UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-19032

ATMEL CORPORATION

(Registrant)

Delaware		77-0051991
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

2325 Orchard Parkway San Jose, California 95131
(Address of principal executive offices)

     Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting filer o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     On April 30, 2010, the Registrant had 460,698,094 outstanding shares of Common Stock.

 

 

ATMEL CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 2010

		Page
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)			3
CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2010 AND DECEMBER 31, 2009			3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND MARCH 31, 2009			4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND MARCH 31, 2009			5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			39
ITEM 4. CONTROLS AND PROCEDURES			41
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			42
ITEM 1A. RISK FACTORS			43
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			58
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			58
ITEM 4. (REMOVED AND RESERVED)			58
ITEM 5. OTHER INFORMATION			58
ITEM 6. EXHIBITS			58
SIGNATURES			60
EXHIBITS			61
EX-2.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Atmel Corporation

Condensed Consolidated Balance Sheets
(Unaudited)

		March 31,				December 31,
		2010				2009
		(in thousands, except par value)
ASSETS
Current assets
Cash and cash equivalents		$	483,525			$	437,509
Short-term investments			37,744				38,631
Accounts receivable, net of allowances for doubtful accounts of $11,906 and $11,930, respectively			183,720				194,099
Inventories			217,223				226,296
Current assets held for sale			15,816				16,139
Prepaids and other current assets			78,641				83,434
Total current assets			1,016,669				996,108
Fixed assets, net			205,674				203,219
Goodwill			53,011				56,408
Intangible assets, net			27,356				29,841
Non-current assets held for sale			78,501				83,260
Other assets			22,732				24,006
Total assets		$	1,403,943			$	1,392,842
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt and capital lease obligations		$	80,661			$	85,462
Trade accounts payable			116,993				105,692
Accrued and other liabilities			157,710				152,572
Current liabilities held for sale			12,077				11,284
Deferred income on shipments to distributors			37,817				44,691
Total current liabilities			405,258				399,701
Long-term debt and capital lease obligations, less current portion			3,480				9,464
Long-term liabilities held for sale			4,074				4,014
Other long-term liabilities			218,022				215,256
Total liabilities			630,834				628,435
Commitments and contingencies (Note 8)
Stockholders’ equity
Preferred stock; par value $0.001; Authorized: 5,000 shares; no shares issued and outstanding			—				—
Common stock; par value $0.001; Authorized: 1,600,000 shares;
Shares issued and outstanding: 459,792 at March 31, 2010 and 454,586 at December 31, 2009			460				455
Additional paid-in capital			1,294,467				1,284,140
Accumulated other comprehensive income			122,225				140,470
Accumulated deficit			(644,043	)			(660,658	)
Total stockholders’ equity			773,109				764,407
Total liabilities and stockholders’ equity		$	1,403,943			$	1,392,842

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Atmel Corporation

Condensed Consolidated Statements of Operations
(Unaudited)

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands, except per share data)
Net revenues		$	348,549			$	271,493
Operating expenses
Cost of revenues			214,775				176,088
Research and development			58,044				52,557
Selling, general and administrative			61,481				54,918
Acquisition-related (credits) charges			(1,901	)			5,499
Charges for grant repayments			265				765
Restructuring charges			969				2,352
Gain on sale of assets			—				(164	)
Total operating expenses			333,633				292,015
Income (loss) from operations			14,916				(20,522	)
Interest and other income (expense), net			4,342				(3,545	)
Income (loss) before income taxes			19,258				(24,067	)
(Provision for) benefit from income taxes			(2,643	)			27,693
Net income		$	16,615			$	3,626
Basic net income per share:
Net income		$	0.04			$	0.01
Weighted-average shares used in basic net income per share calculations			456,797				449,685
Diluted net income per share:
Net income		$	0.04			$	0.01
Weighted-average shares used in diluted net income per share calculations			462,384				456,431

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Atmel Corporation

Condensed Consolidated Statements of Cash Flows
(Unaudited)

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands)
Cash flows from operating activities
Net income		$	16,615			$	3,626
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			15,390				21,315
Gain on sale or disposal of fixed assets and other non-cash charges			(262	)			—
Other non-cash (gains) losses, net			(5,079	)			2,094
Recovery of doubtful accounts receivable			(16	)			(890	)
Accretion of interest on long-term debt			159				125
Stock-based compensation expense			6,907				7,273
Changes in operating assets and liabilities
Accounts receivable			10,396				12,644
Inventories			7,051				(1,067	)
Current and other assets			(762	)			(22,192	)
Trade accounts payable			11,042				(851	)
Accrued and other liabilities			15,839				(14,672	)
Deferred income on shipments to distributors			(6,874	)			(1,837	)
Net cash provided by operating activities			70,406				5,568
Cash flows from investing activities
Acquisitions of fixed assets			(16,606	)			(3,800	)
Proceeds from the sale of fixed assets			652				—
Acquisition of Quantum Research Group			—				(3,362	)
Acquisitions of intangible assets			(1,000	)			(2,120	)
Purchases of marketable securities			(4,054	)			(8,400	)
Sales or maturities of marketable securities			4,748				10,929
Increase in long-term restricted cash			—				(2,050	)
Net cash used in investing activities			(16,260	)			(8,803	)
Cash flows from financing activities
Principal payments on debt			(10,492	)			(5,058	)
Increase in restricted cash related to collateral on line of credit			—				(17,272	)
Proceeds from issuance of common stock			4,397				4,110
Tax payments related to shares withheld for vested restricted stock units			(796	)			(708	)
Net cash used in financing activities			(6,891	)			(18,928	)
Effect of exchange rate changes on cash and cash equivalents			(1,239	)			(1,774	)
Net increase (decrease) in cash and cash equivalents			46,016				(23,937	)
Cash and cash equivalents at beginning of the period			437,509				408,926
Cash and cash equivalents at end of period		$	483,525			$	384,989
Supplemental cash flow disclosures:
Interest paid		$	728			$	1,041
Income taxes paid			830				1,924
Supplemental non-cash investing and financing activities disclosures:
Increase (decrease) in accounts payable related to fixed asset purchases			1,971				(2,444	)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Atmel Corporation

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data, employee data, and where otherwise indicated)
(Unaudited)

Note 1. 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 March 31, 2010 and the results of operations and cash flows for the three months ended March 31, 2010 and 2009. All intercompany balances have been eliminated. Because all of the disclosures required by U.S. generally accepted accounting principles 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, 2009. The December 31, 2009 year-end condensed balance sheet data was derived from the audited consolidated financial statements and does not include all of the disclosures required by U.S. generally accepted accounting principles. The condensed consolidated statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, nor for the entire year.

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include provisions for excess and obsolete inventory, sales return reserves, stock-based compensation expense, allowances for doubtful accounts receivable, warranty reserves, estimates for useful lives associated with long-lived assets, charges for grant repayments, recoverability of goodwill and intangible assets, restructuring charges, certain accrued liabilities, fair value of net assets held for sale and income taxes and income tax valuation allowances. Actual results could differ from those estimates.

Inventories

     Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis for raw materials and purchased parts; and an average-cost basis for work in progress and finished goods) or market. Market is based on estimated net realizable value. The Company establishes provisions for lower of cost or market and excess and obsolescence write-downs. The determination of obsolete or excess inventory requires an estimation of the future demand for the Company’s products and these reserves are recorded when the inventory on hand exceeds management’s estimate of future demand for each product. Once the inventory is written down, a new cost basis is established and these inventory reserves are not relieved until the related inventory has been sold or scrapped. As of March 31, 2010 and December 31, 2009, $15,816 and $16,139 of inventories were reclassified to current assets as held for sale in connection with the expected sale of the manufacturing operations in Rousset, France (see Note 12).

