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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-9052
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DPL INC.
(Exact name of registrant as specified in its charter)
OHIO 31-1163136
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Courthouse Plaza Southwest, Dayton, Ohio 45402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 937-224-6000
Securities registered pursuant to Section 12(b) of the Act:
Outstanding at Name of each exchange on
Title of each class February 28, 1997 which registered
------------------------- ----------------- ------------------------
Common Stock, $0.01 par 106,009,923 New York Stock Exchange
value and Preferred Share
Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of February 28, 1997 was
$2,610,494,354.00 based on the closing price of $24-5/8 on
such date.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II incorporate by reference the registrant's 1996
Annual Report to Shareholders.
Portions of the definitive Proxy Statement dated March 1, 1997,
relating to the 1997 Annual Meeting of Shareholders of the
registrant, are incorporated by reference into Part III.
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PART I
Item 1 - Business*
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DPL INC.
DPL Inc. was organized in 1985 under the laws of the State
of Ohio to engage in the acquisition and holding of securities of
corporations for investment purposes. The executive offices of
DPL Inc. are located at Courthouse Plaza Southwest, Dayton, Ohio
45402 - telephone (937) 224-6000.
DPL Inc.'s principal subsidiary is The Dayton Power and
Light Company ("DP&L"). DP&L is a public utility incorporated
under the laws of Ohio in 1911. Located in West Central Ohio, it
furnishes electric service to 480,000 retail customers in a
24 county service area of approximately 6,000 square miles and
furnishes natural gas service to 298,000 customers in 16 counties.
DP&L serves an estimated population of 1.3 million. Principal
industries served include electrical machinery, automotive and
other transportation equipment, non-electrical machinery,
agriculture, paper, and rubber and plastic products. DP&L's sales
reflect the general economic conditions and seasonal weather
patterns of the area. In 1996, a 3% decline in electric sales
resulted in slightly lower revenues with a 2% increase in sales
to business customers offset by lower sales to other public
utilities. Gas revenues increased 7% in 1996. Sales increased
7% from higher deliveries to business customers and the effects
of colder weather. During 1996, cooling degree days were 8%
below the twenty year average and 19% below 1995. Heating degree
days in 1996 were 7% above the thirty year average and 5% above
1995. Sales patterns will change in future years as weather and
the economy fluctuate.
Subsidiaries of DP&L include MacGregor Park Inc., an owner
and developer of real estate and Miami Valley Equipment, Inc.,
which owns retail sales and transportation equipment and provides
support services to DPL Inc. and its subsidiaries.
* Unless otherwise indicated, the information given in "Item 1 -
BUSINESS" is current as of March 21, 1997. No representation
is made that there have not been subsequent changes to such
information.
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Other subsidiaries of DPL Inc. include Miami Valley
CTC, Inc., which provides transportation services to DP&L; Miami
Valley Leasing, which leases vehicles, communications equipment
and other miscellaneous equipment, owns real estate and has, for
financial investment purposes, acquired limited partnership
interests in wholesale electric generation; Miami Valley
Resources, Inc. ("MVR"), a natural gas supply management company;
Miami Valley Lighting, Inc., a street lighting business; Miami
Valley Insurance Company, an insurance company for DPL Inc. and
its subsidiaries; Miami Valley Development Company, which is
engaged in the business of technology research and development;
and DPL Energy, Inc., which has been granted authority to engage
in the business of brokering wholesale electric energy.
DPL Inc. and its subsidiaries are exempt from registration
with the Securities and Exchange Commission under the Public
Utility Holding Company Act of 1935 because its utility business
operates solely in the State of Ohio.
DPL Inc. and its subsidiaries employed 2,722 persons as of
December 31, 1996, of which 2,287 are full-time employees and 435
are part-time employees.
Information relating to industry segments is contained in
Note 12 of Notes to Consolidated Financial Statements on page 26
of the registrant's 1996 Annual Report to Shareholders ("1996
Annual Report"), which Note is incorporated herein by reference.
COMPETITION
DPL Inc. competes through its principal subsidiary, DP&L,
with privately and municipally owned electric utilities and rural
electric cooperatives, natural gas suppliers and other alternate
fuel suppliers. DP&L competes on the basis of price and service.
Like other utilities, DP&L from time to time may have
electric generating capacity available for sale to other
utilities. DP&L competes with other utilities to sell
electricity provided by such capacity. The ability of DP&L to
sell this electricity will depend on how DP&L's price, terms and
conditions compare to those of other utilities. In addition,
from time to time, DP&L makes power purchases from neighboring
utilities.
In an increasingly competitive energy environment,
cogenerated power may be used by customers to meet their own
power needs. Cogeneration is the dual use of a form of energy,
typically steam, for an industrial process and for the generation
of electricity. The Public Utilities Regulatory Policies Act of
1978 ("PURPA") provides regulations that govern the purchases of
excess electric energy from cogeneration and small power
production facilities that have obtained qualifying status under
PURPA.
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The National Energy Policy Act of 1992 which reformed the
Public Utilities Holding Company Act of 1935, allows the federal
government to mandate access by others to a utility's electric
transmission system and may accelerate competition in the supply
of electricity.
DP&L provides transmission and wholesale electric service to
12 municipal customers which distribute electricity within their
corporate limits. In 1994, 11 of these municipal customers
signed new 20-year service agreements which were approved by the
Federal Energy Regulatory Commission ("FERC"), in June 1995. The
twelfth municipal customer signed a 20-year agreement, approved
by FERC in February 1995, that allows DP&L to supply 97% of its
power requirements. In addition to these municipal customers,
DP&L maintains an interconnection agreement with one municipality
which has the capability to generate all or a portion of its
energy requirements. Sales to municipalities represented 1.2% of
total electricity sales in 1996.
In October 1994, the Public Utilities Commission of Ohio
("PUCO") initiated roundtable discussions on the introduction of
competition in the electric industry. The "Electric Competition
Series" is a result of the Ohio Energy Strategy issued in April
1994. To date, roundtable discussions have focused largely on
short-term initiatives that are possible under the current
regulatory framework. On February 15, 1996, the PUCO issued
guidelines for interruptible service, including services that
accommodate the attainment and delivery of replacement
electricity during periods when the utility faces constraints on
its own resources. On April 11, 1996, the PUCO issued an Entry
on Rehearing ordering utilities to file interruptible electric
service tariffs. On June 14, 1996, DP&L filed for approval of a
non-firm electric service rate schedule and replacement power
rate riders.
On December 24, 1996 the PUCO issued guidelines for
conjunctive electric service which govern the terms and conditions
under which different service locations may be aggregated for cost-
of-service, rate design, rate negotiation, and billing purposes.
In January 1997, plans were announced to create a 12 member
joint select committee of the Ohio Senate and House of
Representatives to explore and possibly draft retail wheeling
legislation. Other legislative proposals at the federal level
are pending concerning wholesale and retail wheeling which are
designed to increase competition.
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MVR, established in 1986 as a subsidiary of DPL Inc., acts
as a broker in arranging and managing natural gas supplies for
business and industry. Deliveries of natural gas to MVR
customers can be made through DP&L's transportation system, or
another transportation system, on the same basis as deliveries to
customers of other gas brokerage firms. Customers with alternate
fuel capability can continue to choose between natural gas and
their alternate fuel based upon overall performance and
economics.
On April 24, 1996, FERC issued final rules requiring all
electric utilities that own or control transmission facilities to
file open-access transmission service tariffs. Open-access
transmission tariffs provide third parties with non-
discriminatory transmission service comparable to what the
utility provides itself. In this rulemaking, FERC also set forth
principles to entitle utilities to full recovery of legitimate
and verifiable stranded costs on both the state and federal
level. In compliance with these rules, on January 2, 1997, DP&L
re-filed its open-access tariff with FERC.
On September 30, 1996, FERC conditionally accepted DP&L's
market-based sales tariff which will allow DP&L to sell wholesale
generation supply at prices that reflect current market prices.
At the same time, FERC approved the application and authorization
of DPL Energy Inc., a wholly-owned subsidiary of DPL Inc., to
sell and broker wholesale electric power and also charge market-
based prices for such power.
General deregulation of the natural gas industry has
continued to prompt the influence of market competition as the
driving force behind natural gas procurement. The evolution of
an efficient natural gas spot market in combination with open-
access interstate transportation pipelines has provided DP&L, as
well as its end-use customers, with an array of procurement
options. Customers with alternate fuel capability can continue
to choose between natural gas and their alternate fuel based upon
overall performance and economics. Therefore, demand for natural
gas purchased from DP&L or purchased elsewhere and transported to
the end-use customer by DP&L could fluctuate based on the
economics of each in comparison with changes in alternate fuel
prices. For DP&L, price competition and reliability among both
natural gas suppliers and interstate pipeline sources are major
factors affecting procurement decisions.
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CONSTRUCTION AND FINANCING PROGRAM OF DPL INC.
1997-2001 Construction Program
The estimated construction additions for the years 1997-2001
are set forth below:
Estimated
1997 1998 1999 2000 2001 1997-2001
---- ---- ---- ---- ---- ---------
millions
Electric generation and
transmission commonly owned
with neighboring utilities $ 32 $ 34 $ 36 $ 30 $ 34 $166
Other electric generation and
transmission facilities 35 36 32 40 36 179
Electric distribution 34 34 36 34 34 172
General 8 5 5 5 5 28
Gas and other facilities 16 16 16 16 16 80
---- ---- ---- ---- ---- ----
Total construction $125 $125 $125 $125 $125 $625
Estimated construction additions over the next five years
average $125 million annually which is less than the projected
depreciation expense over the same period.
The construction program includes plans for the construction
of a series of 80 MW combustion turbine generating units. The
first unit was completed in May 1995 and the second unit was
completed ahead of schedule and under budget in December 1996.
Construction plans are subject to continuing review and are
expected to be revised in light of changes in financial and
economic conditions, load forecasts, legislative and regulatory
developments and changing environmental standards, among other
factors. DP&L's ability to complete its capital projects and the
reliability of future service will be affected by its financial
condition, the availability of external funds at reasonable cost
and adequate and timely rate recovery.
See ENVIRONMENTAL CONSIDERATIONS for a description of
environmental control projects and regulatory proceedings which
may change the level of future construction additions. The
potential impact of these events on DP&L's operations cannot be
estimated at this time.
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1997-2001 Financing Program
DPL Inc. and its subsidiaries will require a total of
$62 million during the next five years for debt maturities and
sinking funds in addition to any funds needed for the
construction program.
At year-end 1996, DPL Inc. had a cash and temporary
investment balance of $73 million, and debt and equity financial
assets were $175 million. Proceeds from temporary cash
investments, together with internally generated cash and future
outside financings, will provide for the funding of the
construction program, sinking funds and general corporate
requirements.
In December 1996, DP&L redeemed a series of first mortgage
bonds in the principal amount of $25 million with an interest
rate of 6.75%. The bonds had been scheduled to mature in 1998.
In September 1995, a new series of Air Quality Development
Revenue Refunding Bonds was issued in principal amount of
$110 million with an interest rate of 6.10%. Proceeds from the
financing were used to redeem a similar principal amount of DP&L
First Mortgage Bonds with an interest rate of 9.50%.
In March 1994, DPL Inc. issued 3,200,000 shares of common
stock through a public offering. Proceeds from the sale were
used in connection with the redemption of all outstanding shares
of DP&L's Preferred Stock Series D, E, F, H and I.
In November 1989, DPL Inc. entered into a revolving credit
agreement ("the Credit Agreement") with a consortium of banks
renewable through 2000 which allows total borrowings by DPL Inc.
and its subsidiaries of $200 million. DP&L has authority from
the PUCO to issue short-term debt up to $200 million with a
maximum debt limit of $300 million including loans from DPL Inc.
under the terms of the Credit Agreement. At December 31, 1996,
DPL Inc. had no outstanding borrowings under this Credit
Agreement. DP&L also has $97 million available in short-term
lines of credit. At year-end, DP&L had no borrowings outstanding
from these lines of credit and $10 million in commercial paper
outstanding.
Under DP&L's First and Refunding Mortgage, First Mortgage
Bonds may be issued on the basis of (i) 60% of unfunded property
additions, subject to net earnings, as defined, being at least
two times interest on all First Mortgage Bonds outstanding and to
be outstanding, and (ii) 100% of retired First Mortgage Bonds.
DP&L anticipates that, during 1997-2001, it will be able to issue
sufficient First Mortgage Bonds to satisfy its long-term debt
requirements in connection with the financing of its construction
and refunding programs discussed above.
The maximum amount of First Mortgage Bonds which may be
issued in the future will fluctuate depending upon interest
rates, the amounts of bondable property additions, earnings and
retired First Mortgage Bonds. There are no coverage tests for
the issuance of preferred stock under DP&L's Amended Articles of
Incorporation.
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ELECTRIC OPERATIONS AND FUEL SUPPLY
DP&L's present winter generating capability is 3,264,000 KW.
Of this capability, 2,843,000 KW (approximately 87%) is derived
from coal-fired steam generating stations and the balance
consists of combustion turbine and diesel-powered peaking units.
Approximately 87% (2,472,000 KW) of the existing steam generating
capability is provided by certain units owned as tenants in
common with The Cincinnati Gas & Electric Company ("CG&E") or
with CG&E and Columbus Southern Power Company ("CSP"). Under the
agreements among the companies, each company owns a specified
undivided share of each facility, is entitled to its share of
capacity and energy output, and has a capital and operating cost
responsibility proportionate to its ownership share.
The remaining steam generating capability (371,000 KW) is
derived from a generating station owned solely by DP&L. DP&L's
all time net peak load was 2,961,000 KW, which occurred in August
1995. The present summer generating capability is 3,194,000 KW.
GENERATING FACILITIES
MW Rating
--------------
Operating DP&L
Station Ownership* Company Location Portion Total
------- ---------- --------- -------- ------- -----
Coal Units
- ----------
Hutchings W DP&L Miamisburg, OH 371 371
Killen C DP&L Wrightsville, OH 418 600
Stuart C DP&L Aberdeen, OH 823 2,340
Conesville-Unit 4 C CSP Conesville, OH 129 780
Beckjord-Unit 6 C CG&E New Richmond, OH 210 420
Miami Fort-Units 7&8 C CG&E North Bend, OH 360 1,000
East Bend-Unit 2 C CG&E Rabbit Hash, KY 186 600
Zimmer C CG&E Moscow, OH 365 1,300
Combustion Turbines or Diesel
- -----------------------------
Hutchings W DP&L Miamisburg, OH 32 32
Yankee Street W DP&L Centerville, OH 144 144
Monument W DP&L Dayton, OH 12 12
Tait W DP&L Dayton, OH 10 10
Sidney W DP&L Sidney, OH 12 12
Tait Gas Turbine 1 W DP&L Moraine, OH 95 95
Tait Gas Turbine 2 W DP&L Moraine, OH 97 97
* W = Wholly Owned
C = Commonly Owned
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In order to transmit energy to their respective systems from
their commonly owned generating units, the companies have
constructed and own, as tenants in common, 847 circuit miles of
345,000-volt transmission lines. DP&L has several
interconnections with other companies for the purchase, sale and
interchange of electricity.
