10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 25, 2007.
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________.

Commission File Number: 1-6453
National Semiconductor Corporation (Exact name of registrant as specified in its charter)
DELAWARE (State of Incorporation)	95-2095071 (I.R.S. Employer Identification Number)
2900 SEMICONDUCTOR DRIVE, P.O. BOX 58090 SANTA CLARA, CALIFORNIA 95052-8090 (Address of principal executive offices)

  Registrant’s telephone number, including area code: (408) 721-5000

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 for 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 x		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 x	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 x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of Each Class		Outstanding at November 25, 2007
Common stock, par value $0.50 per share		254,887,812

Page 1 of 42

NATIONAL SEMICONDUCTOR CORPORATION

INDEX

	Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited) for the Three Months and Six Months Ended November 25, 2007 and November 26, 2006	3
Condensed Consolidated Balance Sheets (Unaudited) as of November 25, 2007 and May 27, 2007	4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended November 25, 2007 and November 26, 2006	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6-18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	31
Part II. Other Information
Item 1. Legal Proceedings	32
Item 1A. Risk Factors	33-38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 4. Submission of Matters to a Vote of Security Holders	40
Item 6. Exhibits	41
Signature	42

Page 2 of 42

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended				Six Months Ended
(In Millions, Except Per Share Amounts)	Nov. 25, 2007		Nov. 26, 2006		Nov. 25, 2007		Nov. 26, 2006
	(Unaudited)				(Unaudited)
Net sales	$	499.0	$	501.6	$	970.5	$	1,043.0
Cost of sales		177.8		206.2		352.4		413.3
Gross margin		321.2		295.4		618.1		629.7
Research and development		91.9		89.5		185.7		178.3
Selling, general and administrative		82.8		80.9		158.3		159.5
Severance and restructuring (recovery) expenses		-		1.3		(1.5)		4.0
Gain on sale of manufacturing plant assets		-		-		(3.1)		-
Litigation settlement		3.3		-		3.3		-
Other operating income, net		(0.6)		(0.7)		(0.6)		(2.0)
Operating expenses, net		177.4		171.0		342.1		339.8
Operating income		143.8		124.4		276.0		289.9
Interest income		10.1		9.9		21.3		20.9
Interest expense		(23.7)		(0.4)		(43.3)		(0.9)
Other non-operating income (expense), net		(0.8)		1.1		(1.9)		1.0
Income before taxes		129.4		135.0		252.1		310.9
Income tax expense		38.8		43.6		75.9		99.4
Net income	$	90.6	$	91.4	$	176.2	$	211.5
Earnings per share:
Basic	$	0.35	$	0.28	$	0.67	$	0.65
Diluted	$	0.33	$	0.27	$	0.63	$	0.62
Weighted-average common and potential common shares outstanding:
Basic	258.9		320.9			264.5		325.2
Diluted	271.5		335.6			277.7		339.6

See accompanying Notes to Condensed Consolidated Financial Statements

Page 3 of 42

NATIONAL SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Millions, Except Share Amounts)	Nov. 25, 2007			May 27, 2007
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	833.9		$	828.6
Receivables, less allowances of $25.0 in fiscal 2008 and $32.4 in fiscal 2007		189.3			150.6
Inventories		149.8			176.0
Deferred tax assets		100.9			73.2
Other current assets		44.9			62.1
Total current assets		1,318.8			1,290.5
Property, plant and equipment, net		572.0			583.5
Goodwill		63.6			63.6
Deferred tax assets, net		226.3			194.4
Other assets		79.5			69.9
Total assets	$	2,260.2		$	2,201.9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	62.5		$	-
Accounts payable		57.3			59.9
Accrued expenses		166.7			122.7
Income taxes payable		6.4			117.4
Total current liabilities		292.9			300.0
Long-term debt, net of current portion		1,442.7			20.6
Long-term income taxes payable		147.6			-
Other non-current liabilities		99.7			132.5
Total liabilities		1,982.9			453.1
Commitments and contingencies
Shareholders’ equity:
Common stock of $0.50 par value
Authorized 850,000,000 shares. Issued and outstanding
254,887,812 in fiscal 2008 and 310,292,624 in fiscal 2007		127.4			155.1
Retained earnings		242.2			1,685.7
Accumulated other comprehensive loss		(92.3	)		(92.0	)
Total shareholders’ equity		277.3			1,748.8
Total liabilities and shareholders’ equity	$	2,260.2		$	2,201.9

See accompanying Notes to Condensed Consolidated Financial Statements

Page 4 of 42

NATIONAL SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
(In Millions)	Nov. 25, 2007			Nov. 26, 2006
Cash flows from operating activities:	(Unaudited)
Net income	$	176.2		$	211.5
Adjustments to reconcile net income with net cash provided by operating activities:
Depreciation and amortization		65.4			74.6
Share-based compensation		47.6			57.1
Excess tax benefit from share-based payment arrangements		(13.0	)		(4.6	)
Tax benefit associated with stock options		22.2			9.3
Loss (gain) on investments		1.7			(1.0	)
Loss on disposal of equipment		2.6			0.7
Gain on sale of manufacturing plant assets		(3.1	)		-
Other, net		0.5			0.7
Changes in certain assets and liabilities, net:
Receivables		(38.9	)		23.9
Inventories		26.6			14.9
Other current assets		15.6			(0.6	)
Accounts payable and accrued expenses		17.6			(107.1	)
Current and deferred income taxes		14.2			(18.7	)
Other non-current liabilities		(25.1	)		5.1
Net cash provided by operating activities		310.1			265.8
Cash flows from investing activities:
Purchase of property, plant and equipment		(52.5	)		(70.6	)
Proceeds from sale of property, plant, and equipment		16.0			-
Sale and maturity of available-for-sale securities		-			110.8
Proceeds from sale of investments		0.2			-
Funding of benefit plan		(5.1	)		(8.2	)
Other, net		(2.6	)		0.8
Net cash (used in) provided by investing activities		(44.0	)		32.8
Cash flows from financing activities:
Proceeds from unsecured senior notes, net of issuance costs		992.9			-
Proceeds from bank borrowings, net of issuance costs		1,996.5			-
Repayment of bank borrowing		(1,515.6	)		-
Payment on software license obligations		(8.4	)		(8.4	)
Excess tax benefit from share-based payment arrangements		13.0			4.6
Minimum tax withholding paid on behalf of employees for net share settlements		(14.1	)		(0.4	)
Issuance of common stock		76.3			36.6
Purchase and retirement of treasury stock		(1,780.1	)		(462.8	)
Cash dividends declared and paid		(21.3	)		(19.8	)
Net cash used in financing activities		(260.8	)		(450.2	)
Net change in cash and cash equivalents		5.3			(151.6	)
Cash and cash equivalents at beginning of period		828.6			932.2
Cash and cash equivalents at end of period	$	833.9		$	780.6
See accompanying Notes to Condensed Consolidated Financial Statements

Page 5 of 42

NATIONAL SEMICONDUCTOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Summary of Significant Accounting Policies

Operations

We design, develop, manufacture and market a wide range of semiconductor products, most of which are analog and mixed-signal integrated circuits. Our goal is to be the premier provider of high-performance analog and mixed-signal solutions. We look to create analog intensive solutions that provide more energy efficiency, portability, better audio, sharper images and higher performance in electronic systems.

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (including normal recurring adjustments) necessary to present fairly the financial position and results of operations of National Semiconductor Corporation and our majority-owned subsidiaries. You should not expect interim results of operations necessarily to be indicative of the results for the full fiscal year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported in these unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. This report should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended May 27, 2007.

Earnings Per Share

A reconciliation of the shares used in the computation of basic and diluted earnings per share follows:

	Three Months Ended				Six Months Ended
(In Millions)	Nov. 25, 2007		Nov. 26, 2006		Nov. 25, 2007		Nov. 26, 2006
Numerator:
Net income	$	90.6	$	91.4	$	176.2	$	211.5
Denominator:
Weighted-average common shares outstanding
used for basic earnings per share		258.9		320.9		264.5		325.2
Effect of dilutive securities:
Stock options and restricted stock		12.6		14.7		13.2		14.4
Weighted-average common and potential
common shares outstanding used for
diluted earnings per share		271.5		335.6		277.7		339.6

For the second quarter of fiscal 2008, we did not include options outstanding to purchase 23.7 million shares of common stock with a weighted-average per share exercise price of $27.37 in diluted earnings per share since their effect was antidilutive because the exercise price of these options exceeded the average market price of the common stock during the quarter. For the first six months of fiscal 2008, we did not include options outstanding to purchase 21.9 million shares of common stock with a weighted-average per share exercise price of $27.30 in diluted earnings per share since their effect was antidilutive because the exercise price of these options exceeded the average market price of the common stock during this period. However, these shares could potentially dilute earnings per share in the future.

For the second quarter of fiscal 2007, we did not include options outstanding to purchase 21.6 million shares of common stock with a weighted-average per share exercise price of $26.28 in diluted earnings per share since their effect was antidilutive because the exercise price of these options exceeded the average market price of the common stock during the quarter. For the first six months of fiscal 2007, we did not include options outstanding to purchase 20.7 million shares of common stock with a weighted-average per share exercise price of $26.40 in diluted earnings per share since their effect

Page 6 of 42

was antidilutive because the exercise price of these options exceeded the average market price of the common stock during this period.

Share-Based Compensation

Share-based compensation expense included in operating results for fiscal 2008 and 2007 is presented in the following table:

	Three Months Ended						Six Months Ended
(In Millions, Except Per Share Amounts)	Nov. 25, 2007			Nov. 26, 2006			Nov. 25, 2007			Nov. 26, 2006
Cost of sales:
Gross compensation	$	5.8		$	6.6		$	10.8		$	12.4
Capitalized in inventory during the period		(4.6	)		(5.0	)		(8.6	)		(9.4	)
Realized from inventory during the period		4.3			5.0			8.2			6.1
		5.5			6.6			10.4			9.1
Research and development		7.7			8.8			14.7			16.3
Selling, general and administrative		14.4			17.8			22.5			31.7
Total share-based compensation included
in income before taxes		27.6			33.2			47.6			57.1
Income tax benefit		(8.8	)		(10.2	)		(14.8	)		(19.9	)
Total share-based compensation, net of tax,
included in net income	$	18.8		$	23.0		$	32.8		$	37.2
Share-based compensation effects on
earnings per share:
Basic	$	0.07		$	0.07		$	0.12		$	0.11
Diluted	$	0.07		$	0.07		$	0.12		$	0.11
Share-based compensation capitalized
in inventory	$	2.7		$	3.3		$	2.7		$	3.3
Total share-based compensation	$	27.9		$	33.2		$	48.0		$	60.4

The fair value of share-based awards to employees was estimated using a Black-Scholes option pricing model that used the following weighted-average assumptions:

	Three Months Ended				Six Months Ended
	Nov. 25, 2007		Nov. 26, 2006		Nov. 25, 2007		Nov. 26, 2006
Stock Option Plans
Expected life (in years)	4.1		4.1		4.1		4.1
Expected volatility	35	%	37	%	32	%	38	%
Risk-free interest rate	3.9	%	4.7	%	4.9	%	5.1	%
Dividend yield	0.7	%	0.5	%	0.5	%	0.5	%
Stock Purchase Plans
Expected life (in years)	0.8		0.8		0.8		0.8
Expected volatility	34	%	37	%	34	%	37	%
Risk-free interest rate	4.1	%	4.9	%	4.1	%	4.9	%
Dividend yield	0.7	%	0.5	%	0.7	%	0.5	%

The expected life is based on the simplified method specified by U.S. Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 since the vesting term and contractual life of current option grants differ from historical grants. The expected volatility is based on implied volatility and is determined based on our traded options, which are actively traded on several exchanges. We derive the implied volatility using the closing prices of traded options during a

Page 7 of 42

period that closely matches the timing of the option grant. The traded options selected for our measurement are near-the-money and close to the exercise price of the option grants and have terms ranging from one to two years. The risk-free interest rate is based upon interest rates that match the terms of our employee stock option and stock purchase plans. The dividend yield is based on recent history and our expectation of dividend payouts.

The weighted-average fair value of stock options granted during the second quarter and first six months of fiscal 2008 was $8.07 and $8.96 per share, respectively. The weighted-average fair value of stock options granted during the second quarter and first six months of fiscal 2007 was $8.27 and $8.17 per share, respectively. There were no rights granted under the stock purchase plan in the first quarter of fiscal 2008 since the stock purchase plan now only makes grants of purchase rights twice a year in April and October. Therefore, the weighted-average fair value of rights granted under the stock purchase plans was $7.40 per share for both the second quarter and first six months of fiscal 2008. The weighted-average fair value of rights granted under the stock purchase plan in fiscal 2007 was $6.78 per share for the second quarter and $6.77 per share for the first six months.

Note 2. Condensed Consolidated Financial Statements Detail

Condensed consolidated balance sheets:

(In Millions)	Nov. 25, 2007		May 27, 2007
Receivable allowances:
Doubtful accounts	$	1.2	$	1.2
Returns and allowances		23.8		31.2
Total receivable allowances	$	25.0	$	32.4
Inventories:
Raw materials	$	13.4	$	17.1
Work in process		90.8		109.5
Finished goods		45.6		49.4
Total inventories	$	149.8	$	176.0
Property, plant and equipment:
Total property, plant and equipment	$	2,619.2	$	2,719.9
Less accumulated depreciation and amortization		(2,047.2)		(2,136.4)
Property, plant and equipment, net	$	572.0	$	583.5
Other assets:
Deposits	$	2.0	$	7.9
Debt issuance costs		9.8		-
Deferred compensation plan assets		57.5		54.3
Other		10.2		7.7
Total other assets	$	79.5	$	69.9
Accrued expenses:
Payroll and employee related	$	77.8	$	76.6
Accrued interest payable		28.7		0.1
Dividends payable		15.3		-
Litigation accruals		-		3.2
Other		44.9		42.8
Total accrued expenses	$	166.7	$	122.7

Page 8 of 42

(In Millions)	Nov. 25, 2007		May 27, 2007
Other non-current liabilities:
Accrued pension cost	$	26.1	$	50.1
Deferred compensation plan liability		57.5		54.3
Other		16.1		28.1
Total other non-current liabilities	$	99.7	$	132.5
Accumulated other comprehensive loss:
Unrealized loss on cash flow hedges	$	-	$	(0.1)
Defined benefit pension plans		(92.3)		(91.9)
Total accumulated other comprehensive loss	$	(92.3)	$	(92.0)

Condensed consolidated statements of income:

	Three Months Ended						Six Months Ended
(In Millions)	Nov. 25, 2007			Nov. 26, 2006			Nov. 25, 2007			Nov. 26, 2006
Other operating income, net:
Net intellectual property income	$	(0.1	)	$	(0.4	)	$	(0.1	)	$	(1.0	)
Other		(0.5	)		(0.3	)		(0.5	)		(1.0	)
Total other operating income, net	$	(0.6	)	$	(0.7	)	$	(0.6	)	$	(2.0	)
Other non-operating income (expense), net:
Trading securities:
Change in net unrealized holding gains and losses	$	(0.8	)	$	2.0		$	(1.9	)	$	1.9
Non-marketable investments:
Gain from sale		0.2			-			0.2			-
Impairment loss		-			(0.9	)		-			(0.9	)
Charitable contribution		(0.2	)		-			(0.2	)		-
Total other non-operating income (expense), net	$	(0.8	)	$	1.1		$	(1.9	)	$	1.0

Note 3. Statements of Cash Flows Information

	Six Months Ended
(In Millions)	Nov. 25, 2007		Nov. 26, 2006
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest	$	13.9	$	0.9
Income taxes	$	44.7	$	111.4
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Cancellation of shares withheld for taxes on restricted stock and performance share unit awards	$	14.2	$	0.4
Change in unrealized gain on available-for-sale-securities	$	-	$	0.3
Dividends declared but not yet paid	$	15.3	$	12.8

Page 9 of 42

Note 4. Cost Reduction and Restructuring Programs

In June 2007, we entered into an agreement with the landlord of a facility we vacated as part of a cost reduction action that occurred in fiscal 2004. The agreement terminated and settled the remaining obligations under the lease agreement for $4.2 million. As a result, we recorded a $1.5 million recovery for the release of the residual accrued balance of the lease obligation. The following table provides further detail of amounts reported as severance and restructuring recovery on the condensed consolidated income statement for the first six months of fiscal 2008:

(In Millions)	Analog Segment		All Others			Total
Release of reserves:
Other exit-related costs	$	-	$	(1.5	)	$	(1.5	)
Total severance and restructuring recovery	$	-	$	(1.5	)	$	(1.5	)

After completing the closure of our assembly and test plant in Singapore in early fiscal 2007, we actively engaged in a program to locate a buyer for the facility. In June 2007, we completed the sale of the Singapore facility and its residual equipment for $12.0 million to an unrelated third party. The carrying value of the assets sold was $7.6 million. As a result, we recorded a gain of $3.1 million, which is included in operating results for the first six months of fiscal 2008, after deducting final transaction costs of $1.3 million. These assets were a part of our manufacturing operation, which is not considered an operating segment under SFAS No. 131, but is a corporate group included in the category described as “All Others.”

The following table provides a summary of the activities for the first six months ended November 25, 2007 related to our cost reduction and restructuring actions included in accrued expenses:

	Cost Reduction Actions In Prior Years
(In Millions)	Severance			Other Exit-Related Costs		Total
Balance at May 27, 2007	$	0.5		$	6.2	$	6.7
Release of previous restructuring-related charge		-			(1.5)		(1.5	)
Cash payments		(0.3	)		(4.5)		(4.8	)
Balance at November 25, 2007 included in accrued expenses	$	0.2		$	0.2	$	0.4

We paid $4.8 million during the first six months of fiscal 2008, primarily for other exit-related costs for payments under lease obligations associated with actions taken in prior years, including the settlement of the lease obligation discussed above. As of November 25, 2007, all of the accrued balance was classified as current.