     Inventories are comprised of the following:

		March 31,				December 31,
		2010				2009
		(in thousands)
Raw materials and purchased parts		$	11,496			$	11,525
Work-in-progress			140,981				135,415
Finished goods			64,746				79,356
		$	217,223			$	226,296

Grant Recognition

     Subsidy grants from government organizations are amortized as a reduction of expenses over the period the related obligations are fulfilled. Recognition of future subsidy benefits will depend on either the Company’s achievement of certain technical milestones or

the achievement of certain capital investment spending and employment goals. The Company recognized the following amount of subsidy grant benefits as a reduction of either cost of revenues or research and development expenses, depending on the nature of the grant:

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands)
Cost of revenues		$	13			$	25
Research and development expenses			1,541				2,744
Total		$	1,554			$	2,769

     The Company receives economic incentive grants and allowances from European governments targeted at increasing employment at specific locations. The subsidy grant agreements typically contain economic incentive and other covenants that must be met to receive and retain grant benefits. Noncompliance with the conditions of the grants could result in the forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts received to date. In addition, the Company may need to record charges to reverse grant benefits recorded in prior periods as a result of changes to previously committed plans for headcount, project spending, or capital investment at any of these specific locations. Certain grant repayments also require interest from the date funds were awarded. If the Company is unable to comply with any of the covenants in the grant agreements, its results of operations and financial position could be materially adversely affected.

Recent Accounting Pronouncements

     In June 2009, the Financial Accounting Standards Board (“FASB”) issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). The elimination of the concept of a QSPE, removes the exception from applying the consolidation guidance within this amendment. This amendment requires an enterprise to perform a qualitative analysis when determining whether or not it must consolidate a VIE. The amendment also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendment requires enhanced disclosures about an enterprise’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprise’s financial statements. Finally, an enterprise will be required to disclose significant judgments and assumptions used to determine whether or not to consolidate a VIE. This amendment is effective for financial statements issued for fiscal years beginning after November 15, 2009. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated results of operations and financial condition.

Note 2 BUSINESS COMBINATION

     On March 6, 2008, the Company completed its acquisition of Quantum Research Group Ltd. (“Quantum”), a supplier of capacitive sensing IP solutions. The Company acquired all outstanding shares as of the acquisition date and Quantum became a wholly-owned subsidiary of Atmel.

     Goodwill was $53,011 and $56,408 at March 31, 2010 and December 31, 2009, respectively, and relates only to the Quantum acquisition. The goodwill amount is not subject to amortization and is included within the Company’s Microcontroller segment. It is tested for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Based on its 2009 impairment assessment, the Company concluded that the fair value of the reporting unit containing the goodwill balance exceeded its carrying value; therefore, there was no impairment of the goodwill balance.

     The Company has estimated the fair value of the Quantum-related other intangible assets using the income approach and these identifiable intangible assets are subject to amortization. The following table sets forth the components of the identifiable intangible assets subject to amortization as of March 31, 2010, which are being amortized on a straight-line basis:

As of March 31, 2010

						Accumulated								Estimated
		Gross Value				Amortization				Net				Useful Life
		(in thousands, except for years)
Other intangible assets:
Customer relationships		$	15,427			$	(6,429	)		$	8,998			5 years
Developed technology			4,948				(2,061	)			2,887			5 years
Tradename			849				(849	)			—			3 years
Non-compete agreement			806				(336	)			470			5 years
Backlog			383				(383	)			—			< 1 year
		$	22,413			$	(10,058	)		$	12,355

     Customer relationships represent future projected net revenues that will be derived from sales of current and future versions of existing products that will be sold to existing customers. Developed technology represents a combination of processes, patents and trade secrets developed through years of experience in design and development of the products. Trade name represents the Quantum brand that the Company does not intend to use in future capacitive sensing products. Non-compete agreement represents the fair value to the Company from agreements with certain former Quantum executives to refrain from competition for a number of years.

     The Company recorded the following acquisition-related (credits) charges in the condensed consolidated statements of operations in the three months ended March 31, 2010 and 2009, respectively:

		Three Months Ended
		March 31, 2010				March 31, 2009
		(in thousands)
Amortization of intangible assets		$	1,059			$	1,294
Compensation-related expense — cash			105				2,314
Compensation-related (credit) expense — stock			(3,065	)			1,891
		$	(1,901	)		$	5,499

     The Company recorded amortization of intangible assets of $1,059 and $1,294 in the three months ended March 31, 2010 and 2009, respectively, associated with customer relationships, developed technology, trade name and non-compete agreement.

     The Company also agreed to compensate former key executives of Quantum, contingent upon continuing employment determined at various dates over a three year period. The Company has agreed to pay up to $15,049 in cash and issue 5,319 shares of the Company’s common stock valued at $17,285, based on the Company’s closing stock price on March 4, 2008. These amounts are being accrued over the employment period on a graded vesting basis. The Company made cash payments of $3,785 and $10,694 in the three months ended March 31, 2010 and 2009, respectively. In March 2010, 3,152 shares of the Company’s common stock were issued to a former executive of Quantum in connection with this arrangement. The remaining 2,167 shares were forfeited in March 2010 due to a change in employment status. As a result, the Company recorded a credit of $4,506 in the three months ended March 31, 2010 for the reversal of the expenses previously recorded due to the graded vesting recognition methodology.

Note 3 INVESTMENTS

     Investments at March 31, 2010 and December 31, 2009 are primarily comprised of corporate equity securities, U.S. and foreign corporate debt securities, guaranteed variable annuities and auction-rate securities.

     All marketable securities are deemed by management to be available-for-sale and are reported at fair value, with the exception of certain auction-rate securities as described below. Net unrealized gains or losses that are not deemed to be other than temporary are reported within stockholders’ equity on the Company’s condensed consolidated balance sheets as a component of accumulated other comprehensive income. Gross realized gains or losses are recorded based on the specific identification method. In the three months ended March 31, 2010 and 2009, respectively, the Company’s gross realized gains or losses on short-term investments were not material. The Company’s investments are further detailed in the table below:

		March 31, 2010								December 31, 2009
		Adjusted Cost				Fair Value				Adjusted Cost				Fair Value
		(in thousands)
Corporate equity securities		$	87			$	141			$	87			$	132
Auction-rate securities			5,070				5,092	*			5,370				5,392
Corporate debt securities and other obligations			32,828				34,749				33,506				35,373
		$	37,985			$	39,982			$	38,963			$	40,897
Unrealized gains			2,018								1,987
Unrealized losses			(21	)							(53	)
Net unrealized gains			1,997								1,934
Fair value		$	39,982							$	40,897
Amount included in short-term investments						$	37,744							$	38,631
Amount included in other assets							2,238								2,266
						$	39,982							$	40,897

     In the three months ended March 31, 2010, auctions for the Company’s auction-rate securities have continued to fail and as a result these securities have continued to be illiquid. The Company concluded that $2,220 (book value) of these securities are unlikely to be liquidated within the next twelve months and classified these securities as long-term investments, which is included in other assets on the condensed consolidated balance sheets.

