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)

(408) 441-0311
(Registrant’s telephone number)

     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 þ 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 July 31, 2010, the Registrant had 461,533,956 outstanding shares of Common Stock.

 

 

ATMEL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 2010

		Page
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)		3
CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2010 AND DECEMBER 31, 2009		3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND JUNE 30, 2009		4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND JUNE 30, 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		43
ITEM 4. CONTROLS AND PROCEDURES		44
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		45
ITEM 1A. RISK FACTORS		45
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		60
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		60
ITEM 4. (REMOVED AND RESERVED)		60
ITEM 5. OTHER INFORMATION		60
ITEM 6. EXHIBITS		61
SIGNATURES		62
EXHIBITS		63
EX-2.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Atmel Corporation

Condensed Consolidated Balance Sheets
(Unaudited)

		June 30,				December 31,
		2010				2009
		(in thousands, except par value)
ASSETS
Current assets
Cash and cash equivalents		$	526,888			$	437,509
Short-term investments			25,361				38,631
Accounts receivable, net of allowances for doubtful accounts of $11,811 and $11,930, respectively			213,119				194,099
Inventories			198,373				226,296
Current assets held for sale			8,178				16,139
Prepaids and other current assets			81,492				83,434
Total current assets			1,053,411				996,108
Fixed assets, net			205,807				203,219
Goodwill			52,176				56,408
Intangible assets, net			24,816				29,841
Non-current assets held for sale			8,824				83,260
Other assets			43,575				24,006
Total assets		$	1,388,609			$	1,392,842
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt and capital lease obligations		$	80,373			$	85,462
Trade accounts payable			136,503				105,692
Accrued and other liabilities			216,246				152,572
Current liabilites held for sale			2,712				11,284
Deferred income on shipments to distributors			42,193				44,691
Total current liabilities			478,027				399,701
Long-term debt and capital lease obligations, less current portion			3,315				9,464
Long-term liabilites held for sale			635				4,014
Other long-term liabilities			266,277				215,256
Total liabilities			748,254				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: 460,535 at June 30, 2010 and 454,586 at December 31, 2009			461				455
Additional paid-in capital			1,317,372				1,284,140
Accumulated other comprehensive income			3,008				140,470
Accumulated deficit			(680,486	)			(660,658	)
Total stockholders’ equity			640,355				764,407
Total liabilities and stockholders’ equity		$	1,388,609			$	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								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
		(in thousands, except per share data)
Net revenues		$	393,361			$	284,542			$	741,910			$	556,035
Operating expenses
Cost of revenues			233,715				192,718				448,490				368,806
Research and development			62,343				52,186				120,387				104,743
Selling, general and administrative			67,187				50,882				128,668				105,800
Acquisition-related charges (credits)			1,167				3,642				(734	)			9,141
Charges for grant repayments			246				249				511				1,014
Restructuring charges			1,614				2,470				2,583				4,822
Asset impairment charges			11,922				—				11,922				—
Loss (gain) on sale of assets			94,052				—				94,052				(164	)
Total operating expenses			472,246				302,147				805,879				594,162
Loss from operations			(78,885	)			(17,605	)			(63,969	)			(38,127	)
Interest and other income (expense), net			2,784				(4,539	)			7,126				(8,084	)
Loss before income taxes			(76,101	)			(22,144	)			(56,843	)			(46,211	)
Benefit from income taxes			39,658				9,737				37,015				37,430
Net loss		$	(36,443	)		$	(12,407	)		$	(19,828	)		$	(8,781	)
Basic net loss per share:
Net loss		$	(0.08	)		$	(0.03	)		$	(0.04	)		$	(0.02	)
Weighted-average shares used in basic net loss per share calculations			460,249				450,891				458,508				450,291
Diluted net loss per share:
Net loss		$	(0.08	)		$	(0.03	)		$	(0.04	)		$	(0.02	)
Weighted-average shares used in diluted net loss per share calculations			460,249				450,891				458,508				450,291

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

Atmel Corporation

Condensed Consolidated Statements of Cash Flows
(Unaudited)

