9-204-066 Dividend Policy - 204702-XLS-ENG

Dividend Policy at Linear Technology
Harvard Business School Case 9-204-066

Case Software 2-204-702 (Version 2, Revised 2/12/04)
Copyright 2004 by the President and Fellows of Harvard College
This case was prepared as the basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.
Exhibit 2
June Fiscal Year
Selected Linear Financial Data in Millions of Dollars (Except Share Data), 19922003
1992
1993
1994
1995
1996
1997
Income Statement
Sales
119.4
150.9
200.5
265
377.8
379.3
-Cost of Goods Sold
49.5
57
67.6
83.3
106.8
109.8
-Research and Development Expense
12.3
14.8
18.4
23.9
31.1
35.4
-Other Expenses
19.1
23.3
28
29.4
36
29.6
Income Before Taxes
38.5
55.7
86.5
128.5
203.9
204.5
-GAAP Income Taxes
13.5
19.3
29.7
43.8
69.9
70.2
25
36.4
56.8
84.7
134
134.4
Common Shares Outstanding
280.2
285.4
290.5
294.3
298.6
303.8
Earnings Per Share
$0.09
$0.13
$0.20
$0.29
$0.45
$0.44
Dividends Paid Preferred
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
$2.36
$3.61
$5.50
$8.25
$7.50
$12.94
Net Income
25
36.4
56.8
84.7
134
134.4
+Depreciation and Amortization
4.5
5.8
6.3
8.6
10.3
12.4
-Capital Expenditure
9.8
7.6
16.2
22.1
70.4
21.9
-Working Capital Investments
7.2
2.6
6.8
-4.5
-9.1
21.2
+Tax Adjustmentb
6.4
2.8
6.1
6.2
11.3
25.3
Operating Cash Flow
19
34.8
46.3
81.8
94.3
129.1
+Stock Issuance
11.7
9.1
13.7
7.6
12.7
18.5
-Stock Purchases
0.7
1.2
1.3
6.1
22.9
11.6
-Dividends Paid
5.3
8.3
9.8
11.9
15
-Other Itemsc
4.7
1.5
30
32.6
48.9
73.4
72.3
121
95.3
127.9
176.8
250.2
322.5
443.4
Net Income
Share Price, Fiscal Year Close

Cash Flow Statement
Net Cash Flow

Cash and Short-Term Investments
First thee quarters of FY2003.
The difference between the exercise price and the market value of LLTC stock could be expensed for tax purposes, leading to large tax adjustments on the cash flow stateme
Other Items includes long-term investments and acquisitions (other than capital expenditure), extraordinary items, and other adjustments to net income.
Source: Adapted from Compustat
Share Data), 19922003

1998
1999
2000
2001
2002
2003a
484.8
506.7
705.9
972.6
512.3
440.8
137.8
139.8
179
231.1
144.7
114.6
46.2
54.7
78.3
102.5
79.8
67
29.6
26.5
31.4
28.4
9.4
18.9
271.3
285.7
417.3
610.7
278.4
240.3
90.4
91.4
129.4
183.2
80.7
69.7
180.9
194.3
287.9
427.5
197.6
170.6
307.3
307.5
315.2
318.9
316.2
312.4
$0.59
$0.63
$0.91
$1.34
$0.63
$0.55
0.0
0.0
0.0
0.0
0.0
0.0
18.3
22.1
28.0
41.2
54.0
47.0
$15.08
$33.63
$63.94
$44.22
$31.43
$30.87
180.9
194.3
287.9
427.5
197.6
170.6
20.1
22
25
35.8
46.3
33.5
24.4
39.1
80.3
127.9
17.9
9.8
-7.4
-9.6
-26.6
19.2
42
14.9
58.6
54.6
102.9
115.5
55.2
0.7
242.6
241.3
362
431.7
239.3
180.1
26.6
38.3
54.8
52.7
39.3
27.4
56.5
108.7
69.8
221.6
165.7
18.3
22.1
28
41.2
54
47
-18.4
194.5
148.8
388.9
373.4
13.2
637.9
786.7
1,175.60
1,549.00
1,552.00
1,565.20
djustments on the cash flow statement.
Exhibit 3
Linear Payout Policy, 1992-2003

