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Article by DailyStocks_admin    (12-05-08 06:04 AM)

The Daily Magic Formula Stock for 12/05/2008 is Linear Technology Corp. According to the Magic Formula Investing Web Site, the ebit yield is 11% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

Except for historical information contained in this Form 10-K, certain statements set forth herein, including statements regarding future revenues and profits; future conditions in the Company’s markets; availability of resources and manufacturing capacity; resolution of certain tax matters; and the anticipated impact of current and future lawsuits and investigations are forward-looking statements that are dependent on certain risks and uncertainties including such factors, among others, as the timing, volume and pricing of new orders for the Company’s products, timely ramp-up of new facilities, the timely introduction of new processes and products, general conditions in the world economy and financial markets and other factors described below. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and variations of such words and similar expressions are intended to identify such forward-looking statements. See “Risks and Competition” in the “Business” section of this Annual Report on Form 10-K for a more thorough list of potential risks and uncertainties.

General

Linear Technology Corporation (together with its consolidated subsidiaries, “Linear Technology” or the “Company”) designs, manufactures and markets a broad line of standard high performance linear integrated circuits. The Company’s products include high performance amplifiers, comparators, voltage references, monolithic filters, linear regulators, DC-DC converters, battery chargers, data converters, communications interface circuits, RF signal conditioning circuits, uModule TM products, and many other analog functions. Applications for Linear Technology’s high performance circuits include telecommunications, cellular telephones, networking products such as optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products such as digital cameras and MP3 players, complex medical devices, automotive electronics, factory automation, process control, and military and space systems. The Company is a Delaware corporation; it was organized and incorporated in California in 1981. The Company competes primarily on the basis of performance, functional value, quality, reliability and service.

Available Information

The Company makes available free of charge through its website, www.linear.com , its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those reports as soon as reasonably practicable after such materials are electronically filed with the Securities and Exchange Commission (“SEC”). These reports may also be requested by contacting Paul Coghlan, Vice President of Finance and Chief Financial Officer, 1630 McCarthy Blvd., Milpitas, CA 95035. The Company’s Internet website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K. In addition, the public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549 or may obtain information by calling the SEC at 1-800-SEC-0330. Moreover, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding reports that the Company files electronically with them at http://www.sec.gov .

The Linear Circuit Industry

Semiconductor components are the electronic building blocks used in electronic systems and equipment. These components are classified as either discrete devices (such as individual transistors) or integrated circuits (in which a number of transistors and other elements are combined to form a more complicated electronic circuit). Integrated circuits ("ICs") may be divided into two general categories, digital and linear (or analog). Digital circuits, such as memory devices and microprocessors, generally process on-off electrical signals, represented by binary digits, “1” and “0.” In contrast, linear integrated circuits monitor, condition, amplify or transform continuous analog signals associated with physical properties, such as temperature, pressure, weight, light, sound or speed, and play an important role in bridging between real world phenomena and a variety of electronic systems. Linear integrated circuits also provide voltage regulation and power control to electronic systems, especially in hand-held battery powered systems where battery management and high power efficiency are needed.

The Company believes that several factors generally distinguish the linear integrated circuit business from the digital integrated circuit business, including:

Importance of Individual Design Contribution . The Company believes that the creativity of individual design engineers is of particular importance in the linear integrated circuit industry. The design of a linear integrated circuit generally involves greater variety and less repetition of integrated circuit elements than digital design. In addition, the interaction of linear integrated circuit elements is complex, and the exact placement of these elements in the integrated circuit is critical to the circuit's precision and performance. Computer-aided engineering and design tools for linear integrated circuits are not as accurate in modeling circuits as those tools used for designing digital circuits. As a result, the contributions of a relatively small number of individual design engineers are generally of greater importance in the design of linear integrated circuits than in the design of digital circuits.

Smaller Capital Requirements . Digital circuit design attempts to minimize device size and maximize speed by increasing circuit densities. The process technology necessary for increased density requires very expensive wafer fabrication equipment. In contrast, linear integrated circuit design focuses on precise matching and placement of integrated circuit elements, and linear integrated circuits often require large feature sizes to achieve precision and high voltage operation. Accordingly, the linear integrated circuit manufacturing process generally requires smaller initial capital expenditures, particularly for photomasking equipment and clean room facilities, and less frequent replacement of manufacturing equipment because the equipment has, to date, been less vulnerable to technological obsolescence.

Market Diversity; Relative Pricing Stability . Because of the varied applications for linear integrated circuits, manufacturers typically offer a greater variety of device types to a more diverse group of customers, who typically have smaller volume requirements per device. As a result, linear integrated circuit manufacturers are often less dependent upon particular products or customers; linear integrated circuit markets are generally more fragmented; and competition within those markets tends to be more diffused.

The Company believes that competition in the integrated linear market is particularly dependent upon performance, functional value, quality, reliability and service. As a result, linear integrated circuit pricing has generally been more stable than most digital circuit pricing.

Products and Markets

Linear Technology produces a wide range of products for a variety of customers and markets. The Company emphasizes standard products and multi-customer application specific products to address larger markets and to reduce the risk of dependency upon a single customer's requirements. The Company targets the high performance segment of the analog integrated circuit market. "High performance" may be characterized by higher precision, higher efficiency, lower noise, higher speed, more subsystem integration on a single chip and many other special features. The Company focuses virtually all of its design efforts on proprietary products, which at the time of introduction are original designs by the Company offering unique characteristics differentiating them from those offered by competitors.

Although the types and mix of linear products vary by application, the principal product categories are as follows:

Amplifiers - These circuits amplify the output voltage or current of a device. The amplification represents the ratio of the output voltage or current to the input voltage or current. The most widely used device is the operational amplifier due to its versatility and precision.

High Speed Amplifiers - These amplifiers are used to amplify signals from 5 megahertz to several hundred megahertz for applications such as video, fast data acquisition and communications.

Voltage Regulators - Voltage regulators deliver a tightly controlled voltage to power electronic systems. This category of product consists primarily of two types, the linear regulator and the switch-mode regulator. Switch-mode regulators are also used to convert voltage up or down within an electronic system for power management and battery charging.

Voltage References - These circuits serve as electronic benchmarks providing a constant voltage for measurement systems usage. Precision references have a constant output independent of input, temperature changes or time.

Interface - Interface circuits act as an intermediary to transfer digital signals between or within electronic systems. These circuits are used in computers, modems, instruments and remote data acquisition systems.

Data Converters - These circuits change linear (analog) signals into digital signals, or visa versa, and are often referred to as data acquisition subsystems, A/D converters and D/A converters. The accuracy and speed with which the analog signal is converted to its digital counterpart (and visa versa) is considered a key characteristic for these devices. Low speed data converters may have resolution up to 24 bits, while high speed converters may operate in the region of 100’s of megahertz sample rate.

Radio Frequency Circuits - These circuits include mixers, modulators, demodulators, amplifiers, drivers, and power detectors and controllers. They are used in wireless and cable infrastructure, cellphones, and wireless data communications infrastructure.

DC/DC µModule Power Systems - A DC/DC µModule simplifies the design of a complex DC/DC regulator circuit by integrating a complete circuit into a protective and encapsulated package that is tiny, thin and light-weight. These devices are so small that they resemble a surface-mount IC. The customer design requires limited knowledge of analog and DC/DC regulator circuits and allows a quick time-to-market power supply solution for digital systems using FPGAs, ASICs, DSPs, or microcontrollers.

Signal Chain Modules- Complete signal chain functions utilizing data converters, filter, amplifiers, RF circuits, and related passive components are encapsulated as SiP (System in a Package) modules. Signal Chain modules simplify the design and eliminate board layout problems and individual component selection for high performance systems, while requiring only normal IC handling and board manufacturing processes.

Other - Other linear circuits include buffers, battery monitors, motor controllers, hot swap circuits, comparators, sample-and-hold devices, drivers and filters (both switched capacitor and continuous time) which are used to limit and/or manipulate signals in such applications as cellular telephones, base stations, navigation systems and industrial applications.

Linear circuits are used in various applications including telecommunications, cellular telephones, networking products such as power over Ethernet switches, notebook computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products such as digital cameras and MP3 players, global positioning systems, complex medical devices, automotive electronics, factory automation, process control, and military and space systems. The Company focuses its product development and marketing efforts on high performance applications where the Company believes it can position itself competitively with respect to product performance and functional value.

Marketing and Customers

The Company markets its products worldwide primarily through a direct sales staff and through electronics distributors to a broad range of customers in diverse industries. The Company sells to over 15,000 Original Equipment Manufacturer (“OEM”) customers directly and/or through the sales distributor channel. Distributor and direct customers generally buy on an individual purchase order basis, rather than pursuant to long-term agreements. The Company’s primary domestic distributor, Arrow Electronics, accounted for 12% of revenues during fiscal year 2008 and 13% of accounts receivable as of fiscal year 2008 year-end; 14% of revenues during fiscal year 2007 and 16% of accounts receivable as of fiscal year 2007 year-end; and 14% of revenues during fiscal year 2006 and 15% of accounts receivable as of fiscal year 2006 year-end. Distributors are not end customers, but rather serve as a channel of sale to many end users of the Company's products. No other distributor or customer accounted for 10% or more of revenues for fiscal years 2008, 2007 or 2006. No other distributor or customer accounted for 10% or more of accounts receivable as of fiscal years 2008, 2007 and 2006 year-ends.