Note 5. Debt

Our $20 million multicurrency credit agreement with a bank that provides for multicurrency loans, letters of credit and standby letters of credit was renewed in October 2007. The agreement contains restrictive covenants, conditions and default provisions that require the maintenance of financial ratios. Under the agreement, we are no longer required to maintain certain levels of tangible net worth, a requirement that previously restricted the amounts available for the payment of dividends on common stock. The agreement expires in October 2008.

Page 10 of 42

Our long-term debt consisted of the following:

(In Millions)	Nov. 25, 2007		May 27, 2007
Bank term floating rate loan at 5.70%	$	484.4	$	-
Senior notes due 2017 at 6.60%		375.0		-
Senior notes due 2012 at 6.15%		375.0		-
Senior floating rate notes due 2010 at 5.94%		250.0		-
Other		20.8		20.6
Total debt		1,505.2		20.6
Less current portion of long-term debt		62.5		-
Long-term debt	$	1,442.7	$	20.6

In June 2007, we entered into an unsecured bridge credit facility with an affiliate of Goldman, Sachs & Co. (“Goldman Sachs”) for $1.5 billion which was used to finance the accelerated stock repurchase program announced in June 2007 (see Note 8 to the Condensed Consolidated Financial Statements). Interest on the bridge loan was paid weekly at 0.5 percent over the one-week London Interbank Offered Rate, or LIBOR. This unsecured bridge credit facility was then repaid and the debt was effectively replaced with $1.0 billion principal amount of senior unsecured notes issued in June 2007 through a public offering and a $500 million unsecured credit facility with a consortium of banks funded in July 2007.

The offering of unsecured notes included $250.0 million aggregate principal amount of senior floating rate notes due June 2010, $375.0 million aggregate principal amount of 6.15 percent senior notes due June 2012 and $375.0 million in aggregate principal amount of 6.60 percent senior notes due June 2017. The senior floating rate notes bear interest at 0.25 percent over the three-month LIBOR, with the interest reset and payable quarterly, and are redeemable by us beginning 18 months after issuance. Interest on the senior fixed rate notes is payable semi-annually and the notes are redeemable by us at any time.

The $500.0 million bank term loan funded under the unsecured credit facility with a consortium of banks matures June 2012 and bears interest at 0.5 percent over the three-month LIBOR (reset quarterly) with principal and interest payable on a quarterly basis. The loan agreement also contains certain covenants that require the maintenance of certain financial ratios. As of November 25, 2007, we were in compliance with all covenants.

The aggregate annual maturities of long-term debt at November 25, 2007 are presented in the following table:

	(In Millions)
Fiscal year:
Remainder of 2008	$	31.3
2009		62.5
2010		62.5
2011		333.2
2012		203.1
2013		437.6
2014 & thereafter		375.0
	$	1,505.2

The estimated fair value of long-term debt was $1,518.1 million at November 25, 2007.

Page 11 of 42

Note 6. Income Taxes

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Recognition of a tax position is determined when it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority.

We adopted FIN 48 effective at the beginning of fiscal 2008. The cumulative effect of applying FIN 48 was a $37.1 million increase to retained earnings at the beginning of fiscal 2008. Historically, we have classified unrecognized tax benefits as current income taxes payable. Under FIN 48, we now classify unrecognized tax benefits as long-term income taxes payable except to the extent we anticipate cash payment within the next year. The amount of unrecognized tax benefits at the beginning of fiscal 2008 was $139.1 million and is reported in long-term income taxes payable. Of this amount, $137.0 million relates to unrecognized tax benefits that, if recognized, would affect our effective tax rate and the remaining $2.1 million would affect goodwill. Any prospective adjustments to our unrecognized tax benefits will be recorded as an increase or decrease to income tax expense and cause a corresponding change to our effective tax rate.

The following table provides a summary of the changes during the first six months of fiscal 2008 in the amount of unrecognized tax benefits that are included in long-term income taxes payable on the condensed consolidated balance sheet:

	(In Millions)
Balance at the beginning of fiscal 2008	$	139.1
Settlements and effective settlements with tax authorities		(4.9	)
Lapse of applicable statute of limitations		(1.2	)
Other changes in unrecognized tax benefits		3.1
Balance at November 25, 2007	$	136.1

Interest and penalties related to unrecognized tax benefits are included within income tax expense. The gross amount of interest and penalties accrued was $11.5 million as of the beginning of fiscal 2008 and $13.9 million as of November 25, 2007.

We are required to file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and many foreign jurisdictions. A number of years may elapse before an uncertain tax position is audited and ultimately resolved. While it is often difficult to predict the final outcome or the exact timing of resolution for any particular uncertain tax position, we believe that the amounts of unrecognized tax benefits we have accrued reflect our best estimate. We adjust these amounts, as well as the related interest and penalties, as actual facts and circumstances change. Upon resolution of an uncertain tax position, we record an adjustment to income taxes in the same period.

We believe it is reasonably possible that the unrecognized tax benefits related to U.S. domestic issues for tax years where the statute of limitations begin to expire could decrease by as much as $13.4 million by the end of fiscal 2008. We also believe that it is reasonably possible that the unrecognized tax benefits related to transfer pricing in international locations for tax years where the statute of limitations begin to expire could decrease by as much as $7.6 million by the end of fiscal 2008.

In 2003, the Internal Revenue Service or IRS completed its examination of our tax returns for fiscal years 1997 through 2000 and issued a notice of proposed adjustment seeking additional taxes of approximately $19.1 million (exclusive of interest) for those years. We contested the adjustment through the IRS administrative process. Our agreement with the Appeals Office of the IRS to settle this matter for a payment of approximately $14.7 million (exclusive of interest) was approved by the Congressional Joint Committee on taxation in October 2007. Interest computations are still being finalized. As of November 25, 2007, our federal tax returns for fiscal years 2001 through 2007 remain subject to examination by the IRS, except for fiscal 2003 which is closed from examination. Several state taxing jurisdictions are examining our state tax returns for fiscal 2004 and 2005. With a few exceptions, tax returns for

Page 12 of 42

fiscal years 1998 and after remain subject to examination by state tax authorities. Internationally, tax authorities from several foreign jurisdictions are also examining our tax returns and our international tax returns in general for fiscal years 2000 and after remain subject to examination.

Note 7. Retirement and Pension Plans

Net periodic pension costs for our defined benefit pension plans maintained in the U.K., Germany, Japan and Taiwan are presented in the following table:

	Three Months Ended						Six Months Ended
(In Millions)	Nov. 25, 2007			Nov. 26, 2006			Nov. 25, 2007			Nov. 26, 2006
Service cost of benefits earned during the period	$	1.3		$	1.5		$	2.8		$	3.0
Plan participant contributions		(0.3	)		(0.3	)		(0.6	)		(0.6	)
Interest cost on projected benefit obligation		4.4			4.1			9.0			8.2
Expected return on plan assets		(5.6	)		(4.2	)		(11.2	)		(8.4	)
Net amortization and deferral		1.6			1.6			3.2			3.2
Net periodic pension cost	$	1.4		$	2.7		$	3.2		$	5.4

Total contributions paid to these plans during fiscal 2008 were $0.7 million in the second quarter and $27.7 million in the first six months. Included in the fiscal 2008 contributions is the funding of $26.2 million in July 2007 to establish plan assets under a security trust agreement for the defined benefit pension plan maintained in Germany. Total contributions paid to these plans during fiscal 2007 were $0.8 million in the second quarter and $1.7 million in the first six months. We currently expect our total fiscal 2008 contribution to these plans to be approximately $34 million.

In August 2007, the defined benefit pension plan that was maintained in Japan was terminated in full and replaced by a defined contribution plan. As a result, we incurred a total charge of $0.2 million for the curtailment and settlement of the defined benefit pension plan and this amount is included in operating results for the first six months of fiscal 2008.

Note 8. Shareholders’ Equity

Stock Repurchase Program

During the second quarter of fiscal 2008 we continued our stock repurchase activity by repurchasing a total of 10.6 million shares of our common stock for $280.1 million as part of the $500 million stock repurchase program announced in March 2007. All of these shares were repurchased in the open market and have been cancelled as of November 25, 2007. Through the first six months of fiscal 2008, we have repurchased a total of 61.4 million shares of our common stock for $1,780.1 million as part of the $500 million stock repurchase program announced in March 2007 and the $1.5 billion accelerated stock repurchase program approved in June 2007.

In June 2007, our Board of Directors approved (i) a $1.5 billion accelerated stock repurchase program; and (ii) an additional $500 million stock repurchase program similar to our existing stock repurchase program announced in March 2007. We conducted the accelerated stock repurchase program under agreements entered into with Goldman Sachs. Under one of the agreements, we were to repurchase from Goldman Sachs, for $1.0 billion, a number of shares of our common stock determined by the volume-weighted average price of the stock during a 5 to 12 month period, subject to provisions establishing minimum and maximum numbers of shares. Under another agreement, we were to repurchase shares of our common stock from Goldman Sachs immediately for an initial amount of $500 million. Goldman Sachs was to purchase an equivalent number of shares of our common stock in the open market over the next 5 to 12 months, and at the end of that period, the initial price was to be adjusted up or down based on the volume-weighted average price during the same period. The price adjustment may be settled by us, at our option, in cash or shares of our common stock.

We commenced the $1.5 billion accelerated stock repurchase program under these agreements with Goldman Sachs in June 2007. Under this program, we repurchased a total of 50.8 million shares of our common stock in the first quarter of fiscal 2008 and shortly after the end of our second quarter, we received a final delivery of an additional 7.2 million shares upon the completion of the transactions with Goldman Sachs.

Page 13 of 42

The following table provides a summary of the activity under our approved stock repurchase programs and related amounts remaining that are available for future common stock repurchases:

	Stock Repurchase Programs
	June		Accelerated		March
(In Millions)	2007		Stock Repurchase		2007		Total
Balance at May 27, 2007	$	-	$	-	$	379.3	$	379.3
Approval of new program		500.0		1,500.0		-		2,000.0
Common stock repurchases		-		(1,500.0)		(280.1)		(1,780.1	)
Balance at November 25, 2007	$	500.0	$	-	$	99.2	$	599.2

There is no expiration date for any of the repurchase programs. During the period after the end of the second quarter of fiscal 2008 through January 3, 2008, we repurchased a total of 2.3 million shares in the open market for $53.0 million. These repurchases were made as part of the stock repurchase program announced in March 2007.

Dividends

On September 6, 2007, our Board of Directors declared a cash dividend of $0.04 per outstanding share of common stock which was paid on October 9, 2007 to shareholders of record at the close of business on September 17, 2007. Our Board of Directors declared another cash dividend on September 27, 2007 of $0.06 per outstanding share of common stock, to be paid on January 7, 2008 to shareholders of record at the close of business on December 17, 2007. This dividend of $15.3 million was recorded in the second quarter of fiscal 2008 and is included in accrued expenses at November 25, 2007. We paid cash dividends of $10.5 million ($0.04 per outstanding share of common stock) in the second quarter of fiscal 2008 and a total of $21.3 million in the first six months of fiscal 2008. In fiscal 2007, we paid cash dividends of $9.8 million ($0.03 per outstanding share of common stock) in the second quarter and $19.8 million in the first six months.

Note 9. Share-Based Compensation Plans

In September 2007, the 2007 Employees Equity Plan (“EEP”) was approved by our shareholders. The plan authorizes 14.0 million shares for equity based awards in the form of stock options, restricted stock and restricted stock units. Up to 1.0 million of the shares may be issued in connection with restricted stock and restricted stock units. This new plan replaces two of our former compensation plans that provided equity based awards to non-executive employees. As a result, no further awards will be made to employees under the 1997 Employees Stock Option Plan and the Restricted Stock Plan. In addition, the 38.7 million shares currently available under these two former plans that are not yet subject to awards will not be used and any shares currently subject to awards under these plans which are forfeited, cancelled or expired will also not be used.

The terms of the EEP relating to options are consistent with the former plans and provide that options are granted at the closing market price on the date of grant. The EEP provides that options can vest six months after grant, with a minimum full vesting period of three years, and an expiration date no later than six years and one day after being granted. Under the EEP, restricted stock and restricted stock units, both of which are subject to restrictions, may also be granted to employees. Similar to the former Restricted Stock Plan, these restrictions may be based exclusively on the passage of time or may also include performance conditions. As with options under the EEP, both vesting of restricted stock and restricted stock units can begin to occur six months after grant, the minimum full vesting period is three years, and the awards have an expiration date no later than six years and one day after being granted. For performance based restricted stock units, the number of shares actually issued upon completion of the restriction period will vary in accordance with the performance level achieved during the performance period.

In September 2007, the 2005 Executive Officer Equity Plan (“EOEP”) was amended and approved by our shareholders. As amended, the EOEP authorizes an additional 3.0 million shares, of which up to 1.5 million shares may be issued in connection with performance share units and the remaining shares may be used in connection with options. The EOEP no longer permits the issuance of shares to executive officers through stock appreciation rights.

For further information on our other share-based compensation plans, see Note 13 to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the 2007 fiscal year ended May 27, 2007.

Page 14 of 42

Stock Option Plans

The following table summarizes the activity of common stock shares related to our stock option plans (including the new EEP, but excluding the director stock option plan under which new options can no longer be granted) during the first six months of fiscal 2008:

	Number of Shares (In Millions)		Weighted-Average Exercise Price
Outstanding at May 27, 2007	55.2		$	18.29
Granted	5.8		$	28.67
Exercised	(4.6	)	$	13.46
Forfeited	(0.4	)	$	24.53
Expired	(0.2	)	$	29.20
Outstanding at November 25, 2007	55.8		$	19.68

The total intrinsic value of options exercised in fiscal 2008 was $7.6 million in the second quarter and $66.9 million in the first six months. The total intrinsic value of options exercised in fiscal 2007 was $17.3 million in the second quarter and $24.7 million in the first six months. Total unrecognized compensation cost related to stock option grants as of November 25, 2007 was $103.7 million, which is expected to be recognized over a weighted-average period of 2.8 years.

The following table provides additional information about total options outstanding under the stock option plans (including the new EEP, but excluding the director stock option plan) at November 25, 2007:

	Number of Shares (In Millions)	Weighted-Average Exercise Price	Aggregate Intrinsic Value (In Millions)	Weighted-Average Remaining Contractual Life (In Years)
Fully vested and
expected to vest	55.1	$19.60	$ 268.7	3.5
Currently exercisable	42.9	$17.94	$ 264.9	3.1

Other Stock Plans

The following table provides a summary of activity during the first six months of fiscal 2008 for non-vested restricted shares and units granted under the Restricted Stock Plan (including the new EEP, but excluding units granted with performance based restrictions):

	Number of Shares (In Thousands)		Weighted-Average Grant-Date Fair Value
Outstanding at May 27, 2007	450.7		$	22.62
Granted/Issued	103.6		$	26.09
Vested	(56.6	)	$	18.06
Forfeited	(10.0	)	$	28.39
Outstanding at November 25, 2007	487.7		$	23.77

The total fair value of restricted shares vested in fiscal 2008 was $0.9 million in the second quarter and $1.5 million in the first six months. The total fair value of restricted shares vested in fiscal 2007 was $0.3 million in the second quarter and $1.3 million in the first six months. Total unrecognized compensation cost related to non-vested restricted shares granted under the Restricted Stock Plan and the EEP as of November 25, 2007 was $7.5 million, which is expected to be recognized over a weighted-average period of 3.9 years.

Under the director stock plan, we granted a total of 102,092 shares to our directors in the second quarter and first six months of fiscal 2008. Total unrecognized compensation cost as of November 25, 2007 related to non-vested awards granted under this plan was $0.6 million, which is expected to be recognized over a weighted-average period of 2.3 years.

Page 15 of 42

Under the EOEP, options for 420,000 shares of common stock were granted to executive officers in July 2007; these options are included in the amounts presented in the table above that summarizes stock option activity. We also issued 1.0 million shares of common stock in payment of performance share units under the plan upon the completion of the first performance period that was measured in July 2007. Targets for a third performance period were established in July 2007 and will be measured after the end of fiscal 2009. Total unrecognized compensation cost related to performance share units not yet vested as of November 25, 2007 was $12.0 million, which is expected to be recognized over a weighted-average period of 1.5 years.

Note 10. Segment Information

The following table presents information related to our reportable segments:

(In Millions)	Analog Segment		All Others			Total
Three months ended November 25, 2007:
Sales to unaffiliated customers	$	485.8	$	13.2		$	499.0
Segment income (loss) before taxes	$	138.5	$	(9.1	)	$	129.4
Three months ended November 26, 2006:
Sales to unaffiliated customers	$	468.5	$	33.1		$	501.6
Segment income before taxes	$	131.4	$	3.6		$	135.0
Six months ended November 25, 2007:
Sales to unaffiliated customers	$	945.5	$	25.0		$	970.5
Segment income (loss) before taxes	$	265.5	$	(13.4	)	$	252.1
Six months ended November 26, 2006:
Sales to unaffiliated customers	$	958.9	$	84.1		$	1,043.0
Segment income before taxes	$	300.9	$	10.0		$	310.9

The information in the table above for fiscal 2007 has been reclassified to present segment information based on the structure of our operating segments for fiscal 2008.

