STOCKHOLDERS’ EQUITY

Share-Based Compensation

The components of the Company's share-based compensation expense are summarized below:



	Years Ended
	December 31, 2013		December 31, 2012		December 31, 2011
	(in thousands)
Employee stock options	$	1,644	$	3,470	$	5,685
Employee stock purchase plan	2,858		3,107		2,511
Restricted stock units	37,952		65,397		60,906
Net amounts released from (capitalized in) inventory	670		468		(977		)
	$	43,124	$	72,442	$	68,125

The accounting standard on share-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 share-based compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company reported gross excess tax benefits of $2.3 million, $1.3 million and $2.7 million in the years ended December 31, 2013, 2012 and 2011, respectively.

There was no significant non-employee share-based compensation expense for the years ended December 31, 2013, 2012 and 2011.

The following table summarizes share-based compensation, net of amount capitalized in (released from) inventory, included in operating results:



	Years Ended
	December 31, 2013			December 31, 2012			December 31, 2011
	(in thousands)
Cost of revenue	$	5,889		$	8,052		$	7,840
Research and development	14,852			22,825			22,916
Selling, general and administrative	22,383			41,565			37,369
Total share-based compensation expense, before income taxes	43,124			72,442			68,125
Tax benefit	(7,707		)	(12,060		)	(10,453		)
Total share-based compensation expense, net of income taxes	$	35,417		$	60,382		$	57,672

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”). On May 9, 2013, Atmel's stockholders approved an amendment to the 2005 Stock Plan to increase the number of shares allocated to the 2005 Stock Plan by 25.0 million shares. As of December 31, 2013, 158.0 million shares had been authorized for issuance under the 2005 Stock Plan, and 21.2 million shares remained available for issuance without giving effect to any adjustment that may be required by the terms of the 2005 Stock Plan in respect of shares underlying restricted stock or restricted stock units. 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. Restricted stock units generally vest on a quarterly basis over a service period of up to four years from the grant date, although restricted stock unit grants to newly-hired employees generally have a one-year cliff vest equal to one-quarter of the total grant. 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 for per share data)
Balances, December 31, 2010	11,463		12,660		$1.68-$14.94	$	4.35
Additional shares approved for issuance	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	)	—		—	—
Plan 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
Additional shares approved for issuance	25,000		—		—	—
Restricted stock units issued	(7,922	)	—		—	—
Plan adjustment for restricted stock units issued	(4,563	)	—		—	—
Restricted stock units cancelled	2,084		—		—	—
Plan adjustment for restricted stock units cancelled	1,388		—		—	—
2014 Plan - Performance-based restricted stock units issued	(1,048	)	—		—	—
Plan adjustment for 2014 performance-based restricted stock units issued	(597	)	—		—	—
2011 Plan - Performance-based restricted stock units cancelled	422		—		—	—
Plan adjustment for 2011 performance-based restricted stock units cancelled	257		—		—	—
Options cancelled/expired/forfeited	76		(76	)	$1.77-$7.12	$	4.95
Options exercised	—		(2,964	)	$1.68-$7.12	$	4.12
Balances, December 31, 2013	21,245		3,635		$2.13-$10.01	$	4.50

In connection with the Company's acquisition of Ozmo in December 2012, the Company 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. Every share underlying restricted stock, restricted stock units (including performance-based restricted stock units), or stock purchase rights issued on or after May 9, 2013 is counted against the numerical limit for options available for grant as 1.57 shares, as reflected in the table above in the line items for "Plan adjustments", except that restricted stock units (including performance-based restricted stock units), or stock purchase rights issued prior to May 9, 2013 but on or after May 18, 2011, provide for a numerical limit of 1.61 shares, and restricted stock units (including performance-based restricted stock units), or stock purchase rights issued prior to May 18, 2011 and on or after May 14, 2008, 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 are cancelled, forfeited or repurchased by the Company, the number of shares returned to the 2005 Stock Plan is based upon the same ratio as they were issued and will again become available for issuance.