		Six Months Ended
		June 30,				June 30,
		2010				2009
		(in thousands)
Cash flows from operating activities
Net loss		$	(19,828	)		$	(8,781	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization			31,820				36,643
Non-cash portion of loss on sale of Rousset manufacturing operations			(33,043	)			—
Asset impairment charges			11,922				—
Other non-cash (gains) losses, net			(8,535	)			5,233
Recovery of doubtful accounts receivable			(112	)			(2,676	)
Accretion of interest on long-term debt			315				260
Stock-based compensation expense			28,557				15,576
Changes in operating assets and liabilities
Accounts receivable			(18,904	)			17,590
Inventories			17,139				29,921
Current and other assets			(32,887	)			(19,308	)
Trade accounts payable			9,910				(22,884	)
Accrued and other liabilities			135,756				(33,259	)
Deferred income on shipments to distributors			(2,498	)			(11,122	)
Net cash provided by operating activities			119,612				7,193
Cash flows from investing activities
Acquisitions of fixed assets			(28,398	)			(7,380	)
Proceeds from the sale of fixed assets			652				—
Acquisition of Quantum Research Group			—				(3,362	)
Acquisitions of intangible assets			(2,000	)			(3,500	)
Purchases of marketable securities			(11,129	)			(17,200	)
Sales or maturities of marketable securities			24,308				21,445
Increase in long-term restricted cash			—				(2,050	)
Net cash used in investing activities			(16,567	)			(12,047	)
Cash flows from financing activities
Principal payments on debt			(10,813	)			(26,686	)
Proceeds from issuance of common stock			5,792				4,927
Tax payments related to shares withheld for vested restricted stock units			(2,211	)			(908	)
Net cash used in financing activities			(7,232	)			(22,667	)
Effect of exchange rate changes on cash and cash equivalents			(6,434	)			(534	)
Net increase (decrease) in cash and cash equivalents			89,379				(28,055	)
Cash and cash equivalents at beginning of the period			437,509				408,926
Cash and cash equivalents at end of the period		$	526,888			$	380,871
Supplemental cash flow disclosures:
Interest paid		$	1,727			$	2,336
Income taxes paid			3,493				3,175
Supplemental non-cash investing and financing activities disclosures:
Increase (decrease) in accounts payable related to fixed asset purchases			11,789				(2,169	)

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 June 30, 2010 and the results of operations for the three and six months ended June 30, 2010 and 2009 and cash flows for the six months ended June 30, 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 materially 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 June 30, 2010, inventories totaling $7,152 were reclassified to current assets held for sale in connection with the expected sale of the Company’s SmartCard business to INSIDE Contactless S.A. As of December 31, 2009, inventories totaling $16,139 were classified as current assets held for sale in connection with the sale of the manufacturing operations in Rousset, France which was completed in June 2010 (see Note 12).

     Inventories are comprised of the following:

		June 30,				December 31,
		2010				2009
		(in thousands)
Raw materials and purchased parts		$	9,102			$	11,525
Work-in-progress			126,614				135,415
Finished goods			62,657				79,356
		$	198,373			$	226,296

Recent Accounting Pronouncements

     In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance that revises analysis for identifying the primary beneficiary of a variable interest entity (“VIE”), by replacing the previous quantitative-based analysis with a framework that is based more on qualitative judgments. The new guidance requires the primary beneficiary of a VIE to be identified as the party that both (i) has the power to direct the activities of a VIE that most significantly impact its economic performance and (ii) has an obligation to absorb losses or a right to receive benefits that could potentially be significant to the VIE. This guidance is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2009. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated results of operations and financial position.

     In January 2010, the FASB issued guidance that expands the interim and annual disclosure requirements of fair value measurements, including the information about movement of assets between Level 1 and 2 of the three-tier fair value hierarchy established under its fair value measurement guidance. This guidance also requires separate disclosure for purchases, sales, issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs using Level 3 methodologies. Except for the detailed disclosure in the Level 3 reconciliation, which is effective for the fiscal years beginning after December 15, 2010, all the other disclosures under this guidance became effective for interim and annual periods beginning after December 15, 2009. The adoption of the disclosure portion of the guidance did not have a material impact on the Company’s condensed consolidated results of operations and financial position. The Company does not expect the adoption of the portion of the guidance related to the Level 3 reconciliation to have a material impact on the Company’s consolidated results of operations and financial position.

     In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of 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. See Note 12 for further discussion.

Note 2 INVESTMENTS

     Investments at June 30, 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 each of the three and six months ended June 30, 2010, the Company recorded gross realized gains of $2,155 from the sale of short-term investments in interest and other income (expense), net on the condensed consolidated statements of operations. In the three and six months ended June 30, 2009, 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:

		June 30, 2010								December 31, 2009
		Adjusted Cost				Fair Value				Adjusted Cost				Fair Value
		(in thousands)
Corporate equity securities		$	87			$	119			$	87			$	132
Auction-rate securities			4,870				4,906	*			5,370				5,392	*
Corporate debt securities and other obligations			22,779				22,592				33,506				35,373
		$	27,736			$	27,617			$	38,963			$	40,897
Unrealized gains			97								1,987
Unrealized losses			(216	)							(53	)
Net unrealized (losses) gains			(119	)							1,934
Fair value		$	27,617							$	40,897
Amount included in short-term investments						$	25,361							$	38,631
Amount included in other assets							2,256								2,266
						$	27,617							$	40,897

     In the three and six months ended June 30, 2010, auctions for auction-rate securities held by the Company 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 auction-rate securities held by the Company of $2,650 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 sold the securities to UBS at par value of $2,650 on July 1, 2010.

