10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________

FORM 10-Q

________________________________

(Mark One)

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

For the quarterly period ended September 30, 2014

or

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

For the transition period from                     to                     .

Commission File Number 1-34020

________________________________

MICREL, INCORPORATED

(Exact name of Registrant as specified in its charter)

________________________________

California	94-2526744
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2180 Fortune Drive, San Jose, CA	95131
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (408) 944-0800

________________________________

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  x    No  ¨

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	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  ¨    No  x

As of September 30, 2014 there were 56,656,875 shares of common stock, no par value, outstanding.

MICREL, INCORPORATED

INDEX TO

REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2014 and 2013	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	25
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	26
	Signature	27

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MICREL, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)

	September 30, 2014			December 31, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	34,934		$	23,787
Restricted cash	133			1,116
Short-term investments	65,786			64,806
Accounts receivable, less allowances: 2014, $1,224; 2013, $760	29,058			29,437
Inventories	41,967			43,201
Prepaid taxes	4,018			4,513
Prepaid expenses and other	1,580			2,698
Deferred income taxes	22,794			21,662
Total current assets	200,270			191,220
LONG-TERM INVESTMENTS	1,683			4,195
PROPERTY, PLANT AND EQUIPMENT, NET	58,225			57,779
LONG-TERM PREPAID TAXES	1,711			—
GOODWILL	8,655			8,554
INTANGIBLE ASSETS, NET	10,159			11,749
DEFERRED INCOME TAXES	2,322			1,581
OTHER ASSETS	1,628			1,046
TOTAL ASSETS	$	284,653		$	276,124
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	17,774		$	13,502
Accrued liabilities	15,020			12,874
Deferred income on shipments to distributors	26,365			27,026
Total current liabilities	59,159			53,402
LONG-TERM INCOME TAXES PAYABLE	2,982			3,575
LONG-TERM DEFERRED INCOME TAXES	745			973
OTHER LONG-TERM LIABILITIES	168			201
Total liabilities	63,054			58,151
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value - authorized: 5,000,000 shares; issued and outstanding: none	—			—
Common stock, no par value - authorized: 250,000,000 shares; issued and outstanding: 2014 - 56,656,875 shares; 2013 - 56,441,346 shares	1,326			—
Accumulated other comprehensive loss	(38		)	(320		)
Retained earnings	220,311			218,293
Total shareholders’ equity	221,599			217,973
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	284,653		$	276,124

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

MICREL, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
NET REVENUES	$	67,480		$	58,169		$	189,676		$	177,073
COST OF REVENUES (1)	33,072			28,698			91,258			85,440
GROSS PROFIT	34,408			29,471			98,418			91,633
OPERATING EXPENSES:
Research and development (1)	16,013			14,055			46,930			41,327
Selling, general and administrative (1)	12,218			11,184			36,630			34,478
Restructuring charges	484			—			484			—
Total operating expenses	28,715			25,239			84,044			75,805
INCOME FROM OPERATIONS	5,693			4,232			14,374			15,828
INTEREST AND OTHER (EXPENSE) INCOME:
Interest income	80			121			275			373
Other expense, net	(120		)	(87		)	(200		)	(230		)
Total interest and other (expense) income, net	(40		)	34			75			143
INCOME BEFORE PROVISION FOR INCOME TAXES	5,653			4,266			14,449			15,971
PROVISION FOR INCOME TAXES	978			262			3,956			1,687
NET INCOME	$	4,675		$	4,004		$	10,493		$	14,284
NET INCOME PER SHARE:
Basic	$	0.08		$	0.07		$	0.19		$	0.25
Diluted	$	0.08		$	0.07		$	0.18		$	0.24
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.05		$	0.05		$	0.15		$	0.0925
WEIGHTED AVERAGE SHARES USED IN COMPUTING PER SHARE AMOUNTS:
Basic	56,642			57,752			56,514			58,107
Diluted	57,708			58,440			57,463			58,826

(1) Share-based compensation expense included in:

Cost of revenues	$	271	$	270	$	748	$	784
Research and development	874		704		2,397		2,008
Selling, general and administrative	864		789		2,535		2,284

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

MICREL, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
NET INCOME	$	4,675		$	4,004		$	10,493		$	14,284
Other comprehensive income:
Unrealized (losses) gains on investments	(12		)	39			437			315
Reclassification adjustment for a realized loss on investment included in other expense	—			—			—			26
Income tax benefits (provision)	4			(14		)	(155		)	(121		)
Other comprehensive (loss) income, net of taxes	(8		)	25			282			220
COMPREHENSIVE INCOME	$	4,667		$	4,029		$	10,775		$	14,504

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

MICREL, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended
	September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,493		$	14,284
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,264			9,788
Share-based compensation expense	5,680			5,076
Excess tax benefits from share-based awards	(1,611		)	(418		)
Loss (gain) on disposal of assets	13			(33		)
Deferred income tax provision	(2,256		)	(3,133		)
Changes in operating assets and liabilities:
Accounts receivable	379			(3,534		)
Inventories	1,252			(1,691		)
Prepaid taxes	(1,318		)	(351		)
Prepaid expenses and other assets	408			(434		)
Accounts payable	835			(6,368		)
Income taxes payable	(593		)	172
Accrued liabilities and other long-term liabilities	1,610			2,089
Deferred income on shipments to distributors	(661		)	6,725
Net cash provided by operating activities	24,495			22,172
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Discera's net assets	—			(6,110		)
Purchases of property, plant and equipment	(5,607		)	(5,797		)
Purchases of intangible assets	—			(57		)
Purchases of investments	(36,450		)	(50,079		)
Proceeds from sales and maturities of investments	38,369			57,010
Change in restricted cash	983			(808		)
Net cash used in investing activities	(2,705		)	(5,841		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock	10,378			3,743
Repurchases of common stock	(12,950		)	(13,177		)
Payment of cash dividends	(8,475		)	(5,371		)
Purchase of stock for withholding taxes on vested restricted stock	(1,207		)	(701		)
Excess tax benefits from share-based awards	1,611			418
Net cash used in financing activities	(10,643		)	(15,088		)
NET INCREASE IN CASH AND CASH EQUIVALENTS	11,147			1,243
CASH AND CASH EQUIVALENTS - Beginning of period	23,787			27,281
CASH AND CASH EQUIVALENTS - End of period	$	34,934		$	28,524

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Information - The accompanying condensed consolidated financial statements of Micrel, Incorporated and its wholly-owned subsidiaries (together “Micrel” or the “Company”) as of September 30, 2014 and for the three and nine months ended September 30, 2014 and 2013 are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair statement of its financial position, operating results, comprehensive income and cash flows for the interim periods presented. Operating results and cash flows for interim periods are not necessarily indicative of results for the entire year. The Condensed Consolidated Balance Sheet as of December 31, 2013, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted (“GAAP”) in the United States of America. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. These financial statements should also be read in conjunction with the Company’s critical accounting policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and those included in this Form 10-Q below.

Revenue Recognition - The Company generates revenue by selling products to original equipment manufacturers (“OEM”), sell-through distributors and sell-in distributors. The Company's policy is to recognize revenue from sales to customers when the rights and risks of ownership have passed to the customer, when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed or determinable and collection of the resulting receivable is reasonably assured.

The Company allows certain sell-through distributors to have price protection and pricing adjustments subsequent to the initial product shipment. As these price concessions have historically been significant, and price concessions are difficult to reliably estimate, the Company defers recognition of revenue and related cost of sales (in the balance sheet line item “deferred income on shipments to distributors”) derived from sales to these sell-through distributors until they have resold the Company's products to their customers. Although revenue and related cost of sales are not recognized, the Company records an accounts receivable and relieves inventory at the time of initial product shipment. As standard terms are EXW or FCA shipping point, payment terms are enforced from shipment date and legal title and risk of inventory loss passes to the sell-through distributor upon shipment.

In addition, the Company may offer to its sell-through distributors, where revenue is deferred upon shipment and recognized on a sell-through basis, price adjustments to allow our sell-through distributors to price our products competitively for specific resale opportunities. The Company estimates and records an adjustment for sell-through distributor price adjustments for which the specific resale transaction has been completed, but the price adjustment claim has not yet been received by the Company.

Sales to OEM customers and sell-in distributors are recognized based upon the shipment terms of the sale transaction when all other revenue recognition criteria have been met. The Company does not grant return rights, price protection or pricing adjustments to OEM customers. The Company offers limited contractual stock rotation rights to sell-in distributors. In addition, the Company is not contractually obligated to offer, but may infrequently grant, price adjustments or price protection to certain sell-in distributors on an exception basis. At the time of shipment to sell-in distributors, an allowance for returns is established based upon historical return rates, and an allowance for price adjustments is established based on an estimate of price adjustments to be granted. Actual future returns and price adjustments could be different than the allowance established.

During the third quarter of 2014, the Company amended the terms of its agreements with certain sell-through distributors. These amendments included the removal of significant return rights, price protection and pricing adjustments subsequent to the initial product shipment. Therefore, upon amendment of the agreements, these distributors were changed from sell-through distributors to sell-in distributors and the Company recognized the revenue for sales to these distributors upon the initial product shipments to these distributors, net of estimated allowance for returns established based upon historical return rates. In addition, revenue was recognized for unsold inventory held by these distributors on the date of change. The effect of changing these sell-through distributors to sell-in distributors resulted in a one-time increase in revenue of approximately $5.1 million and related cost of goods sold of $1.6 million related to unsold inventory held by these distributors at June 30, 2014.

7

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Net Income Per Share- Basic net income per share is computed by dividing net income by the number of weighted-average common shares outstanding. Diluted net income per share reflects potential dilution from outstanding stock options and restricted stock units ("RSUs") using the treasury stock method. Reconciliation of weighted-average shares used in computing basic and diluted net income per share is as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Shares used in computing basic net income per share	56,642	57,752	56,514	58,107
Dilutive effect of stock options and restricted stock units	1,066	688	949	719
Shares used in computing diluted net income per share	57,708	58,440	57,463	58,826

For the three and nine months ended September 30, 2014, 2.5 million and 3.6 million shares underlying stock options, respectively, have been excluded from the weighted-average number of common shares outstanding for the diluted net income per share computations as they were anti-dilutive. For the three and nine months ended September 30, 2013, 5.4 million and 5.3 million shares underlying stock options, respectively, have been excluded from the weighted-average number of common shares outstanding for the diluted net income per share computations as they were anti-dilutive.

Goodwill -Goodwill represents the excess of the purchase price over the fair value of both net tangible and identifiable intangible assets acquired. Goodwill is measured and tested for impairment annually at the reporting unit level during the last quarter of the Company’s fiscal year, or more frequently if the Company believes indicators of impairment exist. Events that could trigger a more frequent impairment review may include adverse industry or economic trends, restructuring actions, lower projections of profitability, or a sustained decline in our market capitalization.

On April 2, 2012, the Company acquired PhaseLink^™ Company Limited (“Phaselink”) and recorded $6.1 million of goodwill as the purchase price exceeded the fair value allocated to both net tangible assets and identifiable intangible assets. On September 9, 2013, the Company acquired specific net assets of Discera Inc. (“Discera”) and recorded $2.5 million of goodwill as the purchase price exceeded the fair value allocated to net tangible assets and identifiable intangible assets. During the first quarter of 2014, goodwill recorded from the Discera transaction was increased by approximately $0.1 million to $2.6 million. The goodwill for each acquisition was allocated to the timing and communications reporting unit and is reviewed annually in October or whenever events or circumstances occur which indicate that goodwill might be impaired.

2. RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standards update to change the requirements for reporting discontinued operations. This guidance modifies the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results. The guidance requires expanded disclosures for discontinued operations for the assets, liabilities, revenues, and expenses of discontinued operations, and also requires an entity to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. The Company is required to adopt this standard for its interim and annual periods beginning after December 15, 2014.

In May 2014, the FASB issued an accounting standards update on the recognition of revenue from contracts with customers. The guidance modifies the financial reporting of revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires enhanced disclosures for the nature, amount, timing, and uncertainty of revenue that is recognized. The Company is required to adopt this standard for its interim and annual periods beginning after December 15, 2016. Early adoption is not permitted. The guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

8

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In June 2014, the FASB issued an accounting standards update on the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The Company is required to adopt this standard for its interim and annual periods beginning after December 15, 2015. Early adoption is permitted. The guidance may be applied on a prospective or retrospective basis. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.

3. SHARE-BASED COMPENSATION

Share-based compensation expense is measured at the grant date based on the fair value of the award and is recognized over the employee’s requisite service period. The following table summarizes total share-based compensation expense included in the Condensed Consolidated Statements of Income (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Cost of revenues	$	271		$	270		$	748		$	784
Research and development	874			704			2,397			2,008
Selling, general and administrative	864			789			2,535			2,284
Pre-tax share-based compensation expense	2,009			1,763			5,680			5,076
Less income tax effect	(707		)	(565		)	(1,938		)	(1,667		)
Net share-based compensation expense	$	1,302		$	1,198		$	3,742		$	3,409

During the three months ended September 30, 2014 and 2013, the Company granted 0.1 million and 0.2 million stock options, respectively, at weighted average fair values of $3.11 and $2.79 per share, respectively. During the nine months ended September 30, 2014 and 2013, the Company granted 0.4 million and 0.5 million stock options at weighted average fair values of $2.86 and $2.91 per share, respectively. The fair value of the Company’s stock options granted under the Company’s option plans was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Expected term (years)	5.9		5.8		6.0		5.9
Stock volatility	30.6	%	35.0	%	30.7	%	34.8	%
Risk free interest rates	2.0	%	1.7	%	2.0	%	1.4	%
Dividends during expected terms	1.6	%	2.2	%	1.7	%	1.8	%

The Company also grants RSUs to its employees. In the three months ended September 30, 2014 and 2013, the Company granted 0.2 million and 0.2 million RSUs, respectively, at weighted average fair values of $11.59 and $9.14 per share, respectively. In the nine months ended September 30, 2014 and 2013, the Company granted 0.7 million and 0.4 million RSUs, respectively, at weighted average fair values of $10.62 and $9.49 per share, respectively.

As of September 30, 2014, there was $5.4 million of total unrecognized share-based compensation expense related to non-vested stock option awards and $11.3 million related to non-vested RSUs, which are expected to be recognized over a weighted-average period of 2.5 and 3.0 years, respectively. Total share-based compensation expense capitalized as part of inventory as of both September 30, 2014 and December 31, 2013 was $0.2 million.

Under the Company’s Employee Stock Purchase Plan (“ESPP”), eligible employees are permitted to have salary withholdings to purchase shares of common stock at a price equal to 95% of the market value of the stock at the end of each three-month offer period, subject to an annual limitation. The ESPP is considered non-compensatory per current share-based compensation accounting guidelines.

9

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. INVESTMENTS

Investments purchased with remaining maturity of less than three months are classified as cash equivalents. Investments are classified either as short-term or as long-term based on maturities and the Company’s intent with regard to those securities (expectations of sales and redemptions). Short-term investments as of September 30, 2014 consisted primarily of liquid municipal and corporate debt instruments with maturities ranging from less than one month to less than two years and were classified as available-for-sale securities. Long-term investments as of September 30, 2014 consisted of auction-rate notes secured by student loans and were classified as available-for-sale securities. Available-for-sale securities are stated at fair value with unrealized gains and losses included in accumulated other comprehensive loss, a component of shareholders' equity. Unrealized losses are charged against income when a decline in the fair market value of an individual security is determined to be other than temporary. Realized gains and losses on investments are included in other income or expense.

