In the Company's press release dated January 13, 2009, the Company announced its quarterly results for the second quarter ended December 28, 2008. While in the process of performing quarterly review procedures in accordance with Statement on Auditing Standard No. 100 ("SAS 100"), the Company's independent registered public accounting firm had not taken exception to the Company's accounting and disclosure of its treatment of the acceleration of stock options prior to the filing of the Company's press release. In its release the Company stated that "The Company accelerated the vesting of all "out-of-the-money" stock options previously awarded to its non-officer and non-director employees under its stock option plans. The unvested options to purchase approximately 1.4 million shares became exercisable as a result of the vesting acceleration on December 17, 2008. The additional charge to the consolidated statement of income as a result of the acceleration totaled $15.0 million. This incremental charge increased Cost of Sales by $2.3 million; Research and Development expense by $7.5 million; and Selling, General and Administrative expense by $5.2 million."

Subsequent to the issuance of the press release and prior to the completion of its SAS 100 review of the second quarter December 28, 2008, the Company's independent registered public accounting firm informed the Company that it believed the Company's accounting treatment for the option acceleration did not comply with SFAS No. 123(R), "Share-Based Payment."

The Company has been advised by its independent registered public accounting firm that it and other large registered public accounting firms are jointly in the process of seeking the views of the staff of the Securities and Exchange Commission ("SEC") with respect to the application of certain provisions of SFAS123(R), specifically to treatment of accelerating the vesting of "out-of-money" stock options. We understand that the meeting between the SEC and the Company's independent registered public accounting firm, as well as the other large registered public accounting firms, is occurring to provide clarity in the application of these certain provisions.

The Company has chosen not to wait for the SEC's decision as the Company has chosen to file its 10-Q within the legal deadline of 40 calendar days. Accordingly, the Company has revised its second quarter fiscal 2009 results to eliminate the $15.0 million non-cash charge related to these options. The $15.0 million charge will now be recognized over the next 2.5 years. The result of this revision is an increase to our previously announced net income of $11.0 million and an increase to diluted earnings per share of $0.05.

Overview

Linear Technology Corporation is a manufacturer of high performance linear integrated circuits. The Company generates revenue exclusively from the sale of analog integrated circuits. The Company targets the high performance segment of the analog integrated circuit market. The Company was founded in 1981 and became a public company in 1986. Linear Technology 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, uModuleTM 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.

Going into the second quarter of fiscal year 2009, there was greater than usual uncertainty in forecasting the Company's results in light of the global credit crisis. Throughout the quarter the Company saw further weakness in order patterns, and as a result revenue of $249.2 million decreased 20% or $61.2 million compared to first quarter revenue of $310.4 million and decreased 14% or $39.5 million from $288.7 million reported in the second quarter of fiscal year 2008. Entering the quarter, the Company was staffed to support revenue levels greater than $300 million. To maintain profitability, the Company had to cut its variable costs as a result of the lower revenue levels. The Company reacted to this weakness by reducing labor and related costs through headcount reductions, requiring employees to take approximately two weeks of vacation or unpaid time during the quarter, lowering other variable compensation and otherwise limiting operating expenditures where possible. Going into the third quarter of fiscal year 2009, there is continued uncertainty in forecasting and therefore the Company will continue to control its variable costs by requiring employees to take approximately three weeks of vacation or unpaid time during the quarter and lowering other variable compensation.

Results for the December quarter were impacted by three unusual items:

· The Company purchased and retired $200.0 million of face value of its 3.125% Convertible Senior Notes, resulting in a gain of approximately $21.0 million, net of deferred issuance costs.

· The Company reported approximately $1.6 million in restructuring expenses for employee severance costs related to a reduction in workforce of approximately 100 employees. The $1.6 million charge represents the severance costs incurred in connection with this workforce reduction and the majority of these severance amounts were paid during the December quarter.

· Lastly, the Company's quarterly tax rate of 22.5% was positively impacted as a result of the R&D tax credit which was restored by legislation retroactive to the beginning of calendar year 2008.

Critical Accounting Estimates

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

The Company uses the Black-Scholes valuation model to determine the fair value of its stock options at the date of grant. The stock options fair value is then amortized straight-line over the vesting period, which is generally five years. 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. Higher volatility and expected lives result in a proportional increase to stock-based compensation determined at the date of grant. The expected dividend rate and expected risk-free rate do not have as significant an effect on the calculation of fair value. As a result, if factors change and the Company's estimates of volatility and expected life were to increase or decrease, the Company's stock-based compensation expense could be materially different in the future. In addition, if deferred taxes based on the Black-Scholes valuation are greater than or less than the gain on the sale of the associated stock option, the Company's income tax expense could increase or decrease.