     Contractual maturities (at book value) of available-for-sale debt securities as of June 30, 2010, were as follows:

		(in thousands)
Due within one year		$	20,224
Due in 1-5 years			5,205
Due in 5-10 years			—
Due after 10 years			2,220
Total		$	27,649

     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, with the exception of our remaining auction-rate securities which are included in other assets on the condensed consolidated balance sheets.

Note 3 FAIR VALUE OF ASSETS AND LIABILITIES

     The Company applies the accounting standard that defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).” The standard establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. The accounting standard, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

     The table below presents the balances of investments measured at fair value on a recurring basis at June 30, 2010:

		June 30, 2010
		Total				Level 1				Level 2				Level 3
		(in thousands)
Assets
Cash
Money market funds		$	6,490			$	6,490			$	—			$	—
Short-term investments
Corporate equity securities			119				119				—				—
Auction-rate securities			2,650				—				—				2,650
Corporate debt securities, including government backed securities			22,592				—				22,592				—
Other assets															—
Auction-rate securities			2,256				—				—				2,256
Deferred compensation plan assets			3,173				3,173				—				—
Total		$	37,280			$	9,782			$	22,592			$	4,906

     The table below presents the balances of investments measured at fair value on a recurring basis at December 31, 2009:

		December 31, 2009
		Total				Level 1				Level 2				Level 3
		(in thousands)
Assets
Cash
Money market funds		$	76,917			$	76,917			$	—			$	—
Short-term investments
Corporate equity securities			132				132				—				—
Auction-rate securities			3,126				—				—				3,126
Corporate debt securities, including government backed securities			35,373				—				35,373				—
Other assets															—
Auction-rate securities			2,266				—				—				2,266
Deferred compensation plan assets			3,109				3,109				—				—
Total		$	120,923			$	80,158			$	35,373			$	5,392

     The Company’s investments, with the exception of auction-rate securities, are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, sovereign government obligations, and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy. The types of instruments valued based on other observable inputs include corporate debt securities and other obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy.

     Auction-rate securities are classified within Level 3 as significant assumptions are not observable in the market. The total amount of assets measured using Level 3 valuation methodologies represented less than 1% of total assets as of June 30, 2010.

     A summary of the changes in Level 3 assets measured at fair value on a recurring basis is as follows:

						Total				Sales and				Balance at				Sales and												Total
		Balance at				Unrealized				Other				December 31,				Other				Balance at				Sales and Other				Unrealized				Balance at
		January 1, 2009				Gains				Settlements				2009				Settlements				March 31, 2010				Settlements				Gains				June 30, 2010
		(in thousands)
Auction-rate securities		$	8,795			$	22			$	(3,425	)		$	5,392			$	(300	)		$	5,092			$	(200	)		$	14			$	4,906

Note 4 INTANGIBLE ASSETS, NET

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

		June 30,				December 31,
		2010				2009
		(in thousands)
Core/licensed technology		$	90,718			$	90,718
Accumulated amortization			(77,121	)			(74,291	)
Total technology licenses			13,597				16,427
Acquisition-related intangible assets			22,413				22,413
Accumulated amortization			(11,194	)			(8,999	)
Total acquisition-related intangible assets			11,219				13,414
Total intangible assets, net		$	24,816			$	29,841

     Amortization expense for technology licenses totaled $1,404 and $1,186 in the three months ended June 30, 2010 and 2009, respectively, and $2,830 and $2,324 in the six months ended June 30, 2010 and 2009, respectively. Amortization expense for acquisition-related intangible assets totaled $1,136 and $1,234 in the three months ended June 30, 2010 and 2009, respectively, and $2,195 and $2,528 in the six months ended June 30, 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 (July1 through December 31)		$	2,587			$	2,272			$	4,859
2011			4,719				4,192				8,911
2012			4,353				4,076				8,429
2013			1,938				679				2,617
Total future amortization		$	13,597			$	11,219			$	24,816

Note 5 BORROWING ARRANGEMENTS

     Information with respect to the Company’s debt and capital lease obligations as of June 30, 2010 and December 31, 2009 is shown in the following table:

		June 30,				December 31,
		2010				2009
		(in thousands)
Various interest-bearing notes and term loans		$	3,305			$	3,484
Bank lines of credit			80,000				80,000
Capital lease obligations			383				11,442
Total		$	83,688			$	94,926
Less: current portion of long-term debt and capital lease obligations			(80,373	)			(85,462	)
Long-term debt and capital lease obligations due after one year		$	3,315			$	9,464

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

Years Ending December 31:
		(in thousands)
2010 (July 1 through December 31)		$	80,620
2011			86
2012			—
2013			—
2014			—
Thereafter			3,305
			84,011
Less: amount representing interest			(323	)
Total		$	83,688

     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 $103,823 at June 30, 2010, of which the amount outstanding under this facility was $80,000 at June 30, 2010. Borrowings under the facility bear interest at LIBOR plus 2% per annum (approximately 2.34% based on the one month LIBOR at June 30, 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 not in compliance with a financial covenant (i.e. fixed charge ratio) as of June 30, 2010. The Company obtained a waiver of such failure to comply on August 3, 2010. Commitment fees and amortization of up-front fees paid related to the facility in the three months ended June 30, 2010 and 2009 totaled $194 and $242, respectively, and $496 and $539 in the six months ended June 30, 2010 and 2009, 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.