     In October 2008, the Company accepted an offer from UBS Financial Services Inc. (“UBS”) to purchase certain of the Company’s auction-rate securities of $2,850 at par value (the “Put Option”) at any time during a two-year time period from June 30, 2010 to July 2, 2012. As a result of this offer, the Company expects to sell the securities to UBS at par value on June 30, 2010. The Company elected to measure the Put Option under the fair value option and recorded a corresponding short-term investment as of March 31, 2010, which is included within the auction-rate securities balance for presentation purposes. As a result of accepting the offer, the Company reclassified these auction-rate securities from available-for-sale to trading securities.

     Contractual maturities (at book value) of available-for-sale debt securities as of March 31, 2010, were as follows:

		(in thousands)
Due within one year		$	26,362
Due in 1-5 years			9,316
Due in 5-10 years			—
Due after 10 years			2,220
Total		$	37,898

     Atmel has classified all investments with maturity dates of 90 days or more as short-term as it has the ability and intent to redeem them within the year.

Note 4 INTANGIBLE ASSETS, NET

     Intangible assets, net, consisted of technology licenses and acquisition-related intangible assets as follows:

		March 31,				December 31,
		2010				2009
		(in thousands)
Core/licensed technology		$	90,718			$	90,718
Accumulated amortization			(75,717	)			(74,291	)
Total technology licenses			15,001				16,427
Acquisition-related intangible assets			22,413				22,413
Accumulated amortization			(10,058	)			(8,999	)
Total acquisition-related intangible assets			12,355				13,414
Total intangible assets, net		$	27,356			$	29,841

     Amortization expense for technology licenses totaled $1,426 and $1,138 in the three months ended March 31, 2010 and 2009, respectively. Amortization expense for acquisition-related intangible assets totaled $1,059 and $1,294 in the three months ended March 31, 2010 and 2009, respectively.

     The following table presents the estimated future amortization of the technology licenses and acquisition-related intangible assets:

		Technology				Acquisition-Related
Years Ending December 31:		Licenses				Intangible Assets				Total
						(in thousands)
2010 (April 1 through December 31)		$	3,991			$	3,408			$	7,399
2011			4,719				4,192				8,911
2012			4,353				4,076				8,429
2013			1,938				679				2,617
Total future amortization		$	15,001			$	12,355			$	27,356

Note 5 BORROWING ARRANGEMENTS

     Information with respect to the Company’s debt and capital lease obligations as of March 31, 2010 and December 31, 2009 is shown in the following table:

		March 31,				December 31,
		2010				2009
		(in thousands)
Various interest-bearing notes and term loans		$	3,436			$	3,484
Bank lines of credit			80,000				80,000
Capital lease obligations			705				11,442
Total		$	84,141			$	94,926
Less: current portion of long-term debt and capital lease obligations			(80,661	)			(85,462	)
Long-term debt and capital lease obligations due after one year		$	3,480			$	9,464

     Maturities of long-term debt and capital lease obligations are as follows:

Years Ending December 31:
		(in thousands)
2010 (April 1 through December 31)		$	81,086
2011			276
2012			14
2013			—
2014			—
Thereafter			3,436
			84,812
Less: amount representing interest			(671	)
Total		$	84,141

     On March 15, 2006, the Company entered into a five-year asset-backed credit facility for up to $165,000 (reduced to $125,000 on November 6, 2009) with certain European lenders. This facility is secured by the Company’s non-U.S. trade receivables. The eligible non-US trade receivables were $90,864 at March 31, 2010, of which the amount outstanding under this facility was $80,000 at March 31, 2010. Borrowings under the facility bear interest at LIBOR plus 2% per annum (approximately 2.25% based on the one month LIBOR at March 31, 2010), while the undrawn portion is subject to a commitment fee of 0.375% per annum. The outstanding balance is subject to repayment in full on the last day of its interest period (every two months). The terms of the facility subject the Company to certain financial and other covenants and cross-default provisions. The Company was in compliance with its financial covenants as of March 31, 2010. Commitment fees and amortization of up-front fees paid related to the facility in the three months ended March 31, 2010 and 2009 totaled $302 and $297, respectively, and are included in interest and other income (expense), net, in the condensed consolidated statements of operations. The outstanding balance under this facility is classified within bank lines of credit in the summary debt table above.

     On March 31, 2010, the Company repaid $10,216 of its capital lease obligations related to its real property in Rousset, France. The Company acquired the title to the real property on April 1, 2010.

     Of the Company’s remaining outstanding debt obligations of $4,141 as of March 31, 2010, $705 are classified as capital leases and $3,436 as interest bearing notes in the summary debt table.

     The fair value of the Company’s debt approximated its book value as of March 31, 2010 and December 31, 2009 due to their relatively short-term nature as well as the variable interest rates on these debt obligations.

Note 6 STOCK-BASED COMPENSATION

     Option and Employee Stock Purchase Plans

     The 2005 Stock Plan was approved by stockholders on May 11, 2005. As of March 31, 2010, 114,000 shares were authorized for issuance under the 2005 Stock Plan, and 28,972 shares of common stock remained available for grant. Under Atmel’s 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, 2009			28,478				18,828				$1.68-$24.44			$	4.38
Restricted stock units issued			(462	)			—				—				—
Adjustment for restricted stock units issued			(360	)			—				—				—
Restricted stock units cancelled			636				—				—				—
Adjustment for restricted stock units cancelled			496				—				—				—
Options granted			(157	)			157				$4.77				4.77
Options cancelled/expired/forfeited			341				(341	)			$2.11-$24.44				6.60
Options exercised			—				(321	)			$1.68-$4.74				3.00
Balances, March 31, 2010			28,972				18,323				$1.68-$21.47			$	4.37

     Restricted stock units are granted from the pool of options available for grant. On May 14, 2008, the Company’s stockholders approved an amendment to its 2005 Stock Plan whereby every share underlying restricted stock, restricted stock units (including performance-based restricted stock units), and stock purchase rights issued on or after May 14, 2008 will be counted against the numerical limit for options available for grant as 1.78 shares in the table above. If shares issued pursuant to any restricted stock, restricted stock unit, and stock purchase right agreements are cancelled, forfeited or repurchased by the Company and would otherwise return to the 2005 Stock Plan, 1.78 times the number of shares will return to the plan and will again become available for issuance. The Company issued 25,106 restricted stock units from May 14, 2008 to March 31, 2010 (net of cancellation), resulting in a reduction of 44,688 shares available for grant under the 2005 Stock Plan.

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, 2009			24,044			$	4.38
Restricted stock units issued			462				4.73
Restricted stock units vested			(583	)			4.80
Restricted stock units cancelled			(636	)			3.55
Balance, March 31, 2010			23,287			$	4.40

     In the three months ended March 31, 2010, 583 restricted stock units vested, including 182 units withheld for taxes. These vested restricted stock units had a weighted-average fair value of $4.80 per share on the vesting dates. As of March 31, 2010, total unearned stock-based compensation related to nonvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $67,225, excluding forfeitures, and is expected to be recognized over a weighted-average period of 2.80 years.

     In the three months ended March 31, 2009, 715 restricted stock units vested, including 258 units withheld for taxes. These vested restricted stock units had a weighted-average fair value of $3.17 on the vesting dates.

