$	(36,197	)	-21.2	%

Capital spending by our customers is dependent on the timing of new semiconductor fabrication plants, capacity expansion within existing plants, and the adoption of modern technology for current and future manufacturing needs. Results may vary significantly based on changes in any of these factors. For the three months ended ~~September 30, 2017,~~June 29, 2019, total net revenues decreased by ~~$2.0~~$21.0 million relative to the comparable ~~2016 period.~~period in fiscal 2018. The decrease ~~was due to~~comprised a ~~$4.0~~$24.2 million decrease in product revenue, which was partially offset ~~in part~~ by ana $3.2 million increase ~~of $2.0 million~~ in service ~~revenue.~~revenue compared to the same prior year period. For the six months ended June 29, 2019, total net revenues decreased by $36.2 relative to the comparable period in fiscal 2018. The decrease comprised a $41.3 million decrease in product revenue, ~~is primarily driven~~which was partially offset by ~~lower Automated and Integrated System sales, which decreased in aggregate by $6.5~~a $5.1 million ~~due to the timing of investments in the Memory market. The~~ increase in service revenue ~~was primarily driven by higher spare parts sales~~compared to the same prior year period. Product revenue decreased for both the three and ~~service contracts revenue,~~six-month periods ended June 29, 2019, compared to the respective same prior year period, mainly as a result of ~~our increasing installed base.~~

~~For~~lower demand in the ~~nine months~~overall wafer fab equipment market. Service revenue increased for both the three and six-month periods ended ~~September 30, 2017, as~~June 29, 2019, compared to the respective same prior year period, in 2016, revenues increased by $18.4 million, or 11.4%. The increase was due to a $13.9 million increase in sales of Automated Systems (primarily the Atlas® line) due primarily to higher revenue from our customers in the Foundry market and a $6.6 million increase in Materials characterization systems sales, offset in part by a decrease of $9.5 million in Integrated systems sales due to the timing of investments in the Memory market. The increase in service revenue was primarily driven by higher billable service, contract and spare parts revenue,mainly as a result of ~~our increasing~~higher installed ~~base.~~base and sales of refurbished systems.

A significant portion of the world’s semiconductor manufacturing capacity ~~located~~is in ~~Asia, a substantial portion~~Asia. We generated 82% and 75% of our revenues ~~continue~~in Asia in the three and six months ended June 29, 2019, respectively, compared to ~~be generated~~89% and 88% for the three and six months ended June 30, 2018. Due to a slowdown in ~~that region.~~the memory demand, there were fewer fab expansions in Korea and Japan when compared to 2018, which was partially offset by expansion in the foundry business in Taiwan. 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.

	Three Months Ended						Nine Months Ended						Three Months Ended		Six Months Ended
	September 30, 2017			September 24, 2016			September 30, 2017			September 24, 2016			June 29, 2019	June 30, 2018	June 29, 2019			June 30, 2018
Products		53.0	%		53.2	%		50.9	%		53.1	%	52.9%	59.2%		51.9	%		59.5	%
Service		58.4	%		44.2	%		53.6	%		42.7	%	49.0%	45.9%		48.3	%		45.7	%

The calculation of ~~product~~products gross margin includes both cost of products and amortization of intangibles. The gross margin on product revenue slightly decreased to 53.0% in the three months ended September 30, 2017 from 53.2% in the three months ended September 24, 2016. The decrease of 0.2 percentage points in the third quarter of 2017 was due to a slightly less favorable product and customer mix. The gross margin on our services business significantly increased to 58.4% in the three months ended September 30, 2017 from 44.2% in the three months ended September 24, 2016. The increase is due to improved margins for service parts, a more favorable service product mix, as well as higher service labor utilization.

The gross margin on product revenue decreased to ~~50.9%~~52.9% in the ~~nine~~three months ended ~~September 30, 2017~~June 29, 2019 from ~~53.1%~~59.2% in the ~~nine~~three months ended ~~September 24, 2016, reflecting a decrease of 2.2 percentage points from the comparable 2016 period.~~June 30, 2018. The decrease was ~~driven by the less favorable~~primarily due to an unfavorable product and customer mix, lower factory utilization and ~~higher installation and warranty costs.~~an increase in amortization of intangibles of $0.5 million. The gross margin on ~~our~~product revenue decreased to 51.9% in the six months ended June 29, 2019 from 59.5% in the six months ended June 30, 2018. The decrease was primarily due to an unfavorable product and customer mix, lower factory utilization, an increase in amortization of intangibles of $1.0 million and acquisition-related adjustments of $1.3 million.