Market Reaction
Fiscal
Quarter
Stock RePurchase
($M)
Dividends
Per Sharea
($)
Q1 93
0.00000
Q2 93
0.00625
Stock Splits Share Pricea

(Date)
($)
Sharesa (M)
Dividendb
2.70
281.3
3.19
283.1
12-Jan
0.00625
3.16
283.4
13-Apr
Q4 93
0.00625
3.61
285.4
Q1 94
0.00625
4.28
294.1
Q3 93
1.2
Q2 94
2:1 (11/3)
13-Oct
Earningsb
14-Oct
20-Jul
12-Oct
12-Oct
0.00750
4.84
287.7
19-Jan
Q3 94
0.5
0.00750
5.28
289.6
19-Apr
Q4 94
0.8
0.00750
5.50
290.5
Q1 95
6.1
0.00750
5.54
290.0
Q2 95
0.00875
6.19
290.5
Q3 95
0.00875
7.00
293.2
Q4 95
0.00875
8.25
294.3
Q1 96
0.01000
10.38
295.2
17-Oct
17-Jan
Q2 96
2:1(8/11)
17-Oct
17-Oct
18-Jan
18-Apr
25-Jul
27-Jul
3.5
0.01000
9.81
296.3
Q3 96
5.0
0.01000
10.44
299.3
Q4 96
14.4
0.01000
7.50
298.6
Q1 97
11.6
0.01250
9.22
297.5
16-Oct
Q2 97
0.01250
10.97
299.5
15-Jan
Q3 97
0.01250
11.06
301.6
Q4 97
0.01250
12.94
303.8
Q1 98
0.01500
17.19
306.0
14-Oct
13-Jan
Q2 98
50.5
0.01500
14.41
303.0
Q3 98
5.9
0.01500
17.25
306.0
0.01500
15.08
307.3
12.50
300.7
22.39
301.3
25.63
306.1
Q4 98
Q1 99
100.0
0.01750
Q2 99
8.8
0.01750
2:1(1/29)
16-Apr
23-Jul
23-Jul
16-Apr
23-Jul
22-Jul
14-Apr
21-Jul
21-Jul
13-Oct
12-Jan
Q3 99
0.01750
Q4 99
0.02000
33.63
307.5
20-Jul
Q1 00
0.02000
29.39
308.5
12-Oct
Q2 00
0.02000
35.78
311.1
Q3 00
0.02000
55.00
313.1
Q4 00
0.03000
63.94
315.2
25-Jul
Q1 01
0.03000
64.75
316.6
17-Oct
2:1(3/6)
13-Apr
13-Apr
18-Jan
18-Apr
18-Apr
Q2 01
52.3
0.03000
46.25
316.0
Q3 01
11.0
0.03000
41.06
317.8
16-Jan
Q4 01
6.5
0.04000
44.22
318.9
Q1 02
114.8
0.04000
32.80
316.3
16-Oct
Q2 02
3.0
0.04000
39.04
317.2
15-Jan
Q3 02
37.3
0.04000
44.22
317.1
Q4 02
66.5
0.05000
31.43
316.2
23-Jul
Q1 03
125.0
0.05000
20.72
311.8
15-Oct
Q2 03
1.5
0.05000
25.72
313.4
14-Jan
Q3 03
39.2
0.05000
30.87
312.4
17-Apr
17-Apr
24-Jul
16-Apr
17-Apr
Adjusted for splits.
Announcement date. The quarterly earnings announcement date for Q4 1994 is not available from Compustat.
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
Market Reaction
LLTC
Returnc(%)
SOX
Returnc(%)
-1.6
-1
11
-1.2
11.7
0.6
-4.1
2.2
4.7
0.5
1.8
-5
11.7
0.2
14.3
7.3
10.6
3.6
-14.3
4.6
-1.4
-5.8
-11
-1.3
11.4
2.3
-2.3
-0.7
8.3
3.9
5.4
-4
6.6
6.4
13.3
6.8
-15.5
-5
11.9
7.9
3.1
0.3
-6.2
-10.7
-6.4
-3.5
-1.4
6.1
-0.5
15.2
13.5
-2
-4.5
-18.3
-14.6
8.8
8.5
7.2
-11.3
-3.6
-10.1
-9.5
-1.1
-6.5
4.9
3.7
0.5
-2.9
4.3
-0.3
-2.4
-4.2
Exhibit 4
Institution
Janus Capital Management
Capital Research and Management Company
State Farm Mutual Automobile Insurance
Fidelity Management & Research (FMR)
Barclays Bank
Oak Associates
State Street
Northern Trust
AXA Financial
Massachusetts Financial Services
Source: Adapted from Thomson Financial Spectrum Database
Top 10 Institutional Shareholders, 2003
Shares
34,151,384
23,807,150
14,599,700
10,902,153
10,561,160
9,754,731
9,468,226
7,473,564
7,429,952
7,309,046
tional Shareholders, 2003

