Exhibit 2

Selected Linear Financial Data in Millions of Dollars (Except Share Data), 1992–2003
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

2733 0. Financing Needs: 1. .0029 0.0 41.0 $44.7 427. Its idea is to offer dividends so as to attract new set of investors who add diversity to the shareholders group.4 $1.3 440. 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.8 67 28.43 $30. 4.2 312.5 Billion.1 144. Even though the company faced decline in sales in 2002 due to slowdown.1708 0.0963 0. The payout ratio reached to 25%-30% 0.0 47.2 80. moderate R&D investment ($102 million) etc. the company still increased the dividend per share and exhibited that the company is in sound position.hare Data).7 278. the company started using its excess cash flows for buying back the shares.1505 0.87 Payout Policy: 1. 3. 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). 3.9 610. Company is not interested in going for acquisitions.0054 0.6 512.22 $31. The company is having excess cash flows to the tune of $1.2 54. Since the interest rates for investment is drastically reduced in the market in recent years.55 0.34 $0.4 9.6 318.6 170.7 114.9 316.4 18. 2.5 197.0049 0. 1992–2003 2001 2002 2003a 972.8 231.0 0. 2. It is maintaining postive cash flows due to its variable cost structure and low capital investment for fabrication units ($200 million).5 79.7 69.3 183.1291 0.6 102.63 $0.2756 5.0 0.4 240. Owing to above reasons.

496 1.343 312.64 0.05 15.8116 June Fiscal Year Common Shares Outstanding(millions) 1992 1993 1994 1995 1996 280.191448 3.018611578 0 5.2402 1.4 0.4 0.799196 .06 18.6% 0 0.861 0 2.268 9.36 290.033419 0.4 0.039717 Dividend/Share Total Dividend Paid ($ million) Total Tax Paid on dividend($ million)@ 38.578346 Tax paid @15% 0 0.79665 1.4 0.48 294.4754 1.2 285.1087 312.050046 3.951248 2.32 298.8744 312.77915 Savings 0 1.836 11.744 2.796696 4.311 8.04 12.62 2.Question 2 Tax Consequences of Dividends (All figures are in $Million) Outstanding Shares New Total Dividend Total Tax Paid Dividend Paid 312.028463233 0.321296 2.253396 1.182 2.055 17.045 14.058 2.4 0.5773 312.

1925 6.049243 0.8 millions.660308 .91 316. 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. We varied the dividend in a given range and found that the tax outflow saved is around $1.053 39.129077 0.15 312.84593 18.17 318.088682 0.2443 2.07183 0.31275 4.714704 12.1746 8.170821 0.775332 7.406 0.164 54.By not returning cash to its shareholders.1167 3.531032 4. it saves the personal tax levied to shareholders on dividend amount.95 41.09672 61.059607 1999 2000 2001 2002 2003a (in Millions) 307.316 22.14972 2. Even though the company has to pay the corporate tax on EBIT.889304 20.005 47.02 5.7474 3.84 307.52481 10.322576 5.085 27. Linear Technology is saving the double tax which is levied on dividend amounts paid to shareholders. 1997 1998 303.10075 7.87 -$2.28 0.962 18.46 315.7887 15.069976 8.21206 6.543608 100..74518 11.5962 9.150509 14.