The gross margin on services ~~business~~revenue increased to ~~53.6%~~49.0% in the ~~nine~~three months ended ~~September 30, 2017~~June 29, 2019 from ~~42.7%~~45.9% in the ~~nine~~three months ended ~~September 24, 2016. The increase~~June 30, 2018, and it increased to 48.3% in ~~gross margin is~~the six months ended June 29, 2019 from 45.7% in the six months ended June 30, 2018. These increases were due to ~~the increases in margin of service parts, a more favorable product mix~~higher labor utilization rates, and higher ~~utilization of our service personnel.~~revenue from spare parts and refurbishment tools with higher margins.

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

	Three Months Ended									Nine Months Ended									Three Months Ended										Six Months Ended
	September 30, 2017		September 24, 2016		Change					September 30, 2017		September 24, 2016		Change					June 29, 2019		June 30, 2018		Change						June 29, 2019		June 30, 2018		Change
Research and Development	$	8,825	$	7,868	$	957		12.2	%	$	26,658	$	23,447	$	3,211		13.7	%
Research and development																			$	14,098	$	12,491	$	1,607			12.9	%	$	27,085	$	22,693	$	4,392			19.4	%
Selling		7,553		7,495		58		0.8	%		22,730		22,567		163		0.7	%		8,244		10,151		(1,907	)		-18.8	%		17,526		19,175		(1,649	)		-8.6	%
General and administrative		6,798		5,975		823		13.8	%		19,696		17,150		2,546		14.8	%		7,885		7,465		420			5.6	%		15,790		15,206		584			3.8	%
Merger expenses																				907		-		907		na				907		-		907		na
Amortization of intangible assets		—		—		—	NM				-		24		(24	)	-100.0	%		289		—		289		na				578		-		578		na
Total operating expenses	$	23,176	$	21,338	$	1,838		8.6	%	$	69,084	$	63,188	$	5,896		9.3	%	$	31,423	$	30,107	$	1,316			4.4	%	$	61,886	$	57,074	$	4,812			8.4	%

Investments in research and development personnel and associated projects are part of our strategy to ensure our products remain competitive and meet customers’ needs. For the three months ended ~~September 30, 2017,~~June 29, 2019, research and development costs increased by ~~$1.0~~$1.6 million, or ~~12.2%~~12.9%, compared to the same period in ~~2016.~~2018. The increase was driven by additional headcount, new product development initiatives and ~~higher spending~~costs resulting from the acquisition of 4D subsequent to the same period in ~~program related expenses to support continuing investments in our research and development efforts.~~

2018. For the ~~nine~~six months ended ~~September 30, 2017,~~June 29, 2019, research and development costs increased by ~~$3.2~~$4.4 million, or ~~13.7%~~19.4%, compared to the same period in ~~2016.~~2018. The increase ~~is primarily~~was driven by additional headcount, new product development initiatives and ~~higher spending~~costs resulting from the acquisition of 4D subsequent to the same period in ~~program related expenses to support continuing investments in our research and development efforts.~~2018, which were partially offset by lower variable compensation costs.

Selling expenses for the three ~~and nine~~ months ended ~~September 30, 2017~~June 29, 2019 decreased by $1.9 million, or 18.8%, compared to the same period in ~~fiscal 2016~~2018. The decrease was driven by lower variable compensation costs and lower sales commission expenses, resulting from lower sales and profitability in 2019, which were ~~relatively flat as increases of in personnel-related costs, professional services fees and travel related expenses, were~~partially offset by additional headcount and costs resulting from the acquisition of 4D subsequent to the same period in 2018. Selling expenses for the six months ended June 29, 2019 decreased by $1.6 million, or 8.6%, compared to the same period in 2018. The decrease was driven by lower ~~depreciation expense~~variable compensation costs and ~~other overhead costs.~~lower sales commission expenses, resulting from lower sales and profitability in 2019, which were partially offset by additional headcount and costs resulting from the acquisition of 4D subsequent to the same period in 2018.