DP&L derived over 99% of its electric output from coal-fired
units in 1996. The remainder was derived from units burning oil
or natural gas which were used to meet peak demands.
DP&L estimates that approximately 65-85% of its coal
requirements for the period 1997-2001 will be obtained through
long-term contracts, with the balance to be obtained by spot
market purchases. DP&L has been informed by CG&E and CSP through
the procurement plans for the commonly owned units operated by
them that sufficient coal supplies will be available during the
same planning horizon.
The prices to be paid by DP&L under its long-term coal
contracts are subject to adjustment in accordance with various
indices. Each contract has features that will limit price
escalations in any given year.
The total average price per million British Thermal Units
("MMBTU") of coal received was $1.24/MMBTU in 1996, $1.35/MMBTU
in 1995 and $1.39/MMBTU in 1994.
The average fuel cost per kWh generated of all fuel burned
for electric generation (coal, gas and oil) for the year was
1.29 cents which represents a decrease from 1.36 cents in 1995 and
1.42 cents in 1994. Through the operation of a fuel cost adjustment
clause applicable to electric sales, the increases and decreases in
fuel costs are reflected in customer rates on a timely basis. See
RATE REGULATION AND GOVERNMENT LEGISLATION and ENVIRONMENTAL
CONSIDERATIONS.
GAS OPERATIONS AND GAS SUPPLY
DP&L has long-term firm pipeline transportation agreements
with ANR Gas Pipeline Company ("ANR"), Texas Gas Transmission
Corporation ("Texas Gas"), Panhandle Eastern Pipe Line Company
("Panhandle"), Columbia Gas Transmission Corporation ("Columbia")
and Columbia Gulf Transmission Corporation for varying terms, up
to late 2004. Along with firm transportation services, DP&L has
approximately 16 billion cubic feet of firm storage service with
various pipelines. DP&L also maintains and operates four propane-
air plants with a daily rated capacity of approximately 70,000
thousand cubic feet ("MCF") of natural gas.
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In addition, DP&L is interconnected with CNG Transmission
Corporation. Interconnections with interstate pipelines provide
DP&L the opportunity to purchase competitively-priced natural gas
supplies and pipeline services. DP&L purchases its natural gas
supplies using a portfolio approach that minimizes price risks
and ensures sufficient firm supplies at peak demand times. The
portfolio consists of long-term, short-term and spot supply
agreements. In 1996, firm agreements provided approximately 50%
of total supply, with the remaining supplies purchased on a
spot/short-term basis.
In 1996, DP&L purchased natural gas at an average price of
$3.45 per MCF, compared to $2.79 per MCF in 1995 and $3.34 per
MCF in 1994. Through the operation of a natural gas cost
adjustment clause applicable to gas sales, increases and
decreases in DP&L's natural gas costs are reflected in customer
rates on a timely basis. SEE RATE REGULATION AND GOVERNMENT
LEGISLATION.
The PUCO supports open access, nondiscriminatory
transportation of natural gas by the state's local distribution
companies for end-use customers. The PUCO has guidelines to
provide a standardized structure for end-use transportation
programs which requires a tariff providing the prices, terms and
conditions for such service. DP&L has an approved tariff and
provides transportation service to approximately 300 end-use
customers, delivering a total quantity of nearly 17,000,000 MCF
per year.
RATE REGULATION AND GOVERNMENT LEGISLATION
DP&L's sales of electricity and natural gas to retail
customers are subject to rate regulation by the PUCO and various
municipalities. DP&L's wholesale electric rates to municipal
corporations and other distributors of electric energy are
subject to regulation by FERC under the Federal Power Act.
Ohio law establishes the process for determining rates
charged by public utilities. Regulation of rates encompasses the
timing of applications, the effective date of rate increases, the
cost basis upon which the rates are based and other related
matters. Ohio law also establishes the Office of the Ohio
Consumers' Counsel (the "OCC"), which has the authority to
represent residential consumers in state and federal judicial and
administrative rate proceedings.
DP&L's electric and natural gas rate schedules contain
certain recovery and adjustment clauses subject to periodic
audits by, and proceedings before, the PUCO. Electric fuel and
gas costs are expensed as recovered through rates.
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On June 18, 1996, Governor Voinovich signed into law House
Bill 476 which allows for alternate natural gas rate plans and
exemption from PUCO jurisdiction for some gas services, and
establishes a code of conduct for local natural gas distribution
companies. Final rules were issued on March 12, 1997.
Ohio legislation extends the jurisdiction of the PUCO to the
records and accounts of certain public utility holding company
systems, including DPL Inc. The legislation extends the PUCO's
supervisory powers to a holding company system's general
condition and capitalization, among other matters, to the extent
that they relate to the costs associated with the provision of
public utility service. Additionally, the legislation
(i) requires PUCO approval of certain transactions and transfers
of assets between public utilities and entities within the same
holding company system, and (ii) prohibits investments by a
holding company in subsidiaries which are not public utilities in
an amount in excess of 15% of the aggregate capitalization of the
holding company on a consolidated basis at the time such
investments are made.
Regulatory assets recorded during the phase-in of electric
rates are being amortized and recovered in current rates. In
addition, deferred interest charges on the William H. Zimmer
Generating Station are being amortized at $3 million per year
over the projected life of the asset.
A 1992 PUCO-approved settlement agreement and a subsequent
stipulation in 1995 allowed accelerated recovery of demand-side
management costs and, thereafter, production plant costs to the
extent that DP&L's return on equity exceeds a baseline 13%
(subject to upward adjustment). If the return exceeds the
baseline return by one to two percent, one-half of the excess is
used to accelerate recovery of these costs. If the return is
greater than two percent over the baseline, the entire excess is
used for such purpose.
Regulatory deferrals on the balance sheet were:
Dec. 31 Dec. 31
1996 1995
------- -------
--millions--
Phase-in $ 46.7 $ 61.4
DSM 35.3 36.2
Deferred interest - Zimmer 55.3 58.1
------ ------
Total $137.3 $155.7
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In 1989 the PUCO approved rules for the implementation of a
comprehensive Integrated Resource Planning ("IRP") program for
all investor-owned electric utilities in Ohio. Under this
program, each utility is required to file an IRP as part of its
Long Term...
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...Forecast Report ("LTFR"). The IRP requires each utility to
evaluate available demand-side resource options in addition to
supply-side options to determine the most cost-effective means
for satisfying customer requirements. The rules currently allow
a utility to apply for deferred recovery of DSM program
expenditures and lost revenues between LTFR proceedings.
Ultimate recovery of expenditures is contingent on review and
approval of such programs as cost-effective and consistent with
the most recent IRP proceeding. The rules also allow utilities
to submit alternative proposals for the recovery of DSM programs
and related costs.
In 1991 the PUCO issued a Finding and Order which encourages
electric utilities to undertake the competitive bidding of new
supply-side energy projects. The policy also encourages
utilities to provide transmission grid access to those supply-
side energy providers awarded bids by utilities. Electric
utilities are permitted to bid on their own proposals. The PUCO
has issued for comment proposed rules for competitive bidding but
has not issued final rules at this time.
DP&L has in place a percentage of income payment plan
("PIPP") for eligible low-income households as required by the
PUCO. This plan prohibits disconnections for nonpayment of
customer bills if eligible low-income households pay a specified
percentage of their household income toward their utility bill.
The PUCO has approved a surcharge by way of a temporary base rate
tariff rider which allows companies to recover arrearages
accumulated under PIPP.
DP&L initiated a competitive bidding process in January 1993
for the construction of electric peaking capacity and energy by
1997. Through an Ohio Power Siting Board ("OPSB") investigative
process, DP&L's self-built option was evaluated to be the least
cost option. On March 7, 1994, the OPSB approved DP&L's
applications for up to three combustion turbines and two natural
gas supply lines for the proposed site.
On April 15, 1996 and June 1, 1996, respectively, DP&L filed
its electric and natural gas LTFR with the PUCO. An IRP filed as
part of the electric LTFR included plans for the construction of
a series of 80 MW combustion turbine generating units. The first
combustion turbine became operational June 1, 1995 and the second
unit began operation on December 23, 1996.
On January 25, 1996, Governor Voinovich reappointed Chairman
Craig A. Glazer to the PUCO for a five year term which commenced
on April 11, 1996 and will extend until April 10, 2001.
On February 7, 1997, Governor Voinovich appointed Judith A.
Jones, a Toledo City Councilwoman, to the PUCO replacing Richard
Fanelly. Pending approval by the Senate of the State of Ohio,
her five year term will commence April 11.
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ENVIRONMENTAL CONSIDERATIONS
The operations of DP&L, including the commonly owned
facilities operated by DP&L, CG&E and CSP, are subject to
federal, state, and local regulation as to air and water quality,
disposal of solid waste and other environmental matters,
including the location, construction and initial operation of new
electric generating facilities and most electric transmission
lines. DP&L expended $5 million for environmental control
facilities during 1996. The possibility exists that current
environmental regulations could be revised which could change the
level of estimated 1997-2001 construction expenditures. See
CONSTRUCTION AND FINANCING PROGRAM OF DPL INC.
Air Quality
The Clean Air Act Amendments of 1990 (the "Act") have
limited sulfur dioxide and nitrogen oxide emissions nationwide.
The Act restricts emissions in two phases. Phase I compliance
requirements became effective on January 1, 1995 and Phase II
requirements will become effective on January 1, 2000.
Compliance by DP&L has not caused any material changes in DP&L's
costs or operations.
DP&L's environmental compliance plan ("ECP") was approved by
the PUCO on May 6, 1993. Phase I requirements are being met by
switching to lower sulfur coal at several commonly owned electric
generating facilities and increasing existing scrubber removal
efficiency. Total capital expenditures to comply with Phase I of
the Act were approximately $5.5 million. Phase II requirements
can be met primarily by switching to lower sulfur coal at all non-
scrubbed coal-fired electric generating units. Overall
compliance is projected to have a minimal 1% to 2% approximate
price impact. Costs to comply with the Act are eligible for
recovery in fuel hearings and other regulatory proceedings.
As required by Ohio law, in April 1995, the PUCO initiated
proceedings to conduct a review of DP&L's ECP. On November 9,
1995, the PUCO approved the continued prudency of DP&L's ECP and
the related update report.
Land Use
DP&L and numerous other parties have been notified by the
United States Environmental Protection Agency ("U.S. EPA") or the
Ohio Environmental Protection Agency ("Ohio EPA") that it
considers them Potentially Responsible Parties ("PRPs") for clean-
up at four superfund sites in Ohio: the Sanitary Landfill Site
on Cardington Road in Montgomery County, Ohio; the United Scrap
Lead Site in Miami County, Ohio; the Powell Road Landfill in
Huber Heights, Montgomery County, Ohio; and the North Sanitary
(a.k.a. Valleycrest) Landfill in Dayton, Montgomery County, Ohio.
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DP&L received notification from the U.S. EPA in July 1987
for the Cardington Road site. DP&L has not joined the PRP group
formed at that site because of the absence of any known evidence
that DP&L contributed hazardous substances to this site. The
Record of Decision issued by the U.S. EPA identifies the chosen
clean-up alternative at a cost estimate of $8.1 million. The
final resolution will not have a material effect on DP&L's
financial position, earnings or cashflow.
DP&L received notification from the U.S. EPA in September
1987 for the United Scrap Lead Site. DP&L has joined a PRP group
for this site, which is actively conferring with the U.S. EPA.
The initial Record of Decision issued by the U.S. EPA estimating
clean-up costs at $27.1 million has been amended. The amended
alternative estimates clean-up costs at $32 million. DP&L is one
of over 200 parties to this site, and its estimated contribution
to the site is less than .01%. Nearly 60 PRPs are actively
working to settle the case. DP&L is participating in the
sponsorship of a study to evaluate alternatives to the U.S. EPA's
clean-up plan. The U.S. EPA is also currently considering a
proposal for a less expensive clean-up method. The final
resolution will not have a material effect on DP&L's financial
position, earnings or cashflow.
DP&L and numerous other parties received notification from
the U.S. EPA on May 21, 1993 that it considers them PRPs for
clean-up of hazardous substances at the Powell Road Landfill Site
in Huber Heights, Ohio. DP&L has joined the PRP group for the
site. On October 1, 1993, the U.S. EPA issued its Record of
Decision identifying a cost estimate of $20.5 million for the
chosen remedy. DP&L is one of over 200 PRPs to this site, and
its estimated contribution is less than 1%. The final resolution
will not have a material effect on DP&L's financial position,
earnings or cashflow.
DP&L and numerous other parties received notification from
the Ohio EPA on July 27, 1994 that it considers them PRPs for
clean-up of hazardous substances at the North Sanitary Landfill
site in Dayton, Ohio. DP&L has not joined the PRP group formed
for the site because the available information does not
demonstrate that DP&L contributed wastes to the site. The final
resolution will not have a material effect on DP&L's financial
position, earnings or cashflow.
