UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 5, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Analog Devices, Inc.

Massachusetts		04-2348234
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
One Technology Way, Norwood, MA		02062-9106
(Address of principal executive offices)		(Zip Code)

(781) 329-4700
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o       Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO þ

     As of May 5, 2007 there were 327,098,839 shares of Common Stock, $0.16 2/3 par value per share, outstanding.

 

 

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands, except per share amounts)

		Three Months Ended
		May 5, 2007				April 29, 2006
Product revenue		$	669,132			$	643,872
Cost of sales (1)			287,494				263,201
Gross margin			381,638				380,671
Operating expenses:
Research and development (1)			146,686				131,848
Selling, marketing, general and administrative (1)			93,045				97,432
Special charges			10,116				—
			249,847				229,280
Operating income			131,791				151,391
Nonoperating (income) expense:
Interest expense			—				21
Interest income			(20,871	)			(25,895	)
Other, net			(10,221	)			(13,351	)
			(31,092	)			(39,225	)
Income before income taxes and minority interest			162,883				190,616
Provision for income taxes			37,527				44,795
Minority interest			—				—
Net income		$	125,356			$	145,821
Shares used to compute earnings per share – basic			329,988				364,225
Shares used to compute earnings per share – diluted			338,840				376,811
Earnings per share – basic		$	0.38			$	0.40
Earnings per share – diluted		$	0.37			$	0.39
Dividends declared and paid per share		$	0.18			$	0.12

Cost of sales		$	2,672			$	990
Research and development			8,359				8,543
Selling, marketing, general and administrative			6,593				7,684

See accompanying notes.

ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands, except per share amounts)

		Six Months Ended
		May 5, 2007				April 29, 2006
Product revenue		$	1,325,746			$	1,265,174
Revenue from the one-time payment associated with the licensing of certain intellectual property rights			35,000				—
Total revenue			1,360,746				1,265,174
Cost of sales (1)			562,088				523,716
Gross margin			798,658				741,458
Operating expenses:
Research and development (1)			290,580				263,136
Selling, marketing, general and administrative (1)			197,726				193,713
Special charges			15,312				1,013
			503,618				457,862
Operating income			295,040				283,596
Nonoperating (income) expense:
Interest expense			—				31
Interest income			(45,708	)			(49,152	)
Other, net			(17,686	)			(10,696	)
			(63,394	)			(59,817	)
Income before income taxes and minority interest			358,434				343,413
Provision for income taxes			80,070				77,035
Minority interest			219				—
Net income		$	278,583			$	266,378
Shares used to compute earnings per share – basic			334,343				365,180
Shares used to compute earnings per share – diluted			344,024				378,574
Earnings per share – basic		$	0.83			$	0.73
Earnings per share – diluted		$	0.81			$	0.70
Dividends declared and paid per share		$	0.34			$	0.24

Cost of sales		$	5,608			$	1,944
Research and development			17,265				18,806
Selling, marketing, general and administrative			14,808				17,774

See accompanying notes.

ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)

Assets		May 5, 2007				October 28, 2006
Cash and cash equivalents		$	358,590			$	343,947
Short-term investments			1,436,082				1,784,387
Accounts receivable, net			332,116				329,393
Inventories (1):
Raw materials			19,439				16,430
Work in process			260,244				264,076
Finished goods			102,494				98,145
			382,177				378,651
Deferred tax assets			106,411				91,045
Deferred compensation plan investments			1,178				1,109
Prepaid expenses and other current assets			73,166				82,770
Total current assets			2,689,720				3,011,302
Property, plant and equipment, at cost:
Land and buildings			357,997				353,912
Machinery and equipment			1,400,173				1,371,332
Office equipment			78,852				78,976
Leasehold improvements			61,023				109,028
			1,898,045				1,913,248
Less accumulated depreciation and amortization			1,328,727				1,350,623
Net property, plant and equipment			569,318				562,625
Deferred compensation plan investments			33,115				30,579
Other investments			521				850
Goodwill			273,278				256,209
Intangible assets, net			36,952				42,808
Deferred tax assets			54,821				54,734
Other assets			28,951				27,744
Total other assets			427,638				412,924
		$	3,686,676			$	3,986,851

See accompanying notes.

ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands, except share amounts)

Liabilities and Shareholders’ Equity		May 5, 2007				October 28, 2006
Accounts payable		$	138,689			$	124,566
Deferred income on shipments to distributors			154,322				149,543
Income taxes payable			106,463				60,956
Deferred compensation plan liability			1,178				1,109
Accrued liabilities			147,473				154,769
Total current liabilities			548,125				490,943
Deferred income taxes			13,549				3,414
Deferred compensation plan liability			33,176				30,633
Other non-current liabilities			27,513				25,851
Total non-current liabilities			74,238				59,898
Minority interest			—				217
Commitments and contingencies
Shareholders’ Equity
Preferred stock, $1.00 par value, 471,934 shares authorized, none outstanding			—				—
Common stock, $0.16 2/3 par value, 1,200,000,000 shares authorized, 327,098,839 shares issued and outstanding (342,000,004 on October 28, 2006)			54,518				57,001
Capital in excess of par value			—				—
Retained earnings			2,997,560				3,378,999
Accumulated other comprehensive income (loss)			12,235				(207	)
Total shareholders’ equity			3,064,313				3,435,793
		$	3,686,676			$	3,986,851

See accompanying notes.

