Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies/Litigation [Abstract]

COMMITMENTS AND CONTINGENCIES

9. COMMITMENTS AND CONTINGENCIES

Lease Agreements

The Company leases some of its facilities and equipment under operating lease agreements that expire in the years 2012 through 2016. Rent expense is recognized on a straight-line basis over the term of the lease.

Future minimum payments under these agreements are as follows (in thousands):

Year Ending December 31,
2012	$	948
2013		619
2014		328
2015		96
2016		25
Total	$	2,016

Rent expense under operating leases for the years ended December 31, 2011, 2010, and 2009 was $1.2 million, $1.1 million and $1.7 million, respectively.

Open Purchase Orders

As of December 31, 2011, the Company had approximately $12 million in open purchase orders. 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. These obligations primarily relate to future purchases of wafer fabrication raw materials, foundry wafers, assembly and testing services and manufacturing equipment. The amounts are based on the Company’s contractual commitments.

Letters of Credit

Micrel’s borrowing arrangements include a provision for the issuance of commercial or standby letters of credit by the bank on behalf of the Company. At December 31, 2011, there was $325,000 in letters of credit outstanding. The letters of credit are issued to guarantee payments for the Company’s workers compensation program.

Indemnification Obligations

Micrel is a party to a variety of contractual relationships pursuant under which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by Micrel, or regular sales and purchasing activities, under which Micrel may agree to hold the other party harmless against losses arising from claims related to such matters as title to assets sold, certain intellectual property rights, specified environmental matters, certain income taxes, etc. In these circumstances, indemnification by Micrel is customarily conditioned on the other party making a claim pursuant to the procedures specified in the particular contract or in Micrel’s standard terms and conditions, which procedures may allow Micrel to challenge the other party’s claims, or afford Micrel the right to settle such claims in its sole discretion. Further, Micrel’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, Micrel may have recourse against third parties for certain payments made by it under these agreements.

It is not possible to predict the maximum potential amount of future payments or indemnification costs under these or similar agreements due to the conditional nature of Micrel’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by Micrel under these agreements have not had a material effect on its business, financial condition, cash flows, or results of operations. Micrel believes that if it were to incur a loss in any of these matters, such loss would not have a material effect on its business, financial condition, cash flows or results of operations.