As of December 31, 2013, there were 21.2 million shares available for issuance under the 2005 Stock Plan, or 13.5 million shares after giving effect to the applicable ratios under the 2005 Stock Plan for issuances of restricted stock units, as described above. 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 for per share data)
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
2011 Plan - Performance-based restricted stock units issued	3,474		$	13.94
2011 Plan - Performance-based restricted stock units vested	(8,485	)	$	4.22
2011 Plan - 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
2011 Plan - Performance-based restricted stock units issued	338		$	9.19
2011 Plan - Performance-based restricted stock units cancelled	(330	)	$	12.31
Balances, December 31, 2012	21,944		$	8.71
Restricted stock units issued	7,922		$	7.36
Restricted stock units vested	(7,271	)	$	7.30
Restricted stock units cancelled	(2,084	)	$	8.25
2014 Plan - Performance-based restricted stock units issued	1,048		$	7.33
2011 Plan - Performance-based restricted stock units cancelled	(422	)	$	13.50
Balances, December 31, 2013	21,137		$	8.84

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, 2013, 7.3 million restricted stock units vested, including 3.3 million units withheld for taxes. These vested restricted stock units had a weighted-average grant date fair value of $7.30 per share for the year ended December 31, 2013. The aggregate intrinsic value of vested restricted stock units amounted to $53.5 million, $54.2 million and $193.5 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, total unearned share-based compensation related to unvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $120.6 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 2.2 years.

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

On December 17, 2013, the Company adopted the Atmel 2014 Long-Term Performance-Based Incentive Plan (the “2014 Plan”), which provides for the grant of restricted stock units to Company participants. The Company issued 1.0 million shares under the 2014 Plan for the year ended December 31, 2013. The amount of share-based compensation expense related to the 2014 Plan was not material for the year ended December 31, 2013. The Company records performance-based restricted stock units issued under the 2014 Plan based on achievement of the “target” performance metrics, which will result in a participant being credited with 100% of the performance-based shares awarded to that participant under the 2014 Plan. Achievement at the “maximum” performance metrics will result in a participant being credited with 300% of the performance-based shares awarded to that participant under the 2014 Plan.

Performance metrics for the 2014 Plan are based principally on corporate level and business unit non-GAAP semiconductor gross margin metrics, calculated at the end of each 2014 calendar quarter (other than the Company’s XSense business unit for which the performance metric will be based on 2014 cumulative calendar year revenue). Vesting of restricted stock units under the 2014 Plan is expected to commence, assuming achievement of the underlying performance metrics, in the first calendar quarter of 2015. Performance metrics and awards are not cumulative or duplicative (the final award will be based, subject to adjustment, on the highest non-GAAP semiconductor gross margin achieved during the performance period). Performance-based shares may be credited to participants at the end of any calendar quarter if a non-GAAP semiconductor gross margin performance metric has been achieved at that quarter end. Additional performance-based shares may be credited for performance that falls between “threshold” and “target” or “target” and “maximum” metrics. In the event that a performance metric is achieved and the applicable non-GAAP semiconductor gross margin performance metric, in the next succeeding 2014 calendar quarter, falls more than 2% percent below the previously achieved performance metric, the number of performance-based shares credited to a participant will be adjusted, based on average performance over the affected quarterly periods, to reflect that reduced performance.

For participants who are included within the 2014 Plan at any time after January 1, 2014, awards will be pro-rated to reflect the actual time a participant has been an employee of, or a service provider to, the Company. The amount of share-based compensation expense related to the 2014 Plan was not material for the year ended December 31, 2013.