Note 11. Contingencies – Legal Proceedings

Environmental Matters

We have been named to the National Priorities List for our Santa Clara, California, site and we have completed a remedial investigation/feasibility study with the Regional Water Quality Control Board (RWQCB), acting as an agent for the Federal Environmental Protection Agency. We have agreed with the RWQCB to a site remediation plan and we are conducting remediation and cleanup efforts at the site. In addition to the Santa Clara site, from time to time we have been designated as a potentially responsible party (PRP) by international, federal and state agencies for certain environmental sites with which we may have had direct or indirect involvement. These designations are made regardless of the extent of our involvement. These claims are in various stages of administrative or judicial proceedings and include demands for recovery of past governmental costs and for future investigations and remedial actions. In many cases, the dollar amounts of the claims have not been specified, and in the case of the PRP matters, claims have been asserted against a number of other entities for the same cost recovery or other relief as is sought from us. We accrue costs associated with environmental matters when they become probable and can be reasonably estimated. The amount of all environmental charges to earnings, including charges for the Santa Clara site remediation, (excluding potential reimbursements from insurance coverage), were not material during the second quarter and first six months of fiscal 2008.

As part of the disposition in fiscal 1996 of the Dynacraft assets and business, we retained responsibility for environmental claims connected with Dynacraft’s Santa Clara, California, operations and for other environmental claims arising from our conduct of the Dynacraft business prior to the disposition. As part of the Fairchild disposition in fiscal

Page 16 of 42

1997, we also agreed to retain liability for current remediation projects and environmental matters arising from our prior operation of certain Fairchild plants while Fairchild agreed to arrange for and perform the remediation and cleanup. We prepaid to Fairchild the estimated costs of the remediation and cleanup and we remain responsible for costs and expenses associated with the remediation and cleanup in excess of the prepaid amounts. To date, the costs associated with the liabilities we have retained in these dispositions have not been material and there have been no related legal proceedings.

Tax Matters

The IRS completed its field examination of our tax returns for fiscal years 1997 through 2000 and on July 29, 2003 issued a notice of proposed adjustment seeking additional taxes of approximately $19.1 million (exclusive of interest) for those years. We contested the adjustment through the IRS administrative process. Through that process, we agreed with the Appeals Office of the IRS to settle the matter for the payment of additional taxes of approximately $14.7 (exclusive of interest). This settlement has been approved by the Congressional Joint Committee on Taxation. Interest computations are still being finalized. We have prepaid to the IRS approximately $19.4 million and, as a result, the final resolution of this matter should not have a material effect on our financial statements. We are also undergoing tax audits at several international locations and from time to time our tax returns are audited in the U.S. by state agencies and at international locations by local tax authorities. We believe we have made adequate tax payments and/or accrued adequate amounts such that the outcome of these audits, including the IRS audit, will have no material adverse effects on our financial statements. For more information on our tax audits, see Note 6 to the Condensed Consolidated Financial Statements.

Other Matters

In November 2000, a derivative action was brought against us and other defendants by a shareholder of Fairchild Semiconductor International, Inc. The plaintiff seeks recovery of alleged “short-swing” profits under section 16(b) of the Securities Exchange Act of 1934 from the sale by the defendants in January 2000 of Fairchild common stock. The complaint alleges that Fairchild’s conversion of preferred stock held by the defendants at the time of Fairchild’s initial public offering in August 1999 constitutes a “purchase” that must be matched with the January 2000 sale for purposes of computing the “short-swing” profits. The plaintiff seeks from us alleged recoverable profits of $14.1 million. We have completed discovery in the case in the district court and filed a motion for summary judgment in June 2004. The SEC proposed clarifying amendments to its section 16(b) rules in June 2004 which we believe are dispositive of the case and the SEC adopted the rule amendments in August 2005. Oral argument on the briefing ordered by the district court as to whether the SEC amendments should apply to the case was held in November 2005. In February 2007, the district court issued its ruling on the motion for summary judgment, ruling in our favor and granting our motion for summary judgment. The plaintiff has appealed the district court’s ruling granting our motion for summary judgment. We intend to continue to contest the case through all available means.

In September 2002, iTech Group (iTech) brought suit against us alleging a number of contract and tort claims related to a software license agreement and discussions to sell certain assets to iTech. At the trial which began in May 2005, the jury rendered a verdict finding us liable for breach of contract, promissory fraud and unjust enrichment and assessing approximately $234.0 thousand in compensatory damages and $15.0 million in punitive damages. After hearing post trial motions, the court affirmed the verdict for compensatory damages of approximately $234.0 thousand, awarded attorneys’ fees to iTech of approximately $60.0 thousand, and reduced the punitive damages to $3.0 million and judgment was entered in those amounts in late August 2005. We appealed the case and the appeals court issued an unpublished opinion in December 2006, reversing the trial court judgment and remanding the case for retrial or other disposition. After the opinion of the appeals court had become final, we paid plaintiff’s counsel attorneys’ fees of approximately $79.3 thousand, representing the attorneys’ fees originally awarded at trial, plus interest and additional fees for the appeal. The case was settled in October 2007 shortly before retrial scheduled for November 2007. Under the settlement, we paid $6.5 million to iTech in exchange for a release of all claims related to the litigation and dismissal of the case. At the time of the settlement, we had already accrued a charge of $3.2 million to cover the damages (excluding attorney’s fees) awarded to iTech under the trial court’s original order; the charge for the additional $3.3 million due for the settlement was recorded in the second quarter of fiscal 2008. The matter is now concluded.

We are currently a party to various claims and legal proceedings, including those noted above. We make provisions for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We believe we have made adequate provisions for potential liability in litigation matters. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Based on the information that is currently available to us, we believe that the ultimate outcome of litigation matters, individually and in the aggregate, will not have a material adverse effect on our results of operations or consolidated financial position. However, litigation is

Page 17 of 42

inherently unpredictable. If an unfavorable ruling or outcome were to occur, there is a possibility of a material adverse effect on results of operations or our consolidated financial position.

Contingencies – Other

In connection with our past divestitures, we have routinely provided indemnities to cover the indemnified party for matters such as environmental, tax, product and employee liabilities. We also routinely include intellectual property indemnification provisions in our terms of sale, development agreements and technology licenses with third parties. Since maximum obligations are not explicitly stated in these indemnification provisions, the potential amount of future maximum payments cannot be reasonably estimated. To date we have incurred minimal losses associated with these indemnification obligations and, as a result, we have not recorded any liabilities in our consolidated financial statements.

Page 18 of 42

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This MD&A and Quarterly Report on Form 10-Q contain a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in Part II of Form 10-Q “Item 1A: Risk Factors” and business outlook section of this MD&A. These statements relate to, among other things, sales, gross margins, operating expenses, capital expenditures, R&D efforts, acquisition of and investments in other companies, and asset dispositions and are indicated by words or phrases such as “anticipate,” “expect,” “outlook,” “foresee,” “believe,” “could,” “intend,” “will,” and similar words or phrases. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. For a discussion of some of the factors that could cause actual results to differ materially from our forward-looking statements, see the discussion on risk factors that appears in Part II, Item 1A of this Form 10-Q and other risks and uncertainties detailed in this and our other reports and filings with the Securities and Exchange Commission. We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so.

This discussion should be read in conjunction with the Consolidated Financial Statements and the accompanying notes included in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended May 27, 2007.

Strategy and Business

We design, develop, manufacture and market a wide range of semiconductor products, most of which are analog and mixed-signal integrated circuits. Our goal is to be the premier provider of high-performance analog and mixed-signal solutions. We are focused on the following:

• continuing to build our portfolio of high-performance, analog-intensive solutions that enable customers to effectively differentiate their products;

• targeting our investments on high-growth and high-return markets, particularly by leveraging our strengths in creating energy efficient circuits and solutions, many of which will fall under our Powerwise^TM brand;

• strengthening and deepening our relationships with customers;

• using our proprietary technologies to create and maintain high barriers to entry for our solutions; and

• delivering superior returns on invested capital to our shareholders.

A large portion of our sales comes from analog products that are classified within the standard linear categories (as defined by the World Semiconductor Trade Statistics or WSTS). Beyond the standard linear categories, we also sell analog systems and subsystems that can be more specifically targeted at various applications. We look to create analog-intensive solutions that provide more energy efficiency, portability, better audio, sharper images and higher performance in electronic systems, with energy efficiency currently a particular focus. Our leading-edge products include power management circuits, audio and operational amplifiers, display drivers, communication interface products and data conversion solutions. Approximately 97 percent of our sales in the first six months of fiscal 2008 was generated from Analog segment sales, compared to approximately 92 percent in the first six months of fiscal 2007. For more information on our business, see Part I, Item 1, Business, in our Annual Report on Form 10-K for the fiscal year ended May 27, 2007.

Critical Accounting Policies and Estimates

We believe the following critical accounting policies are those policies that have a significant effect on the determination of our financial position and results of operations. These policies also require us to make our most difficult and subjective judgments:

1. Revenue Recognition

We recognize revenue from the sale of semiconductor products upon shipment, provided we have persuasive evidence of an arrangement typically in the form of a purchase order, title and risk of loss have passed to the customer, the amount is fixed or determinable and collection of the revenue is reasonably assured. We record a provision for estimated future returns at the time of shipment. Approximately 54 percent of our semiconductor product sales were made to distributors in the first six months of fiscal 2008, compared to approximately 52 percent in the first six months of fiscal 2007. We have agreements with our distributors that cover various

Page 19 of 42

programs, including pricing adjustments based on resale pricing and volume, price protection for inventory and scrap allowances. The revenue we record for these distribution sales is net of estimated provisions for these programs. When determining this net distribution revenue, we must make significant judgments and estimates. Our estimates are based upon historical experience rates by geography and product family, inventory levels in the distribution channel, current economic trends, and other related factors. Actual distributor claims activity has been materially consistent with the provisions we have made based on our estimates. However, because of the inherent nature of estimates, there is always a risk that there could be significant differences between actual amounts and our estimates. Our financial condition and operating results are dependent on our ability to make reliable estimates, and we believe that our estimates are reasonable. However, different judgments or estimates could result in variances that might be significant to reported operating results.

Service revenues are recognized as the services are provided or as milestones are achieved, depending on the terms of the arrangement. These revenues are included in net sales and totaled $1.0 million in the first six months of fiscal 2008 and $0.7 million in the first six months of fiscal 2007.

Certain intellectual property income is classified as revenue if it meets specified criteria established by company policy that defines whether it is considered a source of income from our primary operations. These revenues are included in net sales and totaled $1.0 million in the first six months of fiscal 2008 and $1.8 million in the first six months of fiscal 2007. All other intellectual property income that does not meet the specified criteria is not considered a source of income from primary operations and is therefore classified as a component of other operating income, net, in the consolidated statement of income. Intellectual property income is recognized when the license is delivered, the fee is fixed or determinable, collection of the fee is reasonably assured and remaining obligations are inconsequential or perfunctory to the other party.

2. Valuation of Inventories

Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market. The total carrying value of our inventory is net of any reductions we have recorded to reflect the difference between cost and estimated market value of inventory that is determined to be obsolete or unmarketable based upon assumptions about future demand and market conditions. Reductions in carrying value are deemed to establish a new cost basis. Inventory is not written up if estimates of market value subsequently improve. We evaluate obsolescence by analyzing the inventory aging, order backlog and future customer demand on an individual product basis. If actual demand were to be substantially lower than what we have estimated, we may be required to write inventory down below the current carrying value. While our estimates require us to make significant judgments and assumptions about future events, we believe our relationships with our customers, combined with our understanding of the end-markets we serve, provide us with the ability to make reasonable estimates. The actual amount of obsolete or unmarketable inventory has been materially consistent with previously estimated write-downs we have recorded. We also evaluate the carrying value of inventory for lower-of-cost-or-market on an individual product basis, and these evaluations are intended to identify any difference between net realizable value and standard cost. Net realizable value is used as a measure of market for purposes of evaluating lower-of-cost-or-market and is determined as the selling price of the product less the estimated cost of disposal. When necessary, we reduce the carrying value of inventory to net realizable value. If actual market conditions and resulting product sales were to be less favorable than what we have projected, additional inventory write-downs may be required.

3. Impairment of Goodwill, Intangible Assets and Other Long-lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected to result from their use and eventual disposition. Our long-lived assets subject to this evaluation include property, plant and equipment and amortizable intangible assets. Amortizable intangible assets subject to this evaluation include developed technology we have acquired, patents and technology licenses. We assess the impairment of goodwill annually in our fourth fiscal quarter and whenever events or changes in circumstances indicate that it is more likely than not that an impairment loss has been incurred. We are required to make judgments and assumptions in identifying those events or changes in circumstances that may trigger impairment. Some of the factors we consider include:

• significant decrease in the market value of an asset;

• significant changes in the extent or manner for which the asset is being used or in its physical condition;

• significant change, delay or departure in our business strategy related to the asset;

• significant negative changes in the business climate, industry or economic conditions; and

Page 20 of 42

• current period operating losses or negative cash flow combined with a history of similar losses or a forecast that indicates continuing losses associated with the use of an asset.

Our impairment evaluation of long-lived assets includes an analysis of estimated future undiscounted net cash flows expected to be generated by the assets over their remaining estimated useful lives. If the estimated future undiscounted net cash flows are insufficient to recover the carrying value of the assets over the remaining estimated useful lives, we record an impairment loss in the amount by which the carrying value of the assets exceeds the fair value. We determine fair value based on discounted cash flows using a discount rate commensurate with the risk inherent in our current business model. Major factors that influence our cash flow analysis are our estimates for future revenue and expenses associated with the use of the asset. Different estimates could have a significant impact on the results of our evaluation. If, as a result of our analysis, we determine that our amortizable intangible assets or other long-lived assets have been impaired, we will recognize an impairment loss in the period in which the impairment is determined. Any such impairment charge could be significant and could have a material adverse effect on our financial position and results of operations.

Our impairment evaluation of goodwill is based on comparing the fair value to the carrying value of our reporting units with goodwill. Our reporting units are based on our operating segments as defined under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” The fair value of a reporting unit is measured at the business unit level using a discounted cash flow approach that incorporates our estimates of future revenues and costs for those business units. As of November 25, 2007 our reporting units with goodwill include our advanced power, ASIC & telecom, data conversion, displays, high voltage, interface, ISP, non-audio amplifier and portable core business units, which are operating segments within our Analog reportable segment. The estimates we use in evaluating goodwill are consistent with the plans and estimates that we use to manage the underlying businesses. If we fail to deliver new products for these business units, if the products fail to gain expected market acceptance, or if market conditions for these business units fail to materialize as anticipated, our revenue and cost forecasts may not be achieved and we may incur charges for goodwill impairment, which could be significant and could have a material adverse effect on our results of operations.

4. Income Taxes

We determine deferred tax assets and liabilities based on the future tax consequences that can be attributed to net operating loss and credit carryovers and differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, using the enacted tax rate expected to be applied when the taxes are actually paid or recovered. The recognition of deferred tax assets is reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which the net operating loss and credit carryovers and differences between financial statement carrying amounts and their respective tax bases become deductible. In determining a valuation allowance, we consider past performance, expected future taxable income and prudent and feasible tax planning strategies. We currently have a valuation allowance that has been established primarily against the reinvestment and investment tax credits related to Malaysia, as we have concluded that a significant portion of the deferred tax assets will not be realized due to the uncertainty of sufficient taxable income in Malaysia beyond the foreseeable future. Our forecast of expected future taxable income is based on historical taxable income and projections of future taxable income over the periods that the deferred tax assets are deductible. Changes in market conditions that differ materially from our current expectations and changes in future tax laws in the U.S. and international jurisdictions may cause us to change our judgments of future taxable income. These changes, if any, may require us to adjust the existing tax valuation allowance higher or lower than the amount we currently have recorded; such an adjustment could have a material impact on the tax expense for the fiscal year.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Although FIN 48, which we adopted at the beginning of fiscal 2008, provides further clarification on the accounting for uncertainty in income taxes recognized in the financial statements, the new threshold and measurement attribute prescribed by FIN 48 will continue to require significant judgment by management. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations.

5. Share-Based Compensation

Page 21 of 42

We measure and record compensation expense for all share-based payment awards based on estimated fair values in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment.” We provide share-based awards to our employees, executive officers and directors through various equity compensation plans including our employee equity, stock option, stock purchase and restricted stock plans. The fair value of stock option and stock purchase equity awards is measured at the date of grant using a Black-Scholes option pricing model and the fair value of restricted stock awards is based on the market price of our common stock on the date of grant. In determining fair value using the Black-Scholes option pricing model, management is required to make certain estimates of the key assumptions that include expected life, expected volatility, dividend yields and risk free interest rates. The estimates of these key assumptions involve judgment regarding subjective future expectations of market price and trends. The assumptions for expected term and expected volatility have the most significant effect on calculating the fair value of share-based awards. We use the simplified method specified by SEC’s Staff Accounting Bulletin No. 107 to determine expected life since the vesting term and contractual life of current option grants differ from historical grants. Expected volatility is based on implied volatility, as management has determined that implied volatility better reflects the market’s expectation of future volatility than historical volatility. If we were to determine that another method to estimate these assumptions was more reasonable than our current methods, or if another method for calculating these assumptions were to be prescribed by authoritative guidance, the fair value for our share-based awards could change significantly. If the expected volatility and/or expected life were increased under our assumptions, then the Black-Scholes computation of fair value would also increase, thereby resulting in higher compensation costs being recorded. SFAS No. 123(R) also requires forfeitures to be estimated at the date of grant. Our estimate of forfeitures is based on our historical activity, which we believe is indicative of expected forfeitures. In subsequent periods if the actual rate of forfeitures differs from our estimate, the forfeiture rates may be revised, as necessary. Changes in the estimated forfeiture rates can have a significant effect on share-based compensation expense since the effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. We also grant performance share units to executive officers that require us to estimate expected achievement of performance targets over a two-year performance period. This estimate involves judgment regarding future expectations of various financial performance measures such as those described in the overview section below. If financial performance measures are not achieved, the related share-based compensation expense may be significantly reduced or completely reversed in the period in which it is determined that the performance measure will not be achieved.