The Company’s products typically require a sophisticated technical sales effort. The Company's sales organization is divided into domestic and international regions. The Company’s sales offices located in the United States are in the following metropolitan areas: Cedar Rapids, Chicago, Cleveland, Columbus, Detroit, Indianapolis, Kansas City, Milwaukee, Minneapolis, St. Louis, Baltimore, Boston, Hartford, Philadelphia, Richmond, Sacramento, San Jose, Denver, Portland, Salt Lake City, Seattle, Atlanta, Austin, Dallas, Houston, Huntsville, Orlando, Raleigh, Tampa, Irvine, Los Angeles, Phoenix and San Diego. Internationally, the Company has sales offices in: Ascheberg, Helsinki, London, Lyon, Milan, Munich, Paris, Stockholm, Stuttgart, Sydney, Beijing, Hong Kong, Nagoya, Osaka, Seoul, Shanghai, Shenzhen, Singapore, Taipei, Tokyo, Montreal, Ottawa, Toronto, Calgary and Vancouver.

The Company has agreements with one independent sales representative in the United States and one in South America. Commissions are paid to sales representatives upon shipments either directly from the Company or through distributors. The Company has agreements with three independent distributors in North America, six in Europe, three in China, seven in Japan, three in Taiwan, two in India, and one each in Korea, Singapore, Malaysia, Thailand, South Africa, Philippines, Israel, Brazil, Australia, and New Zealand.

The Company’s agreements with domestic distributors allow for price protection on certain distribution inventory if the Company lowers the prices of its products. The domestic distributor agreements also generally permit distributors to exchange up to 3% of certain purchases on a quarterly basis. The Company’s sales to international distributors are made under agreements which permit limited stock return privileges but not sales price rebates. The agreements generally permit distributors to exchange up to 5% of eligible purchases on a semi-annual basis. See Critical Accounting Policies and Note 1 of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K, which contains information regarding the Company’s revenue recognition policy.

During fiscal years 2008, 2007 and 2006, export sales were to Europe, Japan and Rest of the World (“ROW”), which is primarily Asia excluding Japan, and represented approximately 70%, 68% and 70% of revenues, respectively. Because the Company's export sales are billed and payable in United States dollars, export sales are generally not directly subject to fluctuating currency exchange rates. Although export sales are subject to certain control restrictions, including approval by the Office of Export Administration of the United States Department of Commerce, the Company has not experienced any material difficulties relating to such restrictions. During fiscal years 2008, 2007 and 2006, domestic revenues were $346.8 million or 30% of revenues, $345.0 million or 32% of revenues, and $332.6 million or 30% of revenues, respectively.

The Company’s backlog of released and firm orders was approximately $122.5 million at June 29, 2008 as compared with $112.2 million at July 1, 2007. In addition to its backlog, the Company had $35.2 million of products sold to and held by domestic distributors at June 29, 2008 as compared to $36.2 million at July 1, 2007. Generally, shipments to domestic distributors are not recognized as revenues until the distributor has sold the products to its customers. The Company defines backlog as consisting of distributor stocking orders and OEM orders for which a delivery schedule has been specified by the OEM customer for product shipment within six months. Although the Company receives volume purchase orders, most of these purchase orders are cancelable, generally outside of thirty days of delivery, by the customer without significant penalty. Lead-time for the release of purchase orders depends upon the scheduling practices of the individual customer and the availability of individual products, so the rate of booking new orders varies from month to month. The ordering practices of many semiconductor customers has shifted from a practice of placing orders with delivery dates extending over several months to the practice of placing orders with shorter delivery dates in concert with the Company’s lead times. Also, the Company’s agreements with certain distributors provide for price protection. Consequently, the Company does not believe that its backlog at any time is necessarily representative of actual sales for any succeeding period.

In the operating history of the Company, seasonality of business has not been a material factor, although the results of operations for the first fiscal quarter of each year are impacted slightly by customary summer holidays, particularly in Europe.

The Company warrants that its products, until they are incorporated in other products, are free from defects in workmanship and materials and conform to the Company's published specifications. Warranty expense has been nominal to date. Refer to Note 1 of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K, which contains information regarding the Company’s warranty policy.

The Company’s wafer fabrication facilities are located in Camas, Washington (“Camas”) and Milpitas, California (“Hillview”). Each facility was built to Company specifications to support a number of sophisticated process technologies and to satisfy rigorous quality assurance and reliability requirements of United States military specifications and major worldwide OEM customers. In addition to wafer fabrication facilities, the Company has an assembly facility located in Malaysia and a test and distribution facility located in Singapore. All of the Company’s wafer fabrication, assembly, and test facilities have received ISO 9001, TS 16949 and ISO 14001 certifications.

The Company’s wafer fabrication facilities located in Camas and Hillview produce six-inch diameter wafers for use in the production of the Company’s devices. The Company currently uses similar manufacturing processes in both its Camas and Hillview facilities.

The Company’s basic process technologies include high-speed bipolar, high gain low noise bipolar, radio frequency bipolar, silicon gate complementary metal-oxide semiconductor (“CMOS”) and BiCMOS. The Company also has two proprietary complementary bipolar processes. The Company’s bipolar processes are typically used in linear integrated circuits where high voltages, high power, high frequency, low noise or effective component matching is necessary. The Company’s proprietary silicon gate CMOS processes provide switch characteristics required for many linear integrated circuit functions, as well as an efficient mechanism for combining linear and digital circuits on the same chip. The Company’s CMOS processes were developed to address the specific requirements of linear integrated circuit functions. The complementary bipolar processes were developed to address higher speed analog functions. The Company’s basic processes can be combined with a number of adjunct processes to create a diversity of IC components. A minor portion of the Company’s wafer manufacturing, particularly very small feature size CMOS products, is done at two independent foundries.

The Company emphasizes quality and reliability from initial product design through manufacturing, packaging and testing. The Company’s design team focuses on fault tolerant design and optimum location of integrated circuit elements to enhance reliability. Linear Technology’s wafer fabrication facilities have been designed to minimize wafer handling and the impact of operator error through the use of microprocessor-controlled equipment. The Company has received Defense Supply Center, Columbus (DSCC,) Jan Class S Microcircuit Certification, which enables the Company to manufacture products intended for use in space or for critical applications where replacement is extremely difficult or impossible and where reliability is imperative. The Company has also received MIL-PRF-38535 Qualified Manufacturers Listing (QML) certification for military products from DSCC.

Processed wafers are sent to either the Company’s assembly facility in Penang, Malaysia or to offshore independent assembly contractors where the wafers are separated into individual circuits and packaged. The Penang facility opened in fiscal year 1995 and serviced approximately 80% to 85% of the Company’s assembly requirements for plastic packages during fiscal year 2008. The Company’s primary subcontractors are UTAC, located in Thailand; and Carsem Sdn, located in Malaysia. The Company also maintains domestic assembly operations to satisfy particular customer requirements, especially those for military applications, and to provide rapid turnaround for new product development.

After assembly, most products are sent to the Company's Singapore facility for final testing, inspection and packaging as required. The Singapore facility opened in fiscal year 1990. Some products are returned to Milpitas for the same back-end processing. The Company’s Singapore facility serves as a major warehouse and distribution center with the bulk of the Company’s shipments to end customers originating from this facility.

Manufacturing of individual products, from wafer fabrication through final testing, may take from eight to sixteen weeks. Since the Company sells a wide variety of device types, and customers typically expect delivery of products within a short period of time following order, the Company maintains a substantial work-in-process and finished goods inventory.

Based on its anticipated production requirements, the Company believes it will have sufficient available resources and manufacturing capacity for fiscal year 2009.

Patents, Licenses and Trademarks

The Company has been awarded 439 United States and international patents and has considerable pending and published patent applications outstanding. Although the Company believes that these patents and patent applications may have value, the Company's future success will depend primarily upon the technical abilities and creative skills of its personnel, rather than on its patents.

The Company relies on patents, trademarks, international treaties and organizations, and foreign laws to protect and enforce its intellectual property. The Company continually assesses whether to seek formal protection for particular innovations and technologies, such litigation is likely to be expensive and time consuming to resolve. In addition, such litigation can result in the diversion of management’s time and attention away from business operations. As is common in the semiconductor industry, the Company has at times been notified of claims that it may be infringing patents issued to others. If it appears necessary or desirable, the Company may seek licenses under such patents, although there can be no assurance that all necessary licenses can be obtained by the Company on acceptable terms. In addition, from time to time the Company may negotiate with other companies to license patents, products or process technology for use in its business.

Research and Development

The Company’s ability to compete depends in part upon its continued introduction of technologically innovative products on a timely basis. To facilitate this need, the Company has organized its product development efforts into four groups: two power product groups (D power and S power); mixed signal products; and signal conditioning products including high frequency products. Linear Technology’s product development strategy emphasizes a broad line of standard products to address a diversity of customer applications. The Company’s research and development (“R&D”) efforts are directed primarily at designing and introducing new products and to a lesser extent developing new processes and advanced packaging.