Performance-Based Restricted Stock Units

     In the year ended December 31, 2008, the Company issued performance-based restricted stock units to eligible employees for a maximum of 9,914 shares of the Company’s common stock under the 2005 Stock Plan. In the year ended December 31, 2009, the

Company issued additional performance-based restricted stock units to eligible employees for a maximum of 83 shares of the Company’s common stock. These restricted stock units vest only if the Company achieves certain quarterly operating margin performance criteria over the performance period of July 1, 2008 to December 31, 2012. In the three months ended June 30, 2009, the performance period was extended by one additional year to December 31, 2012 which was considered a modification to the performance-based restricted stock units. Until restricted stock units are vested, they do not have the voting rights of common stock and the shares underlying the awards are not considered issued and outstanding. The Company recognizes the stock-based compensation expense for its performance-based restricted stock units when management believes it is probable that the Company will achieve the performance criteria. The awards vest once the performance criteria are met. If the performance goals are unlikely to be met, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost of each award is reflected over the performance period and is reduced for estimated forfeitures. The Company recorded stock-based compensation expense of $881 in the three months ended March 31, 2010, as the Company believes that it is probable a portion of the performance criteria will be achieved by December 31, 2012. The Company recorded a credit of $2,092 in the three months ended March 31, 2009 related to the reversal of previously recorded stock-based compensation expense based on management’s estimate at the time that the likelihood of achieving the performance criteria was not probable.

Stock Option Awards

     The following table summarizes the stock options outstanding at March 31, 2010:

Options Outstanding																		Options Exercisable
						Weighted-																Weighted-
						Average				Weighted-												Average				Weighted-
Range of						Remaining				Average				Aggregate								Remaining				Average				Aggregate
Exercise		Number				Contractual				Exercise				Intrinsic				Number				Contractual				Exercise				Intrinsic
Price		Outstanding				Term (years)				Price				Value				Exercisable				Term (years)				Price				Value
(in thousands, except per share prices and life data)
$    1.68-3.15			1,837				3.35			$	2.26			$	5,111				1,836				3.35			$	2.26			$	5,111
$    3.18-3.29			2,105				6.23				3.27				3,729				1,563				5.60				3.28				2,763
$    3.32-3.68			1,864				7.95				3.33				3,182				1,053				7.86				3.34				1,792
$    3.70-4.20			2,054				8.42				4.16				1,817				850				8.31				4.14				764
$    4.23-4.43			3,061				8.01				4.34				2,148				642				7.60				4.34				436
$    4.56-4.89			3,029				6.89				4.81				698				2,224				6.61				4.82				483
$    4.92-5.75			2,309				5.77				5.38				78				1,747				5.53				5.47				37
$    5.85-7.69			1,875				6.26				6.34				—				1,444				6.14				6.37				—
$  7.76-20.19			188				1.27				10.98				—				188				1.27				10.98				—
$21.47-21.47			1				0.21				21.47				—				1				0.21				21.47				—
			18,323				6.66			$	4.37			$	16,763				11,548				5.94			$	4.39			$	11,386

     In the three months ended March 31, 2010 and 2009, the number of stock options exercised under Atmel’s stock option plan was 321 and 299, respectively, which had an intrinsic value of $655 and $213, respectively. Stock options exercised in the three months ended March 31, 2010 and 2009 had an aggregate exercise price of $961 and $859, respectively.

     On August 3, 2009, the Company commenced an exchange offer whereby eligible employees were given the opportunity to exchange some or all of their outstanding stock options with an exercise price greater than $4.69 per share (which was equal to the 52-week high of the Company’s per share stock price as of the start of the offer) that were granted on or before August 3, 2008, whether vested or unvested, for restricted stock units or, for certain employees, a combination of restricted stock units and stock options and the exchange ratio was based on the per share exercise price of the eligible stock options. The Company completed the exchange offer on August 28, 2009, under which 9,484 stock options were exchanged for 1,354 stock options and 2,297 restricted stock units. The modification of these stock options did not result in a material charge to the Company’s financial results in the year ended December 31, 2009.

     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:

		Three Months Ended
		March 31,				March 31,
		2010				2009
Risk-free interest rate			2.32	%			1.99	%
Expected life (years)			5.58				5.78
Expected volatility			54	%			57	%
Expected dividend yield			—				—

     The Company’s weighted-average assumptions for the three months ended March 31, 2010 and 2009 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 in the three months ended March 31, 2010 and 2009 was $2.45 and $1.85, respectively.

Employee Stock Purchase Plan

     Under the 1991 Employee Stock Purchase Plan (“ESPP”), qualified employees are entitled to purchase shares of Atmel’s common stock at the lower of 85 percent of the fair market value of the common stock at the date of commencement of the six-month offering period or at the last day of the offering period. Purchases are limited to 10 percent of an employee’s eligible compensation. There were 1,048 and 1,034 shares purchased under the ESPP in the three months ended March 31, 2010 and 2009 at an average price per share of $3.28 and $3.15, respectively. Of the 42,000 shares authorized for issuance under this plan, 3,703 shares were available for issuance at March 31, 2010.

     The fair value of each purchase under the 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 Company’s ESPP shares:

		Three Months Ended
		March 31,				March 31,
		2010				2009
Risk-free interest rate			0.18	%			0.46	%
Expected life (years)			0.50				0.50
Expected volatility			41	%			87	%
Expected dividend yield			—				—

     The weighted-average fair value of the rights to purchase shares under the ESPP for offering periods started in the three months ended March 31, 2010 and 2009 was $0.77 and $1.13, respectively. Cash proceeds for the issuance of shares under the ESPP were $3,437 and $3,250 in the three months ended March 31, 2010 and 2009, respectively.

     The components of the Company’s stock-based compensation expense, net of amount liquidated from inventory, in the three months ended March 31, 2010 and 2009 are summarized below:

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands)
Employee stock options		$	3,115			$	2,940
Employee stock purchase plan			295				842
Restricted stock units			5,505				3,289
Performance-based restricted stock units			881				(2,092	)
Amounts liquidated from inventory			176				403
		$	9,972			$	5,382

     The accounting standard on stock-based compensation requires the 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 did not realize any tax benefit from the stock-based compensation expense incurred in the three months ended March 31, 2010 and 2009, as the Company believes it is more likely than not that it will not realize the benefit from tax deductions related to equity compensation.

     The following table summarizes the distribution of stock-based compensation expense related to employee stock options, restricted stock units, performance-based restricted stock units and employee stock purchases in the three months ended March 31, 2010 and 2009:

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands)
Cost of revenues		$	1,677			$	1,196
Research and development			3,284				2,662
Selling, general and administrative			5,011				1,524
Total stock-based compensation expense, before income taxes			9,972				5,382
Tax benefit			—				—
Total stock-based compensation expense, net of income taxes		$	9,972			$	5,382

     The table above excluded stock-based compensation (credit) expense of $(3,065) and $1,891 in the three months ended March 31, 2010 and 2009, respectively, related to the Quantum acquisition, which is classified within acquisition-related (credits) charges in the condensed consolidated statements of operations.

     There was no significant non-employee stock-based compensation expense in the three months ended March 31, 2010 and 2009.

     As of March 31, 2010, total unearned compensation expense related to nonvested stock options was approximately $17,503, excluding forfeitures, and is expected to be recognized over a weighted-average period of 1.90 years.