A summary of the Company’s short-term investments at September 30, 2014 and December 31, 2013 was as follows (in thousands):

	As of September 30, 2014								As of December 31, 2013
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate Debt Securities	$	40,041	$	—	$	—	$	40,041	$	36,947	$	10	$	—		$	36,957
Commercial Paper	12,985		3		—		12,988		13,991		2		—			13,993
Municipal Securities	12,751		6		—		12,757		13,858		—		(2		)	13,856
Total	$	65,777	$	9	$	—	$	65,786	$	64,796	$	12	$	(2	)	$	64,806

As of September 30, 2014, the Company had no short-term investments that have been in a significant continuous unrealized loss position for more than twelve months.

A summary of the Company’s long-term investments at September 30, 2014 and December 31, 2013 was as follows (in thousands):

	As of September 30, 2014									As of December 31, 2013
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Auction Rate Notes	$	1,750	$	—	$	(67	)	$	1,683	$	4,700	$	—	$	(505	)	$	4,195

In the three and nine months ended September 30, 2014, the Company sold $0.1 million and $3.0 million of auction-rate notes at par value, respectively. As of September 30, 2014, the Company had remaining $1.8 million of auction-rate notes. Auction-rate notes are securities that are structured with short-term interest rate reset dates of generally less than ninety days, but with contractual maturities that can be in excess of ten years. At the end of each reset period, which occurs every seven or twenty-eight days for the securities held by the Company, investors can sell or continue to hold the securities at par. As a result of sell orders exceeding buy orders, auctions for the remaining student loan-backed notes held by the Company have failed as of September 30, 2014. To date the Company has collected all interest receivable on all of its auction-rate notes when due and expects to continue to do so in the future. The principal associated with failed auctions will not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the issuers redeem the securities, the issuers repay principal over time from cash flows prior to final maturity or final payments come due according to contractual maturities ranging from 31 to 33 years. The Company has classified all auction-rate notes as long-term investments as of September 30, 2014 and December 31, 2013. In the event of a failed auction, the notes bear interest at a predetermined maximum rate based on the credit rating of notes as determined by one or more nationally recognized statistical rating organizations. For the auction-rate notes held by the Company as of September 30, 2014, the maximum interest rate is generally one month LIBOR plus 1.5% based on the notes' rating as of that date.

10

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

To determine the fair value of financial instruments, the Company uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

• Level 1 - Quoted prices in active markets for identical assets or liabilities.

• Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s short-term investments are classified within Level 2 of the fair value hierarchy because they are valued using quoted market prices for similar securities, broker or dealer quotations, or other observable inputs.

The types of instruments valued based on unobservable inputs consist of the auction-rate notes held by the Company. Such instruments are classified within Level 3 of the fair value hierarchy. The Company estimated the fair value of these auction-rate notes using a combination of observable transactions for similar securities and a discounted cash flow model incorporating assumptions that market participants would use in their estimates of fair value. Some of these assumptions include estimates for interest rates, timing and amount of cash flows and expected holding periods of the auction-rate notes. Based on this assessment of fair value, as of September 30, 2014, the Company determined there was a cumulative decline in the fair value of its auction-rate notes and recorded less than $0.1 million net of tax ($0.1 million pre-tax) temporary impairment of these notes to accumulated other comprehensive income, a component of shareholders’ equity.

Financial assets measured at fair value on a recurring basis as of September 30, 2014 were as follows (in thousands):

	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Funds (1)	$	9,736	$	—	$	—	$	9,736
Corporate Debt Securities (2)	—		40,041		—		40,041
Commercial Paper (2)	—		12,988		—		12,988
Municipal Securities (2)	—		12,757		—		12,757
Auction-rate notes (3)	—		—		1,683		1,683
Total	$	9,736	$	65,786	$	1,683	$	77,205

Financial assets measured at fair value on a recurring basis as of December 31, 2013 were as follows (in thousands):

	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Funds (1)	$	16,945	$	—	$	—	$	16,945
Corporate Debt Securities (2)	—		36,957		—		36,957
Commercial Paper (2)	—		13,993		—		13,993
Municipal Securities (2)	—		13,856		—		13,856
Auction-rate notes (3)	—		—		4,195		4,195
Total	$	16,945	$	64,806	$	4,195	$	85,946

__________

(1) Included in cash and cash equivalents

(2) Included in short-term investments

(3) Included in long-term investments

11

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

There were no significant transfers between Level 1 and Level 2 of the fair value hierarchy.

For the nine months ended September 30, 2014, the changes in the Company’s Level 3 securities (consisting of auction-rate notes) were as follows (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Beginning balance, December 31, 2013	$	4,195
Transfers in and/or out of Level 3	—
Total unrealized gains, before tax, included in other comprehensive income	438
Sales	(2,950		)
Ending balance, September 30, 2014	$	1,683

5. INVENTORIES

Inventories consisted of the following (in thousands):

	September 30, 2014		December 31, 2013
Finished goods	$	12,358	$	11,592
Work in process	28,382		30,109
Raw materials	1,227		1,500
Total inventories	$	41,967	$	43,201

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

	September 30, 2014			December 31, 2013
Machinery and equipment	$	188,357		$	180,851
Land	8,101			8,101
Buildings and improvements	54,558			53,915
Computer equipment and software	12,022			11,742
Office furniture and fixtures	1,779			1,928
	264,817			256,537
Accumulated depreciation	(206,592		)	(198,758		)
Total property, plant and equipment, net	$	58,225		$	57,779

Depreciation expense for the three and nine months ended September 30, 2014 was $2.8 million and $8.3 million, respectively. Depreciation expense for the three and nine months ended September 30, 2013 was $2.7 million and $8.3 million, respectively.

7. INTANGIBLE ASSETS

The Company reviews its purchased intangible assets with finite lives for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of these intangible assets is assessed based on the estimated undiscounted future cash flows expected to result from the use of the asset. If the undiscounted future cash flows are less than the carrying amount, the purchased intangible assets with finite lives are considered to be impaired. The amount of the impairment is measured as the difference between the carrying amount of these assets and their fair value.

12

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The Company's business acquisitions have included the purchase of in-process research and development assets that are not amortizable until the underlying project is complete. The Company assesses that its in-process research and development project is complete when all material research and development costs have been incurred and no significant risks remain. The Company reviews the carrying value of indefinite-lived intangible assets for impairment at least annually during the last quarter of its fiscal year, or more frequently if it believes indicators of impairment exist.

The following table sets forth the components of intangible assets as follows (in thousands):

	September 30, 2014							December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net  Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net  Carrying Amount
Developed and core technology	$	7,443	$	(1,604	)	$	5,839	$	7,783	$	(986	)	$	6,797
Customer relationships	3,800		(1,039		)	2,761		3,800		(552		)	3,248
Trademarks	610		(351		)	259		610		(284		)	326
Non-competition agreements	—		—			—		450		(372		)	78
In-process research and development	1,300		—			1,300		1,300		—			1,300
	$	13,153	$	(2,994	)	$	10,159	$	13,943	$	(2,194	)	$	11,749

The above intangible assets acquired in connection with the Discera acquisition in 2013 of $2.8 million, PhaseLink acquisition in 2012 of $8.3 million, and other acquired intangible assets of $2.1 million are amortized over their estimated useful lives ranging from one to ten years using the straight-line method. Total intangible amortization expense for the three and nine months ended September 30, 2014 was $0.4 million and $1.3 million, respectively. Total intangible amortization expense for the three and nine months ended September 30, 2013 was $0.4 million and $1.0 million, respectively. The Company expects the completion of acquired in-process development projects for Phaselink and Discera in early 2015 and expects to begin amortizing the related in-process research and development intangible assets in 2015.

The estimated future amortization expense of intangible assets as of September 30, 2014 was as follows (in thousands):

Year Ending December 31,
2014 (remaining three months)	$	384
2015	1,599
2016	1,510
2017	1,281
2018	1,223
Thereafter	4,162
	$	10,159

8. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

	September 30, 2014		December 31, 2013
Accrued compensation	$	8,431	$	5,767
Accrued commissions	1,775		1,666
Accrued restructuring	602		902
Other accrued liabilities	4,212		4,539
Total accrued liabilities	$	15,020	$	12,874

13

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

9. BORROWING ARRANGEMENTS

Under the terms of an unsecured credit facility with Bank of the West that expires on April 30, 2015, the Company has a $5.0 million line of credit available for general working capital needs, which includes a $5.0 million letter of credit sub-facility including a $2.0 million foreign exchange sub-facility. Interest rates under the facility are based on one of three interest rates, at the Company’s option: (1) a variable alternate base rate plus 1.0%, the alternate base rate being the greater of (x) Bank of the West’s prime rate, (y) the Fed Funds Rate plus 0.5% or (z) daily adjusted one-month LIBOR plus 1.0%; (2) floating one-month LIBOR plus 2.0% or (3) fixed LIBOR for one, two, three or six month periods, plus 2.0%. The credit agreement includes certain restrictive covenants and, as of September 30, 2014, the Company was in compliance with such covenants. As of September 30, 2014, the Company had no borrowings under the line of credit facility.

The Company's borrowing arrangements include a provision for the issuance of commercial or standby letters of credit by the bank on behalf of the Company. The letters of credit are issued to guarantee payments for the Company's workers compensation program. As of September 30, 2014, there was $0.3 million in letters of credit outstanding.

10. MAJOR CUSTOMERS

During the three months ended September 30, 2014, distributors A and B accounted for 24% and 17% of total net revenues, respectively. During the nine months ended September 30, 2014, distributors A and B accounted for 25% and 18% of total net revenues, respectively.

During the three months ended September 30, 2013, distributors A, B, and C accounted for 26%, 16%, and 10% of total net revenues, respectively. During the nine months ended September 30, 2013, distributors A and B accounted for 31% and 20% of total net revenues, respectively. These distributors sell Micrel's products to many customers across various end markets.

At September 30, 2014, distributors A, C, and B accounted for 27%, 15%, and 14% respectively, of total accounts receivable. At December 31, 2013, distributors A and B accounted for 36% and 11%, respectively, of total accounts receivable.

11. SEGMENT REPORTING

The Company currently operates in one segment: the design, manufacturing, marketing and sale of semiconductor products. The chief operating decision maker, the President and CEO, evaluates the financial performance of the Company and allocates resources on a company-wide basis.

The Company generates revenue from four product groups:  Linear and Power; Timing and Communications; LAN; and Foundry.  The following table sets forth the net revenues attributable to our four product groups as a percentage of total net revenues:

	Three Months Ended				Nine Months Ended
Net Revenues by Product Group	September 30,				September 30,
	2014		2013		2014		2013
Net Revenues:
Linear and Power	52	%	57	%	53	%	57	%
Timing and Communications	25		22		24		21
LAN	21		19		21		20
Foundry	2		2		2		2
Total net revenues	100	%	100	%	100	%	100	%

The Company recorded revenue from customers throughout the United States, Canada and Mexico (collectively referred to as “North America”); the United Kingdom, Italy, Germany, France, Israel, Sweden, Hungary, Austria, Finland, Switzerland and other European countries (collectively referred to as “Europe”); Korea, Taiwan, Singapore, China, Japan, Hong Kong, Malaysia and other Asian countries (collectively referred to as “Asia”). Revenues by major geographic area are based on the geographic location of the original equipment manufacturers ("OEMs") or the distributors who have purchased the Company's products. The geographic locations of the Company's distributors may be different from the geographic locations of the end customers.

14

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table sets forth the net revenues by geographic region as a percentage of total net revenues, for the periods presented:

	Three Months Ended				Nine Months Ended
Net Revenues by Geographic Region	September 30,				September 30,
	2014		2013		2014		2013
Net Revenues:
North America	19	%	26	%	22	%	29	%
Asia	67	%	60	%	63	%	58	%
Europe	14	%	14	%	15	%	13	%
Total net revenues	100	%	100	%	100	%	100	%

12. COMMITMENTS AND CONTINGENCIES

From time to time, claims have been filed by or have arisen against the Company in its normal course of business. Generally, litigation is subject to inherent uncertainties, and the Company can provide no assurance that it will prevail in any particular lawsuit. Accordingly, litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

As of September 30, 2014, the Company has not recorded any accrual for contingent liabilities associated with the legal proceedings described above based on the assessment that liabilities are not probable. Further, ranges of possible losses in these matters cannot be reasonably estimated at this time.

13. SHARE REPURCHASE PROGRAM

On August 20, 2014, the Company announced that its Board of Directors authorized the repurchase of $25.0 million of the Company’s common stock, which increased the total approval for repurchase since February 2010 to $145.0 million. Under our stock repurchase program, as of September 30, 2014, we have remaining authorization to repurchase $37.4 million of our common stock.

Shares of common stock purchased pursuant to the repurchase program are canceled from outstanding shares upon repurchase. Share repurchases are recorded as a reduction to common stock to the extent available. Any amounts repurchased which are in excess of the existing total common stock balance are recorded as a reduction of retained earnings. Share repurchases are intended to reduce the number of outstanding shares of common stock to increase shareholder value and offset dilution from the Company’s stock incentive plans and ESPP. During the nine months ended September 30, 2014, the Company repurchased 1.2 million shares of its common stock for an aggregate price of $13.4 million, which included $0.5 million of share repurchases pending cash settlement as of September 30, 2014.

14. INCOME TAXES

The income tax provision for the three and nine months ended September 30, 2014, as a percentage of income before taxes was 17.3% and 27.4%, respectively.

The income tax provision for the three months and nine months ended September 30, 2013, as a percentage of income before taxes, was 6.1% and 10.6%, respectively. The income tax provision for the three months ended September 30, 2014 and 2013 included previously unrecognized tax benefits totaling $0.9 million and $0.8 million, respectively, due to a lapse of the statute of limitations. For the nine months ended September 30, 2013, the income tax provision also included a $0.4 million benefit pertaining to the filing of 2012 foreign tax returns during the second quarter of 2013 and a $1.4 million benefit for 2012 research tax credits as a tax law was enacted on January 2, 2013 to retroactively reinstate the federal research and development tax credit to January 1, 2012.

15

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

As of September 30, 2014, the amount of unrecognized tax benefits for uncertain tax positions was $13.0 million and the net amount, reduced for the federal effects of potential state tax exposures, was $9.1 million. If these uncertain tax positions are sustained upon tax authority audit, or otherwise become certain, a net $3.0 million would favorably affect the Company’s tax provision in such future periods. The remaining $6.0 million would increase deferred tax assets on which a valuation allowance is placed and would be expected to also increase the valuation allowance by a corresponding amount. The $3.0 million liability is included in long-term income taxes payable. The Company does not anticipate a significant change to unrecognized tax benefits for uncertain income tax positions within the next 12 months.

The Company continues to recognize interest and penalties related to unrecognized tax benefits as part of the income tax provision. As of September 30, 2014 and December 31, 2013, the Company had $0.3 million and $0.4 million, respectively, accrued for interest and none accrued for penalties in both periods. These accruals are included as a component of long-term income taxes payable.

The Company is required to file U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar years 2010 and forward. Significant state tax jurisdictions include California, Massachusetts and Texas, and generally, the Company is subject to routine examination for years 2006 and forward in these jurisdictions. In addition, any research and development credit carryforwards that were generated in prior years and utilized in these years may also be subject to examination by respective state taxing authorities. Generally, the Company is subject to routine examination for years 2005 and forward in various foreign tax jurisdictions in which it operates.

