Linear technology Products

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Part I Linear Technology supplies products across various industries, allowing them sustain a vast amount of customers (Appendix 1). In terms of their financials, Linear went public on the NASDAQ in 1986. Shortly after their company announced its IPO, Paul Coghlan was announced as the company’s CFO. Linear has shown good performance with stable margins and strong growth. However during 2002 a decline in demand for its products hurt Linear’s net income and sales, forcing them to change their fixed to variable cost ratio by re-structuring their compensation strategy and rewarding their employees through profit sharing (stock options). There are various issues that we managed to identify in this case. Historically Linear has been increasing its dividend at a steady rate of $0.01 per year. In this case, Paul Coghlan faces the issue of whether Liner should continue to increase its dividend and issue a special dividend for this quarter (2003 Q2) based on their weak financials in 2003. We identified a variety of factors that might induce Mr. Coghlan to change Linear’s dividend policy in appendix 2. Part II Linear Technology has a very clear payout policy which is to increase dividends by $0.01 per year every year However, their payout policy doesn’t solely revolve around dividends, it also involves share buybacks. The purpose of these buybacks aren’t just to distribute cash to shareholders but to also offset exercised stock options by the employees. As noted in the case, their initial payout ratio was 15%. However, when they considered increasing their dividends, they wanted the payout ratio to be 25% to 30%. The issue at hand is whether or not they can keep a consistent payout even with their drop in sales and earnings in 2003. T... ... middle of paper ... ...: Appendix 8: Appendix 9: This graph shows the market reaction (Cumulative Abnormal Return) shortly after dividend decrease (left) and increase (right) for a specific company. Source: NYU Stern Appendix 10: Appendix 11: Appendix 12: References Bagwell, Laurie Simon, and John B. Shoven. "Cash Distributions to Shareholders." Journal of Economic Perspectives 3.3 (1989): 129-40. Print. Floyd Norris, “Growing Number of Companies Choose Not to Offer Dividends”, The New York Times, January 4, 2000. Ken Brown and Jesse Eisinger, “Tech Dividends Deserve Closer Look”, The Asian Wall Street Journal, January 13, 2003. Richard Teitelbaum, “Investor’s Guide 2003: Playing the Dividend Market,” Fortune Magazine, December 3, 2002. "Revenue and EPS Summary." Revenue, Earnings Per Share (EPS), & Dividend Summary. NASDAQ, n.d. Web. 03 Apr. 2014.
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