Overview

We continue to focus on providing leading-edge analog solutions with a large portion of our sales classified within the analog standard linear categories, which the WSTS defines as amplifiers, data converters, regulators and references (power management products), and interface products. In the first six months of fiscal 2008, approximately 97 percent of our total sales came from our Analog segment, compared to 92 percent in the first six months of fiscal 2007. We believe that the success we have experienced in these markets has been driven by our understanding of the analog markets and our circuit design capabilities, especially as it pertains to energy efficiency that is enabled by our products. Our success has also been due to our innovative packaging and proprietary analog process technology, as well as our comprehensive manufacturing supply and logistics network.

Although sales were lower in the second quarter and first six months of fiscal 2008 compared to sales in the second quarter and first six months of fiscal 2007, we achieved a higher gross margin percentage in both the second quarter and first six months of fiscal 2008 compared to the same periods in fiscal 2007. Moreover, we reached a record high gross margin percentage of 64.4 percent in the second quarter of fiscal 2008. The increase in gross margin percentage is attributable to ongoing improvement in our sales mix of higher-value analog products, as well as improvements in manufacturing execution and efficiencies relative to the level of factory utilization. We continue to direct our research and development investments on high-value growth areas in analog markets and applications, with particular focus on power management and energy efficiency.

In reviewing our performance, we consider several key financial measures. When reviewing our net sales performance, we look at sales growth rates, new order rates (including turns orders, which are orders received with delivery requested in the same quarter), blended-average selling prices, sales of new products and market share in the analog standard linear category as defined by WSTS. We define new products as those introduced within the last three years. We gauge our operating income performance based on gross margin trends, product mix, blended-average selling prices, factory utilization rates and operating expenses relative to sales. We are focused on growing our earnings per share over time while generating a consistently high return on invested capital by concentrating on operating income, working capital management, capital expenditures and cash management. We determine return on invested capital based on net operating

Page 22 of 42

income after tax divided by invested capital, which generally consists of total assets reduced by goodwill and non-interest bearing liabilities.

We continued our stock repurchase activity during the second quarter of fiscal 2008 by repurchasing a total of 10.6 million shares of our common stock in the quarter for $280.1 million as part of the $500 million stock repurchase program announced in March 2007. All of these shares were purchased in the open market. Through the first six months of fiscal 2008 we have repurchased a total of 61.4 million shares of our common stock for $1,780.1 million as part of the $500 million stock repurchase program announced in March 2007 and the $1.5 billion accelerated stock repurchase program approved in June 2007. The stock repurchase activity is one element of our overall program to deliver a consistently high return on invested capital, which we believe improves shareholder value over time.

In June 2007, our Board of Directors approved (i) a $1.5 billion accelerated stock repurchase program; and (ii) an additional $500 million stock repurchase program similar to our then existing $500 million stock repurchase program announced in March 2007. We commenced the $1.5 billion accelerated stock repurchase program under agreements with Goldman Sachs in June 2007. Under this program, we received a total of 50.8 million shares of our common stock in the first quarter of fiscal 2008 and shortly after the end of our second quarter, we received final delivery of an additional 7.2 million shares upon the completion of the transactions under the agreements with Goldman Sachs. See Note 8 to the Condensed Consolidated Financial Statements for a more complete discussion of these agreements. As of November 25, 2007, we had a total of $599.2 million remaining available for future common stock repurchases under the $500 million programs announced in March 2007 and June 2007.

We also entered into a $1.5 billion unsecured bridge credit facility with an affiliate of Goldman Sachs in June 2007 and used the funds to finance the accelerated stock repurchase. This unsecured bridge credit facility was then repaid and the debt was effectively replaced with $1.0 billion principal amount of senior unsecured notes issued in June 2007 through a public offering and a $500 million unsecured credit facility with a consortium of banks funded in July 2007. See Note 5 to the Condensed Consolidated Financial Statements for a more complete discussion of the senior unsecured notes and the credit facilities.

We also continued with the dividend program in the second quarter of fiscal 2008. On September 6, 2007, our Board of Directors declared a cash dividend of $0.04 per outstanding share of common stock which was paid on October 9, 2007 to shareholders of record at the close of business on September 17, 2007. Our Board of Directors declared another cash dividend on September 27, 2007 of $0.06 per outstanding share of common stock, to be paid on January 7, 2008 to shareholders of record at the close of business on December 17, 2007. This dividend of $15.3 million was recorded in the second quarter of fiscal 2008 and is included in accrued expenses at November 25, 2007. We paid cash dividends of $10.5 million ($0.04 per outstanding share of common stock) in the second quarter of fiscal 2008 and a total of $21.3 million in the first six months of fiscal 2008.

The following table and discussion provide an overview of our operating results for the second quarter and first six months of fiscal 2008 and 2007:

	Three Months Ended								Six Months Ended
(In Millions)	Nov. 25, 2007			% Change		Nov. 26, 2006			Nov. 25, 2007			% Change		Nov. 26, 2006
Net sales	$	499.0		(0.5	%)	$	501.6		$	970.5		(7.0	%)	$	1,043.0
Gross margin	$	321.2				$	295.4		$	618.1				$	629.7
As a % of net sales		64.4	%				58.9	%		63.7	%				60.4	%
Operating income	$	143.8				$	124.4		$	276.0				$	289.9
As a % of net sales		28.8	%				24.8	%		28.4	%				27.8	%
Net income	$	90.6				$	91.4		$	176.2				$	211.5
As a % of net sales		18.2	%				18.2	%		18.2	%				20.3	%

Net income for the second quarter of fiscal 2008 includes a charge of $3.3 million related to the settlement of a legal matter (See Note 1l to the Condensed Consolidated Financial Statements) and other operating income of $0.6 million (See Note 2 to the Condensed Consolidated Financial Statements). In addition to these amounts, net income for the first six

Page 23 of 42

months of fiscal 2008 includes a gain of $3.1 million from the sale of the Singapore plant assets and a recovery of $1.5 million arising from the release of a restructuring-related accrual (see Note 4 to the Condensed Consolidated Financial Statements). Net income for the second quarter of fiscal 2007 included a severance charge of $1.3 million related to our Scotland manufacturing facility and other operating income of $0.7 million (See Note 2 to the Condensed Consolidated Financial Statements). In addition to these amounts, net income for the first six months of fiscal 2007 included a charge of $2.7 million related to severance for a workforce reduction at our Texas manufacturing facility and an additional $1.3 million of other operating income (see Note 2 to the Condensed Consolidated Financial Statements). All of the charges and credits described above are pretax amounts.

Share-Based Compensation Expense

Beginning in fiscal 2007, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards based on estimated fair values. Our operating results include the recognition of share-based compensation expense, which totaled $27.6 million in the second quarter of fiscal 2008 compared to $33.2 million in the second quarter of fiscal 2007. In the first six months of fiscal 2008, share-based compensation expense was $47.6 million compared to $57.1 million in the first six months of fiscal 2007. We provide share-based awards to our employees, executive officers and directors through various equity compensation plans including our employee equity, stock option, stock purchase and restricted stock plans. For further detail and a description of these plans, see Note 13 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended May 27, 2007. See also Note 1 and Note 9 to the Condensed Consolidated Financial Statements in this Form 10-Q for additional discussion of and updates regarding our share-based compensation plans and the effect of share-based compensation expense for the second quarter and first six months of fiscal 2008 and 2007.

Net Sales

	Three Months Ended								Six Months Ended
(In Millions)	Nov. 25, 2007			% Change		Nov. 26, 2006			Nov. 25, 2007			% Change		Nov. 26, 2006
Analog segment	$	485.8		3.7	%	$	468.5		$	945.5		(1.4	%)	$	958.9
As a % of net sales		97.4	%				93.4	%		97.4	%				91.9	%
All others	$	13.2		(60.1	%)	$	33.1		$	25.0		(70.3	%)	$	84.1
As a % of net sales		2.6	%				6.6	%		2.6	%				8.1	%
Total net sales	$	499.0				$	501.6		$	970.5				$	1,043.0
		100.0	%				100.0	%		100.0	%				100.0	%

The chart above and the following discussion are based on our reportable segments described in Note 15 to the Consolidated Financial Statements included in our annual report on Form 10-K for the year ended May 27, 2007.

Although our total sales were lower in the second quarter and first six months of fiscal 2008 compared to the second quarter and first six months of fiscal 2007, Analog segment sales were higher in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007. This reflects increased demand for new analog products, primarily in the wireless handset and personal mobile device markets where we have experienced growth due to feature-rich devices that utilize our analog solutions to enable features as well as enhance power efficiency and battery life. Nevertheless, comparing the first six months of fiscal 2008 to the first six months of fiscal 2007, Analog segment sales were lower, primarily due to lower shipments to distributors and lower overall demand from customers. Fiscal 2008 Analog segment unit shipments were slightly higher by 1 percent in the second quarter, but decreased 4 percent in the first six months compared to the corresponding periods of fiscal 2007. Analog segment blended-average selling prices increased 3 percent in both the second quarter and first six months of fiscal 2008 over the corresponding periods of fiscal 2007, driven mainly by improved sales mix from higher-value analog products.

Within the Analog segment, sales from our amplifiers business units (including audio amplifier products) in fiscal 2008 grew 21 percent in the second quarter and 13 percent in the first six months compared to the corresponding periods of fiscal 2007. Sales from our power management business units were up by 5 percent in the second quarter of fiscal 2008 from the second quarter of fiscal 2007, but were fairly flat in the first six months of fiscal 2008 compared to sales in the first six months of fiscal 2007. In addition, sales from our data conversion and interface business units decreased in the

Page 24 of 42

second quarter of fiscal 2008 by 7 percent and 9 percent, respectively, and in the first six months of fiscal 2008 by 13 percent and 19 percent, respectively, compared to the corresponding periods of fiscal 2007.

For other operating business units included in the category described as “All Others,” the decrease in sales in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 was primarily due to a decline in foundry sales related to businesses that had been previously sold.

Gross Margin

	Three Months Ended								Six Months Ended
(In Millions)	Nov. 25, 2007			% Change		Nov. 26, 2006			Nov. 25, 2007			% Change		Nov. 26, 2006
Net Sales	$	499.0		(0.5	%)	$	501.6		$	970.5		(7.0	%)	$	1,043.0
Cost of sales		177.8		(13.8	%)		206.2			352.4		(14.7	%)		413.3
Gross margin	$	321.2				$	295.4		$	618.1				$	629.7
As a % of net sales		64.4	%				58.9	%		63.7	%				60.4	%

We achieved higher gross margin percentages in the second quarter and first six months of fiscal 2008 compared to the second quarter and first six months of fiscal 2007 despite a decline in net sales compared to a year ago. The higher gross margin percentage was largely due to improved product mix of higher-margin analog standard linear products. As part of that product mix improvement, our blended-average selling prices in fiscal 2008 were higher compared to fiscal 2007. Our analog product portfolio has continued to improve through active efforts to increase the portion of our business that comes from high value, high-performance analog products that are more proprietary in nature. Gross margin percentage in the second quarter of fiscal 2008 compared to the second quarter of 2007 also benefited from improvements in manufacturing efficiencies and execution relative to the level of factory utilization. Stock-based compensation expense included in gross margin for fiscal 2008 was $5.5 million in the second quarter and $10.4 million in the first six months compared to fiscal 2007 which was $6.6 million in the second quarter and $9.1 million in the first six months.

Research and Development

	Three Months Ended								Six Months Ended
(In Millions)	Nov. 25, 2007			% Change		Nov. 26, 2006			Nov. 25, 2007			% Change		Nov. 26, 2006
Research and development	$	91.9		2.7	%	$	89.5		$	185.7		4.2	%	$	178.3
As a % of net sales		18.4	%				17.8	%		19.1	%				17.1	%

The increase in research and development expenses in the second quarter and first six months of fiscal 2008 compared to the second quarter and first six months of fiscal 2007 reflects higher spending associated with the acquisition of Xignal Technologies AG in January 2007, as well as some higher payroll and employee benefit expenses. Stock-based compensation expense included in R&D expense for fiscal 2008 was $7.7 million in the second quarter and $14.7 million in the first six months compared to fiscal 2007 which was $8.8 million in the second quarter and $16.3 million in the first six months. We are continuing to concentrate our research and development spending on analog products and underlying analog capabilities such as DC to DC power conversion, signal conditioning, high-speed amplification and low-power analog-to-digital conversion. During the first six months of fiscal 2008, research and development spending in the Analog segment was 7 percent higher compared to the first six months of fiscal 2007. We continue to invest in the development of new analog products that can serve applications in a wide variety of end markets such as portable electronics, flat-panel displays, communications infrastructure, industrial and medical. A significant portion of our research and development is directed at power management technology.

Page 25 of 42

Selling, General and Administrative

	Three Months Ended								Six Months Ended
(In Millions)	Nov. 25, 2007			% Change		Nov. 26, 2006			Nov. 25, 2007			% Change		Nov. 26, 2006
Selling, general and administrative	$	82.8		2.3	%	$	80.9		$	158.3		(0.8	%)	$	159.5
As a % of net sales		16.6	%				16.1	%		16.3	%				15.3	%

The increase in selling, general and administrative expenses in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 was due to higher payroll and employee benefit expenses, as well as some incremental costs for outside services, which more than offset a decrease in share-based compensation expense. In contrast, SG&A expenses in the first six months of fiscal 2008 were lower compared to the first six months of fiscal 2007. This decrease was mostly due to a larger decrease in share-based compensation expense than the increase from some higher payroll and employee benefit expenses during the six-month period. Share-based compensation expense for fiscal 2008 included in SG&A expenses was $14.4 million in the second quarter and $22.5 million in the first six months compared to fiscal 2007 which was $17.8 million in second quarter and $31.7 million in the first six months. We focus on managing our cost structure, including SG&A expenses, in line with our overall business model objectives, as well as current business conditions.

Interest Income

	Three Months Ended				Six Months Ended
(In Millions)	Nov. 25, 2007		Nov. 26, 2006		Nov. 25, 2007		Nov. 26, 2006
Interest income	$	10.1	$	9.9	$	21.3	$	20.9

The increase in interest income for the second quarter and first six months of fiscal 2008 compared to the second quarter and first six months of fiscal 2007 is due to slightly higher interest rates since average cash balances were lower over the corresponding periods.

Interest Expense

	Three Months Ended				Six Months Ended
(In Millions)	Nov. 25, 2007		Nov. 26, 2006		Nov. 25, 2007		Nov. 26, 2006
Interest expense	$	23.7	$	0.4	$	43.3	$	0.9

The increase in interest expense in the second quarter and first six months of fiscal 2008 compared to the second quarter and first six months of fiscal 2007 is due to substantially higher debt balances associated with the debt transactions completed in the first quarter of fiscal 2008 as part of the financing for our accelerated stock repurchase (see Note 5 to the Condensed Consolidated Financial Statements for a more complete discussion). Since some of our overall debt has floating interest rates, changes in the reference interest rates that correspond to that debt will affect future interest expense.

Other Non-Operating Income (Expense), Net

	Three Months Ended					Six Months Ended
(In Millions)	Nov. 25, 2007			Nov. 26, 2006		Nov. 25, 2007			Nov. 26, 2006
Gain (loss) on investments	$	(0.6	)	$	1.1	$	(1.7	)	$	1.0
Charitable contribution		(0.2	)		-		(0.2	)		-
Total other non-operating income (expense), net	$	(0.8	)	$	1.1	$	(1.9	)	$	1.0

Page 26 of 42

The components of other non-operating expense, net are primarily derived from activities related to our investments. The loss on investments in fiscal 2008 reflects the change in unrealized holding gains and losses from trading securities, which more than offset a small gain from a non-marketable investment recognized in the second quarter of fiscal 2008. The gain on investments in fiscal 2007 reflects the change in unrealized holdings gains and losses from trading securities, which is partially offset by an impairment loss on a non-marketable investment in the second quarter of fiscal 2007.

Income Tax Expense

	Three Months Ended						Six Months Ended
(In Millions)	Nov. 25, 2007			Nov. 26, 2006			Nov. 25, 2007			Nov. 26, 2006
Income tax expense	$	38.8		$	43.6		$	75.9		$	99.4
Effective tax rate		30.0	%		32.3	%		30.1	%		32.0	%

The effective tax rate was lower for the second quarter and first six months of fiscal 2008 compared to the second quarter and first six months of fiscal 2007 due to various discrete tax benefits recognized during the period that arose primarily from the resolution of an international tax inquiry and the expiration of the statute of limitations associated with an international tax matter.

Financial Market Risks

Since a portion of our long-term debt has floating interest rates, an increase in the reference interest rate increases our interest expense and likewise, a decrease in the reference interest rate decreases our interest expense. At our current debt levels, a change in the LIBOR of one percentage point would result in a corresponding change in our interest expense of up to approximately $7.5 million annually. A significant portion of the floating-interest-rate debt can be repaid at any time without incurring prepayment penalties.