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. During the second quarter of fiscal year 2009, the Company recognizes approximately 17% 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 December 28, 2008, the Company had approximately $37.7 million of deferred revenue and $6.4 million of deferred cost of sales recognized as $31.3 million of "Deferred income on shipment to distributors." 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." The Company believes that its deferred costs of revenues have limited risk of material impairment, as the Company offers stock rotation privileges to distributors (up to 3% to 5% of quarterly purchases) which enable distributors to rotate slow moving inventory. In addition, stock rotated inventory that is returned to the Company is generally resalable. The Company reviews distributor ending on-hand inventory balances, as well as orders placed on the Company to ensure that distributors are not overstocking parts and are ordering to forecasted demand. 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.

Results of Operations

The table below summarizes the income statement items for the three months and
six months ended December 28, 2008 and December 30, 2007 as a percentage of
total revenue and provides the percentage change in absolute dollars of such
items comparing the interim period ended December 28, 2008 to the corresponding
period from the prior fiscal year:

                            Three Months Ended                          Six Months Ended
                 December 28,   December 30,   Increase/    December 28,   December 30,   Increase/
                     2008           2007       (Decrease)       2008           2007       (Decrease)

Revenues            100.0%         100.0%        (14%)         100.0%         100.0%         (2%)
Cost of sales        24.2           22.9          (9)           23.5           22.8           1
Gross profit         75.8           77.1          (15)          76.5           77.2          (3)
Expenses:
Research and         18.4           16.6          (4)           17.3           16.8           1
development
Selling, general
and
administrative       13.1           11.6          (3)           12.5           11.6           5
Restructuring        0.6             -                          0.3             -
                     32.1           28.2          (2)           30.1           28.4           4
Operating income     43.7           48.9          (23)          46.4           48.8          (7)
Interest expense    (5.3)          (5.0)          (8)          (4.9)          (5.1)          (4)
Interest income      2.5            2.5           (16)          2.3            2.4           (4)
Gain on early
retirement
convertible          8.4             -                          3.8             -
senior notes
Income before
income taxes        49.3%          46.4%          (8)          47.6%          46.1%          (1)

Effective tax       22.5%          30.0%                       23.8%          29.5%
rates

Revenue for the quarter ended December 28, 2008 was $249.2 million, a decrease of $39.5 million or 14% from revenue of $288.7 million for the same quarter of the previous fiscal year. The decrease in revenue is due to lower domestic and international sales as a result of the weakness in the global economy. The average selling price ("ASP") of $1.56 per unit in the second quarter of fiscal year 2009 increased over the second quarter of fiscal year 2008 average selling price of $1.49 per unit. The increase in the Company's ASP is primarily due to the change in sales mix to a lower percentage of sales in the cell phone and consumer end-markets and a higher percentage of sales in the industrial end-market. Geographically, international revenues were $170.9 million or 69% of revenues, a decrease of $34.5 million as compared to international revenues of $205.4 million or 71% of revenues for the same quarter of the previous fiscal year. Internationally, revenues to Rest of the World ("ROW"), which is primarily Asia excluding Japan, represented $93.4 million or 38% of revenues, while sales to Europe and Japan were $44.1 million or 18% of revenues and $33.4 million or 13% of revenues, respectively. Domestic revenues were $78.3 million or 31% of revenues in the second quarter of fiscal year 2009, a decrease of $5.0 million, from $83.3 million or 29% of revenues in the same period in fiscal year 2008.

Revenue for the six months ended December 28, 2008 was $559.5 million, a decrease of $10.7 million or 2% from revenue of $570.2 million for the same period of the previous fiscal year. The decrease in revenue for the six-month period was due to similar factors as the three-month period discussed above. The ASP for the first six-month period of fiscal year 2009 was relatively flat at $1.51 per unit compared to $1.52 per unit in the same period of fiscal year 2008. Geographically, international revenues were $397.1 million or 71% of revenues, decreased $4.8 million from international revenues of $401.9 million or 70% of revenues for the same period of the previous fiscal year. Internationally, revenues to ROW, represented $223.6 million or 40% of revenues, while sales to Europe and Japan were $99.9 million or 18% of revenues and $73.6 million or 13% of revenues, respectively. Domestic revenues were $162.4 million or 29% of revenues in the first six-month period of fiscal year 2009, a decrease of $5.9 million, compared to $168.3 million or 30% of revenues in the same period in fiscal year 2008.

Research and development ("R&D") expenses for the quarter ended December 28, 2008 were $45.8 million, a decrease of $2.0 million or 4% from R&D expenses of $47.8 million for the same period in the previous fiscal year. The decrease in R&D expenses was primarily due to a $1.3 million decrease in employee profit sharing and a $0.8 million decrease in compensation costs related to the impact of requiring employees to take approximately two weeks of vacation or time-off without pay and the reduction in workforce. Offsetting these decreases to R&D expense was a $0.1 million increase in stock-based compensation.

