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Exhibit 2

Selected Linear Financial Data in Millions of Dollars (Except Share Data), 19922003
June Fiscal Year

1992

1993

1994

1995

1996

1997

1998

1999

2000

Sales

119.4

150.9

-Cost of Goods Sold

49.5

57

200.5

265

377.8

379.3

484.8

506.7

705.9

67.6

83.3

106.8

109.8

137.8

139.8

-Research and Development Expense

12.3

14.8

179

18.4

23.9

31.1

35.4

46.2

54.7

78.3

-Other Expenses

19.1

23.3

28

29.4

36

29.6

29.6

26.5

31.4

Income Before Taxes

38.5

55.7

86.5

128.5

203.9

204.5

271.3

285.7

417.3

-GAAP Income Taxes

13.5

19.3

29.7

43.8

69.9

70.2

90.4

91.4

129.4

Income Statement

Net Income

25

36.4

56.8

84.7

134

134.4

180.9

194.3

287.9

Common Shares Outstanding

280.2

285.4

290.5

294.3

298.6

303.8

307.3

307.5

315.2

Earnings Per Share

$0.09

$0.13

$0.20

$0.29

$0.45

$0.44

$0.59

$0.63

$0.91

Dividends Paid Preferred

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Dividends Paid - Common

0.0

5.3

8.3

9.8

11.9

15.0

18.3

22.1

28.0

$2.36

$3.61

$5.50

$8.25

$7.50

$12.94

$15.08

$33.63

$63.94

Share Price, Fiscal Year Close

Dividend/Share
Dividend Yield
Dividend Payout Ratio

0
0
0

0.02 0.03 0.03 0.04 0.049 0.06 0.072 0.0887


0.01 0.01
0
0.01 0.004 0.004 0.002 0.0014
0.15 0.15 0.12 0.09 0.111 0.101 0.114 0.0971

hare Data), 19922003


2001

2002

2003a

972.6

512.3

440.8

231.1

144.7

114.6

102.5

79.8

67

28.4

9.4

18.9

610.7

278.4

240.3

183.2

80.7

69.7

427.5

197.6

170.6

318.9

316.2

312.4

$1.34

$0.63

$0.55

0.0

0.0

0.0

41.2

54.0

47.0

$44.22

$31.43

$30.87

Payout Policy:
1. The company started offering dividends right from 1994 and
always want to send a message that investing in Linear Technology
is not as risky as investing in any other technology company as it
pays dividend on regular intervals and provide constant flow of
income to shareholders (refer Pink colored cells in the adjacent
table).
2. Its idea is to offer dividends so as to attract new set of investors
who add diversity to the shareholders group.
3. Even though the company faced decline in sales in 2002 due to
slowdown, the company still increased the dividend per share and
exhibited that the company is in sound position.
4. The payout ratio reached to 25%-30%

0.1291 0.1708 0.1505


0.0029 0.0054 0.0049
0.0963 0.2733 0.2756

5. Since the interest rates for investment is drastically reduced in


the market in recent years, the company started using its excess
cash flows for buying back the shares.

Financing Needs:
1. The company is having excess cash flows to the tune of $1.5
Billion.
2. It is maintaining postive cash flows due to its variable cost
structure and low capital investment for fabrication units ($200
million), moderate R&D investment ($102 million) etc.
3. Company is not interested in going for acquisitions.
Owing to above reasons, the company can finance any of its
expenditure with its internal cash flows and short term
investments and need not depend on external institutes for
financing.

Question 2
Tax Consequences of Dividends (All figures are in $Million)
Outstanding Shares
New
Total Dividend Total Tax Paid
Dividend
Paid
312.4

0.04

12.496

1.8744

312.4

0.045

14.058

2.1087

312.4

0.05

15.62

2.343

312.4

0.055

17.182

2.5773

312.4

0.06

18.744

2.8116

June Fiscal Year

Common Shares
Outstanding(millions)

1992

1993

1994

1995

1996

280.2

285.36

290.48

294.32
298.64
0.028463233 0.033419 0.039717

Dividend/Share
Total Dividend Paid
($ million)
Total Tax Paid on
dividend($ million)@
38.6%