Liquidity and Capital Resources

	Six Months Ended
(In Millions)	Nov. 25, 2007			Nov. 26, 2006
Net cash provided by operating activities	$	310.1		$	265.8
Net cash (used in) provided by investing activities		(44.0	)		32.8
Net cash used in financing activities		(260.8	)		(450.2	)
Net change in cash and cash equivalents	$	5.3		$	(151.6	)

The primary factors contributing to the changes in cash and cash equivalents in the first six months of fiscal 2008 and 2007 are described below:

During the first six months of fiscal 2008, cash from operating activities was generated by net income, adjusted for non-cash items (primarily depreciation and amortization, and share-based compensation expense) and the positive impact from changes in working capital components. Changes in working capital that had a positive effect were attributable to an increase in accounts payable, an increase in accrued expenses due to the accrual of interest arising from the long-term debt, an increase in current and deferred income taxes, and decreases in inventories and other current assets. The decrease in other current assets primarily reflects the refund of certain operating lease deposits upon exercising the option to purchase the related equipment. This was partially offset by an increase in receivables and a decrease in other non-current liabilities primarily due to a contribution we made to one of our defined benefit pension plans. In the first six months of fiscal 2007, cash from operating activities was generated by net income, adjusted for non-cash items (primarily depreciation and

Page 27 of 42

amortization, and share-based compensation expense), which was partially offset by the negative impact from changes in working capital components.

The primary use of cash for investing activities in the first six months of fiscal 2008 was the purchase of property, plant and equipment of $52.5 million, mainly representing the purchase of machinery and equipment, which was partially offset by proceeds from the sale of property, plant and equipment of $16.0 million. The primary source of cash generated from investing activities in the first six months of fiscal 2007 came from the sale and maturity of available-for-sale securities of $110.8 million, which was offset by investment in property, plant and equipment of $70.6 million, primarily for the purchase of machinery and equipment.

The primary use of cash for financing activities in the first six months of fiscal 2008 was for the repurchase of 61.4 million shares of our common stock for $1,780.1 million, which includes the delivery in the fiscal 2008 first quarter of 50.8 million shares of our common stock repurchased under the $1.5 billion accelerated share repurchase program. The remaining shares were purchased in the open market. In connection with the accelerated share repurchase program, it should be noted that an additional 7.2 million shares of our common stock was delivered upon completion of the transaction shortly after the end of our fiscal 2008 second quarter. We also used cash for financing activities for the payments of $21.3 million for cash dividends, $15.6 million on the bank term loan and $14.1 million related to tax withholdings paid on behalf of employees for net share settlements. These amounts were partially offset by cash proceeds of $1,489.4 million (net of issuance costs) that came from new debt, which included the $1.0 billion unsecured senior notes issued through a public offering in June 2007 and a $500.0 million unsecured credit facility with a consortium of banks funded in July 2007. Cash proceeds also included $76.3 million from the issuance of common stock under employee benefits plans. In connection with the accelerated stock repurchase program, financing activities in the first six months of fiscal 2008 also reflect the funds received from a $1.5 billion unsecured bridge credit facility that was used to finance the accelerated stock repurchase and its full repayment after completing the $1.0 billion unsecured senior note offering and the $500 million unsecured credit facility with a consortium of banks. The primary use of cash for our financing activities in the first six months of fiscal 2007 was for the repurchase of 19.8 million shares of our common stock in the open market for $462.8 million, and payment of $19.8 million for cash dividends. These amounts were partially offset by proceeds of $36.6 million from the issuance of common stock under employee benefit plans.

On September 27, 2007 our Board of Directors declared a cash dividend of $0.06 per outstanding share of common stock which will be paid on January 7, 2008 to shareholders of record at the close of business on December 17, 2007.

We foresee continuing cash outlays for plant and equipment in fiscal 2008, with our primary focus on analog capabilities at our existing sites. As a result, we expect our fiscal 2008 capital expenditures to be slightly higher than the fiscal 2007 amount. We will continue to manage the level of capital expenditures relative to sales levels, capacity utilization and industry business conditions. We expect that existing cash and investment balances, together with existing lines of credit and cash generated by operations, will be sufficient to finance the capital investments currently planned for fiscal 2008, as well as the declared dividend, the stock repurchase program; and principal and interest payments due on long-term debt.

Our cash balances are dependent in part on continued collection of customer receivables and the ability to sell inventories. Although we have not experienced major problems with our customer receivables, significant declines in overall economic conditions could lead to deterioration in the quality of customer receivables. In addition, major declines in financial markets would most likely cause reductions in our cash equivalents and marketable investments.

We do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which might be established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in trading activities involving non-exchange traded contracts. As a result, we do not believe that we are materially exposed to financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Recently Issued Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board ratified the consensus reached on Emerging Issues Task Force, or EITF, Issue No. 07-1, “Collaborative Arrangements.” The EITF addresses accounting for collaborative-arrangement activities that are not conducted within a separate legal entity. These collaborative arrangements are sometimes called “virtual joint ventures.” Applying the equity method of accounting to activities performed outside a separate legal entity by a “virtual joint venture” is prohibited. Revenues and costs incurred with third parties in connection

Page 28 of 42

with the collaborative arrangement should be presented gross or net by the collaborators based on criteria in EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and other applicable accounting literature. Payments to or from collaborators should be presented in the income statement based on the nature of the arrangement, the nature of the company’s business and whether the payments are within the scope of other accounting literature. Other detail information related to the collaborative arrangement is also required to be disclosed. The requirements under this EITF will be applied to collaborative arrangements in existence at the beginning of our fiscal 2009. We are currently analyzing the requirements of this EITF and have not yet determined its effect on our consolidated financial statements.

In December 2007, the Financial Accounting Standards Board issued SFAS No. 141 (revised 2007), “Business Combinations” and SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements.” The issuance of these new standards represent the outcome of the FASB’s joint project with the International Accounting Standards Board and are intended to improve, simplify and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements.

SFAS No. 141(R) replaces SFAS No. 141, “Business Combinations,” however, it retains the fundamental requirements of the former Statement that the acquisition method of accounting (previously referred to as the purchase method) be used for all business combinations and for an acquirer to be identified for each business. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. The new standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination.

SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This Statement clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement changes the way the consolidated income statement is presented by requiring net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest and to disclose those amounts on the face of the income statement. It also aligns the reporting of noncontrolling interest in subsidiaries with the requirements in International Accounting Standard 27.

Both SFAS No. 141(R) and SFAS No. 160 are effective beginning in our fiscal 2010. SFAS No. 141 (R) will be applied to business combinations that are consummated beginning in fiscal 2010 and SFAS No. 160 will be applied prospectively to all noncontrolling interests, including any that arose before fiscal 2010. We are currently evaluating these Statements and have not yet determined their effect on our consolidated financial statements.

In June 2007, the Financial Accounting Standards Board ratified EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities.” The EITF requires non-refundable advance payments to acquire goods or pay for services that will be consumed or performed in a future period in conducting R&D activities should be recorded as an asset and recognized as an expense when the R&D activities are performed. The EITF should be applied prospectively to new contractual arrangements entered into beginning in our fiscal 2009. We currently recognize these non-refundable advanced payments as an expense upon payment. The adoption of EITF 7-3 is not expected to have a significant effect on our consolidated financial statements.

Outlook

Despite lower sales in the second quarter and first six months of fiscal 2008 compared to the corresponding periods of fiscal 2007, we have experienced sequential quarterly growth in sales for each of the last three quarters as business conditions have improved from a year ago. This improvement was mostly driven by increased demand for our new analog products, particularly in the wireless handset and personal mobile device markets where we have experienced growth opportunities over the past year due to positive market trends combined with our successful penetration into feature-rich devices in those markets.

Turns orders, which are orders received with delivery requested in the same quarter, were fairly comparable in the second quarter of fiscal 2008 compared to the preceding first quarter. Although we saw order rates increase in the last 4 weeks of the quarter, total new orders in the second quarter of fiscal 2008 decreased slightly from the previous first quarter

Page 29 of 42

mainly due to lower orders from our OEM customer base. This is typical as we move into our third fiscal quarter since our OEM customers that serve consumer markets tend to have seasonally lower build activity after the holidays. We also expect fewer turns orders from our distributors since their resales are also affected by the holidays that occur during our fiscal third quarter. As a result, our opening 13-week backlog as we entered into the third quarter of fiscal 2008 was lower than it was when we began the second quarter of fiscal 2008.

Considering all factors, including those described above and our historical seasonality patterns, we provided guidance for net sales in the third quarter of fiscal 2008 to decrease by 1 to 5 percent sequentially from the level achieved in our recently completed second quarter of fiscal 2008. However, if backlog orders are cancelled or if the currently anticipated level of turns orders is less than expected, we may not be able to achieve this predicted level of sales. Consistent with the lower sales guidance, we also expect our gross margin percentage to decline about ½ to 1 percentage point as wafer fabrication utilization is expected to remain relatively stable compared to the second quarter. Our estimates include approximately $6 million of share-based compensation expense that is expected to be in cost of sales for the third quarter of fiscal 2008. However, if there are declines in factory utilization or changes in the expected sales level or product mix, our gross margin percentage could be negatively impacted. Operating expenses are expected to be relatively comparable to second quarter levels.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our annual report on Form 10-K for the fiscal year ended May 27, 2007 and to the subheading “Financial Market Risks” under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 37 of our Annual Report on Form 10-K for the fiscal year ended May 27, 2007 and to Note 1, “Summary of Significant Accounting Policies,” and Note 2, “Financial Instruments,” in the Notes to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the fiscal year ended May 27, 2007. Except as discussed under the subheading “Financial Market Risks” appearing in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 27 of this Form 10-Q, there have been no material changes in market risk from the information reported in these sections.

Page 30 of 42

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures that are intended to ensure that the information required to be disclosed in our Exchange Act filings is properly and timely recorded, processed, summarized and reported. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and that management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Since we have investments in certain unconsolidated entities which we do not control or manage, our disclosure controls and procedures with respect to those entities are necessarily substantially more limited than those we maintain for our consolidated subsidiaries.

We have a disclosure controls committee comprised of key individuals from a variety of disciplines in the company that are involved in the disclosure and reporting process. The committee meets regularly to ensure the timeliness, accuracy and completeness of the information required to be disclosed in our filings containing financial statements. As required by SEC Rule 13a-15(b), the committee reviewed this Form 10-Q and also met with the Chief Executive Officer and the Chief Financial Officer to review this Form 10-Q and the required disclosures and the effectiveness of the design and operation of our disclosure controls and procedures. The committee performed an evaluation, under the supervision of and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal quarter covered by this report. Based on that evaluation and their supervision of and participation in the process, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal controls

As part of our continuing efforts to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we conduct a continual review of our internal controls over financial reporting. The review is an ongoing process and it is possible that we may institute additional or new internal controls over financial reporting as a result of the review. During the second quarter of fiscal 2008 which is covered by this report, we did not make any changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Further, because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Page 31 of 42

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We currently are a party to various legal proceedings. While we believe that the ultimate outcome of these various proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is always subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include money damages or an injunction prohibiting us from selling one or more of our products. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the net income of the period in which the ruling occurs, and future periods. Information on our existing material legal proceedings is provided in our Form 10-K for the fiscal year ended May 27, 2007 and in our Form 10-Q for the quarter ended August 26, 2007. Except as described below, there have been no material developments in the legal proceedings described in those filings:

1. The IRS completed its field examination of our tax returns for fiscal years 1997 through 2000 and on July 29, 2003 issued a notice of proposed adjustment seeking additional taxes of approximately $19.1 million (exclusive of interest) for those years. We contested the adjustments through the IRS administrative process. Through that process, we agreed with the Appeals Office of the IRS to settle the matter for the payment of additional taxes of approximately $14.7 million (exclusive of interest). This settlement has been approved by the Congressional Joint Committee on Taxation. Interest computations are still being finalized.

2. In September 2002, iTech Group, Inc. (iTech) brought suit against us in California Superior Court alleging a number of contract and tort claims related to a software license agreement we entered into earlier in 2002 and the proposed sale of one of our business units. At the trial which began in May 2005 the jury in the case found for iTech on claims of breach of contract, promissory fraud and unjust enrichment, awarding plaintiff compensatory damages of approximately $234.0 thousand and punitive damages of $15.0 million. In post trial motions heard by the court in July 2005, the court affirmed the verdict for compensatory damages, awarded attorneys’ fees to iTech of approximately $60.0 thousand and reduced the punitive damages to $3.0 million and judgment was entered in those amounts in late August 2005. We appealed the case and the appeals court issued an unpublished opinion in December 2006, reversing the trial court judgment and remanding the case for re-trial or other disposition. After the opinion of the appeals court became final, we paid plaintiff’s counsel attorneys’ fees of approximately $79.3 thousand, representing the attorneys’ fees originally awarded at trial, plus interest and additional fees for the appeal. In October 2007 shortly before the retrial of the case scheduled for November 2007, we settled the case for a payment of $6.5 million in exchange for dismissal of the case and a release of all claims related to the litigation. The matter has now been concluded.

Page 32 of 42

ITEM 1A. RISK FACTORS

A description of the risk factors associated with our business is set forth below. We review and update our risk factors each quarter. The description set forth below includes any changes to and supersedes the description of risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended May 27, 2007. The risks described below are not the only ones facing us. Additional risks not currently known to us or that we currently believe are immaterial may also impair our business operations and results of financial condition.

You should read the following risk factors in conjunction with the factors discussed elsewhere in this and our other filings with the SEC and in materials incorporated by reference in these filings. These risk factors are intended to highlight certain factors that may affect our financial condition and results of operations and are not meant to be an exhaustive discussion of risks that apply to companies like National with broad international operations. Like other companies, we are susceptible to macroeconomic downturns in the United States or abroad that may affect the general economic climate and our performance and the performance of our customers. Similarly, the price of our stock is subject to volatility due to fluctuations in general market conditions, differences in our results of operations from estimates and projections generated by the investment community, and other factors beyond our control.

We operate in the global marketplace and face risks associated with worldwide operations.

During the first six months of fiscal 2008, approximately 80 percent of our revenues were derived from customers in international markets. We expect that international sales will continue to account for a significant majority of our total revenue in future years. We have manufacturing facilities outside the United States in the U.K., Malaysia and China. We are subject to the economic and political risks inherent in international operations, including the risks associated with ongoing uncertainties and political and economic instability in many countries around the world. In addition, the management of global operations subjects us to risks associated with trade balance issues, currency controls, differences in local business and cultural factors, fluctuations in interest and currency exchange rates, and difficulties in staffing and managing foreign operations. Although we did not experience any materially adverse effects from our international operations as a result of these types of factors in the second quarter or first six months of fiscal 2008, one or more of these factors has had an adverse effect on us in the past and could have a material adverse effect on us in the future.

Conditions inherent in the semiconductor industry may cause periodic fluctuations in our operating results.

Rapid technological change and frequent introduction of new technology leading to more complex and integrated products characterize the semiconductor industry. The result is a cyclical environment with potentially short product life cycles, even with analog products which form the core of our strategic focus. We have seen and may see in the future significant and rapid increases and decreases in product demand. Although less capital investment is needed for analog products than for many other semiconductor products, substantial capital and R&D investment are required to support products and manufacturing processes in the semiconductor industry, which amplify the effect of this cyclicality. As a result of this environment, we have experienced in the past and may experience in the future periodic fluctuations in our operating results. Market shifts in product mix toward or away from higher margin products, including analog products, may also have a significant impact on our operating results. As a result of these and other factors, our financial results could fluctuate significantly from period to period.

Our business will be harmed if we are unable to compete successfully in our markets.

Competition in the semiconductor industry is intense. Our major competitors include Analog Devices, Linear Technology, Maxim Integrated Products and Texas Instruments. These companies sell competing products into some of the same markets that we target. In some cases, we may also compete with our customers. Competition is based on design and quality of products, product performance, price and service, with the relative importance of these factors varying among products, markets and customers. We cannot assure you that we will be able to compete successfully in the future against existing or new competitors or that our operating results will not be adversely affected by increased competition.

A large portion of our revenues is dependent on the wireless handset market.

The wireless handset market continues to be a significant source of our overall sales. New products are being developed to address new features and functionality in handsets, such as advanced color displays, advanced audio, lighting features and battery management that can adequately handle the demands of these advanced features. Due to high levels of competition, as well as complex technological requirements, there is no assurance that we will continue to be successful in this targeted market. Although the worldwide handset market is large, growth trends and other variables are often uncertain and difficult

Page 33 of 42

to predict. Since the wireless handset market is a consumer-driven market, changes in the economy that affect consumer demand could affect our business and operating results.

Reduced consumer or corporate spending due to uncertainties in the macroeconomic environment could adversely affect our revenues and gross margins.

We depend on demand from the consumer, original equipment manufacturer, contract manufacturing, industrial, automotive and other markets we serve for the end market applications which incorporate our products. Our revenues and gross margins are based on certain levels of consumer and corporate spending. If our projections of these expenditures fail to materialize due to reductions in consumer or corporate spending as a result of uncertain conditions in the macroeconomic environment, such as continuing increases in oil prices, increased interest rates, subprime mortgage failures, or otherwise, our revenues and gross margins could be adversely affected.

We may experience delays in introducing new products or market acceptance of new products may be below our expectations.

Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize the industries in which our primary customers operate. As our customers evolve and introduce new products, our success depends on our ability to anticipate and adapt to these changes in a timely and cost-effective manner by developing and introducing into the market new products that meet the needs of our customers. We believe that continued focused investment in research and development, especially the timely development and market acceptance of new analog products, is a key factor to successful growth and the ability to achieve strong financial performance. Successful development and introduction of these new products are critical to our ability to maintain a competitive position in the marketplace. We will continue to invest resources to develop more highly integrated solutions and building block products, both primarily based on our analog capabilities. We will continue to target applications such as wireless handsets, displays, other portable devices and applications in other broad markets that require analog technology and we have begun to focus on utilizing analog technology to achieve energy efficiencies. We cannot assure you that we will be successful in timely developing and introducing successful new products, and a failure to bring new products to market may harm our operating results. We also cannot assure you that products that may be developed in the future by our competitors will not render our products obsolete or non-competitive.

We make forecasts of customer demand that need to be accurate.