As of June 29, 2008, the Company had 1,106 employees involved in research, development and engineering related functions, as compared to 1,022 employees at the end of fiscal year 2007. The Company is committed to investing in the technology development of analog circuits as shown by its year-over-year increases in R&D spending and design engineering headcount. In recent years, the Company has opened remote design centers throughout the United States, Singapore, Malaysia and Germany as part of the Company’s strategy of obtaining and retaining analog engineering design talent. For fiscal years 2008, 2007, and 2006, the Company spent approximately $197.1 million, $183.6 million and $160.8 million, respectively, on R&D. The increase in R&D expenses in fiscal year 2008 over fiscal year 2007 was primarily due to increases in profit sharing and labor expense due to increased headcount.

Government Contracts

The Company currently has no material U.S. Government contracts.

Employees

As of June 29, 2008, the Company had 4,173 employees, including 454 in marketing and sales, 1,106 in research, development and engineering related functions, 2,508 in manufacturing and production, and 105 in management, administration and finance. The Company has never had a work stoppage, no employees are represented by a labor organization, and the Company considers its employee relations to be good.

CEO BACKGROUND

Mr. Swanson, a founder of the Company, has served as Executive Chairman of the Board of Directors since January 2005. Prior to that time he served as Chairman of the Board of Directors and Chief Executive Officer since April 1999, and prior to that time as President, Chief Executive Officer and a director of the Company since its incorporation in September 1981. From August 1968 to July 1981, he was employed in various positions at National Semiconductor Corporation, a manufacturer of integrated circuits, including Vice President and General Manager of the Linear Integrated Circuit Operation and Managing Director in Europe. Mr. Swanson has a B.S. degree in Industrial Engineering from Northeastern University.

Mr. Maier was named Chief Executive Officer of the Company in January 2005. Prior to that, Mr. Maier served as the Company’s Chief Operating Officer from April 1999 to January 2005. Before joining the Company, Mr. Maier held various management positions at Cypress Semiconductor Corp. from July 1983 to March 1999, most recently as Senior Vice President and Executive Vice President of Worldwide Operations. He holds a B.S. degree in Chemical Engineering from the University of California at Berkeley.

Mr. Lee is Chairman of the Board and Chief Executive Officer of eOn Communication Corp., Chairman of the Boards of Cortelco, Inc., Spark Technology Corp., and Symbio, and a Regent Emeritus of the University of California. He also serves as a Senior Advisor to Silver Lake, a private equity firm. Mr. Lee originally co-founded Qume Corporation in 1973 and served as Executive Vice President until it was acquired by ITT Corporation in 1978. After the acquisition, Mr. Lee held the positions of Executive Vice President of ITT Qume until 1981, and President through 1983. From 1983 to 1985, he served as a Vice President of ITT and as Group Executive and Chairman of its Business Information Systems Group. In 1985, he became President and Chairman of Data Technology Corp. (“DTC”), and in 1988, DTC acquired and merged with Qume. Mr. Lee served as a member of the President’s Council on the 21 st Century Workforce, appointed by President George Bush. Mr. Lee also served as an advisor to Presidents George Bush and Bill Clinton on the Advisory Committee on Trade Policy and Negotiation (Office of the U.S. Trade Representative/ Executive Officer of the President) and to Governor Pete Wilson on the California Economic Development Corporation (CalEDC) and the Council on California Competitiveness. Mr. Lee is a past Commissioner of the California Postsecondary Education Commission, as well as having founded and served as Chairman of the Chinese Institute of Engineers, the Asian American Manufacturers’ Association and the Monte Jade Science and Technology Association.

Mr. Moley served as Chairman, President and Chief Executive Officer of StrataCom, Inc., a network systems company, from June 1986 until its acquisition by Cisco Systems, Inc., a provider of computer internetworking solutions, in July 1996. Mr. Moley served as Senior Vice President and board member of Cisco Systems until November 1997, when he became a consultant and private investor. Mr. Moley served in various executive positions at ROLM Corporation, a telecommunications company, from 1973 to 1986. Prior to joining ROLM, he held management positions in software development and marketing at Hewlett-Packard Company. Mr. Moley serves as a director of Echelon Corporation and Calient Networks. Mr. Moley is on the Board of Trustees of Santa Clara University.

Mr. Volpe has served as Chief Executive Officer of Dubai Group LLC since February 2007 and as Managing Member of Volpe Investments LLC, a risk capital firm, since July 2001. From December 1999 to June 2001, Mr. Volpe served as Chairman of Prudential Volpe Technology Group. Mr. Volpe served as Chief Executive Officer of Volpe Brown Whelan & Company, LLC (formerly Volpe, Welty & Company), a private investment banking and risk capital firm, from its founding in April 1986 until its acquisition by Prudential Securities in December 1999. Until April 1986, he was President and Chief Executive Officer of Hambrecht & Quist Incorporated, an investment banking firm with which he had been affiliated since 1981. Mr. Volpe is a member of the board of directors of 7 th Inning Stretch, LLC, EFG-Hermes Holding Company, TAIB Bank B.S.C, Kline Hawkes & Co., LLC, Minor League Baseball and the Dubai Group.

Board Meetings and Committees

The Board of Directors of the Company held a total of five meetings during the fiscal year ended June 29, 2008. No director attended fewer than 75% of the meetings of the Board of Directors and the Board committees upon which such director served. All directors attended the last Annual Meeting of Stockholders.

Audit Committee

The Audit Committee currently consists of directors Volpe (Chairman), Lee and Moley, and held a total of five meetings during the last fiscal year and acted one-time by Unanimous Written Consent (“UWC”). The Audit Committee is governed by a written charter, which can be found on the Company’s website at www.linear.com . The Audit Committee appoints, compensates and oversees the Company’s independent registered public accounting firm. The Audit Committee also approves the accounting fees paid to the independent accounting firm and pre-approves all audit and non-audit services to be provided by them. In addition, the Audit Committee also monitors the independence of the independent accounting firm.

The Audit Committee meets independently with the independent accounting firm and with senior management to review the general scope of the Company’s accounting activities, financial reporting and annual audit, matters relating to internal control systems, and the results of the annual audit.

The Audit Committee also reviews and approves any proposed transactions between the Company and officers and directors or their affiliates.

The Board of Directors has determined that Mr. Volpe is an “Audit Committee Financial Expert,” as that phrase is defined in the rules of the SEC adopted pursuant to the Sarbanes-Oxley Act of 2002, and that each member of the Audit Committee qualifies as financially sophisticated under applicable Nasdaq listing standards.

Compensation Committee

The Compensation Committee of the Board of Directors currently consists of directors Moley (Chairman), Lee and Volpe, and held a total of four meetings during the last fiscal year and acted one-time by UWC. The committee reviews and approves the Company’s executive compensation policies, the salaries and bonus plans and payments for the Company’s executive officers, and administers the Company’s equity incentive plans. The Compensation Committee is governed by a written charter, which can be found on the Company’s website at www.linear.com .

Nominating Committee

The Nominating Committee currently consists of directors Lee (Chairman), Moley and Volpe, and held one meeting during the last fiscal year and acted one-time by UWC. The Nominating Committee is responsible for proposing nominees for election as directors by the Company’s stockholders at the Annual Meeting. The committee reviews the size and composition of the Board and determines the criteria for membership. The committee also reviews and considers nominees for election to the Board, including any nominee submitted by the stockholders. In addition, the committee reviews the composition of the Board committees and recommends persons to serve as committee members. The Nominating Committee is governed by a written charter, which can be found on the Company’s website at www.linear.com .

Corporate Governance Matters

Policy for Director Recommendations and Nominations

The Nominating Committee considers candidates for Board membership proposed by the Board of Directors, management and the Company’s stockholders. It is the policy of the Nominating Committee to consider recommendations for candidates to the Board from stockholders holding at least 5% of the total outstanding shares of the Company. Stockholders must have held these shares continuously for at least twelve months prior to the date of the submission of the recommendation. The Nominating Committee will consider a nominee recommended by the Company’s stockholders in the same manner as a nominee recommended by members of the Board of Directors or management.

MANAGEMENT DISCUSSION FROM LATEST 10K

Critical Accounting Policies

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require it to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company regularly evaluates these estimates, including those related to stock-based compensation, inventory valuation, revenue recognition and income taxes. These estimates are based on historical experience and on assumptions that are believed by management to be reasonable under the circumstances. Actual results may differ from these estimates, which may impact the carrying values of assets and liabilities.

The Company believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements.

Stock-Based Compensation

Beginning in fiscal year 2006, the Company accounts for stock-based compensation arrangements in accordance with the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS 123R”). Under SFAS 123R, stock option cost is calculated on the date of grant using the Black-Scholes valuation model. The compensation cost is then amortized straight-line over the vesting period. The Company uses the Black-Scholes valuation model to determine the fair value of its stock options at the date of grant. The Black-Scholes valuation model requires the Company to estimate key assumptions such as expected option term, stock price volatility, dividend yields and risk free interest rates that determine the stock options fair value. If actual results are not consistent with the Company’s assumptions and judgments used in estimating the key assumptions, the Company may be required to increase or decrease compensation expense or income tax expense, which could be material to its results of operations. In addition, SFAS 123R requires forfeitures to be estimated at the time of grant. In subsequent periods, if actual forfeitures differ from the estimate, the forfeiture rate may be revised. The Company estimates forfeitures based on its historical activity, as it believes these forfeiture rates to be indicative of its expected forfeiture rate.