General and administrative expenses increased by ~~$0.8~~$0.4 million, or ~~13.8%~~5.6%, in the three months ended ~~September 30, 2017~~June 29, 2019 compared to the ~~three months ended September 24, 2016.~~same period in 2018. The increase was primarily due to ~~increase~~additional headcount, higher facility lease expenses, IT infrastructure costs and costs resulting from the acquisition of 4D subsequent to the same period in 2018, which were partially offset by lower variable compensation costs, resulting from lower profitability and ~~recruiting expenses for our CEO search and higher professional services fees.~~

~~For the nine months ended September 30, 2017, general~~lower severance costs. General and administrative expenses increased by ~~$2.5~~$0.6 million, or ~~14.8%~~3.8%, in the six months ended June 29, 2019 compared to the same period in ~~2016.~~2018. The increase iswas primarily ~~driven~~due to additional headcount, severance costs, higher facility lease expenses, IT infrastructure costs, and higher audit fees, compared to the same period in 2018, which were partially offset by ~~increase in~~lower variable compensation ~~and recruiting~~costs resulting from lower profitability.

During the three months ended June 29, 2019, we incurred $0.9 million of costs associated with the Agreement and Plan of Merger with Rudolph Technologies, Inc. and PV Equipment as disclosed in our ~~CEO search and higher professional services fees.~~Current Report on Form 8-K that we filed with the SEC on June 24, 2019 (See Note 11 to the Consolidated Financial Statements).

Amortization of intangible assets ~~included in operating expenses in~~was $0.3 million and $0.6 million for the ~~nine~~three and six months ended ~~September 30, 2017 compared~~June 29, 2019, respectively, reflecting amortization expense resulting from the acquisition of 4D subsequent to the ~~nine months ended September 24, 2016 decreased as a result of the full amortization of certain intangible assets.~~same periods in 2018.

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

Three Months Ended

Nine Months Ended

September 30, 2017

September 24, 2016

Change

September 30, 2017

September 24, 2016

Change

Interest Income

$
2

$
12

$
(10
)

-83.3
%

$
6

$
33

$
(27
)

-81.8
%
Interest Expense

(25
)

(92
)

67

-72.8
%

(84
)

(276
)

192

-69.6
%
Interest income (expense), net

(23
)

(80
)

57

-71.3
%

(78
)

(243
)

165

-67.9
%

Net gains on investments

366

116

250

215.5
%

932

271

661

243.9
%
Other gains (losses), net

(307
)

113

(420
)

-371.7
%

(602
)

(211
)

(391
)

185.3
%
Other income (loss), net

59

229

(170
)

-74.2
%

330

60

270

450.0
%
Total other income (expense), net

$
36

$
149

$
(113
)

-75.8
%

$
252

$
(183
)

$
435

-237.7
%

	Three Months Ended										Six Months Ended
	June 29, 2019			June 30, 2018			Change				June 29, 2019			June 30, 2018			Change
Interest expense, net	$	(15	)	$	(48	)	$	33	-68.8	%	$	(106	)	$	(141	)	$	35	-24.8	%
Net gains on investments		478			314			164	52.2	%		788			583			205	35.2	%
Other gains (losses), net		350			(480	)		830	-172.9	%		310			(397	)		707	-178.1	%
Other income (expense), net		828			(166	)		994	-598.8	%		1,098			186			912	490.3	%
Total other income (expense), net	$	813		$	(214	)	$	1,027	-479.9	%	$	992		$	45		$	947	2104.4	%

Other income (expense), net, ~~decreased~~increased by ~~$0.1~~$1.0 million in the three and six months ended ~~September 30, 2017~~June 29, 2019 relative to the comparable ~~2016 period. The change was~~periods in 2018 principally due to a $0.9 million gain on the sale of a condominium and higher investment income, which were partially offset by unfavorable foreign exchange net gains and ~~losses, offset~~losses. As part of our facilities strategy, we determined that we would no longer house traveling employees in ~~part by an increase in net investment gains which is in line with the increase in our cash~~owned condominiums and ~~cash equivalents balance in the fiscal year 2017 compared to the same period in 2016.~~

For the nine months ended September 30, 2017, other income (expense), net increased $0.4 million relative to the comparable 2016 period. The change was principally due to an increase in investment income, which is in line with the increase in our cash and cash equivalents balance in the fiscal year 2017 compared to the same period in 2016, offset in part by unfavorable net revaluation of certain monetary assets and liabilities denominated in foreign currencies, net of foreign currency exchange forward contracts gains and losses.have divested all such assets.