Our ability to match inventory and production mix with the product mix needed to fill current orders and orders to be delivered in any given quarter may affect our ability to meet that quarter’s revenue forecast. To be able to accommodate customer requests for shorter shipment lead times, we manufacture product based on customer forecasts. These forecasts are based on multiple assumptions. While we believe our relationships with our customers, combined with our understanding of the end markets we serve, provide us with the ability to make reliable forecasts, if we inaccurately forecast customer demand, it could result in inadequate, excess or obsolete inventory that would reduce our profit margins.

Our performance depends on the availability and cost of raw materials, utilities, critical manufacturing equipment and third-party manufacturing services.

Our manufacturing processes and critical manufacturing equipment require that certain key raw materials and utilities be available. Limited or delayed access to and high costs of these items, as well as the inability to implement new manufacturing technologies or install manufacturing equipment on a timely basis could adversely affect our results of operations. We subcontract a portion of our wafer fabrication and assembly and testing of our integrated circuits. We depend on a limited number of third parties, most of whom are located outside of the United States, to perform these functions. We do not have long-term contracts with all of these third parties. Reliance on these third parties involves risks, including possible shortages of capacity in periods of high demand. Although we did not experience any material difficulties with supplies or subcontractors in the second quarter or first six months of fiscal 2008, we have had difficulties in the past and could experience them in the future.

We are subject to warranty claims, product recalls and product liability.

We could be subject to warranty or product liability claims that could lead to significant expenses as we defend such claims or pay damage awards. In the event of a warranty claim, we may also incur costs if we compensate the affected customer. We maintain product liability insurance, but there is no guarantee that such insurance will be available or adequate to protect against all such claims. We may incur costs and expenses relating to a recall of one of our customers’ products containing one of our devices. Although costs or payments we have made in connection with warranty claims or product recalls in the past have not materially affected our results of operations and financial condition, they could in the future.

Page 34 of 42

Our profit margins may vary over time.

Our profit margins may be adversely affected by a number of factors, including decreases in our shipment volume, reductions in, or obsolescence of our inventory and shifts in our product mix. In addition, the competitive market environment in which we operate may adversely affect pricing for our products, although we try to emphasize higher margin products. Because we own most of our manufacturing capacity, a significant portion of our operating costs are fixed, including costs associated with depreciation expense. In general, these costs do not decline with reductions in customer demand or utilization of our manufacturing capacity. If we are unable to utilize our manufacturing facilities at a high level, the fixed costs associated with these facilities will result in higher average unit costs and lower gross margins.

We may be harmed by natural disasters and other disruptions.

Our worldwide operations could be subject to natural disasters and other disruptions. Our corporate headquarters are located near major earthquake fault lines in California. In the event of a major earthquake, or other natural or manmade disaster, we could experience loss of life of our employees, destruction of facilities or other business interruptions. The operations of our suppliers could also be subject to natural disasters and other disruptions, which could cause shortages and price increases in various essential materials. We use third party freight firms for nearly all of our shipments from vendors and from our foundries to assembly and test sites and for shipments to customers of our final product. This includes ground, sea and air freight. Any significant disruption of our freight shipments globally or in certain parts of the world, particularly where our operations are concentrated, would materially affect our operations.

We may not be able to attract or retain employees with skills necessary to remain competitive in our industry.

Our continued success depends in part on the recruitment and retention of skilled personnel, including technical, marketing, management and staff personnel. Experienced personnel in the semiconductor industry, particularly in our targeted analog areas, are in high demand and competition for their skills is intense. There can be no assurance that we will be able to successfully recruit and retain the key personnel we require.

Our products are dependent on the use of intellectual property that we need to protect.

We rely on patents, trade secrets, trademarks, mask works and copyrights to protect our products and technologies, and have a program to file applications for and obtain patents, trademarks, mask works and copyrights in the United States and in selected foreign countries where we believe filing for such protection is appropriate. Effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in some countries. Some of our products and technologies are not covered by any patent or patent application. In addition, we cannot assure you that:

• the patents owned by us or numerous other patents which third parties license to us will not be invalidated, circumvented, challenged or licensed to other companies; or

• any of our pending or future patent applications will be issued within the scope of the claims sought by us, if at all.

We also seek to protect our proprietary technologies, including technologies that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventors’ rights agreements with our collaborators, advisors, employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our collaborators will not assert rights to intellectual property arising out of our research collaborations. In addition, we may not be able to enforce these agreements globally. Some of our technologies have been licensed on a non-exclusive basis from other companies, which may license such technologies to others, including our competitors. If necessary or desirable, we may seek licenses under patents or intellectual property rights claimed by others. However, we cannot assure you that we will obtain such licenses or that the terms of any offered licenses will be acceptable to us. The failure to obtain a license from a third party for technologies we use could cause us to incur substantial liabilities and to suspend the manufacture or shipment of products or our use of processes requiring the technologies.

We have significantly expanded our manufacturing operations in China and, as a result, will be increasingly subject to risks inherent in doing business in China.

Since we began production in our assembly and test facility in Suzhou, China in fiscal 2005, the factory has steadily increased its output. Our ability to operate in China may be adversely affected by changes in China’s laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. Our operations in China are subject to the economic and political situation there. We believe that our operations in

Page 35 of 42

China are in compliance with all applicable legal and regulatory requirements. However, there can be no assurance that China’s central or local governments will not impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures. Changes in the political environment or government policies could result in revisions to laws or regulations or their interpretation and enforcement, increased taxation, restrictions on imports, import duties or currency revaluations. In addition, a significant destabilization of relations between China and the United States could result in restrictions or prohibitions on our operations in China. The Chinese legal systems relating to foreign trade and intellectual property are relatively new and continue to evolve. Enforcement of existing laws or agreements may be sporadic and implementation and interpretation of laws may be inconsistent. Moreover, there is a high degree of fragmentation among regulatory authorities resulting in uncertainties as to which authorities have jurisdiction over particular parties or transactions.

We are subject to fluctuations in the exchange rate of the U.S. dollar and foreign currencies.

While we transact business primarily in U.S. dollars, and most of our revenues are denominated in U.S. dollars, a portion of our costs and revenues is denominated in other currencies, such as the euro, the Japanese yen, pound sterling and certain other Asian currencies. As a result, changes in the exchange rates of these or any other applicable currencies to the U.S. dollar will affect our costs of goods sold and operating margins. We have a program to hedge our exposure to currency rate fluctuations, but our hedging program may not be fully effective in preventing foreign exchange losses.

Increased leverage may harm our financial condition and results of operations.

On June 7, 2007, we announced that we would incur $1.5 billion of indebtedness under a bridge credit facility to purchase shares of our common stock through an accelerated stock repurchase program. We have subsequently issued $1.0 billion in senior unsecured notes and entered into a bank loan in the aggregate principal amount of $0.5 billion to fully repay indebtedness under the bridge credit facility. As a result, our total liabilities at the end of the second fiscal quarter ended November 25, 2007 were $1,982.9 million. This increase from fiscal 2007 and any future increase in our level of indebtedness will have several important effects on our future operations, including, without limitation:

• we have additional cash requirements in order to support the payment of interest on our outstanding indebtedness;

• increases in our outstanding indebtedness and leverage may increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressure;

• our ability to obtain additional financing for working capital, capital expenditures, general corporate and other purposes may be limited; and

• our flexibility in planning for, or reacting to, changes in our business and our industry may be limited.

Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our consolidated operations, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to, among other things:

• seek additional financing in the debt or equity markets;

• refinance or restructure all or a portion of our indebtedness, including the notes;

• sell selected assets;

• reduce or delay planned capital expenditures; or

• reduce or delay planned operating expenditures.

Such measures might not be sufficient to enable us to service our debt. In addition, any such financing, refinancing or sale of assets might not be available on economically favorable terms, if at all.

Rises in interest rates could adversely affect our financial condition.

An increase in prevailing interest rates has an immediate effect on the interest rates charged on our variable rate debt, including the senior floating rate notes and bank debt, which rise and fall upon changes in interest rates on a quarterly basis. Although interest rates actually decreased in the second quarter of fiscal 2008, any increased interest expense associated with increases in interest rates affects our cash flow and our ability to service our debt. As a protection against rising interest rates, we may enter into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts. These agreements, however, increase our risks as to the other parties to the agreements not performing or that the agreements could be unenforceable.

Page 36 of 42

We may pursue acquisitions, investments and divestitures that could harm our operating results and may disrupt our business.

We have made and will continue to consider making strategic business investments, alliances and acquisitions we consider necessary to gain access to key technologies that we believe will augment our existing technical capability and support our business model objectives. Acquisitions and investments involve risks and uncertainties that may unfavorably impact our future financial performance. We may not be able to integrate and develop the technologies we acquire as expected. If the technology is not developed in a timely manner, we may be unsuccessful in penetrating target markets. With any acquisition there are risks that future operating results may be unfavorably affected by acquisition related costs, including in-process R&D charges and incremental R&D spending.

We have made and will continue to consider making strategic divestitures. With any divestiture, there are risks that future operating results could be unfavorably impacted if targeted objectives, such as cost savings, are not achieved or if other business disruptions occur as a result of the divestiture or activities related to the divestiture.

We are subject to litigation risks.

All industries, including the semiconductor industry, are subject to legal claims. We are involved in a variety of routine legal matters that arise in the normal course of business. Further discussion of certain specific material legal proceedings we are involved with is contained in Note 11 to the Condensed Consolidated Financial Statements. We believe it is unlikely that the final outcome of these legal claims will have a material adverse effect on our consolidated financial position or results of operations. However, litigation is inherently uncertain and unpredictable. An unfavorable resolution of any particular legal claim or proceeding could have a material adverse effect on our consolidated financial position or results of operations.

We are subject to many environmental laws and regulations.

Increasingly stringent environmental regulations restrict the amount and types of materials that can be released from our operations into the environment. While the cost of compliance with environmental laws has not had a material adverse effect on our results of operations historically, compliance with these and any future regulations could require significant capital investments in pollution control equipment or changes in the way we make our products. In addition, because we use hazardous and other regulated materials in our manufacturing processes, we are subject to risks of liabilities and claims, regardless of fault, resulting from accidental releases, including personal injury claims and civil and criminal fines. The following should also be considered:

• we currently are remediating past contamination at some of our sites;

• we have been identified as a potentially responsible party at a number of Superfund sites where we (or our predecessors) disposed of wastes in the past; and

• significant regulatory and public attention on the impact of semiconductor operations on the environment may result in more stringent regulations, further increasing our costs.

We are subject to export restrictions and laws affecting trade and investments.

As a global company headquartered in the United States, we are subject to U.S. laws and regulations that limit and restrict the export of some of our products and related product information. Compliance with these laws has not significantly limited our operations or our sales in the recent past but could significantly limit them in the future. We maintain an export compliance program but there are risks that the compliance controls could be circumvented, exposing us to legal liabilities. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments. Although these restrictions and laws have not significantly restricted our operations in the recent past, there is a risk that they could in the future.

We may be affected by higher than expected tax rates or exposure to additional income tax liabilities.

As a global company, our effective tax rate is dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. We are subject to income taxes in both the United States and various foreign jurisdictions, and complex analyses and significant judgment are required to determine worldwide tax liabilities. From time to time, we have received notices of tax assessments in various jurisdictions where we operate. We may receive future notices of assessments and the amounts of these assessments or our failure to favorably resolve such assessments may have a material adverse effect on our financial condition or results of operations.

Page 37 of 42

We have significant amounts of deferred tax assets. The recognition of deferred tax assets is reduced by a valuation allowance if it is more likely than not that the tax benefits associated with the deferred tax benefits will not be realized. If we are unable to generate sufficient future taxable income in certain jurisdictions, or if there is a significant change in the actual effective tax rates or the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowances against our deferred tax assets, which would cause an increase in our effective tax rate. A significant increase in our effective tax rate could have a material adverse effect on our financial condition or results of operations.

Recent events and global disruptions could adversely affect our financial performance and operating results.

Terrorist activities worldwide and hostilities in and between nation states, including the continuing hostilities and violence in Iraq and the threat of future hostilities involving the U.S. and other countries, may cause uncertainty and instability in the overall state of the global economy or in the industries in which we operate. We have no assurance that the consequences from these events will not disrupt our operations in either the U.S. or other regions of the world. Continued increases in oil prices and interest rates, as well as spreading subprime mortgage failures could affect our future costs and revenues. Pandemic illnesses that spread globally and/or substantial natural disasters, as well as geopolitical events, may affect our future costs, operating capabilities and revenues.

Page 38 of 42

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) During the second quarter of fiscal 2008 covered by this report, we did not make any unregistered sales of our securities.

(c) The following table summarizes purchases we made of our common stock during the second quarter of fiscal 2008:

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
Month #1 August 27, 2007 – September 26, 2007	2,953,606	$	25.95	2,953,305	$	803 million
Month #2 September 27, 2007- October 26, 2007	7,025,611	$	26.80	7,018,150	$	615 million
Month #3 October 27, 2007 – November 25, 2007	634,600	$	25.20	634,000	$	599 million
Total	10,613,817			10,605,455

(1) Includes 7,381 shares that were reacquired through the withholding of shares to pay employee tax obligations upon the vesting of restricted stock and 981 shares purchased by the rabbi trust utilized by our Deferred Compensation Plan which permits participants to direct investment of their accounts in National stock in accordance with their instructions.

(2) Purchases during the second quarter were made as part of the $500 million stock repurchase program announced on March 8, 2007. With respect to the $1.5 billion accelerated repurchase program announced on June 7, 2007, final delivery from Goldman Sachs of approximately 7.2 million additional shares was made in November and December 2007 after the end of the second quarter of fiscal 2008. Delivery of these shares was made under the terms of the agreements entered into with Goldman Sachs in connection with the accelerated repurchase program. There are two stock repurchase programs that remain open. $99 million of the $500 million stock repurchase program announced on March 8, 2007 remains available and all of the $500 million stock repurchase program announced on June 7, 2007 remains available. There is no expiration date for any of these repurchase programs.

Our $20 million multicurrency credit agreement with a bank that provides for multicurrency loans, letters of credit and standby letters of credit was renewed in October 2007. The agreement contains restrictive covenants, conditions and default provisions that require the maintenance of financial ratios. Under the agreement, we are no longer required to maintain certain levels of tangible net worth, a requirement that previously restricted the amounts available for the payment of dividends on common stock. The agreement expires in October 2008.

The $500 million unsecured credit agreement we entered into in July 2007 with a syndicate of banks for a five-year term loan contains restrictive covenants, conditions and default provisions that require the maintenance of financial ratios, but does not contain any minimum working capital requirements or restrictions on the payment of dividends on common stock.

Page 39 of 42

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) Our annual stockholders meeting was held on September 28, 2007.

(b) The following directors were elected at the meeting:

Director	For	Against	Abstain
Brian L. Halla	225,444,038	2,018,650	1,915,629
Steven R. Appleton	225,898,400	1,350,844	2,129,073
Gary P. Arnold	214,645,322	12,517,777	2,215,218
Richard J. Danzig	218,505,677	8,791,916	2,080,724
John T. Dickson	225,907,031	1,380,070	2,091,216
Robert J. Frankenberg	225,970,239	1,209,678	2,198,400
E. Floyd Kvamme	225,668,019	1,587,409	2,122,889
Modesto A. Maidique	225,103,061	2,076,433	2,198,823
Edward R. McCracken	225,518,808	1,790,383	2,069,126

(c) The following matters were also voted on at the meeting:

1. Proposal to ratify the appointment of KPMG LLP as the auditors of the Company:

For: 225,382,830 Against: 2,210,258 Abstain: 1,785,229

2. Proposal to approve the adoption of the 2007 Employees Equity Plan:

For: 170,682,620 Against: 24,993,616 Abstain: 1,904,223

Broker Non-Votes: 31,797,858

3. Proposal to approve the 2005 Executive Officer Equity Plan, as amended:

For: 171,622,994 Against: 23,856,398 Abstain: 2,101,067

Broker Non-Votes: 31,797,858

Page 40 of 42

ITEM 6. EXHIBITS

(a)	Exhibits
3.1	Second Restated Certificate of Incorporation of the Company, as amended (incorporated by reference from the Exhibits to our Registration Statement on Form S-3 Registration No. 33-52775, which became effective March 22, 1994); Certificate of Amendment of Certificate of Incorporation dated September 30, 1994 (incorporated by reference from the Exhibits to our Registration Statement on Form S-8 Registration No. 333-09957, which became effective August 12, 1996); Certificate of Amendment of Certificate of Incorporation dated September 22, 2000 (incorporated by reference from the Exhibits to our Registration Statement on Form S-8 Registration No. 333-48424, which became effective October 23, 2000).
3.2	By-Laws of the Company, as amended effective April 17, 2007 (incorporated by reference from the Exhibits to our Form 8-K dated April 17, 2007 filed April 18, 2007).
4.1	Form of Common Stock Certificate (incorporated by reference from the Exhibits to our Registration Statement on Form S-3 Registration No. 33-48935, which became effective October 5, 1992).
4.2	Form of Indenture (incorporated by reference from the Exhibits to our Registration Statement on Form S-3 Registration No. 333-143571, which became effective June 7, 2007). Form of Supplemental Indenture for Senior Floating Rate Notes due 2010; Form of Supplemental Indenture for 6.150% Senior Notes due 2012; Form of Supplemental Indenture for 6.60% Senior Notes due 2017 (all incorporated by reference from the Exhibits to our Form 8-K dated June 13, 2007 filed June 18, 2007).
4.3	Form of Global Note for Senior Floating Rate Notes due 2010; Form of Global Note for 6.150% Senior Notes due 2012; Form of Global Note for 6.600% Senior Notes due 2017 (all incorporated by reference from the Exhibits to our Form 8-K dated June 13, 2007 filed June 18, 2007).
10.1	Management Contract or Compensatory Plan or Arrangement: Deferred Compensation Plan, as amended and restated effective January 1, 2008.
10.2	Management Contract or Compensatory Plan or Arrangement: Form of Change of Control Employment Agreement as amended effective October 31, 2007 to reflect changes required by Section 409A of the Internal Revenue Code.
31.	Rule 13a – 14(a)/15d – 14(a) Certifications
32.	Section 1350 Certifications.