Deferred tax assets and liabilities result primarily from temporary differences between book and tax bases of assets and liabilities and state research and development credit carryforwards. The Company had net current deferred tax assets of $22.8 million and net long-term deferred tax assets of $1.6 million as of September 30, 2014. The Company must regularly assess the likelihood that future taxable income levels will be sufficient to ultimately realize the tax benefits of these net deferred tax assets. The Company currently believes that future taxable income levels will be sufficient to realize the tax benefits of these deferred tax assets. Therefore, the Company has not established a valuation allowance except for a valuation allowance of $10.1 million and $9.0 million that was established against state deferred tax assets as of September 30, 2014 and December 31, 2013, respectively, due to California tax law changes in 2012 which require mandatory single sales factor apportionment in California for most multi-state taxpayers for tax years beginning on or after January 1, 2013. Should the Company determine that future realization of these tax benefits is not more likely than not, additional valuation allowances would be established which would increase the Company's tax provision in the period of such determination.

Included in net deferred tax assets are credit carryforwards. The Company has available state research and development credit carryforwards of approximately $24.2 million, of which approximately $2.3 million represents pre-ownership change carryforwards subject to Section 382 annual limitation. The state research credit carryforwards are not subject to expiration and may be carried forward indefinitely until utilized.

15. DIVIDENDS

On July 24, 2014, the Company’s Board of Directors declared a cash dividend of $0.05 per share of common stock. The aggregate payment of $2.8 million was made on August 28, 2014 to shareholders of record as of August 14, 2014.

16

MICREL, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

16. RESTRUCTURING CHARGES

In the third quarter of 2014, the Company continued its efforts to reduce operating expenses. Therefore, the Company recorded restructuring charges of $0.5 million related to workforce reductions and facility closure. In the fourth quarter of 2013, the Company recorded restructuring charges of $1.4 million related to workforce reductions.

The Company paid $0.1 million and $0.8 million related to severance costs for the three and nine months ended September 30, 2014, respectively. The following table summarizes the activity related to the accrual for restructuring charges for the nine months ended September 30, 2014 by event (in thousands):

	Plan Initiated in Q4'13			Plan Initiated in Q3'14			Total
Balance at December 31, 2013	$	902		$	—		$	902
Restructuring charges	—			484			484
Payments	(757		)	(27		)	(784		)
Balance at September 30, 2014	$	145		$	457		$	602

17. SUBSEQUENT EVENTS

On October 23, 2014, the Company’s Board of Directors declared a cash dividend of $0.05 per outstanding share of common stock payable on November 20, 2014 to shareholders of record at the close of business on November 6, 2014. This dividend will be recorded in the fourth quarter of 2014 and is expected to be approximately $2.8 million.

17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements contained in this Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations, hopes, intentions or strategies regarding the future.  Forward-looking statements include, but are not limited to statements regarding: future revenues and dependence on product sales; the levels of international sales; the effect of global market conditions on revenue levels, profitability and results of operations; future products or product development; statements regarding fluctuations in our results of operations; future returns and price adjustments and allowance; future uncollectible amounts and doubtful accounts allowance; future products or product development; future research and development spending and our product development strategy; our markets, product features and performance; product demand and inventory to service such demand; competitive threats and pricing pressure; the effect of dependence on third parties; our future use and protection of its intellectual property; future expansion or utilization of manufacturing capacity; future expenditures; current or future acquisitions; the ability to meet anticipated short term and long term cash requirements; effect of changes in market interest rates on investments; our need and ability to attract and retain certain personnel; the cost and outcome of litigation and its effect on us; the future realization of tax benefits; and share-based incentive awards and expectations regarding future share-based compensation expense. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “believe,” “estimate,” “may,” “can,” “will,” “could,” “would,” “intend,” “objective,” “plan,” “expect,” “likely,” “potential,” “possible” or “anticipate” or the negative of these terms or other comparable terminology and similar expressions. All forward-looking statements included in this document are based on information available to us on the date of this Report, and we assume no obligation to update any such forward-looking statements, including risks discussed under “Risk Factors” and elsewhere in this Report, except as required by applicable law. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. Additional factors that may affect operating results are contained within the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Overview

We design, develop, manufacture and market a range of high-performance analog power ICs, mixed-signal and digital ICs. These products address a wide range of end markets including cellular handsets, enterprise and portable computing, enterprise and home networking, wide area and metropolitan area networks and industrial equipment. We also manufacture custom analog and mixed-signal circuits and provide wafer foundry services for customers who produce electronic systems for communications, consumer and military applications.

Our high performance linear and power products are characterized by high power density and small form factors. Presently, the demand for high performance linear and power circuits has been fueled by the growth of portable communications and computing devices, including for example, cellular handsets and tablet devices. We also have an extensive linear and power management product portfolio for the networking and communications infrastructure markets including cloud and enterprise servers, network switches and routers, storage area networks, wireless base stations, and the Internet of Everything. In addition, we offer products that serve the solid state drive market and are seeing strength in the emergence of solid state drives. We also offer an extensive portfolio of load switches and MOSFET drivers for industrial applications such as DC brushless motors. These products are gaining traction for applications in the power tool and fan markets.

Our timing and communications circuits are used primarily for enterprise networks, storage area networks, access networks and metropolitan area networks. This product portfolio consists of timing, clock management and high-speed Physical Media Device (“PMD”) products. With form factor, size reductions and ease-of-use critical for system designs, we utilize innovative packaging and proprietary process technology to address these challenges. In 2012, we acquired PhaseLink, a private company based in Taiwan and in San Jose, California, in order to complement our high performance clock generation and distribution products for the communication market and to expand our product offerings into the consumer and industrial markets. PhaseLink provides high performance integrated timing solutions to system and oscillator manufacturers. In September 2013, we acquired specific net assets of Discera, which uses micro-electrical mechanical system (“MEMS”) resonators to compete with standard quartz oscillators and quartz oscillator-based clock generators. We acquired Discera to complement our high performance clock and timing products, as well as expand our MEMS capabilities. With the acquisition of PhaseLink and Discera, coupled with our organic product development, we now offer a comprehensive portfolio of clock generation and clock distribution products.

18

Our family of local area network (“LAN”) solutions products targets the digital home, unified communications, industrial, Internet of Everything, and automotive markets. This product portfolio consists of physical layer transceivers (“PHY”), Media Access Controllers (“MAC”), switches and high value Application Specific Standard Products (“ASSP”) comprising analog, mixed signal and digital functions that support transmission speeds from 10 Megabits per second to one Gigabit per second. In order to increase value to our customers, we have continued to transition our LAN solutions portfolio to higher function switch and ASSP products including VoIP. This transition is intended to better align our products with the emergence of cloud based services and the rapidly expanding Internet of Things (“IoT”).

Our foundry business offers foundry services to commercial, military, and MEMS IC designers and all manufacturers seeking a production solution compatible with their specific application and/or technology needs. We offer various combinations of design, process and wafer foundry services including MEMS manufacturing capability. MEMS are highly specialized devices used in a wide variety of devices, including pressure, temperature, chemical and vibration sensors, light reflectors and switches as well as accelerometers for airbags, vehicle controls and games. We fabricate wafers for customers using our standard processes, their existing processes or customized processes we develop for them.

We currently operate in one segment: the design, manufacturing, marketing and sale of semiconductor products. The chief operating decision maker, the President and CEO, evaluates our financial performance and allocates resources on a company-wide basis.

During the third quarter of 2014, we amended the terms of our agreements with certain sell-through distributors. These amendments included the removal of significant return rights, price protection and pricing adjustments subsequent to the initial product shipment. Therefore, upon amendment of the agreements, these distributors were changed from sell-through distributors to sell-in distributors and we recognized the revenue for sales to these distributors upon the initial product shipments to these distributors, net of estimated allowance for returns established based upon historical return rates. In addition, revenue was recognized for unsold inventory held by these distributors on the date of change. The effect of changing these sell-through distributors to sell-in distributors resulted in a one-time increase in revenue of approximately $5.1 million and related cost of goods sold of $1.6 million related to unsold inventory held by these distributors at June 30, 2014.

We generate revenue from four product groups:  Linear and Power, Timing and Communications, LAN, and Foundry.  The following table sets forth the net revenues attributable to our four product groups as a percentage of total net revenues, for the periods presented.

Net Revenues by Product Group	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net Revenues:
Linear and Power	52	%	57	%	53	%	57	%
Timing and Communications	25		22		24		21
LAN	21		19		21		20
Foundry	2		2		2		2
Total net revenues	100	%	100	%	100	%	100	%

19

Our products address a wide range of end markets. Net revenues by end market categorization is based on the estimated predominant category of the OEM or distributor purchasing the parts. The eventual end market where our products are incorporated may differ, especially for parts sold through distribution channels. The following table presents our revenues by end market as a percentage of total net revenues.

Net Revenues by End Market	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
As a Percentage of Total Net Revenues:
Industrial	49	%	50	%	50	%	53	%
Wireline Communications	21		17		19		16
Mobility	10		14		10		13
Enterprise / Cloud Infrastructure	17		15		17		14
Other	3		4		4		4
Total net revenues	100	%	100	%	100	%	100	%

Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates for the three months and nine months ended September 30, 2014, compared with our critical accounting policies and estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Results of Operations

The following table sets forth certain operating data as a percentage of total net revenues for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	49.0		49.3		48.1		48.3
Gross profit	51.0		50.7		51.9		51.7
Operating expenses:
Research and development	23.7		24.2		24.7		23.3
Selling, general and administrative	18.1		19.2		19.3		19.5
Restructuring charges	0.8		—		0.3		—
Total operating expenses	42.6		43.4		44.3		42.8
Income from operations	8.4		7.3		7.6		8.9
Interest and other (expense) income:
Interest income	0.1		0.2		0.1		0.2
Other expense, net	(0.1	)	(0.1	)	(0.1	)	(0.1	)
Total interest and other (expense) income, net	—		0.1		—		0.1
Income before income taxes	8.4		7.4		7.6		9.0
Provision for income taxes	1.5		0.5		2.1		1.0
Net income	6.9	%	6.9	%	5.5	%	8.0	%

20

Net Revenues. For the three months ended September 30, 2014, net revenues increased 16.0% to $67.5 million from $58.2 million for the same period in the prior year. For the nine months ended September 30, 2014, net revenues increased 7.1% to $189.7 million from $177.1 million for the same period in the prior year. During the third quarter of 2014, we amended the terms of our agreements with certain sell-through distributors. These amendments included the removal of significant return rights, price protection and pricing adjustments subsequent to the initial product shipment. Therefore, upon amendment of the agreements, these distributors were changed from sell-through distributors to sell-in distributors and we recognized the revenue for sales to these distributors upon the initial product shipments to these distributors, net of estimated allowance for returns established based upon historical return rates. In addition, revenue was recognized for unsold inventory held by these distributors on the date of change. The effect of changing these sell-through distributors to sell-in distributors resulted in a one-time increase in revenue of approximately $5.1 million and related cost of goods sold of $1.6 million related to unsold inventory held by these distributors at June 30, 2014. The remainder of the increase resulted primarily from the increased demand for our products serving the enterprise/cloud infrastructure and industrial end markets, which was partially offset by the decreased demand for our products serving the mobility end market.

Customer demand for semiconductors can change quickly and unexpectedly. Historically, our revenue levels have been highly dependent on the amount of new orders for products to be delivered to the customer within the same quarter. Within the semiconductor industry, orders that are booked and shipped within the same quarter are called “turns fill” orders. When the turns fill level exceeds approximately 35% of quarterly revenues, it can be very difficult to predict near term revenues and income. The resulting lack of visibility into demand also makes it difficult to match product build with future demand as our lead times to build our products may be substantially longer than order lead times.

International sales represented 81% and 78% of net revenues for the three and nine months ended September 30, 2014, respectively, compared to 74% and 71% of net revenues for the three and nine months ended September 30, 2013. Sales to customers in Asia represented 67% and 64% of net revenues for the three and nine months ended September 30, 2014, compared to 60% and 58% of net revenues for the three and nine months ended September 30, 2013. The trend for our customers to move their electronics manufacturing to Asian countries has resulted in increased pricing pressure for us and other semiconductor manufacturers. The increased concentration of electronics procurement and manufacturing in the Asia Pacific region has led, and may continue to lead, to continued price pressure for our products in the future.

Gross Profit. Gross profit is affected by a variety of factors including the volume of product sales, product mix, manufacturing capacity utilization, inventory write-downs and recoveries, product yields and average selling prices. Our gross profit margin was 51.0% and 51.9% for the three and nine months ended September 30, 2014, compared to 50.7% and 51.7% for the three and nine months ended September 30, 2013. Our gross profit continues to be negatively impacted by average selling price erosion, product mix and capacity utilization. Our gross profit was 49.5% without the one-time revenue of $5.1 million and related cost of goods sold of $1.6 million in connection with the changes from sell-through distributors to sell-in distributors as described above.

Research and Development Expenses. Research and development ("R&D") expenses as a percentage of net revenues represented 23.7% for the three months ended September 30, 2014, compared to 24.2% for the three months ended September 30, 2013. On a dollar basis, R&D expenses increased $1.9 million, or 13.9%, to $16.0 million for the three months ended September 30, 2014 from $14.1 million for the three months ended September 30, 2013. This increase was primarily due to increased spending on product development, higher share-based compensation expense of $0.2 million and increased expenses related to the acquisition of Discera completed in the third quarter of 2013.

For the nine months ended September 30, 2014 and 2013, R&D expenses as a percentage of net revenues represented 24.7% and 23.3%, respectively. On a dollar basis, R&D expenses increased $5.6 million, or 13.6%, to $46.9 million for the nine months ended September 30, 2014 from $41.3 million for the nine months ended September 30, 2013. The increase was primarily due to increased spending on product development, higher share-based compensation expense of $0.4 million and increased expenses related to the acquisition of Discera completed in the third quarter of 2013.

We believe that the development and introduction of new products is critical to our future success and expect to continue our investment in research and development activities in the future.

Selling, General and Administrative Expenses. As a percentage of net revenues, selling, general and administrative ("SG&A") expenses represented 18.1% for the three months ended September 30, 2014, compared to 19.2% for the three months ended September 30, 2013. On a dollar basis, SG&A expenses increased $1.0 million, or 9.2%, to $12.2 million for the three months ended September 30, 2014 from $11.2 million for the three months ended September 30, 2013. This increase was primarily due to increased spending on outside services of $0.2 million, higher share-based compensation expense of $0.1 million and increased expenses related to the acquisition of Discera completed in the third quarter of 2013.

21

For the nine months ended September 30, 2014 and 2013, SG&A expenses as a percentage of net revenues represented 19.3% and 19.5%, respectively. On a dollar basis, SG&A expenses increased $2.1 million, or 6.2%, to $36.6 million for the nine months ended September 30, 2014 from $34.5 million for the nine months ended September 30, 2013. The increase was primarily due to increased spending on outside services of $0.4 million, higher share-based compensation expense of $0.3 million and increased expenses related to the acquisition of Discera completed in the third quarter of 2013.

Restructuring Charges. In the third quarter of 2014, we continued our efforts to reduce operating expenses. Therefore, the Company recorded restructuring charges of $0.5 million related to workforce reductions and facility closure. See Note 16 of Notes to Condensed Consolidated Financial Statements for the summary of activity related to the accrual for restructuring charges detailed by event.

Share-Based Compensation. Our results of operations for the three months ended September 30, 2014 and 2013 included $2.0 million and $1.8 million, respectively, of non-cash expense related to the fair value of share-based compensation awards. For the nine months ended September 30, 2014 and 2013, our results of operations included $5.7 million and $5.1 million, respectively, of share-based compensation expense. Share-based compensation expense is included in the statements of income in cost of revenues, R&D expenses and SG&A expenses (see Note 3 of Notes to Condensed Consolidated Financial Statements).

