Copyright

Dividend Policy at FPL Group, Inc. (A)

Harvard Business School
Case Software2-296-721
Copyright 1995 by the President and Fellows of Harvard College.
Research Associate Craig F. Schreiber prepared this case under the supervision of Professor
Benjamin C. Esty as the basis for class discussion rather than to illustrate either effective
handling of an administrative situation. This case was prepared solely on the basis of
public information without the participation of FPL Group, Inc.

Page 1

Exhibit 3

Exhibit 3

FPL Group, Inc. Balance Sheet for the Years 1989 to 1993 (in Thousands)
1993

1992

1991

$14,838,160
781,435
261,125
5,591,265
$10,289,455

$13,534,791
1,158,688
278,887
5,106,066
$9,866,300

$12,918,817
597,401
255,035
4,690,403
$9,080,850

$378,774
368,724
155,449
0
82,045
$984,992

$318,798
296,593
144,398
0
62,952
$822,741

$291,632
236,090
139,008
0
61,222
$727,952

$152,014
171,988
504,597
329,599
44,945
48,214
$1,251,357

$78,156
75,437
516,585
382,080
72,500
58,418
$1,183,176

$170,211
0
513,937
374,630
0
45,419
$1,104,197

$302,561
110,859
0
0
138,788
$552,208

$175,320
110,859
0
0
147,909
$434,088

$150,601
115,202
51,640
0
51,343
$368,786

$13,078,012

$12,306,305

$11,281,785

$349,600
279,680
323,282
216,140
109,206
94,880
130,786
335,043
$1,838,617

$0
164,004
411,369
215,435
123,735
90,929
175
172,069
$1,177,716

$0
136,605
389,562
201,014
109,748
98,968
0
171,061
$1,106,958

$1,512,067

$1,718,388

$1,507,231

ASSETS
Property, Plant and Equipment
Electric utility plant
Construction work in progress
Other property
Less Depreciation/amort.
Investment
Utility special use funds
Partnerships and joint ventures
Leaveraged leases
Insurance/Banking Assets
Other
Current Assets
Cash and cash equilvalents
Marketable securities
Receivables:
Recoverable storm costs
Other
Deferred Debits and Other Assets
Unamort. debt reacquisition costs
Deferred litigation items of FPL
Deferred pension costs
Other

Total Assets

CAPITALIZATION AND LIABILITIES

Current Liabilities
Notes Payable-Commercial paper
Current maturities of LT debt
Accounts payable
Customers' deposits
Interest accrued
Income and other taxes
Deferred clause revenues
Other
Deferred Credits/Other Liabilities
Accum. deferred income taxes

Page 2

Exhibit 3

Deferred reg. credit-income taxes

Unamort. investment tax credits
Capital lease obligations
Insurance/Banking Liabilities
Other
Capitalization
Common Stock, $.01 par value
Additional paid-in capital
Unearned compensation
Retained earnings

FPL preferred stock

without sinking fund
with sinking fund
Long-term debt

Total Capital and Liabilities

216,546
323,791
271,498
0
517,653
$2,841,555

0
345,438
324,198
0
393,080
$2,781,104

0
368,337
279,657
0
501,216
$2,656,441

$1,901
3,589,994
(321,121)
829,833
$4,100,607

$1,828
3,312,903
(336,355)
857,613
$3,835,989

$1,708
2,886,113
(346,215)
812,241
$3,353,847

$451,250
97,000
3,748,983
$8,397,840

$421,250
130,150
3,960,096
$8,347,485

$346,250
150,150
3,668,139
$7,518,386

$13,078,012

$12,306,305

$11,281,785

Source: 1989-1993 Annual Reports for FPL Group, Inc.