Note 7 ACCUMULATED OTHER COMPREHENSIVE INCOME

     Comprehensive loss is defined as a change in equity of a company during a period, from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. The primary difference between net income and comprehensive loss income for Atmel arises from foreign currency translation adjustments, actuarial (losses) gains related to defined benefit pension plans and net unrealized gains on investments. The components of accumulated other comprehensive income at March 31, 2010 and December 31, 2009, net of tax, are as follows:

		March 31,				December 31,
		2010				2009
		(in thousands)
Foreign currency translation adjustments		$	118,404			$	135,839
Actuarial gains related to defined benefit pension plans			1,824				2,697
Net unrealized gains on investments			1,997				1,934
Total accumulated other comprehensive income		$	122,225			$	140,470

     The components of comprehensive loss in the three months ended March 31, 2010 and 2009 are as follows:

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands)
Net income		$	16,615			$	3,626
Other comprehensive loss:
Foreign currency translation adjustments			(17,435	)			(13,938	)
Actuarial (losses) gains related to defined benefit pension plans			(873	)			877
Unrealized gains on investments			63				241
Other comprehensive loss			(18,245	)			(12,820	)
Total comprehensive loss		$	(1,630	)		$	(9,194	)

Note 8 COMMITMENTS AND CONTINGENCIES

Commitments

Indemnifications

     As is customary in the Company’s industry, as provided for in local law in the United States and other jurisdictions, the Company’s standard contracts provide remedies to its customers, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of the Company’s products. From time to time, the Company will indemnify customers against combinations of loss, expense, or liability arising from various trigger events related to the sale and the use of the Company’s products and services, usually up to a specified maximum amount. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws permit the indemnification of the Company’s agents. In the Company’s experience, claims made under such indemnifications are rare and the associated estimated fair value of the liability is not material.

     Subject to certain limitations, the Company is obligated to indemnify certain current and former directors, officers and employees in connection with litigation related to the timing of stock option grants awarded by Atmel. These obligations arise under the terms of the Company’s certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify in connection with this litigation generally means that the Company is required to pay or reimburse the individuals’ reasonable legal expenses incurred in defense of these matters. The Company is currently paying or reimbursing legal expenses being incurred in connection with these matters by its current and former directors, officers and employees.

Purchase Commitments

     At March 31, 2010, the Company had certain commitments which were not included on the condensed consolidated balance sheet at that date. These include outstanding capital purchase commitments of $9,086 and a purchase commitment for product wafer purchases of approximately $63,984.

     Contingencies

     Litigations

     The Company is party to various legal proceedings. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the results of operations, cash flows and financial position of Atmel. The estimate of the potential impact on the Company’s financial position or overall results of operations or cash flows for the legal proceedings described below could change in the future. The Company has accrued for losses related to litigation that the Company considers probable and for which the loss can be reasonably estimated.

     From July through September 2006, six stockholder derivative lawsuits were filed (three in the U.S. District Court for the Northern District of California and three in Santa Clara County Superior Court) by persons claiming to be Company stockholders and purporting to act on Atmel’s behalf, naming Atmel as a nominal defendant and some of its current and former officers and directors as defendants. Additional derivative actions were filed in the United States District Court for the Northern District of California (later consolidated with the previously-filed federal derivative actions) and the Delaware Chancery Court. All the suits contain various causes of action relating to the timing of stock option grants awarded by Atmel. In June 2008, the federal district court denied the Company’s motion to dismiss for failure to make a demand on the board, and granted in part and denied in part motions to dismiss filed by the individual defendants. On March 31, 2010, that court entered an order approving a partial global settlement of these actions, and several other actions seeking to compel inspection of Company books and records. Among other things, the settlement resolved all claims against all defendants, except Atmel’s former general counsel James Michael Ross, related to the allegations and/or matters set forth in all the derivative actions. The terms of the settlement provided for: (1) a direct financial benefit to Atmel of $9,650; (2) the adoption and/or implementation of a variety of corporate governance enhancements, particularly in the way Atmel grants and documents grants of employee stock option awards; (3) the payment by Atmel of plaintiffs’ counsels’ attorneys’ fees, costs, and expenses in the amount of $4,940 (which Atmel paid on April 8, 2010); and (4) the dismissal with prejudice of all claims by and between the settling parties and releases of all claims against the settling defendants. The claims against Mr. Ross remain pending. Discovery is ongoing, and no trial date has been set.

     On September 28, 2007, Matheson Tri-Gas (“MTG”) filed suit in Texas state court in Dallas County against the Company. Plaintiff alleges claims for: (1) breach of contract for the Company’s alleged failure to pay minimum payments under a purchase requirements contract; (2) breach of contract under a product supply agreement; and (3) breach of contract for failure to execute a process gas agreement. MTG seeks unspecified damages, pre- and post-judgment interest, attorneys’ fees and costs. In late November 2007, the Company filed its answer denying liability. In July 2008, the Company filed an amended answer, counterclaim and cross claim seeking among other things a declaratory judgment that a termination agreement cut off any claim by MTG for additional payments. In an Order entered on June 26, 2009, the Court granted the Company’s motion for partial summary judgment dismissing MTG’s breach of contract claims relating to the requirements contract and the product supply agreement. The parties dismissed the remaining claims and, on August 26, 2009, the Court entered a Summary Judgment Order and Final Judgment. MTG filed a Motion to Modify Judgment and Notice of Appeal on September 24, 2009. The Company intends to vigorously defend the appeal.

     On June 3, 2009, the Company filed an action in Santa Clara County Superior Court against three of its now-terminated Asia-based distributors, NEL Group Ltd. (“NEL”), Nucleus Electronics (Hong Kong) Ltd. (“NEHK”) and TLG Electronics Ltd. (“TLG”). The Company seeks, among other things, to recover $8,500 owed it, plus applicable interest and attorneys fees. On June 9, 2009, NEHK separately sued Atmel in Santa Clara County Superior Court, alleging that Atmel’s suspension of shipments to NEHK on September 23, 2008-one day after TLG appeared on the Department of Commerce, Bureau of Industry and Security’s Entity List-breached the parties’ International Distributor Agreement. NEHK also alleges that Atmel libeled it, intentionally interfered with contractual relations and/or prospective business advantage, and violated California Business and Professions Code Sections 17200 et seq. and 17500 et seq. NEHK alleges damages exceeding $10,000. Both matters now have been consolidated. On July 29, 2009, NEL filed a cross-complaint against Atmel that alleges claims virtually identical to those NEHK has alleged, and seeks unspecified damages. Discovery in the case is ongoing and no trial date has yet been set. The Company intends to prosecute its claims and defend the NEHK/NEL claims vigorously. TLG did not answer, and the Court entered a default judgment of $2,697 on November 23, 2009.

     On July 16, 2009, James M. Ross, the Company’s former General Counsel, filed a lawsuit in Santa Clara County Superior Court challenging his termination, and certain actions the Company took thereafter. Mr. Ross recently submitted a proposed amended complaint to the Court, which has been narrowed by motion practice and Mr. Ross’s voluntary dismissal of certain claims. Atmel has stipulated to this more narrow amended complaint, and the parties are awaiting an order from the Court. The proposed amended complaint contains 10 causes of action, including: (1) several claims arising out of the Company’s treatment of his post-termination attempt to exercise stock options; (2) breach of a purported oral contract to pay a bonus upon the sale of the Company’s Grenoble division; (3) violation of Section 17200 of the California Business and Professions Code; and (4) violations of the California Labor Code. Discovery is ongoing and no trial date has yet been set. The Company intends to vigorously defend this action.

     On December 18, 2009, Mr. Ross filed another lawsuit in Delaware Chancery Court seeking (pursuant to Section 145 of the Delaware General Corporation Law) to enforce certain rights granted him under his indemnification agreement with the Company, and to recover damages for any breach of that agreement. In particular, Mr. Ross alleges that the Company breached the agreement in the way it negotiated and structured the partial global settlement in the backdating cases, described above. He also seeks advancement of fees and indemnification in connection with the Delaware lawsuit. The Company intends to vigorously defend this action.