Interest and Other (Expense) Income, net. Interest and other (expense) income, net was a net expense of less than $0.1 million for the three months ended September 30, 2014 primarily due to interest expense related to unclaimed property. Interest and other (expense) income, net was an income of $0.1 million for the nine months ended September 30, 2014. The Company had a net interest and other income of less than $0.1 million and $0.1 million for the three and nine months ended September 30, 2013, respectively. Interest income reflects income from short-term and long-term investments and money market funds.

Provision for Income Taxes. For the three months ended September 30, 2014, the provision for income taxes was $1.0 million, or 17.3% of income before taxes, compared to $0.3 million, or 6.1% of income before taxes for the three months ended September 30, 2013. For the nine months ended September 30, 2014, the provision for income taxes was $4.0 million, or 27.4% of income before taxes, compared to $1.7 million, or 10.6% of income before taxes for the nine months ended September 30, 2013. The increase in the provision for income taxes for both the three months and nine months ended September 30, 2014, compared to the three months and nine months ended September 30, 2013 was primarily due to the expiration of the federal R&D credit as of December 31, 2013 and additional research and development credits for various periods recorded as a discrete benefit for the three months ended March 31, 2013. The income tax provision for the three months ended September 30, 2014 and 2013 included previously unrecognized tax benefits of $0.9 million and $0.8 million, respectively, due to a lapse of the statute of limitations.

The income tax provision for these interim periods differs from taxes computed at the federal statutory rate primarily due to the tax effects of share-based compensation, federal and state research and development credits, federal qualified production activity deductions and previously unrecognized tax benefits.

Liquidity and Capital Resources

Since inception, our principal sources of funding have been our cash from operations, bank borrowings and sales of common stock. Principal sources of liquidity at September 30, 2014 consisted of cash, cash equivalents and short-term investments of $100.7 million and a $5.0 million unsecured credit facility from a commercial bank.

We generated $24.5 million in cash from operating activities during the nine months ended September 30, 2014. Significant cash flows included cash provided by net income of $10.5 million plus additions for non-cash activities of $13.7 million (consisting primarily of $10.3 million in depreciation and amortization and $5.7 million in share-based compensation expense, partially offset by a $2.3 million increase in deferred income taxes), combined with a $1.6 million increase in accrued liabilities and other long-term liabilities, $1.3 million decrease in inventories, $0.8 million increase in accounts payable which were offset in part by a $1.3 million decrease in prepaid taxes and a $0.7 million decrease in deferred income on shipments to distributors.

We generated $22.2 million in cash from operating activities during the nine months ended September 30, 2013. Significant cash flows included cash provided by net income of $14.3 million plus additions for non-cash activities of $11.8 million (consisting primarily of $9.8 million in depreciation and amortization, $5.1 million in share-based compensation expense, partially offset by a $3.1 million increase in deferred income taxes) combined with a $6.7 million increase in deferred income on shipments to distributors, and a $2.1 million increase in accrued liabilities and other long-term liabilities which were offset in part by a $3.5 million increase in accounts receivable, a $1.7 million increase in inventories and a $6.4 million decrease in accounts payable.

22

We used $2.7 million of cash for investing activities during the nine months ended September 30, 2014, primarily comprised of $36.5 million in purchases of investments and $5.6 million of purchases of property, plant and equipment, offset by $38.4 million in proceeds from the sales and maturities of investments.

We used $5.8 million of cash for investing activities during the nine months ended September 30, 2013, primarily comprised of $50.1 million in purchases of investments, $6.1 million of acquisition of Discera and $5.8 million of purchases of property, plant and equipment, partially offset by $57.0 million in proceeds from the sales and maturities of investments.

We used $10.6 million of cash for financing activities during the nine months ended September 30, 2014 primarily for the repurchases of $13.0 million of our common stock and $8.5 million for the payment of cash dividends, which were partially offset by $10.4 million in proceeds from employee stock transactions.

We used $15.1 million of cash for financing activities during the nine months ended September 30, 2013 primarily for the repurchases of $13.2 million of our common stock and $5.4 million for the payment of cash dividends, which were partially offset by $3.7 million in proceeds from employee stock transactions.

We currently intend to spend approximately $4.0 million to $8.0 million to purchase capital equipment and make facility improvements during the next twelve months primarily for manufacturing equipment and additional research and development related software and equipment.

On October, 23, 2014, our Board of Directors declared a cash dividend of $0.05 per outstanding share of common stock payable on November 20, 2014 to shareholders of record at the close of business on November 6, 2014. This dividend will be recorded in the fourth quarter of 2014 and is expected to be approximately $2.8 million.

On August 20, 2014, we announced that our Board of Directors authorized the repurchase of $25.0 million of our common stock, which increased the total approval for repurchase since February 2010 to $145.0 million. Under our stock repurchase program, as of September 30, 2014, we have remaining authorization to repurchase $37.4 million of our common stock. During the three and nine months ended September 30, 2014, we repurchased 0.6 million and 1.2 million shares, respectively, of our common stock for an aggregate price of $7.5 million and $13.4 million, respectively, which included $0.5 million of share repurchases pending cash settlement as of September 30, 2014.

We believe that our cash from operations, existing cash balances, short-term investments and our credit facility will be sufficient to meet our cash requirements for at least the next twelve months. In the longer term, we believe future cash requirements will continue to be met by our cash from operations, credit arrangements and future debt or equity financings as required.

During the three and nine months ended September 30, 2014, we sold $0.1 million and $3.0 million of auction-rate notes at par value, respectively. At September 30, 2014, we held remaining $1.8 million in principal of senior auction-rate notes secured by student loans. Auctions for these remaining auction-rate notes have failed as of September 30, 2014. The fair value of these notes, $1.7 million, has been classified as long-term investments as of September 30, 2014. The funds associated with failed auctions will not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the issuers redeem the securities or the underlying securities have matured. For additional information regarding our investments, see Note 4 of Notes to the Condensed Consolidated Financial Statements.

At September 30, 2014, we had cash, cash equivalents and short-term investments of $100.7 million, of which $13.2 million was held by our foreign subsidiaries. Some of these available cash, cash equivalents and short-term investments are held in accounts managed by third-party financial institutions and consist of invested cash and cash in our operating accounts. The invested cash is invested in interest bearing funds managed by third-party financial institutions. To date, we have not experienced loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

Recently Issued Accounting Standards

Please refer to Note 2 of Notes to Condensed Consolidated Financial Statements for a discussion of the expected impact of recently issued accounting standards.

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Contractual Obligations and Commitments

As of September 30, 2014, we had the following contractual obligations and commitments (in thousands):

	Payments Due By Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Operating leases	$	2,424	$	1,148	$	1,064	$	212	$	—
Open purchase orders	23,297		23,297		—		—		—
Software licenses purchase obligations	1,682		938		589		155		—
Total	$	27,403	$	25,383	$	1,653	$	367	$	—

Open purchase orders are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable pricing provisions; and the approximate timing of the transactions.

Borrowing agreements consisted of a $5.0 million unsecured credit facility for general working capital needs, which includes a $5.0 million letter of credit sub-facility including a $2.0 million foreign exchange sub-facility. As of September 30, 2014, we had no borrowings under the credit facility. Our borrowing arrangements include a provision for the issuance of commercial or standby letters of credit by the bank on our behalf, which are issued to guarantee payments for our workers compensation program. As of September 30, 2014, there was $0.3 million in letters of credit outstanding.

As of September 30, 2014, we had $9.1 million of net unrecognized tax benefits consisting of $3.0 million included in long-term income taxes payable and $6.0 million recorded as a reduction to deferred tax assets. We do not anticipate a significant change to the $3.0 million long-term uncertain income tax positions within the next twelve months. Due to the high degree of uncertainty regarding the settlement of these liabilities, we are unable to estimate the year in which the future cash flows may occur and therefore have not included them in the above table.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements and have not entered into any transactions involving unconsolidated, limited purpose entities or commodity contracts.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the three and nine months ended September 30, 2014, we sold $0.1 million and $3.0 million of auction-rate notes at par value, respectively. At September 30, 2014, we had $1.8 million in principal of senior auction-rate notes secured by student loans remaining. Auctions for these remaining auction-rate notes have failed as of September 30, 2014. The funds associated with failed auctions will not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the issuers redeem the securities or the underlying securities have contractual maturities ranging from 31 to 33 years. As a result, we may have limited or no ability to liquidate our investment and fully recover the carrying value of our investment in the near term. As of September 30, 2014, we have recorded less than $0.1 million net of tax ($0.1 million pre-tax) temporary impairment of these securities to accumulated other comprehensive loss, a component of shareholders’ equity. If it is determined that the fair value of these securities is other than temporarily impaired, we would record a loss, which could be material, in our statements of income in the period such other-than-temporary decline in fair value is determined. We currently have the ability and intent to hold these investments until a recovery of the auction process occurs or the issuers redeem the securities, or until maturity if neither of those occurs.

At September 30, 2014, we had no fixed-rate long-term debt subject to interest rate risk.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2014.

As previously reported in our Annual Report on Form 10-K, as of December 31, 2013, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2013, because of the material weakness described in our Annual Report on Form 10-K, specifically our internal control to ensure accuracy of inventory information reported by distributors used in recording deferred income on shipments to distributors was designed to be performed on aggregated data reported by multiple distributors, rather than on disaggregated data. A control performed on disaggregated data could result in increased precision. As a result of this internal control design deficiency, we did not detect a misstatement in inventory information reported by a distributor as of December 31, 2013.  Although there was a reasonable possibility that a material misstatement to deferred income on shipments to distributors could occur and not be detected in the annual or interim financial statements, the deficiency did not result in a misstatement as the aforementioned account balance was corrected prior to the issuance of the annual financial statements. Effective during the three months ended March 31, 2014, we re-designed and performed the control to ensure the accuracy of inventory information reported by distributors used in recording deferred income on shipments to distributors was on a disaggregated level.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal controls over financial reporting that occurred during the quarter ended September 30, 2014 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information included in Note 12 of Notes to Condensed Consolidated Financial Statements under the caption “Commitments and Contingencies” in Item 1 of Part I is incorporated herein by reference.

ITEM 1A. RISK FACTORS

This Quarterly Report on Form 10-Q should be read in conjunction with the descriptions of risks associated with our business, financial condition and results of our operations as set forth in Item 1A - Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On August 20, 2014, we announced that our Board of Directors authorized the repurchase of another $25.0 million of our common stock, which increased the total approval for repurchase since February 2010 to $145.0 million. After taking into account repurchases already completed, the total available for repurchase, as of September 30, 2014, was $37.4 million.

25

The authorization will stay in effect until the authorized aggregate amount is expended or the authorization is modified by the Board of Directors. The timing and amount of any repurchase of shares is determined by our management, based on our evaluation of market conditions, cash on hand and other factors. Share repurchases are recorded as a reduction of common stock to the extent available. Any amounts in excess of common stock are recorded as a reduction of retained earnings. Repurchases of our common stock during the third quarter of 2014 were as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program	Maximum Dollar Value of Shares that May Yet be Purchased Under the Program (in thousands)
July 2014	130,099	$	11.07	130,099	$	18,432
August 2014	254,547	12.21		254,547	40,324
September 2014	237,638	12.39		237,638	37,379
Total Third Quarter 2014	622,284	12.04		622,284

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.	Description
31	Certifications of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32*	Certifications of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act.

26

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			MICREL, INCORPORATED
			(Registrant)
Date:	October 23, 2014	By	/s/ Robert E. DeBarr
			Robert E. DeBarr
			Chief Financial Officer and Vice President of Finance and Human Resources
			(Authorized Officer andPrincipal Financial Officer)

27

EXHIBIT INDEX

Exhibit No.	Description
31	Certifications of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32*	Certifications of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act.

28

EX-31

EXHIBIT 31

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Raymond D. Zinn, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Micrel, Incorporated;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial control to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	October 23, 2014	By	/s/ Raymond D. Zinn
			Raymond D. Zinn
			President, Chief Executive Officer and Director
			(Principal Executive Officer)

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert E. DeBarr, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Micrel, Incorporated;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial control to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	October 23, 2014	By	/s/ Robert E. DeBarr
			Robert E. DeBarr
			Chief Financial Officer and Vice President of Finance and Human Resources
			(Principal Financial and Accounting Officer)

EX-32

EXHIBIT 32

Certification of Chief Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Micrel, Incorporated (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i)the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	October 23, 2014	By	/s/ Raymond D. Zinn
			Raymond D. Zinn
			Chief Executive Officer

Certification of Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Micrel, Incorporated (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i)the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	October 23, 2014	By	/s/ Robert E. DeBarr
			Robert E. DeBarr
			Chief Financial Officer

XML

Share-Based Compensation (Details Textual) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Share-Based Compensation (Textual) [Abstract]
Stock options granted	0.1	0.2	0.4	0.5
Weighted average fair value of options granted	$ 3.11	$ 2.79	$ 2.86	$ 2.91
Unrecognized share-based compensation related to non-vested stock option awards	$ 5.4		$ 5.4
Weighted-average period for unrecognized share-based compensation			2 years 5 months 15 days
Total share-based compensation capitalized as part of inventory	0.2		0.2		0.2
Purchase shares of common stock with respect to market value of stock			95.00%
Restricted Stock Units (RSUs) [Member]
Share-Based Compensation (Textual) [Abstract]
Stock options granted	0.2	0.2	0.7	0.4
Weighted average fair values of restricted stock units granted	$ 11.59	$ 9.14	$ 10.62	$ 9.49
Unrecognized share-based compensation related to non-vested stock option awards	$ 11.3		$ 11.3
Weighted-average period for unrecognized share-based compensation			3 years 0 months 0 days

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Major Customers (Details) (Customer Concentration Risk [Member])	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended	9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended	9 Months Ended
	Sep. 30, 2014 Sales [Member] Distributor A [Member]	Sep. 30, 2013 Sales [Member] Distributor A [Member]	Sep. 30, 2014 Sales [Member] Distributor A [Member]	Sep. 30, 2013 Sales [Member] Distributor A [Member]	Sep. 30, 2014 Sales [Member] Distributor B [Member]	Sep. 30, 2013 Sales [Member] Distributor B [Member]	Sep. 30, 2014 Sales [Member] Distributor B [Member]	Sep. 30, 2013 Sales [Member] Distributor B [Member]	Sep. 30, 2013 Sales [Member] Distributor C [Member]	Sep. 30, 2014 Accounts Receivable [Member] Distributor A [Member]	Dec. 31, 2013 Accounts Receivable [Member] Distributor A [Member]	Sep. 30, 2014 Accounts Receivable [Member] Distributor B [Member]	Dec. 31, 2013 Accounts Receivable [Member] Distributor B [Member]	Sep. 30, 2014 Accounts Receivable [Member] Distributor C [Member]
Revenue, Major Customer [Line Items]
Concentration Risk, Percentage	24.00%	26.00%	25.00%	31.00%	17.00%	16.00%	18.00%	20.00%	10.00%	27.00%	36.00%	14.00%	11.00%	15.00%

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Property, Plant and Equipment (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Property, Plant and Equipment (Textual) [Abstract]
Depreciation	$ 2.8	$ 2.7	$ 8.3	$ 8.3