Inventory Valuation

The Company values inventories at the lower of cost or market. The Company records charges to write-down inventories for unsalable, excess or obsolete raw materials, work-in-process and finished goods. Newly introduced parts are generally not valued until success in the market place has been determined by a consistent pattern of sales and backlog among other factors. The Company arrives at the estimate for newly released parts by analyzing sales and customer backlog against ending inventory on hand. The Company reviews the assumptions on a quarterly basis and makes decisions with regard to inventory valuation based on the current business climate. In addition to write-downs based on newly introduced parts, judgmental assessments are calculated for the remaining inventory based on salability, obsolescence, historical experience and current business conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required that could adversely affect operating results. If actual market conditions are more favorable, the Company may have higher gross margins when products are sold. Sales to date of such products have not had a significant impact on gross margin.

Revenue Recognition

The Company recognizes revenues when the earnings process is complete, when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable and collection is reasonably assured. The Company recognizes approximately 16% of net revenues from domestic distributors that are recognized under agreements which provide for certain sales price rebates and limited product return privileges. Given the uncertainties associated with the levels of pricing rebates, the ultimate sales price on domestic distributor sales transactions is not fixed or determinable until domestic distributors sell the merchandise to the end-user. At the time of shipment to domestic distributors, the Company records a trade receivable and deferred revenue at the distributor purchasing price since there is a legally enforceable obligation from the distributor to pay for the products delivered. The Company relieves inventory as title has passed to the distributor and recognizes deferred cost of sales in the same amount. “Deferred income on shipments to distributors” represents the difference between deferred revenue and deferred cost of sales and is recognized as a current liability until such time as the distributor confirms a final sale to its end customer. At June 29, 2008, the Company had approximately $46.2 million of deferred revenue and $8.4 million of deferred cost of sales recognized as $37.8 million of “Deferred income on shipment to distributors.” At July 1, 2007, the Company had approximately $49.0 million of deferred revenue and $9.1 million of deferred cost of sales recognized as $39.9 million of “Deferred income on shipment to distributors.” To the extent the Company was to have a significant reduction in distributor price or grant significant price rebates, there could be a material impact on the ultimate revenue and gross profit recognized. The price rebates that have been remitted back to distributors have ranged from $1.5 million to $3.1 million per quarter.

The Company’s sales to international distributors are made under agreements which permit limited stock return privileges but not sales price rebates. Revenue on these sales is recognized upon shipment at which time title passes. The Company has reserves to cover expected product returns. If product returns for a particular fiscal period exceed or are below expectations, the Company may determine that additional or less sales return allowances are required to properly reflect its estimated exposure for product returns. Generally, changes to sales return allowances have not had a significant impact on operating margin.

Income Taxes

The Company must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, tax benefits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to the tax provision in a subsequent period.

The calculation of the Company’s tax liabilities involves uncertainties in the application of complex tax regulations. In the first quarter of fiscal year 2008, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Un certainty in Income Taxes — an interpretation of SFAS No. 109 (“FIN 48”), and related guidance. As a result of the implementation of FIN 48, the Company recognizes liabilities for uncertain tax positions based on the two-step process prescribed in the interpretation. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company has to determine the probability of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

The results for fiscal years 2008 and 2007 were impacted by the Company entering into a $3.0 billion Accelerated Stock Repurchase ("ASR") transaction during the fourth quarter of fiscal year 2007. The ASR transaction was funded by $1.3 billion of the Company’s own cash and $1.7 billion of convertible debt. As a result, the Company’s fiscal year 2008 and to a lesser extent fiscal year 2007 results have both a decrease in interest income and an increase in interest expense which resulted in income before income taxes as a percentage of revenues to be lower than past results. Shares used in the calculation of diluted earnings per share ("EPS") decreased by 83.3 million or approximately 27% due to the ASR. The $3.0 billion ASR transaction along with the increase in revenues drove the significant increase in earnings per share during fiscal year 2008. Consequently, the ASR transaction has been accretive to EPS, as the impact of the reduced shares was greater than the reduction in net income from higher interest expense and lower interest income.

Revenues for the twelve months ended June 29, 2008 were $1,175.2 million, an increase of $92.1 million or 9% over revenues of $1,083.1 million for fiscal year 2007. The increase in revenue was primarily due to the Company selling more units into the industrial, communication, automotive, military and computer end-markets while the high-end consumer end-market decreased slightly. The average selling price (“ASP”) for fiscal year 2008 decreased slightly to $1.56 per unit compared to $1.60 per unit in fiscal year 2007. Geographically, international revenues were $828.3 million or 70% of revenues for the twelve months ended June 29, 2008, an increase of $90.2 million as compared to international revenues of $738.1 million or 68% of revenues for the same period in the previous fiscal year. The increase in international revenues as a percentage of revenues is primarily due to certain domestic OEM customers migrating their manufacturing to international subcontractors. Internationally, sales to Rest of the World (“ROW”), which is primarily Asia excluding Japan, represented $461.5 million or 39% of revenues, while sales to Europe and Japan were $212.7 million or 18% of revenues and $154.1 million or 13% of revenues, respectively. Domestic revenues were $346.8 million or 30% of revenues for the twelve months ended June 29, 2008, an increase of $1.8 million over domestic revenues of $345.0 million or 32% of revenues in the same period in fiscal year 2007.

Revenues for the twelve months ended July 1, 2007 were $1,083.1 million, a decrease of $9.9 million or 1% from revenues of $1,093.0 million for fiscal year 2006. Fiscal year 2007 revenues decreased in most of the Company’s end-markets except automotive. The ASP for fiscal year 2007 was relatively flat at $1.60 per unit compared to $1.62 per unit in fiscal year 2006. Geographically, international revenues were $738.1 million or 68% of revenues for the twelve months ended July 1, 2007, a decrease of $22.3 million as compared to international revenues of $760.4 million or 70% of revenues for the same period in the previous fiscal year. Internationally, sales to ROW, which is primarily Asia excluding Japan, represented $402.4 million or 37% of revenues, while sales to Europe and Japan were $193.1 million or 18% of revenues and $142.6 million or 13% of revenues, respectively. Domestic revenues were $345.0 million or 32% of revenues for the twelve months ended July 1, 2007, an increase of $12.4 million over domestic revenues of $332.6 million or 30% of revenues in the same period in fiscal year 2006.

Gross profit for the fiscal year ended June 29, 2008 was $908.1 million, an increase of $66.6 million or 8% over gross profit of $841.6 million in fiscal year 2007. Gross profit as a percentage of revenues was 77.3% of revenues in fiscal year 2008 as compared to 77.7% of revenues in fiscal year 2007. The decrease in gross profit as a percentage of revenues in fiscal year 2008 was primarily due to increases in profit sharing, a decrease in ASP and an increase in raw material costs such as gold. These increases were partially offset by lower stock-based compensation of $3.6 million and improved factory efficiency on higher sales volumes.

Gross profit for the fiscal year ended July 1, 2007 was $841.6 million, a decrease of $13.0 million or 2% from gross profit of $854.6 million in fiscal year 2006. Gross profit as a percentage of revenues decreased to 77.7% of revenues in fiscal year 2007 as compared to 78.2% of revenues in fiscal year 2006. The decrease in gross profit as a percentage of revenues in fiscal year 2007 was primarily due to increases in costs related to stock-based compensation of $3.2 million and spreading fixed costs over a lower revenue base. These decreases were partially offset by lower profit sharing.

Research and development (“R&D”) expense for the fiscal year ended June 29, 2008 was $197.1 million, an increase of $13.5 million or 7% over R&D expense of $183.6 million in fiscal year 2007. The increase in R&D was due to an $11.4 million increase in compensation costs related to new employees, primarily circuit designers and support engineers, and annual salary increases. The increase in R&D expense was also due to higher costs related to profit sharing, which increased $5.0 million. In addition, the Company had a $1.7 million increase in other R&D related expenses such as legal costs, mask costs and small tool charges. Offsetting these increases was a $4.6 million decrease in stock-based compensation.

R&D expense for the fiscal year ended July 1, 2007 was $183.6 million, an increase of $22.7 million or 14% over R&D expense of $160.8 million in fiscal year 2006. The increase in R&D was due to an $11.1 million increase in compensation costs related to an increase in employee headcount and annual salary increases. The increase in R&D expense was also due to higher costs related to stock-based compensation, which increased $12.5 million. In addition, the Company had a $6.0 million increase in other R&D related expenses such as legal costs, mask costs and small tool charges. Offsetting these increases was a decrease in profit sharing of $6.9 million.

Selling general and administrative (“SG&A”) expense for the fiscal year ended June 29, 2008 was $142.4 million, an increase of $8.7 million or 7% over SG&A expense of $133.7 million in fiscal year 2007. The increase in SG&A was due to a $7.5 million increase in compensation costs related to new employees, primarily field sales engineers and annual salary increases. In addition to compensation costs the Company had a $3.7 million increase in profit sharing, a $1.3 million increase in legal expenses and a $0.7 million increase in other SG&A costs. Offsetting these increases was a $4.5 million decrease in stock-based compensation.