I-13
<PAGE>
THE DAYTON POWER AND LIGHT COMPANY
OPERATING STATISTICS
ELECTRIC OPERATIONS
Years Ended December 31,
---------------------------
1996 1995 1994
---- ---- ----
Electric Output (millions of kWh)
General -
Coal-fired units 16,142 15,679 14,483
Other units 21 29 27
Power purchases 1,098 2,115 897
Exchanged and transmitted power (1) 1 3
Company use and line losses (946) (1,010) (1,191)
---------- ---------- --------
Total 16,314 16,814 14,219
========== ========== ========
Electric Sales (millions of kWh)
Residential 4,924 4,871 4,465
Commercial 3,407 3,425 3,068
Industrial 4,540 4,401 4,388
Public authorities and railroads 1,392 1,378 1,333
Private utilities and wholesale 2,051 2,739 965
---------- ---------- --------
Total 16,314 16,814 14,219
========== ========== ========
Electric Customers at End of Period
Residential 428,973 425,347 420,487
Commercial 43,381 42,582 41,647
Industrial 1,858 2,017 2,400
Public authorities and railroads 5,651 5,573 5,320
Other 29 17 18
---------- ---------- --------
Total 479,892 475,536 469,872
========== ========== ========
Operating Revenues (thousands)
Residential $ 422,876 $ 422,153 $390,531
Commercial 236,598 237,799 218,046
Industrial 222,941 224,135 228,546
Public authorities and railroads 78,140 78,225 75,387
Private utilities and wholesale 43,730 57,799 24,273
Other 12,115 9,807 9,110
---------- ---------- --------
Total $1,016,400 $1,029,918 $945,893
========== ========== ========
Residential Statistics
(per customer-average)
Sales - kWh 11,537 11,518 10,676
Revenue $ 990.89 $ 998.27 $ 933.70
Rate per kWh (month of December)
(cents) 7.91 8.01 8.68
I-14
<PAGE>
THE DAYTON POWER AND LIGHT COMPANY
OPERATING STATISTICS
GAS OPERATIONS
Years Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
Gas Output (thousands of MCF)
Direct market purchases 46,696 44,376 43,140
Liquefied petroleum gas 90 18 144
Company use and unaccounted for (676) (1,594) (1,227)
Transportation gas received 17,587 16,870 15,141
-------- -------- --------
Total 63,697 59,670 57,198
======== ======== ========
Gas Sales (thousands of MCF)
Residential 31,087 29,397 27,911
Commercial 9,424 8,307 8,081
Industrial 3,404 2,584 3,150
Public authorities 2,829 3,006 2,909
Transportation gas delivered 16,953 16,376 15,147
-------- -------- --------
Total 63,697 59,670 57,198
======== ======== ========
Gas Customers at End of Period
Residential 272,616 269,694 266,116
Commercial 22,085 21,451 21,060
Industrial 1,331 1,574 1,528
Public authorities 1,463 1,423 1,317
-------- -------- --------
Total 297,495 294,142 290,021
======== ======== ========
Operating Revenues (thousands)
Residential $156,709 $149,006 $157,193
Commercial 44,092 39,047 42,382
Industrial 14,110 11,447 14,949
Public authorities 12,013 12,589 14,165
Other 11,660 9,950 8,433
-------- ------- --------
Total $238,584 $222,039 $237,122
======== ======== ========
Residential Statistics
(per customer-average)
Sales - MCF 114.8 109.8 105.7
Revenue $ 578.68 $ 556.72 $ 595.30
Rate per MCF (month of December) $ 5.13 $ 4.44 $ 5.57
I-15
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
(As of March 1, 1997)
Business Experience,
Last Five Years
(Positions with Registrant
Name Age Unless Otherwise Indicated) Dates
- ---- --- ----------------------------- -----------------
Peter H. Forster 54 Chairman 1/01/97 - 3/01/97
Chairman and Chief Executive 9/26/95 - 1/01/97
Officer
Chairman, President and Chief 4/05/88 - 9/26/95
Executive Officer
Chairman, DP&L 4/06/92 - 3/01/97
Chairman and Chief Executive 8/02/88 - 4/06/92
Officer, DP&L
Allen M. Hill 51 President and Chief Executive 1/01/97 - 3/01/97
Officer
President and Chief Operating 9/26/95 - 1/01/97
Officer
President and Chief Executive 4/06/92 - 3/01/97
Officer, DP&L
President and Chief Operating 8/02/88 - 4/06/92
Officer, DP&L
Paul R. Anderson 54 Controller, DP&L 4/12/81 - 3/01/97
Stephen P. Bramlage 50 Assistant Vice President, DP&L 1/01/94 - 3/01/97
Director, Service Operations, DP&L 10/29/89 - 1/01/94
Jeanne S. Holihan 40 Assistant Vice President, DP&L 3/17/93 - 3/01/97
Treasurer, DP&L 11/06/90 - 3/17/93
Thomas M. Jenkins 45 Group Vice President and 5/14/96 - 3/01/97
Treasurer, DPL Inc. and DP&L
Group Vice President and 6/27/95 - 5/14/96
Treasurer
Group Vice President, DP&L
Group Vice President and 5/09/94 - 6/27/95
Treasurer, DPL Inc. and DP&L
Group Vice President and 11/06/90 - 5/09/94
Treasurer
Group Vice President, DP&L
I-16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
(As of March 1, 1997)
Business Experience,
Last Five Years
(Positions with Registrant
Name Age Unless Otherwise Indicated) Dates
- ---- --- --------------------------- -------------------
Stephen F. Koziar,
Jr. 52 Group Vice President and 1/31/95 - 3/01/97
Secretary, DPL Inc. and DP&L
Group Vice President, 12/10/87 - 1/31/95
DPL Inc. and DP&L
Judy W. Lansaw 45 Group Vice President, 1/31/95 - 3/01/97
DPL Inc. and DP&L
Group Vice President and 12/07/93 - 1/31/95
Secretary, DPL Inc. and DP&L
Vice President and Secretary, 8/01/89 - 12/07/93
DPL Inc. and DP&L
Bryce W. Nickel 40 Assistant Vice President, DP&L 1/01/94 - 3/01/97
Director, Service Operations, 10/29/89 - 1/01/94
DP&L
H. Ted Santo 46 Group Vice President, DP&L 12/08/92 - 3/01/97
Vice President, DP&L 2/28/88 - 12/08/92
I-17
<PAGE>
Item 2 - Properties
- ------------------------------------------------------------------------
Electric
Information relating to DP&L's electric properties is
contained in Item 1 - BUSINESS, DPL INC. (pages I-1 and I-2),
CONSTRUCTION AND FINANCING PROGRAM OF DPL INC. (pages I-5 and I-
6) and ELECTRIC OPERATIONS AND FUEL SUPPLY (pages I-7 and I-8) -
Notes 2 and 5 of Notes to Consolidated Financial Statements on
pages 21 and 23, respectively, of the registrant's 1996 Annual
Report, which pages are incorporated herein by reference.
Gas
Information relating to DP&L's gas properties is contained
in Item 1 - BUSINESS, DPL INC. (pages I-1 and I-2) and GAS
OPERATIONS AND GAS SUPPLY (pages I-8 and I-9), which pages are
incorporated herein by reference.
Other
DP&L owns a number of area service buildings located in
various operating centers.
Substantially all property and plant of DP&L is subject to
the lien of the Mortgage securing DP&L's First Mortgage Bonds.
Item 3 - Legal Proceedings
- ------------------------------------------------------------------------
Information relating to legal proceedings involving DP&L is
contained in Item 1 - BUSINESS, DPL INC. (pages I-1 and I-2),
COMPETITION (pages I-2 through I-4), ELECTRIC OPERATIONS AND FUEL
SUPPLY (pages I-7 and I-8), GAS OPERATIONS AND GAS SUPPLY (pages
I-8 and I-9), RATE REGULATION AND GOVERNMENT LEGISLATION (pages I-
9 through I-11) and ENVIRONMENTAL CONSIDERATIONS (pages I-12 and
I-13) and - Note 2 of Notes of Consolidated Financial Statements
on page 21 of the registrant's 1996 Annual Report, which pages
are incorporated herein by reference.
Item 4 - Submission Of Matters To A Vote Of Security Holders
- ------------------------------------------------------------------------
DPL Inc.'s Annual Meeting of Shareholders ("Annual Meeting")
was held on April 16, 1996. Three directors of DPL Inc. were
elected at the Annual Meeting, each of whom will serve a three
year term expiring in 1999. The nominees were elected as
follows: James F. Dicke, II, 94,048,977 shares FOR, 1,398,265
shares WITHHELD; Peter H. Forster, 94,000,967 shares FOR,
1,446,275 shares WITHHELD; and Jane G. Haley, 94,003,920 shares
FOR, 1,443,322 shares WITHHELD.
I-18
PART II
Item 5 - Market For Registrant's Common Equity And Related
Stockholder Matters
- ------------------------------------------------------------------------
The information required by this item of Form 10-K is set
forth on pages 14, 27 and 28 of the registrant's 1996 Annual
Report, which pages are incorporated herein by reference. As of
December 31, 1996, there were 46,532 holders of record of
DPL Inc. common equity, excluding individual participants in
security position listings.
DP&L's Mortgage restricts the payment of dividends on
DP&L's Common Stock under certain conditions. In addition, so
long as any Preferred Stock is outstanding, DP&L's Amended
Articles of Incorporation contain provisions restricting the
payment of cash dividends on any of its Common Stock if, after
giving effect to such dividend, the aggregate of all such
dividends distributed subsequent to December 31, 1946 exceeds the
net income of DP&L available for dividends on its Common Stock
subsequent to December 31, 1946, plus $1,200,000. As of year
end, all earnings reinvested in the business of DP&L were
available for Common Stock dividends.
The Credit Agreement requires that the aggregate assets
of DP&L and its subsidiaries (if any) constitute not less than
60% of the total consolidated assets of DPL Inc., and that DP&L
maintain common shareholder's equity (as defined in the Credit
Agreement) at least equal to $550 million.
Item 6 - Selected Financial Data
- ------------------------------------------------------------------------
The information required by this item of Form 10-K is set
forth on page 14 of the registrant's 1996 Annual Report, which
page is incorporated herein by reference.
Item 7 - Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
- ------------------------------------------------------------------------
The information required by this item of Form 10-K is set
forth in Note 2 of Notes to Consolidated Financial Statements on
page 21 and on pages 1, 13, 15 and 16 of the registrant's 1996
Annual Report, which pages are incorporated herein by reference.
Item 8 - Financial Statements And Supplementary Data
- ------------------------------------------------------------------------
The information required by this item of Form 10-K is set
forth on page 14 and on pages 17 through 27 of the registrant's
1996 Annual Report, which pages are incorporated herein by
reference.
II-1
<PAGE>
Report of Independent Accountants
on Financial Statement Schedule
---------------------------------
To the Board of Directors of DPL Inc.
Our audits of the consolidated financial statements referred to
in our report dated January 21, 1997 appearing on page 27 of the
1996 Annual Report to Shareholders of DPL Inc. (which report and
consolidated financial statements are incorporated by reference
in this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form 10-
K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.
Price Waterhouse LLP
Dayton, Ohio
January 21, 1997
II-2
<PAGE>
Item 9 - Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure
- ------------------------------------------------------------------------
None.
PART III
Item 10 - Directors And Executive Officers Of The Registrant
- ------------------------------------------------------------------------
Directors of the Registrant
The information required by this item of Form 10-K is set
forth on pages 2 through 5 of DPL Inc.'s definitive Proxy Statement
dated March 1, 1997, relating to the 1997 Annual Meeting of
Shareholders ("1997 Proxy Statement"), which pages are incorporated
herein by reference, and on pages I-16 and I-17 of this Form 10-K.
Item 11 - Executive Compensation
- ------------------------------------------------------------------------
The information required by this item of Form 10-K is set
forth on pages 9 through 15 of the 1997 Proxy Statement, which
pages are incorporated herein by reference.
Item 12 - Security Ownership Of Certain Beneficial Owners And
Management
- ------------------------------------------------------------------------
The information required by this item of Form 10-K is set
forth on pages 3 through 6 and on page 15 of the 1997 Proxy
Statement, which pages are incorporated herein by reference.
Item 13 - Certain Relationships And Related Transactions
- ------------------------------------------------------------------------
None.
III-1
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedule And Reports On Form 8-K
- ------------------------------------------------------------------------
Pages of 1996 Form
10K Incorporated
by Reference
------------------
Report of Independent Accountants II-2
(a) Documents filed as part of the Form 10-K
1. Financial Statements Pages of 1996 Annual
-------------------- Report Incorporated
by Reference
--------------------
Consolidated Statement of Results of Operations
for the three years in the period ended
December 31, 1996 17
Consolidated Statement of Cash Flows for the three
years in the period ended December 31, 1996 18
Consolidated Balance Sheet as of December 31,
1996 and 1995 19
Notes to Consolidated Financial Statements 20 - 26
Report of Independent Accountants 27
2. Financial Statement Schedule
----------------------------
For the three years in the period ended December 31, 1996:
Page No.
--------
Schedule II - Valuation and qualifying accounts IV-7
The information required to be submitted in schedules
I, III, IV and V is omitted as not applicable or not required
under rules of Regulation S-X.
IV-1
<PAGE>
3. Exhibits
--------
The following exhibits have been filed with the Securities
and Exchange Commission and are incorporated herein by
reference.