     Of the Company’s remaining outstanding debt obligations of $3,688 as of June 30, 2010, $383 are classified as capital leases and $3,305 as interest bearing notes in the summary debt table.

     The fair value of the Company’s debt approximated its book value as of June 30, 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 June 30, 2010, 114,000 shares were authorized for issuance under the 2005 Stock Plan, and 29,161 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 issued			(386	)			—				—				—
Adjustment for restricted stock units issued			(301	)			—				—				—
Performance based restricted stock units issued			(282	)			—				—				—
Adjustment for performance based restricted stock units issued			(220	)			—				—				—
Restricted stock units cancelled			745				—				—				—
Adjustment for restricted stock units cancelled			581				—				—				—
Options granted			(82	)			82			$	5.20				5.20
Options cancelled/expired/forfeited			134				(134	)		$	2.11-$21.47				6.13
Options exercised			—				(391	)		$	1.80-$5.62				3.57
Balances, June 30, 2010			29,161				17,880			$	1.68-$20.19			$	4.38

     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 25,774 restricted stock units from May 14, 2008 to June 30, 2010 (net of cancellations), resulting in a reduction of 45,877 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)
Balances, 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
Balances, March 31, 2010			23,287			$	4.40
Restricted stock units issued			386				5.28
Performance based restricted stock units issued			282				5.00
Restricted stock units vested			(539	)			5.45
Restricted stock units cancelled			(745	)			4.15
Balances, June 30, 2010			22,671			$	4.40

     In the three and six months ended June 30, 2010, 539 and 1,122 restricted stock units vested, respectively, including 194 and 376 units withheld for taxes, respectively. These vested restricted stock units had a weighted-average fair value of $5.28 and $5.11 per share on the vesting dates, respectively. As of June 30, 2010, total unearned stock-based compensation related to nonvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $65,228, excluding forfeitures, and is expected to be recognized over a weighted-average period of 2.18 years.

     In the three and six months ended June 30, 2009, 100 and 815 restricted stock units vested, respectively, including 33 and 291 units withheld for taxes, respectively. These vested restricted stock units had a weighted-average fair value of $3.62 and $3.23 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. These restricted stock units vest on a graded scale, only if the Company achieves certain quarterly operating margin performance criteria over the performance period of July 1, 2008 to December 31, 2012. In June 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. In the six months ended June 30, 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. In each of the three and six months ended June 30, 2010, the Company issued additional performance-based restricted stock units to eligible employees for a maximum of 282 shares of the Company’s common stock. 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 the portion of 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. In the three months ended June 30, 2010, as a result of significant improvements in the Company’s current and forecasted operating results and customer order status, the Company’s management revised its estimates of the Company’s ability to meet the performance plan criteria such that they will be achieved earlier than previously estimated and at a higher vesting level. As a result, in the three months ended June 30, 2010, the Company recognized a cumulative adjustment to stock-based compensation expense for the portion of its performance-based restricted stock units related to services through March 31, 2010 totaling $8,771. The Company recorded total stock-based compensation expense related to performance-based restricted stock units of $14,058 and $15,044 in the three and six months ended June 30, 2010, respectively.

Stock Option Awards

     In the three and six months ended June 30, 2010, the number of stock options exercised under Atmel’s stock option plan was 391 and 712, respectively, which had an intrinsic value of $798 and $1,453, respectively. In the three and six months ended June 30, 2009, the number of stock options exercised under Atmel’s stock option plan was 314 and 613, respectively, which had an intrinsic value of $412 and $625, respectively. Stock options exercised in the three and six months ended June 30, 2010 had an aggregate exercise price of $1,395 and $2,356, respectively, and stock options exercised in the three and six months ended June 30, 2009 had an aggregate exercise price of $816 and $1,675, 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								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
Risk-free interest rate			2.10	%			2.34	%			2.24	%			2.28	%
Expected life (years)			5.58				5.78				5.58				5.78
Expected volatility			53	%			57	%			54	%			57	%
Expected dividend yield			—				—				—				—

     The Company’s weighted-average assumptions for the three and six months ended June 30, 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 and six months ended June 30, 2010 was $2.61 and $2.50, respectively, and in the three and six months ended June 30, 2009 was $1.95 and $1.94, respectively.