Percent of Shares
Outstanding
10.91
7.61
4.66
3.48
3.37
3.12
3.03
2.39
2.37
2.34
Exhibit 5
Dividend Policy for the S&P 500, Annual Data from 1993-2002
Dividend Yield
Earnings Yield
Return on Book
Equity
Utilities
Telecommunications Services
Materials
Energy
Financials
Industrials
Consumer Staples
Consumer Discretionary
Health Care
Information Technology
4.80%
2.30%
2.20%
1.80%
2.30%
1.80%
1.80%
1.40%
0.90%
0.30%
7.10%
5.20%
5.40%
5.20%
7.00%
5.60%
4.60%
5.40%
3.90%
3.60%
11.40%
14.40%
12.20%
9.80%
16.50%
15.20%
21.10%
15.50%
16.90%
14.90%
Weighted Average
1.80%
5.40%
15.10%
Sector
The sample includes S&P 500 firms in 2002. Not all firms have data back to 1993.
Source: Adapted from Goldman Sachs Portfolio Strategy (July 1, 2003 Research Report)
Exhibit 6
Company
Linear
Technology
Cumulative Executive Compensation, 1993-2002
Name (CEO
Year)
Robert
Swanson
Salary ($M)
Bonus ($M)
Stock
Options
Grantsa
(000)
Value
Realized
from
Exercise
($M)
Stock
Options
Exercisea,b
(000)
Options
Ownedc
(000)
2.6
12.6
3,000
1,297
29.1
1,003
John
Chambers
Cisco Systems (1995)
Craig Barrett
Intel
(1998)
2.3
3.3
45,840
43,090
344.9
35,400
4.3
17.8
5,005
10,752
196.6
5,005
Maxim
John Gifford
2.7
12
10,913
10,522
206.3
4,946
Microsoft
Steven A.
Ballmer (2000)
3.5
Adjusted for splits.
Includes the exercise of options granted prior to 1993.
As reported in the proxy statement in 2002. In 2002, Robert Swanson and John Chambers forfeited 700,000 options and 2 million options, respectively.
Source: Adapted from Execucomp, Yahoo Finance
Shares
Ownedc
(000)
n options, respectively.
Common
Shares (M)
530
316
2,047
7,303
2,732
6,575
2,047
320
410,968
5,359
Exhibit 8
Year
Municipal and corporate bond yields

Bloomberg 1-year
AAA Corporate
Debt
Bloomberg 1-year
AAA Muni Debt
Annual Average Month-End Yield (%):

1995
1996
1997
1998
1999
2000
2001
2002
Source: Adapted from Bloomberg
6.25
5.89
5.94
5.44
5.73
6.71
3.87
2.37
4.17
3.81
3.92
3.68
3.64
4.49
2.94
1.87
Exhibit 11
Data on Companies in the Semiconductor Index (SOX) in Millions of Dollars (Except Share Data
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
Ticker
Share Pricea
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
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
Shares (M)
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
Net Income
-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
Cash Flow b
-794.1
237.8
75.1
-144.4
4426.0
215.4
239.3
115.1
313.4
-181.8
732.0
49.8
188.1
718.0
951.3
-80.6
1190.0
299.0
Millions of Dollars (Except Share Data), 2002
Cashc
1037.7
942.7
4929.5
502.7
12587.0
673.3
1552.0
990.0
765.5
985.7
6566.0
915.4
1019.7
2564.0
1113.0
325.4
3012.0
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
Dividends
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
Stock Repurchases
0.0
139.5
125.0
0.0
4014.0
123.2
221.6
0.0
864.0
0.0
0.0
0.0
78.2
115.0
0.0
0.0
370.0
60.8
Dividend
Initiation
Date
Apr-95d
Sep-92
Oct-92
2-Oct
Sep-91e
Nov-46
May-99
26-Apr
Exhibit 12
Selected Financial Data in Millions of Dollars (Except Share Data), 19982002

