STOCKHOLDERS’ EQUITY

Stock-Based Compensation

The components of the Company's stock-based compensation expense for the years ended December 31, 2012, 2011 and 2010 are summarized below:



	Years Ended
	December 31, 2012		December 31, 2011			December 31, 2010
	(in thousands)
Employee stock options	$	3,470	$	5,685		$	9,230
Employee stock purchase plan	3,107		2,511			1,844
Restricted stock units	65,397		60,906			50,478
Net amounts released from (capitalized in) inventory	468		(977		)	(1,042		)
	$	72,442	$	68,125		$	60,510

The table above excludes stock-based compensation credit of $3.1 million for the year ended December 31, 2010, for former Quantum executives related to the Quantum acquisition in 2008, which is classified within acquisition-related charges in the consolidated statements of operations.

The accounting standard on stock-based compensation requires the gross benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. The future realizability of tax benefits related to stock compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company reported gross excess tax benefits of $1.3 million, $2.7 million and $3.1 million in the years ended December 31, 2012, 2011 and 2010, respectively.

There was no significant non-employee stock-based compensation expense for the years ended December 31, 2012, 2011 and 2010.

The following table summarizes stock-based compensation, net of amount capitalized in (released from) inventory, included in operating results for the years ended December 31, 2012, 2011 and 2010:



	Years Ended
	December 31, 2012			December 31, 2011			December 31, 2010
	(in thousands)
Cost of revenue	$	8,052		$	7,840		$	8,159
Research and development	22,825			22,916			19,324
Selling, general and administrative	41,565			37,369			33,027
Total stock-based compensation expense, before income taxes	72,442			68,125			60,510
Tax benefit	(12,060		)	(10,453		)	(7,548		)
Total stock-based compensation expense, net of income taxes	$	60,382		$	57,672		$	52,962

Stock Options, Restricted Stock Units and Employee Stock Purchase Plan

In May 2005, Atmel’s stockholders initially approved Atmel’s 2005 Stock Plan (as amended, the “2005 Stock Plan”). As of December 31, 2012, 133.0 million shares were authorized for issuance under the 2005 Stock Plan. Under the 2005 Stock Plan, Atmel may issue common stock directly, grant options to purchase common stock or grant restricted stock units payable in common stock to employees, consultants and directors of Atmel. Options, which generally vest over four years, are granted at fair market value on the date of the grant and generally expire ten years from that date.

Activity under Atmel’s 2005 Stock Plan is set forth below:



			Outstanding Options			Weighted-
					Exercise	Average
	Available for Grant		Number of Options		Price per Share	Exercise Price per Share
	(in thousands, except per share data)
Balances, December 31, 2009	28,478		18,828		$1.68-$24.44	$	4.38
Restricted stock units issued	(11,701	)	—		—	—
Plan adjustment for restricted stock units issued	(9,127	)	—		—	—
Performance-based restricted stock units issued	(472	)	—		—	—
Plan adjustment for performance-based restricted stock units issued	(368	)	—		—	—
Restricted stock units cancelled	2,151		—		—	—
Plan adjustment for restricted stock units cancelled	1,678		—		—	—
Options granted	(315	)	315		$4.77-$10.01	5.39
Options cancelled/expired/forfeited	1,139		(1,139	)	$2.11-$24.44	5.79
Options exercised	—		(5,344	)	$1.68-$10.82	4.21
Balances, December 31, 2010	11,463		12,660		$1.68-$14.94	$	4.35
Additional shares authorized	19,000		—		—	—
Restricted stock units issued	(6,343	)	—		—	—
Plan adjustment for restricted stock units issued	(4,017	)	—		—	—
Performance-based restricted stock units issued	(3,474	)	—		—	—
Plan adjustment for performance-based restricted stock units issued	(2,124	)	—		—	—
Restricted stock units cancelled	1,025		—		—	—
Plan adjustment for restricted stock units cancelled	793		—		—	—
Performance-based restricted stock units cancelled	25		—		—	—
Plan adjustment for performance-based restricted stock units cancelled	17		—		—	—
Options cancelled/expired/forfeited	158		(158	)	$2.11-$14.94	5.01
Options exercised	—		(4,285	)	$1.80-$13.77	4.51
Balances, December 31, 2011	16,523		8,217		$1.68-$10.01	$	4.26
Restricted stock units issued	(8,507	)	—		—	—
Plan adjustment for restricted stock units issued	(5,189	)	—		—	—
Performance-based restricted stock units issued	(338	)	—		—	—
Adjustment for performance-based restricted stock units issued	(206	)	—		—	—
Restricted stock units cancelled	1,783		—		—	—
Plan adjustment for restricted stock units cancelled	1,248		—		—	—
Performance-based restricted stock units cancelled	330		—		—	—
Plan adjustment for performance-based restricted stock units cancelled	201		—		—	—
Options cancelled/expired/forfeited	303		(303	)	$2.11-$8.83	4.05
Options exercised	—		(1,239	)	$1.68-$8.89	3.76
Balances, December 31, 2012	6,148		6,675		$1.68-$10.01	$	4.33