SG&A expense for the fiscal year ended July 1, 2007 was $133.7 million, an increase of $3.9 million or 3% over SG&A expense of $129.8 million in fiscal year 2006. The increase in SG&A was due to a $6.5 million increase in compensation costs related to an increase in employee headcount and annual salary increases. In addition to compensation costs the Company had a $0.9 million increase in stock-based compensation and a $3.0 million increase in legal expenses. Offsetting these increases was a $5.0 million decrease in profit sharing and a $1.5 million decrease in other SG&A costs.

Interest expense for the twelve months ended June 29, 2008 was $57.8 million, an increase of $45.7 million over interest expense of $12.1 million in fiscal year 2007. The increase in interest expense was due to the Company’s issuance of $1.7 billion Convertible Senior Notes during the fourth quarter of fiscal year 2007 bearing interest at 3.0% and 3.125%. Interest expense for fiscal year 2008 is primarily comprised of convertible debt interest, amortization of the convertible debt discount and amortization of issuance costs.

Interest expense for the twelve months ended July 1, 2007 was $12.1 million, an increase of $10.2 million over interest expense of $1.9 million in fiscal year 2006. The increase in interest expense was due to the Company’s issuance of $1.7 billion Convertible Senior Notes during the fourth quarter of fiscal year 2007 bearing interest at 3.0% and 3.125%. Total interest expense of $12.1 million included charges of $10.4 million related to the convertible debt which comprised convertible debt interest, amortization of the convertible debt discount and amortization of service fees.

Interest income for the twelve months ended June 29, 2008 was $30.1 million, a decrease of $27.6 million or 48% from interest income of $57.7 million in fiscal year 2007. Interest income decreased due to the Company’s lower average cash and cash equivalents and marketable securities balances as the Company used $1.3 billion of its cash to fund a portion of its $3.0 billion accelerated share repurchase (“ASR”) transaction during the fourth quarter of fiscal year 2007.

Interest income for the twelve months ended July 1, 2007 was $57.7 million, an increase of $3.0 million or 5% over interest income of $54.7 million in fiscal year 2006. Interest income increased in fiscal year 2007 when compared to fiscal year 2006 primarily due to the higher average interest rate earned on the Company’s average cash balance. Offsetting the effect of higher interest rates was the decrease in the Company’s average cash and cash equivalents and marketable securities balances as the Company used $1.3 billion of its cash to fund a $3.0 billion ASR transaction during the fourth quarter of fiscal year 2007.

The Company’s effective tax rate was 28.3% in fiscal year 2008 and 27.8% in fiscal year 2007. The increase in the effective tax rate was primarily due to lower R&D tax credits as the related tax benefit expired as of December 31, 2007. The Company believes that the R&D tax credit will be restored by legislation retroactive to the beginning of calendar year 2008, but there can be no assurance that this will happen. In addition, the effective tax rate is higher due to lower tax-exempt interest income and the expiration of the ETI export tax benefit when compared to fiscal year 2007. Offsetting these increases to the effective tax rate was an increase in foreign earnings in lower tax jurisdictions, higher domestic production tax benefits and the impact of quarterly discrete adjustments.

The Company’s effective tax rate was 27.8% in fiscal year 2007 and 30.5% in fiscal year 2006. The decrease in the effective tax rate from fiscal year 2006 to fiscal year 2007 is primarily the result of the reinstatement of the R&D tax credit legislation during the second quarter of fiscal year 2007, an increase in foreign earnings in lower tax jurisdictions and higher tax-exempt interest income. In addition, the Company received a one-time tax benefit during the fourth quarter of fiscal year 2007 as the Company settled with the Internal Revenue Service certain disputed tax benefits for fiscal years 1997-2001 related to its Foreign Sales Corporation (“FSC”). The Company revised its tax reserves accordingly as a result of settling the FSC issue.

Fiscal year 2008 net income of $387.6 million decreased $24.1 million or 6% from $411.7 million reported in the previous fiscal year. However, fiscal year 2008 diluted earnings per share (“EPS”) of $1.71 increased by $0.32 per share or 23% over the previous fiscal year. The 23% increase in EPS occurred due to the Company entering into a $3.0 billion ASR transaction during the fourth quarter of fiscal year 2007 coupled with a 9% increase in revenues over fiscal year 2007. The ASR transaction was funded by $1.3 billion of the Company’s own cash and $1.7 billion of convertible debt. As a result, the Company’s fiscal year 2008 results have both a decrease in interest income and an increase in interest expense when compared to the previous fiscal year. However, shares used in the calculation of diluted EPS decreased by 83.3 million or approximately 27% due to the ASR. Consequently, the ASR transaction has been accretive to EPS, as the impact of the reduced shares was greater than the reduction in net income from higher interest expense and lower interest income, and this, coupled with the increase in revenues caused the 23% increase in EPS.

Factors Affecting Future Operating Results

Except for historical information contained herein, the matters set forth in this Annual Report on Form 10-K, including the statements in the following paragraphs, are forward-looking statements that are dependent on certain risks and uncertainties including such factors, among others, as the timing, volume and pricing of new orders received and shipped during the quarter, timely ramp-up of new facilities, the timely introduction of new processes and products; increases in costs associated with utilities, transportation and raw materials; currency fluctuations; the effects of adverse economic conditions in the United States and international markets and other factors described below and in “Item 1A – Risk Factors” section of this Annual Report on Form 10-K.

The Company met its guidance set at the beginning of the June quarter by growing revenues 3% and EPS 5% over the March quarter. The Company has grown revenues and EPS for five consecutive quarters in a difficult economic environment. The Company’s strategy of diversification by geography and end-market, emphasizing more traditional Linear Technology end-markets, contributed to the Company’s record annual revenues and EPS. Looking ahead, given the concerns about the economic difficulties particularly in the U.S.A., forecasting future results continues to be a challenge. While the Company had a positive book-to-bill ratio for the June quarter, the September quarter is typically a slow quarter for industrial and communication infrastructure businesses. However, the Company expects the September quarter to have some strength in certain high-end consumer end-markets. Consequently, the Company presently estimates that revenues and income before taxes in the September quarter will be flat to up 2% sequentially from the June quarter.

Estimates of future performance are uncertain, and past performance of the Company may not be a good indicator of future performance due to factors affecting the Company, its competitors, the semiconductor industry and the overall economy. The semiconductor industry is characterized by rapid technological change, price erosion, cyclical market patterns, periodic oversupply conditions, occasional shortages of materials, capacity constraints, variations in manufacturing efficiencies and significant expenditures for capital equipment and product development. Furthermore, new product introductions and patent protection of existing products, as well as exposure related to patent infringement suits if brought against the Company, are factors that can influence future sales growth and sustained profitability.

Although the Company believes that it has the product lines, manufacturing facilities and technical and financial resources for its current operations, sales and profitability could be significantly affected by factors described above and other factors. Additionally, the Company’s common stock could be subject to significant price volatility should sales and/or earnings fail to meet expectations of the investment community. Furthermore, stocks of high technology companies are subject to extreme price and volume fluctuations that are often unrelated or disproportionate to the operating performance of these companies.

Liquidity and Capital Resources

At June 29, 2008, cash, cash equivalents and marketable securities totaled $966.7 million and working capital was $1,070.4 million. The Company’s accounts receivable balance increased $30.9 million from $130.5 million at the end of fiscal year 2007 to $161.4 million at the end of fiscal year 2008. The increase is primarily due to higher shipments in the fourth quarter of the current fiscal year compared to the fourth quarter of the previous fiscal year. The Company’s prepaid expenses and other current assets totaled $29.5 million, an increase of $18.4 million over the previous fiscal year primarily due to prepaid income taxes of $14.3 million and an increase in accrued interest income.

Net property, plant and equipment decreased $5.5 million during fiscal year 2008. Additions totaled $35.3 million primarily due to the purchase of production equipment offset by depreciation of $40.8 million. Other non current assets decreased $13.9 million from $91.2 million at the end of fiscal year 2007 to $77.3 million at the end of fiscal year 2008. The decrease is primarily due to the sale of a strategic investment in a privately held company, with a book value of $14.4 million, during the fourth quarter of fiscal year 2008.

Accrued payroll and related benefits totaled $66.5 million at the end of fiscal year 2008, an increase of $12.0 million over the fourth quarter of fiscal year 2007. The increase is primarily due to a $10.8 million increase to the Company’s profit sharing accrual. The Company accrues for profit sharing on a quarterly basis while distributing payouts to employees on a semi-annual basis during the first and third quarters. Income taxes payable totaled $19.8 million at the end of fiscal year 2008, a decrease of $25.5 million from the fourth quarter of fiscal year 2007 primarily due to the reclassification of $63.2 million in unrecognized tax benefits to other long-term liabilities as a result of the implementation of FIN 48 during the first quarter of fiscal year 2008. This effect was partially offset by the net of quarterly tax payments and the Company’s tax provision. Other accrued liabilities of $34.2 million increased $5.3 million over the fourth quarter of fiscal year 2007 primarily due to an increase in accrued legal costs.