Incorporation by
Reference
----------------
2 Copy of the Agreement of Merger among Exhibit A to the 1986
DPL Inc., Holding Sub Inc. and DP&L Proxy Statement
dated January 6, 1986 (File No. 1-2385)
3(a) Copy of Amended Articles of Incorporation Exhibit 3 to report on
of DPL Inc. dated January 4, 1991, and Form 10-K for the year
amendment dated December 3, 1991 ended December 31, 1991
(File No. 1-9052)
3(b) Copy of Amendment dated April 20, 1993 Exhibit 3(b) to Report on
to DPL Inc.'s Amended Articles of Form 10-K for the year
Incorporation ended December 31, 1993
(File No. 1-9052)
4(a) Copy of Composite Indenture dated as of Exhibit 4(a) to Report on
October 1, 1935, between DP&L and The Form 10-K for the year
Bank of New York, Trustee with all ended December 31, 1995
amendments through the Twenty-Ninth (File No. 1-2385)
Supplemental Indenture
4(b) Copy of the Thirtieth Supplemental Exhibit 4(h) to
Indenture dated as of March 1, 1982, Registration Statement
between DP&L and The Bank of New York, No. 33-53906
Trustee
4(c) Copy of the Thirty-First Supplemental Exhibit 4(h) to
Indenture dated as of November 1, 1982, Registration Statement
between DP&L and The Bank of New York, No. 33-56162
Trustee
4(d) Copy of the Thirty-Second Supplemental Exhibit 4(i) to
Indenture dated as of November 1, 1982, Registration Statement
between DP&L and The Bank of New York, No. 33-56162
Trustee
4(e) Copy of the Thirty-Third Supplemental Exhibit 4(e) to Report
Indenture dated as of December 1, 1985, on Form 10-K for the
between DP&L and The Bank of New York, year ended December 31,
Trustee 1985 (File No. 1-2385)
4(f) Copy of the Thirty-Fourth Supplemental Exhibit 4 to Report on
Indenture dated as of April 1, 1986, Form 10-Q for the quarter
between DP&L and Bank of New York, ended June 30, 1986
Trustee (File No. 1-2385)
IV-2
<PAGE>
4(g) Copy of the Thirty-Fifth Supplemental Exhibit 4(h) to Report on
Indenture dated as of December 1, 1986, Form 10-K for the year
between DP&L and The Bank of New York, ended December 31, 1986
Trustee (File No. 1-9052)
4(h) Copy of the Thirty-Sixth Supplemental Exhibit 4(i) to
Indenture dated as of August 15, 1992, Registration Statement
between DP&L and The Bank of New York, No. 33-53906
Trustee
4(i) Copy of the Thirty-Seventh Supplemental Exhibit 4(j) to
Indentur dated as of November 15, 1992, Registration Statement
between DP&L and The Bank of New York, No. 33-56162
Trustee
4(j) Copy of the Thirty-Eighth Supplemental Exhibit 4(k) to
Indenture dated as of November 15, 1992, Registration Statement
between DP&L and The Bank of New York, No. 33-56162
Trustee
4(k) Copy of the Thirty-Ninth Supplemental Exhibit 4(k) to
Indenture dated as of January 15, 1993, Registration Statement
between DP&L and The Bank of New York, No. 33-57928
Trustee
4(l) Copy of the Fortieth Supplemental Exhibit 4(m) to Report on
Indenture dated as of February 15, 1993, Form 10-K for the year
between DP&L and The Bank of New York, ended December 31, 1992
Trustee (File No. 1- 2385)
4(m) Copy of the Credit Agreement dated as of Exhibit 4(k) to DPL Inc.'s
November 2, 1989 between DPL Inc., the Registration Statement
Bank of New York, as agent, and the banks on Form S-3 (File No.
named therin 33-32348)
4(n) Copy of Shareholder Rights Agreement Exhibit 4 to Report on
between DPL Inc. and The First National Form 8-K dated December 13,
Bank of Boston 1991 (File No. 1-9052)
10(a) Description of Management Incentive Exhibit 10(c) to Report
Compensation Program for Certain on Form 10-K for the year
Executive Officers ended December 31, 1986
(File No. 1-9052)
10(b) Copy of Severance Pay Agreement with Exhibit 10(f) to Report on
Certain Executive Officers Form 10-K for the year
ended December 31, 1987
(File No. 1-9052)
IV-3
<PAGE>
10(c) Copy of Supplemental Executive Exhibit 10(e) to Report on
Retirement Plan amended August 6, 1991 Form 10-K for the year
ended December 31, 1991
(File No. 1-9052)
10(d) Amended description of Directors' Exhibit 10(d) to Report on
Deferred Stock Compensation Plan Form 10-K for the year
effective January 1, 1993 ended December 31, 1993
(File No. 1-9052)
10(e) Amended description of Deferred Exhibit 10(e) to Report on
Compensation Plan for Non-Employee Form 10-K for the year
Directors effective January 1, 1993 ended December 31, 1993
(File No. 1-9052)
10(f) Copy of Management Stock Incentive Plan Exhibit 10(f) to Report on
amended January 1, 1993 Form 10-K for the year
ended December 31, 1993
(File No. 1-9052)
18 Copy of preferability letter relating to Exhibit 18 to Report on
change in accounting for unbilled revenue Form 10-K for the year
from Price Waterhouse LLP ended December 31, 1987
(File No. 1-9052)
The following exhibits are filed herewith:
Page No.
--------
13 Copy of DPL Inc.'s 1996 Annual Report to
Shareholders
21 Copy of List of Subsidiaries of DPL Inc.
23 Consent of Price Waterhouse LLP
Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of Regulation
S-K, DPL Inc. has not filed as an exhibit to this Form 10-K
certain instruments with respect to long-term debt if the total
amount of securities authorized thereunder does not exceed 10% of
the total assets of DPL Inc. and its subsidiaries on a
consolidated basis, but hereby agrees to furnish to the SEC on
request any such instruments.
(b) Reports on Form 8-K
-------------------
None.
IV-4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DPL Inc.
Registrant
March 27, 1997 /s/ Allen M. Hill
-----------------------------
Allen M. Hill
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Director March , 1997
- ----------------------
(T. J. Danis)
Director March , 1997
- ----------------------
(J. F. Dicke, II)
/s/ Peter H. Forster Director and Chairman March 27, 1997
- ----------------------
(P. H. Forster)
/s/ Ernie Green Director March 27, 1997
- ----------------------
(E. Green)
/s/ Jane G. Haley Director March 27, 1997
- ----------------------
(J. G. Haley)
/s/ Allen M. Hill Director, President and March 27, 1997
- ---------------------- Chief Executive Officer
(A. M. Hill)
IV-5
<PAGE>
Director March , 1997
- ----------------------
(W A. Hillenbrand)
Director March , 1997
- -----------------------
(D. R. Holmes)
/s/ Thomas M. Jenkins Group Vice President and March 27, 1997
- ----------------------- Treasurer (principal
(T. M. Jenkins) financial and accounting
officer)
/s/ Burnell R. Roberts Director March 27, 1997
- -----------------------
(B. R. Roberts)
IV-6
<PAGE>
<TABLE>
<CAPTION>
Schedule II
DPL Inc.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------
Additions
----------------
Balance at Charged Balance
Beginning to Deductions at End
Description of Period Income Other (1) of Period
- --------------------------------------------------------------------------------------------
--------------------thousands----------------------
<S> <C> <C> <C> <C> <C>
1996:
Deducted from accounts receivable--
Provision for uncollectible accounts $6,481 $4,056 $ - $5,454 $5,083
1995:
Deducted from accounts receivable--
Provision for uncollectible accounts $7,801 $1,096 $ - $2,416 $6,481
1994:
Deducted from accounts receivable--
Provision for uncollectible accounts $9,122 $1,553 $ - $2,874 $7,801
(1) Amounts written off, net of recoveries of accounts previously written off.
</TABLE>
IV-7
<PAGE>
(see appendix for logo description)
caption to photograph:
1996 ANNUAL REPORT
Growing With Our Customers
(see appendix for photograph description)
[cover]
<PAGE>
KEY FACTORS
DPL is well positioned to perform at the top of the industry
both today and in a competitive environment.
TOTAL RETURN TO SHAREHOLDERS
Delivering above average earnings and dividend growth needed
to maximize shareholder value are our major focus.
WEST CENTRAL OHIO ECONOMY
Strong local economy ensures growth now and in years to
come.
COMPETITIVE ENERGY PRICES
Prices for total energy package of electricity and natural
gas services rank among the lowest in the region.
MANAGING COSTS
Company-wide cost management reduces risk, enhances
flexibility and ensures consistent superior financial
performance.
SUPERIOR OPERATIONS
Industry-leading operations keep costs competitive and
reliability high.
FINANCIAL POSITION
DPL's financial strength and strong balance sheet will be a
major advantage during the transition.
DP&L SERVICE AREA
WEST CENTRAL OHIO
(see appendix for artwork description)
ABOUT THE COVER
Growing With Our Customers
As West Central Ohio has grown, DPL has grown as a full
service energy provider to more than 1.3 million people.
Broad-based economic expansion over the past several years,
low unemployment and a low cost living environment have
resulted in a climate of shared success--among businesses,
industry and community. As the energy industry transitions
to a less regulated and more open one, DPL will build upon
its tradition of success in West Central Ohio and its
position of financial strength to grow and serve customers--
in West Central Ohio and beyond. On the cover are three
products used daily by families across America, which are
made by companies headquartered or having major facilities
in our area--The Chevy Blazer, Iams pet foods and Huffy
bicycles.
CORPORATE PROFILE
DPL Inc. was formed in 1986 as a holding company. Its
principal subsidiary is The Dayton Power and Light Company
("DP&L"). DP&L sells electricity and natural gas to
residential, commercial, industrial and governmental
customers in a 6,000 square mile area of West Central Ohio.
Electricity for DP&L's 24 county service area is generated
at eight power plants and is distributed to 480,000 retail
customers. Natural gas service is provided to 298,000
customers in 16 counties. The corporate offices of DPL Inc.
are located at:
Courthouse Plaza Southwest, Dayton, Ohio 45402
(513)224-6000
[inside front cover]
<PAGE>
FINANCIAL & OPERATING HIGHLIGHTS
1996 1995 % change
FINANCIAL PERFORMANCE:
Earnings per share of common stock $ 1.72 1.63 6
Dividends paid per share $ 1.30 1.24 5
Return on shareholders' equity % 14.7 14.3
Return on total capital % 11.7 11.5
Market value per share at December 31 $ 24 1/4 24 3/4 (2)
Book value per share at December 31 $ 11.95 11.54 4
Total electric and natural gas revenues (millions) $ 1,252.7 1,249.6 --
Taxes per share $ 2.32 2.25 3
Number of common shareholders 46,532 48,919 (5)
Cash provided by operating activities (millions) $ 338.1 305.3 11
FIRST MORTGAGE BOND RATINGS:
Duff & Phelps, Inc. AA AA
Standard & Poor's Corporation AA- AA-
Moody's Investors Service Aa3 Aa3
CAPITAL INVESTMENT PERFORMANCE:
Construction additions (millions) $ 115.5 87.3 32
Construction expenditures paid from internal funds % 100 100
DP&L OPERATING PERFORMANCE
Electric--
Average price per kWh--retail and wholesale
customers (calendar year) (cents) 6.16 6.07 1
Fuel efficiency--
Heat rate - Btu per kWh 9,830 9,773 1
Industry average 10,365 10,425 (1)
Fuel savings (millions) $ 11.5 14.3 (20)
System peak load - MW (calendar year) 2,886 2,961 (3)
Gas--
Average price per MCF - retail customers
(calendar year) $ 4.85 4.90 (1)
DPL 1 1996
<PAGE>
SHAREHOLDER LETTER
- ------------------
Total financial return to shareholders has averaged more
than 15% annually over the last ten years.
PER SHARE DATA
- --------------
EARNINGS PER SHARE
Dollars
(see appendix for graph description)
DIVIDENDS PER SHARE
Dollars
(see appendix for graph description)
Dear Shareholders:
The challenge in 1997 will be to keep one eye on the
core energy business and the other on the emerging and
somewhat chaotic open market. Our core business, providing
quality service at competitive prices to customers in West
Central Ohio, is what has and will continue to drive our
financial performance over the next several years. During
this same period, we will work with the Ohio Commission and
Staff, Legislature and of course, the Executive Branch to
help hammer out the Ohio transition to a more open, and
quite likely, price-sensitive energy market. Work at the
Federal level on similar legislation will continue
concurrently.
All of this is taking place during an era of
unprecedented merger activity in both the electric and gas
arena. Whether there is compelling evidence that bigger is
better remains to be seen -- we think not. On the other
hand, electric and gas mergers do make some sense in a total
energy market, and DPL already enjoys the benefits of being
in both businesses. Many energy companies are investing
abroad. And while we've visited and taken a good hard look
at these opportunities, we have concluded they are not for
us. The risks, as we view them from a DPL shareholder
standpoint, are too great for the potential return. The
challenges of overseas management, political changes, and
currency fluctuations have too often been rewarded by
declining returns.
By focusing on the fundamentals, we have been
successful and I'm proud of the job "Team DPL" did in 1996.
Earnings increased to $1.72 per share, an increase of six
percent. That improvement is well above the industry
average of two to three percent. Our continued strong
earnings growth enabled the Board of Directors to once again
increase the dividend. On February 4, 1997, for the tenth
time in the last eleven years, the dividend was raised and
is now $1.36 per share. This six cent, five percent
increase is also well above the industry average dividend
increase of about 2%. Our consistent dividend record
demonstrates our continued ability to achieve performance
that supports a current meaningful return.
Throughout the year, we traveled extensively across the
nation talking to key investor groups about our business
philosophy and plans to continue our record of strong
performance. And, in most cases, they support our plans of
growing earnings and dividends, sticking to the core energy
business, and staying here in the United States.
Given the advantages of our existing natural gas and
electric business and our long-term earnings...
DPL 2 1996
<PAGE>
... potential, we are disappointed that our 1996 stock price
did not fully reflect our positive performance. However, we
do have one of the best market to book ratios of any combination
energy company in the United States. We have one of the
best growing economies with area unemployment under 4%. We
have low but adequate reserve margins, one of the best power
plant efficiency rates in the country and an embedded cost
of debt at 7.6% with a 27-year average maturity. Add to
that the terrific communities we serve, our highly talented
work force, high employee stock ownership at 7%, and a
committed Board that works for the shareholder, and we
believe you have one of the strongest investment
opportunities now and in the future.
If we sound positive about our attributes and the
future, it's because we are positive. We have talented and
experienced people working for you at all levels. In
keeping with this, I'm pleased to announce to you that on
January 1, 1997, Mr. Allen M. Hill took over as Chief
Executive Officer of DPL Inc. Since 1980, my term as
President has been a team effort to transform DPL into the
top tier company you see today. Management succession has
always been one of our top priorities and I'm proud to have
Allen assume the CEO's position. He is ready for the
challenge and shares the same positive long-term vision that
all of us on the Board have for the future of DPL Inc.
Allen is a seasoned leader, and will continue our course of
enhancing shareholder and customer value through outstanding
performance in every sector of our business.
I will continue as Chairman of DPL Inc., DP&L, and
other financial subsidiaries. In this capacity, I will be
responsible for DPL's financial investments, as well as co-
lead with Allen the strategic activities of the Company, and
participate in the ongoing investor and financial community
relations programs.
This is an exciting time for the energy industry and
your Company. With DPL's combination of the right
leadership and the right focus, we will continue to be an
industry leader.
As we say every year, "Working together and shared
success are a key part of our belief." We enjoyed working
for you, our shareholders, in 1996 and will continue to
stick to the basics in 1997.
Best regards,
/s/ Peter H. Forster
Peter H. Forster
Chairman, DPL Inc.
BOARD OF DIRECTORS
- ------------------
Caption to photograph:
Thomas J. Danis, James F. Dicke, II, Peter H. Forster, Ernie
Green, Jane G. Haley, Allen M. Hill, W August Hillenbrand,
David R. Holmes, Burnell R. Roberts.