1998
1999
2000
2001
2002
Sales
8,458.8
12,154.0
18,928.0
22,293.0
18,915.0
Income Before Taxes
2,302.5
3,316.0
4,343.0
-874.0
2,710.0
CISCO (July Fiscal Year)
-GAAP Income Taxes
952.4
1,220.0
1,675.0
140.0
817.0
1,350.1
2,096.0
2,668.0
-1,014.0
1,893.0
327.3
486.0
863.0
2,236.0
1,957.0
414.8
584.0
1,086.0
2,271.0
2,641.0
-688.7
-937.0
-1,262.0
-5,078.0
-2,829.0
Net Income

+Tax Adjustment
Operating Cash Flow
+Stock Issuance
-Stock Purchases
-Dividends Paid
514.4
919.0
1,348.0
92.0
-92.0
2,465.7
3,854.0
5,055.0
4,121.0
3,946.0
488.5
740.0
1,564.0
1,262.0
655.0
0.0
0.0
0.0
0.0
1,854.0
0.0
0.0
0.0
0.0
0.0
2,538.3
4,269.5
3,110.0
4,001.0
-3,002.0
415.9
324.5
3,509.0
1,382.0
5,749.0
1,691.5
2,016.0
5,525.0
6,907.0
12,656.0
1,041.7
3,271.0
7,138.0
7,324.0
7,303.0
$95.75
$62.13
$65.44
$19.22
$13.19
26,273.0
29,389.0
33,726.0
26,539.0
26,764.0
Income Before Taxes
9,137.0
11,228.0
15,141.0
2,183.0
4,204.0
-GAAP Income Taxes
3,069.0
3,914.0
4,606.0
892.0
1,087.0
Net Income
6,068.0
7,314.0
10,535.0
1,291.0
3,117.0
2,807.0
3,186.0
4,807.0
6,052.0
5,042.0
3,557.0
3,403.0
6,674.0
7,309.0
4,703.0
-31.0
180.0
2,912.0
-1,627.0
-358.0
+Tax Adjustment
285.0
1,015.0
397.0
-316.0
612.0
Operating Cash Flow
5,634.0
7,932.0
6,153.0
1,345.0
4,426.0
+Stock Issuance
2,127.0
543.0
797.0
762.0
681.0
-Stock Purchases
6,785.0
4,612.0
4,007.0
4,008.0
4,014.0
168.0
366.0
470.0
538.0
533.0
3,109.0
-665.0
438.0
-166.0
-477.0
-2,301.0
4,162.0
2,035.0
-2,273.0
1,037.0
7,626.0
11,788.0
13,823.0
11,550.0
12,587.0
1,658.0
3,334.0
6,721.0
6,690.0
6,575.0
$118.56
$82.31
$30.06
$31.45
$15.57
-Other Itemsa
Net Cash Flow
INTEL (December Fiscal Year)

Sales
-Dividends Paid
-Other Itemsa
Net Cash Flow
MAXIM (June Fiscal Year)
Sales
560.2
607.0
864.9
1,576.6
1,025.1
Income Before Taxes
269.9
297.2
425.2
505.0
386.8
-GAAP Income Taxes
91.8
101.0
144.6
170.0
127.7
178.1
196.1
280.6
334.9
259.2
Net Income
15.1
17.6
19.7
90.9
56.3
109.4
54.3
176.1
336.5
90.4
-18.8
-34.8
-26.2
-235.6
48.4
83.5
57.7
157.3
148.3
136.8
186.1
251.9
307.7
473.1
313.4
+Tax Adjustment
Operating Cash Flow
+Stock Issuance
37.2
51.1
79.3
114.3
109.3
-Stock Purchases
123.1
113.9
257.0
250.7
864.0
-Dividends Paid
0.0
0.0
0.0
6.0
0.0
-Other Itemsa
1.2
-2.7
3.7
-248.7
13.5
99.0
191.8
126.2
579.4
-454.9
322.9
514.7
640.9
1,220.4
765.5
Common Shares Outstandingb
130.8
135.8
282.8
330.2
320.1
$31.69
$66.50
$67.94
$44.21
$38.33
Net Cash Flow
MICROSOFT (June Fiscal Year)