ANALOG DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands)

		Six Months Ended
		May 5, 2007				April 29, 2006
Cash flows from operating activities:
Net income		$	278,583			$	266,378
Adjustments to reconcile net income to net cash provided by operations:
Depreciation			71,328				85,766
Amortization of intangibles			6,869				808
Stock-based compensation expense			37,681				38,524
Deferred income taxes			(5,318	)			(20,401	)
Excess tax benefit-stock options			(21,494	)			(14,736	)
Non-cash portion of special charge			—				459
Gain on sale of a product line			—				(13,027	)
Gain on sale of an investment			(7,919	)			—
Minority interest			(219	)			—
Other non-cash expense			278				580
Changes in operating assets and liabilities			86,997				36,043
Total adjustments			168,203				114,016
Net cash provided by operating activities			446,786				380,394
Cash flows from investing activities:
Purchases of short-term available-for-sale investments			(1,206,340	)			(1,375,974	)
Maturities of short-term available-for-sale investments			1,560,264				1,168,437
Additions to property, plant and equipment			(77,387	)			(49,182	)
(Increase) decrease in other assets			(180	)			3,856
Payments for acquisitions			(6,000	)			—
Proceeds from sale of a product line			—				23,070
Proceeds from sale of an investment			8,003				—
Net cash provided (used) by investing activities			278,360				(229,793	)
Cash flows from financing activities:
Repurchase of common stock			(697,813	)			(362,807	)
Net proceeds from employee stock plans			78,259				59,679
Excess tax benefit-stock options			21,494				14,736
Dividend payments to shareholders			(114,299	)			(88,285	)
Net cash used for financing activities			(712,359	)			(376,677	)
Effect of exchange rate changes on cash			1,856				976
Net increase (decrease) in cash and cash equivalents			14,643				(225,100	)
Cash and cash equivalents at beginning of period			343,947				627,591
Cash and cash equivalents at end of period		$	358,590			$	402,491

See accompanying notes.

ANALOG DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MAY 5, 2007
(all tabular amounts in thousands except per share amounts and percentages)

Note 1 – Basis of Presentation

In the opinion of management, the information furnished in the accompanying condensed consolidated financial statements reflects all normal recurring adjustments that are necessary to fairly state the results for these interim periods and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2006 and related notes. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for the fiscal year ending November 3, 2007 or any future period.

The Company has a 52-53 week fiscal year that ends on the Saturday closest to the last day in October. Fiscal 2007 is a 53-week fiscal year and fiscal 2006 was a 52-week fiscal year. The additional week in fiscal 2007 was included in the first quarter ended February 3, 2007. Therefore, the first six months of fiscal 2007 included an additional week of operations as compared to the first six months of fiscal 2006.

Note 2 – Stock-Based Compensation

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123 Accounting for Stock-Based Compensation. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement over their vesting period based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative.

On October 30, 2005 (the first day of its 2006 fiscal year), the Company adopted SFAS 123R using the modified prospective method as permitted under SFAS 123R. Under this transition method, compensation cost recognized in fiscal 2006 and fiscal 2007 includes: (a) compensation cost for all share-based payments granted prior to but not yet vested as of October 29, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to October 29, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified prospective method of adoption, the Company’s results of operations and financial position for prior periods have not been restated.

Grant-Date Fair Value

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. Information pertaining to the Company’s stock option awards and the related estimated weighted-average assumptions to calculate the fair value of stock options granted during the three- and six-month periods ended May 5, 2007 and April 29, 2006 are as follows:

		Three Months Ended								Six Months Ended
						April 29,								April 29,
Stock Options		May 5, 2007				2006				May 5, 2007				2006
Options granted (in thousands)			131				211				7,540				8,240
Weighted-average exercise price of stock options		$	34.74			$	38.13			$	33.43			$	39.40
Weighted-average grant date fair-value stock options		$	9.55			$	10.95			$	9.46			$	11.61
Assumptions:
Weighted-average expected volatility			28.9	%			28.6	%			30.4	%			28.6	%
Weighted-average expected term (in years)			5.1				5.0				5.1				5.0
Risk-free interest rate			4.6	%			4.7	%			4.6	%			4.4	%
Expected dividend yield			2.08	%			1.59	%			2.15	%			1.23	%

Expected volatility – The Company is responsible for estimating volatility and has considered a number of factors, including third-party estimates, when estimating volatility. For options granted prior to fiscal 2005, the Company used historical volatility to estimate the grant-date fair value of stock options. The Company changed its method of estimating expected volatility for all stock options granted after fiscal 2004 from exclusively relying on historical volatility to exclusively relying on implied volatility. This change was the result of a thorough review the Company undertook, which included consultations with several third-party advisors. The Company currently believes that the exclusive use of implied volatility results in a more accurate estimate of the grant-date fair value of employee stock options because it more appropriately reflects the market’s current expectations of future volatility. Historical volatility during the period commensurate with the expected term of the Company’s stock options over the past several years included a period of time when the Company’s stock price experienced unprecedented increases and subsequent declines. The Company believes that this past stock price volatility is unlikely to be indicative of future stock price behavior. Options in the Company’s common stock are actively traded on several exchanges. Implied volatility is calculated for the period that is commensurate with the option’s expected term assumption. Because this term often exceeds the period for which there are exchange-traded options in the Company’s common stock, statistical techniques are used to derive the implied volatility for traded options with terms commensurate with the option’s expected term of 5.1 years. This calculation of implied volatility is derived from the closing prices of both the Company’s common stock and exchange traded options from the most recent five trading days prior to the grant date of the employee stock option.

Expected term – The Company uses historical employee exercise and option expiration data to estimate the expected term assumption for the Black-Scholes grant-date valuation. The Company believes that this historical data is currently the best estimate of the expected term of a new option, and that generally its employees exhibit similar exercise behavior.

Risk-free interest rate – The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term assumption is used as the risk-free interest rate.