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Segment Reporting (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Segment Reporting Information [Line Items]
Segment Revenue by Percent	100.00%	100.00%	100.00%	100.00%
Linear and Power [Member]
Segment Reporting Information [Line Items]
Segment Revenue by Percent	52.00%	57.00%	53.00%	57.00%
Timing and Communications [Member]
Segment Reporting Information [Line Items]
Segment Revenue by Percent	25.00%	22.00%	24.00%	21.00%
LAN [Member]
Segment Reporting Information [Line Items]
Segment Revenue by Percent	21.00%	19.00%	21.00%	20.00%
Foundry [Member]
Segment Reporting Information [Line Items]
Segment Revenue by Percent	2.00%	2.00%	2.00%	2.00%

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Inventories
Inventory, Finished Goods, Net of Reserves	$ 12,358	$ 11,592
Inventory, Work in Process, Net of Reserves	28,382	30,109
Inventory, Raw Materials, Net of Reserves	1,227	1,500
Total inventories	$ 41,967	$ 43,201

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Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2014

Schedule of Segment Revenue by Percent

The following table sets forth the net revenues attributable to our four product groups as a percentage of total net revenues:

	Three Months Ended				Nine Months Ended
Net Revenues by Product Group	September 30,				September 30,
	2014		2013		2014		2013
Net Revenues:
Linear and Power	52	%	57	%	53	%	57	%
Timing and Communications	25		22		24		21
LAN	21		19		21		20
Foundry	2		2		2		2
Total net revenues	100	%	100	%	100	%	100	%

Net Revenues by Geographic Region by Percent

The following table sets forth the net revenues by geographic region as a percentage of total net revenues, for the periods presented:

	Three Months Ended				Nine Months Ended
Net Revenues by Geographic Region	September 30,				September 30,
	2014		2013		2014		2013
Net Revenues:
North America	19	%	26	%	22	%	29	%
Asia	67	%	60	%	63	%	58	%
Europe	14	%	14	%	15	%	13	%
Total net revenues	100	%	100	%	100	%	100	%

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Share Repurchase Program (Details) (USD $) In Millions, unless otherwise specified	0 Months Ended	9 Months Ended
	Aug. 20, 2014	Sep. 30, 2014
Share Repurchase Program [Abstract]
Stock Repurchase Program, Additional Authorized Amount	$ 25.0
Share Repurchase Program, Authorized Amount		145.0
Remaining Authorized Repurchase Amount		37.4
Stock Repurchased During Period, Shares		1.2
Stock Repurchased During Period, Value		13.4
Share Repurchases Pending Cash Settlement Amount		$ 0.5

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Interim Financial Information

Interim Financial Information - The accompanying condensed consolidated financial statements of Micrel, Incorporated and its wholly-owned subsidiaries (together “Micrel” or the “Company”) as of September 30, 2014 and for the three and nine months ended September 30, 2014 and 2013 are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair statement of its financial position, operating results, comprehensive income and cash flows for the interim periods presented. Operating results and cash flows for interim periods are not necessarily indicative of results for the entire year. The Condensed Consolidated Balance Sheet as of December 31, 2013, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted (“GAAP”) in the United States of America. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. These financial statements should also be read in conjunction with the Company’s critical accounting policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and those included in this Form 10-Q below.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition - The Company generates revenue by selling products to original equipment manufacturers (“OEM”), sell-through distributors and sell-in distributors. The Company's policy is to recognize revenue from sales to customers when the rights and risks of ownership have passed to the customer, when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed or determinable and collection of the resulting receivable is reasonably assured.

The Company allows certain sell-through distributors to have price protection and pricing adjustments subsequent to the initial product shipment. As these price concessions have historically been significant, and price concessions are difficult to reliably estimate, the Company defers recognition of revenue and related cost of sales (in the balance sheet line item “deferred income on shipments to distributors”) derived from sales to these sell-through distributors until they have resold the Company's products to their customers. Although revenue and related cost of sales are not recognized, the Company records an accounts receivable and relieves inventory at the time of initial product shipment. As standard terms are EXW or FCA shipping point, payment terms are enforced from shipment date and legal title and risk of inventory loss passes to the sell-through distributor upon shipment.

In addition, the Company may offer to its sell-through distributors, where revenue is deferred upon shipment and recognized on a sell-through basis, price adjustments to allow our sell-through distributors to price our products competitively for specific resale opportunities. The Company estimates and records an adjustment for sell-through distributor price adjustments for which the specific resale transaction has been completed, but the price adjustment claim has not yet been received by the Company.

Sales to OEM customers and sell-in distributors are recognized based upon the shipment terms of the sale transaction when all other revenue recognition criteria have been met. The Company does not grant return rights, price protection or pricing adjustments to OEM customers. The Company offers limited contractual stock rotation rights to sell-in distributors. In addition, the Company is not contractually obligated to offer, but may infrequently grant, price adjustments or price protection to certain sell-in distributors on an exception basis. At the time of shipment to sell-in distributors, an allowance for returns is established based upon historical return rates, and an allowance for price adjustments is established based on an estimate of price adjustments to be granted. Actual future returns and price adjustments could be different than the allowance established.

During the third quarter of 2014, the Company amended the terms of its agreements with certain sell-through distributors. These amendments included the removal of significant return rights, price protection and pricing adjustments subsequent to the initial product shipment. Therefore, upon amendment of the agreements, these distributors were changed from sell-through distributors to sell-in distributors and the Company recognized the revenue for sales to these distributors upon the initial product shipments to these distributors, net of estimated allowance for returns established based upon historical return rates. In addition, revenue was recognized for unsold inventory held by these distributors on the date of change. The effect of changing these sell-through distributors to sell-in distributors resulted in a one-time increase in revenue of approximately $5.1 million and related cost of goods sold of $1.6 million related to unsold inventory held by these distributors at June 30, 2014.

Net Income Per Common and Equivalent Share

Net Income Per Share- Basic net income per share is computed by dividing net income by the number of weighted-average common shares outstanding. Diluted net income per share reflects potential dilution from outstanding stock options and restricted stock units ("RSUs") using the treasury stock method. Reconciliation of weighted-average shares used in computing basic and diluted net income per share is as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Shares used in computing basic net income per share	56,642	57,752	56,514	58,107
Dilutive effect of stock options and restricted stock units	1,066	688	949	719
Shares used in computing diluted net income per share	57,708	58,440	57,463	58,826

For the three and nine months ended September 30, 2014, 2.5 million and 3.6 million shares underlying stock options, respectively, have been excluded from the weighted-average number of common shares outstanding for the diluted net income per share computations as they were anti-dilutive. For the three and nine months ended September 30, 2013, 5.4 million and 5.3 million shares underlying stock options, respectively, have been excluded from the weighted-average number of common shares outstanding for the diluted net income per share computations as they were anti-dilutive.

Goodwill

Goodwill -Goodwill represents the excess of the purchase price over the fair value of both net tangible and identifiable intangible assets acquired. Goodwill is measured and tested for impairment annually at the reporting unit level during the last quarter of the Company’s fiscal year, or more frequently if the Company believes indicators of impairment exist. Events that could trigger a more frequent impairment review may include adverse industry or economic trends, restructuring actions, lower projections of profitability, or a sustained decline in our market capitalization.

On April 2, 2012, the Company acquired PhaseLink^™ Company Limited (“Phaselink”) and recorded $6.1 million of goodwill as the purchase price exceeded the fair value allocated to both net tangible assets and identifiable intangible assets. On September 9, 2013, the Company acquired specific net assets of Discera Inc. (“Discera”) and recorded $2.5 million of goodwill as the purchase price exceeded the fair value allocated to net tangible assets and identifiable intangible assets. During the first quarter of 2014, goodwill recorded from the Discera transaction was increased by approximately $0.1 million to $2.6 million. The goodwill for each acquisition was allocated to the timing and communications reporting unit and is reviewed annually in October or whenever events or circumstances occur which indicate that goodwill might be impaired.

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Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	$ 13,153	$ 13,943
Accumulated Amortization	(2,994)	(2,194)
Net Carrying Amount	10,159	11,749
Developed and core technology [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	7,443	7,783
Accumulated Amortization	(1,604)	(986)
Net Carrying Amount	5,839	6,797
Customer relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	3,800	3,800
Accumulated Amortization	(1,039)	(552)
Net Carrying Amount	2,761	3,248
Trademarks [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	610	610
Accumulated Amortization	(351)	(284)
Net Carrying Amount	259	326
Noncompete agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	0	450
Accumulated Amortization	0	(372)
Net Carrying Amount	0	78
In-process research and development [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	1,300	1,300
Accumulated Amortization	0	0
Net Carrying Amount	$ 1,300	$ 1,300

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Investments (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Short Term Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	$ 65,777	$ 64,796
Gross Unrealized Gains	9	12
Gross Unrealized Losses	0	(2)
Fair Value	65,786	64,806
Short Term Investments [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	40,041	36,947
Gross Unrealized Gains	0	10
Gross Unrealized Losses	0	0
Fair Value	40,041	36,957
Short Term Investments [Member] | Commercial Paper [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	12,985	13,991
Gross Unrealized Gains	3	2
Gross Unrealized Losses	0	0
Fair Value	12,988	13,993
Short Term Investments [Member] | Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	12,751	13,858
Gross Unrealized Gains	6	0
Gross Unrealized Losses	0	(2)
Fair Value	12,757	13,856
Long Term Investments [Member] | Auction Rate Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	1,750	4,700
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(67)	(505)
Fair Value	$ 1,683	$ 4,195

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Significant Accounting Policies (Details Textual) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Significant Accounting Policies (Textual) [Abstract]
Stock options excluded from the weighted-average number of common shares outstanding for the diluted net income per share computations as they were anti-dilutive	2.5	5.4	3.6	5.3

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Accrued Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Schedule of accrued liabilities
Accrued compensation	$ 8,431	$ 5,767
Accrued commissions	1,775	1,666
Accrued restructuring	602	902
Other accrued liabilities	4,212	4,539
Total accrued liabilities	$ 15,020	$ 12,874

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Subsequent Events (Details) (Dividend Declared [Member], Subsequent Event [Member], USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Oct. 23, 2014
Dividend Declared [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Board of Directors declared a cash dividend payable per outstanding share of common stock		$ 0.05
Dividends to be paid in fourth quarter	$ 2.8

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Property, Plant and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Property, plant and equipment
Property, plant and equipment, Gross	$ 264,817	$ 256,537
Accumulated depreciation	(206,592)	(198,758)
Total property, plant and equipment, net	58,225	57,779
Machinery and Equipment [Member]
Property, plant and equipment
Property, plant and equipment, Gross	188,357	180,851
Land [Member]
Property, plant and equipment
Property, plant and equipment, Gross	8,101	8,101
Buildings and improvements [Member]
Property, plant and equipment
Property, plant and equipment, Gross	54,558	53,915
Computer Equipment [Member]
Property, plant and equipment
Property, plant and equipment, Gross	12,022	11,742
Office Equipment [Member]
Property, plant and equipment
Property, plant and equipment, Gross	$ 1,779	$ 1,928

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Recently Issued Accounting Standards

9 Months Ended

Sep. 30, 2014

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

RECENTLY ISSUED ACCOUNTING STANDARDS

RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standards update to change the requirements for reporting discontinued operations. This guidance modifies the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results. The guidance requires expanded disclosures for discontinued operations for the assets, liabilities, revenues, and expenses of discontinued operations, and also requires an entity to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. The Company is required to adopt this standard for its interim and annual periods beginning after December 15, 2014.

In May 2014, the FASB issued an accounting standards update on the recognition of revenue from contracts with customers. The guidance modifies the financial reporting of revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires enhanced disclosures for the nature, amount, timing, and uncertainty of revenue that is recognized. The Company is required to adopt this standard for its interim and annual periods beginning after December 15, 2016. Early adoption is not permitted. The guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

In June 2014, the FASB issued an accounting standards update on the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The Company is required to adopt this standard for its interim and annual periods beginning after December 15, 2015. Early adoption is permitted. The guidance may be applied on a prospective or retrospective basis. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.

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Investments (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Schedule of financial assets measured at fair value on a recurring basis
Total	$ 77,205		$ 85,946
Corporate Debt Securities [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	40,041	[1]	36,957	[1]
Commercial Paper [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	12,988	[1]	13,993	[1]
Auction rate notes [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	1,683	[2]	4,195	[2]
Money Market Funds [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	9,736	[3]	16,945	[3]
Municipal Securities [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	12,757	[1]	13,856	[1]
Quoted Prices in Active Markets for Identical Assets Level 1 [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	9,736		16,945
Quoted Prices in Active Markets for Identical Assets Level 1 [Member] | Corporate Debt Securities [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	0	[1]	0	[1]
Quoted Prices in Active Markets for Identical Assets Level 1 [Member] | Commercial Paper [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	0	[1]	0	[1]
Quoted Prices in Active Markets for Identical Assets Level 1 [Member] | Auction rate notes [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	0	[2]	0	[2]
Quoted Prices in Active Markets for Identical Assets Level 1 [Member] | Money Market Funds [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	9,736	[3]	16,945	[3]
Quoted Prices in Active Markets for Identical Assets Level 1 [Member] | Municipal Securities [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	0	[1]	0	[1]
Significant Other Observable Inputs Level 2 [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	65,786		64,806
Significant Other Observable Inputs Level 2 [Member] | Corporate Debt Securities [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	40,041	[1]	36,957	[1]
Significant Other Observable Inputs Level 2 [Member] | Commercial Paper [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	12,988	[1]	13,993	[1]
Significant Other Observable Inputs Level 2 [Member] | Auction rate notes [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	0	[2]	0	[2]
Significant Other Observable Inputs Level 2 [Member] | Money Market Funds [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	0	[3]	0	[3]
Significant Other Observable Inputs Level 2 [Member] | Municipal Securities [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	12,757	[1]	13,856	[1]
Significant Unobservable Inputs Level 3 [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	1,683		4,195
Significant Unobservable Inputs Level 3 [Member] | Corporate Debt Securities [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	0	[1]	0	[1]
Significant Unobservable Inputs Level 3 [Member] | Commercial Paper [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	0	[1]	0	[1]
Significant Unobservable Inputs Level 3 [Member] | Auction rate notes [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	1,683	[2]	4,195	[2]
Significant Unobservable Inputs Level 3 [Member] | Money Market Funds [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	0	[3]	0	[3]
Significant Unobservable Inputs Level 3 [Member] | Municipal Securities [Member]
Schedule of financial assets measured at fair value on a recurring basis
Total	$ 0	[1]	$ 0	[1]

[1] Included in short-term investments

[2] Included in long-term investments

[3] Included in cash and cash equivalents

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Inventories (Tables)

9 Months Ended

Sep. 30, 2014

Inventory Disclosure [Abstract]

Inventories

Inventories consisted of the following (in thousands):

	September 30, 2014		December 31, 2013
Finished goods	$	12,358	$	11,592
Work in process	28,382		30,109
Raw materials	1,227		1,500
Total inventories	$	41,967	$	43,201

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Investments (Tables)

9 Months Ended

Sep. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Summary of short-term investments

A summary of the Company’s short-term investments at September 30, 2014 and December 31, 2013 was as follows (in thousands):

	As of September 30, 2014								As of December 31, 2013
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate Debt Securities	$	40,041	$	—	$	—	$	40,041	$	36,947	$	10	$	—		$	36,957
Commercial Paper	12,985		3		—		12,988		13,991		2		—			13,993
Municipal Securities	12,751		6		—		12,757		13,858		—		(2		)	13,856
Total	$	65,777	$	9	$	—	$	65,786	$	64,796	$	12	$	(2	)	$	64,806

Summary of long-term investments

A summary of the Company’s long-term investments at September 30, 2014 and December 31, 2013 was as follows (in thousands):