Page 41 of 42

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NATIONAL SEMICONDUCTOR CORPORATION

Date: January 3, 2008	/s/ Jamie E. Samath
	Jamie E. Samath Corporate Controller Signing on behalf of the registrant and as principal accounting officer

Page 42 of 42

Exhibit 31

CERTIFICATION

I, Brian L. Halla, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National Semiconductor Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 3, 2008	/s/ Brian L. Halla
	Brian L. Halla Chairman and Chief Executive Officer

CERTIFICATION

I, Lewis Chew, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National Semiconductor Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 3, 2008	/s/ Lewis Chew
	Lewis Chew Senior Vice President, Finance and Chief Financial Officer

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of National Semiconductor Corporation (the “Company”) on Form 10-Q for the period ended November 25, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian L. Halla, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

• The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, and

• The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 3, 2008	/s/ Brian L. Halla
	Brian L. Halla Chairman and Chief Executive Officer

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of National Semiconductor Corporation (the “Company”) on Form 10-Q for the period ended November 25, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lewis Chew, Senior Vice President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

• The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, and

• The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 3, 2008	/s/ Lewis Chew
	Lewis Chew Senior Vice President, Finance and Chief Financial Officer

EX-10

Exhibit 10.1

NATIONAL SEMICONDUCTOR CORPORATION

DEFERRED COMPENSATION PLAN

As Amended and Restated Effective January 1, 2008

NATIONAL SEMICONDUCTOR CORPORATION

DEFERRED COMPENSATION PLAN

PLAN DOCUMENT

AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 2008

THIS DEFERRED COMPENSATION PLAN ("Plan") originally adopted by National Semiconductor Corporation, a corporation organized and existing under the laws of the State of Delaware, (hereinafter referred to as the "Employer") originally effective as of June 1, 2001, as hereby amended and restated effective as of January 1, 2008:

WITNESSETH:

WHEREAS, the Employer adopted this Plan to consolidate previously deferred incentive awards under the Key Employee Incentive Plan (“KEIP”), Executive Officer Incentive Plan (“EOIP”), and Key Employee Bonus Plan (“KEBP”) and to continue to allow certain participants in the Employee Variable Pay Plan (“EVP”) and EOIP the ability to defer payment of their incentive awards under those plans; and

WHEREAS, the Employer’s Benefit Restoration Plan (“BRP”) previously permitted certain BRP participants to defer up to 30% of Compensation as Annual Savings Restoration Amounts and provided Annual Profit Sharing Restoration Amounts for participants whose benefits under the National Semiconductor Corporation Retirement and Savings Program (RASP) were limited by the Internal Revenue Code; and

WHEREAS, the Employer desires to combine into the Plan the provisions of the BRP that permit the deferral of Compensation and provide for Annual Profit Sharing Restoration Amounts, in order to create a single plan and to provide additional flexibility with respect to future deferrals; and

WHEREAS, the Employer also desires to transfer Annual Matching Restoration Amounts, Annual Profit Sharing Restoration Amounts and Annual Savings Restoration Amounts previously accrued under the BRP so that they may be held under a single plan; and

WHEREAS, the Employer wishes to amend and restate the Plan in order to achieve the goals set forth above;

NOW, THEREFORE, in consideration of the promises herein contained, it is hereby declared as follows:

ARTICLE 1

Definitions

When used herein, the words and phrases defined hereinafter shall have the following meaning unless a different meaning is clearly required by the context.

1.01     “ Account” shall mean the Account established pursuant to Section 3.05 of the Plan.

1.02 “Annual Matching Restoration Amount” shall mean the amount (as previously defined under the BRP) that remained to the credit of a Participant under the BRP as of October 31, 2001 and which will no longer be payable under the BRP after October 31, 2001. Once this amount is credited to a Participant Account under the Plan, a Participant will no longer have any right to the amount previously credited under the BRP. In no event shall a Participant be entitled to the amount credited under this Plan and the amount that was credited to an account under the BRP prior to November 1, 2001.

1.03 “Annual Profit Sharing Restoration Amount” shall mean the amount previously determined in accordance with Section 3.02 of this Plan prior to the amendment and restatement of the Plan.

Such amount shall also include the Annual Profit Sharing Restoration Amount that remained to the credit of a Participant under the BRP as of October 31, 2001 and which will no longer be payable under the BRP after October 31, 2001. Once this amount is credited to a Participant Account under the Plan, a Participant will no longer have any right to the amount previously credited under the BRP. In no event shall a Participant be entitled to the amount credited under this Plan and the amount that was credited to an account under the BRP prior to November 1, 2001.

1.04 “Annual Savings Restoration Amount” shall mean the amount (as previously defined under the BRP) that remained to the credit of a Participant under the BRP as of October 31, 2001, and which will no longer be payable under the BRP after October 31, 2001. Once this amount is credited to a Participant Account under the Plan, a Participant will no longer have any right to the amount previously credited under the BRP. In no event shall a Participant be entitled to the amount credited under this Plan and the amount that was credited to an account under the BRP prior to November 1, 2001.

1.05    " Beneficiary" shall mean the person or persons last designated by a Participant, by written notice filed with the Committee, to receive a Plan Benefit upon his or her death. In the event a Participant fails to designate a person or persons as provided above or if no Beneficiary so designated survives the Participant, then for all purposes of this Plan, the Beneficiary shall be, in order of preference, the Participant’s surviving spouse, or, if none, the Participant's children, in equal shares, or, if none, the Participant's estate.

1.06 “Benefits” shall mean the value of the Participant’s Account as credited to the investment options selected by the Participant from among the investment options authorized

2

by the Committee from time-to-time under the Plan as reflected in the records of the Participant’s Account as described in Sections 3.05 and 3.06 of the Plan.

1.07     “Board” shall mean the Board of Directors of National Semiconductor Corporation.

1.08     “BRP” shall mean the National Semiconductor Corporation Benefit Restoration Plan.

1.09 “Committee” shall mean The Retirement and Savings Program Administrative Committee.

1.10    “Compensation” shall mean the sum of:

(a)      the Employee’s basic or regular rate of compensation for each payroll period during that portion of a Plan Year in which the Employee is a Participant in the Plan, plus

(b)      all overtime, lead time, draws from the Sales Employee Variable Pay Plan, and shift differential income received during that portion of a Plan Year in which the Employee is a Participant in the Plan.

Compensation does not include Incentive Awards.

1.11 “Deferred Compensation Amount” shall mean the amount determined in accordance with Section 3.04 of this Plan.

1.12 “Deferred Incentive Award Amount” shall mean the amount of a Participant’s Incentive Award that is deferred with respect to a particular fiscal year of the Employer as determined in accordance with Section 3.03 of this Plan.

Such amount also includes amounts credited to a Participant Account in the Plan as of June 1, 2001 from amounts that remained to the credit of a Participant under the provisions of the KEIP, EOIP or KEBP as of May 31, 2001. In no event shall a Participant be entitled to the amount credited under this Plan and the amount that was credited to an account under the KEIP, EOIP or KEBP prior to June 1, 2001.

1.13 “Effective Date” shall mean originally June 1, 2001, except that the provisions relating to the deferral of Compensation, Annual Profit Sharing Restoration Amounts and the consolidation of prior Annual Matching Restoration Amounts, prior Annual Profit Sharing Restoration Amounts, and prior Annual Savings Restoration Amounts under the BRP which remained to the credit of a participant in the BRP as of October 31, 2001, shall be effective November 1, 2001. The effective date of the most recent amendment and restatement of the Plan is January 1, 2008.

1.14      “Employer” shall mean National Semiconductor Corporation.

1.15   “Incentive Award” shall mean the amount payable to an Employee either under the Employer’s Executive Officer Incentive Plan (EOIP) or the Employee Variable Pay Plan (EVP).

3

1.16 “Participant” shall mean an eligible Employee of the Employer who satisfies the eligibility requirements of Section 2.01 of the Plan.

1.17 “Plan” shall mean the National Semiconductor Corporation Deferred Compensation Plan, as amended from time to time.

1.18      “Plan Year” shall mean the Employer’s fiscal year.

1.19 “RASP” shall mean the National Semiconductor Corporation Retirement and Savings Program, or any successor plan (or plans) thereto. In the case of any successor plan, references herein to Sections of the RASP shall be interpreted as corresponding Sections under the successor plan.

1.20     Capitalized Terms not defined herein shall have the meaning attributed to them in the RASP.

4

ARTICLE II

Eligibility

2.01     Eligibility

A.             Deferred Compensation Amount

An Employee shall be eligible to make deferrals of his Compensation under the Plan if he is on the Employer’s U.S. payroll and holds a 39xx or higher job code, or such other criteria as is established by the Committee for eligibility.

B.             Deferred Incentive Award Amount

An Employee shall be eligible to make deferrals of his Incentive Award under the Plan if he is on the Employer’s U.S. payroll, and holds a 39xx or higher job code, or such other criteria as is established by the Committee for eligibility.

2.02        Enrollment

A.             Deferred Compensation Amount

A Participant may enroll in the Plan for purposes of deferring Compensation by November 30, or such other date that is specified by the Committee (“enrollment date”), prior to the end of any calendar year, to be effective as of January 1, of the next succeeding calendar year, by using such enrollment process as established by the Committee for this purpose. Such enrollment process shall provide for the election of the percentage of the Compensation that shall be deferred, the timing of the commencement of deferrals (in accordance with Section 3.04), the timing for payment of Compensation (in accordance with Section 4.01), and the form of payment of Compensation (in accordance with Section 4.05). A new election must be completed for each calendar year for which a deferral of Compensation is desired.

B.             Deferred Incentive Award Amount

A Participant may enroll in the Plan for purposes of deferring an Incentive Award with respect to a particular fiscal year of the Employer no later than 6 months before the end of the fiscal year of the Employer, or such earlier date that is specified by the Committee, by using such enrollment process as established by the Committee for this purpose. Such enrollment process shall provide for the election of the percentage of the Incentive Award that shall be deferred, the timing for payment of the Incentive Award (in accordance with Section 4.01), and the form of payment of the Incentive Award (in accordance with Section 4.05). A new election must be completed for each fiscal year for which a deferral of an Incentive Award is desired.

5

C. Enrollment of Newly Eligible Employees

A Participant who first becomes eligible to enroll in the Plan on or after the beginning of a Plan Year, as determined in accordance with section 409A and the Treasury Regulations promulgated thereunder, may be permitted to enroll in the Plan for purposes of electing to defer Compensation (but not Incentive Awards) attributable to services to be performed after such election, provided that the Participant makes the election no later than 30 days after the Participant first becomes eligible to enroll in the Plan.

6

ARTICLE III

Benefits

3.01 Benefits

The maximum Benefits under this Plan to which a Participant shall be entitled shall be equal to the sum of:

(a) the Participant’s Deferred Incentive Award Amount credited pursuant to Section 3.03 (and previously credited amounts as described in Section 1.12);

(b) the Participant’s Deferred Compensation Amount credited pursuant to Section 3.04;

(c) the Participant’s Annual Profit Sharing Restoration Amount;

(d) the Participant’s Annual Savings Restoration Amount;

(e) the Participant’s Annual Matching Restoration Amount; and

(f) earnings and losses credited to the Participant’s Account in accordance with Section 3.06.

3.02 Annual Profit Sharing Restoration Amount

No amounts shall be credited under this Section 3.02 for any Plan Year beginning after May 30, 2004.

3.03 Deferred Incentive Award Amounts

The Deferred Incentive Award Amount which shall be credited to a Participant’s Account for a Plan Year, shall be equal to the amount of the Incentive Award with respect to the Employer’s fiscal year ending immediately before the Plan Year that a Participant has agreed to defer under this Plan pursuant to procedures established by the Committee. A Participant may agree to defer receipt of up to 100% of his Incentive Award with respect to the Employer’s fiscal year ending immediately before the Plan Year.

3.04         Deferred Compensation Amounts

In the case of a Participant who holds a job code of 39xx or above, the maximum Deferred Compensation Amount shall be equal to 30% of the Participant’s Compensation. Such Participant may elect any whole percentage of his Compensation between 0% and 30%.

In the case of a Participant holding both a 43xx or higher job code, the maximum Deferred

7

Compensation Amount shall be equal to 50% of the Participant’s Compensation. Such Participant may elect any whole percentage of his Compensation between 0% and 50%.

The Committee may establish procedures for determining the pay date during a Plan Year in which Deferred Compensation Amounts shall begin to be withheld from a Participant’s Compensation, and such procedures may differ depending on the Participant’s job code.

3.05 Participant's Account

The Employer shall create and maintain adequate records to reflect the interest of each Participant in the Plan. Such records shall be in the form of individual Accounts. When appropriate, a Participant's Account shall consist of separate calendar class year subaccounts with respect to each Plan Year for which a Deferred Incentive Award Amount or Deferred Compensation Amount is credited under the Plan. Such Accounts shall be kept for recordkeeping purposes only and shall reflect amounts allocated under Section 3.07, distributions under Article IV, and divestments under Section 6.07. Any Accounts maintained in trust by the Employer shall not be construed as providing for assets to be held in trust or escrow or any other form of asset segregation for the Participant or Beneficiary to whom benefits are to be paid pursuant to the terms of the Plan.

3.06 Allocation to Participant Account

The Participant's Deferred Incentive AwardAmount and Deferred Compensation Amount shall be credited to the Participant's Account as of the pay date such amount would have been paid to such Participant absent a deferral under the Plan.

The Participant's Annual Savings Restoration Amount, Annual Matching Restoration Amount and Annual Profit Sharing Restoration Amount previously credited under the BRP shall be credited to the Participant’s Account as of the Effective Date.

Each Participant may advise the Committee, in accordance with procedures established by the Committee, on how he wishes his Account to be allocated among the investment options authorized by the Committee and such Participant’s Account shall be credited with earnings and losses at such time and in such manner as determined in the sole discretion of the Committee and shall reflect the allocation of investments made there under. The Participant may change his investment allocation in accordance with procedures established by the Committee. Notwithstanding the foregoing, the Committee reserves the right to determine the Plan’s investment options and the specific process for making investments without regard to the advice received from Participants.

3.07 Vested Percentage

Notwithstanding anything herein to the contrary, a Participant shall be 100% vested at all times in his Deferred Incentive Award Amount, his Deferred Compensation Amount, Annual Savings Restoration Amount, and his Annual Matching Restoration Amount.

A Participant shall be vested in his Annual Profit Sharing Restoration Amount in accordance

8

with Section 8.01(A) of the RASP; provided, however, that forfeited amounts shall not be reallocated among Plan Participants, or be restored to the forfeiting Participant upon reemployment.

3.08 Benefits Under Prior Plans

In no event shall a Participant be entitled to the same amount under this Plan and the KEIP, EIOP, KEBP, or BRP because deferred amounts under such plans have been transferred to this Plan.

9

ARTICLE IV

Distribution of Benefits

4.01 Benefit Commencement Date

Except in the case of hardship withdrawals (see Section 4.04) and delayed payments for certain specified employees (see Section 4.07), Benefits under the Plan will be paid on the earlier of:

(a) the Participant’s separation from service (as provided in Section 4.02); or

(b) in the case of a Deferred Incentive Award Amount, a Deferred Compensation Amount, or an Annual Savings Restoration Amount, a date pre-selected by the Participant (as provided in Section 4.03), in accordance with the election made by the Participant pursuant to Section 2.02.

The payment of the portion of a Deferred Incentive Award Amount that is not determinable at the time of a Participant’s separation from service shall commence as provided under Section 4.05 once the underlying amount of the Incentive Award is determined. If an election is made to have Benefits commence on a date pre-selected by the Participant (as provided in Section 4.03), that election may later be modified to delay payment until the Participant’s separation from service (as provided in Section 4.02), so long as the modification complies with the requirements of Section 409A of the Code as set forth in Section 4.06.

4.02 Separation from Service

Except as otherwise provided in Section 4.01 and 4.03 of this Article, Benefits shall be distributed upon separation from service (within the meaning provided in section 409A(a)(2)(A)(i) of the Code and the Treasury Regulations promulgated thereunder).

4.03 Date Pre-Selected by the Participant

A Participant may elect to have payment of a Deferred Compensation Amount, a Deferred Incentive Award Amount, or an Annual Savings Restoration Amount for a particular Plan Year (except that in the case of a Deferred Incentive Award Amount deferred prior to June 1, 2001, all such amounts must be subject to the same election) commence prior to separation from service, provided that the commencement date is at least two full calendar years after the end of the calendar year in which the Deferred Incentive Award Amount or Deferred Compensation Amount otherwise would have been paid to the Participant absent the deferral under this Plan. For example, payment of a Deferred Incentive Award Amount or a Deferred Compensation Amount that otherwise would have been paid to the Participant in 2008 may be deferred to a date no earlier than January 1, 2011.

10

4.04   Hardship

Payment of part or all of the Benefits under this Plan may be accelerated in the case of severe financial hardship, which shall mean an emergency or unexpected situation in the Participant's financial affairs, including, but not limited to, illness or accident involving the Participant or the Participant's spouse, the Participant’s beneficiary or any of the Participant’s dependents (within the meaning of section 152(a) of the Code without regard to section 152(b)(1), (b)(2) and (d)(1)(B)); loss of the Participant’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance); the need to pay for medical expenses, including non-refundable deductibles, as well as for the costs of prescription drug medication; the need to pay for funeral expenses for the Participant or the Participant's spouse, the Participant’s beneficiary or any of the Participant’s dependents (within the meaning of section 152(a) of the Code without regard to section 152(b)(1), (b)(2) and (d)(1)(B)); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. All payments in case of hardship must be approved by the Committee, will be limited to the amount necessary to meet the severe hardship, and will be made on or before the 60^th day immediately following approval by the Committee.