     On July 24, 2009, 56 former employees of Atmel’s Nantes facility filed claims in the First Instance labour court, Nantes, France against the Company and MHS Electronics claiming that (1) the Company’s sale of the Nantes facility to MHS (XbyBus SAS) in 2005 did not result in the transfer of their labor agreements to MHS, and (2) these employees should still be considered Atmel employees, with the right to claim related benefits from Atmel. Alternatively, each employee seeks damages of at least 45 Euros and court costs. At an initial hearing on October 6, 2009, the Court set a briefing schedule and said it will issue a ruling on October 6, 2010. These claims are similar to those filed in the First Instance labour court in October 2006 by 47 other former employees of Atmel’s Nantes facility (MHS was not named a defendant in the earlier claims). On July 24, 2008, the judge hearing the earlier claims issued an oral ruling in favor of the Company, finding that there was no jurisdiction for those claims by certain “protected employees,” and denying the claims as to all other employees. Forty of those earlier plaintiffs appealed, and on February 11, 2010, the Court of Appeal of Rennes, France affirmed the lower court’s ruling. The Company intends to continue defending all these claims vigorously.

     From time to time, the Company may be notified of claims that it may be infringing patents issued to other parties and may subsequently engage in license negotiations regarding these claims. As well, from time to time, the Company receives from customers demands for indemnification, or claims relating to the quality of our products, including claims for additional labor costs, costs for replacing defective parts, reimbursement to customers for damages incurred in correcting their defective products, costs for product recalls or other damages. The Company accrues for losses relating to such claims that the Company considers probable and for which the loss can be reasonably estimated.

  Other Contingencies

     In October 2008, officials of the European Union Commission (the “Commission”) conducted an inspection at the offices of one of the Company’s French subsidiaries. The Company was informed that the Commission was seeking evidence of potential violations by Atmel or its subsidiaries of the European Union’s competition laws in connection with the Commission’s investigation of suppliers of integrated circuits for smart cards. On September 21, 2009 and October 27, 2009, the Commission requested additional information from the Company, and the Company responded to the Commission’s requests. The Company continues to cooperate with the Commission’s investigation and has not received any specific findings, monetary demand or judgment through the date of filing this Form 10-Q. As a result, the Company has not recorded any provision in its financial statements related to this matter.

     For hardware, software or technology exported from the U.S. or otherwise subject to U.S. jurisdiction, the Company is subject to U.S. laws and regulations governing international trade and exports, including, but not limited to the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”) and trade sanctions against embargoed countries and destinations administered by the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”). Hardware, software or technology exported from other countries may also be subject to local laws and regulations governing international trade. Under these laws and regulations, the Company is responsible for obtaining all necessary licenses or other approvals, if required, for exports of hardware, software, technology, as well as the provision of technical assistance. The Company is also required to obtain export licenses, if required, prior to transferring technical data or software to foreign persons. In addition, the Company is required to obtain necessary export licenses prior to the export or re-export of hardware, software or technology (i) to any person, entity, organization or other party identified on the U.S. Department of Commerce Denied Persons or Entity List, the U.S. Department of Treasury’s Specially Designated Nationals or Blocked Persons List, or the Department of State’s Debarred List; or (ii) for use in nuclear, chemical/biological weapons, or rocket systems or unmanned air vehicle applications. A determination by the U.S. or local government that Atmel has failed to comply with one or more of these export control laws or trade sanctions, including failure to properly restrict an export to the persons, entities or countries set forth on the government restricted party lists, could result in civil or

criminal penalties, including the imposition of significant fines, denial of export privileges, loss of revenues from certain customers, and debarment from participation in U.S. government contracts. Further, a change in these laws and regulations could restrict our ability to export to previously permitted countries, customers, distributors, or other third parties. Any one or more of these sanctions or a change in law or regulations could have a material adverse effect on the Company’s business, financial condition and results of operations.

  Income Tax Contingencies

     The Company’s income tax calculations are based on application of the respective U.S. Federal, state or foreign tax law. The Company’s tax filings are subject to audit by the respective tax authorities.

     In 2005, the Internal Revenue Service (“IRS”) completed the fieldwork portion of its audit of the Company’s U.S. income tax returns for the years 2000 and 2001 and has proposed various adjustments to these income tax returns, including carry back adjustments to 1996 and 1999. In January 2007, after subsequent discussions with the Company, the IRS revised its proposed adjustments for these years. The Company has protested these proposed adjustments and is currently addressing the matter with the IRS Appeals Division.

     In May 2007, the IRS completed the fieldwork portion its audit of the Company’s U.S. income tax returns in the years 2002 and 2003 and has proposed various adjustments to these income tax returns. The Company has protested all of these proposed various adjustments and is currently addressing the matter with the IRS Appeals Division. In addition, the Company has tax audits in progress in various foreign jurisdictions.

     While the Company believes that the resolution of these audits will not have a material adverse impact on the Company’s results of operations, cash flows or financial position, the outcome is subject to significant uncertainties. The Company recognizes tax liabilities for uncertain tax positions in accordance with the requirements under U.S. GAAP, which involve evaluating the technical merits of given tax positions and the likelihood of sustaining such positions upon review by taxing authorities. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the condensed consolidated statements of operations. Income taxes and related interest and penalties due for potential adjustments may result from the resolution of these examinations.

  Product Warranties

     The Company accrues for warranty costs based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The majority of products are generally covered by a warranty typically ranging from 90 days to two years.

     The following table summarizes the activity related to the product warranty liability in the three months ended March 31, 2010 and 2009.

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands)
Balance at beginning of period		$	4,225			$	5,579
Accrual for warranties during the period, net of change in estimates			1,673				843
Actual costs incurred			(1,504	)			(1,193	)
Balance at end of period		$	4,394			$	5,229

     Product warranty liability is included in accrued and other liabilities on the condensed consolidated balance sheets.

  Guarantees

     During the ordinary course of business, the Company provides standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either the Company or its subsidiaries. As of March 31, 2010, the maximum potential amount of future payments that the Company could be required to make under these guarantee agreements is $1,850. The

Company has not recorded any liability in connection with these guarantee arrangements. Based on historical experience and information currently available, the Company believes it will not be required to make any payments under these guarantee arrangements.

Note 9 INCOME TAXES

     For the three months ended March 31, 2010 and 2009, the Company recorded an income tax expense of $2,643 and an income tax benefit of $27,693, respectively, which included the recognition of certain refundable R&D credits of $1,922 and $26,489 in the three months ended March 31, 2010 and 2009, respectively. For the three months ended March 31, 2009, the Company received refunds related to prior years and was able to recognize the tax benefit as a result of tax law changes and the expiration of statutes of limitations.

     The provision for (benefit from) income taxes for these periods was determined using the annual effective tax rate method by excluding the entities that are not expected to realize tax benefit from the operating losses. As a result, and excluding the impact of discrete tax events during the quarter, the provision for (benefit from) income taxes was at a higher consolidated effective rate than would have resulted if all entities were profitable or if losses produced tax benefits.

     In 2005, the Internal Revenue Service (“IRS”) proposed adjustments to the Company’s U.S. income tax returns for the years 2000 and 2001. In January 2007, after subsequent discussions with the Company, the IRS revised the proposed adjustments for these years. The Company has protested these proposed adjustments and is currently pursuing administrative review with the IRS Appeals Division. In May 2007, the IRS proposed adjustments to the Company’s U.S. income tax returns for the years 2002 and 2003. The Company filed a protest to these proposed adjustments and is pursuing administrative review with the IRS Appeals Division.

