SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited interim condensed consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to state fairly, in all material respects, the financial position of Atmel Corporation (the “Company” or “Atmel”) and its subsidiaries as of September 30, 2015 and the results of operations and comprehensive (loss) income for the three and nine months ended September 30, 2015 and 2014 and cash flows for the nine months ended September 30, 2015 and 2014. All intercompany balances have been eliminated. Because all of the annual disclosures required by U.S. generally accepted accounting principles ("GAAP") are not included, as permitted by the rules of the Securities and Exchange Commission (the “SEC”), these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The December 31, 2014 year-end balance sheet data was derived from the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The condensed consolidated statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, or for the entire year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates in these financial statements include provisions for excess and obsolete inventory, sales reserves and allowances, share-based compensation expense, allowances for doubtful accounts receivable, estimates for useful lives associated with long-lived assets, recoverability of goodwill and intangible assets, restructuring charges, liabilities for uncertain tax positions and deferred tax asset valuation allowances. Actual results could differ materially from those estimates.

Pending Acquisition of Atmel by Dialog Semiconductor

On September 19, 2015, Atmel entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Dialog Semiconductor plc, a corporation organized under the laws of England and Wales (“Dialog”), and Avengers Acquisition Corporation, a Delaware corporation and a wholly-owned direct subsidiary of Dialog (“Merger Sub”). Under the terms of the Merger Agreement, Merger Sub will merge with and into Atmel (the “Merger”), with Atmel being the surviving corporation (the “Surviving Corporation”). The Transaction has been unanimously approved by the boards of directors of both companies.

At the effective time of the Merger, each share of Atmel’s common stock, par value $0.001 per share (the “Common Stock”), issued and outstanding immediately prior to the Merger (other than dissenting shares and shares held by Dialog, Merger Sub, Atmel or any of their respective subsidiaries) will be converted into the right to receive (i) 0.112 American Depositary Shares of Dialog (the “ADSs”), with each whole ADS representing one ordinary share of Dialog (each, a “Dialog Share”), (ii) $4.65 in cash, without interest, and (iii) cash in lieu of fractional ADSs as contemplated in the Merger Agreement (the “Merger Consideration”).

The closing of the transaction is subject to a number of conditions specified in the Merger Agreement, including, among others, the adoption of the Merger Agreement by Atmel’s stockholders, the affirmative vote of the holders of a majority of Dialog’s outstanding ordinary shares, regulatory approvals in the United States, Germany and Romania and the effectiveness under the Securities Act of 1933 of a registration statement on Form F-4 to be filed with the SEC by Dialog registering the ADSs in the United States. The consummation of the Merger is not subject to a financing condition. The Merger Agreement may be terminated by either party under conditions expressly specified in the Merger Agreement, and the payment of applicable termination fees of up to $137.3 million to Dialog, or reimbursement of expenses, as contemplated therein.

Dialog has agreed that it will appoint two directors nominated by Atmel to its board of directors concurrent with the closing of the Merger.

The foregoing description of the pending acquisition of Atmel by Dialog, and the transactions contemplated thereby, does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, a copy of which is attached as Exhibit 2.1 to the Form 8-K filed by the Company on September 21, 2015, and as the Merger Agreement was amended on September 29, 2015, as reflected in a further Form 8-K filed by the Company on September 30, 2015. The Merger Agreement, as amended, and the related Form 8-Ks, are listed in the Exhibit Table of this filing.

Atmel recorded transaction-related costs of approximately $7.8 million, principally for outside financial advisory, legal, and related fees and expenses associated with the pending acquisition in the three months ended September 30, 2015. These costs were recorded in selling, general and administrative expense included in the Condensed Consolidated Statements of Operations for the three months ended September 30, 2015. Additional transaction-related costs are expected to be incurred through the closing of the Merger.

Inventories

Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Market is based on estimated net realizable value. Determining market value of inventories involves numerous judgments, including estimating average selling prices and sales volumes for future periods. The Company establishes provisions for lower of cost or market and excess and obsolescence write-downs, which are charged to cost of revenue. The Company makes a determination regarding excess and obsolete inventory on a quarterly basis. This determination requires an estimate of the future demand for the Company’s products and involves an analysis of historical and forecasted sales levels by product, competitiveness of product offerings, market conditions, product lifecycles, as well as other factors. Excess and obsolete inventory write-downs are recorded when the inventory on hand exceeds management’s estimate of future demand for each product and are charged to cost of revenue.

The Company’s inventories include parts that have a potential for rapid technological obsolescence and are sold in a highly competitive industry. The Company writes down inventory that is considered excess or obsolete. When the Company recognizes a loss on such inventory, it establishes a new, lower-cost basis for that inventory, and subsequent changes in facts and circumstances will not result in the restoration or increase in that newly established cost basis. If inventory with a lower-cost basis is subsequently sold, it will result in higher gross margin for the products making up that inventory.

Inventories are comprised of the following:



	September 30, 2015		December 31, 2014
	(in thousands)
Raw materials and purchased parts	$	10,722	$	12,633
Work-in-progress	172,064		192,206
Finished goods	84,840		73,403
	$	267,626	$	278,242

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standard Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. In July 2015, the FASB deferred the effective date of ASU 2014-09 so that it will apply to annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early application is permitted to the original effective date of December 15, 2016, in which case ASU 2014-09 would apply to annual reporting periods beginning December 15, 2016 (including interim reporting periods within those periods). The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. The ASU requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. The new standard is effective for the Company on January 1, 2016. Early application is permitted. The standard requires an entity to apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The Company does not believe that the adoption of the ASU will have a material effect on its consolidated financial statements and disclosure.