	As of September 30, 2014									As of December 31, 2013
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Auction Rate Notes	$	1,750	$	—	$	(67	)	$	1,683	$	4,700	$	—	$	(505	)	$	4,195

Schedule of financial assets measured at fair value on a recurring basis

The types of instruments valued based on unobservable inputs consist of the auction-rate notes held by the Company. Such instruments are classified within Level 3 of the fair value hierarchy. The Company estimated the fair value of these auction-rate notes using a combination of observable transactions for similar securities and a dis

Schedule of changes in Level 3 securities

For the nine months ended September 30, 2014, the changes in the Company’s Level 3 securities (consisting of auction-rate notes) were as follows (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Beginning balance, December 31, 2013	$	4,195
Transfers in and/or out of Level 3	—
Total unrealized gains, before tax, included in other comprehensive income	438
Sales	(2,950		)
Ending balance, September 30, 2014	$	1,683

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Segment Reporting Segment Reporting Geographic Information (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenues from External Customers [Line Items]
Net Revenues by Geographic Region by Percentage	100.00%	100.00%	100.00%	100.00%
North America [Member]
Revenues from External Customers [Line Items]
Net Revenues by Geographic Region by Percentage	19.00%	26.00%	22.00%	29.00%
Asia [Member]
Revenues from External Customers [Line Items]
Net Revenues by Geographic Region by Percentage	67.00%	60.00%	63.00%	58.00%
Europe [Member]
Revenues from External Customers [Line Items]
Net Revenues by Geographic Region by Percentage	14.00%	14.00%	15.00%	13.00%

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Investments (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments, minimum maturity period		1 month
Short -term investments, maximum maturity period		2 years
Short-term interest rate reset dates of auction rate note securities		less than ninety days
Auction rate note securities with contractual maturities		excess of ten years
Reset period for the securities held		seven or twenty-eight days
Auction rate notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Comprehensive income net of tax due to auction rate notes		$ 0.1
Comprehensive income before tax due to auction rate notes		0.1
Minimum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Period for Principal Repayments of Securities by Issuer	31 years
Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Period for Principal Repayments of Securities by Issuer	33 years
Maximum [Member] | Auction rate notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Maximum interest rate	one month LIBOR plus 1.5%
Long Term Investments [Member] | Auction rate notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Amount of auction-rate notes sold at par value	$ 0.1	$ 3.0

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Property, Plant and Equipment (Tables)

9 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

Property, plant and equipment

Property, plant and equipment consisted of the following (in thousands):

	September 30, 2014			December 31, 2013
Machinery and equipment	$	188,357		$	180,851
Land	8,101			8,101
Buildings and improvements	54,558			53,915
Computer equipment and software	12,022			11,742
Office furniture and fixtures	1,779			1,928
	264,817			256,537
Accumulated depreciation	(206,592		)	(198,758		)
Total property, plant and equipment, net	$	58,225		$	57,779

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Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets

The following table sets forth the components of intangible assets as follows (in thousands):

	September 30, 2014							December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net  Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net  Carrying Amount
Developed and core technology	$	7,443	$	(1,604	)	$	5,839	$	7,783	$	(986	)	$	6,797
Customer relationships	3,800		(1,039		)	2,761		3,800		(552		)	3,248
Trademarks	610		(351		)	259		610		(284		)	326
Non-competition agreements	—		—			—		450		(372		)	78
In-process research and development	1,300		—			1,300		1,300		—			1,300
	$	13,153	$	(2,994	)	$	10,159	$	13,943	$	(2,194	)	$	11,749

Schedule of future amortization expenses

The estimated future amortization expense of intangible assets as of September 30, 2014 was as follows (in thousands):

Year Ending December 31,
2014 (remaining three months)	$	384
2015	1,599
2016	1,510
2017	1,281
2018	1,223
Thereafter	4,162
	$	10,159

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Significant Accounting Policies

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Information - The accompanying condensed consolidated financial statements of Micrel, Incorporated and its wholly-owned subsidiaries (together “Micrel” or the “Company”) as of September 30, 2014 and for the three and nine months ended September 30, 2014 and 2013 are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair statement of its financial position, operating results, comprehensive income and cash flows for the interim periods presented. Operating results and cash flows for interim periods are not necessarily indicative of results for the entire year. The Condensed Consolidated Balance Sheet as of December 31, 2013, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted (“GAAP”) in the United States of America. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. These financial statements should also be read in conjunction with the Company’s critical accounting policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and those included in this Form 10-Q below.

Revenue Recognition - The Company generates revenue by selling products to original equipment manufacturers (“OEM”), sell-through distributors and sell-in distributors. The Company's policy is to recognize revenue from sales to customers when the rights and risks of ownership have passed to the customer, when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed or determinable and collection of the resulting receivable is reasonably assured.

The Company allows certain sell-through distributors to have price protection and pricing adjustments subsequent to the initial product shipment. As these price concessions have historically been significant, and price concessions are difficult to reliably estimate, the Company defers recognition of revenue and related cost of sales (in the balance sheet line item “deferred income on shipments to distributors”) derived from sales to these sell-through distributors until they have resold the Company's products to their customers. Although revenue and related cost of sales are not recognized, the Company records an accounts receivable and relieves inventory at the time of initial product shipment. As standard terms are EXW or FCA shipping point, payment terms are enforced from shipment date and legal title and risk of inventory loss passes to the sell-through distributor upon shipment.

In addition, the Company may offer to its sell-through distributors, where revenue is deferred upon shipment and recognized on a sell-through basis, price adjustments to allow our sell-through distributors to price our products competitively for specific resale opportunities. The Company estimates and records an adjustment for sell-through distributor price adjustments for which the specific resale transaction has been completed, but the price adjustment claim has not yet been received by the Company.

Sales to OEM customers and sell-in distributors are recognized based upon the shipment terms of the sale transaction when all other revenue recognition criteria have been met. The Company does not grant return rights, price protection or pricing adjustments to OEM customers. The Company offers limited contractual stock rotation rights to sell-in distributors. In addition, the Company is not contractually obligated to offer, but may infrequently grant, price adjustments or price protection to certain sell-in distributors on an exception basis. At the time of shipment to sell-in distributors, an allowance for returns is established based upon historical return rates, and an allowance for price adjustments is established based on an estimate of price adjustments to be granted. Actual future returns and price adjustments could be different than the allowance established.

During the third quarter of 2014, the Company amended the terms of its agreements with certain sell-through distributors. These amendments included the removal of significant return rights, price protection and pricing adjustments subsequent to the initial product shipment. Therefore, upon amendment of the agreements, these distributors were changed from sell-through distributors to sell-in distributors and the Company recognized the revenue for sales to these distributors upon the initial product shipments to these distributors, net of estimated allowance for returns established based upon historical return rates. In addition, revenue was recognized for unsold inventory held by these distributors on the date of change. The effect of changing these sell-through distributors to sell-in distributors resulted in a one-time increase in revenue of approximately $5.1 million and related cost of goods sold of $1.6 million related to unsold inventory held by these distributors at June 30, 2014.

Net Income Per Share- Basic net income per share is computed by dividing net income by the number of weighted-average common shares outstanding. Diluted net income per share reflects potential dilution from outstanding stock options and restricted stock units ("RSUs") using the treasury stock method. Reconciliation of weighted-average shares used in computing basic and diluted net income per share is as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Shares used in computing basic net income per share	56,642	57,752	56,514	58,107
Dilutive effect of stock options and restricted stock units	1,066	688	949	719
Shares used in computing diluted net income per share	57,708	58,440	57,463	58,826

For the three and nine months ended September 30, 2014, 2.5 million and 3.6 million shares underlying stock options, respectively, have been excluded from the weighted-average number of common shares outstanding for the diluted net income per share computations as they were anti-dilutive. For the three and nine months ended September 30, 2013, 5.4 million and 5.3 million shares underlying stock options, respectively, have been excluded from the weighted-average number of common shares outstanding for the diluted net income per share computations as they were anti-dilutive.

Goodwill -Goodwill represents the excess of the purchase price over the fair value of both net tangible and identifiable intangible assets acquired. Goodwill is measured and tested for impairment annually at the reporting unit level during the last quarter of the Company’s fiscal year, or more frequently if the Company believes indicators of impairment exist. Events that could trigger a more frequent impairment review may include adverse industry or economic trends, restructuring actions, lower projections of profitability, or a sustained decline in our market capitalization.

On April 2, 2012, the Company acquired PhaseLink^™ Company Limited (“Phaselink”) and recorded $6.1 million of goodwill as the purchase price exceeded the fair value allocated to both net tangible assets and identifiable intangible assets. On September 9, 2013, the Company acquired specific net assets of Discera Inc. (“Discera”) and recorded $2.5 million of goodwill as the purchase price exceeded the fair value allocated to net tangible assets and identifiable intangible assets. During the first quarter of 2014, goodwill recorded from the Discera transaction was increased by approximately $0.1 million to $2.6 million. The goodwill for each acquisition was allocated to the timing and communications reporting unit and is reviewed annually in October or whenever events or circumstances occur which indicate that goodwill might be impaired.

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Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2014

Accrued Liabilities, Current [Abstract]

Schedule of accrued liabilities

Accrued liabilities consisted of the following (in thousands):

	September 30, 2014		December 31, 2013
Accrued compensation	$	8,431	$	5,767
Accrued commissions	1,775		1,666
Accrued restructuring	602		902
Other accrued liabilities	4,212		4,539
Total accrued liabilities	$	15,020	$	12,874

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Share-Based Compensation (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Share-based compensation expense
Allocated share-based compensation expense	$ 2,009	$ 1,763	$ 5,680	$ 5,076
Less income tax effect	(707)	(565)	(1,938)	(1,667)
Net share-based compensation expense	1,302	1,198	3,742	3,409
Cost of revenues [Member]
Share-based compensation expense
Allocated share-based compensation expense	271	270	748	784
Research and development [Member]
Share-based compensation expense
Allocated share-based compensation expense	874	704	2,397	2,008
Selling, general and administrative [Member]
Share-based compensation expense
Allocated share-based compensation expense	$ 864	$ 789	$ 2,535	$ 2,284

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Borrowing Arrangements (Details) (USD $)	9 Months Ended
	Sep. 30, 2014
Borrowing Arrangements (Additional Textual) [Abstract]
Line of credit available for general working capital needs	$ 5,000,000
Letter of credit sub-facility	5,000,000
Foreign exchange sub-facility	2,000,000
Line of Credit Facility, Interest Rate Description	Interest rates under the facility are based on one of three interest rates, at the Company’s option: (1) a variable alternate base rate plus 1.0%, the alternate base rate being the greater of (x) Bank of the West’s prime rate, (y) the Fed Funds Rate plus 0.5% or (z) daily adjusted one-month LIBOR plus 1.0%; (2) floating one-month LIBOR plus 2.0% or (3) fixed LIBOR for one, two, three or six month periods, plus 2.0%.
Amount outstanding on the line of credit	0
Letter of Credit [Member]
Borrowing Arrangements (Additional Textual) [Abstract]
Letters of credit, outstanding	$ 300,000

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
CURRENT ASSETS:
Cash and cash equivalents	$ 34,934	$ 23,787
Restricted cash	133	1,116
Short-term investments	65,786	64,806
Accounts receivable, less allowances: 2014, $1,224; 2013, $760	29,058	29,437
Inventories	41,967	43,201
Prepaid taxes	4,018	4,513
Prepaid expenses and other	1,580	2,698
Deferred income taxes	22,794	21,662
Total current assets	200,270	191,220
LONG-TERM INVESTMENTS	1,683	4,195
PROPERTY, PLANT AND EQUIPMENT, NET	58,225	57,779
LONG-TERM PREPAID TAXES	1,711	0
GOODWILL	8,655	8,554
INTANGIBLE ASSETS, NET	10,159	11,749
DEFERRED INCOME TAXES	2,322	1,581
OTHER ASSETS	1,628	1,046
TOTAL ASSETS	284,653	276,124
CURRENT LIABILITIES:
Accounts payable	17,774	13,502
Accrued liabilities	15,020	12,874
Deferred income on shipments to distributors	26,365	27,026
Total current liabilities	59,159	53,402
LONG-TERM INCOME TAXES PAYABLE	2,982	3,575
LONG-TERM DEFERRED INCOME TAXES	745	973
OTHER LONG-TERM LIABILITIES	168	201
Total liabilities	63,054	58,151
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - authorized: 5,000,000 shares; issued and outstanding: none	0	0
Common stock, no par value - authorized: 250,000,000 shares; issued and outstanding: 2014 - 56,656,875 shares; 2013 - 56,441,346 shares	1,326	0
Accumulated other comprehensive loss	(38)	(320)
Retained earnings	220,311	218,293
Total shareholders' equity	221,599	217,973
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 284,653	$ 276,124

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Investments (Details 2) (Fair Value Measurements Using Significant Unobservable Inputs (Level 3) [Member], USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) [Member]
Schedule of changes in Level 3 securities
Beginning balance	$ 4,195
Transfers in and/or out of Level 3	0
Total unrealized gains before tax, included in other comprehensive income	438
Settlements	(2,950)
Ending balance	$ 1,683

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
NET INCOME	$ 4,675	$ 4,004	$ 10,493	$ 14,284
Other comprehensive income:
Unrealized (losses) gains on investments	(12)	39	437	315
Reclassification adjustment for a realized loss on investment included in other expense	0	0	0	26
Income tax benefits (provision)	4	(14)	(155)	(121)
Other comprehensive (loss) income, net of taxes	(8)	25	282	220
COMPREHENSIVE INCOME	$ 4,667	$ 4,029	$ 10,775	$ 14,504

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Dividends (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2014	Sep. 30, 2013
Dividends, Common Stock [Abstract]
Board of Directors declared a cash dividend per share of common stock	$ 0.05
Payments of Ordinary Dividends, Common Stock	$ 2,800	$ 8,475	$ 5,371

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Significant Accounting Policies Significant Accounting Policies - Revenue Recognition (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Sep. 30, 2014
Significant Accounting Policies - Revenue Recognition [Abstract]
Amount of one-time increase in revenue from conversion of distributors to sell-in revenue recognition method	$ 5.1
Amount of one-time increase in cost of goods sold from conversion of distributors to sell-in revenue recognition method	$ 1.6

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Dividends

9 Months Ended

Sep. 30, 2014

Dividends, Common Stock [Abstract]

DIVIDENDS

DIVIDENDS

On July 24, 2014, the Company’s Board of Directors declared a cash dividend of $0.05 per share of common stock. The aggregate payment of $2.8 million was made on August 28, 2014 to shareholders of record as of August 14, 2014.

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Significant Accounting Policies (Details) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Reconciliation of weighted-average shares used in computing basic and diluted net income per share
Shares used in computing basic net income per share	56,642	57,752	56,514	58,107
Dilutive effect of stock options and restricted stock units	1,066	688	949	719
Shares used in computing diluted net income per share	57,708	58,440	57,463	58,826

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Subsequent Events

9 Months Ended

Sep. 30, 2014

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

On October 23, 2014, the Company’s Board of Directors declared a cash dividend of $0.05 per outstanding share of common stock payable on November 20, 2014 to shareholders of record at the close of business on November 6, 2014. This dividend will be recorded in the fourth quarter of 2014 and is expected to be approximately $2.8 million.