Expected dividend yield – Expected dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors for the current quarter and dividing that result by the closing stock price on the date of grant. Until such time as the Company’s Board of Directors declares a cash dividend for an amount that is different from the current quarter’s cash dividend, the current dividend will be used in deriving this assumption. Cash dividends are not paid on options, restricted stock or restricted stock units.

Stock-Based Compensation Expense

The Company used the graded attribution method to recognize expense for all stock-based awards prior to the adoption of SFAS 123R. Upon adoption of SFAS 123R on October 30, 2005, the Company changed to the straight-line attribution method to recognize expense for stock-based awards granted after October 29, 2005. The change to the straight-line attribution method was made so that the expense associated with each stock-based award is recognized ratably over the vesting period. The expense associated with the unvested portion of the pre-adoption grants will continue to be expensed using the graded attribution method.

The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock-based award. Based on an analysis of its historical forfeitures, the Company has applied an annual forfeiture rate of 3.4% to all unvested stock-based awards as of May 5, 2007. The 3.4% represents the portion that is expected to be forfeited each year over the vesting period. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those awards that vest.

The Company’s stock option agreements historically provided for retirement-related continued vesting for a portion, or all, of certain stock options based on the optionee’s age and years of service (the retirement provision) in that regardless of whether the employee continues to provide services, the optionee would receive the benefit of the stock option. SFAS 123R clarifies the timing for recognizing stock-based compensation expense for awards subject to continued vesting upon meeting this retirement provision. This compensation expense must be recognized over the period from the date of grant to the date retirement eligibility is met if it is shorter than the required service period. Upon adoption of SFAS 123R in the first quarter of fiscal 2006, the Company changed its policy regarding the timing of option expense recognition for optionees meeting the criteria of the retirement provision to recognize compensation cost over the period through the date that the optionee is no

longer required to provide service to earn the award. Prior to the adoption of SFAS 123R, the Company’s policy was to recognize these compensation costs over the vesting term. Had the Company applied these non-substantive vesting provisions required by SFAS 123R to awards granted prior to the adoption of SFAS 123R, the impact on the pro forma net earnings would have been immaterial. Effective beginning in the third quarter of fiscal 2006, new grants do not include a provision that provides for retirement-related continued vesting.

The adoption of SFAS 123R had the following impact on the second quarter of fiscal 2007 results: operating profit before tax was lower by $17.4 million, net income was lower by $12.4 million, cash flow from operations was lower by $15.0 million, cash flow from financing activities was higher by $15.0 million and basic and diluted EPS were each lower by $0.04. The adoption of SFAS 123R had the following impact on results for the six-months ended May 5, 2007: operating profit before tax was lower by $37.3 million, net income was lower by $26.5 million, cash flow from operations was lower by $21.5 million, cash flow from financing activities was higher by $21.5 million and basic and diluted EPS were each lower by $0.08.

Stock-Based Compensation Activity

A summary of the activity under the Company’s stock option plans as of May 5, 2007 and changes during the three and six month periods then ended is presented below:

										Weighted-
										Average
						Weighted-				Remaining				Aggregate
		Options				Average Exercise				Contractual				Intrinsic
Quarter-to-Date Activity		Outstanding				Price Per Share				Term in Years				Value
Options outstanding at February 3, 2007			88,312			$	34.34
Options granted			131			$	34.74
Options exercised			(3,676	)		$	14.66
Options forfeited			(576	)		$	35.71
Options expired			(1,004	)		$	44.42
Options outstanding at May 5, 2007			83,187			$	35.08				5.6			$	528,607
Options exercisable at May 5, 2007			55,956			$	35.07				4.4			$	397,885
Options vested or expected to vest at May 5, 2007 (1)			81,543			$	35.05				5.6			$	522,766

						Weighted-
						Average
		Options				Exercise Price
Year-to-Date Activity		Outstanding				Per Share
Options outstanding at October 28, 2006			84,461			$	34.09
Options granted			7,540			$	33.43
Options exercised			(5,481	)		$	14.30
Options forfeited			(1,294	)		$	35.11
Options expired			(2,039	)		$	44.03
Options outstanding at May 5, 2007			83,187			$	35.08

During the three and six months ended May 5, 2007, the total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) was $81.3 million and $116.4 million, respectively, and the total amount of cash received from exercise of these options was $53.9 million and $78.4 million, respectively. The total grant-date fair value of stock options that vested during the three and six months ended May 5, 2007 was approximately $1.2 million and $38.5 million, respectively.

During the three and six months ended April 29, 2006, the total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) was $27.8 million and $87.0 million, respectively, and the total amount of cash received from exercise of these options was $21.1 million and $59.8 million, respectively. The total grant-date fair value of stock options that vested during the three and six months ended April 29, 2006 was approximately $3.9 million and $107.7 million, respectively.

A summary of the Company’s restricted stock award activity as of May 5, 2007 and changes during the three and six month periods then ended is presented below:

						Weighted-
		Restricted				Average Grant
		Shares				Date Fair Value
Quarter-to-Date Activity		Outstanding				Per Share
Non-vested shares outstanding at February 3, 2007			70			$	34.84
Awards and/or units granted			3			$	35.37
Restrictions lapsed			(11	)		$	37.99
Awards and/or units forfeited			—				—
Non-vested shares outstanding at May 5, 2007			62			$	34.29

						Weighted-
		Restricted				Average Grant
		Shares				Date Fair Value
Year-to-Date Activity		Outstanding				Per Share
Non-vested shares outstanding at October 28, 2006			55			$	35.35
Awards and/or units granted			18			$	33.41
Restrictions lapsed			(11	)		$	37.99
Awards and/or units forfeited			—				—
Non-vested shares outstanding at May 5, 2007			62			$	34.29

As of May 5, 2007, there was $181.9 million (before tax consideration) of total unrecognized compensation cost related to unvested share-based awards including stock options, restricted stock and restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.8 years.

