FINANCIAL MANAGEMENT CASE ANALYSIS

FINANCIAL MANAGEMENT CASE ANALYSISCASE 2 : DIVIDEND POLICY AT LINEAR TECHNOLOGYBYANURAG SINGH NEHRAGAURAV GUPTAHIMANSHU GULIASHIKHAR SHARMA

PRESENTATION FLOWCASE BACKGROUNDPREREQUISITESSOLUTION BY FIRMFACTS & SOLUTIONOUR RECOMMENDATIONSOPTIONSCOMPANY BACKGROUNDPROBLEM DEFINITIONCONCEPTS REQUIRED FOR PROBLEM SOLVINGSTUDY OF COMPANYS DATASOLUTION AS SOUGHT BY THE FIRMOPTIONS THAT COMPANY HADTHEIR : PROS AND CONSSUGGESTION BY US AND ITS SUPPORTING DATA

COMPANY BACKGROUNDTHE COMPANY THAT WE ARE ANALYSING IS LINEAR TECHNOLOGY CORPORATIONA SEMICONDUCTOR TECHNOLOGY(IC) FIRM FOUNDED BY ROBERT SWANSON(CEO) IN 1981CFO IS PAUL COGHLANCOMPANY HAS BEEN PROVIDING DIVIDEND SINCE 1992 COMPANY HAD SET IT LOW IN BEGINNING AS IT DIDNT WANT TO LOWER ITS DIVIDEND AS ACCORDING TO COMPANY:- PEOPLE LOVE DIVIDEND BUT HATE IT WHEN COMPANIES STOP GIVING ITTHE COMPANY HAS BEEN CONSISTENTLY PAYING DIVIDEND SINCE THENCOMPANY HAS EVEN PERFORMED IN HARD TIMES

COMPANY BACKGROUNDCOMPANY HAS ALSO BEEN BUYING SHARES BACK FOR EMPLOYEE STOCK OPTIONSJANUS CAPITAL IS THE LARGEST SINGLE SHAREHOLDER OF LLTC(EXHIBIT4)THE COMPANY MAKES ANALOG CIRCUITS WHICH ARE MANUFACTURED IN FABRICATION FACILITY KNOWN AS ANALOG FAB COSTING (~$200 MILLION)ANALOG FAB CAN BE USED FOR 10 PLUS YEARS WITHOUT BECOMING OBSOLETE , RESEARCH EXPENSES ($102 MILLION)LINEAR WAS 7TH LARGEST COMPANY BY MARKET CAPITALIZATION IN PHILADELPHIA STOCK EXCHANGE SEMICONDUCTOR INDEX(SOX)

COMPANY BACKGROUNDLINEARS SALES, GROSS PROFIT AND NET INCOME PEAKED IN FY 2001BUSINESS SLOWED DONW CONSIDERABLY IN FY2002 AND LINEAR COULD ONLY EARN $198 MILLION AS COMPARED TO $427 MILLION PREVIOUS YEAR (EXHIBIT 2)LTTC HAS A CASH RESERVE OF ROUGHLY $1.5 BILLION OUT OF WHICH SHORT TERM INVESTMENTS ARE MADE WHICH ARE ONLY YIELDING A TOTAL $52 MILLION WHICH IS JUST 3.4 % .SOME INVESTORS ARE ASKING COGHLAN TO GIVE SOME SORT OF SPECIAL DIVIDENDS

SHOULD LINEAR TECHNOLOGY INCREASE ITS DIVIDEND , KEEP IT CONSTANT OR DECREASE IT?PROBLEM DEFINITION

IS HIGHER DIVIDEND ALWAYS GOOD?IS IT BAD TO GET LOW DIVIDENDS ?WELL TO UNDERSTAND THIS ILL GIVE A SIMPLE EXAMPLE

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CONCEPTS REQUIRED FOR PROBLEM SOLVINGDIVIDEND PAYOUT IS NOT MANDATORYDIVIDEND PAYOUT GIVES A SIGNAL TO THE MARKET THAT COMPANY IS PROFIT MAKINGPEOPLE START TO LOSE THEIR FAITH FROM FIRMS AT THE TIME OF RECESSIONGORDONS MODEL BUYBACKS ARE MORE FLEXIBLE THAN DIVIDEND PEOPLE HATE IT WHEN A DIVIDEND WHICH WAS PAID IS REDUCED OR STOPPED

GORDONS MODEL

GORDONS MODELWHEN , r>k GROWTH FIRM WE SHOULD LOWER / STOP PAYING DIVIDENDWHEN , r=k NORMAL FIRM CAN PAY OR HOLD THE DIVIDEND IT WILL NOT AFFECT OUR PRICE OF SHAREWHEN , r