0.018611578

5.311

8.268

9.836

11.861

2.050046

3.191448

3.796696

4.578346

Tax paid @15%

0.79665

1.2402

1.4754

1.77915

Savings

1.253396

1.951248

2.321296

2.799196

By not returning cash to its shareholders, Linear


Technology is saving the double tax which is levied
on dividend amounts paid to shareholders. Even
though the company has to pay the corporate tax
on EBIT, it saves the personal tax levied to
shareholders on dividend amount. We varied the
dividend in a given range and found that the tax
outflow saved is around $1.87 -$2.8 millions. This
tax can be saved by keeping the cash inside the
firm or by exercising a repurchase option which is
used to offset the dilution of shareholding through
employee stock options..

1997

1998

303.84
307.28
0.049243 0.059607

1999

2000

2001

2002

2003a

(in Millions)

307.46
315.17
318.91
316.15 312.406
0.07183 0.088682 0.129077 0.170821 0.150509

14.962

18.316

22.085

27.95

41.164

54.005

47.02

5.775332

7.069976

8.52481

10.7887

15.889304

20.84593

18.14972

2.2443

2.7474

3.31275

4.1925

6.1746

8.10075

7.053

39.1167

3.531032

4.322576

5.21206

6.5962

9.714704

12.74518

11.09672

61.543608

100.660308

Exhibit 3
Linear Payout Policy, 1992-2003
Market Reaction
Fiscal Stock Re- Dividends
Quart Purchase Per Sharea
er
($M)
($)

Q1 93

0.00000

Q2 93
Q3 93

0.00625
0.00625

1.2

Stock
Splits
(Date)

2:1 (11/3)

Share
Pricea ($)

Sharesa
(M)

Dividendb

13-Oct

LLTC
SOX
Earningsb Returnc(%) Returnc(%)

2.70

281.3

14-Oct

-1.6

3.19
3.16

283.1
283.4

12-Jan
13-Apr

-1
11

20-Jul

-1.2

12-Oct
19-Jan

11.7
0.6

19-Apr

-4.1

17-Oct
18-Jan
18-Apr

2.2
4.7
1.8

0.5
-5

27-Jul

11.7

0.2

Q4 93

0.00625

3.61

285.4

Q1 94
Q2 94

0.00625
0.00750

4.28
4.84

294.1
287.7

0.00750
0.00750
0.00750
0.00875
0.00875

5.28
5.50
5.54
6.19
7.00

289.6
290.5
290.0
290.5
293.2

17-Oct

0.00875

8.25

294.3

25-Jul

10.38
9.81

295.2
296.3

17-Oct
17-Jan

14.3
10.6

7.3
3.6

16-Apr

-14.3

4.6

23-Jul
16-Oct
15-Jan

-1.4
-11
11.4

-5.8
-1.3
2.3

16-Apr
22-Jul
14-Oct
13-Jan
14-Apr
21-Jul
13-Oct
12-Jan
13-Apr
20-Jul
12-Oct
18-Jan
18-Apr
25-Jul
17-Oct
16-Jan
17-Apr
24-Jul
16-Oct
15-Jan
17-Apr

-2.3
8.3
5.4
6.6
13.3
-15.5
11.9
7.9
0.3
-10.7
-3.5
6.1
15.2
-2
-18.3
8.8
8.5
-11.3
-10.1
-1.1
4.9

-0.7
3.9
-4
6.4
6.8
-5
9
3.1
-6.2
-6.4
-1.4
-0.5
13.5
-4.5
-14.6
1
7.2
-3.6
-9.5
-6.5
3.7

Q3 94
Q4 94
Q1 95
Q2 95
Q3 95

0.5
0.8
6.1

Q4 95
Q1 96
Q2 96

3.5

0.01000
0.01000

Q3 96

5.0

0.01000

10.44

299.3

Q4 96
Q1 97
Q2 97

14.4
11.6

0.01000
0.01250
0.01250

7.50
9.22
10.97

298.6
297.5
299.5

0.01250
0.01250
0.01500
0.01500
0.01500
0.01500
0.01750
0.01750
0.01750
0.02000
0.02000
0.02000
0.02000
0.03000
0.03000
0.03000
0.03000
0.04000
0.04000
0.04000
0.04000