(see appendix for photograph description)
DPL 3 1996
<PAGE>
INFRASTRUCTURE
- --------------
The Crossroads of I-70 and I-75, along with the proximity of
I-71, provide West Central Ohio businesses with the
convenient, cost-effective transportation necessary to serve
customers nationwide.
EXAMPLE
- -------
With access to more than 5.6 million people, Dayton ranks as
the nation's tenth largest 90 minute road market in the
United States.
Caption to photograph:
RIGHT --- R&L Carriers, with headquarters in Wilmington,
Ohio, at the junction of I-71 and Ohio Route 68, serves the
transportation needs of businesses throughout the midwest,
southeast, and south central regions.
(see appendix for artwork description)
THE DPL MISSION
Our mission in this transitioning environment remains
unchanged, with a continued and intensified focus on the
beliefs that have resulted in our industry leading financial
and operational position. That is, to earn a fair rate of
return for shareholders while providing quality services and
competitive prices to customers. This mission drives our
prevailing managerial philosophy -- we manage the Company
for the Shareholder, complemented by a total Customer focus.
Our position in the industry is distinguished from others by
a long record of credibility, the ability and commitment to
do what we say we'll do, with no surprises. Shareholder
value is enhanced by our goals to maximize cash flow and
maintain our margins.
KEY FACTORS FOR SUCCESS
The essence of our strategy for success is to maintain
and enhance our financial strength as we move through the
transition of the energy industry. The desired results will
be increased efficiencies, improved processes and cost
control. Our achievements have made us industry leaders in
the current regulated environment, and position us for
success in a more competitive and less regulated
environment.
Restructuring of the electric utility industry
continued to evolve in 1996. Competitive forces remain at
the forefront, with the most significant challenge faced by
the industry being the timing and framework of transition to
retail market competition. Legislative activity to
introduce competition accelerated at both the national and
state level. States where electric prices are higher than
average and economies are underperforming have been the most
active in pursuing change.
Numerous competitive strategies are emerging in
response to these changes, usually with common goals to grow
revenue and/or lower costs. As 1997 begins, there are more
pending or proposed mergers in the electric industry than
ever before. Convergence of the electric and natural gas
businesses has been a recurring theme, with several mergers
of natural gas and electric companies. Rather than
representing two separate businesses, they are beginning to
be viewed as one -- the business of energy. Finally, a
number of...
DPL 4 1996
<PAGE>
(see appendix for photograph description)
<PAGE>
(see appendix for photograph description)
<PAGE>
...companies are looking at separating the major parts of
their business and, in some cases, selling their assets to
be more competitive.
These and other strategies recognize that the energy
market is moving towards commodity-based pricing. At DPL,
we have historically managed the Company to be a low cost
energy provider, with selling a commodity product in mind.
Continuing to do so, and our ongoing success with the
following key factors, will rule our successful transition
to a more competitive environment.
Total Return to Shareholders
Shareholder value will be maximized by continuing to
deliver above average earnings and dividend growth. Our
1996 earnings of $1.72 per share represents a six percent
increase over last year's $1.63 per share, the same annual
rate of growth that we have averaged over the past four
years. Earnings per share in the industry over that time
period have averaged less than three percent.
On February 4, 1997, the annual dividend rate was
increased to $1.36 per share, a six cent, five percent
increase over the 1996 dividend rate of $1.30 per share.
This is the fifth consecutive year we have increased the
dividend, and the tenth time in the last eleven years. Over
the past five years, dividend growth has averaged five
percent, well above the industry average of two percent.
This record of financial performance has resulted in a total
five year return to shareholders of 186%, which ranks DPL
among the top ten in the entire industry.
Growing West Central Ohio Economy
The economy in West Central Ohio continued to
outperform that of the nation and Ohio overall in 1996. In
the second quarter, unemployment rates actually dropped
below 4% to 3.8%, an astonishing statistic. Businesses
throughout the area posted solid growth and expansion,
across a broad base of industries.
Again, in 1996, Ohio was declared the winner for
economic growth and development by Site Selection magazine,
the third year in a row it has led the nation. A total of
888 corporate facilities in Ohio were either...
MEETING CUSTOMER NEEDS
- ----------------------
The ability of DP&L to provide a total energy package of
electricity and natural gas is a distinct competitive
advantage in serving customers now and through industry
transition.
EXAMPLE
- -------
Combined natural gas and electric prices have declined more
than 35% since 1984, saving customers nearly $1.5 billion.
Caption to photograph:
LEFT --- Cargill Incorporated produces various dried starch
products at its Dayton corn processing plant, primarily for
the papermaking and corrugated cardboard industries.
Natural gas is used to heat filtered air for the dryer,
pictured.
(see appendix for logo description)
DPL 7 1996
<PAGE>
...expanded or created, over 200 more facilities than its
closest competitor. Looking at manufacturing facilities
alone, Ohio also led the nation with 175 new or expanded
facilities. Many key factors help to achieve such profound
economic growth, such as Ohio's strategic location in terms
of infrastructure and proximity to the nation's population,
an excellent base of skilled and educated labor, tax
reforms, and quality incentive programs.
Here in West Central Ohio, our economic development
programs, like "Partners in Business," allow us to form
partnerships with businesses in our area. DP&L's role will
be to continue to implement aggressive initiatives to
support future development in Ohio.
Business conditions in Ohio have helped to generate two
percent growth in sales of electricity to our business
customers in 1996. Over the past five years, total retail
sales growth has also averaged more than two percent. This
positive trend sets a solid base for near term financial
growth, and our successful relationships with our customers
help to ensure our continued success in a changing
environment.
Competitive Energy Prices
As a combination electric and natural gas energy
company, DP&L has an existing and effective means of
providing a competitively priced total energy package to our
customers. In fact, since 1984, our combined natural gas
and electric prices have declined more than 35%, resulting
in nearly $1.5 billion in energy savings for our customers.
Not every electric company is a gas provider, and few gas
pipeline companies can generate and distribute electricity.
As evidenced by actions in the industry in 1996, the ability
to do both is becoming an increasingly prized combination.
At DP&L, we have held the belief for a long time that
our status as a combination electric and natural gas company
is a distinct competitive advantage. We enjoy being in both
businesses, and strive for and achieve leadership in both.
Currently, our natural gas costs are the lowest in Ohio, and
our strategic location near a major natural gas pipeline hub
helps to ensure this position for the future. In addition,
our manage-...
ECONOMIC DEVELOPMENT
- --------------------
West Central Ohio makes a significant contribution to Ohio's
number one ranking nationally for new business development
and expansion.
EXAMPLE
- -------
DP&L's economic development programs, such as "Partners in
Business" serve to form partnerships with businesses
throughout the area.
Caption to photograph:
RIGHT --- Motoman, headquartered and having a major
manufacturing facility in the Dayton area, is one of the few
manufacturers that produce robots in the United States.
International facilities are located in Canada, Mexico and
Brazil.
(see appendix for artwork description)
DPL 8 1996
<PAGE>
(see appendix for photograph description)
<PAGE>
(see appendix for photograph description)
<PAGE>
...ment experience with the de-regulation of the gas
industry will serve us well during the transition of the
electric industry.
Fuel is an important part of our competitive price
position on the electric side. DP&L is a 100% coal-fueled
electric company, with the majority of our plants located on
the Ohio River. Our proximity to the vast coal regions of
Central Appalachia, with all types and qualities of coal,
along with the ability to competitively transport the coal
by barge, rail or truck to the plants, is key to being able
to control costs. Our strategic location is supplemented by
flexible and predictable coal contracts that provide us with
many cost-effective options over a long range time period,
allowing the ability to respond to changes in the coal
markets. In addition, our low costs of compliance with both
phases of the Clean Air Act Amendments will improve our
relative coal cost comparisons with our regional neighbors
into the 21st century.
Managing Costs
Our natural gas and fuel costs represent a significant
portion of total energy costs, in some cases up to 60%. In
addition to the competitive advantage we have established
with our management of coal and gas procurement, we have
established a leadership position in other cost control
measurements.
Throughout operations, our philosophy is Plan, Predict,
and Prevent. This mode of managing for the future allows us
to avoid much of the cost volatility that is present
throughout the industry. Our generating system is managed
for efficiency and reliability, and availability when it is
needed most. That allows us to avoid costly power purchases
at times of high demand, and prevent costly failure and
damage through timely and effective maintenance. Service
Operations are managed the same way, maintaining high
reliability and implementing measures now, during periods of
good financial and economic performance, that will provide
returns in the future through reduced costs.
Capital costs are also managed for long-term certainty
and short-term flexibility. Our long-term debt portfolio
has an average life of twenty-seven years, with an average
embedded cost of only 7.6%. A financing completed late in
1995 saved nearly four...
A GROWING RESOURCE
- ------------------
DP&L remains focused on its core electric and natural gas
businesses, and its commitment to supporting the communities
of West Central Ohio.
EXAMPLE
- -------
DP&L's Way To Go programs enhance service through energy
efficiency programs, special business and governmental
programs and environmental and school programs.
Caption to photograph:
LEFT --- Through classroom presentations, DP&L reaches
40,000 to 50,000 students and teachers annually with
messages on energy conservation, the environment and safety.
(see appendix for logo description)
DPL 11 1996
<PAGE>
...million dollars in interest expense in 1996, and has a
maturity of 35 years. The long-term debt structure saves
the Company from having to plan for uncertain financial
markets, yet allows flexibility if markets significantly
improve.
Superior Operations
A long-standing goal at Dayton Power and Light has been
national leadership in productivity and efficiency. Our
success in achieving objectives in these areas has saved our
customers an average of almost $24 million per year over the
last ten years. Power production efficiency, as measured by
heat rate, was 9,830 Btu/kWh in 1996, a level expected to be
among the industry leaders as it has been for the past ten
to fifteen years. Importantly, we achieve these top
operating results while controlling costs, in large part due
to the Plan, Predict and Prevent philosophy. This
combination of providing leading operational performance
while attaining a low cost position in our region will be a
significant advantage in an increasingly competitive
environment.
Financial Performance
The end result of our superior operating performance,
effective cost control, regional economic growth, and
competitive energy prices is leading financial performance.
Better than average earnings and dividend growth and a
balance sheet that is among the cleanest and strongest in
the nation solidify current performance and provide a base
for future financial flexibility. A very conservative
capital structure and strong cash flow, as validated by
solid AA level credit ratings from all three major credit
rating agencies, provide the resources to further reduce
costs, support quality customer service initiatives and
maintain national leadership in plant operations during an
environment of regulatory transition.
COMPETITIVE PRICES
- ------------------
Industry leading operations, low cost fuel supplies and
superior cost management throughout the company ensure
competitive prices in our region.
EXAMPLE
- -------
Over the past ten years, DP&L electric prices have declined
20%, adjusted for inflation during that period.
AVERAGE ANNUAL ELECTRIC PRICES
Adjusted For Inflation
cents/kWh
(see appendix for graph description)
DPL 12 1996
<PAGE>
FINANCIAL REVIEW
ELECTRIC REVENUES GAS REVENUES TOTAL TAXES
$ in millions $ in millions $ in millions
(see appendix for (see appendix for (see appendix for
graph description) graph description) graph description)
ELECTRIC SALES GAS SALES OPERATING EXPENSES
Thousand of GWH Millions of MCF $ in millions
(see appendix for (see appendix for (see appendix for
graph description) graph description) graph description)
AVERAGE PRICE-ELECTRIC AVERAGE PRICE-GAS CONSTRUCTION COSTS
CALENDAR YEAR CALENDAR YEAR $ in millions
cents/kWh $/MCF
(see appendix for (see appendix for (see appendix for
graph description) graph description) graph description)
DPL 13 1996
<PAGE>
FINANCIAL AND STATISTICAL SUMMARY DPL Inc.
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------
For the years ended
December 31,
DPL
Inc.: Earnings per share of
common stock $ 1.72 1.63 1.54 1.42 1.34
Dividends paid per share $ 1.30 1.24 1.18 1.12 1.08
Dividend payout ratio % 75.6 76.1 76.6 78.9 80.6
Net income (millions) $ 172.9 164.7 154.9 139.0 138.8
Utility service revenues
(millions) $ 1,256.1 1,255.1 1,187.9 1,151.3 1,017.3
Construction additions
(millions) $ 115.5 87.3 101.1 88.9 59.0
Market value per share
at December 31 $ 24-1/4 24-3/4 20-1/2 20-5/8 19-3/4
DP&L: Electric sales (millions
of kWh) --
Residential 4,924 4,871 4,465 4,558 4,260
Commercial 3,407 3,425 3,068 3,006 2,896
Industrial 4,540 4,401 4,388 4,089 3,938
Other 3,443 4,117 2,298 3,023 2,960
------ ------ ------ ------ ------
Total 16,314 16,814 14,219 14,676 14,054
Gas sales (thousands of
MCF) --
Residential 31,087 29,397 27,911 28,786 27,723
Commercial 9,424 8,307 8,081 8,468 8,642
Industrial 3,404 2,584 3,150 3,056 4,914
Other 2,829 3,006 2,909 3,171 3,402
Transported gas 16,953 16,376 15,147 13,401 10,811
------ ------ ------ ------ ------
Total 63,697 59,670 57,198 56,882 55,492
At December 31,
DPL
Inc.: Book value per share $ 11.95 11.54 11.17 10.51 9.75
Total assets (millions) $ 3,418.7 3,322.8 3,232.7 3,302.0 2,976.7
Long-term debt and
preferred stock with
mandatory redemption
provisions (millions) $ 1,014.3 1,081.5 1,093.7 1,132.9 990.6
DP&L: First mortgage bond
ratings --
Duff & Phelps, Inc. AA AA AA AA- A+
Standard & Poor's
Corporation AA- AA- AA- A A
Moody's Investors
Service Aa3 Aa3 A1 A2 A2
Number of Shareholders
DPL
Inc.: Common 46,532 48,919 51,270 53,275 54,023
DP&L: Preferred 684 733 795 1,873 1,969
DPL 14 1996
<PAGE>
FINANCIAL REVIEW
The 1996 earnings increased to $1.72 per share, compared
to earnings per share of $1.63 in 1995 and $1.54 in 1994.
In 1996, a 3% decline in electric sales resulted in
slightly lower revenues with a 2% increase in sales to
business customers offset by lower sales to other public
utilities. Fuel and purchased power expense decreased 9%
primarily related to the decreased sales. In 1995,
electric revenues increased 9% with a 6% increase in total
retail sales.