Employee Stock Purchase Plan

     Under the 1991 Employee Stock Purchase Plan (“1991 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 1991 ESPP in the six months ended June 30, 2010 and 2009 at an average price per share of $3.28 and $3.15, respectively. During the 2010 Annual Stockholders’ Meeting, the Company’s stockholders approved a new 2010 Employee Stock Purchase Plan (“2010 ESPP”) and authorized an additional 25,000 shares for issuance under the 2010 ESPP. Of the 42,000 shares authorized for issuance under the 1991 ESPP, 3,703 shares were available for issuance at June 30, 2010. No shares have been issued under the 2010 ESPP.

     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								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
Risk-free interest rate			0.18	%			0.46	%			0.18	%			0.46	%
Expected life (years)			0.50				0.50				0.50				0.50
Expected volatility			41	%			87	%			41	%			87	%
Expected dividend yield			—				—				—				—

     The weighted-average fair value of the rights to purchase shares under the 1991 ESPP for offering periods started in the six months ended June 30, 2010 and 2009 was $0.77 and $1.13, respectively. Cash proceeds for the issuance of shares under the 1991 ESPP were $3,437 and $3,250 in the six months ended June 30, 2010 and 2009, respectively. There were no 1991 ESPP purchases in the three months ended June 30, 2010 and 2009.

     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 and six months ended June 30, 2010 and 2009:

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
		(in thousands)
Cost of revenues		$	2,187			$	899			$	3,864			$	2,095
Research and development			6,301				2,795				9,585				5,457
Selling, general and administrative			13,162				2,718				18,173				4,242
Total stock-based compensation expense, before income taxes			21,650				6,412				31,622				11,794
Tax benefit			—				—				—				—
Total stock-based compensation expense, net of income taxes		$	21,650			$	6,412			$	31,622			$	11,794

     The table above excluded stock-based compensation (credit) expense of $0 and $(3,065) in the three and six months ended June 30, 2010 and $1,891 and $3,782 in the three and six months ended June 30, 2009, respectively, related to the Quantum acquisition, which is classified within acquisition-related charges (credits) in the condensed consolidated statements of operations.

     There was no significant non-employee stock-based compensation expense in the three and six months ended June 30, 2010 and 2009.

     As of June 30, 2010, total unearned compensation expense related to nonvested stock options was approximately $14,563, excluding forfeitures, and is expected to be recognized over a weighted-average period of 1.29 years.

Note 7 ACCUMULATED OTHER COMPREHENSIVE INCOME

     Comprehensive income 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 loss and comprehensive income for the Company arises from foreign currency translation adjustments, actuarial gains related to defined benefit pension plans and net unrealized (loss) gains on investments. The components of accumulated other comprehensive income at June 30, 2010 and December 31, 2009, net of tax, are as follows:

		June 30,				December 31,
		2010				2009
		(in thousands)
Foreign currency translation adjustments		$	1,726			$	135,839
Actuarial gains related to defined benefit pension plans			1,401				2,697
Net unrealized (loss) gain on investments			(119	)			1,934
Total accumulated other comprehensive income		$	3,008			$	140,470

     The components of comprehensive (loss) income in the three and six months ended June 30, 2010 and 2009 are as follows:

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
		(in thousands)
Net loss		$	(36,443	)		$	(12,407	)		$	(19,828	)		$	(8,781	)
Other comprehensive (loss) income:
Foreign currency translation adjustments			(19,311	)			26,588				(36,746	)			12,650
Release of currency translation adjustments*			(97,367	)			—				(97,367	)			—
Actuarial (losses) gains related to defined benefit pension plans			(423	)			122				(1,296	)			999
Unrealized (losses) gains on investments			(2,116	)			88				(2,053	)			329
Other comprehensive (loss) income			(119,217	)			26,798				(137,462	)			13,978
Total comprehensive (loss) income		$	(155,660	)		$	14,391			$	(157,290	)		$	5,197

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 certain employees, and the Company’s bylaws permit the indemnification of the Company’s agents. In the Company’s experience, the 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 June 30, 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 $18,601 and a purchase commitment for product wafer purchases of approximately $54,011 from Tejas Silicon Holding Limited. Wafer purchase commitments from the Company’s supply agreement with LFoundry approximated $448,000 (see Note 12).

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 described below that the Company considers probable and for which the loss can be reasonably estimated. In the event that a loss cannot be reasonably estimated, the Company has not accrued for such losses.

     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. As the Company previously disclosed on a Form 8-K filed June 28, 2010 (and incorporated by reference herein), on June 18, 2010, the Court preliminarily approved a settlement of the remaining claims between Atmel, plaintiffs and Mr. Ross related to the Company’s historical stock option granting practices. The settlement—which the Court will review at a final approval hearing on August 13, 2010—provides for: (a) payments to the Company by Atmel’s insurers totaling $2,900; (b) the dismissal with prejudice and release of the remaining claims against Mr. Ross; and (c) the dismissal without prejudice of Mr. Ross’s related lawsuit against the Company in Delaware Chancery Court (described below).