5 -14.8 -1.01000 0.5 5.01000 10.04 44.3 14-Oct -1.02000 0.01250 0.00750 0.1 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 50.38 9.03000 0.2 Q4 93 0.5 311.06 44.39 25.00625 0.3 5.2 12-Oct 19-Jan 11.5 11.3 10.6 -9.19 3.00000 Q2 93 Q3 93 0.80 39.2 317.1 287.01750 0.1 307.6 7.6 16-Apr -14.01000 Q3 96 5.3 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 -2.5 -5 27-Jul 11.03000 0.6 297.04000 0.04000 0.0 317.8 8.1 315.03000 0.00625 1.3 3.4 -1.7 0.02000 0.2 17-Oct 0.1 -6.94 64.8 -5 9 3.28 5.01750 0.00875 5.5 -4.02000 0.2 316.00625 0.16 283.7 0.44 299.54 6.00875 8.4 Q1 94 Q2 94 0.7 -3.01750 0.0 307.00 63.02000 0.6 23-Jul 16-Oct 15-Jan -1.25 41.8 52.1 -1.9 7.01500 0.0 303.84 294.5 299.22 32.0 306.63 29.1 4.39 35.7 1.50 9.5 13.8 318.5 0.04000 11.9 -4 6.6 13.50 22.6 19-Apr -4.3 -10.01500 0.7 0.01250 0.3 8.00750 0.0 290.0 37.01000 0.01500 0.Exhibit 3 Linear Payout Policy.4 6.5 0.2 296.22 10.6 3.01250 7.8 6.75 46.7 301.6 303.3 4.9 100.4 6.6 316.00 289.2 -2 -18.3 -15.78 55.5 3.00750 4.6 1 7.9 -0.3 17-Oct 17-Jan 14.08 12.7 Q3 94 Q4 94 Q1 95 Q2 95 Q3 95 0.97 298.5 290.3 2.4 -11 11.1 15.22 301.4 11.70 281.41 17. 1992-2003 Market Reaction Fiscal Stock Re.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 .2 -3.5 6.5 -6.3 300.2 Stock Splits (Date) 2:1 (11/3) Share Pricea ($) Sharesa (M) Dividendb 13-Oct LLTC SOX Earningsb Returnc(%) Returnc(%) 2.5 293.1 17-Oct 18-Jan 18-Apr 2.5 -11.4 -5.Dividends Quart Purchase Per Sharea er ($M) ($) Q1 93 0.3 11.06 12.00750 0.63 33.03000 0.4 12-Jan 13-Apr -1 11 20-Jul -1.6 290.61 285.1 Q4 95 Q1 96 Q2 96 3.28 4.19 7.3 317.3 -10.3 Q4 96 Q1 97 Q2 97 14.01250 0.2 -6.5 114.00625 3.9 0.3 306.7 3.04000 0.3 25-Jul 10.9 316.50 5.25 15.0 0.3 8.81 295.25 294.01500 0.8 0.19 14.8 306.94 17.5 0.2 4.5 308.0 8.4 -0.1 283.1 313.0 6.8 3.00875 0.6 0.

8 313. and the day after the earnings announcement.2 0.a Q4 02 Q1 03 Q2 03 66.4 23-Jul 15-Oct 14-Jan 0.5 0.72 316. The quarterly earnings announcement date for Q4 1994 is not available from Compustat. Source: Adapted from Compustat. The SOX index begins in October 1994.87 312.43 20.05000 0.05000 31.05000 0.5 125.2 Adjusted for splits. the Center for Research on Security Prices. Announcement date.5 4.4 Q3 03 39.4 -2.2 311.3 -4.05000 30. the day of.3 -2. Datastream b . c Return on the day before.72 25.0 1.9 -0.

78 No. 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. Why do firms pay dividends? 1) Dividends as well as re-purchases absorb excess cash flows and thus reduce agency costs. The firm signals the investors that it is having a healthy cash flows and capable of generating revenues in the near future.58 billion due to appreciation of sha prices. 4) Dividend is a sign of good performance of the firm. Investors with small shareholdings could possibly gain from this. which is derived mainly from dividends. 3) Some investors prefer current income. EPS would increase.42 Million in above case. 2) Dividend announcements lead to an initial increase in stock price. 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. The share price would appreciate.44 and $3. of shares repurchased Dividend per share 5. . However large shareholders will welcome the announcement depending on the tax rate which they are paying.61 1330. Earnings would remain same.2587068 New Share Price Change in value of the firm 26.2 Cash used for repurchase Tax paid 234.Question 3 Repurchase Dividend Cash paid as dividend 1565. 5) Many European investment firms and pension funds prefer to invest in high-dividend firms only.0102433 Dividend received by shareholder 4. Earnings and EPS will remain same.42 No.

.