We recorded a tax provision of ~~$1.8~~$0.6 million and ~~$1.3~~$2.9 million for the three months ended ~~September~~June 29, 2019 and June 30, ~~2017~~2018, respectively, and ~~September 24, 2016,~~$1.2 million and $7.3 million for the six months ended June 29, 2019 and June 30, 2018, respectively. The ~~increase~~decrease in the tax provision for ~~2017~~2019 from ~~2016~~2018 was primarily related to ~~the additional utilization of U.S. deferred tax assets~~our decreased profitability for the three months ~~ending September 24, 2016 as we were, at that time, recording a valuation allowance against our U.S. deferred tax assets.~~

~~We recorded a tax provision of $4.5 million~~ended June 29, 2019, and ~~$2.6 million for~~ the ~~nine~~six months ended ~~September 30, 2017~~June 29, 2019, as well as less U.S. tax required on foreign earnings under the Tax Credit and September 24, 2016, respectively. The increase in the tax provision for 2017 from 2016 was primarily related to the additional utilization of U.S. deferred tax assets for the nine months ending September 24, 2016 as we were, at that time, recording a valuation allowance against our U.S. deferred tax assets. The increase in the tax provision is also due to an increase in our profitability for the nine months ended September 30, 2017. Jobs Act (“TCJA”).

Our provision for income taxes for the three ~~and nine~~ months ended ~~September 30, 2017~~June 29, 2019 of ~~$1.8~~$0.6 million ~~and $4.5 million, respectively,~~ reflects an effective tax rate of ~~23.3% and 18.8%, respectively.~~13.9%. The tax rate for the three ~~and nine~~ months ended ~~September 30, 2017~~June 29, 2019 differs from the Federal statutory rate of ~~35.0%~~21.0% primarily due to foreign ~~income being subject to~~ tax ~~at lower rates,~~credits, R&D tax credits, and tax benefits associated with the settlement of equity options/awards, partially offset by foreign income being subject to tax at higher rates, state income taxes, and non-deductible equity compensation.

Our provision for income taxes for the six months ended June 29, 2019 of $1.2 million reflects an effective tax rate of 14.4%. The tax rate for the six months ended June 29, 2019 differs from the Federal statutory rate of 21.0% primarily due to foreign tax credits, R&D tax credits, and tax benefits ~~from federal R&D credits,~~associated with the settlement of equity options/awards, partially offset by foreign income being subject to tax at higher rates, state income taxes, and non-deductible equity compensation.

The TCJA created a ~~one-time benefit~~new requirement that global intangible low-taxed income (“GILTI”) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. Under U.S. GAAP, we were allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). Our selection of an ~~entity classification change.~~ accounting policy in 2018 with respect to the GILTI tax rules was to treat GILTI tax as a current period expense under the period cost method.

As of ~~September 30, 2017,~~June 29, 2019, we continue to maintain a valuation allowance against our California and ~~certain foreign~~Switzerland deferred tax assets and recorded a valuation allowance against our U.K. deferred tax assets as of June 29, 2019 as a result of uncertainties regarding the realization of the ~~asset~~assets 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.

We are subject to taxation in the U.S. and various states including California, and foreign jurisdictions including Korea, Japan, Taiwan, China, Singapore, U.K., Ireland, Germany, France, and Israel. 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~~2011 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 ~~September 30, 2017~~June 29, 2019 and ~~September 24, 2016.~~December 29, 2018. During the next twelve months, we anticipate increases in our unrecognized tax benefits of approximately ~~$0.4~~$1.2 million.

Our principal sources of liquidity are cash and cash equivalents, and marketable securities, and cash flow generated from our operations. Our liquidity is affected by many factors, including those that relate to our specific operations and those that relate to the uncertainties of global and regional economies and the sectors of the semiconductor industry in 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, combined with cash currently projected to be generated from our operations, 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.

