January 10, 2008
CONFIDENTIAL
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Via Facsimile and U.S. Mail
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Mr. Jay Webb
Reviewing Accountant
Division of Corporation Finance
Mailstop 6010
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Micrel, Incorporated
Form 10-K for the Fiscal year ended December 31, 2006 and
Form 10-Q for the Fiscal Quarter Ended September 30, 2007
SEC File No. 000-25236
Dear Mr. Webb:
I am writing to you on behalf of Micrel, Incorporated ("Micrel" or
"Company"), in response to the letter from the Staff of the Division of
Corporation Finance (the "Staff"), dated November 30, 2007, relating to
the above-referenced filings. The comment from the Staff's letter is
repeated below, in turn, and is followed by the Company's response.
Form 10-Q for the Fiscal Quarter Ended September 30, 2007
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Note 12. Litigation and Other Contingencies, page 10
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1. We see that you have recorded a Deloitte & Touche LLP litigation
settlement during the period as part of non-operating other income
in your Condensed Consolidated Statements of Operations. We note
that the litigation related to certain professional advice received
from Deloitte and it is unclear why presentation of the income as
non-operating is appropriate. As such, please tell us in detail why
you believe the amount is properly classified as a non-operating
activity or alternatively, please reclassify this amount within
operating activities in future filings beginning with your next Form
10-K.
The Company advises the Staff that the $15.5 million payment
received from Deloitte & Touche LLP ("Deloitte") to dismiss the
pending litigation was classified as non-operating income based upon
the Company's review of available U.S. GAAP and SEC guidance and
management's judgment, which management believes supports its
classification. In reaching its conclusion, management considered,
among other things, the guidance contained in Rule 5-03 of
Regulation S-X, FASB Statement of Financial Accounting Concepts 6,
"Elements of Financial Statements and APB 30: Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequent Occurring Events
and Transactions."
As the Company has disclosed in its filings, "the Company filed a
complaint against Deloitte alleging various causes of action
relating to certain professional advice received by Micrel from
Deloitte. In this lawsuit, Micrel alleged that Deloitte negligently
rendered services as accountants to Micrel, breached certain
agreements with Micrel by failing to perform services using ordinary
skill and competence and in conformance with generally accepted
principles for such work and made certain false representations upon
which Micrel justifiably relied. Deloitte has denied all
allegations in the complaint. The complaint sought compensatory
damages, costs associated with the suit and such other relief that
the court may deem just and proper. On February 23, 2007, the
parties entered into a Settlement Agreement and Mutual Releases.
Under the terms of the Agreement, the parties agreed to dismiss with
prejudice the pending litigation and Deloitte paid to Micrel a
settlement amount of $15.5 million."
The Company recorded the $15.5 million settlement amount as other
non-operating income in its quarterly financial statements for the
quarter ended March 31, 2007. The Company concluded that the
classification of the settlement as other non-operating income was
appropriate as the settlement did not result from activities related
to the Company's business activities, major/central operations, or
from the sale/use of the Company's tangible or intangible assets
upon which the Company's operations are dependent.
In making its determination to classify the settlement as non-
operating income, management considered the following:
* The settlement payment did not represent income earned or expense
incurred from the Company's normal operations (i.e. earned in
exchange for products or services provided by the Company or from
the sale/use of the Company's tangible or intangible assets used
in its operations) nor did it represent the reimbursement of
operating expenses incurred. Accordingly, the recognition of the
settlement was appropriately classified as miscellaneous other
non-operating income pursuant to Rule 5-03 (b)(7)(d).
* The item in question is a gain and results from a litigation
settlement that is unusual in nature and not of a type an
investor would normally associate with the ongoing operations of
the Company (i.e. company suing its independent accountants).
While we acknowledge many litigation settlements are
appropriately classified as operating activities, in our case, we
believe classification of the gain as an operating item would not
be appropriate given the lack of any connection with our
operating activities or related assets. Further, inclusion of
the settlement income in operations may make the comparison of
the period over period operational performance more difficult and
potentially misleading to investors.
* The lump-sum settlement has been properly reported in the first
quarter of 2007, the period of the final settlement. The
settlement relates to events and activities that occurred from
1996 through 2001. The income from the settlement was
prominently displayed on the face of the income statement and
appropriately disclosed in the notes to the financial statements.
This is consistent with the guidance in APB 30: Reporting the
Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequent
Occurring Events and Transactions.
Based on the facts and circumstances of the settlement, management
believes that its original classification in non-operating income is
appropriate and consistent with U.S. GAAP, including Rule 5-03 of
Regulation S-X and Concept Statement 6 and APB 30 and that no
reclassification is required. In future filings we will expand our
disclosure related to this litigation settlement to state that the
settlement payment did not represent, either directly or indirectly,
income earned or expense incurred from the Company's normal
operations, nor did it represent the reimbursement of operating
expenses incurred.
Furthermore, the Company acknowledges the following:
* the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* Staff comments or changes to disclosure in response to Staff
comments in the filings reviewed by the Staff do not foreclose
the Commission from taking any action with respect to the filing;
and
* the Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Please address any additional comments to the undersigned via facsimile
at (408) 474-1077. If you have any questions regarding the foregoing,
please do not hesitate to contact me at (408) 474-3654.
Very truly yours,
/s/ Richard D. Crowley
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Richard D. Crowley
Chief Financial Officer
Micrel, Incorporated
cc: Kevin Kuhar
(Securities and Exchange Commission)
Vincent Tortolano
Mark Cummings
(Micrel, Incorporated)