11.06
12.94
17.19
14.41
17.25
15.08
12.50
22.39
25.63
33.63
29.39
35.78
55.00
63.94
64.75
46.25
41.06
44.22
32.80
39.04
44.22

301.6
303.8
306.0
303.0
306.0
307.3
300.7
301.3
306.1
307.5
308.5
311.1
313.1
315.2
316.6
316.0
317.8
318.9
316.3
317.2
317.1

Q3 97
Q4 97
Q1 98
Q2 98
Q3 98
Q4 98
Q1 99
Q2 99
Q3 99
Q4 99
Q1 00
Q2 00
Q3 00
Q4 00
Q1 01
Q2 01
Q3 01
Q4 01
Q1 02
Q2 02
Q3 02

50.5
5.9
100.0
8.8

52.3
11.0
6.5
114.8
3.0
37.3

2:1(8/11)

2:1(1/29)

2:1(3/6)

12-Oct

23-Jul

23-Jul

21-Jul

13-Apr

18-Apr

17-Apr

16-Apr

Q4 02
Q1 03
Q2 03

66.5
125.0
1.5

0.05000
0.05000
0.05000

31.43
20.72
25.72

316.2
311.8
313.4

Q3 03

39.2

0.05000

30.87

312.4

23-Jul
15-Oct
14-Jan

0.5
4.3
-2.4

-2.9
-0.3
-4.2

Adjusted for splits.


Announcement date. The quarterly earnings announcement date for Q4 1994 is not available from Compustat.
c
Return on the day before, the day of, and the day after the earnings announcement. The SOX index begins in October 1994.
Source: Adapted from Compustat, the Center for Research on Security Prices, Datastream
b

Question 3
Repurchase

Dividend

Cash paid as dividend

1565.2

Cash used for repurchase

Tax paid

234.78

No. of shares repurchased

Dividend per share

5.0102433

Dividend received by shareholder

4.2587068

New Share Price

Change in value of the firm

26.61

1330.42

No. of outstanding shares


Net Income (for 2002)
Net Income (for 2003 at 3%
growth)
Net Income (for 2003 at 7%
growth)

EPS (for 2003 at 3% growth)


EPS (for 2003 at 7% growth)
P/E (for 2003 as referenece)

Value of the firm reduced by $1330.42 Million in


above case. Earnings and EPS will remain same.

Why do firms pay dividends?


1) Dividends as well as re-purchases absorb
excess cash flows and thus reduce agency costs.
2) Dividend announcements lead to an initial
increase in stock price. Investors with small
shareholdings could possibly gain from this.
However large shareholders will welcome the
announcement depending on the tax rate which
they are paying.
3) Some investors prefer current income, which is
derived mainly from dividends.
4) Dividend is a sign of good performance of the
firm. The firm signals the investors that it is having
a healthy cash flows and capable of generating
revenues in the near future.
5) Many European investment firms and pension
funds prefer to invest in high-dividend firms only.

New Price of Share (for 2003 at


3% growth)
New Price of Share (for 2007 at
3% growth)
Change in Value of the firm (for
2003 at 3% growth)
Change in Value of the firm (for
2003 at 7% growth)

The value of the firm appreciates by $3.44


and $3.58 billion due to appreciation of sha
prices. The share price would appreciate.
Earnings would remain same. EPS would
increase.

1565.2
50.70294785

261.7
197.6
231.9

Calculation Steps:
1. The sales figure for the first half of 2003 was
$287million and that for the 3 quarters of 2003 is
$440.8million, thus we have the sales for the 3rd
quarter of 2003 as $440.8m-$287m=$153.8m.
2. If we have a 3% growth in the sales for the 4th
quarter then the sales will be 1.03*153.8=$158.4million.
Thus we have the total sales for the year 2003 as
$440.8m+$158.4m=$599.2million.

233.95

0.886139137
0.893972622
56.534

50.09698998

3. Similarly for a 7% growth we get the yearly sales as


$604.5million. Now the net Income to sales ratio is
0.387, this will remain a constant for the next quarter
also as both the sales and the profit increases at the
same rate. Thus with the new sales values we find that
the new Net Incomes are $231.9m and $233.95 for 3%
and 7% growth respectively.