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 10,493	$ 14,284
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,264	9,788
Share-based compensation expense	5,680	5,076
Excess tax benefits from stock-based awards	(1,611)	(418)
(Loss) gain on disposal of assets	13	(33)
Deferred income tax provision	(2,256)	(3,133)
Changes in operating assets and liabilities
Accounts receivable	379	(3,534)
Inventories	1,252	(1,691)
Prepaid taxes	(1,318)	(351)
Prepaid expenses and other assets	408	(434)
Accounts payable	835	(6,368)
Income taxes payable	(593)	172
Accrued liabilities and other long-term liabilities	1,610	2,089
Deferred income on shipments to distributors	(661)	6,725
Net cash provided by operating activities	24,495	22,172
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Discera's net assets	0	(6,110)
Purchases of property, plant and equipment	(5,607)	(5,797)
Purchases of intangible assets	0	(57)
Purchases of investments	(36,450)	(50,079)
Proceeds from sale and maturities of investments	38,369	57,010
Change in restricted cash	983	(808)
Net cash used in investing activities	(2,705)	(5,841)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock	10,378	3,743
Repurchases of common stock	(12,950)	(13,177)
Payment of cash dividends	(8,475)	(5,371)
Purchase of stock for withholding taxes on vested restricted stock	(1,207)	(701)
Excess tax benefits from stock-based awards	1,611	418
Net cash used in financing activities	(10,643)	(15,088)
NET INCREASE IN CASH AND CASH EQUIVALENTS	11,147	1,243
CASH AND CASH EQUIVALENTS - Beginning of period	23,787	27,281
CASH AND CASH EQUIVALENTS - End of period	$ 34,934	$ 28,524

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Allowances for accounts receivable	$ 1,224	$ 760
Preferred stock, par value
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	56,656,875	56,441,346
Common stock, shares outstanding	56,656,875	56,441,346

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Major Customers

9 Months Ended

Sep. 30, 2014

Risks and Uncertainties [Abstract]

MAJOR CUSTOMERS

MAJOR CUSTOMERS

During the three months ended September 30, 2014, distributors A and B accounted for 24% and 17% of total net revenues, respectively. During the nine months ended September 30, 2014, distributors A and B accounted for 25% and 18% of total net revenues, respectively.

During the three months ended September 30, 2013, distributors A, B, and C accounted for 26%, 16%, and 10% of total net revenues, respectively. During the nine months ended September 30, 2013, distributors A and B accounted for 31% and 20% of total net revenues, respectively. These distributors sell Micrel's products to many customers across various end markets.

At September 30, 2014, distributors A, C, and B accounted for 27%, 15%, and 14% respectively, of total accounts receivable. At December 31, 2013, distributors A and B accounted for 36% and 11%, respectively, of total accounts receivable.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	MICREL INC
Entity Central Index Key	0000932111
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Amendment Flag	false
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding	56,656,875

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Segment Reporting

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

SEGMENT REPORTING

SEGMENT REPORTING

The Company currently operates in one segment: the design, manufacturing, marketing and sale of semiconductor products. The chief operating decision maker, the President and CEO, evaluates the financial performance of the Company and allocates resources on a company-wide basis.

The Company generates revenue from four product groups:  Linear and Power; Timing and Communications; LAN; and Foundry.  The following table sets forth the net revenues attributable to our four product groups as a percentage of total net revenues:

	Three Months Ended				Nine Months Ended
Net Revenues by Product Group	September 30,				September 30,
	2014		2013		2014		2013
Net Revenues:
Linear and Power	52	%	57	%	53	%	57	%
Timing and Communications	25		22		24		21
LAN	21		19		21		20
Foundry	2		2		2		2
Total net revenues	100	%	100	%	100	%	100	%

The Company recorded revenue from customers throughout the United States, Canada and Mexico (collectively referred to as “North America”); the United Kingdom, Italy, Germany, France, Israel, Sweden, Hungary, Austria, Finland, Switzerland and other European countries (collectively referred to as “Europe”); Korea, Taiwan, Singapore, China, Japan, Hong Kong, Malaysia and other Asian countries (collectively referred to as “Asia”). Revenues by major geographic area are based on the geographic location of the original equipment manufacturers ("OEMs") or the distributors who have purchased the Company's products. The geographic locations of the Company's distributors may be different from the geographic locations of the end customers.

The following table sets forth the net revenues by geographic region as a percentage of total net revenues, for the periods presented:

	Three Months Ended				Nine Months Ended
Net Revenues by Geographic Region	September 30,				September 30,
	2014		2013		2014		2013
Net Revenues:
North America	19	%	26	%	22	%	29	%
Asia	67	%	60	%	63	%	58	%
Europe	14	%	14	%	15	%	13	%
Total net revenues	100	%	100	%	100	%	100	%

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Condensed Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Income Statement [Abstract]
NET REVENUES	$ 67,480		$ 58,169		$ 189,676		$ 177,073
COST OF REVENUES	33,072	[1]	28,698	[1]	91,258	[1]	85,440	[1]
GROSS PROFIT	34,408		29,471		98,418		91,633
OPERATING EXPENSES:
Research and development	16,013	[1]	14,055	[1]	46,930	[1]	41,327	[1]
Selling, general and administrative	12,218	[1]	11,184	[1]	36,630	[1]	34,478	[1]
Restructuring Charges	484		0		484		0
Total operating expenses	28,715		25,239		84,044		75,805
INCOME FROM OPERATIONS	5,693		4,232		14,374		15,828
INTEREST AND OTHER (EXPENSE) INCOME:
Interest income	80		121		275		373
Other expense, net	(120)		(87)		(200)		(230)
Total interest and other (expense) income, net	(40)		34		75		143
INCOME BEFORE PROVISION FOR INCOME TAXES	5,653		4,266		14,449		15,971
PROVISION FOR INCOME TAXES	978		262		3,956		1,687
NET INCOME	$ 4,675		$ 4,004		$ 10,493		$ 14,284
NET INCOME PER SHARE:
Basic (Per Share)	$ 0.08		$ 0.07		$ 0.19		$ 0.25
Diluted (Per Share)	$ 0.08		$ 0.07		$ 0.18		$ 0.24
CASH DIVIDENDS DECLARED PER COMMON SHARE	$ 0.05		$ 0.05		$ 0.15		$ 0.0925
WEIGHTED AVERAGE SHARES USED IN COMPUTING PER SHARE AMOUNTS:
Basic (Shares)	56,642		57,752		56,514		58,107
Diluted (Shares)	57,708		58,440		57,463		58,826

[1] Share-based compensation expense included in:Cost of revenues$271 $270 $748 $784Research and development874 704 2,397 2,008Selling, general and administrative864 789 2,535 2,284

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Inventories

9 Months Ended

Sep. 30, 2014

Inventory Disclosure [Abstract]

INVENTORIES

INVENTORIES

Inventories consisted of the following (in thousands):

	September 30, 2014		December 31, 2013
Finished goods	$	12,358	$	11,592
Work in process	28,382		30,109
Raw materials	1,227		1,500
Total inventories	$	41,967	$	43,201

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Investments

9 Months Ended

Sep. 30, 2014

Investments, Debt and Equity Securities [Abstract]

INVESTMENTS

INVESTMENTS

Investments purchased with remaining maturity of less than three months are classified as cash equivalents. Investments are classified either as short-term or as long-term based on maturities and the Company’s intent with regard to those securities (expectations of sales and redemptions). Short-term investments as of September 30, 2014 consisted primarily of liquid municipal and corporate debt instruments with maturities ranging from less than one month to less than two years and were classified as available-for-sale securities. Long-term investments as of September 30, 2014 consisted of auction-rate notes secured by student loans and were classified as available-for-sale securities. Available-for-sale securities are stated at fair value with unrealized gains and losses included in accumulated other comprehensive loss, a component of shareholders' equity. Unrealized losses are charged against income when a decline in the fair market value of an individual security is determined to be other than temporary. Realized gains and losses on investments are included in other income or expense.

A summary of the Company’s short-term investments at September 30, 2014 and December 31, 2013 was as follows (in thousands):

	As of September 30, 2014								As of December 31, 2013
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate Debt Securities	$	40,041	$	—	$	—	$	40,041	$	36,947	$	10	$	—		$	36,957
Commercial Paper	12,985		3		—		12,988		13,991		2		—			13,993
Municipal Securities	12,751		6		—		12,757		13,858		—		(2		)	13,856
Total	$	65,777	$	9	$	—	$	65,786	$	64,796	$	12	$	(2	)	$	64,806

As of September 30, 2014, the Company had no short-term investments that have been in a significant continuous unrealized loss position for more than twelve months.

A summary of the Company’s long-term investments at September 30, 2014 and December 31, 2013 was as follows (in thousands):

	As of September 30, 2014									As of December 31, 2013
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Auction Rate Notes	$	1,750	$	—	$	(67	)	$	1,683	$	4,700	$	—	$	(505	)	$	4,195

In the three and nine months ended September 30, 2014, the Company sold $0.1 million and $3.0 million of auction-rate notes at par value, respectively. As of September 30, 2014, the Company had remaining $1.8 million of auction-rate notes. Auction-rate notes are securities that are structured with short-term interest rate reset dates of generally less than ninety days, but with contractual maturities that can be in excess of ten years. At the end of each reset period, which occurs every seven or twenty-eight days for the securities held by the Company, investors can sell or continue to hold the securities at par. As a result of sell orders exceeding buy orders, auctions for the remaining student loan-backed notes held by the Company have failed as of September 30, 2014. To date the Company has collected all interest receivable on all of its auction-rate notes when due and expects to continue to do so in the future. The principal associated with failed auctions will not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the issuers redeem the securities, the issuers repay principal over time from cash flows prior to final maturity or final payments come due according to contractual maturities ranging from 31 to 33 years. The Company has classified all auction-rate notes as long-term investments as of September 30, 2014 and December 31, 2013. In the event of a failed auction, the notes bear interest at a predetermined maximum rate based on the credit rating of notes as determined by one or more nationally recognized statistical rating organizations. For the auction-rate notes held by the Company as of September 30, 2014, the maximum interest rate is generally one month LIBOR plus 1.5% based on the notes' rating as of that date.

To determine the fair value of financial instruments, the Company uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

• Level 1 - Quoted prices in active markets for identical assets or liabilities.

• Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s short-term investments are classified within Level 2 of the fair value hierarchy because they are valued using quoted market prices for similar securities, broker or dealer quotations, or other observable inputs.

The types of instruments valued based on unobservable inputs consist of the auction-rate notes held by the Company. Such instruments are classified within Level 3 of the fair value hierarchy. The Company estimated the fair value of these auction-rate notes using a combination of observable transactions for similar securities and a discounted cash flow model incorporating assumptions that market participants would use in their estimates of fair value. Some of these assumptions include estimates for interest rates, timing and amount of cash flows and expected holding periods of the auction-rate notes. Based on this assessment of fair value, as of September 30, 2014, the Company determined there was a cumulative decline in the fair value of its auction-rate notes and recorded less than $0.1 million net of tax ($0.1 million pre-tax) temporary impairment of these notes to accumulated other comprehensive income, a component of shareholders’ equity.

Financial assets measured at fair value on a recurring basis as of September 30, 2014 were as follows (in thousands):

	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Funds (1)	$	9,736	$	—	$	—	$	9,736
Corporate Debt Securities (2)	—		40,041		—		40,041
Commercial Paper (2)	—		12,988		—		12,988
Municipal Securities (2)	—		12,757		—		12,757
Auction-rate notes (3)	—		—		1,683		1,683
Total	$	9,736	$	65,786	$	1,683	$	77,205

Financial assets measured at fair value on a recurring basis as of December 31, 2013 were as follows (in thousands):

	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Funds (1)	$	16,945	$	—	$	—	$	16,945
Corporate Debt Securities (2)	—		36,957		—		36,957
Commercial Paper (2)	—		13,993		—		13,993
Municipal Securities (2)	—		13,856		—		13,856
Auction-rate notes (3)	—		—		4,195		4,195
Total	$	16,945	$	64,806	$	4,195	$	85,946

__________

(1) Included in cash and cash equivalents

(2) Included in short-term investments

(3) Included in long-term investments

There were no significant transfers between Level 1 and Level 2 of the fair value hierarchy.

For the nine months ended September 30, 2014, the changes in the Company’s Level 3 securities (consisting of auction-rate notes) were as follows (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Beginning balance, December 31, 2013	$	4,195
Transfers in and/or out of Level 3	—
Total unrealized gains, before tax, included in other comprehensive income	438
Sales	(2,950		)
Ending balance, September 30, 2014	$	1,683

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Restructuring

9 Months Ended

Sep. 30, 2014

Restructuring and Related Activities [Abstract]

RESTRUCTURING CHARGES

RESTRUCTURING CHARGES

In the third quarter of 2014, the Company continued its efforts to reduce operating expenses. Therefore, the Company recorded restructuring charges of $0.5 million related to workforce reductions and facility closure. In the fourth quarter of 2013, the Company recorded restructuring charges of $1.4 million related to workforce reductions.

The Company paid $0.1 million and $0.8 million related to severance costs for the three and nine months ended September 30, 2014, respectively. The following table summarizes the activity related to the accrual for restructuring charges for the nine months ended September 30, 2014 by event (in thousands):

	Plan Initiated in Q4'13			Plan Initiated in Q3'14			Total
Balance at December 31, 2013	$	902		$	—		$	902
Restructuring charges	—			484			484
Payments	(757		)	(27		)	(784		)
Balance at September 30, 2014	$	145		$	457		$	602

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

From time to time, claims have been filed by or have arisen against the Company in its normal course of business. Generally, litigation is subject to inherent uncertainties, and the Company can provide no assurance that it will prevail in any particular lawsuit. Accordingly, litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

As of September 30, 2014, the Company has not recorded any accrual for contingent liabilities associated with the legal proceedings described above based on the assessment that liabilities are not probable. Further, ranges of possible losses in these matters cannot be reasonably estimated at this time.

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Accrued Liabilities

9 Months Ended

Sep. 30, 2014

Accrued Liabilities, Current [Abstract]

ACCRUED LIABILITIES

ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

	September 30, 2014		December 31, 2013
Accrued compensation	$	8,431	$	5,767
Accrued commissions	1,775		1,666
Accrued restructuring	602		902
Other accrued liabilities	4,212		4,539
Total accrued liabilities	$	15,020	$	12,874

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Restructuring (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Restructuring Reserve [Roll Forward]
Beginning Balance				$ 902
Restructuring Charges	484	1,400	0	484	0
Payments for Restructuring	(93)			(784)
Ending Balance	602	902		602
Q42013 [Member]
Restructuring Reserve [Roll Forward]
Beginning Balance				902
Restructuring Charges				0
Payments for Restructuring				(757)
Ending Balance	145			145
Q32014 [Member]
Restructuring Reserve [Roll Forward]
Beginning Balance				0
Restructuring Charges				484
Payments for Restructuring				(27)
Ending Balance	$ 457			$ 457

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Property, Plant and Equipment

9 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

	September 30, 2014			December 31, 2013
Machinery and equipment	$	188,357		$	180,851
Land	8,101			8,101
Buildings and improvements	54,558			53,915
Computer equipment and software	12,022			11,742
Office furniture and fixtures	1,779			1,928
	264,817			256,537
Accumulated depreciation	(206,592		)	(198,758		)
Total property, plant and equipment, net	$	58,225		$	57,779

Depreciation expense for the three and nine months ended September 30, 2014 was $2.8 million and $8.3 million, respectively. Depreciation expense for the three and nine months ended September 30, 2013 was $2.7 million and $8.3 million, respectively.

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Intangible Assets

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

INTANGIBLE ASSETS

The Company reviews its purchased intangible assets with finite lives for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of these intangible assets is assessed based on the estimated undiscounted future cash flows expected to result from the use of the asset. If the undiscounted future cash flows are less than the carrying amount, the purchased intangible assets with finite lives are considered to be impaired. The amount of the impairment is measured as the difference between the carrying amount of these assets and their fair value.