Deferred tax liabilities totaled $41.9 million at the end of fiscal year 2008, an increase of $29.0 million over the previous fiscal year primarily due to an increase in deferred taxes related to interest deductions for the Company’s convertible senior debt. Other long-term liabilities of $100.7 million increased $66.7 million over the previous fiscal year primarily due to the unrecognized tax benefit reclassification of $63.2 million noted above and due to the implementation of EITF 06-2, which resulted in a $9.7 million increase for accrued sabbaticals.

During fiscal year 2008, the Company generated $530.3 million of cash from operating activities, $15.5 million net proceeds from the sale of a strategic investment in a privately held company, $82.4 million in proceeds from common stock issued under employee stock plans, and $12.7 million from excess tax benefits received on the exercise of stock awards. During fiscal year 2008, significant cash expenditures included $337.4 million of net purchase of short-term investments, $99.0 million for repurchases of common stock, payments of $176.7 million for cash dividends to stockholders, representing $0.78 per share, and purchases of $35.3 million for capital assets. In July 2008, the Company’s Board of Directors declared a cash dividend of $0.21 per share. The $0.21 per share dividend will be paid on August 27, 2008 to stockholders of record on August 15, 2008. The payment of future dividends will be based on financial performance.

Historically, the Company has satisfied its quarterly liquidity needs through cash generated from operations. Given its strong financial condition and performance, the Company believes that current capital resources and cash generated from operating activities will be sufficient to meet its liquidity, capital expenditures requirements, and debt retirement for the foreseeable future.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Critical Accounting Estimates

There have been no significant changes to the Company’s critical accounting policies during the quarter ended September 28, 2008, as compared to the previous disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2008.

Revenue for the quarter ended September 28, 2008 was $310.4 million, an increase of $28.9 million or 10% over revenue of $281.5 million for the same quarter of the previous fiscal year. The average selling price (“ASP”) of $1.47 per unit in the first quarter of fiscal year 2009 decreased from $1.55 per unit in the first quarter of fiscal year 2008. The decrease in the Company’s ASP is primarily due to the change in sales mix as the Company’s customer product mix within consumer related products changed year over year. Geographically, international revenues were $226.2 million or 73% of revenues, an increase of $29.7 million as compared to international revenues of $196.5 million or 70% of revenues for the same quarter of the previous fiscal year. The increase in international revenues as a percentage of revenues is primarily due to a lower percentage of sales to both, domestic original equipment manufacturer (“OEM”) and distribution customers reflective of the weakness in the United States economy. Internationally, revenues to Rest of the World (“ROW”), which is primarily Asia excluding Japan, represented $130.2 million or 42% of revenues, while sales to Europe and Japan were $55.8 million or 18% of revenues and $40.2 million or 13% of revenues, respectively. Domestic revenues were $84.2 million or 27% of revenues in the first quarter of fiscal year 2009, a decrease of $0.8 million, from $85.0 million or 30% of revenues in the same period in fiscal year 2008.

Gross profit was $238.9 million for the first quarter of fiscal year 2009, an increase of $21.5 million from the corresponding period of fiscal year 2008. Gross profit as a percentage of revenues decreased to 77.0% in first quarter of fiscal year 2009 as compared to 77.2% of revenues for the same period in the previous fiscal year. The modest decrease in gross profit as a percentage of revenues for the quarter ended September 28, 2008 was primarily due to a decrease in ASP, an increase in raw material costs such as gold and an increase in accrued employee profit sharing. These decreases in gross profit as a percentage of revenue were largely offset by improved factory efficiencies on higher sales volume.

Research and development (“R&D”) expenses for the quarter ended September 28, 2008 were $50.9 million, an increase of $3.1 million or 6% over R&D expenses of $47.8 million for the same period in the previous fiscal year. The increase in R&D was due to a $2.3 million increase in compensation costs related to an increase in employee headcount and annual salary increases. The increase in R&D expense was also due to a $1.0 million increase in accrued employee profit sharing and a $0.2 million increase in stock-based compensation expense. Partially offsetting these increases was a $0.4 million decrease in other R&D related expenses such as software and equipment maintenance fees.

Selling, general and administrative expenses (“SG&A”) for the quarter ended September 28, 2008 were $37.1 million, an increase of $4.3 million or 13% over SG&A expense of $32.8 million for the same period in the previous fiscal year. The increase in SG&A was due to a $2.3 million increase in compensation costs related to an increase in employee headcount, primarily in direct sales, and annual salary increases. The increase in SG&A expense was also due to a $0.7 million increase in accrued employee profit sharing. In addition, SG&A increased due to a $0.2 million increase in stock-based compensation expense and a $1.1 million increase in other SG&A related expense such as sales personnel travel expenses and the timing of year-end reporting fees.

The Company’s tax rate for the first quarter of fiscal year 2009 was 25% as compared to 29.0% in the same quarter of fiscal year 2008. The decrease in the tax rate was primarily due to a quarterly discrete tax benefit recognized during the first quarter of fiscal year 2009 relating to an agreement with the IRS to settle certain disputed ETI tax benefits the Company claimed during fiscal years 2002 through 2006, partially offset by lower R&D tax credits due to expiration of this benefit as of December 31, 2007. Subsequent to the quarter just ended, the R&D tax credit was restored by legislation retroactive to the beginning of calendar year 2008. This will have a favorable impact on the Company’s annual effective tax rate for fiscal year 2009 and will result in a discrete quarterly tax benefit in the second quarter for the recognition of the prior year R&D tax credit. As a result, and absent other quarterly discrete items or changes in estimates, the Company expects its annual effective tax rate to improve to the 28% to 29% range, excluding discrete items, and its second quarter tax rate to be in the range of 22.5% to 25%, including a discrete item for the retroactive reinstatement of the R&D tax benefit.

The Company’s effective tax rate is lower than the federal statutory rate of 35% as a result of lower tax rates on the earnings of its wholly-owned foreign subsidiaries, principally in Singapore and Malaysia. The Company has a partial tax holiday through July 2015 in Malaysia and a partial tax holiday in Singapore through August 2011. In addition, the Company receives tax benefits from non-taxable interest income, domestic manufacturing credits and going forward, from reinstated R&D tax credits.

Factors Affecting Future Operating Results

Except for historical information contained herein, the matters set forth in this Form 10-Q, including the statements in the following paragraphs, are forward-looking statements that are dependent on certain risks and uncertainties including such factors, among others, as the timing, volume and pricing of new orders received and shipped during the quarter, timely ramp-up of new facilities, the timely introduction of new processes and products; increases in costs associated with utilities, transportation and raw materials; currency fluctuations; the effects of adverse economic conditions in the United States and international markets and other factors described below and in “Item 1A – Risk Factors” section of this Quarterly Report on Form 10-Q.

The Company grew its revenues and pretax income by 1% and 3%, respectively, over the fourth quarter of fiscal year 2008. This marks the sixth consecutive quarter that the Company has sequentially grown revenues and EPS. However, during the latter part of the September quarter and especially through early October, the Company began to see a decrease in new order bookings across the Company’s major end-markets. The current global credit crisis and related economic uncertainty have begun to affect the Company as well as the semiconductor industry. Given the recent decrease in orders and the softness the Company is currently seeing in the industry, the Company presently estimates that revenues will decrease 10% to 20% sequentially from the September quarter. It is difficult to forecast what the decline in revenues will be given the uncertain state of the economy as a whole. The Company’s results will be dependent on its customers’ reaction to the global crisis. Nevertheless, the Company is well positioned to manage through difficult times and has a proven track record that it can maintain industry leading profitability under challenging market conditions. Many of the Company’s expenses are variable and the Company is taking measures to adjust those downward. The Company believes it can maintain pretax profits above 40% of revenues with the lower forecasted sales range. In addition, once this global economic crisis eases, the Company continues to be optimistic about its long-term growth prospects.

Estimates of future performance are uncertain, and past performance of the Company may not be a good indicator of future performance due to factors affecting the Company, its competitors, the semiconductor industry and the overall economy. The semiconductor industry is characterized by rapid technological change, price erosion, cyclical market patterns, periodic oversupply conditions, occasional shortages of materials, capacity constraints, variations in manufacturing efficiencies and significant expenditures for capital equipment and product development. Furthermore, new product introductions and patent protection of existing products, as well as exposure related to patent infringement suits if brought against the Company, are factors that can influence future sales growth and sustained profitability.

Although the Company believes that it has the product lines, manufacturing facilities and technical and financial resources for its current operations, sales and profitability could be significantly affected by factors described above and other factors. Additionally, the Company’s common stock could be subject to significant price volatility should sales and/or earnings fail to meet expectations of the investment community. Furthermore, stocks of high technology companies are subject to extreme price and volume fluctuations that are often unrelated or disproportionate to the operating performance of these companies.

At September 28, 2008, cash, cash equivalents and marketable securities totaled $1,021.9 million and working capital was $1,108.6 million.

Prepaid expenses and other current assets increased $7.7 million over the fourth quarter of fiscal year 2008 primarily due to an increase in prepaid income taxes of $5.6 million. Net property, plant and equipment increased $12.7 million over the fourth quarter of fiscal year 2008 primarily due to fixed asset additions of $23.1 million related to the expansion of clean room space at one of the Company’s manufacturing facilities. These additions were offset by $10.3 million in depreciation expense.

