STOCKHOLDERS’ EQUITY

Share-Based Compensation

The following table summarizes share-based compensation, net of the amount capitalized in inventory, included in operating results:



	Three Months Ended						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(in thousands)
Cost of revenue	$	1,971		$	1,609		$	3,287		$	3,453
Research and development	4,383			3,016			9,112			7,624
Selling, general and administrative	8,924			2,855			18,496			11,165
Total share-based compensation expense, before income taxes	15,278			7,480			30,895			22,242
Tax benefit	(3,320		)	(563		)	(6,244		)	(3,169		)
Total share-based compensation expense, net of income taxes	$	11,958		$	6,917		$	24,651		$	19,073

Restricted Stock Units, Employee Stock Purchase Plan and Stock Options

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 June 30, 2014, 158.0 million shares had been cumulatively authorized for issuance under the 2005 Stock Plan, and 25.8 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, 2013	21,245		3,635		$2.13-$10.01	$	4.50
Restricted stock units issued	(201	)
Plan adjustment for restricted stock units issued	(115	)
Restricted stock units cancelled	211
Plan adjustment for restricted stock units cancelled	134
Performance-based restricted stock units cancelled	47
Plan adjustment for performance-based restricted stock units cancelled	29
Options cancelled/expired/forfeited	2		(2	)	$4.92-$7.25	$	6.02
Options exercised	—		(322	)	$2.65-$7.38	$	4.30
Balances, March 31, 2014	21,352		3,311		$2.13-$10.01	$	4.52
Restricted stock units issued	(330	)
Plan adjustment for restricted stock units issued	(188	)
Restricted stock units cancelled	532
Plan adjustment for restricted stock units cancelled	327
Performance-based restricted stock units cancelled	2,559
Plan adjustment for performance-based restricted stock units cancelled	1,561
Options cancelled/expired/forfeited	1		(1	)	$5.75-$5.75	$	5.75
Options exercised	—		(85	)	$3.18-$6.28	$	4.00
Balances, June 30, 2014	25,814		3,225		$2.13-$10.01	$	4.53

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, is counted against the numerical limit for options available for grant as 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, is counted against the numerical limit for options available for grant as 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 will be multiplied by the same ratios above under which such shares were issued and will again become available for issuance.

As of June 30, 2014, there were 25.8 million shares available for issuance under the 2005 Stock Plan, or 16.4 million shares after giving effect to the applicable ratios under the 2005 Stock Plan for issuances of restricted stock units, as described above.

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, 2013	21,137		$	8.84
Restricted stock units issued	201		8.12
Restricted stock units vested	(1,629	)	7.91
Restricted stock units cancelled	(211	)	8.02
Performance-based restricted stock units cancelled	(47	)	13.83
Balances, March 31, 2014	19,451		$	9.08
Restricted stock units issued	330		8.20
Restricted stock units vested	(2,051	)	7.81
Restricted stock units cancelled	(532	)	7.84
Performance-based restricted stock units cancelled	(2,559	)	13.47
Balances, June 30, 2014	14,639		$	8.52

As of June 30, 2014, total unearned share-based compensation related to unvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $90.1 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 2.05 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 performance-based 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 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 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 performance-based 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 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 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 gross margin performance metric, in the next succeeding 2014 calendar quarter, falls more than 2% 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 Company recorded total share-based compensation expense related to performance-based restricted stock units of $0.9 million and $2.0 million under the 2014 Plan in the three and six months ended June 30, 2014, respectively.

The performance period under the Company's 2011 Long-Term Performance-Based Incentive Plan (the “2011 Plan"), adopted in May 2011, ended on December 31, 2013. The total performance-based restricted stock units forfeited under the 2011 Plan were 3.3 million.

Employee Stock Purchase Plan

Under the 2010 Employee Stock Purchase Plan (“2010 ESPP”), 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 six-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 and 1.0 million shares purchased under the 2010 ESPP for the six months ended June 30, 2014 and 2013 at an average price per share of $6.43 and $5.00, respectively. Of the 25.0 million shares authorized for issuance under the 2010 ESPP, 19.8 million shares were available for issuance at June 30, 2014.

The fair value of each purchase under the 2010 ESPP 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 2010 ESPP shares:



	Three and Six Months Ended
	June 30, 2014		June 30, 2013
Risk-free interest rate	0.07	%	0.13	%
Expected life (years)	0.50		0.50
Expected volatility	32	%	50	%
Expected dividend yield	—		—

The weighted-average fair value per share under the 2010 ESPP for purchase periods beginning in the six months ended June 30, 2014 and 2013 were $1.64 and $1.29, respectively. Cash proceeds from the issuance of shares under the Company’s ESPP were $5.4 million and $5.1 million for the six months ended June 30, 2014 and 2013, respectively.

Common Stock Repurchase Program

Atmel’s Board of Directors has, since 2010, authorized an aggregate of $1.0 billion of funding for the Company’s common 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 June 30, 2014, $256.0 million remained available for repurchasing common stock under this program.

During the three and six months ended June 30, 2014, Atmel repurchased 3.6 million and 10.5 million shares, respectively, of its common stock in the open market at an average repurchase price of $8.00 and $7.98 per share, respectively, excluding commission, and subsequently retired those shares (except for a limited number of shares re-issued to support restricted stock unit grants outside of the U.S.). Common stock and additional paid-in capital were reduced by $28.5 million and $83.5 million, excluding commission, for the three and six months ended June 30, 2014, respectively, and $13.7 million and $29.2 million for the three and six months ended June 30, 2013, respectively, as a result of the stock repurchases.