There are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. In addition, non-GAAP financial measures may be limited in value because they exclude certain items that may have a material impact upon Atmel's reported financial results.  Management compensates for these limitations by providing investors with reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for or superior to the most directly comparable GAAP financial measures. The non-GAAP financial measures supplement, and should be viewed in conjunction with, GAAP financial measures. Investors should review the reconciliations of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided above.

As presented in the "Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures" tables above, each of the non-GAAP financial measures excludes one or more of the following items:

• Share-based compensation expense.

Share-based compensation expense relates primarily to equity awards such as stock options and restricted stock units.  This includes share-based compensation expense related to performance-based restricted stock units for which Atmel recognizes share-based compensation expense to the extent management believes it is probable that Atmel will achieve the performance criteria which occurs before these awards actually vest. If the performance goals are unlikely to be met, no compensation expense is recognized and any previously recognized compensation expense is reversed.  Share-based compensation is a non-cash expense that varies in amount from period to period and is dependent on market forces that are often beyond Atmel's control. As a result, management excludes this item from Atmel's internal operating forecasts and models. Management believes that non-GAAP measures adjusted for share-based compensation provide investors with a basis to measure Atmel's core performance against the performance of other companies without the variability created by share-based compensation as a result of the variety of equity awards used by other companies and the varying methodologies and assumptions used. 

• Loss from manufacturing facility damage and shutdown.

Atmel experienced an unplanned shutdown of its semiconductor manufacturing operations in Colorado Springs, Colorado in the fourth quarter of 2013 due to damage to the facility's nitrogen plant.  All repairs were completed in the first quarter of 2014 and the facility has resumed normal operations.  During the third quarter 2014 we received an insurance payment of $3.6 million related to our facility damage claim.  Management believes that the loss from the manufacturing facility damage and shutdown is an individually discrete event that is not generally reflective of ongoing operating performance and should be excluded from period-over-period comparisons.

• Loss (gain) related to foundry arrangements.

Loss (gain) related to foundry arrangements relates to the reduction of estimated loss (gain)  previously recorded with respect to European foundry "take or pay" arrangements for wafers that were delivered during the term of the arrangement.   Management believes that it is appropriate to exclude loss (gain) related to foundry arrangements from Atmel's non-GAAP financial measures, as it enhances the ability of investors to compare Atmel's period-over-period operating results from continuing operations.

• Fair value adjustments to inventory from businesses acquired.

In connection with the acquisition of businesses, Atmel recognizes the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition.  In connection with the Newport Media, Inc. acquisition in the third quarter of 2014, Atmel recorded a fair value increase to inventory which is amortized over the expected inventory turns and recognized in cost of revenue.  Excluding the fair value adjustments from businesses acquired from non-GAAP measures provides investors with a basis to compare Atmel against the performance of other companies without the variability caused by purchase accounting.

• French building underutilization and other charges.

French building underutilization and other charges relates to charges incurred as a result of the insolvency of our tenant in France in the first quarter of 2014, and prior year real estate taxes relating to an audit assessment of the same facilities in France.  Management believes that it is appropriate to exclude these charges as they are individually discrete events and generally not reflective of the ongoing operating performance and should be excluded from period-over-period comparisons.

• XSense related activities.

Operating results of exited XSense business.

Assets related to the XSense business were sold on April 16, 2015. Operating results of this business, including revenue, gross margin and operating expenses, have been excluded from non-GAAP results beginning in the first quarter of 2015 after management determined to discontinue its investment and exit this business. Management believes that excluding the XSense operating results from non-GAAP measures provides investors a basis to compare operating results from continuing operations.

Impairment of XSense manufacturing assets.

Impairment of XSense manufacturing assets reflects a $26.6 million charge for the write-down of assets used in the manufacture of XSense touch sensors.  The company determined in the fourth quarter 2014 to discontinue its investment and exit this business.

• Merger related expenses.

Merger-related expenses relate to expenses associated with Atmel's terminated acquisition by Dialog Semiconductor and pending Microchip acquisition.  Management believes that it is appropriate to exclude these charges as they are not reflective of ongoing operating performance of Atmel's business and can distort period-over-period comparisons.

• Acquisition-related charges.

Acquisition-related charges include: (1) amortization of purchased intangibles, which include acquired intangibles such as customer relationships, backlog, core developed technology, trade names and non-compete agreements, (2) contingent compensation expense, which includes compensation resulting from the employment retention of certain key employees established in accordance with the terms of the acquisitions, (3) adjustments to previously recognized earn-out liability on contingent compensation expense related to acquisitions, and (4) direct costs related to acquisitions such as banker, legal and accounting fees. In most cases, these acquisition-related charges are not factored into management's evaluation of potential acquisitions or Atmel's performance after completion of acquisitions, because they are not related to Atmel's core operating performance. In addition, the frequency and amount of such charges can vary significantly based on the size and timing of acquisitions and the maturities of the businesses being acquired. Management believes that excluding acquisition-related charges from non-GAAP measures provides investors with a basis to compare Atmel against the performance of other companies without the variability caused by purchase accounting.

• Restructuring (credits) charges.

Restructuring (credits) charges primarily relate to expenses necessary to make infrastructure-related changes to Atmel's operating costs.  Restructuring (credits) charges are excluded from non-GAAP financial measures because they are not considered core operating activities. Although Atmel has engaged in various restructuring activities in recent years, each has been a discrete event based on a unique set of business objectives. Management believes that it is appropriate to exclude restructuring (credits) charges from Atmel's non-GAAP financial measures as it enhances the ability of investors to compare Atmel's period-over-period operating results from continuing operations.

• Recovery of receivables from foundry suppliers.

Recovery of receivables from foundry suppliers relates to the company's assessment of the probability of collecting on receivables from European foundry suppliers for certain services provided by Atmel to those foundries.  Atmel believes that it is appropriate to exclude recovery of receivables from foundry suppliers from Atmel's non-GAAP financial measures as it enhances the ability of investors to compare Atmel's period-over-period operating results from continuing operations.  

• Loss (gain) on sale of assets.

Loss (gain) on sale of assets reflects the sale of the XSense assets and sale of Heilbronn, Germany real estate. Management believes that it is appropriate to exclude these gains as they are not reflective of the ongoing operating performance and should be excluded from period-over-period comparisons.

• Interest income from sale of assets.

Atmel recognized interest income from the sale proceeds of certain non-strategic assets that were not aligned with Atmel's long-term operating plan. Atmel excludes these items from its non-GAAP financial measures primarily because these gains are individually discrete events and generally not reflective of the ongoing operating performance of Atmel's business and can distort period-over-period comparisons.

• Gain on sale of investments in privately-held companies.