Accrued payroll and related benefits decreased $13.1 million from the fourth quarter of fiscal year 2008 primarily due to the payment of profit sharing. The Company accrues for profit sharing on a quarterly basis while distributing payouts to employees on a semi-annual basis during the first and third quarters. Income taxes payable increased $32.3 million over the fourth quarter of fiscal year 2008 primarily due to the income tax provision of $35.9 million partially offset by the final payment of the prior year income tax liability. Other accrued liabilities of $48.1 million increased $13.8 million over the fourth quarter of fiscal year 2008 primarily due to accrued interest on the Company’s convertible senior notes. The Company makes semi-annual interest payments during the second and fourth quarters.

Deferred tax liabilities increased $5.8 million over the fourth quarter of fiscal year 2008 mainly due to an increase in deferred taxes related to interest deductions for the Company’s convertible senior debt. Other long-term liabilities of $89.8 million decreased $10.9 million from the fourth quarter of fiscal year 2008 primarily due the reclassification of tax reserves related to the Company’s agreement with the IRS to settle certain disputed ETI tax benefits.

During the first quarter of fiscal year 2009, the Company generated $144.6 million of cash from operating activities and $5.1 million in proceeds from common stock issued under employee stock plans.

During the first quarter of fiscal year 2009, significant cash expenditures included $10.1 million for net purchases of short-term investments; payments of $47.4 million for cash dividends to stockholders, representing $0.21 per share; $23.1 million for repurchases of the Company’s common stock; and $23.1 million for the purchase of property plant and equipment. In October 2008, the Company’s Board of Directors declared a cash dividend of $0.21 per share. The $0.21 per share dividend will be paid on November 26, 2008 to shareholders of record on November 14, 2008. The payment of future dividends will be based on the Company’s financial performance.

Historically, the Company has satisfied its liquidity needs through cash generated from operations. Given its financial condition and historical operating performance, the Company believes that current capital resources and cash generated from operating activities will be sufficient to meet its liquidity, capital expenditures requirements, and debt retirement for the foreseeable future.

Off Balance-Sheet Arrangements

As of September 28, 2008, the Company had no off-balance sheet financing arrangements.

Contractual Obligations

In April 2007, the Company issued $1.0 billion principal amount of 3.0% debentures due May 1, 2027 and $0.7 billion principal amount of 3.125% debentures due May 1, 2027. The Company pays cash interest at an annual rate of 3.0% and 3.125%, respectively, payable semiannually on November 1 and May 1 of each year, beginning November 1, 2007. See Note 7 to the consolidated financial statements, included in Part 1. “Financial Information,” for additional information about the debentures.

Fair Value

As of September 28, 2008, the Company’s cash and cash equivalents, and marketable securities investment portfolio had a fair market value of $939.3 million. The Company’s cash and cash equivalents, and marketable securities investment portfolio consists of money-market funds, U.S. Treasury securities, obligations of U.S. government sponsored enterprises, municipal bonds, commercial debt and corporate debt securities. The Company currently does not hold any investments in auction rate securities or asset backed securities. Most of the Company’s investments in debt instruments have an investment rating of AAA. As of September 28, 2008, the Company’s cash and cash equivalent, and marketable securities investment portfolio had a remaining maturity of approximately one year.

Beginning in the first quarter of fiscal year 2009, the assessment of fair value for the Company’s financial instruments mentioned above are based on the provisions of SFAS 157. SFAS No. 157 establishes a fair value hierarchy that is based on three levels of inputs and requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Refer to “Note 4. Fair Value” of Notes to Consolidated Financial Statements for a further discussion of SFAS 157. As of September 28, 2008, the Company’s financial instruments measured at fair value on a recurring basis included $939.3 million of assets. All of these assets were classified as Level 1 or Level 2 instruments.

CONF CALL

Paul Coghlan - Chief Financial Officer

Today I am joined by Bob Swanson, our Chairman, and Lothar Maier, our Chief Executive Officer. Welcome to our call. I will give you a brief overview of our recently completed first quarter in fiscal 2009 and then address the current business climate. We will then open up the conference call for questions to be directed at Bob Swanson, Lothar and myself. I trust you’ve all seen copies of our press release which was published last night.

First, however, I’d like to remind you that except for historical information, the matters we will be describing this morning will be forward-looking statements that are dependent on certain risks and uncertainties, including such factors among others as new orders received and shipped during the quarter, the timely introduction of new processes and products, and general conditions in the world economy and financial markets. In addition to these risks, which we described in our press release issued yesterday, we refer you to the risk factors listed in the Company’s Form 10-K for the year ended, June 29, 2008, particularly management discussion and analysis of financial condition and results of operations. Secondly, SEC regulation FD regarding selected disclosure influences our interaction with investors. We’ve opened up this conference call to enable all interested investors to listen in. The press release and this conference call will be our forum to respond to questions regarding our estimated financial performance going forward. Consequently, should you have any questions regarding our estimates of sales and profits, or other financial matters for the upcoming quarter, as well as how they might impact our income statement model and our balance sheet, this is the time we are free to respond to these questions.

As you can tell from our press release there is a significant difference between our actual performance for the September quarter and our guidance for the December quarter. The company had a solid September quarter with growth in sales and profits. Operating income was 49% and profit before tax was 46% of sales. The company grew revenues for the sixth consecutive quarter and has continued to increase its positioning in industrial communications infrastructure and automotive end markets while diminishing its presence in margin-sensitive consumer-related end markets.

However, the extraordinary negative developments in the world-wide financial markets in recent weeks will undoubtedly impact business spending and confidence. We have already seen a slowness in our bookings in the month of October. How long and how deep this impact will be is very difficult to forecast. As managers we can control spending and deploy our talent to best position Linear growth and profitability when the markets return.

As a reminder, in 2001 Linear managed its business through the dot-com bust. We remained highly profitable as a percent of sales and continued to be cash-flow positive. As we stated in our press release, we expect similar execution now and believe profit before tax, even in declining revenues, can remain above 40% of sales and that we can generate positive cash flow in this environment.

Strategically, we believe industrial communications infrastructure and automotive will be attractive markets, driven by the advances in communications capabilities, industrial innovation, and the need for energy and fuel efficiency.

I would now like to spend a few minutes discussing the quarter we just completed. In a difficult economic environment, but before the financial markets melt-down, we had a reasonable quarter, as we grew sales, remained highly profitable and continued our strategic emphasis of focusing on traditional analog markets.

Sales increased 1% from the previous quarter within the range of flat to 2% that we had forecasted in our last conference call. Revenue was $310.4 million, up from revenue of $307.1 million for the previous quarter.

Net income increased 4.3% and earnings per share 4.3%, also, being $0.48 up from $0.46 last quarter.

On a pro forma basis, without the impact of stock-based compensation, EPS would have been $0.53 versus $0.51 and net income would have been $118.4 million versus $114.4 million in the June quarter. So the impact of stock-based compensation was 10% of net income, or $0.05 at the EPS level.

For the quarter just ended our GAAP return on sales was 34.7% and our pro forma return on sales was 38.1%.

Operating income increased in absolute dollars and as a percentage of sales, improving from 47.1% last quarter to 48.6% this quarter.

Gross profit decreased by 3/10 of a point, primarily due to lower ASPs associated with increased shipments into consumer-related markets prior to the holiday season. This was more than offset by a reduction in legal expenses.

The company also benefited from a discrete tax item, as the company reached a negotiated settlement with the IRS on the treatment of its ETI, which is extra-territorial income, benefits in past years. Consequently, the company’s tax rate for the quarter was 25%, down from its ongoing projected tax rate of 29.5%.

During the quarter the company’s cash and short-term investments increased by $55.2 million, net of spending $23.1 million to purchase 737,000 shares of its common stock. For the 90th consecutive quarter the company had positive cash flow from operations.

The Board of Directors again authorized the company to pay a cash dividend of $0.21 per share. The dividend will be paid on November 26, 2008, to stockholders of record on November 14, 2008. At current stock prices this represents a yield of greater than 3%.

In summary, we continue to have an excellent business model and are therefore able to remain both highly profitable and cash-flow positive. Our return on assets was 25%.

In April of 2007 the company entered into an accelerated share repurchase, or ASR, which enabled it buy back 27% of its shares outstanding. This ASR, and the associated debt, has improved our returns on equity and invested capital. Our debt is modest to our cash generation capabilities and our current ratio is 6.4 to 1.

Our ending on hand inventory of distribution is within historic turns levels and lead times have remained unchanged at 4 to 6 weeks.

Now I would like to address the quarter’s results on a line-by-line basis, staring with bookings. Bookings were down marginally from the prior quarter and our book-to-bill ratio approximated, but did not equal, 1. Compared with the prior quarter, international bookings were unchanged while absorbing the summer vacation impact in Europe. In the USA, however, bookings were down modestly as the deteriorating economic environment impacted both U.S. OEM and distribution business.

At this time every quarter we give you a breakdown of our bookings percentages by end markets to give you insight into those markets that drive our business. We continue to strive to improve the accuracy of this market data and have made some improvements going into fiscal 2009. These improvements have been primarily in the area of international distributor bookings. To help you to continue to focus on trends I will give you the previously reported Q4 numbers, new Q4 numbers, and Q1 numbers done on a similar basis as the new Q4 numbers.