Note 3 – Comprehensive Income

Components of comprehensive income include net income and certain transactions that have generally been reported in the consolidated statement of shareholders’ equity and consist of the following:

		Three Months Ended
		May 5, 2007				April 29, 2006
Net income		$	125,356			$	145,821
Foreign currency translation adjustments			3,203				734
Change in unrealized holding gains (net of taxes of $853 and $635, respectively) on securities classified as short-term investments			1,669				1,179
Change in unrealized holding (losses) gains (net of taxes of $33 and $119, respectively) on securities classified as other investments			(61	)			(220	)
Change in unrealized gains on derivative instruments designated as cash flow hedges			2,233				4,323
Other comprehensive income			7,044				6,016
Comprehensive income		$	132,400			$	151,837

		Six Months Ended
		May 5, 2007				April 29, 2006
Net income		$	278,583			$	266,378
Foreign currency translation adjustments			5,053				706
Change in unrealized holding gains (net of taxes of $1,970 and $1,546, respectively) on securities classified as short-term investments			3,649				2,871
Change in unrealized holding losses (net of taxes of $80 and $104, respectively) on securities classified as other investments			(148	)			(193	)
Change in unrealized gains on derivative instruments designated as cash flow hedges			3,888				7,059
Other comprehensive income			12,442				10,443
Comprehensive income		$	291,025			$	276,821

The components of accumulated other comprehensive income (loss) at May 5, 2007 and October 28, 2006 consisted of the following:

		May 5, 2007				October 28, 2006
Foreign currency translation adjustment		$	14,467			$	9,414
Unrealized losses on available-for-sale securities			(1,870	)			(5,371	)
Unrealized gains on derivative instruments			4,307				419
Minimum pension liability adjustment			(4,669	)			(4,669	)
Total accumulated other comprehensive income (loss)		$	12,235			$	(207	)

Note 4 – Earnings Per Share

Basic earnings per share is computed based only on the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other potentially dilutive securities using the treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock options is computed using the average market price for the respective period. In addition, under SFAS 123R, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of stock options that are in-the-money. This results in the “assumed” buyback of additional shares, thereby reducing the dilutive impact of stock options. Potential shares related to certain of the Company’s outstanding stock options were excluded because they were anti-dilutive. Those potential shares, determined based on the weighted-average exercise prices during the respective periods, related to the Company’s outstanding stock options could be dilutive in the future. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended
		May 5, 2007				April 29, 2006
Basic:
Net income		$	125,356			$	145,821
Weighted-average shares outstanding			329,988				364,225
Earnings per share		$	0.38			$	0.40
Diluted:
Net income		$	125,356			$	145,821
Weighted-average shares outstanding			329,988				364,225
Assumed exercise of common stock equivalents			8,852				12,586
Weighted-average common and common equivalent shares			338,840				376,811
Earnings per share		$	0.37			$	0.39
Anti-dilutive common stock equivalents related to outstanding stock options			52,089				43,982

		Six Months Ended
		May 5, 2007				April 29, 2006
Basic:
Net income		$	278,583			$	266,378
Weighted-average shares outstanding			334,343				365,180
Earnings per share		$	0.83			$	0.73
Diluted:
Net income		$	278,583			$	266,378
Weighted-average shares outstanding			334,343				365,180
Assumed exercise of common stock equivalents			9,681				13,394
Weighted-average common and common equivalent shares			344,024				378,574
Earnings per share		$	0.81			$	0.70
Anti-dilutive common stock equivalents related to outstanding stock options			54,320				48,160

Note 5 – Special Charges

A summary of the Company’s special charges is as follows:

						Reorganization of Product
		Closure of Wafer				Development and Support				Total Special
Income Statement		Fabrication Facility				Programs				Charges
Fiscal 2005 Charges:
Workforce reductions		$	20,315			$	11,165			$	31,480
Total Fiscal 2005 Charges		$	20,315			$	11,165			$	31,480
Fiscal 2006 Charges:
Facility closure costs		$	—			$	554			$	554
Abandonment of equipment			—				459				459
Other items			—				462				462
Change in estimate			(2,029	)			—				(2,029	)
Workforce reductions			—				2,344				2,344
Total Fiscal 2006 Charges		$	(2,029	)		$	3,819			$	1,790
Fiscal 2007 Charges:
Facility closure costs		$	10,288			$	—			$	10,288
Workforce reductions			—				4,165				4,165
Other items			—				859				859
Total Fiscal 2007 Charges		$	10,288			$	5,024			$	15,312

						Reorganization of Product
		Closure of Wafer				Development and Support				Total Special
Accrued Restructuring		Fabrication Facility				Programs				Charges
Balance at October 28, 2006		$	5,903			$	4,976			$	10,879
Special Charges			3,608				1,588				5,196
Severance payments			(4,205	)			(1,485	)			(5,690	)
Facility closure costs			(3,251	)			—				(3,251	)
Balance at February 3, 2007		$	2,055			$	5,079			$	7,134
Special Charges			6,680				3,436				10,116
Severance payments			(987	)			(1,340	)			(2,327	)
Facility closure costs			(1,979	)			(208	)			(2,187	)
Balance at May 5, 2007		$	5,769			$	6,967			$	12,736

Closure of Wafer Fabrication Facility

During the fourth quarter of fiscal 2005, the Company recorded a special charge of $20.3 million as a result of a decision to close its California wafer fabrication operations and transfer virtually all of the production of products manufactured there to the Company’s facility in Wilmington, Massachusetts. The charge was for severance and fringe benefit costs that were recorded pursuant to SFAS 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (SFAS 88), under the Company’s ongoing benefit plan for 339 manufacturing employees and 28 general and administrative employees at that site. The severance benefit is calculated based on length of past service, and employees must continue to be employed until they are involuntarily terminated in order to receive the severance benefit. The Company completed the remaining cleanup and closure activities during the second quarter of fiscal 2007. As of May 5, 2007, the employment of all of the employees included in this action had been terminated by the Company.

