SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

No material changes have been made to the Company's significant accounting policies disclosed in Note 2, Summary of Significant Accounting Policies, in its Annual Report on Form 10-K, filed on February 13, 2014, for the year ended December 31, 2013. The accounting policy information below is to aid in the understanding of the financial information disclosed.

Cash and Cash Equivalents

The Company considers cash invested in highly liquid financial instruments with maturities of three months or less at the date of purchase to be cash equivalents.

Marketable Securities

The Company generally holds securities until maturity; however, they may be sold under certain circumstances including, but not limited to, when necessary for the funding of acquisitions and other strategic investments. As a result the Company classifies its investment portfolio as available-for-sale. The Company classifies all investments with an original maturity date greater than three months as short-term investments in its Condensed Consolidated Balance Sheet. As of June 30, 2014, and December 31, 2013, the Company's marketable securities consisted primarily of highly liquid corporate securities, commercial paper and other high-quality commercial securities.

Amortized cost and estimated fair market value of investments classified as available-for-sale at June 30, 2014, are as follows (in thousands):



	Amortized		Gross Unrealized					Estimated Fair
	Cost		Gains		Losses			Market Value
Investments due in less than 3 months:
Commercial paper	$	500	$	—	$	—		$	500
Total	$	500	$	—	$	—		$	500

Investments due in 4-12 months:
Corporate securities	$	40,509	$	99	$	—		$	40,608
Total	$	40,509	$	99	$	—		$	40,608
Investments due between 12 months and 5-years:
Corporate securities	$	92,396	$	351	$	(1	)	$	92,746
Total	$	92,396	$	351	$	(1	)	$	92,746
Total investment securities	$	133,405	$	450	$	(1	)	$	133,854

Amortized cost and estimated fair market value of investments classified as available-for-sale at December 31, 2013, are as follows (in thousands):



	Amortized		Gross Unrealized					Estimated Fair
	Cost		Gains		Losses			Market Value
Investments due in less than 3 months:
Commercial paper	$	3,098	$	1	$	—		$	3,099
Total	$	3,098	$	1	$	—		$	3,099

Investments due in 4-12 months:
Corporate securities	$	6,007	$	33	$	—		$	6,040
Total	$	6,007	$	33	$	—		$	6,040

Investments due between 12 months and 5-years:
Corporate securities	$	102,963	$	202	$	(26	)	$	103,139
Total	$	102,963	$	202	$	(26	)	$	103,139
Total investment securities	$	112,068	$	236	$	(26	)	$	112,278

As of June 30, 2014 and December 31, 2013, the Company evaluated the nature of the investments with a loss position which were primarily high-quality corporate securities, and determined the unrealized losses were not other-than-temporary.

Revenue Recognition

Product revenues consist of sales to original equipment manufacturers (“OEMs”), merchant power supply manufacturers and distributors. Approximately 77% of the Company's net product sales were made to distributors in the six months ended June 30, 2014, and 75% in the twelve months ended December 31, 2013. The Company applies the provisions of Accounting Standard Codification (“ASC”) 605-10 (“ASC 605-10”) and all related appropriate guidance. Revenue is recognized when all of the following criteria have been met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the price is fixed or determinable, and (4) collectability is reasonably assured. Customer purchase orders are generally used to determine the existence of an arrangement. Delivery is considered to have occurred when title and risk of loss have transferred to the Company's customer. The Company evaluates whether the price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. With respect to collectability, the Company performs credit checks for new customers and performs ongoing evaluations of its existing customers' financial condition and requires letters of credit whenever deemed necessary.

Sales to international OEM customers and merchant power supply manufacturers that are shipped from the Company's facility in California are pursuant to “delivered at frontier” (“DAF”) shipping terms. As such, title to the product passes to the customer when the shipment reaches the destination country and revenue is recognized upon the arrival of the product in that country. Sales to international OEMs and merchant power supply manufacturers for shipments from the Company's facility outside of the United States are pursuant to “EX Works” ("EXW") shipping terms, meaning that title to the product transfers to the customer upon shipment from the Company's foreign warehouse. Shipments to OEMs and merchant power supply manufacturers in the Americas are pursuant to “free on board” (“FOB”) point of origin shipping terms meaning that title is passed to the customer upon shipment. Revenue is recognized upon title transfer for sales to OEMs and merchant power supply manufacturers, assuming all other criteria for revenue recognition are met.

Sales to most of the Company's distributors are made under terms allowing certain price adjustments and rights of return on the Company's products held by its distributors. As a result of these rights, the Company defers the recognition of revenue and the costs of revenues derived from sales to distributors until the Company's distributors report that they have sold the Company's products to their customers. The Company's recognition of such distributor revenue is based on point of sale reports received from the distributors, at which time the price is no longer subject to adjustment and is fixed, and the products are no longer subject to return to the Company except pursuant to warranty terms. The gross profit that is deferred as a result of this policy is reflected as “deferred income on sales to distributors” in the accompanying condensed consolidated balance sheets. The total deferred revenue as of June 30, 2014, and December 31, 2013, was approximately $31.6 million and $25.5 million, respectively. The total deferred cost as of June 30, 2014, and December 31, 2013, was approximately $12.5 million and $9.8 million, respectively.

Frequently, distributors need to sell at a price lower than the standard distribution price in order to win business. At or soon after the distributor invoices its customer, the distributor submits a “ship and debit” price adjustment claim to the Company to adjust the distributor's cost from the standard price to the pre-approved lower price. After verification by the Company, a credit memo is issued to the distributor for the ship and debit claim. The Company maintains a reserve for unprocessed claims and future ship and debit price adjustments. The reserve appears as a reduction to accounts receivable in the Company's accompanying consolidated balance sheets. To the extent future ship and debit claims significantly exceed amounts estimated, there could be a material impact on the deferred revenue and deferred margin ultimately recognized. To evaluate the adequacy of its reserves, the Company analyzes historical ship and debit payments and levels of inventory in the distributor channels.