Industrial and communications continue to be our largest areas. Industrial was previously reported at 33% of our Q4 business. This has been restated to 36% and the percentage for Q1 was down 1 point to 35%. This decrease is primarily attributable to U.S. distributions.

Communications, previously reported at 36%, was restated at 30% and was down one percentage point to 29% on a comparative basis in Q1. The major change between methodologies here was in the cellular handset area, which was restated from 11% to 7% in Q4. This change resulted from more accurate distributor data. Q1 at 7% was similar to Q4 restated in the handset area.

Going forward, we are combining communications infrastructure and networking as large customers are evolving to serve both of these areas. This area decreased marginally from 23% in Q4 to 22% in Q1.

Computer was previously reported as 12% of our Q4 business. This has been restated to 10% and the percentage for Q1 rose to 12%. This area is generally seasonally strong going into the return-to-school and the holiday seasons.

Automotive was previously reported as 8% of our Q4 business. This was restated to 9% and the percentage for Q1 was 8%. This is an area that is suffering in the economy now, however, given the move to more fuel-efficient vehicles, it is an area of emphasis for Linear. We recently introduced a part for data re-monitoring in hybrid and electric vehicles, which has received early acclaim. In addition, we continue to distinguish Linear as a high-quality supplier in important international manufacturers.

Consumer was previously reported as 5% of our Q4 business. This has been restated to 9% and the percentage rose to 10% in Q1. Certain customer installable automotive after-market products, such as GPS systems we believe more properly belong in the consumer category. This increase of 1% again related to product build up by customers prior to the holiday seasons.

Finally, the military space and harsh environment products remained unchanged at 6% for both Q4 methodologies and for Q1.

In summary, we believe the data is now more accurate and we continue to have very good diversity by end markets, which contributes to our leadership positioning in high-performance analog.

Note that 54% of our bookings were created internationally, up slightly from last quarter.

Moving from bookings to sales, product sales grew 1.1% from the prior quarter and 10.3% from the similar quarter in the prior year. Sales were down modestly in the USA in both OEM and distribution. However, this was more than offset by growth internationally.

Asia was our strongest area, improving from 38% to 42% of our sales. USA decreased from 29% to 27% of sales, Japan remained at 13%, Europe decreased from 20% to 18%, in line with normal seasonal flows.

Gross margins. Gross margin was 77%. This impressive number validates our strategy of selling unique, high-performance analog semiconductors into a broad customer base. This gross margin percentage decreased by 3/10 of a point this quarter. This decrease was largely due to a decrease in ASP, from $1.61 last quarter to $1.47 this quarter, in line with the increase in consumer-related sales prior to the holiday season. The strengthening U.S. dollar was marginally helpful in the gross margin area.

R&D. R&D at $50.9 million decreased by $1.0 million and also decreased as a percentage of sales from 16.9% to 16.4%. Labor increases were more than offset by decreases in stock compensation charges, mask costs, and other expense items.

SG&A. Selling, general, and administrative costs, at $37.1 million, decreased significantly by $3.5 million and concurrently decreased as a percentage of sales from 13.2% to 11.9%. Legal expenses were abnormally high in Q4 and as projected, returned to more historic levels in Q1.

As a result of the above, operating income increased by $6.2 million, or 4.3%. Operating income as a percentage of sales increased from 47.1% to 48.6% and continues to be at industry-leading levels.

Interest expense, at $14.4 million, was similar to last quarter. Interest income of $7.0 million decreased $2.1 million due to a gain in Q4 from the sale of a strategic investment in a private company.

Within the interest income line, increases in funds invested offset decreases in the average interest rate. As the government responds to the economic crisis by lowering interest rates, this will probably result in a reduction in interest income next quarter.

Pre-tax profits as a percent of sales improved from 45.4% to 46.2% of sales. Our tax rate was 25% versus 26% last quarter. Both quarters had an ongoing effective rate of 29.5% and each quarter was impacted by non-recurring discrete items. In Q1 the company negotiated a settlement with the IRS on the deductibility of its export tax benefits, referred to as ETI, for several years under audit. Going forward, we will be favorably impacted by the resumption of the deductibility of the R&D credit, which was recently re-enacted by Congress. Our ongoing effective tax rate should decrease to 28.5% from 29.5% last quarter.

This quarter we should also have a discrete tax benefit relating to the retroactive reinstatement of the R&D credit. This discrete item would bring our overall tax rate for the upcoming quarter in line with the 25% tax rate shown for Q1.

The major tax-savings items that will support our effective rate are: the benefits from our tax holidays overseas; our tax-exempt interest; our domestic manufacturing tax benefits; and the R&D credit.

The resulting net income of $107.6 million is an increase of $4.5 million from the previous quarter, due largely to the increase in sales, lower legal expenses, and a lower tax rate. The resulting return on sales improved to 34.7% from 33.6% reported last quarter.

The average shares outstanding used in the calculation of earnings per share decreased by 923,000 shares during the quarter. During the quarter the company bought back 737,000 shares in the open market. Also, the reduction in the company’s stock price during the quarter reduced the number of diluted shares outstanding. These reductions were partially offset by stock option exercises during the quarter. The resulting EPS, or earnings per share, was $0.48, an increase of 4.3% from the prior quarter, and an increase of 20% from $0.40 in the first quarter of last year.

Moving to the balance sheet. Cash and short-term investments increased by $55.2 million. During the quarter the company bought back 737,000 shares of its common stock for $23.1 million. $145.4 million was provided by operations. $47.4 million was paid in cash dividends, and $23.1 million was used to purchase fixed assets. Our cash and short-term investment balance is now $1.022 billion and represents 61% of total assets.

Accounts receivable of $163.2 million increased by $1.8 million from last quarter. This increase was mostly a function of the increase in sales. Our day sales in account receivable were 48 days, similar to last quarter.

Inventory at $55.5 million decreased $551,000 from the $56.0 million reported last quarter. Most of this modest decrease was in raw materials and finished goods. Our inventory turns was 5.1x, similar to the last several quarters.

Deferred taxes and other current assets increased by $12.0 million from the June quarter, primarily due to an increase in pre-paid taxes on our inter-company transactions and an increase in our interest income receivables due to the timing of our quarter end.

Property, plants, and equipment increased by $12.7 million. We had additions of $23.064 million and depreciation of $10.345 million. Most of the additions were for fab equipment and for building improvements for clean-room expansion in our Milpitas fabrication plant and for test equipment in our foreign plants.

We had planned to spend $65.0 million on capital additions in fiscal 2009 and now believe that will be reduced to roughly $50.0 million and have depreciation of roughly $41.0 million for fiscal 2009.

Other non-current assets totaling $77.2 million were largely unchanged.

Moving to the liability side of the balance sheet. Accounts payable increased $1.1 million, primarily due to increased capital equipment purchases. Accrued income taxes, payroll, and other accrued liabilities increased by $33.1 million. The largest items here are profit sharing accrual, income taxes payable, and accrued interest payable on our convertible debt.

The largest impact within the quarter was in accrued income taxes. No tax payments on the current year’s liability were required in the first quarter, whereas two payments are required in the second quarter.

Deferred income on shipments to distribution decreased this quarter, as our shipments to U.S. distributors were roughly $2.0 million less than they had shipped out to their end customers. Our accounting on shipments to U.S. distribution is conservative. We do not record a sale nor income in our results of operation until the distributor ships the product out to its end customer.

We continue to closely control our inventory of distribution to properly position the inventory without any unneeded build-up.

Deferred tax and other long-term liabilities decreased by $5.1 million due to several tax-related items.

Changes in the stockholder equity accounts were primarily the result of the usual quarterly transactions for net income, dividends paid, and employee stock activity. The company announced that it will again pay a $0.21 per share quarterly cash dividend, having raised it in January of this year from $0.18 to $0.21 per share. The company began paying a dividend in 1992 and has increased it every year since and currently now pays a greater than 3% yield.

Looking forward. I would like to close out our introductory comments by re-visiting our guidance. The credit crisis has had a big impact on our guidance. As recently as early September our business was tracking to have a positive book-to-bill ratio and we were expecting to again guide to flat to low-single-digit revenue growth.

However, once the credit crisis hit and began to deepen, more of our customers became cautious and began to curtail their orders. Data on diminishing factory utilization rates and on rising unemployment claims was published. These dramatic changes have made forecasting difficult.

Field sales personnel forecasted reduced sales in the 10% range, however they cautioned whether their customers had yet fully adjusted to changing economic events. We have begun to receive some cancellations and push-outs from consumer-oriented customers, adjusting their expectations of likely holiday-season sales. Automotive retail sales have been off dramatically and this is bound to have a ripple effect on the economy.

Given the negative impact of the credit crisis in the past few weeks, even though the major governments have taken steps to improve the situation, we believe it will take some time to restore business confidence and that has led us to increase our range of quarterly impact from 10% to 20%. We believe this is a change in demand patterns and not a case of losing production or design opportunities at our customer base.

We want to emphasize that in a similar difficult economic period in 2001, during the dot-com bust, we remained very profitable and cash-flow positive. Many of our expenses are variable and we have had experience at adjusting these costs to meet current demand.

Even at the forecasted diminished sales ranges, we forecast profit before tax remaining above 40% of sales.

I would now like to open up the conference call to questions to be addressed to either Bob, Lothar, or myself.

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