R&D expenses for the six months ended December 28, 2008 were $96.7 million, an increase of $1.1 million or 1% over R&D expenses of $95.6 million for the same period in the previous fiscal year. The increase in R&D expenses was due to a $1.7 million increase in compensation costs related to an increase in employee headcount and annual salary increases partially offset by the impact of requiring employees to take approximately two weeks of vacation or time-off without pay and the reduction in workforce. The increase in R&D expense was also due to a $0.3 million increase in stock-based compensation. Offsetting these increases to R&D expenses was a $0.3 million decrease in employee profit sharing and a $0.6 million decrease in other R&D expenses such as software and equipment maintenance fees.

Selling, general and administrative expenses ("SG&A") for the quarter ended December 28, 2008 were $32.6 million, a decrease of $1.0 million or 3% from SG&A expenses of $33.6 million for the same period in the previous fiscal year. The decrease in SG&A expenses was primarily due to a $1.0 million decrease in employee profit sharing. The decrease in SG&A expenses was also due to a $0.7 million decrease in other SG&A expenses such as legal and advertising costs. Offsetting these decreases to SG&A expenses was a $0.1 million increase in stock-based compensation and a $0.6 million increase in compensation costs related to an increase in employee headcount and annual salary increases partially offset by the impact of requiring employees to take approximately two weeks of vacation or time-off without pay.

SG&A expenses for the six months ended December 28, 2008 were $69.7 million, an increase of $3.3 million or 5% over SG&A expenses of $66.3 million for the same period in the previous fiscal year. The increase in SG&A expenses was due to a $0.3 million increase in stock-based compensation and a $2.9 million increase in compensation costs related to an increase in employee headcount and annual salary increases partially offset by the impact of requiring employees to take approximately two weeks of vacation or time-off without pay. Other SG&A spending was up $0.4 million primarily due to higher expenses in the first quarter of fiscal year 2009 as a result of high travel costs by sales personnel. Offsetting these increases was a $0.3 million decrease in employee profit sharing.

During the second quarter of fiscal year 2009, the Company responded to lower sales levels and the uncertain business climate by reducing its workforce by approximately 100 employees. The $1.6 million charge represents severance costs incurred in connection with this workforce reduction and the majority of these severance amounts were paid during the December quarter. The annual savings as a result of lower labor costs is expected to be approximately $5.5 million.

Interest expense was $13.2 million and $27.7 million for the second quarter and the first six month period of fiscal year 2009, a decrease of $1.2 million and $1.3 million, respectively, from the corresponding periods of fiscal year 2008. The decrease in interest expense was primarily due to the Company retiring $200.0 million face value of its 3.125% Convertible Senior Notes during the second quarter of fiscal year 2009.

Interest income was $6.1 million and $13.1 million for the second quarter and the first six month period of fiscal year 2009, a decrease of $1.1 million and $0.6 million, respectively, from the corresponding periods of fiscal year 2008. Interest income decreased due to the decrease in the average interest rate earned on the Company's cash investment balance.

During the second quarter of fiscal year 2009, the Company took advantage of depressed market prices on its outstanding debt and purchased and retired $200.0 million face value of its 3.125% Convertible Senior Notes, resulting in a gain of approximately $21.0 million net of deferred issuance costs.

The Company's tax rate for the second quarter of fiscal year 2009 was 22.5% as compared to 30.0% 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 second quarter of fiscal year 2009 related to the retroactive reinstatement of the R&D tax credit, as well as the impact of the R&D credit for fiscal 2009 in the annual effective tax rate. The fiscal 2009 tax rate is also favorably impacted from higher-tax free interest income and higher domestic manufacturing tax benefits relative to taxable income. The Company's annual effective tax rate excluding discrete items and other quarterly adjustments is approximately 28%.

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 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, 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.

As the Company enters its March quarter, there continues to be economic uncertainty as a result of the global credit crisis. Orders placed on the Company continue to be weak in the first month of the March quarter. It is a difficult time to forecast when there will be some stabilization and subsequent recovery. The Company currently anticipates that its third fiscal quarter revenues will be down in the 15% to 20% range from the second quarter. In order to meet these expectations, turnable bookings in February and March will need to exceed the depressed December and early January run rate. The Company continues to control costs where possible and will make adjustments to its operations as necessary to mitigate the effect of declining revenues. The Company currently estimates pre-tax profits are likely to fall into the low-to-mid thirties range as a percentage of net sales.

. . .