The Company's business acquisitions have included the purchase of in-process research and development assets that are not amortizable until the underlying project is complete. The Company assesses that its in-process research and development project is complete when all material research and development costs have been incurred and no significant risks remain. The Company reviews the carrying value of indefinite-lived intangible assets for impairment at least annually during the last quarter of its fiscal year, or more frequently if it believes indicators of impairment exist.

The following table sets forth the components of intangible assets as follows (in thousands):

	September 30, 2014							December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net  Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net  Carrying Amount
Developed and core technology	$	7,443	$	(1,604	)	$	5,839	$	7,783	$	(986	)	$	6,797
Customer relationships	3,800		(1,039		)	2,761		3,800		(552		)	3,248
Trademarks	610		(351		)	259		610		(284		)	326
Non-competition agreements	—		—			—		450		(372		)	78
In-process research and development	1,300		—			1,300		1,300		—			1,300
	$	13,153	$	(2,994	)	$	10,159	$	13,943	$	(2,194	)	$	11,749

The above intangible assets acquired in connection with the Discera acquisition in 2013 of $2.8 million, PhaseLink acquisition in 2012 of $8.3 million, and other acquired intangible assets of $2.1 million are amortized over their estimated useful lives ranging from one to ten years using the straight-line method. Total intangible amortization expense for the three and nine months ended September 30, 2014 was $0.4 million and $1.3 million, respectively. Total intangible amortization expense for the three and nine months ended September 30, 2013 was $0.4 million and $1.0 million, respectively. The Company expects the completion of acquired in-process development projects for Phaselink and Discera in early 2015 and expects to begin amortizing the related in-process research and development intangible assets in 2015.

The estimated future amortization expense of intangible assets as of September 30, 2014 was as follows (in thousands):

Year Ending December 31,
2014 (remaining three months)	$	384
2015	1,599
2016	1,510
2017	1,281
2018	1,223
Thereafter	4,162
	$	10,159

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Borrowing Arrangements

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

BORROWING ARRANGEMENTS

BORROWING ARRANGEMENTS

Under the terms of an unsecured credit facility with Bank of the West that expires on April 30, 2015, the Company has a $5.0 million line of credit available for general working capital needs, which includes a $5.0 million letter of credit sub-facility including a $2.0 million foreign exchange sub-facility. Interest rates under the facility are based on one of three interest rates, at the Company’s option: (1) a variable alternate base rate plus 1.0%, the alternate base rate being the greater of (x) Bank of the West’s prime rate, (y) the Fed Funds Rate plus 0.5% or (z) daily adjusted one-month LIBOR plus 1.0%; (2) floating one-month LIBOR plus 2.0% or (3) fixed LIBOR for one, two, three or six month periods, plus 2.0%. The credit agreement includes certain restrictive covenants and, as of September 30, 2014, the Company was in compliance with such covenants. As of September 30, 2014, the Company had no borrowings under the line of credit facility.

The Company's borrowing arrangements include a provision for the issuance of commercial or standby letters of credit by the bank on behalf of the Company. The letters of credit are issued to guarantee payments for the Company's workers compensation program. As of September 30, 2014, there was $0.3 million in letters of credit outstanding.

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Restructuring (Tables)

9 Months Ended

Sep. 30, 2014

Restructuring and Related Activities [Abstract]

Restructuring and Related Costs

The following table summarizes the activity related to the accrual for restructuring charges for the nine months ended September 30, 2014 by event (in thousands):

	Plan Initiated in Q4'13			Plan Initiated in Q3'14			Total
Balance at December 31, 2013	$	902		$	—		$	902
Restructuring charges	—			484			484
Payments	(757		)	(27		)	(784		)
Balance at September 30, 2014	$	145		$	457		$	602

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Intangible Assets (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
2014 (remaining three months)	$ 384
2015	1,599
2016	1,510
2017	1,281
2018	1,223
Thereafter	4,162
Net Carrying Amount	$ 10,159	$ 11,749

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Income Taxes

9 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The income tax provision for the three and nine months ended September 30, 2014, as a percentage of income before taxes was 17.3% and 27.4%, respectively.

The income tax provision for the three months and nine months ended September 30, 2013, as a percentage of income before taxes, was 6.1% and 10.6%, respectively. The income tax provision for the three months ended September 30, 2014 and 2013 included previously unrecognized tax benefits totaling $0.9 million and $0.8 million, respectively, due to a lapse of the statute of limitations. For the nine months ended September 30, 2013, the income tax provision also included a $0.4 million benefit pertaining to the filing of 2012 foreign tax returns during the second quarter of 2013 and a $1.4 million benefit for 2012 research tax credits as a tax law was enacted on January 2, 2013 to retroactively reinstate the federal research and development tax credit to January 1, 2012.

As of September 30, 2014, the amount of unrecognized tax benefits for uncertain tax positions was $13.0 million and the net amount, reduced for the federal effects of potential state tax exposures, was $9.1 million. If these uncertain tax positions are sustained upon tax authority audit, or otherwise become certain, a net $3.0 million would favorably affect the Company’s tax provision in such future periods. The remaining $6.0 million would increase deferred tax assets on which a valuation allowance is placed and would be expected to also increase the valuation allowance by a corresponding amount. The $3.0 million liability is included in long-term income taxes payable. The Company does not anticipate a significant change to unrecognized tax benefits for uncertain income tax positions within the next 12 months.

The Company continues to recognize interest and penalties related to unrecognized tax benefits as part of the income tax provision. As of September 30, 2014 and December 31, 2013, the Company had $0.3 million and $0.4 million, respectively, accrued for interest and none accrued for penalties in both periods. These accruals are included as a component of long-term income taxes payable.

The Company is required to file U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar years 2010 and forward. Significant state tax jurisdictions include California, Massachusetts and Texas, and generally, the Company is subject to routine examination for years 2006 and forward in these jurisdictions. In addition, any research and development credit carryforwards that were generated in prior years and utilized in these years may also be subject to examination by respective state taxing authorities. Generally, the Company is subject to routine examination for years 2005 and forward in various foreign tax jurisdictions in which it operates.

Deferred tax assets and liabilities result primarily from temporary differences between book and tax bases of assets and liabilities and state research and development credit carryforwards. The Company had net current deferred tax assets of $22.8 million and net long-term deferred tax assets of $1.6 million as of September 30, 2014. The Company must regularly assess the likelihood that future taxable income levels will be sufficient to ultimately realize the tax benefits of these net deferred tax assets. The Company currently believes that future taxable income levels will be sufficient to realize the tax benefits of these deferred tax assets. Therefore, the Company has not established a valuation allowance except for a valuation allowance of $10.1 million and $9.0 million that was established against state deferred tax assets as of September 30, 2014 and December 31, 2013, respectively, due to California tax law changes in 2012 which require mandatory single sales factor apportionment in California for most multi-state taxpayers for tax years beginning on or after January 1, 2013. Should the Company determine that future realization of these tax benefits is not more likely than not, additional valuation allowances would be established which would increase the Company's tax provision in the period of such determination.

Included in net deferred tax assets are credit carryforwards. The Company has available state research and development credit carryforwards of approximately $24.2 million, of which approximately $2.3 million represents pre-ownership change carryforwards subject to Section 382 annual limitation. The state research credit carryforwards are not subject to expiration and may be carried forward indefinitely until utilized.

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Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Reconciliation of weighted-average shares used in computing net income per share

Reconciliation of weighted-average shares used in computing basic and diluted net income per share is as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Shares used in computing basic net income per share	56,642	57,752	56,514	58,107
Dilutive effect of stock options and restricted stock units	1,066	688	949	719
Shares used in computing diluted net income per share	57,708	58,440	57,463	58,826

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Intangible Assets (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Amortization of Intangible Assets	$ 0.4	$ 0.4	$ 1.3	$ 1.0
Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life			1 year
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life			10 years
Discera, Inc. [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived Intangible Assets Acquired			2.8
PhaseLink Acquisition [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived Intangible Assets Acquired			8.3
Other Intangible Assets [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived Intangible Assets Acquired			$ 2.1

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Share-Based Compensation (Details 1)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Stock options granted under the Company's option plans
Expected term (years)	5 years 10 months 29 days	5 years 9 months 29 days	6 years 0 months 1 day	5 years 10 months 29 days
Stock volatility	30.60%	35.00%	30.70%	34.80%
Risk free interest rates	2.00%	1.70%	2.00%	1.40%
Dividends during expected terms	1.60%	2.20%	1.70%	1.80%

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Condensed Consolidated Statements of Income (Parenthetical) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Share-based compensation expense included in:
Cost of revenues	$ 33,072	[1]	$ 28,698	[1]	$ 91,258	[1]	$ 85,440	[1]
Research and development	16,013	[1]	14,055	[1]	46,930	[1]	41,327	[1]
Selling, general and administrative	12,218	[1]	11,184	[1]	36,630	[1]	34,478	[1]
Share-Based Compensation Expense
Share-based compensation expense included in:
Cost of revenues	271		270		748		784
Research and development	874		704		2,397		2,008
Selling, general and administrative	$ 864		$ 789		$ 2,535		$ 2,284

[1] Share-based compensation expense included in:Cost of revenues$271 $270 $748 $784Research and development874 704 2,397 2,008Selling, general and administrative864 789 2,535 2,284

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Share-Based Compensation

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

Share-based compensation expense is measured at the grant date based on the fair value of the award and is recognized over the employee’s requisite service period. The following table summarizes total share-based compensation expense included in the Condensed Consolidated Statements of Income (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Cost of revenues	$	271		$	270		$	748		$	784
Research and development	874			704			2,397			2,008
Selling, general and administrative	864			789			2,535			2,284
Pre-tax share-based compensation expense	2,009			1,763			5,680			5,076
Less income tax effect	(707		)	(565		)	(1,938		)	(1,667		)
Net share-based compensation expense	$	1,302		$	1,198		$	3,742		$	3,409

During the three months ended September 30, 2014 and 2013, the Company granted 0.1 million and 0.2 million stock options, respectively, at weighted average fair values of $3.11 and $2.79 per share, respectively. During the nine months ended September 30, 2014 and 2013, the Company granted 0.4 million and 0.5 million stock options at weighted average fair values of $2.86 and $2.91 per share, respectively. The fair value of the Company’s stock options granted under the Company’s option plans was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Expected term (years)	5.9		5.8		6.0		5.9
Stock volatility	30.6	%	35.0	%	30.7	%	34.8	%
Risk free interest rates	2.0	%	1.7	%	2.0	%	1.4	%
Dividends during expected terms	1.6	%	2.2	%	1.7	%	1.8	%

The Company also grants RSUs to its employees. In the three months ended September 30, 2014 and 2013, the Company granted 0.2 million and 0.2 million RSUs, respectively, at weighted average fair values of $11.59 and $9.14 per share, respectively. In the nine months ended September 30, 2014 and 2013, the Company granted 0.7 million and 0.4 million RSUs, respectively, at weighted average fair values of $10.62 and $9.49 per share, respectively.

As of September 30, 2014, there was $5.4 million of total unrecognized share-based compensation expense related to non-vested stock option awards and $11.3 million related to non-vested RSUs, which are expected to be recognized over a weighted-average period of 2.5 and 3.0 years, respectively. Total share-based compensation expense capitalized as part of inventory as of both September 30, 2014 and December 31, 2013 was $0.2 million.

Under the Company’s Employee Stock Purchase Plan (“ESPP”), eligible employees are permitted to have salary withholdings to purchase shares of common stock at a price equal to 95% of the market value of the stock at the end of each three-month offer period, subject to an annual limitation. The ESPP is considered non-compensatory per current share-based compensation accounting guidelines.

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Income Taxes (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Income tax provision as percentage of income before taxes	17.30%	6.10%	27.40%	10.60%
Unrecognized Tax Benefits, Reduction Resulting from Lapse of Applicable Statute of Limitations	$ 900,000	$ 800,000
Effective income tax rate reconciliation, foreign income tax rate differential, amount				400,000
Income tax benefit research and development tax credit				1,400,000
Unrecognized tax benefits for uncertain tax positions	13,000,000		13,000,000
Net amount, reduced for the federal effects of potential state tax exposures	9,100,000		9,100,000
Net amount, favorably affect the company's tax provision in future periods	3,000,000		3,000,000
Increase in deferred tax assets, uncertain tax positions	6,000,000		6,000,000
Liability for uncertain tax positions in long term taxes payable	2,982,000		2,982,000		3,575,000
Interest and penalties related to income tax	300,000		300,000		400,000
Current deferred tax assets, net	22,800,000		22,800,000
Deferred tax liabilities, net, noncurrent	1,600,000		1,600,000
Deferred tax valuation allowance	10,100,000		10,100,000		9,000,000
State and Local Jurisdiction [Member]
Deferred Tax Assets, Tax Credit Carryforwards, Research	24,200,000		24,200,000
Deferred tax Assets, Tax Carryforwards, Research, Pre-Ownership Change	$ 2,300,000		$ 2,300,000

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Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-based compensation expense

The following table summarizes total share-based compensation expense included in the Condensed Consolidated Statements of Income (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Cost of revenues	$	271		$	270		$	748		$	784
Research and development	874			704			2,397			2,008
Selling, general and administrative	864			789			2,535			2,284
Pre-tax share-based compensation expense	2,009			1,763			5,680			5,076
Less income tax effect	(707		)	(565		)	(1,938		)	(1,667		)
Net share-based compensation expense	$	1,302		$	1,198		$	3,742		$	3,409

Stock options granted under the Company's option plans

The fair value of the Company’s stock options granted under the Company’s option plans was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Expected term (years)	5.9		5.8		6.0		5.9
Stock volatility	30.6	%	35.0	%	30.7	%	34.8	%
Risk free interest rates	2.0	%	1.7	%	2.0	%	1.4	%
Dividends during expected terms	1.6	%	2.2	%	1.7	%	1.8	%

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Significant Accounting Policies - Goodwill (Details) (USD $) In Millions, unless otherwise specified		9 Months Ended
	Apr. 02, 2012 PhaseLink Acquisition [Member]	Sep. 30, 2014 Discera, Inc. [Member]	Sep. 09, 2013 Discera, Inc. [Member]
Goodwill [Line Items]
Goodwill, Gross	$ 6.1	$ 2.6	$ 2.5
Goodwill, Other Changes		$ 0.1

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Share Repurchase Program

9 Months Ended

Sep. 30, 2014

Share Repurchase Program [Abstract]

SHARE REPURCHASE PROGRAM

SHARE REPURCHASE PROGRAM

On August 20, 2014, the Company announced that its Board of Directors authorized the repurchase of $25.0 million of the Company’s common stock, which increased the total approval for repurchase since February 2010 to $145.0 million. Under our stock repurchase program, as of September 30, 2014, we have remaining authorization to repurchase $37.4 million of our common stock.

Shares of common stock purchased pursuant to the repurchase program are canceled from outstanding shares upon repurchase. Share repurchases are recorded as a reduction to common stock to the extent available. Any amounts repurchased which are in excess of the existing total common stock balance are recorded as a reduction of retained earnings. Share repurchases are intended to reduce the number of outstanding shares of common stock to increase shareholder value and offset dilution from the Company’s stock incentive plans and ESPP. During the nine months ended September 30, 2014, the Company repurchased 1.2 million shares of its common stock for an aggregate price of $13.4 million, which included $0.5 million of share repurchases pending cash settlement as of September 30, 2014.