In connection with the Company's acquisition of Ozmo, we assumed Ozmo's equity incentive plan. Excluded from the table above are 0.4 million shares assumed as part of the acquisition of Ozmo. This amount is comprised of 0.3 million restricted stock units, with a weighted average grant date fair value of $6.17 and 0.1 million options, with a weighted average grant date fair value of $0.81. These stock options and restricted stock units remain governed by the terms and conditions of the Ozmo plan. No additional equity is expected to be granted under the Ozmo plan.

Restricted stock units are granted from the pool of options available for grant. As the result of an amendment and restatement of the 2005 Stock Plan in May 2011, every share underlying restricted stock, restricted stock units (including performance based restricted stock units), or stock purchase rights issued on or after May 18, 2011 (the date on which the amendment and restatement became effective) is counted against the numerical limit for options available for grant as 1.61 shares in the table above, as reflected in the line items for "Plan adjustments", except that restricted stock units (including performance based restricted stock units), and stock purchase rights issued prior to May 18, 2011, continue to be governed by an earlier amendment to the 2005 Stock Plan that provided for a numerical limit of 1.78 shares. If shares issued pursuant to any restricted stock, restricted stock unit, and stock purchase right agreements granted on or after May 18, 2011 are cancelled, forfeited or repurchased by the Company or would otherwise return to the 2005 Stock Plan, 1.61 times the number of those shares will return to the 2005 Stock Plan and will again become available for issuance. The Company issued 14.8 million shares of restricted stock units from May 18, 2011 to December 31, 2012 (net of cancellations) resulting in a reduction, based on a 1.61 to 1.0 ratio, of 23.7 million shares available for grant under the 2005 Stock Plan from May 18, 2011 to December 31, 2012. As of December 31, 2012, there were 6.1 million shares available for issuance under the 2005 Stock Plan, or 3.8 million shares after giving effect to the 1.61 to 1.0 ratio applicable under the 2005 Stock Plan for issuances of restricted stock units made on or after May 18, 2011. The shares assumed as part of the Ozmo acquisition were not issued under the 2005 Stock Plan.

Restricted Stock Units

Activity related to restricted stock units is set forth below:



	Number of Units		Weighted-Average Grant Date Fair Value
	(in thousands, except per share data)
Balances, December 31, 2009	24,044		$	4.29
Restricted stock units issued	11,701		7.97
Restricted stock units vested	(4,816	)	4.56
Restricted stock units cancelled	(1,200	)	4.16
Performance-based restricted stock units issued	472		5.49
Performance-based restricted stock units cancelled	(951	)	4.10
Balances, December 31, 2010	29,250		$	5.74
Restricted stock units issued	6,343		10.88
Restricted stock units vested	(6,345	)	5.20
Restricted stock units cancelled	(1,025	)	6.80
Performance-based restricted stock units issued	3,474		13.94
Performance-based restricted stock units vested	(8,485	)	4.22
Performance-based restricted stock units cancelled	(25	)	9.77
Balances, December 31, 2011	23,187		$	8.99
Restricted stock units issued	8,507		6.11
Restricted stock units vested	(7,975	)	6.80
Restricted stock units cancelled	(1,783	)	7.81
Performance-based restricted stock units issued	338		9.19
Performance-based restricted stock units cancelled	(330	)	12.31
Balances, December 31, 2012	21,944		$	8.71

Excluded from the table above are 0.3 million restricted stock units, with a weighted average grant date fair value of $6.17, assumed as part of the acquisition of Ozmo.

For the year ended December 31, 2012, 8.0 million restricted stock units vested, including 2.1 million units withheld for taxes. These vested restricted stock units had a weighted-average grant date fair value of $6.80 per share for the year ended December 31, 2012. As of December 31, 2012, total unearned stock-based compensation related to unvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $140.8 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 2.44 years.