Gas revenues increased 7% in 1996. Sales increased 7%
from higher deliveries to business customers and the
effects of colder weather. Gas purchased for resale
increased 9% primarily from higher volumes. Gas revenues
decreased 6% in 1995.
Operation and maintenance expenses decreased 2% in 1996
from 1995 due to lower compensation and benefit expense,
reduced electric production and system maintenance and bond
redemption costs. These decreases were partially offset by
higher insurance and claims costs. Operation and
maintenance expense increased 11% in 1995 from 1994
principally due to higher compensation and benefit expense,
computer system development and bond redemption costs.
Regulatory assets recorded during the phase-in of electric
rates are being amortized and recovered in current rates.
In addition, deferred interest charges on the William H.
Zimmer Generating Station are being amortized at $3 million
per year over the projected life of the asset.
A 1992 Public Utilities Commission of Ohio
("PUCO")-approved settlement agreement and a subsequent
stipulation in 1995 allowed accelerated recovery of
demand-side management costs and, thereafter, production
plant costs to the extent that DP&L return on equity
exceeds a baseline 13% (subject to upward adjustment).
If the return exceeds the baseline return by one to two
percent, one-half of the excess is used to accelerate
recovery of these costs. If the return is greater than
two percent over the baseline, the entire excess is used
for such purpose.
Depreciation and amortization expense increased
$7 million in 1996 and $4 million in 1995 primarily due
to increased depreciable assets and rates.
General taxes increased 4% in 1996 and 3% in 1995 as a
result of increased property taxes.
Interest expense declined $5 million in 1996 primarily
from the September 1995 refinancing of $110 million of
bonds at a lower interest rate. Preferred stock
dividends decreased $4 million in 1995 due to redemptions
of several series of preferred stock in 1994.
Credit Ratings
DP&L's senior debt credit ratings are as follows:
Duff & Phelps AA
Moody's Investors Service Aa3
Standard & Poor's AA-
Each rating has been affirmed by its respective rating
agency in 1996. Moody's Investors Service upgraded DP&L's
senior debt credit rating three times from 1992-1995. Duff
& Phelps and Standard & Poor's both upgraded DP&L's senior
debt credit ratings in 1994. The credit ratings are the
highest DP&L has achieved since 1974, and they are all
considered investment grade. The Company's strong
financial performance, cost reductions and competitive
position are some of the key factors reflected in the
ratings.
INCOME STATEMENT HIGHLIGHTS
$ in millions except per share amounts 1996 1995 1994
- --------------------------------------------------------------------
ELECTRIC UTILITY:
Revenues $1,014 $1,028 $944
Fuel and purchased power 234 256 218
------ ------ ----
Net revenues 780 772 726
GAS UTILITY:
Revenues 239 222 237
Gas purchased for resale 145 133 151
--- --- ---
Net revenues 94 89 86
Interest and other income 26 30 30
Operation and maintenance expense 266 272 246
Amortization of regulatory assets, net 15 15 11
Income taxes 104 102 101
Net income 173 165 155
Earnings per share of common stock 1.72 1.63 1.54
DPL 15 1996
<PAGE>
Construction Program and Financing
Construction additions were $116 million, $87 million and
$101 million in 1996, 1995 and 1994, respectively.
During 1996, total cash provided by operating activities
was $338 million. At year-end, cash and temporary cash
investments were $73 million, and debt and equity financial
assets were $175 million.
In December 1996, DP&L redeemed a series of first mortgage
bonds in the principal amount of $25 million with an
interest rate of 6.75%. The bonds had been scheduled to
mature in 1998.
In September 1995, a new series of Air Quality Development
Revenue Refunding Bonds was issued in the principal amount
of $110 million with an interest rate of 6.10%. Proceeds
from the financing were used to redeem a similar principal
amount of first mortgage bonds with an interest rate of
9.5%.
In March 1994, DPL Inc. issued 3,200,000 shares of common
stock through a public offering. Proceeds from the sale
were used in connection with the redemption of all
outstanding shares of DP&L's Preferred Stock Series D, E,
F, H and I.
The capital program for the five years ending 2001
consists of construction costs of $625 million, with a
total of $125 million in 1997. The program includes a
series of 80 MW combustion turbine generating units, and
debt maturities and sinking fund payments of $62 million.
Issuance of additional amounts of first mortgage bonds by
DP&L is limited by provisions of its mortgage. The amounts
and timing of future financings will depend upon market and
other conditions, rate increases, levels of sales and
construction plans. DPL Inc. anticipates that it has
sufficient capacity to issue DP&L first mortgage bonds to
satisfy its requirements in connection with its capital
program during 1997-2001.
In addition, DPL Inc. has a revolving credit agreement,
renewable through 2000, which allows total borrowings by
DPL Inc. and its subsidiaries of $200 million. At year-end
1996, DPL Inc. had no borrowings outstanding under this
credit agreement.
DP&L also has $97 million available in short-term lines of
credit. At year-end, DP&L had no borrowings outstanding
from these lines of credit and $10 million in commercial
paper outstanding.
Issues and Financial Risks
As a public utility, DP&L is subject to processes which
determine the rates it charges for energy services.
Regulators determine which costs are eligible for recovery
in the rate setting process and when the recovery will
occur. They also establish the rate of return on utility
investments which are valued under Ohio law based on
historical costs.
The utility industry is subject to inflationary pressures
similar to those experienced by other capital-intensive
industries. Because rates for regulated services are based
on historical costs, cash flows may not cover the total
future costs of providing services. Projected construction
costs over the next five years approximate projected
depreciation over the same period.
Restructuring of the electric utility industry continued
to evolve in 1996. Cash and financial assets are held with
a view towards investing in future opportunities in the
industry.
In April 1996, the Federal Energy Regulatory Commission
("FERC") issued orders creating a more competitive
wholesale electric power market. These orders require all
electric utilities that own or control transmission
facilities to file open-access transmission service
tariffs. Open-access transmission tariffs provide third
parties non-discriminatory transmission service comparable
to what the utility provides itself. In its orders, FERC
further stated that FERC-jurisdictional stranded costs
reasonably incurred and costs of complying with the rules
will be recoverable by electric utilities.
The PUCO is holding roundtable discussions on the
introduction of competition in the electric industry.
Furthermore, legislative proposals have been introduced in
Congress and in Ohio concerning wholesale and retail
wheeling which are designed to increase competition. These
factors increase the risk that the Company's production
plant and/or regulatory assets may not be fully recovered
in rates.
Stipulations approved by the PUCO allow accelerated
recovery of demand-side management and production plant
costs to the extent that future DP&L income exceeds the
allowed return.
The Environmental Protection Agency ("EPA") has notified
numerous parties, including DP&L, that they are considered
"Potentially Responsible Parties" for clean up of four
hazardous waste sites in Ohio. The EPA has estimated total
costs of $61 million for its preferred clean-up plans at
three of these sites and has not established an estimated
cost for the fourth site. The final resolution of these
investigations will not have a material effect on DP&L's
financial position, earnings or cash flow.
DPL 16 1996
<PAGE>
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS DPL Inc.
For the years ended December 31,
$ in millions except per share amounts 1996 1995 1994
- ---------------------------------------------------------------------------
INCOME
Utility service revenues $1,256.1 $1,255.1 $1,187.9
Interest and other income 26.0 29.7 30.1
-------- -------- --------
Total income 1,282.1 1,284.8 1,218.0
EXPENSES
Fuel and purchased power 234.9 257.5 220.7
Gas purchased for resale 144.8 133.2 150.8
Operation and maintenance (Note 1) 265.7 272.3 245.8
Depreciation and amortization (Note 1) 125.4 118.9 114.7
Amortization of regulatory assets, net
(Note 2) 15.3 15.4 10.9
General taxes 129.7 125.2 121.1
Interest expense 89.0 94.3 93.2
Preferred dividend requirements of
The Dayton Power and Light Company
(Note 9) 0.9 0.9 4.7
-------- -------- --------
Total expenses 1,005.7 1,017.7 961.9
-------- ------- --------
INCOME BEFORE INCOME TAXES 276.4 267.1 256.1
Income taxes (Notes 1 and 3) 103.5 102.4 101.2
-------- -------- --------
NET INCOME $ 172.9 $ 164.7 $ 154.9
======== ======== ========
Average Number of Common Shares
Outstanding (millions) (Note 8) 100.6 101.1 100.4
Earnings Per Share of Common Stock $ 1.72 $ 1.63 $ 1.54
Dividends Paid Per Share of Common Stock $ 1.30 $ 1.24 $ 1.18
See Notes to Consolidated Financial Statements.
DPL 17 1996
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS DPL Inc.
For the years ended December 31,
$ in millions 1996 1995 1994
- ---------------------------------------------------------------------------
OPERATING ACTIVITIES
Cash received from utility customers $1,228.9 $1,203.5 $1,199.0
Other operating cash receipts 38.7 28.7 25.4
Cash paid for:
Fuel and purchased power (207.6) (249.8) (226.0)
Purchased gas (163.3) (131.7) (142.8)
Operation and maintenance labor (87.4) (89.3) (90.0)
Nonlabor operating expenditures (149.3) (136.9) (159.4)
Interest (87.7) (91.9) (92.1)
Income taxes (108.1) (103.1) (105.8)
Property, excise and payroll taxes (126.1) (124.2) (121.4)
-------- -------- --------
Net cash provided by operating activities
(Note 11) 338.1 305.3 286.9
-------- -------- --------
INVESTING ACTIVITIES
Property expenditures (108.8) (87.3) (102.1)
Other activities (144.4) (14.3) 7.8
-------- -------- --------
Net cash used for investing activities (253.2) (101.6) (94.3)
-------- -------- --------
FINANCING ACTIVITIES
Dividends paid on common stock (131.2) (124.9) (118.3)
Retirement of long-term debt (25.5) (126.7) (9.2)
Purchase of treasury stock (15.8) (6.1) (9.4)
Issuance (retirement) of short-term debt 10.0 - (25.0)
Issuance of long-term debt - 108.8 -
Redemption of preferred stock - - (94.2)
Issuance of common stock - - 77.5
-------- -------- --------
Net cash used for financing activities (162.5) (148.9) (178.6)
-------- -------- --------
Cash and temporary cash investments --
Net change (77.6) 54.8 14.0
Balance at beginning of year 150.4 95.6 81.6
-------- -------- --------
Balance at end of year $ 72.8 $ 150.4 $ 95.6
======== ======== ========
See Notes to Consolidated Financial Statements
DPL 18 1996
<PAGE>
CONSOLIDATED BALANCE SHEET DPL Inc.
At December 31,
$ in millions 1996 1995
- -----------------------------------------------------------------
ASSETS
Property $3,548.7 $3,449.6
Accumulated depreciation and amortization (1,279.8) (1,167.8)
-------- --------
Net property 2,268.9 2,281.8
-------- --------
Current Assets
Cash and temporary cash investments 72.8 150.4
Accounts receivable, less provision for
uncollectible accounts of $5.1 and $6.5,
respectively 201.9 148.0
Inventories, at average cost 75.9 82.7
Taxes applicable to subsequent years 87.3 82.4
Other current assets 53.6 39.7
-------- --------
Total current assets 491.5 503.2
-------- --------
Other Assets
Income taxes recoverable through future
revenues (Note 1) 222.4 238.6
Regulatory assets (Note 2) 137.3 155.7
Financial assets 170.3 27.2
Other 128.3 116.3
-------- --------
Total other assets 658.3 537.8
-------- --------
TOTAL ASSETS $3,418.7 $3,322.8
======== ========
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity (Note 8)--
Common stock $ 1.1 $ 1.1
Other paid-in capital 756.8 771.4
Common stock held by employee plans (102.1) (107.2)
Earnings reinvested in the business 544.7 499.5
-------- --------
Total common shareholders' equity 1,200.5 1,164.8
Preferred stock (Note 9) 22.9 22.9
Long-term debt (Note 7) 1,014.3 1,081.5
-------- --------
Total capitalization 2,237.7 2,269.2
-------- --------
Current Liabilities
Accounts payable 114.4 97.0
Accrued taxes 137.7 119.4
Accrued interest 24.8 24.9
Current portion of long-term debt 42.4 0.5
Short-term debt (Note 6) 10.0 -
Other 57.0 43.0
-------- --------
Total current liabilities 386.3 284.8
-------- --------
Deferred Credits and Other
Deferred taxes (Note 3) 488.1 516.3
Unamortized investment tax credit 75.4 79.6
Other 231.2 172.9
-------- --------
Total deferred credits and other 794.7 768.8
-------- --------
TOTAL CAPITALIZATION AND LIABILITIES $3,418.7 $3,322.8
======== ========
See Notes to Consolidated Financial Statements.
DPL 19 1996
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DPL Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Nature of Operations
The accounts of DPL Inc. and its wholly-owned subsidiaries
are included in the accompanying consolidated financial
statements. The consolidated financial statements of DPL
Inc. principally reflect the results of operations and
financial condition of DPL Inc.'s public utility
subsidiary, The Dayton Power and Light Company ("DP&L").
DP&L is primarily engaged in the business of selling
electric energy and natural gas to residential, commercial,
industrial and governmental customers in a 6,000 square
mile area of West Central Ohio. The majority of DPL Inc.'s
earnings come from electricity and natural gas sales.
Earnings from other operations currently do not have a
material financial impact on the consolidated results.
Revenues and Fuel
Revenues include amounts charged to customers through fuel
and gas recovery clauses, which are adjusted periodically
for changes in such costs. Related costs that are
recoverable or refundable in future periods are deferred
along with the related income tax effects. Also included
in revenues are amounts charged to customers through a
surcharge for recovery of arrearages from certain eligible
low-income households.
DP&L records revenue for services provided but not yet
billed to more closely match revenues with expenses.
Accounts receivable on the Consolidated Balance Sheet
includes unbilled revenue of (in millions) $58.3 in 1996
and $40.7 in 1995.
Operation and Maintenance
Operation and maintenance expenses in 1995 include
$4.7 million of redemption premiums and other costs
relating to the refinancing of bond issues.
Property, Maintenance and Depreciation
Property is shown at its original cost. Cost includes
direct labor and material and allocable overhead costs.
When a unit of property is retired, the original cost of
that property plus the cost of removal less any salvage
value is charged to accumulated depreciation. Maintenance
costs and replacements of minor items of property are
charged to expense.