Page 3

Exhibit 3

n Thousands)
1990

1989

$12,184,176
476,279
243,185
4,481,736
$8,421,904

$11,488,396
299,705
378,424
4,087,780
$8,078,745

$252,098
168,571
134,174
0
19,060
$573,903

$201,217
0
0
1,878,555
287,678
$2,367,450

$214,164
0
492,503
438,957
197,112
43,818
$1,386,554

$61,220
0
573,171
299,567
0
118,284
$1,052,242

$146,841
119,371
45,918
0
107,517
$419,647

$0
125,065
0
250,434
451,373
$826,872

$10,802,008

$12,325,309

$48,814
19,572
357,904
189,648
105,718
87,517
0
127,225
$936,398

$125,760
15,933
335,509
187,875
124,022
0
0
0
$789,099

$1,538,645

$1,516,483

Page 4

Exhibit 3

0
406,251
74,887
0
319,804
$2,339,587

0
430,351
0
1,584,505
583,972
$4,115,311

$1,610
2,566,844
(360,000)
952,707
$3,161,161

$1,333
1,780,392
279
1,670,152
$3,452,156

$346,250
165,950
3,852,662
$7,526,023

$346,250
173,050
3,449,443
$7,420,899

$10,802,008

$12,325,309

Page 5

Exhibit 4a

Exhibit 4a

FPL Group, Inc. Income Statement for the Years 1989 to 1993 (in thousands)

1993

1992

1991

$5,224,299
91,995
$5,316,294

$5,100,463
92,864
$5,193,327

$5,158,766
90,670
$5,249,436

$1,758,298
1,251,284
138,000
70,256
0
598,389
526,109
$4,342,336

$1,829,908
1,203,474
0
74,195
0
554,237
497,739
$4,159,553

$1,932,637
1,276,244
90,008
69,469
0
518,068
485,962
$4,372,388

$973,958

$1,033,774

$877,048

$409,760
(66,238)
(48,812)
$294,710

$410,152
(57,782)
(46,978)
$305,392

$411,079
(34,044)
(47,456)
$329,579

$238,557
11,942
$250,499

$147,961
113,472
$261,433

$186,008
(14,687)
$171,321

Income From Continuing Operations

$428,749

$466,949

$376,148

Income (Loss) From Disscontinued Operations

(135,570)

$428,749

$466,949

$240,578

Operating Revenues
Utility
Non-utility
Total operating revenues
Operating Expenses
Utility
Fuel/purchased power
Operations and maintenance
Cost reduction Program
Non-utility operations:
Loss on discontinuing businesses
Depreciation and amortization
Taxes other that income taxes

Operating Income
Interest Expense & Other (Income) Deductions
Interest and preferred stock dividends
Allowance for funds used during construction
Othernet

Income Taxes
Current
Deferred

Net Income (Loss)

Note: Preferred stock dividends result from intercompany transctions and are not tax-deductible
Source: 1989-1993 Annual Reports for FPL Group, Inc.

Page 6

Exhibit 4a

1990

1989

$4,987,690
98,655
$5,086,345

$4,946,291
86,253
$5,032,544

$1,927,233
1,243,583
0
102,179
99,850
501,269
451,494
$4,325,608

$1,775,557
1,194,871
0
85,101
0
636,976
408,320
$4,100,825

$760,737

$931,719

$393,074
(25,424)
(26,981)
$340,669

$383,375
(21,623)
(32,685)
$329,067

$66,632
55,261
$121,893

$183,723
2,086
$185,809

$298,175

$416,843

(689,180)

16,494

($391,005)

$433,337

Page 7

Exhibit 4b

Exhibit 4b

FPL Group, Inc. Earnings and Dividends Per Common Share 1984 to 1993

Year

Earnings
Per Share

Earnings Per
Share before
Extraordinary
Items

1993
1992
1991
1990
1989
1988
1987
1986
1985
1984

$2.30
2.65
1.48
(2.86)
3.12
3.42
3.10
2.90
3.11
2.62

$2.76
2.65
2.66
2.64
2.99
3.12
2.69
2.90
3.11
2.65

Dividends
Per Share

Average
Shares
Outstanding
(in

$2.47
2.43
2.39
2.34
2.26
2.18
2.10
2.02
1.94
1.77

186,413
176,207
162,553
136,715
131,544
130,932
129,959
126,004
119,696
118,280

Note:

"Earnings per share before extraordinary items" excludes gains or losses from
discontinued operations and charges relating to cost reduction programs.