     In addition, the Company has tax audits in progress in other foreign jurisdictions. The Company has accrued taxes and related interest and penalties that may be due upon the ultimate resolution of these examinations and for other matters relating to open U.S. Federal, state and foreign tax years.

     While the Company believes that the resolution of these audits will not have a material adverse impact on the Company’s results of operations, cash flows or financial position, the outcome is subject to uncertainty. The Company recognizes tax liabilities for uncertain tax positions in accordance with the requirements under U.S. GAAP, which involve evaluating the technical merits of given tax positions and the likelihood of sustaining such positions upon review by taxing authorities. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense of benefit in the condensed consolidated statements of operations. Income taxes and related interest and penalties due for potential adjustments may result from the resolution of these examinations, and examinations of open U.S. federal, state and foreign jurisdictions. Should the Company be unable to reach agreement with the federal or foreign tax authorities on the various proposed adjustments, there exists the possibility of an adverse material impact on the Company’s results of operations, cash flows and financial position.

     On January 1, 2007, the Company adopted the accounting standard related to uncertain income tax provisions. Under the accounting standard, the impact of an uncertain income tax position on income tax expense must be evaluated based on its technical merits and likelihood of being sustained upon review by the applicable taxing authority. At March 31, 2010 and December 31, 2009, the Company had $185,378 and $182,552 of unrecognized tax benefits, respectively

     Included within long-term liabilities at March 31, 2010 and December 31, 2009 were income taxes payable totaling $119,917 and $116,404, respectively.

     Additionally, the Company believes that it is reasonably possible that the IRS audit and the audits in foreign jurisdictions may be resolved within the next twelve months and/or there will be an expiration of the statute of limitations. Management estimates that a change in uncertain tax positions could occur within the next twelve months of up to $150,000, including tax, interest and penalties.

Note 10 PENSION PLANS

     The Company sponsors defined benefit pension plans that cover substantially all French and German employees. Plan benefits are provided in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. The plans are unfunded. Pension liabilities and charges to expense are based upon various assumptions, updated quarterly, including discount rates, future salary increases, employee turnover, and mortality rates.

     Retirement plans consist of two types of plans. The first plan type provides for termination benefits paid to employees only at retirement, and consists of approximately one to five months of salary. This structure covers the Company’s French employees. The second plan type provides for defined benefit payouts for the employee’s post-retirement life, and covers the Company’s German employees.

     The aggregate net pension expense relating to the two plan types are as follows:

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands)
Service costs-benefits earned during the period		$	424			$	494
Interest cost on projected benefit obligation			376				438
Amortization of actuarial loss (gain)			1				(3	)
Net pension expense		$	801			$	929

     Interest cost on projected benefit obligation decreased to $376 in the three months ended March 31, 2010 from $438 in the three months ended March 31, 2009, primarily due to reductions in interest rates.

     Cash funding for benefits paid was $130 in the three months ended March 31, 2010. Cash funding for benefits to be paid for 2010 is expected to be approximately $686.

     The Company’s pension liability represents the present value of estimated future benefits to be paid. With respect to the Company’s unfunded plans in Europe, in the three months ended March 31, 2010, a change in the discount rate assumptions used to calculate the present value of the pension obligation resulted in a net increase in the pension liability. This resulted in an increase of $873, net of tax, which was recorded in accumulated other comprehensive income in stockholders’ equity on the condensed consolidated balance sheets in the three months ended March 31, 2010.

Note 11 OPERATING AND GEOGRAPHICAL SEGMENTS

     The Company designs, develops, manufactures and sells a wide range of semiconductor integrated circuit products. The segments represent management’s view of the Company’s businesses and how it allocates Company resources and measures performance of its major components. In addition, each segment consists of product families with similar requirements for design, development and marketing. Each segment requires different design, development and marketing resources to produce and sell semiconductor integrated circuits. Atmel’s four reportable segments are as follows:

	•		Microcontrollers segment includes a variety of proprietary and standard microcontrollers, the majority of which contain embedded nonvolatile memory and integrated analog peripherals. In March 2008, the Company acquired Quantum, a supplier of capacitive sensing IP solutions. Results from the acquired operations are considered complementary to sales of microcontroller products and are included in this segment.
	•		Nonvolatile Memories segment consists predominantly of serial interface electrically erasable programmable read-only memory (“SEEPROM”) and serial interface Flash memory products. This segment also includes parallel interface Flash memories as well as mature parallel interface electrically erasable programmable read-only memory (“EEPROM”) and erasable programmable ready-only memory (“EPROM”) devices. This segment also includes products with military and aerospace applications.
	•		Radio Frequency (“RF”) and Automotive segment includes products designed for the automotive industry. This segment produces and sells wireless and wired devices for industrial, consumer and automotive applications and it also provides foundry services which produce radio frequency products for the mobile telecommunication market.
	•		Application Specific Integrated Circuit (“ASIC”) segment includes custom application specific integrated circuits designed to meet specialized single-customer requirements for their high performance devices in a broad variety of specific applications. This segment also encompasses a range of products which provide security for digital data transaction, including smart cards for

mobile phones, set top boxes, banking and national identity cards. This segment also includes products with military and aerospace applications. The Company also develops application specific standard products (“ASSP”) for high reliability space applications, power management and secure crypto memory products.

     The Company evaluates segment performance based on revenues and income or loss from operations excluding acquisition-related charges, charges for grant repayments, restructuring charges, asset impairment charges (recovery) and gains on sale of assets. Interest and other (expenses) income, net, nonrecurring gains and losses, foreign exchange gains and losses and income taxes are not measured by operating segment.

     Segments are defined by the products they design and sell. They do not make sales to each other. The Company’s net revenues and segment income (loss) from operations for each reportable segment in three months ended March 31, 2010 and 2009 are as follows:

  Information about Reportable Segments

		Micro-				Nonvolatile				RF and
		Controllers				Memories				Automotive				ASIC				Total
		(in thousands)
Quarter ended March 31, 2010
Net revenues from external customers		$	150,907			$	77,500			$	46,473			$	73,669			$	348,549
Segment income (loss) from operations			11,359				4,289				(644	)			(755	)			14,249
Quarter ended March 31, 2009
Net revenues from external customers		$	97,047			$	63,827			$	32,587			$	78,032			$	271,493
Segment (loss) income from operations			(610	)			3,766				(530	)			(14,696	)			(12,070	)

     The Company does not allocate assets by segment, as management does not use asset information to measure or evaluate a segment’s performance.

  Reconciliation of Segment Information to Condensed Consolidated Statements of Operations

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands)
Total segment income (loss) from operations		$	14,249			$	(12,070	)
Unallocated amounts:
Acquisition-related credits (charges)			1,901				(5,499	)
Charges for grant repayments			(265	)			(765	)
Restructuring charges			(969	)			(2,352	)
Gain on sale of assets			—				164
Consolidated income (loss) from operations		$	14,916			$	(20,522	)

     Geographic sources of revenues were as follows:

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands)
United States		$	62,021			$	48,697
Germany			48,755				36,370
France			16,446				19,853
United Kingdom			2,908				2,552
Japan			9,166				8,084
China, including Hong Kong			101,246				70,770
Singapore			9,498				15,239
Rest of Asia-Pacific			50,097				35,627
Rest of Europe			42,554				29,998
Rest of the World			5,858				4,303
Total net revenues		$	348,549			$	271,493

     Net revenues are attributed to countries based on delivery locations.

