Linear Technology (LLTC)

Determining Fair Value

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model that uses the assumptions in the following table. Expected volatilities are based on implied volatilities from traded options on the Company’s stock.  Expected volatility was lower in the three and nine month periods ended April 2, 2006 when compared to the same periods in the previous fiscal year because the Company changed its expected volatility assumption from historical volatility to implied volatility during fiscal year 2005.  The Company believes that implied volatility is more reflective of market conditions and a better indicator of expected volatility than historical volatility.  The Company uses the simplified calculation of expected life, described in the SEC’s Staff Accounting Bulletin 107, as the Company shortened the contractual life of employee stock options from ten years to seven years.  The dividend yield is determined by dividing the expected per share dividend during the coming year by the average fair market value of the stock during the quarter.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The estimated fair value of the employee stock options is amortized to expense using the straight-line method over the vesting period.

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Determining Fair Value

The fair value of each option award is estimated on the date of grant using the Black Scholes option-pricing model that uses the assumptions in the following table. Expected volatilities are based on implied volatilities from traded options on the Company’s stock.  Expected volatility was lower in the three and  six month periods ended January 1, 2006 when compared to the same periods in the previous fiscal year because the Company changed its expected volatility assumption from historical volatility to implied volatility during fiscal year 2005.  The Company believes that implied volatility is more reflective of market conditions and a better indicator of expected volatility than historical volatility.  The Company uses the simplified calculation of expected life, described in the SEC’s Staff Accounting Bulletin 107, as the Company shortened the contractual life of employee stock options from ten years to seven years.  The dividend yield is determined by dividing the expected per share dividend during the coming year by the average fair market value of the stock during the quarter.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The estimated fair value of the employee stock options is amortized to expense using the straight-line method over the vesting period.

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