Sources:

FPL Group, Inc. annual reports 1989 to 1993, Value Line, Inc., June 17, 1994.

Page 8

Exhibit 5

Exhibit 5

FPL Group, Inc. Cash Flow Statement for the Years 1989 to 1993 (in thousands)
1993

1992

1991

$428,749
598,389
10,225
0
12,184
0
138,949
0
(10,578)
0
89,058

$466,949
554,237
211,156
0
(57,130)
0
(102,977)
0
5,948
0
(90,521)

$240,578
518,068
(31,414)
0
0
0
120,772
0
15,481
135,570
194,466

$1,266,976

$987,662

$1,193,521

Capital and nuclear fuel expenditures

Sale of Colonial Penn
Net cash provided (used) by discontinued operations
Receipts from partnerships and leveraged leases
Other

($1,247,661)
0
0
82,462
34,365

($1,390,930)
0
0
17,592
(10,013)

($1,343,931)
128,380
(49,827)
11,572
1,427

Net cash used in investing activities

($1,130,834)

($1,383,351)

($1,252,379)

$0
2,082,993
125,889
190,000
0
(2,648,170)
276,287
(461,639)
0
349,600
22,756

$0
874,633
25,000
125,000
0
(699,614)
422,626
(430,716)
0
0
(13,295)

$0
265,246
0
0
0
(360,372)
318,341
(392,000)
235,972
(48,814)
(3,468)

($62,284)

$303,634

$14,905

Net Increase (decrease) in cash and cash equivalents

$73,858

($92,055)

($43,953)

Cash and cash equivalents at beggining of year

$78,156

$170,211

$214,164

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)
Depreciation and amortization
Increase (decrease) in deferred income taxes
Provision for refunds
(Increase) decrease in recoverable storm costs
Refund of revenues from tax savings rule
Deferrals under cost recovery clauses
Charges for discontinuing businesses
Increase (decrease) in accrued interest and taxes
Loss from discontinued operations
Other
Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIITIES

CASH FLOW FROM FINANCING ACTIVITIES

Unearned ESOP compensation
Issuance of FPL bonds and other long-term debt
Issuance of FPL Group Capital long-term debt
Issuance of preferred stock
Proceeds from FPL Group Capital borrowings
Retirement of long-term debt and preferred stock
Issuance of Common Stock
Dididends of Common Stock
Sale of nuclear fuel
Increase (decrease) in notes payableComml. Paper
Other
Net cash povided (used) in fin. activities

Page 9

Exhibit 5

Cash and cash equivalents at end of year

$152,014

Page 10

$78,156

$170,211

Exhibit 5

1990

1989

($391,005)
501,269
47,912
10,257
0
(22,960)
(10,483)
99,850
49,962
689,180
78,813

$410,416
636,976
31,325
38,650
0
(37,692)
(117,340)
0
(42,002)
(16,494)
59,129

$1,052,795

$962,968

($1,038,740)
0
(92,006)
(96,894)
(55,086)

($836,493)
0
58,488
(90,667)
(107,198)

($1,282,726)

($975,870)

($360,000)
276,073
0
0
260,000
(141,892)
796,491
(323,919)
75
(76,946)
(7,892)

$0
213,542
0
0
0
(193,890)
73,124
(297,861)
47,399
107,176
8,478

$421,990

($42,032)

$192,059

($54,934)

$22,105

$77,039

Page 11

Exhibit 5

$214,164

$22,105

Page 12

Exhibit 6

Exh i bi t 6 FPL GroupFi na nci a l Project i ons a s of Ma rch 1994 ($ i n t h ousa nds)

Florida Power & Light Company

Electric Sales (millions of KWH)
Customer Accounts (thousands)
Total Capacity (owned by FPL in MW)
Net Income
Depreciation and Amortization
Capital Expenditures
Maturing Debt
Preferred Dividends
Common Dividends

Avg. Shares Outstanding (millions)

Capitalization Ratios
Long Term Debt
Preferred Stock
Equity
Sources:

1992
Actual

1993
Actual

1994
Estimate

1995
Estimate

1996
Estimate

1997
Estimate

1998
Estimate

69,290
3,281
16,627

72,455
3,350
16,697

74,411
3,437
17,559

76,420
3,526
17,563

78,484
3,618
18,030

80,603
3,712
18,051

82,779
3,809
18,051

$467
554

$429
598

$527
665

$557
711

$576
741

$596
778

$615
795

$1,270
152
44
431

$1,337
11
43
461

$901
2
40

$831
81
40

$743
101
40

$769
4
40

$624
185
40

176.2

186.4

191.5

192.1

192.1

192.1

192.1

48%
6%
46%

46%
6%
47%

46%
6%
48%

46%
6%
48%

45%
6%
50%

44%
6%
50%

44%
6%
50%

Donaldson, Lufkin & Jenrette Securities Corp, analyst report, May 1994.
Salomon Brothers US Equity Research, analyst report, March 16, 1994
Florida Power & Light Company 1994-98 Forecast and 1993 Financial and Statistical Report

Page 13

Exhibit 6

295-059 -14-

1996
Estimate

1997
Estimate

1998
Estimate

78,484
3,618
18,030

80,603
3,712
18,051

82,779
3,809
18,051

$576
741

$596
778

$615
795

$743
101
40

$769
4
40

$624
185
40

1993-98
Annualized
Growth
2.7%
2.6%
1.6%

192.1

192.1

192.1

45%
6%
50%

44%
6%
50%

44%
6%
50%

Page 14

Exhibit 7

Exhibit 7

Investor-Owned Utilities in the Southeast United States in 1993

FPL Group

Electric Subsidiaries

Markets and Customers

Major markets
Total KwH produced (millions)
Customer Mix (percent of sales)
Residential
Commercial
Industrial
Utility Companies and other

Capital Structure
Long Term Debt/Total Capitalization
Common Stock/Total Capitalization
Total Assets (millions)

Profitability
Return on Common Stock
Earnings per share
Cash Flow per share
Dividend per common share
Dividend Yield
Payout Ratio (all dividends)

Capacity Utilization
Annual Load Factor (a)
Capacity Margin (b)
Percent of Power Purchased (1993est)

Carolina Power

Duke Power

Florid

Carolina Power
and Light Company

Duke Power Co.

Florida P

East NC
Northeast SC
45,505.0

Central NC
Northwest SC
76,058.0

North

56.0%
36.0%
4.0%
4.0%

33.0%
20.0%
26.0%
21.0%

33.0%
24.0%
28.0%
15.0%

46.4%
47.3%
$13,078

48.2%
49.1%
$8,194

39.9%
50.9%
$12,193

12.5%

13.6%

13.2%

$2.75
$5.85
$2.47

$2.23
$5.09
$1.66

$2.80
$5.80
$1.84

6%
91%

5%
74%

5%
68%

57%
8.6%
30.0%

59%
12.0%
11.0%

60%
14.3%
1.0%

Florida Power
and Light Company

East/South FL
72,454.7

Costs
Operation/Maintenance Costs/KWH
Busbar Cost/KWH (c)
Incremental Generation Cost/KWH (d)
Transmission Cost/KWH (1987)

$0.0075
$0.0366
$0.0187
$0.0019

$0.0103
$0.0403
$0.0154
$0.0009

$0.0072
$0.0317
$0.0176
$0.0010

Rates (av erage realization per Kw H)

Residential
Commercial
Industrial

$0.0811
$0.0675
$0.0540

$0.0828
$0.0694
$0.0549

$0.0732
$0.0600
$0.0431

Sources:
Notes:

Value Line, Annual Reports, North American

Utility
Page
15Almanac (J.C. Bradford & Co., 1993 edition)
Goldman Sachs Selected Electric Utility Industry Statistics (November 1994)
(a) Annual Load Factor is the average level of capacity used by the utility.
(b) Capacity Margin = (Total Capacity - Peak Load in Summer)/Total Capacity.