Sales
14,484.0
19,747.0
22,956.0
25,296.0
28,365.0
Income Before Taxes
7,117.0
11,891.0
14,275.0
11,525.0
11,513.0
-GAAP Income Taxes
2,627.0
4,106.0
4,854.0
3,804.0
3,684.0
Net Income
4,490.0
7,785.0
9,421.0
7,721.0
7,829.0
528.0
483.0
668.0
1,536.0
1,014.0
656.0
583.0
879.0
1,103.0
770.0
-3,882.0
-335.0
1,470.0
182.0
-1,661.0
+Tax Adjustment
1,527.0
3,232.0
4,054.0
2,504.0
1,784.0
Operating Cash Flow
6,224.0
9,447.0
13,082.0
12,319.0
13,739.0
+Stock Issuance
2,512.0
4,457.0
2,245.0
1,620.0
1,497.0
-Stock Purchases
2,468.0
2,950.0
4,896.0
6,074.0
6,069.0
28.0
28.0
13.0
0.0
0.0
-Other Itemsa
1,279.0
7,617.0
3,856.0
63.0
2,115.0
Net Cash Flow
4,961.0
3,309.0
6,562.0
7,802.0
7,052.0
13,927.0
17,236.0
23,798.0
31,600.0
38,652.0
2,470.0
5,109.0
5,283.0
5,383.0
5,359.0
$108.38
$90.19
$80.00
$73.00
$54.70
-Dividends Paid
Other Items includes long-term investments and acquisitions, extraordinary items, and other adjustments to net income.
On April 11, 2001, Maxim acquired Dallas Semiconductor Corporation with 41 million shares of stock.
Source: Adapted from Compustat
Data), 19982002

9-204-066 Dividend Policy - 204702-XLS-ENG

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Dividend Policy at Linear Technology

Harvard Business School Case 9-204-066

-Cost of Goods Sold

-Research and Development Expense

Income Before Taxes

-GAAP Income Taxes

Common Shares Outstanding

Earnings Per Share

Dividends Paid Preferred

Dividends Paid - Common

+Depreciation and Amortization

-Working Capital Investments

Operating Cash Flow

Share Price, Fiscal Year Close

Net Cash Flow

First thee quarters of FY2003.

Source: Adapted from Compustat

Share Data), 19922003

djustments on the cash flow statement.

Linear Payout Policy, 1992-2003

Stock Splits Share Pricea

Adjusted for splits.

Source: Adapted from Thomson Financial Spectrum Database

Top 10 Institutional Shareholders, 2003

tional Shareholders, 2003

Cumulative Executive Compensation, 1993-2002

Adjusted for splits.

Includes the exercise of options granted prior to 1993.

Source: Adapted from Execucomp, Yahoo Finance

Municipal and corporate bond yields

Annual Average Month-End Yield (%):

Source: Adapted from Bloomberg

Advanced Micro Devices

Share price on March 31, 2003.

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

Millions of Dollars (Except Share Data), 2002

Selected Financial Data in Millions of Dollars (Except Share Data), 19982002

Income Before Taxes

CISCO (July Fiscal Year)

-GAAP Income Taxes

+Depreciation and Amortization

-Working Capital Investments

Cash and Short-Term Investments

Common Shares Outstanding

Share Price, Fiscal Year Close

Income Before Taxes

-GAAP Income Taxes

+Depreciation and Amortization

-Working Capital Investments

Operating Cash Flow

Cash and Short-Term Investments

Common Shares Outstanding

Share Price, Fiscal Year Close

INTEL (December Fiscal Year)

MAXIM (June Fiscal Year)

Income Before Taxes

-GAAP Income Taxes

-Working Capital Investments