Opinion ID: 376668
Heading Depth: 4
Heading Rank: 2

Heading: Dividends.

Text: 34 Appellant also calls attention to the following statement in the portion of the prospectus dealing with dividends: . . . AFDC allowance for funds used during construction, as a percentage of net income available for common stock, increased from 11% during the fiscal year ended December 31, 1967 to 46% for the twelve months ended June 30, 1972; accordingly, a major portion of the Company's current annual dividend of $1.40 per share of Common Stock is being paid from sources other than operating income. This passage is alleged to suggest that AFDC income was a major source of dividend funds, thereby reinforcing the view that it was a cash-like asset. 35 While the quoted passage is not entirely free from ambiguity and could usefully have been expanded to indicate that the other sources included earnings from investments, public offerings and the like but not AFDC, it would not mislead the reasonable investor. Fairly understood, the thrust of the passage was to alert readers that as operating revenues were increasingly being diverted to construction, dividends were increasingly being paid from other sources. The statement at issue does not compel the conclusion that AFDC was being drawn upon to pay dividends; on the contrary, AFDC was merely being used as a measuring rod to indicate the relative decline of operating income as an element of dividend payments. Furthermore, Detroit Edison explicitly indicated that current income was insufficient to cover both dividends and construction costs, and that the shortfall was therefore derived from non-operating revenues such as the proceeds of stock and bond issues. The investor was warned by footnote (a) to the Statement of Changes in Financial Condition that Net Income included AFDC. Armed with this information and the Consolidated Statement of Income he could determine that dividends were greater than net income less its AFDC component and that they therefore were being paid from other non-operating sources, not including AFDC. 36