Transmission Cost/KWH (1987)

Rates (av erage realization per Kw H)

Residential
Commercial
Industrial
Sources:
Notes:

$0.0019

$0.0009

$0.0010

Exhibit 7
$0.0811
$0.0675
$0.0540

$0.0828
$0.0694
$0.0549

$0.0732
$0.0600
$0.0431

Value Line, Annual Reports, North American Utility Almanac (J.C. Bradford & Co., 1993 edition)
Goldman Sachs Selected Electric Utility Industry Statistics (November 1994)
(a) Annual Load Factor is the average level of capacity used by the utility.
(b) Capacity Margin = (Total Capacity - Peak Load in Summer)/Total Capacity.
(c) Busbar Cost is the unit output cost of electric power coming out of a generating plant, before transmission and distribution
(d) Incremental Generation Cost is the marginal cost to produce an additional kilowatt-hour.

Page 16

Exhibit 7

Duke Power

Florida Progress

Duke Power Co.

Florida Power Corp.

Central NC
Northwest SC
76,058.0

North Central FL

93 edition)

28,647.8

SCANA Corp.

The Southern Co.

TECO Energy, Inc.

SC Electric and
Gas Company

Alabama Power Co.

Georgia Power Co.
Gulf Power Co. (FL)

Tampa Electric Co.

Southwest SC
16,880.0

Northwest FL,
GA, and AL
119,206.0

Central FL
13,446.5

33.0%
24.0%
28.0%
15.0%

47.0%
28.0%
12.0%
13.0%

43.0%
29.0%
20.0%
8.0%

32.0%
26.0%
27.0%
15.0%

44.0%
30.0%
10.0%
16.0%

39.9%
50.9%
$12,193

48.7%
47.5%
$5,639

50.2%
47.0%
$4,041

45.1%
46.8%
$25,911

49.1%
48.3%
$3,128

13.2%

10.9%

12.6%

13.0%

14.3%

$2.80
$5.80
$1.84

$2.26
$5.59
$1.95

$3.72
$6.02
$2.74

$1.57
$3.16
$1.14

$1.30
$2.70
$0.95

5%
68%

6%
87%

6%
74%

5%
75%

4%
73%

60%
14.3%
1.0%

51%
11.0%
15.0%

57%
7.9%
26.0%

59%
12.1%
7.0%

n/a
13.8%
3.0%

$0.0072
$0.0317
$0.0176
$0.0010

$0.0070
$0.0344
$0.0182
$0.0010

$0.0051
$0.0293
$0.0186
$0.0007

$0.0059
$0.0319
$0.0115
$0.0008

$0.0049
$0.0368
$0.0242
$0.0006

$0.0732
$0.0600
$0.0431

$0.0792
$0.0581
$0.0479

$0.0713
$0.0562
$0.0391

$0.0732
$0.0704
$0.0451

$0.0813
$0.0673
$0.0465

Page 17

$0.0010

$0.0010

$0.0007

$0.0008

$0.0006

$0.0732
$0.0600
$0.0431

$0.0792
$0.0581
$0.0479

Exhibit 7
$0.0713
$0.0562
$0.0391

$0.0732
$0.0704
$0.0451

$0.0813
$0.0673
$0.0465

93 edition)

ant, before transmission and distribution.

t-hour.

Page 18

Exhibit 7

TECO Energy, Inc.

Tampa Electric Co.

Central FL
13,446.5
44.0%
30.0%
10.0%
16.0%

49.1%
48.3%
$3,128

14.3%
$1.30
$2.70
$0.95

4%
73%

n/a
13.8%
3.0%

$0.0049
$0.0368
$0.0242
$0.0006

$0.0813
$0.0673
$0.0465

Page 19

$0.0006

$0.0813
$0.0673
$0.0465

Exhibit 7

Page 20

Exhibit 9

Exh i bi t 9 Di v i d end s by Ind ust ry a nd for El ect ri c Ut i l i t i esFi rst Qua rt er 1994

S&P Industry Groups

Health Care (drugs)
Household Products
Tobacco
Publishing (newspapers)
Hardward and Tools
Foods
Chemicals (specialty)
Cosmetics
Telecommunications (long distance)
Beverages (soft drinks)
Textiles
Regional Banks
Aerospace/Defense
Retail (specialty)
Shoes
Hotel-Motel
Entertainment
Automobiles
Toys
Restaurants
Computer Software/Services
Electronics (semiconductors)
Airlines
Steel