Depreciation expense is calculated using the straight-line
method, which depreciates the cost of property over its
estimated useful life, at an average rate of 3.5%, 3.4% and
3.4% for 1996, 1995 and 1994, respectively.
Income Taxes
Deferred income taxes are provided for all temporary
differences between the financial statement basis and the
tax basis of assets and liabilities using the enacted tax
rate. Additional deferred income taxes and offsetting
regulatory assets or liabilities are recorded to recognize
that the income taxes will be recoverable/refundable
through future revenues. Investment tax credits,
previously deferred, are being amortized over the lives of
the related properties.
Consolidated Statement of Cash Flows
The temporary cash investments presented on this Statement
consist of liquid investments with an original maturity of
three months or less.
Reclassifications
Reclassifications have been made in certain prior years'
amounts to conform to the current reporting presentation.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions related to
future events.
DPL 20 1996
<PAGE>
2. REGULATORY MATTERS
Regulatory assets on the Consolidated Balance Sheet include:
At December 31,
$ in millions 1996 1995
- --------------------------------------
a. Phase-in $ 46.7 $ 61.4
b. DSM 35.3 36.2
c. Deferred interest 55.3 58.1
----- -----
Total $137.3 $155.7
====== ======
a. Amounts deferred during a 1992-1994 electric rate
increase phase-in (including carrying charges) are
being recovered in current rates.
b. Demand-side management ("DSM") costs (including
carrying charges) from DP&L's cost-effective programs
are deferred and are being recovered at approximately
$9 million per year. The 1992 PUCO-approved agreement
for the phase-in plan and DSM programs, as updated in
1995, allows accelerated recovery of DSM costs and,
thereafter, production plant costs to the extent that
DP&L return on equity exceeds a baseline 13% (subject
to upward adjustment). If the return exceeds the baseline
return by one to two percent, one-half of the excess
will be used to accelerate recovery of these costs.
If the return is greater than two percent over the
baseline, the entire excess will be used for such
purpose.
c. Interest charges related to Zimmer which were
previously deferred pursuant to PUCO approval are
being amortized at $2.8 million per year over the
projected life of the asset.
3. INCOME TAXES
For the years ended
December 31,
$ in millions 1996 1995 1994
- -----------------------------------------------------------
Computation of Tax Expense
Federal income tax (a) $ 97.0 $ 93.8 $ 91.3
Increases (decreases) in tax from -
Regulatory assets 3.3 3.3 2.2
Depreciation 10.7 10.8 10.4
Investment tax credit amortized (3.0) (3.0) (3.7)
Other, net (4.5) (2.5) 1.0
------ ------ ------
Total tax expense $103.5 $102.4 $101.2
====== ====== ======
Components of Tax Expense
Taxes currently payable $117.4 $93.0 $107.9
Deferred taxes--
Regulatory assets (3.5) (1.7) 1.6
Liberalized depreciation and
amortization 7.9 14.1 17.2
Property taxes - - (6.1)
Fuel and gas costs 2.5 (3.1) (12.7)
Insurance and claims costs (11.1) 2.7 (3.5)
Other (5.5) (0.8) 0.4
Deferred investment tax credit, net (4.2) (1.8) (3.6)
------ ------ ------
Total tax expense $103.5 $102.4 $101.2
====== ====== ======
(a) The statutory rate of 35% applied to pre-tax income
before preferred dividends.
Components of Deferred Tax Assets and Liabilities
At December 31,
$ in millions 1996 1995
- ------------------------------------------------
Non-Current Liabilities
Depreciation/property basis $(448.8) $(450.9)
Income taxes recoverable (77.4) (82.9)
Regulatory assets (45.8) (52.3)
Investment tax credit 26.3 27.8
Other 57.6 42.0
------- -------
Net non-current liablility $(488.1) $(516.3)
------- -------
Net Current Asset $ 1.7 $ 6.1
======= =======
DPL 21 1996
<PAGE>
4. PENSIONS AND POSTRETIREMENT BENEFITS
Pensions
Substantially all DP&L employees participate in pension
plans paid for by the Company. Employee benefits are
based on their years of service, age at retirement and,
for salaried employees, their compensation. The plans are
funded in amounts actuarially determined to provide for
these benefits.
An interest rate of 6.25% was used in developing the
amounts in the following tables. Actual returns on plan
assets for 1996, 1995 and 1994 were 12.7%, 25.6% and 0.9%,
respectively. Increases in compensation levels
approximating 5% were used for all years.
The following table presents the components of pension
cost (portions of which were capitalized):
$ in millions 1996 1995 1994
- ---------------------------------------------------------
Service cost-benefits earned $ 6.2 $ 6.2 $ 6.1
Interest cost 15.0 14.4 13.4
Expected return on plan assets
of 7.5% in each year (18.1) (17.8) (18.2)
Net amortization (1.1) (0.9) (1.5)
------ ------ ------
Net pension cost $ 2.0 $ 1.9 $ (0.2)
====== ====== ======
The following table sets forth the plans' funded status
and amounts recorded in Other assets on the Consolidated
Balance Sheet at December 31:
$ in millions 1996 1995
- -----------------------------------------------------
Plan assets at fair value (a) $321.4 $298.3
Actuarial present value of projected
benefit obligation 255.1 245.5
------ ------
Plan assets in excess of projected
benefit obligation 66.3 52.8
Unamortized transition obligation (15.5) (19.6)
Prior service cost 16.0 18.1
Changes in plan assumptions and
actuarial gains and losses (22.5) (5.0)
------ ------
Net pension assets $ 44.3 $ 46.3
====== ======
Vested benefit obligation $198.6 $190.1
Accumulated benefit obligation
without projected wage increases $237.4 $227.7
(a) Invested in fixed income investments, equities
including $26.5 million and $27.0 million of DPL Inc.
common stock in 1996 and 1995, respectively, and
guaranteed investment contracts.
Postretirement Benefits
Qualified employees who retired prior to 1987 and their
dependents are eligible for health care and life insurance
benefits. The unamortized transition obligation
associated with these benefits is being amortized over the
approximate average remaining life expectancy of the
retired employees. Active employees are eligible for life
insurance benefits, and this unamortized transition
obligation is being amortized over the average remaining
service period.
DP&L has funded the union-eligible health benefit using a
Voluntary Employee Beneficiary Association Trust. Actual
return on plan assets was 6.7% in 1996.
The following table presents the components of
postretirement benefit cost:
$ in millions 1996 1995 1994
- ----------------------------------------------------
Expected return on plan
assets of 5.7% $(0.6) $ - $ -
Interest cost 2.5 3.6 3.7
Net amortization 2.9 3.0 2.9
----- ---- -----
Postretirement benefit cost $ 4.8 $ 6.5 $ 6.7
===== ===== =====
The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation is 9.5%
for 1996 and decreases to 5% by 2005. A one percentage
point increase in each future year's assumed health care
trend rate would increase postretirement benefit cost by
$0.2 million annually and would increase the accumulated
postretirement benefit obligation by $2.9 million. The
weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 6.25%.
The following table sets forth the accumulated
postretirement benefit amounts at December 31:
$ in millions 1996 1995
- --------------------------------------------------
Accumulated postretirement benefit
obligation:
- retirees and dependents $40.7 $43.2
- active employees 1.1 1.0
----- -----
Total 41.8 44.2
Plan assets at fair value (a) 11.9 12.0
----- -----
Projected benefit obligation in
excess of plan assets 29.9 32.2
Unamortized transition obligation (18.9) (21.8)
Actuarial gains and losses 24.6 22.1
----- -----
Accrued postretirement
benefit liability $35.6 $32.5
===== =====
(a) Invested in fixed income government obligations
and money market securities.
DPL 22 1996
<PAGE>
5. COMMONLY OWNED FACILITIES
DP&L owns certain electric generating and transmission
facilities as tenants in common with other Ohio utilities.
Each utility is obligated to pay its ownership share of
construction and operation costs of each facility. As of
December 31, 1996, DP&L had $4.2 million of commonly owned
facilities under construction. DP&L's share of expenses
is included in the Consolidated Statement of Results of
Operations.
The following table presents DP&L's share of the commonly
owned facilities at December 31, 1996:
DP&L Share DP&L Investment
--------------------------- ----------------------
Ownership Prod. Capacity Gross Plant in Service
(%) (MW) ($ in mil.)
- -----------------------------------------------------------------------------
Production Units:
Beckjord Unit 6 50.0 210 54
Conesville Unit 4 16.5 129 30
East Bend Station 31.0 186 150
Killen Station 67.0 418 406
Miami Fort Units 7&8 36.0 360 117
Stuart Station 35.0 823 244
Zimmer Station 28.1 365 988
Transmission (at varying
percentages) 67
6. NOTES PAYABLE AND COMPENSATING BALANCES
DPL Inc. and its subsidiaries have $200 million available
through a revolving credit agreement. This agreement with
a consortium of banks is renewable through 2000. Commitment fees
are approximately $200,000 per year, depending upon the aggregate
unused balance of the loan. At December 31, 1996, DPL Inc. had no
outstanding borrowings under this credit agreement.
DP&L also has $96.6 million available in short-term informal
lines of credit. To support these lines of credit, DP&L is
required to maintain average daily compensating balances of
approximately $400,000 and also pay $103,550 per year in fees.
At year-end, DP&L had no borrowings from these lines of
credit and $10.0 million in commercial paper outstanding
at a weighted average interest rate of 6.75%.
7. LONG - TERM DEBT
At December 31,
$ in millions 1996 1995
- ------------------------------------------------------
First mortgage bonds maturing:
1997 5-5/8% $ - $ 40.0
1998 6.75% - 25.0
2003 8.00% 40.0 40.0
2022-2026 8.14% (a) 671.0 671.0
Pollution control series maturing
through 2027 - 6.43% (a) 107.6 107.9
-------- --------
818.6 883.9
Unamortized debt discount and
premium (net) (2.3) (2.4)
-------- --------
816.3 881.5
Guarantee of Air Quality
Development Obligations 6.10%
Series Due 2030 110.0 110.0
Notes due 2007 - 7.83% 88.0 90.0
-------- --------
Total $1,014.3 $1,081.5
======== ========
(a) Weighted average interest rates for 1996 and 1995.
The amounts of maturities and mandatory redemptions for
first mortgage bonds and notes are (in millions) $42.4 in
1997, $3.4 in 1998, $4.4 in 1999, $5.4 in 2000 and $6.4 in
2001. Substantially all property of DP&L is subject to
the mortgage lien securing the first mortgage bonds.
During 1996, a series of first mortgage bonds in the
principal amount of $25 million was redeemed. The bonds
had been scheduled to mature in 1998.
DPL 23 1996
<PAGE>
<TABLE>
<CAPTION>
8. COMMON SHAREHOLDERS' EQUITY
Common
Stock
Common Stock (a) Held By Earnings
--------------------------- Other Paid- Employee Reinvested in
$ in millions Outstanding Shares Amount in Capital Plans the Business Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994: Beginning balance 103,509,998 $1.0 $708.1 $(105.2) $423.4 $1,027.3
Net Income 154.9 154.9
Common stock dividends (118.3) (118.3)
Public offering 3,200,000 0.1 63.1 63.2
Dividend reinvestment
plan 720,225 - 14.4 14.4
Treasury stock (478,600) - (9.4) (9.4)
Employee stock plans 0.2 (3.5) (3.3)
Other 0.2 (0.7) (0.5)
----------- ---- ------ ------- ------ --------
Ending balance 106,951,623 1.1 776.6 (108.7) 459.3 1,128.3
1995: Net Income 164.7 164.7
Common stock dividends (124.9) (124.9)
Treasury stock (254,700) - (6.1) (6.1)
Employee stock plans 0.7 1.5 2.2
Other 0.2 0.4 0.6
----------- ---- ------ ------- ------ --------
Ending balance 106,696,923 1.1 771.4 (107.2) 499.5 1,164.8
1996: Net Income 172.9 172.9
Common stock dividends (131.2) (131.2)
Treasury stock (687,000) - (15.8) (15.8)
Employee stock plans 1.0 5.1 6.1
Other 0.2 3.5 3.7
----------- ---- ------ ------ ------ --------
Ending balance 106,009,923 $1.1 $756.8 $(102.1) $544.7 $1,200.5
=========== ==== ====== ======= ====== ========
(a) $0.01 par value, 250,000,000 shares authorized.
</TABLE>
DPL Inc. has a leveraged Employee Stock Ownership Plan
("ESOP") to fund matching contributions to the Company's
401(k) retirement savings plan and certain other payments to
full-time employees. Common shareholders' equity is reduced
for the cost of 3,992,110 unallocated shares held by the trust
and for 1,543,171 shares related to another employee plan.
These shares reduce the number of common shares used in the
calculation of earnings per share.
Dividends received by the ESOP are used to repay the loan
to DPL Inc. As debt service payments are made on the loan,
shares are released on a pro-rata basis. Dividends on the
allocated shares are charged to retained earnings, and
dividends on the unallocated shares reduce accrued
interest.
Cumulative shares allocated to employees and outstanding
for the calculation of earnings per share were 714,440 in
1996 and 516,249 in 1995. Compensation expense, which is based
on the fair value of the shares allocated, amounted to
$4.1 million in 1996, $4.2 million in 1995 and $4.0 million
in 1994.
DPL Inc. had 2,107,323 authorized but unissued shares
reserved for the dividend reinvestment plan at December 31,
1996. The plan provides that either original issue shares
or shares purchased on the open market may be used to
satisfy plan requirements.
DPL Inc. has a Shareholder Rights Plan pursuant to which
two-thirds of a Right is attached to and trades with each
outstanding DPL Inc. Common Share. The Rights would
separate from the Common Shares and become exercisable in
the event of certain attempted business combinations.
DPL 24 1996
<PAGE>
9. PREFERRED STOCK
DPL Inc.: No par value, 8,000,000 shares authorized, no shares
outstanding.
DP&L: $25 par value, 4,000,000 shares authorized, no shares
outstanding; and $100 par value, 4,000,000 shares authorized,
228,508 shares without mandatory redemption provisions
outstanding.