50.53984824

3466.4466
3582.3413

m appreciates by $3.44
e to appreciation of share
ice would appreciate.
ain same. EPS would

4. Thus from these figures the EPS can be calculated. We


find that the net price of the share increases drastically
when we repurchase the shares, this is primarily due to
the fact that when the shares are repurchased, its an
indication to the market that the shares are
undervalued and the market takes this signal and the
stocks become bullish after that, thus increasing the
value of the firm.

Exhibit 11
Data on Companies in the Semiconductor Index (SOX) in Millions of Dollars (Except Share Data), 2002

Company

Advanced Micro Devices


Altera
Applied Materials
Broadcom
Intel
Kla-Tencor
Linear Technology
Lsi Logic
Maxim Integrated Products
Micron Technology
Motorola
National Semiconductor
Novellus Systems
STMicroelectronicsf
Taiwan Semiconductorg
Teradyne
Texas Instruments
Xilinx

Share
Ticker Pricea Shares (M) Net Income Cash Flowb

AMD
ALTR
AMAT
BRCM
INTC
KLAC
LLTC
LSI
MXIM
MU
MOT
NSM
NVLS
STM
TSM
TER
TXN
XLNX

6.18
13.54
12.58
12.35
16.28
35.94
30.87
4.52
36.12
8.14
8.26
17.04
27.27
18.90
6.84
11.64
16.37
23.41

344.5
383.5
1648.0
277.8
6575.0
189.8
316.2
375.1
320.1
602.9
2315.3
183.8
149.1
887.5
3703.2
183.2
1730.6
339.0

Share price on March 31, 2003.

Compustat operating cash flow (Item 308) less capital expenditures (Item 128).

Cash and short-term investments.

Special (non-recurring) dividend.

Micron discontinued its dividend in 1996.

STMicroelectronics is an American Depository Receipt (ADR), based in France.

Taiwan Semiconductor is an ADR, based in Taiwan.

Source: Adapted from Compustat, Center for Research on Security Prices

-1303.0
91.3
269.0
-2236.6
3117.0
216.2
197.6
-292.4
259.2
-907.0
-2485.0
-33.3
22.9
429.0
413.8
-718.5
-344.0
125.7

Cashc

-794.1 1037.7
237.8
942.7
75.1 4929.5
-144.4
502.7
4426.0 12587.0
215.4
673.3
1552.0
115.1
990.0
313.4
765.5
-181.8
985.7
732.0 6566.0
49.8
915.4
188.1 1019.7
718.0 2564.0
951.3 1113.0
-80.6
325.4
1190.0 3012.0
299.0
675.6

Long-Term
Debt

1779.8
0.0
573.9
1.2
929.0
0.0
0.0
1241.2
0.0
360.8
7674.0
19.9
0.0
2797.0
1701.7
450.6
833.0
0.0

(Except Share Data), 2002


Dividend
Stock Re- Initiation
Dividends purchases
Date

0.0
0.0
0.0
0.0
533.0
0.0
54.0
0.0
0.0
0.0
364.0
0.0
0.0
36.0
0.0
0.0
147.0
0.0

0.0 Apr-95d
139.5
125.0
0.0
4014.0 Sep-92
123.2
221.6 Oct-92
0.0
864.0
2-Oct
0.0 Sep-91e
0.0 Nov-46
0.0
78.2
115.0 May-99
0.0
0.0
370.0 26-Apr
60.8

EPS

P/E

-3.782293179
0.238070404
0.163228155
-8.051115911
0.474068441
1.139093783
0.624920936
-0.77952546
0.809746954
-1.504395422
-1.073295037
-0.18117519
0.153588196
0.483380282
0.111741197
-3.921943231
-0.198774991
0.37079646

-1.63393
56.87393
77.07004
-1.53395
34.34103
31.5514
49.39825
-5.7984
44.60653
-5.41081
-7.69593
-94.0526
177.5527
39.09965
61.21288
-2.96792
-82.3544
63.13437

63.48408