In May 2011, we adopted the 2011 Long-Term Performance Based Incentive Plan (the “2011 Plan”), which ended on December 31, 2013. We recognized a share-based compensation credit of $14.5 million under the 2011 Plan in the year ended December 31, 2013. The credit recorded in the year ended December 31, 2013 resulted from finalizing our estimates regarding the achievement of certain performance criteria established under the 2011 Plan and increasing our forfeiture rate estimates for those performance-based restricted stock units. We recorded total share-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.

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 for per share prices and life data)
2.13-3.18	21	1.55	2.35	$	112	21	1.55	2.35	$	112
3.24-3.24	413	4.29	3.24	1,896		413	4.29	3.24	1,896
3.26-3.29	371	1.77	3.28	1,686		371	1.77	3.28	1,686
3.32-4.20	381	4.67	3.95	1,480		381	4.67	3.95	1,480
4.23-4.37	380	3.32	4.26	1,359		340	3.36	4.26	1,215
4.43-4.70	320	5.48	4.45	1,083		320	5.48	4.45	1,083
4.74-4.74	421	3.61	4.74	1,301		421	3.62	4.74	1,301
4.77-4.78	59	6.07	4.77	182		53	6.06	4.77	162
4.89-4.89	453	2.60	4.89	1,330		452	2.60	4.89	1,330
4.92-10.01	816	3.69	5.77	1,680		801	3.64	5.75	1,665
	3,635	3.67	4.50	$	12,109	3,573	3.66	4.49	$	11,930

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, 2013, 2012 and 2011 were 3.6 million, 6.2 million and 6.4 million, respectively. For the years ended December 31, 2013, 2012 and 2011, 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, 2013, 2012 and 2011, the number of stock options that were exercised were 3.0 million, 1.2 million and 4.3 million, respectively, which had a total intrinsic value at the date of exercise of $9.4 million, $4.8 million and $42.0 million, respectively, and had an aggregate exercise price of $12.2 million, $4.6 million and $19.3 million, respectively.

As of December 31, 2013, total unearned compensation expense related to unvested stock options was approximately $0.3 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 0.5 year.

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 subject to a maximum annual employee contribution limit of $25,000 of the market value of the shares (determined at the time the share is granted) per calendar year.

There were 0.8 million shares purchased under the 1991 ESPP for the years ended December 31, 2011 at an average price per share of $4.85. The 1991 ESPP was superseded by the 2010 ESPP in the three months ended March 31, 2011. There were 1.9 million, 1.8 million and 0.7 million shares purchased under the 2010 ESPP for the years ended December 31, 2013, 2012 and 2011 at an average price per share of $5.52, $6.19 and $8.56, respectively. Of the 25.0 million shares authorized for issuance under the 2010 ESPP, 20.6 million shares were available for issuance at December 31, 2013.

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, 2013		December 31, 2012		December 31, 2011
Risk-free interest rate	0.10	%	0.15	%	0.12	%
Expected life (years)	0.50		0.50		0.50
Expected volatility	44	%	51	%	46	%
Expected dividend yield	—		—		—

The weighted-average fair value per share under the Company’s ESPPs for purchase periods beginning in the years ended December 31, 2013, 2012 and 2011 was $1.49, $1.75 and $2.70, respectively. Cash proceeds from the issuance of shares under the Company’s ESPPs were $10.6 million, $11.0 million and $9.4 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Common Stock Repurchase Program

Atmel’s Board of Directors has authorized an aggregate of $1,000.0 million of funding for the Company’s common stock repurchase program since 2010. 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, 2013, $339.5 million remained available for repurchasing common stock under this program.

During the years ended December 31, 2013, 2012 and 2011, Atmel repurchased 12.2 million, 22.7 million and 28.8 million shares, respectively, of its common stock on the open market at an average repurchase price of $7.20, $7.92 and $10.57 per share, respectively, excluding commission, and subsequently retired those shares. Common stock and additional paid-in capital were reduced by $87.8 million, $179.6 million and $304.2 million, excluding commission, for the years ended December 31, 2013, 2012 and 2011, respectively, as a result of the stock repurchases.