Dividend
Payout Ratio

Dividend
Yield

69.4%
66.9%
65.7%
58.0%
53.6%
45.7%
39.7%
39.4%
39.3%
38.2%
34.7%
32.6%
31.0%
29.7%
25.5%
25.4%
23.9%
20.6%
16.0%
15.1%
10.9%
6.5%
deficit
deficit

4.1%
2.6%
5.2%
2.5%
2.8%
2.7%
1.8%
1.9%
2.3%
1.7%
2.2%
3.4%
2.3%
0.9%
1.6%
0.9%
0.7%
1.9%
0.8%
0.8%
0.4%
0.4%
0.1%
0.9%

106.2%
93.3%
92.2%
90.9%
90.6%
88.7%
88.0%
87.2%
87.0%
84.2%
81.9%
81.4%
81.1%
79.4%
75.5%
74.5%
72.3%
71.5%
71.3%
66.7%
65.5%
64.8%
61.5%
60.8%

9.6%
8.6%
8.7%
10.0%
8.4%
9.9%
9.3%
7.9%
7.7%
7.1%
6.6%
8.6%
9.0%
6.5%
7.1%
6.5%
7.1%
6.5%
8.5%
6.5%
6.6%
5.3%
7.7%
5.8%

Sample of Electric Utility Companies

Texas Utilities
Oklahoma G&E
Potomac Electric
Houston Industries
Delmarva P&L
SCE Corp.
NY State E&G
Central & SW
Public Service of CO
Commonwealth Edison
Northern State Power
American Electric
Ohio Edison
Dominion Resources
Consolidated Edison
PacificCorp
Carolina P&L
Southern Company
Pacific G&E
Entergy
General Public Utilities
Duke Power
Centerior Energy
Philadelphia Electric

21 1994 Monthly Supplement,

Sources: S&P Analysts' Handbook, Page
September
Barrons 5/16/1994, p. 16.

PacificCorp
Carolina P&L
Southern Company
Pacific G&E
Entergy
General Public Utilities
Duke Power
Centerior Energy
Philadelphia Electric

Exhibit 9

74.5%
72.3%
71.5%
71.3%
66.7%
65.5%
64.8%
61.5%
60.8%

Sources: S&P Analysts' Handbook, September 1994 Monthly Supplement,

Barrons 5/16/1994, p. 16.

Page 22

6.5%
7.1%
6.5%
8.5%
6.5%
6.6%
5.3%
7.7%
5.8%

Exhibit 9

94

end
eld

1%
6%
2%
5%
8%
7%
8%
9%
3%
7%
2%
4%
3%
9%
6%
9%
7%
9%
8%
8%
4%
4%
1%
9%

6%
6%
7%
0%
4%
9%
3%
9%
7%
1%
6%
6%
0%
5%
1%
5%
1%
5%
5%
5%
6%
3%
7%
8%

Page 23

5%
1%
5%
5%
5%
6%
3%
7%
8%

Exhibit 9

Page 24

Exhibit 10

Exhibit 10 FPL Group Ownership InformationFirst Quarter 1994

Type of Shareholder
Individuals and Other

Percent of Total Shares

Institutions (total)

Number of
Shareholder
s

51.9%

85,442

36.9%

328

Pension Funds/Universities
Mutual Funds/Money Managers
Financial Institutions
Insurance Companies

18.4%
13.0%
4.3%
1.2%

ESOP (Fidelity Management is trustee)

11.1%

Insiders (Officers and Directors)

Total

0.1%
100.0%

Number of shares outstanding at 12/31/93 (millions)

17
85,787

190.1

Sources:

FPL Group 1993 Annual Report and Proxy Statement (5/4/94), CDA/Spectrum, and casewriter estimates.

Note:

An ESOP (Employee Stock Ownership Plan) is a program administered by a third party trustee to
encourage employees to purchase stock in the companyoften used as a retirement savings vehicle.

Page 25

Exhibit 10

nd casewriter estimates.

party trustee to
ment savings vehicle.

Page 26