The following tables present selected financial information and statistics as of ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016~~29, 2018 and for the ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016~~2018 (in ~~millions)~~thousands):

	As of				As of
	September 30, 2017		December 31, 2016		June 29, 2019		December 29, 2018
Cash, cash equivalents and marketable securities	$	140.4	$	130.0	$	144,982	$	151,792
Working capital	$	205.8	$	174.4		221,224		211,108

Cash, cash equivalents and marketable securities totaled ~~$140.4~~$145.0 million at ~~September 30, 2017,~~June 29, 2019, which reflects ~~an increase~~a decrease of ~~$10.4~~$6.8 million from December ~~31, 2016.~~29, 2018. Of our total cash, cash equivalents and marketable securities at ~~September 30, 2017,~~June 29, 2019, approximately ~~$15.0~~$17.0 million ~~were~~was held by foreign subsidiaries, a portion of which would have to be repatriated to the United States.

We ~~currently do not intend nor foresee~~continuously evaluate if there is a need to repatriate these ~~funds and do not rely on unrepatriated earnings as a source of funds for our domestic business.~~funds. We believe ~~we have~~our existing cash, cash equivalents and marketable securities will be sufficient ~~cash flow~~to satisfy our working capital needs, capital asset purchases, outstanding commitments and ~~borrowing capacity in~~other liquidity requirements associated with our existing operations over at least the ~~United States to fund our domestic operations and strategic needs.~~

next twelve months. Working capital was ~~$205.8~~$221.2 million at ~~September 30, 2017,~~June 29, 2019, which reflects an increase of ~~$31.4~~$10.1 million when compared to ~~$174.4~~$211.1 million at December ~~31, 2016.~~29, 2018.

Cash ~~provided by~~used in operating activities during the ~~nine~~six months ended ~~September 30, 2017~~June 29, 2019 was ~~$15.4~~$2.4 million, consisting primarily of net income of ~~$19.4~~$6.9 million, adjusted for non-cash items of ~~$15.7~~$13.4 million, ~~partially offset by $19.7~~and $22.7 million of net cash outflows related to changes in operating assets and liabilities. The changes in operating assets and liabilities are generally driven by the timing of our customer payments for accounts receivable and the timing of inventory purchases and the associated vendor payments for accounts payable. We expect that cash provided by operating activities may fluctuate in future periods due to several factors, including variations in our operating results, accounts receivable collections performance, inventory and supply chain management, vendor payment initiatives, tax benefits or charges from stock-based compensation, and the timing and amount of compensation and other payments. The non-cash items of $13.4 million related to depreciation, amortization, inventory reserves, stock-based compensation and the disposal of fixed assets. The net cash outflows related to the use of operating assets and liabilities was primarily due to the timing of payments of variable compensation to employees, timing of tax payments and higher inventory purchases to prepare for increased revenue in the second half of 2019. These payments have been partially offset by improvements in payment terms from some vendors, resulting in higher days payables outstanding.

Cash provided by operating activities during the six months ended June 30, 2018 was $59.0 million, consisting primarily of net income of $34.1 million, adjusted for non-cash items of $13.0 million, and $11.9 million of net cash inflows related to changes in operating assets and liabilities. The changes in operating assets and liabilities were generally driven by the timing of our customer payments for accounts receivable and vendor payments for accounts payable.

Cash used in investing activities of ~~$17.8~~$17.1 million during the ~~nine~~six months ended ~~September 30, 2017~~June 29, 2019 consisted primarily of ~~$105.0~~$9.8 million of net purchases of marketable securities and payments for acquisition of property, plant and equipment ~~and certain assets~~ of ~~$4.3~~$8.3 million.

Cash provided by investing activities of $15.8 million during the six months ended June 30, 2018 consisted primarily of net of sales and maturities of marketable securities of ~~$91.5~~$19.6 million, offset in part by payments for acquisition of property, plant and equipment and certain assets of $3.8 million.

Cash provided by financing activities of $2.2 million during the six months ended June 29, 2019 consisted primarily of proceeds from the issuance of common stock under employee stock purchase program of $4.5 million, partially offset by payments of $2.3 million for taxes on net issuance of stock awards.

Cash used in financing activities of ~~$0.2~~$23.0 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 consisted primarily of ~~$3.8~~$23.0 million ~~cash paid~~of common stock repurchases and payments of $2.7 million for taxes on net issuance of stock awards, partially offset by proceeds from the issuance of common stock from the employee stock purchase program and the exercise of stock options of ~~$3.6~~$2.7 million.