In addition to the charge recorded in the fourth quarter of fiscal 2005, the Company recorded additional expense during fiscal 2006, which consisted of $18.3 million of non-cash cost of sales expenses for additional depreciation due to shortened useful lives of certain manufacturing equipment and $2.0 million for stay-on bonuses. The Company reversed approximately $2.0

million of its severance accrual during fiscal 2006 because some employees voluntarily left the Company, other employees found alternative employment within the Company, and there was an over accrual related to fringe benefits because severance payments, normally paid as income continuance, were paid as lump sum payments which reduced the benefit costs associated with these payments.

The Company completed production at the wafer fabrication facility on November 9, 2006. During the first quarter of fiscal 2007, the Company recorded additional expense, in accordance with SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which consisted of $3.2 million for clean-up and closure costs that were charged to expense as incurred. The additional $0.4 million of this charge was for lease obligation costs for a warehouse facility the Company ceased using during the first quarter of fiscal 2007.

During the second quarter of fiscal 2007, the Company recorded a special charge, in accordance with SFAS 146, which consisted of $1.7 million for clean-up and closure costs that were charged to expense as incurred. Also included in the special charge was $5.0 million of expense for future lease obligation costs for the wafer fabrication facility that the Company ceased using during the second quarter of fiscal 2007. The clean-up activity was completed during the second quarter of fiscal 2007, and the Company does not expect to incur any additional expenses related to this action.

Reorganization of Product Development and Support Programs

During the fourth quarter of fiscal 2005, the Company recorded a special charge of $11.2 million as a result of its decision to reorganize its product development and support programs with the goal of providing greater focus on its analog and digital signal processing product programs. The charge was for severance and fringe benefit costs that were recorded pursuant to SFAS 88 under the Company’s ongoing benefit plan or statutory requirements at foreign locations for 60 manufacturing employees and 154 engineering and selling, marketing, general and administrative employees.

During fiscal 2006, the Company recorded an additional special charge of $3.8 million related to this reorganization action. Approximately $1.5 million of this charge was for lease obligation costs for a facility the Company ceased using during the first quarter of fiscal 2006 and the write-off of property, plant and equipment and other items at this subsidiary. The remaining $2.3 million related to severance and fringe benefit costs that were recorded in the fourth quarter pursuant to SFAS 88 under the Company’s ongoing benefit plan or statutory requirements at foreign locations for 46 engineering and selling, marketing, general and administrative employees.

During the first quarter of fiscal 2007, the Company recorded an additional special charge of $1.6 million related to this reorganization action. Approximately $0.6 million of this charge was for contract termination costs. The remaining $1.0 million relates to severance and fringe benefit costs that were recorded in the first quarter pursuant to SFAS 88 under the Company’s ongoing benefit plan for six engineering employees.

During the second quarter of fiscal 2007, the Company recorded an additional special charge of $3.4 million related to this reorganization action. Approximately $0.2 million of this charge was for lease obligation costs for a facility the company ceased using during the second quarter of fiscal 2007. The remaining $3.2 million relates to the severance and fringe benefit costs that were recorded in the second quarter pursuant to SFAS 88 under the Company’s ongoing benefit plan or minimum statutory requirements at foreign locations for 20 engineering and selling, marketing, general and administrative employees.

As of May 5, 2007, 21 of the 286 employees included in this reorganization action were still employed by the Company. These employees must continue to be employed until they are involuntarily terminated in order to receive the severance benefit.

Note 6 – Segment Information

The Company operates and tracks its results in one reportable segment. The Company designs, develops, manufactures and markets a broad range of integrated circuits. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.

Revenue Trends by End Market

The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the “ship to” customer information and the end customer product or application into which the Company’s product will be incorporated. As data systems for capturing and tracking this data evolve and improve, the categorization of products by end market can vary over time. When this occurs the Company reclassifies revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing, or the underlying trends of results within each end market.

		Three Months Ended												Three Months Ended
		May 5, 2007												April 29, 2006
		Revenue				% of Total Product Revenue				Y/Y%				Revenue				% of Total Product Revenue
Industrial		$	288,955				43	%			6	%		$	273,065				42	%
Communications			188,505				28	%			(1	%)			190,782				30	%
Consumer			136,478				21	%			26	%			108,414				17	%
Computer			55,194				8	%			(23	%)			71,611				11	%
Total Product Revenue		$	669,132				100	%			4	%		$	643,872				100	%

		Six Months Ended												Six Months Ended
		May 5, 2007												April 29, 2006
		Revenue				% of Total Product Revenue				Y/Y%				Revenue				% of Total Product Revenue
Industrial		$	579,930				44	%			10	%		$	528,423				42	%
Communications			360,190				27	%			(6	%)			382,304				30	%
Consumer			267,104				20	%			30	%			204,890				16	%
Computer			118,522				9	%			(21	%)			149,557				12	%
Total Product Revenue		$	1,325,746				100	%			5	%		$	1,265,174				100	%
One-time payment associated with the licensing of IP*			35,000												—
Total Revenue		$	1,360,746											$	1,265,174

Revenue Trends by Product

The following table summarizes revenue by product categories. The categorization of the Company’s products into broad categories is based on the characteristics of the individual products, the specification of the products and in some cases the specific uses that certain products have within applications. The categorization of products into categories is therefore subject to judgment in some cases and can vary over time. In instances where products move between product categories the Company reclassifies the amounts in the product categories for all prior periods. Such reclassifications typically do not materially change the sizing, or the underlying trends of results within each product category.