Par Value
At December 31,
Current Redemption Current Shares 1996 and 1995
Series/Rate Price Outstanding ($ in millions)
- ---------------------------------------------------------------------------
A 3.75% $102.50 93,280 $ 9.3
B 3.75% $103.00 69,398 7.0
C 3.90% $101.00 65,830 6.6
------- -----
Total 228,508 $22.9
======= =====
The shares may be redeemed at the option of DP&L at the per share prices
indicated, plus cumulative accrued dividends.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31,
1996 1995
------------------ -------------------
$ in millions Fair Value Cost Fair Value Cost
- -------------------------------------------------------------------------
$ $ $ $
Assets (a)
Available for sale securities
included in financial assets 156.5 150.7 11.5 10.8
Held to maturity securities,
including temporary cash
investments of $70.5 in
1996 and $141.3 in 1995 119.5 119.2 188.0 186.6
Liabilities (b)
Debt 1,112.1 1,066.7 1,174.9 1,082.0
Capitalization
Unallocated stock in ESOP 96.8 76.3 103.7 80.1
(a) Maturities range from 1997 to 2005.
(b) Includes current maturities.
Available for sale marketable securities are carried at market; the
remaining financial instruments are carried at cost. The fair value is
based upon quoted market prices or securities with similar characteristics.
11. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
For the years ended December 31,
$ in millions 1996 1995 1994
- -----------------------------------------------------------------------------
Net income $172.9 $164.7 $154.9
Adjustments:
Depreciation and amortization 125.4 118.9 114.7
Deferred income taxes (13.8) 9.2 (6.7)
Amortization of regulatory assets, net 15.3 15.4 10.9
Operating expense provisions 30.6 19.3 29.9
Accounts receivable (53.9) (44.6) 27.9
Accounts payable 14.7 21.8 (40.0)
Accrued taxes payable 18.3 (4.5) 9.5
Inventory 6.8 1.9 1.7
Other 21.8 3.2 (15.9)
------ ------ ------
Net cash provided by operating activities $338.1 $305.3 $286.9
====== ====== ======
DPL 25 1996
<PAGE>
12. FINANCIAL INFORMATION BY BUSINESS SEGMENTS
For the years ended December 31,
$ in millions 1996 1995 1994
- ------------------------------------------------------------------------
Utility service revenues
Electric $1,014.1 $1,027.5 $ 943.5
Gas 238.6 222.0 237.1
Other 3.4 5.6 7.3
-------- -------- ---------
Total utility service revenues 1,256.1 1,255.1 1,187.9
Interest and other income 26.0 29.7 30.1
-------- -------- ---------
Total income $1,282.1 $1,284.8 $1,218.0
======== ======== ========
Operating profit before tax
Electric $ 326.9 $ 335.8 $ 325.2
Gas 23.7 18.9 10.3
Other 6.6 3.8 6.5
-------- -------- --------
Total operating profit before tax 357.2 358.5 342.0
Other income, net (a) 9.1 3.8 12.0
Interest expense (89.0) (94.3) (93.2)
Preferred dividends (0.9) (0.9) (4.7)
-------- -------- --------
Income before income taxes $ 276.4 $ 267.1 $ 256.1
======== ======== ========
Depreciation and amortization
Electric $ 112.8 $ 108.1 $ 104.8
Gas 6.7 6.4 6.2
Other 5.9 4.4 3.7
-------- -------- --------
Total depreciation and amortization $ 125.4 $ 118.9 $ 114.7
======== ========= ========
Construction additions
Electric $ 100.0 $ 66.6 $ 82.1
Gas 14.1 11.7 11.6
Other 1.4 9.0 7.4
-------- -------- --------
Total construction additions $ 115.5 $ 87.3 $ 101.1
======== ======== ========
Assets
Electric $2,754.3 $2,763.1 $2,772.3
Gas 259.9 223.7 201.7
Other (b) 404.5 336.0 258.7
-------- -------- --------
Total assets at year-end $3,418.7 $3,322.8 $3,232.7
======== ======== ========
(a) Includes primarily interest income less bond redemption costs in 1995.
(b) Includes primarily temporary cash investments, debt and equity financial
assets and certain deferred items.
DPL 26 1996
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP (see appendix for logo description)
To the Board of Directors and Shareholders of DPL Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of results of operations and of cash flows present
fairly, in all material respects, the financial position of DPL Inc. and its
subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Dayton, Ohio
January 21, 1997
SELECTED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, June 30, September 30, December 31,
$ in millions except 1996 1995 1996 1995 1996 1995 1996 1995
per share amounts $ $ $ $ $ $ $ $
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Utility service
revenues 368.4 355.6 281.4 265.9 277.6 300.0 328.7 333.6
Income before income
taxes 103.5 97.0 57.1 53.7 68.2 66.1 47.6 50.3
Net income 63.8 60.8 34.8 34.6 41.8 39.5 32.5 29.8
Earnings per share of
common stock 0.63 0.60 0.35 0.34 0.42 0.39 0.32 0.30
Dividends paid per
share 0.325 0.31 0.325 0.31 0.325 0.31 0.325 0.31
Common stock market
price - High 26 22 24-3/8 23 24-3/8 23-1/8 24-7/8 25-3/8
- Low 23-1/8 20-1/8 22-1/8 20-7/8 22-5/8 21-7/8 23-1/4 23-1/8
</TABLE>
DPL 27 1996
<PAGE>
CORPORATE INFORMATION
TRANSFER AGENT AND REGISTRAR - COMMON STOCK AND DP&L
PREFERRED STOCK
Securities Transfer & Shareholder Inquires:
The First National Bank of Boston
c/o Boston EquiServe
P.O. Box 8040
Boston, MA 02266-8040
(617) 575-3100
(800 736-3001
Dividend Reinvestment:
The First National Bank of Boston
c/o Boston EquiServe
P.O. Box 8040
Boston, MA 02266-8040
Also dividend paying agent
(617) 575-3100
(800) 736-3001
Trustee - DP&L First Mortgage Bonds
The Bank of New York Corporate Trust Administration
101 Barclay Street
New York, NY 10286
Also interest paying agent
Securities Listing
The New York Stock Exchange is the only national securities
exchange on which DPL Inc. Common Stock and DP&L First
Mortgage Bonds are listed. The trading symbol of the Common
Stock is DPL.
FEDERAL INCOME TAX STATUS OF 1996 DIVIDEND PAYMENTS
Dividends paid in 1996 on Common and Preferred Stock are
fully taxable as dividend income.
Annual Meeting
The Annual Meeting of Shareholders will be held at 10:00
a.m., Tuesday, April 15, 1997, at Bellbrook High School,
Bellbrook, Ohio.
Communications
DPL Inc. staffs an Investor Relations Department to meet the
information needs of shareholders and investors. Inquires
are welcomed. Communications relating to shareholder
accounts should be directed to the DPL Investor Relations
Department (937) 259-7150 or (800) 322-9244 or to Boston
EquiServe (617) 575-3100 or (800) 736-3001.
Form 10-K Report
DPL Inc. reports details concerning its operations and other
matters annually to the Securities and Exchange Commission
on Form 10-K, which will be supplied upon request. Please
direct inquires to the Investor Relations Department.
OFFICERS--DPL INC. AND DP&L
(Age/Years of Service)
Peter H. Forster (54/23)
Chairman--DPL Inc. and DP&L
Allen M. Hill (51/29)
President and Chief Executive Officer--DPL Inc. and DP&L
Paul R. Anderson (54/18)
Controller--DP&L
Stephen P. Bramlage (50/28)
Assistant Vice President--DP&L
Jeanne S. Holihan (40/16)
Assistant Vice President--DP&L
Thomas M. Jenkins (45/19)
Group Vice President and Treasurer--DPL Inc. and DP&L
Stephen F. Koziar, Jr. (52/29)
Group Vice President and Secretary--DPL Inc. and DP&L
Judy W. Lansaw (45/18)
Group Vice President--DPL Inc. and DP&L
Bryce W. Nickel (40/16)
Assistant Vice President--DP&L
H. Ted Santo (46/25)
Group Vice President--DP&L
DIRECTORS
Burnell R. Roberts (2) (3)
Retired Chairman and Chief Executive Officer, The Mead
Corporation, Dayton, Ohio
David R. Holmes (1) (4)
Chairman, President and Chief Executive Officer, The
Reynolds and Reynolds Company, Dayton, Ohio
James F. Dicke, II (2) (3)
President, Crown Equipment Corporation, New Bremen, Ohio
Peter H. Forster (1) (3) (4)
Chairman, DPL Inc. and DP&L, Dayton, Ohio
W August Hillenbrand (2) (3)
President and Chief Executive Officer, Hillenbrand
Industries, Batesville, Indiana
Jane G. Haley (1) (4)
President and CEO, Gosiger, Inc., Dayton, Ohio
Allen M. Hill (1) (4)
President and Chief Executive Officer, DPL Inc. and DP&L,
Dayton, Ohio
Thomas J. Danis (1)
Former Chairman and Chief Executive Officer, The Danis
Companies, Dayton, Ohio
Ernie Green (1) (4)
President and Chief Executive Officer, Ernie Green
Industries, Dayton, Ohio
All Directors of DPL Inc. are also Directors of DP&L.
1996 Committee Assignments:
DPL Inc.--Finance and Audit Review (1)
Compensation and Management Review (2)
Executive (3)
DP&L--Community and External Relations (4)
DPL 28 1996
<PAGE>
DPL INC.
Courthouse Plaza Southwest
Dayton, Ohio 45402
(see appendix for photograph description)
[back cover]
<PAGE>
As required by Rule 304 of Regulation S-T, the following appendix lists
the graphic material contained in the 1996 Annual Report to Shareholders.
This graphic material, which appears in the paper copy of the report, was
omitted from the electronically filed copy of the report.
APPENDIX
PAGE ITEM DESCRIPTION
- ---- ----- -----------
Cover: Artwork: Logo - DPL Inc.
Photograph: Picture of a family in an outdoor setting making use
of products local in nature.
Inside
Cover: Artwork: Map of the State of Ohio with DP&L service territory
highlighted.
Page 2: Bar Chart: Earnings Per Share
------------------
1994 $1.54
1995 $1.63
1996 $1.72
Bar Chart: Dividends Per Share
-------------------
1994 $1.18
1995 $1.24
1996 $1.30
Page 3: Photograph: The directors of DPL Inc. are pictured individually
with their names appearing below the photographs as
follows:
Thomas J. Danis, James F. Dicke, II, Peter H.
Forster, Ernie Green, Jane G. Haley, Allen M. Hill,
W August Hillenbrand, David R. Holmes,
Burnell R. Roberts
Page 4: Artwork: Illustration of proximity between Interstates 70,
71 & 75.
Page 5: Photograph: Two truck drivers pictured with a tractor-trailer
from R&L Carriers.
Page 6: Photograph: Two workers walking in front of corn processing
equipment at Cargill Incorporated.
Page 7: Logo: "DP&L" logo and "Way To Go" logo, the umbrella name
for energy conservation programs of the Company.
Logo contains the phrase, "Energy Smart Money Wise".
Page 8: Artwork: Map of the State of Ohio, with DP&L service territory
highlighted, along with international flags staked to
the service territory portion of the map.
Page 9: Photograph: Manufacturing robot performing job duties at Motoman.
Page 10: Photograph: Representation of DP&L employee giving a presentation
to young students in a school classroom.
Page 11: Logo: "DP&L" logo and "Way To Go" logo, the umbrella name
for energy conservation programs of the Company.
Logo contains the phrase, "Knowledge Powers Business".
Page 12: Graph: Average Annual Electric Prices
Adjusted For Inflation
cents/kWh
1987 = 5.6 1992 = 4.6
1988 = 5.2 1993 = 4.8
1989 = 5.1 1994 = 5.1
1990 = 5.0 1995 = 4.5
1991 = 4.9 1996 = 4.5
Page 13: Bar Charts: Electric Revenues
$ in millions
------------------
1994 1995 1996
------------------
Residential 390 422 423
Commercial 218 238 237
Industrial 229 224 223
Other 109 146 133
------------------
Total 946 1,030 1,016
Gas Revenues
$ in millions
------------------
1994 1995 1996
------------------
Residential 157 149 157
Commercial 42 39 44
Industrial 15 11 14
Other 23 23 24
------------------
Total 237 222 239
Total Taxes
$ in millions
--------------
1994 1995 1996
--------------
222 228 233
Electric Sales
Thousands of GWH
------------------
1994 1995 1996
------------------
Residential 4.4 4.9 4.9
Commercial 3.1 3.4 3.4
Industrial 4.4 4.4 4.5
Other 2.3 4.1 3.5
------------------
Total 14.2 16.8 16.3
Gas Sales
Millions of MCF
------------------
1994 1995 1996
------------------
Residential 28 29 31
Commercial 8 8 9
Industrial 3 3 4
Transportation
& Other 18 20 20
------------------
Total 57 60 64
Operating Expenses
$ in millions
------------------
1994 1995 1996
-------------------
Fuel & Purchased Power 221 258 235
Gas Purchased for Resale 151 133 145
Operating and Maintenance 245 272 266
-------------------
Total 617 663 646
Average Price-Electric
Calendar Year
cents/kWh
----------------------
1994 1995 1996
----------------------
6.59 6.07 6.16
Average Price-Gas
Calendar Year
$/MCF
------------------
1994 1995 1996
------------------
5.44 4.90 4.85
Construction Costs
$ in millions
------------------
1994 1995 1996
------------------
101 87 116
Page 27: Artwork: Logo for Price Waterhouse LLP (Independent Auditors)
Back
Cover: Photograph: Young female student sitting in school classroom
wearing a DP&L hard hat and lineman glove.
Exhibit 21
SUBSIDIARIES OF DPL INC.
DPL Inc. had the following wholly owned subsidiaries on
March 31, 1997:
State of
Name Incorporation
- ---- -------------
The Dayton Power and Light Company Ohio
Miami Valley Insurance Company Vermont
Miami Valley Leasing, Inc. Ohio
Miami Valley Resources, Inc. Ohio
Miami Valley Lighting, Inc. Ohio
Miami Valley Development Company Ohio
Miami Valley CTC, Inc. Ohio
DPL Energy, Inc. Ohio
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statement
on Form S-3 (Registration No. 33-34316) of DPL Inc., with
respect to its Automatic Dividend Reinvestment and Stock
Purchase Plan, and Post-Effective Amendment No. 3 on Form S-
8, to DPL Inc.'s Registration Statement on Form S-4
(Registration No. 33-2551), with respect to The Dayton Power
and Light Company's Employees' Stock Plan, of our report
dated January 21, 1997, appearing on page 27 of the Annual
Report to Shareholders, which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation
by reference of our report on the Financial Statement
Schedules, which appears on page II-2 of this Form 10-K.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Dayton, Ohio
March 27, 1997
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