4.05 Form of Payment

Benefits shall be distributed to a Participant in either a lump sum, or in annual installment payments of at least two (2) years, but not more than ten (10) years, in accordance with the election made by the Participant pursuant to Section 2.02; provided, however, that the Participant’s election under Section 2.02 as to the form of payment of Benefits subsequently may be modified to provide for another permissible form of payment, so long as such election modification complies with the requirements of Section 4.06.

If installment payments are elected, the first installment shall, subject to Section 4.07, be made on or before the 60th day immediately following the event giving rise to the distribution and all subsequent installments shall be paid in January of each subsequent calendar year. Annual installment payments shall be equal to the then remaining Account balance, divided by the number of years remaining in the installment period. To the extent Benefits are not paid in installments, the Account balance shall, subject to Section 4.07, be paid in a lump sum on or before the 60th day immediately following the event giving rise to the distribution.

Whenever payment is called for under Section 4.04 or this Section 4.05 on or before the 60th day immediately following a specified event, the Committee shall retain the sole discretion to determine the actual payment date within that period.

4.06 Limitations on Changes to Timing and Form of Payment Under Section 409A of the Code

Subject to the transition relief described in Article V, a Participant may modify his or her election as to timing of payment under Section 4.01 or form of payment under Section 4.05, provided that the new payment election (a) shall have no effect until at least 12 months after the date on which the election is made, (b) is made at least twelve months prior to the date of

11

the previously scheduled payment (or, in the case of installment payments treated as a single payment, twelve months prior to the date the first amount was scheduled to be paid), and (c) provides for a new scheduled payment date that is at least five years following the previously scheduled payment date (or, in the case of installment payments treated as a single payment, five years from the date the first amount was scheduled to be paid).

4.07   Delay in Payment for Specified Employees under Section 409A of the Code

Notwithstanding any other provision to the contrary, if a Participant becomes entitled to a payment due to a separation from service under Section 4.02, and the Participant is a specified employee (within the meaning of section 409A(a)(2)(B)(i) of the Code and the Treasury Regulations promulgated thereunder), payment shall not commence until the first day after the end of the 6-month period immediately following such separation from service. For purposes of the preceding sentence, the term “specified employee” includes any Participant employed at the level of vice president or higher.

4.08 Beneficiary Entitlement

In the event a Participant entitled to installment payments dies before receiving all Benefits under the Plan, the unpaid balance will be paid in a lump sum to such Participant's Beneficiary on or before the 60th day immediately following the Participant's death.

12

ARTICLE V

Administration; Amendments and Termination;

Rights Against the Company

5.01 Administration

The Committee shall administer this Plan. With respect to the Plan, the Committee shall have, and shall exercise and perform, all the powers, rights, authorities and duties set forth in the RASP with the same effect as if set forth in full herein with respect to this Plan. Except as expressly set forth herein, any determination or decision by the Committee shall be conclusive and binding on all persons who at any time have or claim to have any interest whatsoever under this Plan.

5.02 Amendment and Termination Prior to a Change in Control

The Employer, solely, and without the approval of the Committee or any Participant or Beneficiary, shall have the right to amend this Plan at any time and from time-to-time. Any such amendment shall become effective upon the date stated therein. Notwithstanding the foregoing, no amendment shall adversely affect the rights of any Participant or Beneficiary who was previously receiving Benefits under this Plan to continue to receive such Benefits or of all other Participants and Beneficiaries to receive the Benefits promised under the Plan immediately prior to the later of the effective date or the date of adoption of the amendment.

The Employer has established this Plan with the bona fide intention and expectation that from year-to-year it will deem it advisable to continue it in effect. However, circumstances not now foreseen or circumstances beyond the Employer's control may make it impossible or inadvisable to continue the Plan. Therefore, the Employer, in its sole discretion, reserves the right to terminate the Plan in its entirety at any time; provided, however, that in such event any Participant or Beneficiary who was receiving benefits under this Plan as of the termination date, shall continue to receive such Benefits, and all other Participants and Beneficiaries shall remain entitled to receive the Benefits promised under the Plan immediately prior to the termination of the Plan.

5.03 Rights Against the Employer

The establishment of this Plan shall not be construed as giving to any Participant, Beneficiary, Employee or any person whomsoever, any legal, equitable or other rights against the Employer, or its officers, directors, agents or shareholders, except as specifically provided for herein, or its giving to any Participant any equity or other interest in the assets, business or shares of the Employer or giving any Employee the right to be retained in the employment of the Employer. All terms relating to Incentive Awards that do not involve the deferral of receipt of such awards shall be governed by the EVP or EOIP, as the case may be. All Employees and Participants shall be subject to discharge to the same extent that they would have been if this Plan had never been adopted. Subject to the rights of the Employer to terminate this Plan or any benefit hereunder, the rights of a Participant hereunder shall be

13

solely those of an unsecured creditor of the Employer.

5.04 Certain Cancellations of Deferrals During Calendar Year 2005

Pursuant to Internal Revenue Service Notice 2005-1, Q&A-20, and notwithstanding any other provisions of the Plan, the following deferrals under the Plan shall be cancelled and included in the income of affected Participants in the calendar year ending December 31, 2005:

(a)       All amounts deferred under the Plan (regardless of when the amounts were deferred and regardless of whether the deferrals were elective or nonelective) with respect to any Participant who was an officer of the Company and terminated employment with the Company between June 15, 2005 and July 31, 2005;

(b)       Any amounts that would have been deferred under the Plan during the calendar year ending December 31, 2005, but for an election by a Participant after March 15, 2005 to decrease his or her deferrals under the RASP; and

(c)       Any other amounts specifically designated by the Committee, but only to the extent necessary to avoid adverse tax consequences to a Participant under Section 409A of the Code.

5.05 Use of Transition Relief Under Section 409A of the Code for 2006

The following transition rule will apply during calendar year 2006. The rule will be implemented in accordance with rules and procedures established by the Committee.

If permitted by the Committee, a Participant may make new payment elections with respect to amounts under the Plan provided: (1) the elections are made no later than December 31, 2006 and, (2) a Participant cannot in 2006 change payment elections with respect to payments that would otherwise have become payable in 2006 or cause payments to be made in 2006.

5.06 Use of Transition Relief Under Section 409A of the Code for 2007

The following transition rule will apply during calendar year 2007. The rule will be implemented in accordance with rules and procedures established by the Committee.

If permitted by the Committee, a Participant may make new payment elections with respect to amounts under the Plan provided: (1) the elections are made no later than December 31, 2007 and, (2) a Participant cannot in 2007 change payment elections with respect to payments that would otherwise have become payable in 2007 or cause payments to be made in 2007.

5.07 Compliance with Section 409A of the Code

It is intended that the Plan will comply with section 409A of the Code and the Plan will be administered and interpreted consistent with that intent.

14

ARTICLE VI

General and Miscellaneous

6.01 Spendthrift Clause

No right, title or interest of any kind in the Plan shall be transferable or assignable by any Participant or Beneficiary or any other person or be subject to alienation, anticipation, encumbrance, garnishment, attachment, execution or levy of any kind, whether voluntary or involuntary. Any attempt to alienate, sell, transfer, assign, pledge, garnish, attach or otherwise encumber or dispose of any interest in the Plan shall be void.

6.02 Severability

In the event that any provision of this Plan shall be declared illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan but shall be fully severable, and this Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein.

6.03 Construction of Plan

The article and section headings and numbers are included only for convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of this Plan. Whenever appropriate, words used in the singular shall include the plural or the plural may be read as the singular.

6.04 Gender

The personal pronoun of the masculine gender shall be understood to apply to women as well as men except where specific reference is made to one or the other.

6.05 Governing Law

THE VALIDITY AND EFFECT OF THIS PLAN AND THE RIGHTS AND OBLIGATIONS OF ALL PERSONS AFFECTED HEREBY SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES AND THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO ITS OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.

6.06 Unfunded Top Hat Plan

It is the Employer's intention that this Plan be a Top Hat Plan, defined as an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, as provided in Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended from time-to-time. The Employer may establish and fund one or more trusts for the purpose of paying

15

some or all of the benefits promised to Participants and Beneficiaries under the Plan; provided, however, that (i) any such trust(s) shall at all times be subject to the claims of the Employer's general creditors in the event of the insolvency or bankruptcy of the Employer, and (ii) notwithstanding the creation or funding of any such trust(s), the Employer shall remain primarily liable for any obligation hereunder. Notwithstanding the establishment of any such trust(s), the Participants and Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of any such trust or of the Employer.

6.07 Divestment for Cause

Notwithstanding any other provisions of this Plan to the contrary, the right of any Participant, former Participant, or Beneficiary of either, to receive any Benefits, or to have paid to any other person any Benefits, or the right of any such other person to receive any Benefits under this Plan, shall be forfeited, if such Participant's employment with the Employer is terminated because of, or the Participant is discovered to have engaged in, fraud, embezzlement, dishonesty against the Employer, obtaining funds or property under false pretenses, assisting a competitor without permission, or interfering with the relationship of the Employer or any subsidiary or affiliate thereof with a customer. A Participant's or Beneficiary's Benefits shall be forfeited for any of the above reasons regardless of whether such act is discovered prior to or subsequent to the Participant's termination from the Employer or the payment of Benefits under the Plan. If payment has been made, such payment shall be restored to the Employer by the Participant or Beneficiary.

16

ERISA Rights

This Plan is intended to provide benefits for a select group of highly compensated employees within the meaning of the Employee Retirement Income Security Act of 1974 (ERISA). However, it is not subject to most of the requirements or protection of ERISA nor is the Plan eligible for insurance under Title IV of ERISA. Furthermore, the Plan is considered to be an unfunded, non-qualified plan for purposes of complying with the Internal Revenue Code.

17

Plan Name:

NATIONAL SEMICONDUCTOR CORPORATION

DEFERRED COMPENSATION PLAN

Plan Sponsor: Employer I.D. Number (EIN):

National Semiconductor Corporation EIN: 95-2095071

2900 Semiconductor Drive

M/S C1-195

Santa Clara, CA 95052-8090

(408) 721-2489

Plan Number:

006

Plan Year:

The Plan Year is the fiscal year. Plan records are maintained on the basis of this Plan Year.

Plan Administrator:

Retirement and Savings Program Administrative Committee

C/o Corporate Benefits

National Semiconductor Corporation

2900 Semiconductor Drive

M/S C1-195

Santa Clara, CA 95052-8090

(408) 721-2489

Type of Plan:

The Plan is a non-qualified deferred compensation plan for selected key employees of National Semiconductor Corporation.

Agent for Service of Legal Process:

Legal process should be served on the Employer’s Corporate Secretary or the Plan Administrator in care of the Retirement Plans Administration Office at the Employer’s address.

Funding Medium:

The Plan is unfunded and Benefits are paid from the Plan sponsor's general assets.

18

EX-10

Exhibit 10.2

CHANGE OF CONTROL

EMPLOYMENT AGREEMENT

This Change of Control Employment Agreement (“Agreement”) by and between National Semiconductor Corporation, a Delaware corporation (the “Company”) and ___________________ (the “Executive”), is amended in full as follows effective October 31, 2007.

The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section l(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment.

(b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13 (d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled

by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or

(b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any. corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or any corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or .the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

Notwithstanding the foregoing to the extent necessary to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), in the case of any payment hereunder that would be considered “nonqualified deferred compensation” subject to Section 409A of the Code and as to which the requirements of Section 409A(a)(2)(A)(v) of the Code would need to be satisfied to avoid a violation, an event or occurrence described above shall be considered a “Change of Control” only if it also constitutes a change in ownership or effective control of the Company, or a change in ownership of the Company’s assets, described in Section 409A(a)(2)(A)(v) of the Code and the Treasury Regulations promulgated thereunder.

3.            Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period").

4. Terms of Employment. (a) Position and Duties.

(i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all

2

material respects with the most significant of those held, exercised and assigned to the Executive at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location.

                               (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.

(b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company.

(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's Executive Office Incentive Plan or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.

(iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, stock option, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

3

(iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacations in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 13(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability” shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive's legal representative.

4

(b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:

(i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or

(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.

For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.

(c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean:

(i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

                                (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

(iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or

(v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement.

5

For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement.

(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder.

(e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be. Notwithstanding the foregoing, in determining the timing of a payment subject to the requirements of Section 409A of the Code, “Date of Termination” shall mean separation from service within the meaning of Section 409A(a)(2)(A)(i) of the Code and the Treasury Regulations promulgated thereunder.

6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, Death or Disability or the Executive shall terminate employment for Good Reason:

(i) the Company shall, subject to the limitations of Section 12 (relating to the delay in payments to specified employees within the meaning of Section 409A(a)(2)(B)(i) of the Code and the Treasury Regulations promulgated thereunder), pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation pay, to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations”); and

B. the amount equal to the product of (1) two and ninety-nine one-hundredths (2.99) and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and

6

C. an amount equal to the difference between (a) the aggregate benefit under the Company’s qualified defined benefit retirement plans (collectively, the "Retirement Plan") and any excess or supplemental defined benefit retirement plans in which the Executive participates (collectively, the "SERP") which the Executive would have accrued (whether or not vested) if the Executive's employment had continued for three years after the Date of Termination and (b) the actual vested benefit, if any, of the Executive under the Retirement Plan and the SERP, determined as of the Date of Termination (with the foregoing amounts to be computed on an actuarial present value basis, based on the assumption that the Executive's compensation in each of the three years following such termination would have been that required by Section 4(b) (i) and Section 4(b) (ii), and using actuarial assumptions no less favorable to the Executive than the most favorable of those in effect for purposes of computing benefit entitlements under the Retirement Plan and the SERP at any time from the day before the Effective Date) through the Date of Termination;

(ii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b) (iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that

A. if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility, and for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; and

B. no benfit subject to the requirements of Code Section 409A shall continue beyond the end of the second calendar year following the calendar year in which the Executive separates from service (within the meaning of Section 409A(a)(2)(A)(i) of the Code and the Treasury Regulations promulgated thereunder);

(iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services, the scope and provider of which shall be selected by the Executive in the Executive's sole discretion; provided that the expenses for such services are incurred and reimbursed no later than the end of the second calendar year after the calendar year in which Executive separates from service (within the meaning of Section 409A(a)(2)(A)(i) of the Code and the Treasury Regulations promulgated thereunder); and

(iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits”), provided, however that Other Benefits shall not include any amount or benefit the payment of which would be subject to the requirements of Section 409A of the Code.

(b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligation to the Executive's

7

legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries.

(c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligation to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families.

(d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligation to the Executive other than the obligation to pay to the Executive (x) the Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligation to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice (other than any severance pay plan) provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 13(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

8. Full Settlement; Legal Fees. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and except as specifically provided in Section 6(a) (ii), such amounts shall not be reduced whether

8

or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expense which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (whether such contest is between the Company and the Executive or between either of them and any third party, and including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f) (2) (A) of the Code.

                 9.    Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the present value as of the date of the Change of Control, determined in accordance with Sections 280G(b)(2)(ii) and 280G(d)(4) of the Code (the "Present Value"), of the Payments does not exceed 110% of the greatest Present Value of Payments (the "Safe Harbor Cap") that could be paid to the Executive such that the receipt thereof would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the amounts payable to Executive under this Agreement shall be reduced to the maximum amount that could be paid to the Executive such that the Present Value of the Payments does not exceed the Safe Harbor Cap. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing the payments as elected by the Executive. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Present Value of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision.

(b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment”), consistent with the calculations required to be made hereunder. In the event that

9

the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall pay the amount of such claim to the Executive and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such payment or with respect to any imputed income with respect to such payment, and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by the Executive of a payment by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount paid by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does

10

not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

(e)Pursuant to the requirements of Section 409A of the Code, any payment due to the Executive under Section 9 shall be made no later than the end of the calendar year following the year in which related taxes are remitted to the relevant taxing authority, or, in the case of an audit or litigation that results in no taxes being remitted, no later than the calendar year following the year in which such audit or litigation is completed.

10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

11.Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

12.Compliance with Section 409A of the Code; Delay in Payments to Specified Employees. Payments under this Agreement are intended to comply with Section 409A of the Code (to the extent applicable) and this Agreement shall be interpreted consistent with that intent. In the case of an Executive who is a “specified employee” (within the meaning of Section 409A(a)(2)(B)(i) of the Code and the Treasury Regulations promulgated thereunder), payment of benefits under Section 6(a)(i) (other than Accrued Benefits) shall not be made sooner than six months following the Executive’s separation from service (within the meaning of Section 409A(a)(2)(A)(i) of the Code and the Treasury Regulations promulgated thereunder). The preceding sentence shall also apply to any payments under Section 6(a)(ii) and (iii) that would be subject to the requirements of Section 409A of the Code, and to payments under Section 9. Any resulting delayed payments shall be made on the first day of the seventh month following the date of the Executive’s separation from service.

13. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of California without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be

11

amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

_________________________________________

_________________________________________

If to the Company: National Semiconductor Corporation

2900 Semiconductor Drive, M/S: 16-135

Santa Clara, California 95052

Attn: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c) (i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.

12

IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

____________________________________________

(Executive)

NATIONAL SEMICONDUCTOR CORPORATION

By: ______________________________________

Its:_______________________________________

13