For the year ended December 31, 2011, 6.3 million restricted stock units vested, including 2.3 million units withheld for taxes. These vested restricted stock units had a weighted-average grant date fair value of $5.20 per share on the vesting dates for the year ended December 31, 2011.

For the year ended December 31, 2010, 4.8 million restricted stock units vested, including 1.4 million units withheld for taxes. These vested restricted stock units had a weighted-average grant date fair value of $4.56 per share on the vesting dates.

Until restricted stock units are vested, they do not have the voting rights of common stock and the shares underlying such restricted stock units are not considered issued and outstanding. Upon vesting of restricted stock units, shares withheld by the Company to pay taxes are retired.

Performance-Based Restricted Stock Units

In the quarter ended June 30, 2011, 8.5 million performance based restricted stock units issued under the Company's 2008 Incentive Plan (the "2008 Plan") vested upon board of director approval on May 23, 2011 as a result of the Company achieving all of the performance criteria as of March 31, 2011. A total of 5.1 million shares were issued to participants, net of withholding taxes of 3.3 million shares, which represented all remaining shares available under the 2008 Plan. These vested performance based restricted stock units had a weighted average grant date fair value of $4.22 per share on the vesting date. The Company recorded total stock based compensation expense related to performance based restricted stock units of $6.5 million and $24.8 million under the 2008 Plan in the years ended December 31, 2011 and 2010, respectively.

In May 2011, the Company adopted the 2011 Long-Term Performance Based Incentive Plan (the “2011 Plan”), which provides for the grant of restricted stock units to eligible employees. Vesting of restricted stock units granted under the 2011 Plan is subject to the satisfaction of performance metrics tied to revenue growth and operating margin over the designated performance periods. The performance periods for the 2011 Plan run from January 1, 2011 through December 31, 2013 and consist of three one-year performance periods (calendar years 2011, 2012 and 2013) and a three year cumulative performance period. The Company issued 0.3 million and 3.5 million performance-based restricted stock units in the years ended December 31, 2012 and 2011, respectively. The Company recorded total stock-based compensation expense related to performance-based restricted stock units of $12.7 million and $7.5 million under the 2011 Plan in the years ended December 31, 2012 and 2011, respectively.

The 2011 Plan performance metrics include revenue growth rankings for the Company relative to a semiconductor peer group or a microcontroller peer group, as determined by the Compensation Committee. In addition, in order for a participant to receive credit for a performance period, the Company must achieve a minimum operating margin during such performance period, measured on a pro forma basis as defined in the 2011 Plan, subject to adjustment by the Compensation Committee. Management evaluates, on a quarterly basis, the likelihood of the Company meeting its performance metrics in determining stock-based compensation expense for performance share plans.

Stock Option Awards



Options Outstanding							Options Exercisable
Range of Exercise Price	Number Outstanding	Weighted- Average Remaining Contractual Term (years)	Weighted- Average Exercise Price		Aggregate Intrinsic Value		Number Exercisable	Weighted- Average Remaining Contractual Term (years)	Weighted- Average Exercise Price		Aggregate Intrinsic Value
(In thousands, except per share prices and life data)
1.68-3.29	920	3.86	$	3.20	$	3,079	920	3.86	$	3.20	$	3,079
3.32-3.32	1,047	5.21	3.32		3,381		1,047	5.20	3.32		3,381
3.41-4.20	833	5.64	4.13		2,018		810	5.61	4.13		1,961
4.23-4.37	524	4.04	4.25		1,203		367	4.11	4.26		807
4.43-4.43	873	6.71	4.43		1,850		635	6.71	4.43		1,345
4.56-4.78	589	4.70	4.74		1,064		543	4.55	4.74		983
4.89-4.89	813	3.60	4.89		1,349		813	3.60	4.89		1,349
4.92-6.05	717	4.06	5.42		807		717	4.15	5.42		794
6.11-7.38	348	3.77	6.31		98		319	3.72	6.33		86
10.01-10.01	11	7.87	10.01		—		7	7.88	10.01		—
	6,675	4.75	$	4.33	$	14,849	6,178	4.67	$	4.32	$	13,785

Excluded from the table above are 0.1 million options, with a weighted average grant date fair value of $0.81, assumed as part of the acquisition of Ozmo.

The number of options exercisable under Atmel's stock option plans at December 31, 2012, 2011 and 2010 were 6.2 million, 6.4 million and 8.5 million, respectively. For the years ended December 31, 2012, 2011 and 2010, the number of stock options that were forfeited, but were not available for future stock option grants due to the expiration of these shares under the 1986 Stock Plan was not material.