     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. The operative complaint now contains 10 causes of action, which all concern the Company’s treatment of Mr. Ross’s post-termination attempt to exercise stock options and its alleged breach of a purported oral contract to pay a bonus upon the sale of the Company’s Grenoble division. 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 December 2009 in the backdating cases, described above. He also seeks advancement of fees and indemnification in connection with the Delaware lawsuit. Pursuant to the Settlement Agreement the

Company reached with him in the federal backdating cases, Mr. Ross will file a dismissal without prejudice of this action within 10 days after entry of the Final Federal Judgment in the backdating cases.

     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 Euro 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. Thirty-eight of the 40 plaintiffs have elected not to pursue any further appeal, and it is not yet clear if the remaining two plaintiffs intend to appeal to the Supreme Court of France. The Company intends to continue defending all these claims vigorously.

     From time to time, the Company is 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 of 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. Our 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 and six months ended June 30, 2010 and 2009.

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
		(in thousands)
Balance at beginning of period		$	4,394			$	5,229			$	4,225			$	5,579
Accrual for warranties during the period, net of change in estimates			493				576				2,166				1,419
Actual costs incurred			(778	)			(1,069	)			(2,282	)			(2,262	)
Balance at end of period		$	4,109			$	4,736			$	4,109			$	4,736

     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 June 30, 2010, the maximum potential amount of future payments that the Company could be required to make under these guarantee agreements is $2,000. 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 interim periods, the provision for income taxes is determined using the annual effective tax rate method which excludes entities that are not expected to realize tax benefits from certain operating losses and excludes the impact of discrete tax events during the period. As a result, the Company’s provision for income taxes, excluding discrete events, is at a higher consolidated effective rate than would have resulted if all entities were profitable or if losses from excluded entities produced realizable tax benefits.

     In the three and six months ended June 30, 2010, the Company recorded an income tax benefit of $39,657 and $37,014, respectively. The benefits primarily related to a net discrete income tax benefit of $43,645 recorded in the three months ended June 30, 2010, associated with the sale of the Company’s wafer manufacturing operations in Rousset, France, as management determined that this benefit will more likely than not be realized in current and future periods. In the three and six months ended June 30, 2009, the Company recorded an income tax benefit of $9,737 and $37,430, respectively.

     These benefits also reflected the recognition of certain refundable R&D credits of $304 and $2,226 in the three and six months ended June 30, 2010 and $2,607 and $29,097 in the three and six months ended June 30, 2009, respectively. The receipt of these refundable R&D credits was not dependent on the existence of taxable income. For the six months ended June 30, 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.

     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 in accordance with the applicable US GAAP standards for accounting for uncertain income tax positions. 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. At June 30, 2010 and December 31, 2009, the Company had $186,962 and $182,552 of unrecognized tax benefits, respectively.

     Included within long-term liabilities at June 30, 2010 and December 31, 2009 were income taxes payable totaling $121,317 and $116,404, respectively.

     The Company believes that it is reasonably possible that the IRS audit and the audits in foreign jurisdictions may be resolved and/or there will be an expiration of the statute of limitations within the next twelve months, which could result in the potential recognition of unrecognized tax benefits within the next twelve months of up to $152,000, 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								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
		(in thousands)
Service costs-benefits earned during the period		$	149			$	492			$	573			$	986
Interest cost on projected benefit obligation			219				446				595				884
Amortization of actuarial (gain) loss			(5	)			8				(4	)			5
Settlement and other related losses			907				—				907				—
Net pension expense		$	1,270			$	946			$	2,071			$	1,875

     Interest cost on projected benefit obligation decreased to $219 and $595 in the three and six months ended June 30, 2010 from $446 and $884 in the three and six months ended June 30, 2009, primarily due to reductions in interest rates.

     Settlement and other related losses of $907 in the three and six months ended June 30, 2010 was primarily related to the Company’s sale of its manufacturing operations in Rousset, France and was recorded as a charge to cost of revenues in the condensed consolidated statements of operations.

     Cash funding for benefits paid was $53 and $25 in the six months ended June 30, 2010 and 2009, respectively. 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 six months ended June 30, 2010, a change in the interest rate assumptions used to calculate the present value of the pension obligation resulted in a net increase in the pension liability. This resulted in a decrease of $1,296, net of tax, which was recorded in accumulated other comprehensive income in stockholders’ equity on the condensed consolidated balance sheet at June 30, 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 (credits), charges for grant repayments, restructuring charges, asset impairment charges and loss (gain) on sale of assets. Interest and other income (expenses), 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 the three and six months ended June 30, 2010 and 2009 are as follows:

Information about Reportable Segments

		Micro-				Nonvolatile				RF and
		Controllers				Memories				Automotive				ASIC				Total
		(in thousands)
Three months ended June 30, 2010
Net revenues from external customers		$	197,601			$	73,554			$	45,282			$	76,924			$	393,361
Segment income (loss) from operations			24,335				8,134				3,068				(5,421	)			30,116
Three months ended June 30, 2009
Net revenues from external customers			101,613				69,338				35,385				78,206				284,542
Segment loss from operations			(3,209	)			(985	)			(4,374	)			(2,676	)			(11,244	)
Six months ended June 30, 2010
Net revenues from external customers		$	348,508			$	151,054			$	91,755			$	150,593			$	741,910
Segment income (loss) from operations			35,694				12,423				2,424				(6,176	)			44,365
Six months ended June 30, 2009
Net revenues from external customers			198,660				133,165				67,972				156,238				556,035
Segment (loss) income from operations			(3,819	)			2,781				(4,904	)			(17,372	)			(23,314	)

     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								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
		(in thousands)
Total segment income (loss) from operations		$	30,116			$	(11,244	)		$	44,365			$	(23,314	)
Unallocated amounts:
Acquisition-related (charges) credits			(1,167	)			(3,642	)			734				(9,141	)
Charges for grant repayments			(246	)			(249	)			(511	)			(1,014	)
Restructuring charges			(1,614	)			(2,470	)			(2,583	)			(4,822	)
Asset impairment charges			(11,922	)			—				(11,922	)			—
(Loss) gain on sale of assets			(94,052	)			—				(94,052	)			164
Consolidated loss from operations		$	(78,885	)		$	(17,605	)		$	(63,969	)		$	(38,127	)

     Geographic sources of revenues were as follows:

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
		(in thousands)
United States		$	63,363			$	49,721			$	125,384			$	98,418
Germany			50,060				34,818				98,815				71,188
France			17,071				21,399				33,517				41,252
United Kingdom			3,957				2,574				6,865				5,126
Japan			10,371				9,423				19,537				17,507
China, including Hong Kong			124,013				78,387				225,259				149,157
Singapore			11,260				15,845				20,758				31,084
Rest of Asia-Pacific			67,268				39,560				117,365				75,187
Rest of Europe			39,189				28,878				81,743				58,876
Rest of the World			6,809				3,937				12,667				8,240
Total net revenues		$	393,361			$	284,542			$	741,910			$	556,035

     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 and six months ended June 30, 2010 and 2009, respectively.

     Locations of long-lived assets as of June 30, 2010 and December 31, 2009 were as follows:

		June 30,				December 31,
		2010				2009
		(in thousands)
United States		$	104,302			$	105,017
Germany			16,982				21,408
France			18,517				35,505
United Kingdom			4,204				4,949
Asia-Pacific			43,674				37,726
Rest of Europe			28,004				17,366
Total		$	215,683			$	221,971

     Excluded from the table above are auction-rate securities of $2,256 and $2,266 as of June 30, 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 June 30, 2010 and December 31, 2009 are goodwill of $52,176 and $56,408, respectively, intangible assets, net of $24,816 and $29,841, respectively, deferred income tax assets of $31,443 and $2,988, respectively, and assets held for sale of $8,824 and $83,260, respectively.

Note 12 LOSS ON SALE OF ASSETS, ASSET IMPAIRMENT CHARGES AND ASSETS HELD FOR SALE

     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

Loss on Sale of Assets

     On June 23, 2010, the Company completed the sale of its manufacturing operations in Rousset, France to LFoundry GmbH (“LFoundry”). Under the terms of the agreement, the Company transferred manufacturing assets and employee liabilities to the buyer in return for nominal cash consideration. In connection with the sale, the Company entered into certain other ancillary agreements, including a Manufacturing Services Agreement (“MSA”) in which the Company will purchase wafers from LFoundry for four years following the closing on a “take-or-pay” basis. Upon closing of this transaction, the Company recorded a loss on sale of $94,052, which is summarized in the following table:

(in thousands)
Net assets transferred, including working capital adjustment		$	61,646
Fair value of the MSA			92,417
Release of currency translation adjustment			(97,367	)
Severance cost liability			27,840
Selling costs			3,173
Other related costs			6,343
Loss on Sale of Assets		$	94,052

     In connection with the sale of the manufacturing operations, the Company transferred assets and liabilities specific to the manufacturing operations totaling $61,646 to LFoundry, resulting in a working capital adjustment to be received from LFoundry of $2,678.

     As future wafer purchases under the MSA were negotiated at pricing above their fair value when compared to current pricing available from third-party foundries, the Company recorded a liability in conjunction with the sale, representing the present value of the unfavorable purchase commitment. The Company determined that the difference between the contract prices and market prices over the term of the agreement totaled $103,660. The present value of this liability, using a discount rate of 7%, which was based on a rate for unsecured subordinated debt similar to the Company’s, was determined to be $92,417, and has been included in the loss on sale. The gross value of the MSA will be recognized as a credit to cost of revenues over the term of the MSA as the wafers are purchased and the present value discount of $11,243 will be recognized as interest expense over the same term.