		Three Months Ended												Three Months Ended
		May 5, 2007												April 29, 2006
		Revenue				% of Total Product Revenue				Y/Y%				Revenue				% of Total Product Revenue
Converters		$	274,673				41	%			7	%		$	256,471				40	%
Amplifiers			137,187				21	%			4	%			131,449				20	%
Power management & reference			47,072				7	%			(14	%)			54,993				9	%
Other analog			98,196				14	%			37	%			71,592				11	%
Total analog products		$	557,128				83	%			8	%		$	514,505				80	%
General purpose DSP			49,447				7	%			(1	%)			50,014				8	%
Wireless Chipsets			55,339				8	%			(18	%)			67,742				10	%
Other DSP			7,218				2	%			(38	%)			11,611				2	%
Total DSP products		$	112,004				17	%			(13	%)		$	129,367				20	%
Total Product Revenue		$	669,132				100	%			4	%		$	643,872				100	%

		Six Months Ended												Six Months Ended
		May 5, 2007												April 29, 2006
		Revenue				% of Total Product Revenue				Y/Y%				Revenue				% of Total Product Revenue
Converters		$	538,321				41	%			10	%		$	489,480				39	%
Amplifiers			274,915				21	%			9	%			252,358				20	%
Power management & reference			98,259				7	%			(10	%)			109,296				9	%
Other analog			191,974				14	%			31	%			146,828				11	%
Total analog products		$	1,103,469				83	%			11	%		$	997,962				79	%
General purpose DSP			105,147				8	%			8	%			97,324				8	%
Wireless Chipsets			102,307				8	%			(24	%)			134,920				11	%
Other DSP			14,823				1	%			(58	%)			34,968				2	%
Total DSP products		$	222,277				17	%			(17	%)		$	267,212				21	%
Total Product Revenue		$	1,325,746				100	%			5	%		$	1,265,174				100	%
One-time payment associated with the licensing of IP*			35,000												—
Total Revenue		$	1,360,746											$	1,265,174

Revenue Trends by Geographic Region

Product revenue by geographic region, based upon point of sale, for the three and six month periods ended May 5, 2007 and April 29, 2006 are as follows:

		Three Months Ended								Six Months Ended
Region		May 5, 2007				April 29, 2006				May 5, 2007				April 29, 2006
North America		$	162,931			$	165,719			$	331,586			$	322,261
Europe			149,460				139,550				298,481				274,028
Japan			132,036				121,315				255,577				237,333
China			95,416				87,135				178,590				166,594
Rest of Asia			129,289				130,153				261,512				264,958
Total Product Revenue		$	669,132			$	643,872			$	1,325,746			$	1,265,174

Note 7 – Goodwill and Intangible Assets

Goodwill

The Company annually evaluates goodwill for impairment as well as whenever events or changes in circumstances suggest that the carrying value of goodwill may not be recoverable. Because the Company has one reporting segment under SFAS 142, the Company utilizes the entity-wide approach for assessing goodwill for impairment and compares its market value to its net book value to determine if an impairment exists. No impairment of goodwill resulted from the Company’s most recent evaluation of goodwill for impairment, which occurred in the fourth quarter of fiscal 2006. No impairment of goodwill resulted in any of the fiscal years presented. The Company’s next annual impairment assessment will be made in the fourth quarter of fiscal 2007 unless indicators arise that would require the Company to reevaluate goodwill for impairment at an earlier date. The following table presents the changes in goodwill during the first six months of fiscal 2007 and the year ended October 28, 2006:

		For the six
		months				For the
		ended				year ended
		May 5,				October
		2007				28, 2006
Balance at beginning of period		$	256,209			$	163,373
Acquisition of TTPCom assets(1)			4,273				812
Acquisition of Integrant Technologies(2)			9,989				80,641
Acquisition of AudioAsics			—				7,250
Foreign currency translation adjustment			2,807				4,133
Balance at end of period		$	273,278			$	256,209

Intangible Assets

The Company reviews identified intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable. Recoverability of these assets is measured by comparison of their carrying value to future undiscounted cash flows the assets are expected to generate over their remaining economic lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying value of the assets exceeds their fair market value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.

Intangible assets, which will continue to be amortized, consisted of the following:

		May 5, 2007								October 28, 2006
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Technology-based		$	54,191			$	23,284			$	53,177			$	17,714
Tradename			1,660				1,195				1,635				995
Customer Relationships			7,157				1,935				6,920				707
Other			6,601				6,243				6,617				6,125
Total		$	69,609			$	32,657			$	68,349			$	25,541

Intangible assets acquired prior to the third quarter of fiscal 2006 continue to be amortized on a straight-line basis over their estimated useful lives, which range from five to ten years. The $43.1 million of intangible assets acquired during the third and fourth quarters of fiscal 2006 are being amortized over their estimated useful lives of five years using an accelerated method of amortization that is expected to reflect the estimated pattern of economic use. The remaining amortization expense will be recognized over a weighted-average period of approximately 1.8 years. Amortization expense related to intangibles was $3.3 million and $0.4 million for the three-month periods ended May 5, 2007 and April 29, 2006 respectively, and $6.9 million and $0.8 million for the six-month periods ended May 5, 2007 and April 29, 2006, respectively.

