STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2012

STOCKHOLDERS' EQUITY.

STOCKHOLDERS' EQUITY

Note 4 STOCKHOLDERS’ EQUITY

Stock-Based Compensation

The following table summarizes the distribution of stock-based compensation expense by function for the three months ended March 31, 2012 and 2011:

	Three Months Ended
	March 31,			March 31,
	2012			2011
	(in thousands)
Cost of revenue	$	2,255		$	2,293
Research and development	6,763			5,982
Selling, general and administrative	10,309			10,614
Total stock-based compensation expense, before income taxes	19,327			18,889
Tax benefit	(2,790		)	(2,644		)
Total stock-based compensation expense, net of income taxes	$	16,537		$	16,245

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 March 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		Number of		Price	Exercise Price
	for Grant		Options		per Share	per Share
	(in thousands, except per share data)
Balances, December 31, 2011	16,523		8,217		$1.68-$10.01	$	4.26
Restricted stock units issued	(210	)	—		—	—
Adjustment for restricted stock units issued	(128	)	—		—	—
Performance-based restricted stock units issued	(200	)	—		—	—
Adjustment for perfomance-based restricted stock units issued	(122	)	—		—	—
Restricted stock units cancelled	405		—		—	—
Adjustment for restricted stock units cancelled	301		—		—	—
Performance-based restricted stock units cancelled	75		—		—	—
Adjustment for perfomance-based restricted stock units cancelled	46		—		—	—
Options cancelled/expired/forfeited	78		(78	)	$2.11-$8.89	4.36
Options exercised	—		(495	)	$1.80-$8.89	4.58
Balances, March 31, 2012	16,768		7,644		$1.68-$10.01	$	4.24

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), and 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, except that restricted stock, 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 and 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 8.0 million shares of restricted stock units from May 18, 2011 to March 31, 2012 (net of cancellations) resulting in a reduction, based on a 1.61 to 1.0 ratio, of 12.8 million shares available for grant under the 2005 Stock Plan from May 18, 2011 to March 31, 2012. As of March 31, 2012, there were 16.8 million shares available for issuance under the 2005 Stock Plan, or 10.4 million after giving effect to the 1.61 to 1.0 ratio applicable under the 2005 Stock Plan for issuances made on after May 18, 2011.

Restricted Stock Units

Activity related to restricted stock units is set forth below:

			Weighted-Average
	Number of		Fair Value
	Units		Per Share
	(in thousands, except per share data)
Balance, December 31, 2011	23,187		$	3.18
Restricted stock units issued	210		10.20
Restricted stock units vested	(1,225	)	10.27
Restricted stock units cancelled	(405	)	8.11
Performance-based restricted stock units issued	200		10.73
Performance-based restricted stock units cancelled	(75	)	14.00
Balance, March 31, 2012	21,892		$	2.79

In the three months ended March 31, 2012, 1.2 million restricted stock units vested, including 0.5 million units withheld for taxes. These vested restricted stock units had a weighted-average fair value of $10.27 per share on the vesting dates for the three months ended March 31, 2012. As of March 31, 2012, total unearned stock-based compensation related to unvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $163.3 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 2.65 years.

In the three months ended March 31, 2011, 0.9 million restricted stock units vested, including 0.3 million units withheld for taxes. These vested restricted stock units had a weighted-average fair value of $15.92 per share on the vesting dates for the quarter ended March 31, 2011. As of March 31, 2011, total unearned stock- based compensation related to nonvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $119.0 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 3.11 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

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 these restricted stock units 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, consisting of three one year performance periods (calendar years 2011, 2012 and 2013) and a three year cumulative performance period. The Company issued 0.2 million performance-based restricted stock units in the three months ended March 31, 2012. The Company recorded total stock-based compensation expense related to performance-based restricted stock units of $4.3 million under the 2011 Plan in the three months ended March 31, 2012.

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, 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.

The Company recorded total stock based compensation expense related to performance based restricted stock units of $6.5 million under the Company’s 2008 Incentive Plan (the “2008 Plan”) in the three months ended March 31, 2011.

Stock Option Awards

No options were granted in the three months ended March 31, 2012 or 2011.

As of March 31, 2012, total unearned compensation expense related to unvested stock options was approximately $4.0 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 1.48 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 six-month offering period or at 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 0.7 million shares purchased under the 2010 ESPP for the three months ended March 31, 2012 at an average price per share of $8.33. Of the 25.0 million shares authorized for issuance under the 2010 ESPP, 23.6 million shares were available for issuance at March 31, 2012. There were 0.8 million shares purchased under the 1991 ESPP for the three months ended March 31, 2011, at an average price per share of $4.85. The remaining 1.9 million shares available under the 1991 plan expired in the three months ended March 31, 2011.

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:

	Three Months Ended
	March 31,		March 31,
	2012		2011
Risk-free interest rate	0.15	%	0.17	%
Expected life (years)	0.50		0.50
Expected volatility	56	%	41	%
Expected dividend yield	—		—

The weighted-average fair value of the rights to purchase shares under the Company’s ESPPs for purchase periods beginning in the three months ended March 31, 2012 and 2011 was $2.27 and $3.16, respectively. Cash proceeds from the issuance of shares under the Company’s ESPPs were $5.4 million and $4.1 million for the three months ended March 31, 2012 and 2011, respectively.

Common Stock Repurchase Program

Over the past several years, Atmel’s Board of Directors authorized $500.0 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 March 31, 2012, $10.6 million remained available for repurchase under this program.

During the three months ended March 31, 2012 and 2011, Atmel repurchased 9.5 million and 5.7 million shares, respectively, of its common stock on the open market at an average repurchase price of $10.18 and $14.93 per share, excluding commission, and subsequently retired those shares. Common stock and additional paid-in capital were reduced by $96.2 million and $85.1 million, excluding commission, for the three months ended March 31, 2012 and 2011, respectively, as a result of the stock repurchases.