Sales to certain distributors of the Company are made under terms that do not include rights of return or price concessions after the product is shipped to the distributor. Accordingly, product revenue is recognized upon shipment and title transfer assuming all other revenue recognition criteria are met.

Common Stock Repurchases and Cash Dividend

In October 2012, the Company's board of directors authorized the use of $50.0 million for the repurchase of the Company's common stock, with repurchases to be executed according to pre-defined price/volume guidelines set by the board of directors. In May 2014 the Company's board of directors authorized the use of an additional $50.0 million for this purpose. In the three months ended June 30, 2014, the Company purchased 0.5 million shares for $25.7 million. As of June 30, 2014, the Company had $53.8 million available for future stock repurchases. The Company did not purchase shares in the three-month period ended March 31, 2014, and in the year ended December 31, 2013, as the price of the Company’s stock exceeded the maximum price set forth in the guidelines mentioned above. Authorization of future repurchase programs is at the discretion of the board of directors and will depend on the Company's financial condition, results of operations, capital requirements, business conditions and other factors.

In January 2013, the Company's board of directors declared quarterly cash dividend payments in the amount of $0.08 per share to be paid to stockholders of record at the end of each quarter in 2013. Dividend payouts totaling approximately $2.3 million each were paid on March 29, 2013 and June 28, 2013, and approximately $2.4 million was paid on each of September 30, 2013 and December 31, 2013.

In October 2013, the Company's board of directors declared four quarterly cash dividends in the amount of $0.10 per share to be paid to stockholders of record at the end of each quarter in 2014. Dividend payouts totaling approximately $3.0 million each were paid on March 31, 2014 and June 30, 2014. In April 2014, the Company's board of directors increased the quarterly dividends for the third and fourth quarters of 2014 to $0.12 per share. The declaration of any future cash dividend is at the discretion of the board of directors and will depend on the Company's financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that cash dividends are in the best interests of the Company's stockholders.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, income tax, stock-based compensation and inventories. These estimates are based on historical facts and various other assumptions that the Company believes to be reasonable at the time the estimates are made.

Components of the Company's Condensed Consolidated Balance Sheet

Accounts Receivable (in thousands):



	June 30, 2014			December 31, 2013
Accounts receivable trade	$	51,407		$	42,410
Accrued ship and debit and rebate claims	(34,859		)	(29,901		)
Allowance for doubtful accounts	(105		)	(120		)
Total	$	16,443		$	12,389

Prepaid Expenses and Other Current Assets (in thousands):



	June 30, 2014		December 31, 2013
Prepaid legal fees	$	3,780	$	6,267
Prepaid income tax	3,746		7,521
Prepaid maintenance agreements	608		947
Interest receivable	694		519
Supplier prepayment	1,083		757
Other	3,679		2,621
Total	$	13,590	$	18,632

Changes in accumulated other comprehensive income (loss) for the three months ended June 30, 2014 and 2013 (in thousands):



	Unrealized Gains and Losses on Available-for-Sale Securities					Defined Benefit Pension Items										Foreign Currency Items					Total
	Three Months Ended					Three Months Ended										Three Months Ended					Three Months Ended
	June 30,					June 30,										June 30,					June 30,
	2014		2013			2014					2013					2014		2013			2014			2013
Beginning balance at April 1,	$	357	$	84		$	(766	)			$	(546	)			$	94	$	(22	)	$	(315	)	$	(484	)
Other comprehensive income (loss) before reclassifications	92		(204		)	—					—					17		(13		)	109			(217		)
Amounts reclassified from accumulated other comprehensive income (loss)	—		—			16			(1	)	14			(1	)	—		—			16			14
Net-current period other comprehensive income (loss)	92		(204		)	16					14					17		(13		)	125			(203		)
Ending balance at June 30,	$	449	$	(120	)	$	(750	)			$	(532	)			$	111	$	(35	)	$	(190	)	$	(687	)

____________________________

(1) This component of accumulated other comprehensive income is included in the computation of net periodic pension cost for the three months ended June 30, 2014 and 2013.

Changes in accumulated other comprehensive income (loss) for the six months ended June 30, 2014 and 2013 (in thousands):



	Unrealized Gains and Losses on Available-for-Sale Securities					Defined Benefit Pension Items								Foreign Currency Items					Total
	Six Months Ended					Six Months Ended								Six Months Ended					Six Months Ended
	June 30,					June 30,								June 30,					June 30,
	2014		2013			2014				2013				2014		2013			2014			2013
Beginning balance at December 31,	$	210	$	138		$	(780	)		$	(560	)		$	100	$	129		$	(470	)	$	(293	)
Other comprehensive income (loss) before reclassifications	239		(258		)	—				—				11		(164		)	250			(422		)
Amounts reclassified from accumulated other comprehensive income (loss)	—		—			30			(1)	28			(1)	—		—			30			28
Net-current period other comprehensive income (loss)	239		(258		)	30				28				11		(164		)	280			(394		)
Ending balance at June 30,	$	449	$	(120	)	$	(750	)		$	(532	)		$	111	$	(35	)	$	(190	)	$	(687	)

____________________________

(1) This component of accumulated other comprehensive income is included in the computation of net periodic pension cost for the six months ended June 30, 2014 and 2013.