The Company expects amortization expense for these intangible assets to be:

Fiscal		Amortization
Year		Expense
Remainder of 2007		$	6,292
2008		$	12,438
2009		$	9,391
2010		$	5,897
2011		$	2,746
2012		$	188

Note 8 – Pension Plans

The Company has various defined benefit pension and other retirement plans for certain non-U.S. employees that are consistent with local statutory requirements and practices. The Company’s funding policy for its foreign defined benefit pension plans is consistent with the local requirements of each country. The plans’ assets consist primarily of U.S. and non-U.S. equity securities, bonds, property and cash.

Net periodic pension cost of non-U.S. plans is presented in the following table:

		Three Months Ended
		May 5, 2007				April 29, 2006
Service cost		$	2,759			$	2,587
Interest cost			2,212				1,766
Expected return on plan assets			(2,384	)			(1,738	)
Amortization of prior service cost			(9	)			28
Amortization of transitional obligation or (asset)			2				(7	)
Recognized actuarial loss			203				377
Net periodic pension cost		$	2,783			$	3,013

		Six Months Ended
		May 5, 2007				April 29, 2006
Service cost		$	5,468			$	5,124
Interest cost			4,453				3,494
Expected return on plan assets			(4,811	)			(3,437	)
Amortization of prior service cost			(17	)			56
Amortization of transitional obligation or (asset)			4				(13	)
Recognized actuarial loss			399				748
Net periodic pension cost		$	5,496			$	5,972

Pension contributions of $2.8 million and $4.8 million were made by the Company during the three and six months ended May 5, 2007, respectively. The Company presently anticipates contributing an additional $2.7 million to fund its defined benefit pension plans in fiscal year 2007 for a total of $7.5 million.

Note 9 – Product Warranties

The Company generally offers a 12-month warranty for its products. The Company’s warranty policy provides for replacement of the defective product. Specific accruals are recorded for known product warranty issues. Product warranty expenses were not material during any of the three and six month periods ended May 5, 2007 and April 29, 2006.

Note 10 – Commitments and Contingencies

Tentative Settlement of the SEC’s Previously Announced Stock Option Investigation

In the Company’s 2004 Form 10-K filing, the Company disclosed that the Securities and Exchange Commission (SEC) had initiated an inquiry into its stock option granting practices, focusing on options that were granted shortly before the issuance of favorable financial results. On November 15, 2005, the Company announced that it had reached a tentative settlement with the SEC.

At all times since receiving notice of this inquiry, the Company has cooperated with the SEC. In November 2005, the Company and its President and CEO, Mr. Jerald G. Fishman, made an offer of settlement to the Staff of the SEC. In May 2007, the settlement was finalized with the Staff and we expect that it will be submitted to the Commission for approval; however, the settlement has not yet been considered or approved by the Commission. There can be no assurance a final settlement will be so approved.

The settlement addresses two separate issues. The first issue concerns the Company’s disclosure regarding grants of options to employees and directors prior to the release of favorable financial results. Specifically, the issue relates to options granted to employees (including officers) of the Company on November 30, 1999 and to employees (including officers) and directors of the Company on November 10, 2000. The settlement would conclude that the Company should have made disclosures in its proxy filings to the effect that the Company priced these stock options prior to releasing favorable financial results.

The second issue addressed by the settlement concerns the grant dates for options granted to employees (including officers) in 1998 and 1999, and the grant date for options granted to employees (including officers) and directors in 2001. Specifically, the settlement would conclude that the appropriate grant date for the September 4, 1998 options should have been September 8th (which is one trading day later than the date that was used to price the options); the appropriate grant date for the November 30, 1999 options should have been November 29th (which is one trading day earlier than the date that was used); and the appropriate grant date for the July 18, 2001 options should have been July 26th (which is five trading days after the original date).

In connection with the proposed settlement, the Company would consent to a cease-and-desist order under Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, would pay a civil money penalty of $3 million, and would reprice options granted to Mr. Fishman and other directors in certain years. Options granted to all other employees would be excluded from the repricing. Mr. Fishman would consent to a cease-and-desist order under Sections 17(a)(2) and (3) of the Securities Act, would pay a civil money penalty of $1 million, and would make a disgorgement payment with respect to options granted in certain years. With the exception of options granted in 1998, Mr. Fishman has not exercised or sold any of the options identified in this matter. The Company and Mr. Fishman would settle this matter without admitting or denying the Commission’s findings.

The Company has determined that no restatement of its historical financial results would be necessary due to the proposed settlement because the effects of using revised measurement dates for options granted in 1998, 1999 and 2001 are not material to any of the fiscal years 1998 through 2005 based on the materiality guidelines contained in SAB 99. If a stock-based compensation charge had been taken as a result of the revised measurement dates for these option grants to all employees (including officers) and directors, the net income of the Company for fiscal years 1998 through 2005 would have been reduced by $21.8 million in total. During this period, the Company earned cumulative net income of over $2.5 billion. There would be no impact on revenue, cash flow from operations, or shareholders’ equity as a result of using the revised measurement dates.

The impact on net income in individual fiscal years would have been as follows: fiscal 1998 ($0.2 million), fiscal 1999 ($1.4 million), fiscal 2000 ($1.8 million), fiscal 2001 ($3.7 million), fiscal 2002 ($8.1 million), fiscal 2003 ($6.1 million), fiscal 2004 ($0.5 million).

