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 June 30, 2014 and for the three and six months ended June 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.

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		Six Months Ended
	June 30,		June 30,
	2014	2013	2014	2013
Shares used in computing basic net income per share	56,537	58,303	56,463	58,287
Dilutive effect of stock options and restricted stock units	911	704	868	734
Shares used in computing diluted net income per share	57,448	59,007	57,331	59,021

For the three and six months ended June 30, 2014, 4.0 million and 4.3 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. For the three and six months ended June 30, 2013, 5.5 million and 5.4 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 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 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.