     The sale of the Rousset, France manufacturing operations resulted in the substantial liquidation of the Company’s investment in its European manufacturing facilities, and accordingly, the Company recorded a gain of $97,367 related to currency translation adjustments (“CTA balance”) that was previously recorded within stockholders’ equity, as the Company concluded, based on guidance related to foreign currency, that it should similarly release all remaining related currency translation adjustments.

     Also, as part of the sale, the Company agreed to reimburse LFoundry for severance costs expected to be incurred subsequent to the sale. The Company entered into an escrow agreement in which the Company agreed to remit funds to LFoundry for the required benefits and payments to those employees who are determined to be part of the approved departure plan. The Company recorded a liability of $27,840 as a component of the loss on sale, which represents management’s best estimate of the severance amount payable under this arrangement, and which is expected to be paid by December 31, 2010.

     As part of the sale of the manufacturing operations, the Company incurred $4,746 in software/hardware and consulting costs to set up a separate, independent IT infrastructure for LFoundry. These costs were incurred based on negotiation with LFoundry, provided no benefit to the Company, and would not have been incurred if the Company was not selling the manufacturing operations. Therefore, the direct and incremental costs associated with these services were recorded as part of the loss on sale. The Company also incurred other costs related to the sale of $1,597, which included performance-based bonuses of $497 for certain employees (no executive officers were included), related to the completion of the sale of the Rousset manufacturing operations to LFoundry.

     The Company also incurred direct and incremental selling costs of $3,173, which represented broker commissions and legal fees associated with the sale to LFoundry.

     The Company has retained an equity interest in the manufacturing operations (“the entity”) sold to LFoundry which provides limited protective rights and no decision-making rights that are significant to the economic performance of the entity. The Company is an equity holder that is shielded from economic losses and does not participate fully in the entity’s residual economics, accordingly, the Company has concluded that its interest in the entity is a variable interest entity (“VIE”). A VIE must be consolidated if the Company is its primary beneficiary, which has the power to direct the activities that most significantly impact the VIE’s economic performance or the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. In determining whether the Company is the primary beneficiary, it identified the significant activities and the parties that have the power to direct them, determined the equity, profit and loss participation, and reviewed the funding and operating agreements. Based on the above factors, the Company determined that it is not the primary beneficiary and hence will not consolidate the VIE. As part of the sale, the Company entered into a wafer supply agreement, an arrangement to reimburse employee severance costs that LFoundry may incur, and has leased land and a building to LFoundry. The Company’s maximum exposure related to these arrangements is not expected to be significantly in excess of the amounts recorded and it does not intend to provide any other support to the VIE, financial or otherwise.

Asset Impairment Charges

     The asset disposal group expected to be transferred to the buyer was determined as of December 31, 2009 when the Company reclassified $83,260 in long-term assets as held for sale. Following further negotiation with the buyer, the Company determined that certain assets should instead remain with the Company. As a result, the Company reclassified property and equipment to held and used in the quarter ended June 30, 2010. In connection with this reclassification, the Company assessed the fair value of these assets to be retained and concluded that the fair value of the assets was lower than its carrying value less depreciation expense that would have been recognized had the assets been continuously classified as held and used. As a result, the Company recorded an asset impairment charge of $11,922 in the second quarter of 2010, as the fair value of the assets was determined to be insignificant.

Secure Microcontroller Solutions

     In June 2010, the Company entered into a definitive agreement with INSIDE Contactless (INSIDE) for the sale of its Secure Microcontroller Solutions (SMS) business based in Rousset, France and East Kilbride, UK. Pursuant to the definitive agreement, INSIDE will pay $37,000 in cash at the closing, subject to a post-closing working capital adjustment and an additional cash consideration of up to $21,000 if certain earnout targets are met in 2010 and 2011. As part of the transaction, the Company has agreed to make a minority investment in INSIDE of approximately $4,000. The definitive agreement also provides INSIDE a royalty-based, non-exclusive license to certain business-related intellectual property in order to support the current SMS business and future product development. In addition, INSIDE will enter into a multi-year supply agreement to continue sourcing wafers from the fabrication facility in Rousset, France that the Company recently sold to LFoundry. The transaction is expected to close by the end of the third quarter of 2010, subject to certain closing conditions.

     The proposed sale of the SMS business is not expected to qualify as discontinued operations as it does not meet the requirement to be considered a component of an entity.

     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 June 30, 2010:

		June 30,
		2010
		(in thousands)
Current assets
Inventory		$	7,152
Other current assets			1,026
Total current assets held for sale			8,178
Non-current assets
Fixed Assets			4,862
Other assets			3,962
Total non current assets held for sale			8,824
Total assets held for sale		$	17,002
Current liabilities
Accrued and other liabilities		$	2,712
Total current liabilities held for sale			2,712
Pension liability			635
Total non-current liabilities held for sale			635
Total liabilities held for sale		$	3,347