Other Legal Proceedings

On June 14, 2005, Biax Corporation filed its first amended complaint for patent infringement in the United States District Court for the Eastern District of Texas against the Company and Intel Corporation, alleging that the Company infringed three patents owned by Biax relating to parallel processors. Prior to the filing of the first amended complaint, the Company was unaware of Biax or this action. The first amended complaint sought injunctive relief, unspecified damages with interest, as well as Biax’s costs, expenses and fees. On August 3, 2005, the Company filed an answer and counterclaimed against Biax. In

the counterclaim, the Company sought rulings that the patents were not infringed, the patents were invalid and the patents were unenforceable. On November 7, 2005, Biax filed a second amended complaint alleging that the Company infringed two additional patents. The Company filed an answer and counterclaimed that the two additional patents were not infringed, the patents were invalid and the patents were unenforceable. In May 2007, the parties agreed to a settlement of this litigation for which the Company agreed to pay a nominal cash amount to Biax.

In May 2006, the Company received a document subpoena from the U.S. Attorney for the Southern District of New York requesting records from 2000 to the present relating to the Company’s granting of stock options. The Company believes that the options at issue in this matter are the same option grants which have been the subject of investigation by the SEC. The Company is cooperating with the office of the U.S. Attorney in connection with this subpoena. The Company cannot predict the outcome of this matter, but believes the disposition of the matter will not have a material adverse effect on the Company or its financial position.

On May 25, 2006, the Company filed a lawsuit in United States District Court for the District of Delaware against Linear Technology Corp. (“LTC”), alleging infringement of three Company patents by LTC’s making, selling and using various products. In addition, the Company also sought a declaratory judgment that its products do not infringe eight patents allegedly owned by LTC (the “LTC patents”) and that the LTC patents are invalid. On July 28, 2006, LTC filed an answer and counterclaims, denying that its products infringe the asserted Company patents and asking the court to declare such patents invalid. LTC also claimed that the Company, by making, selling and using various power management products, is infringing seven of the eight LTC patents. LTC seeks damages in an unspecified amount and injunctive relief. On August 21, 2006, the Company filed its answer to LTC’s counterclaims, denying all liability to LTC. The case is currently in the discovery phase and trial is scheduled to begin in June 2008. The Company intends to vigorously pursue its claims against LTC, and to vigorously defend against LTC’s counterclaims. The Company is unable at this time to predict the outcome of this litigation; however, the Company believes that the final disposition of this matter will not have a material adverse effect on the Company or its financial position.

On October 13, 2006, a purported class action complaint was filed in the United States District Court for the District of Massachusetts on behalf of participants in the Company’s Investment Partnership Plan from October 5, 2000 to the present. The complaint named as defendants the Company, certain officers and directors, and the Company’s Investment Partnership Plan Administration Committee. The complaint alleges purported violations of federal law in connection with the Company’s option granting practices during the years 1998, 1999, 2000, and 2001, including breaches of fiduciary duties owed to participants and beneficiaries of the Company’s Investment Partnership Plan under the Employee Retirement Income Security Act. The complaint seeks unspecified monetary damages, as well as equitable and injunctive relief. The Company intends to vigorously defend against these allegations. On November 22, 2006, the Company and the individual defendants filed motions to dismiss the complaint. On January 8, 2007, the Plaintiff filed memoranda in opposition. On January 22, 2007, the Company and the individual defendants filed further memoranda in support of the motions to dismiss. Although the Company believes it has meritorious defenses to the asserted claims, it is unable at this time to predict the outcome of this proceeding.

From time to time as a normal incidence of the nature of the Company’s business, various claims, charges and litigation are asserted or commenced against the Company arising from, or related to, contractual matters, patents, trademarks, personal injury, environmental matters, product liability, insurance coverage and personnel and employment disputes. As to such claims and litigation the Company can give no assurance that it will prevail.

While the Company does not believe that any of the matters described above will have a material adverse effect on the Company’s financial position, an adverse outcome of any of these matters is possible and could have a material adverse effect on the Company’s consolidated results of operations or cash flows in the quarter or annual period in which one or more of these matters are resolved.

Note 11 – Common Stock Repurchase

Since August 2004, the Company has had a common stock repurchase program in place. On December 6, 2006 the Board of Directors authorized the repurchase by the Company of an additional $1 billion of the Company’s common stock, increasing the total amount of the Company’s common stock the Company is authorized to repurchase from $2 billion to $3 billion. Under the repurchase program, the Company may repurchase outstanding shares of its common stock from time to time in the open market and through privately negotiated transactions. Unless terminated earlier by resolution of the Company’s Board of Directors, the repurchase program will expire when the Company has repurchased all shares authorized under the program.

The Company repurchased approximately 10.3 million shares for approximately $364.6 million during the second quarter of fiscal 2007. As of May 5, 2007, the Company had repurchased a total of approximately 69.6 million shares of its common stock for approximately $2.4 billion under this program. The repurchased shares are held as authorized but unissued shares of common stock.

Note 12 – Related Party Transactions

One of the Company’s directors, who has served on the Company’s Board of Directors since 1988, became a director of Taiwan Semiconductor Manufacturing Company, or TSMC, in fiscal 2002 and continues to serve as a director of TSMC. Management believes the terms and prices for the purchases of products from TSMC are not affected by the presence of one of the Company’s directors on the Board of Directors of TSMC. The Company purchased approximately $79 million and $78 million of products from TSMC during the three-month periods ended May 5, 2007 and April 29, 2006, respectively, and approximately $152 million and $141 million during the six-month periods ended May 5, 2007 and April 29, 2006, respectively. Approximately $22 and $17 million was payable to TSMC as of May 5, 2007 and October 28, 2006, respectively. Management anticipates that it will make significant purchases from TSMC in the remaining quarters of fiscal year 2007.