On March 14, 2019 our Board of Directors authorized the repurchase of up to $80.0 million ~~during~~of our common stock. This plan is referred to as the ~~nine~~Stock Repurchase Plan. Under the terms of the Stock Repurchase Plan shares may be repurchased through open market or privately negotiated transactions. During the six months ended September 24, 2016 was a result of $17.4 million of net income, and non-cash adjustments to net income of $13.6 million partially offset by a net change in operating assets and liabilities of $3.1 million. The changes in operating assets and liabilities are generally driven byJune 29, 2019 no shares were repurchased under the ~~timing of customer payments for accounts receivable and timing of vendor payments for accounts payable. Cash used in investing activities of $39.6 million during~~Stock Repurchase Plan.

During the ~~nine~~three months ended ~~September 24, 2016 consisted primarily~~March 31, 2018, the Stock Repurchase Plan for $50.0 million that was authorized on November 15, 2017 was completed and we repurchased 896,187 shares at an average purchase price of ~~$63.8 million~~$25.65 per share for a total of ~~purchases of marketable securities, net of sales and maturities of $27.5 million, and acquisition of property, plant and equipment of $3.3~~$23.0 million. Cash provided by financing activities of $4.1 million during the nine months ended September 24, 2016 consisted primarily of $6.0 million in proceeds from the issuance of common stock from the employee stock purchase program and the exercise of stock options, partially offset by cash paid for taxes on net issuance of stock awards of $1.6 million, and royalty payments to Zygo of $0.3 million.

As of ~~September 30, 2017,~~June 29, 2019, we had no off-balance sheet arrangements or 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.~~10-K for the fiscal year ended December 29, 2018, filed with the SEC on February 25, 2019.

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 ~~31, 2016,~~29, 2018, filed with the SEC on ~~March 3, 2017.~~February 25, 2019. 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,~~balance sheet, results of operations or cash flows.

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 for transactions not denominated in each foreign entity’s functional currencies. Intercompany balances are denominated primarily in U.S. dollars and, to a lesser extent, other local currencies.

WeTo manage the level of exposure to the risk of foreign currency exchange rate fluctuations, 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 (expense), 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.

We actively monitor our foreign currency risks, but there is no guarantee that our foreign currency hedging activities will substantially offset the impact of fluctuations in currency exchange rates on our results of operations, cash flows and financial position. See “Note 3,5, Fair Value Measurement and Disclosures” in the Notes to Consolidated Financial Statements for more information regarding our derivatives and hedging activities.

Our exposure to market risk resulting from changes in interest rates relates primarily to our investment portfolio. As of ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016,~~29, 2018, we held ~~$96.3~~$50.9 million and ~~$82.9~~$40.8 million, respectively, in marketable securities. The fair value of our marketable securities could be adversely impacted due to a rise in interest rates. Assuming a hypothetical immediate and consistent increase in interest rates ~~but we do not believe such impact~~by 100 basis points from levels as of June 29, 2019, the fair value of our marketable securities would ~~be material.~~have declined by $0.2 million, as compared to $0.2 million as of December 29, 2018. Securities with longer maturities are subject to a greater interest rate risk than those with shorter maturities and as of ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016,~~29, 2018, the average duration of our portfolio was less than three months and nine ~~months.~~months, respectively. We do not hold securities for trading purposes.

Our management evaluated, with the participation of our Chief Executive Officer (“CEO”), and our ~~Chief~~Vice President, Finance (who is our Principal Financial and Accounting Officer (“~~CFO”~~PFO”)), 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 the evaluation, our CEO and ~~CFO~~PFO concluded that as of ~~September 30, 2017,~~June 29, 2019, our disclosure controls and procedures were ~~not~~ effective ~~as a result~~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 ~~material weakness~~time periods specified in our internal control over financial reporting, as described in the Report of Management on Internal Control over Financial Reporting in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2016, which continuesSEC rules and forms and (ii) accumulated and reported to ~~exist as of September 30, 2017.~~

~~Notwithstanding the identified material weakness,~~our management, including our ~~CEO~~Chief Executive Officer and CFO, believes the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP

As disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2016, our management concluded that our internal control over financial reporting was not effective at December 31, 2016.

~~Management identified the following material weakness in the Company’s internal control over financial reporting as of December 31, 2016:~~

~~The Company did not design and maintain an effective control over the existence of inventories subject~~Principal Financial Officer, to the cycle count program. Specifically, the control was not effectively designed and maintained to verify all inventories that should be subject to the cycle count program were included and were counted at the frequency levelsallow timely discussions regarding required under the Company’s policies. This control deficiency did not result in a material adjustment to the inventory and cost accounts and disclosures for the year ended December 31, 2016. However, this control deficiency could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a material weakness that had not been remediated as of September 30, 2017.