Thus from these figures the EPS can be calculated.8m-$287m=$153. Now the net Income to sales ratio is 0. this is primarily due to the fact that when the shares are repurchased.387.886139137 0.5million.9 Calculation Steps: 1. thus increasing the value of the firm.1565.4million.03*153. 50.9m and $233.8m+$158.95 for 3% and 7% growth respectively.6 231.4m=$599. .2 50.534 50.8million. We find that the net price of the share increases drastically when we repurchase the shares. this will remain a constant for the next quarter also as both the sales and the profit increases at the same rate. If we have a 3% growth in the sales for the 4th quarter then the sales will be 1.4466 3582.8=$158.8m.2million.7 197. its an indication to the market that the shares are undervalued and the market takes this signal and the stocks become bullish after that.70294785 261. Thus with the new sales values we find that the new Net Incomes are $231. 233. The sales figure for the first half of 2003 was $287million and that for the 3 quarters of 2003 is $440.53984824 3466.09698998 3. Similarly for a 7% growth we get the yearly sales as $604. thus we have the sales for the 3rd quarter of 2003 as $440. ain same. EPS would 4. 2.95 0. Thus we have the total sales for the year 2003 as $440.44 e to appreciation of share ice would appreciate.3413 m appreciates by $3.893972622 56.

0 2564. Center for Research on Security Prices -1303.8 7674.2 1730.7 Cashc -794.6 Long-Term Debt 1779.2 375.5 3703.1 1037.1 887.5 383.0 91. 2003.4 765.8 942.0 3012.0 Share price on March 31.8 985.0 313.37 23.8 6575.27 18.87 4.0 573.4 502.Exhibit 11 Data on Companies in the Semiconductor Index (SOX) in Millions of Dollars (Except Share Data).0 0.84 11.7 732.8 -718.1 1019.9 429.90 6.12 8.5 -144.0 675.0 189.3 269.7 4426.0 .7 718.8 915.7 237.9 0.8 149.1 320.0 360. c Cash and short-term investments.2 0. d Special (non-recurring) dividend.3 183.9 1.0 125.5 -181.35 16.0 19.0 0.1 602.64 16.0 1701.2 -907.0 216. e Micron discontinued its dividend in 1996.0 6566.0 -2236.6 325.0 12587.0 2797.18 13.2 197.4 259.41 344.0 413.9 2315.0 299.14 8. 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 a 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 6.54 12.7 450.4 1190.0 -33.4 673. based in Taiwan.0 115.58 12.3 1113. f STMicroelectronics is an American Depository Receipt (ADR). g Taiwan Semiconductor is an ADR.0 951.3 1552.0 -2485.0 0.0 215.04 27.0 1241.0 277.1 990.7 75.2 183.6 339.28 35. b Compustat operating cash flow (Item 308) less capital expenditures (Item 128).52 36.6 -292.0 49.5 -344. Source: Adapted from Compustat.6 833.3 22. based in France.1 4929.94 30.2 929.4 188.5 1648.8 0.0 -80.8 316.26 17.6 3117.

(Except Share Data).0 370.0 78.63393 56.87393 77.051115911 0.21288 -2.0 2-Oct 0.0526 177.69593 -94.0 26-Apr 60.139093783 0.2 115.153588196 0.3544 63.Initiation Dividends purchases Date 0.7984 44.073295037 -0.07004 -1.0 Apr-95d 139.0 0.13437 63.163228155 -8.60653 -5.483380282 0.8 EPS P/E -3.238070404 0. 2002 Dividend Stock Re.0 533.96792 -82.0 0.0 0.0 864.48408 .2 221.0 0.0 0.6 Oct-92 0.41081 -7.198774991 0.0 54.624920936 -0.0 Sep-91e 0.0 Sep-92 123.0 0.37079646 -1.0 0.0 Nov-46 0.0 0.921943231 -0.53395 34.782293179 0.111741197 -3.0 36.34103 31.0 0.0 364.809746954 -1.0 0.0 0.0 4014.0 0.5 125.0 147.09965 61.5527 39.0 0.504395422 -1.474068441 1.0 May-99 0.18117519 0.39825 -5.0 0.5514 49.0 0.77952546 0.

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