For the years ended December 31, 2012, 2011 and 2010 , the number of stock options that were exercised were 1.2 million, 4.3 million and 5.3 million, respectively, which had a total intrinsic value at the date of exercise of $4.8 million, $42.0 million and $24.8 million, respectively, and had an aggregate exercise price of $4.6 million, $19.3 million and $22.5 million, respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:



	Year Ended
	December 31, 2010
Risk-free interest rate	2.05	%
Expected life (years)	5.54
Expected volatility	54	%
Expected dividend yield	—

No options were granted for the years ended December 31, 2012 and 2011.

The Company's weighted-average assumptions for the year ended December 31, 2010 were determined in accordance with the accounting standard on stock-based compensation and are further discussed below.

The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding and was derived based on an evaluation of the Company's historical settlement trends including an evaluation of historical exercise and expected post-vesting employment-termination behavior. The expected life of employee stock options impacts all underlying assumptions used in the Company's Black-Scholes option-pricing model, including the period applicable for risk-free interest and expected volatility.

The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the Company's employee stock options.

The Company calculates the historic volatility over the expected life of the employee stock options and believes this to be representative of the Company's expectations about its future volatility over the expected life of the option.

The dividend yield assumption is based on the Company's history and expectation of dividend payouts.

The weighted-average estimated fair value of options granted for the year ended December 31, 2010 was $2.70.

As of December 31, 2012, total unearned compensation expense related to unvested stock options was approximately $1.6 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 1.08 years.

Employee Stock Purchase Plan

Under the 1991 Employee Stock Purchase Plan (“1991 ESPP”) and 2010 Employee Stock Purchase Plan (“2010 ESPP” and, together with the 1991 ESPP, the “Company’s ESPPs”), qualified employees are entitled to purchase shares of Atmel’s common stock at the lower of 85% of the fair market value of the common stock at the date of commencement of the 6 month offering period or 85% of the fair market value on the last day of the offering period. Purchases are limited to 10% of an employee’s eligible compensation. There were 0.8 million and 2.0 million shares purchased under the 1991 ESPP for the years ended December 31, 2011 and 2010, at an average price per share of $4.85 and $3.65, respectively. There were 1.8 million and 0.7 million shares purchased under the 2010 ESPP for the years ended December 31, 2012 and 2011 at an average price per share of $6.19 and $8.56, respectively. The 1991 ESPP was superseded by the 2010 ESPP in the three months ended March 31, 2011. Of the 25.0 million shares authorized for issuance under the 2010 ESPP, 22.5 million shares were available for issuance at December 31, 2012.

The fair value of each purchase under the Company’s ESPPs is estimated on the date of the beginning of the offering period using the Black-Scholes option-pricing model. The following assumptions were utilized to determine the fair value of the Company’s ESPPs shares:



	Years Ended
	December 31, 2012		December 31, 2011		December 31, 2010
Risk-free interest rate	0.15	%	0.12	%	0.18	%
Expected life (years)	0.50		0.50		0.50
Expected volatility	51	%	46	%	45	%
Expected dividend yield	—		—		—

The weighted-average fair value purchase price per share under the Company’s ESPPs for purchase periods beginning in the years ended December 31, 2012, 2011 and 2010 was $1.75, $2.70 and $0.89, respectively. Cash proceeds from the issuance of shares under the Company’s ESPPs were $11.0 million, $9.4 million and $7.4 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Common Stock Repurchase Program

Atmel’s Board of Directors authorized an aggregate of $700.0 million of funding for the Company’s stock repurchase program. The repurchase program does not have an expiration date, and the number of shares repurchased and the timing of repurchases are based on the level of the Company’s cash balances, general business and market conditions, regulatory requirements, and other factors, including alternative investment opportunities. As of December 31, 2012, $127.2 million remained available for repurchasing common stock under this program.

During the years ended December 31, 2012, 2011 and 2010, Atmel repurchased 22.7 million, 28.8 million and 11.7 million shares, respectively, of its common stock on the open market at an average repurchase price of $7.92, $10.57 and $7.59 per share, respectively, excluding commission, and subsequently retired those shares. Common stock and additional paid-in capital were reduced by $179.6 million, $304.2 million and $89.2 million, excluding commission, for the years ended December 31, 2012, 2011 and 2010, respectively, as a result of the stock repurchases.