~~We are actively engaged in completing the remediation initiatives to improve the Company’s internal control which we began implementing in the beginning of fiscal 2017.~~

The Company has developed a plan of remediation to strengthen our overall controls over accounting for the existence of inventories subject to our cycle count program. Additionally, we have updated the Company’s part master with the correct cycle-count frequency requirements.

~~To address the material weakness, the following remedial actions have been implemented:~~

Our goal is to remediate this material weakness by the end of fiscal 2017, subject to there being sufficient opportunities to conclude, through testing, that the enhanced control is designed and operating effectively.disclosures.

During the quarter ended ~~September 30, 2017,~~June 29, 2019, 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.

Our management, including our CEO and ~~CFO,~~PFO, 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.

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)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	NANO	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Large accelerated filer	☐☒		Accelerated filer	☒☐
Non-accelerated filer	☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐
Emerging growth company	☐

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets at ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016~~29, 2018 (Unaudited)	3

	Condensed Consolidated Statements of Operations for the Three and ~~Nine Month Periods~~Six Months Ended ~~September~~June 29, 2019 and June 30, ~~2017and September 24, 2016~~2018 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Nine Month Periods~~Six Months Ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016~~2018 (Unaudited)	5

	Condensed Consolidated ~~Statements~~Statement of ~~Cash Flows~~Stockholders’ Equity for the ~~Nine Month Periods~~Three and Six Months Ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016~~2018 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 29, 2019 and June 30, 2018 (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	79

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2124

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2832

Item 4.	Controls and Procedures	3033

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3234

Item 1A.	Risk Factors	3334

Item 6.	Exhibits	3435

Signatures		3536

Supplemental Cash Flows Information	Amount
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used by operating leases	$	1,582
Right of use assets recognized in exchange for operating lease liabilities		698
Imputed interest - operating leases		254
Weighted average remaining lease term - operating leases (months)		61
Weighted average discount rate - operating leases (per annum)		4.88	%


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	Three Months		Six Months
	Ended		Ended
	June 29, 2019		June 29, 2019
Operating lease expense	$	924	$	1,771

Fiscal year	Amount
2019 (remainder)	$	1,833
2020		2,949
2021		2,096
2022		1,544
2023		1,249
Thereafter		2,706
Total future minimum lease payments		12,377
Less: future interest		(1,515	)
Total	$	10,862

Reported as of June 29, 2019
Operating lease liability - short term	$	2,845
Operating lease liability - long term		8,017
Total	$	10,862

	Purchase Price Allocation November 15, 2018
Cash and cash equivalents	$	1,414
Accounts receivable, net		4,156
Inventories		4,563
Prepaid and other current assets		104
Property and equipment		145
Accounts payable		(702	)
Accrued liabilities		(760	)
Deferred revenue		(197	)
Deferred tax liabilities		(5,408	)
Total assets acquired/liabilities assumed		3,315
Developed technology		15,500
In-process research and development		1,400
Customer relationships		4,600
Order backlog		500
Trade name		1,500
Total identified intangible assets		23,500
Total identifiable net assets		26,815
Goodwill		15,700
Total purchase consideration	$	42,515

	June 29, 2019		December 29, 2018
Contract assets	$	4,399	$	2,189
Contract liabilities		11,481		10,743
Net contract liabilities	$	7,082	$	8,554

	Foreign Currency Translations			Defined Benefit Pension Plans			Unrealized Income (Loss) on Investment			Accumulated Other Comprehensive Income
Balance as of December 31, 2016	$	(5,817	)	$	(227	)	$	(2	)	$	(6,046	)
Current period change		3,470			—			(2	)		3,468
Balance as of September 30, 2017	$	(2,347	)	$	(227	)	$	(4	)	$	(2,578	)

	(in thousands)
Balance as of December 31, 2016	$	8,940
Foreign currency movements		1,159
Balance as of September 30, 2017	$	10,099

	Three Month Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
Weighted average common shares outstanding used in basic net income (loss) per share calculation		25,494		24,826		25,320		24,550
Potential dilutive common stock equivalents, using treasury stock method		438		456		613		429
Weighted average shares used in diluted net income (loss) per share calculation		25,932		25,282		25,933		24,979