     No single customer accounted for more than 10% of net revenues in each of the three months ended March 31, 2010 and 2009, respectively.

     Locations of long-lived assets as of March 31, 2010 and December 31, 2009 were as follows:

		March 31,				December 31,
		2010				2009
		(in thousands)
United States		$	105,371			$	105,017
Germany			19,379				21,408
France			33,998				35,505
United Kingdom			4,413				4,949
Asia-Pacific			38,876				37,726
Rest of Europe			20,955				17,366
Total		$	222,992			$	221,971

     Excluded from the table above are auction-rate securities of $2,238 and $2,266 as of March 31, 2010 and December 31, 2009, which are included in other assets on the condensed consolidated balance sheets. Also excluded from the table above as of March 31, 2010 and December 31, 2009 are goodwill of $53,011 and $56,408, respectively, intangible assets, net of $27,356 and $29,841, respectively, deferred income tax assets of $3,176 and $2,988, respectively, and assets held for sale of $78,501 and $83,260, respectively.

Note 12 ASSETS HELD FOR SALE AND ASSET IMPAIRMENT CHARGES

     The Company assesses the recoverability of long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the Company may not be able to recover the asset’s carrying amount. The Company measures the amount of impairment of such long-lived assets by the amount by which the carrying value of the asset exceeds the fair market value of the asset, which is generally determined based on projected discounted future cash flows or appraised values. The Company classifies long-lived assets as held and used until they are disposed. The Company reports assets and liabilities that are part of a disposal group and are to be disposed of by sale as held for sale and recognizes those assets and liabilities on the condensed consolidated balance sheet at the lower of carrying amount or fair value, less cost to sell. Long-lived assets classified as held for sale are not depreciated.

  Rousset, France

     In the first quarter of 2009, the Company announced its intention to sell its ASIC business, including the wafer fabrication facility in Rousset, France and classified the related assets and liabilities as held for sale at each balance sheet date from March 31, 2009 through September 30, 2009. In the fourth quarter of 2009, the Company announced that it entered into an exclusivity agreement with

LFoundry GmbH for the purchase of the Company’s manufacturing operations in Rousset, France, and on March 4, 2010, the Company entered into a definitive agreement with LFoundry. As a result of the exclusivity agreement, the Company determined that certain assets and liabilities were no longer included in the disposal group as they were not being acquired or assumed by the buyer, and as result, the Company reclassified these assets and liabilities back to held and used as of December 31, 2009. The assets and liabilities that remain in the disposal group are classified as held for sale and are carried on the condensed consolidated balance sheet at March 31, 2010, at the lower of their carrying amount or fair value less cost to sell. In determining any potential write down of these assets and liabilities, the Company considered both the net book value of the disposal group, which was $78,166, and the related credit balance of $120,076 for foreign currency translation adjustments (“CTA balance”) that was recorded within stockholders’ equity. As a result, no impairment charge was recorded for the disposal group as its carrying value, net of the CTA balance, cannot be reduced to below zero. The CTA balance remaining in stockholders’ equity at the date of sale will be released to the statement of operations upon completion of the sale.

     The proposed sale of the manufacturing operations in Rousset, France, is not expected to qualify as discontinued operations as the Company expects to have continuing cash flows associated with supply agreements with the buyer in future periods.

     The following table details the assets and liabilities within the disposal group, which are classified as held for sale on the condensed consolidated balance sheet as of March 31, 2010 and December 31, 2009:

		March 31,				December 31,
		2010				2009
		(in thousands)
Current assets
Inventory		$	15,816			$	16,139
Total current assets held for sale			15,816				16,139
Non-current assets
Fixed Assets			78,501				83,260
Total non current assets held for sale			78,501				83,260
Total assets held for sale		$	94,317			$	99,399
Current liabilities
Accrued and other liabilities			12,077				11,284
Total current liabilities held for sale			12,077				11,284
Pension liability			4,074				4,014
Total non-current liabilities held for sale			4,074				4,014
Total liabilities held for sale		$	16,151			$	15,298

Note 13 RESTRUCTURING CHARGES

     The following table summarizes the activity related to the accrual for restructuring charges detailed by event in the three months ended March 31, 2010 and 2009.

		January 1,												Currency				March 31,
		2010												Translation				2010
		Accrual				Charges				Payments				Adjustment				Accrual
						(in thousands)
Third quarter of 2002
Termination of contract with supplier		$	1,592			$	—			$	—			$	—			$	1,592	(2)
Second quarter of 2008
Employee termination costs			4				—				—				(1	)			3
Third quarter of 2008
Employee termination costs			557				—				—				(37	)			520
First quarter of 2009
Employee termination costs			—				969				(398	)			—				571
Other restructuring charges			318				—				(46	)			—				272
Total 2010 activity		$	2,471			$	969			$	(444	)		$	(38	)		$	2,958	(1)

		January 1,												Currency				March 31,
		2009												Translation				2009
		Accrual				Charges				Payments				Adjustment				Accrual
						(in thousands)
Third quarter of 2002
Termination of contract with supplier		$	1,592			$	—			$	—			$	—			$	1,592
Fourth quarter of 2007
Other restructuring charges			218				32				(81	)			(2	)			167
Second quarter of 2008
Employee termination costs			235				42				(220	)			(10	)			47
Third quarter of 2008
Employee termination costs			17,575				226				(10,579	)			(1,028	)			6,194
Fourth quarter of 2008
Employee termination costs			3,438				567				(2,854	)			(10	)			1,141
First quarter of 2009
Employee termination costs			—				1,485				(37	)			(11	)			1,437
Total 2009 activity		$	23,058			$	2,352			$	(13,771	)		$	(1,061	)		$	10,578

  2010 Restructuring Charges

     In the three months ended March 31, 2010, the Company incurred restructuring charges of $969 consisting of the following:

•

Charges of $969 related to severance costs resulting from involuntary termination of employees. Employee severance costs were recorded in accordance with the accounting standard related to costs associated with exit or disposal activities.

  2009 Restructuring Charges

     In the three months ended March 31, 2009, the Company incurred restructuring charges of $2,352 consisting of the following:

	•		Charges of $2,320 related to severance costs resulting from involuntary termination of employees. Employee severance costs were recorded in accordance with the accounting standards related to costs associated with exit or disposal activities.
	•		Charges of $32 related to facility closure costs.

Note 14 NET INCOME PER SHARE

     Basic net income per share is calculated by using the weighted-average number of common shares outstanding during that period. Diluted net income per share is calculated giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental common shares issuable upon exercise of stock options, upon vesting of restricted stock units, contingent issuable shares for all periods and accrued issuance of shares under employee stock purchase plan. No dilutive potential common shares were included in the computation of any diluted per share amount when a loss from continuing operations was reported by the Company. Income or loss from operations is the “control number” in determining whether potential common shares are dilutive or anti-dilutive.

     A reconciliation of the numerator and denominator of basic and diluted net income per share is provided as follows:

		Three Months Ended
		March 31,				March 31,
		2010				2009
		(in thousands, except per share data)
Net income		$	16,615			$	3,626
Weighted-average shares — basic			456,797				449,685
Incremental shares and share equivalents			5,587				6,746
Weighted-average shares — diluted			462,384				456,431
Net income per share:
Basic
Net income per share — basic		$	0.04			$	0.01
Diluted
Net income per share — diluted		$	0.04			$	0.01