	2017 Award		2016 Award
Grant Date Fair Value Per Share		26.75	$	8.52
Weighted-average assumptions/inputs:
Expected Dividend		—		—
Range of risk-free interest rates		1.40%		0.92%
Range of expected volatilities for peer group	23%-62%		22%-93%

	2019 Award		2018 Award
Grant Date Fair Value Per Share	$13.12-$23.75		$20.73-$25.18
Weighted-average assumptions/inputs:
Expected Dividend		—		—
Range of risk-free interest rates	2.45%		2.39%-2.63%
Range of expected volatilities for peer group	22%-63%		22%-66%

	At
	September 30, 2017		December 31, 2016
Samsung Electronics Co. Ltd.		23%		14%
Micron Technology, Inc.		27%		12%
Taiwan Semiconductor Manufacturing Company Limited	***			20%
Intel Corporation		11%		11%
Toshiba Corporation	***			10%

~~Exhibit No.~~		~~Description~~
~~3.(i)~~		~~Certificate of Incorporation~~

~~3.1(1)~~		~~Certificate of Incorporation of the Registrant~~

~~3.(ii)~~		~~Bylaws~~

~~3.2~~ ~~(2)~~		~~Bylaws of the Registrant~~

4		~~Instruments Defining the Rights of Security Holders, Including Indentures~~

~~4.1~~		~~Reference is made to Exhibits~~ ~~3.1~~ ~~and~~ ~~3.2~~

10		~~Material Contracts~~

~~10.1 (3)~~		~~Transition and Consulting Agreement, dated as of August 9, 2017, between Nanometrics Incorporated and Timothy J. Stultz.~~

31		~~Rule 13a-14(a)/15d-14(a) Certifications~~

~~31.1~~^		~~Certification of Timothy J. Stultz, principal executive officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31.2~~^		~~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~~*		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*		The following financial statements, formatted in XBRL: (i) Condensed Consolidated Balance Sheets at September 30, 2017, and December 31, 2016, (ii) Condensed Consolidated Statements of Operations for the three and three months ended September 30, 2017 and September 24, 2016, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and September 24, 2016, 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~~

~~(2)~~	~~Incorporated by reference to Exhibit 3.1 filed with the Registrant’s Current Report on Form 8-K (File No. 000-13470) filed with the SEC on April 12, 2012.~~
~~(3)~~	~~Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K (File No. 000-13470) filed with the SEC on August 11, 2017~~.

Exhibit No.	Description	Form	File Number	Date of First Filing	Exhibit Number/ Appendix Reference
2	Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1	Agreement and Plan of Merger by and among Registrant, Rudolph Technologies, Inc., and PV Equipment, Inc., dated June 23, 2019	8-K	000-13470	6/24/2019	2.1
3.(i)	Certificate of Incorporation
3.1	Certificate of Incorporation of the Registrant	8-K	000-13470	10/5/2006	3.1
3.(ii)	Bylaws
3.2	Bylaws of the Registrant	-	-	-	-
4	Instruments Defining the Rights of Security Holders, Including Indentures
4.1	Reference is made to Exhibits 3.1 and 3.2	-	-	-	-
31	Rule 13a-14(a)/15d-14(a) Certifications
31.1	Certification of Pierre-Yves Lesaicherre, principal executive officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	-	-	-	-
31.2	Certification of Greg Swyt, principal financial officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	-	-	-	-
32	Section 1350 Certifications
32.1	Certification of Pierre-Yves Lesaicherre, principal executive officer of the Registrant, and Greg Swyt, principal financial officer of the Registrant pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies this report and shall, not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of §18 of the Securities Exchange Act of 1934, as amended.	-	-	-	-
101	The following financial statements, formatted in XBRL: (i) Condensed Consolidated Balance Sheets at June 29, 2019 and December 29, 2018, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 29, 2019 and June 30, 2018, (iii) Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 29, 2019 and June 30, 2018, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2019 and June 30, 2018, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
101.INS	XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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

	NANOMETRICS INCORPORATED
	(Registrant)

	By:		/S~~/ JEFFREY ANDRESON~~s/ GREG SWYT
			~~Jeffrey Andreson~~Greg Swyt
			~~Chief Financial Officer~~Vice President, Finance
			(Duly Authorized ~~and~~Officer, Principal Financial and Accounting Officer)