-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IrixPTrbzA4On4iUvUzJ2GEK0IkIpTRjSEy32cUQbccHlMkeP9Plr+WvB88OGdQp MiG5Hs4JETHI/x9lsbgczQ== 0000787250-97-000006.txt : 19970328 0000787250-97-000006.hdr.sgml : 19970328 ACCESSION NUMBER: 0000787250-97-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DPL INC CENTRAL INDEX KEY: 0000787250 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 311163136 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09052 FILM NUMBER: 97564480 BUSINESS ADDRESS: STREET 1: PO BOX 8825 CITY: DAYTON STATE: OH ZIP: 45401 BUSINESS PHONE: 5132246000 MAIL ADDRESS: STREET 1: PO BOX 8825 CITY: DAYTON STATE: OH ZIP: 45401 10-K 1 1996 SEC FORM 10-K DPL INC. 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 ------ 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. PART I Item 1 - Business* - ------------------------------------------------------------------------ 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. I-1 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. I-2 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. I-3 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. I-4 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. I-5 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. I-6 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 I-7 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. I-8 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. I-9 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 ====== ====== 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... I-10 ...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. I-11 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. I-12 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 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 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 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 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 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 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 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 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 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 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 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 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 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
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---------------------- 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.
IV-7 EX-13 2 1996 DPL INC. ANNUAL REPORT (see appendix for logo description) caption to photograph: 1996 ANNUAL REPORT Growing With Our Customers (see appendix for photograph description) [cover] 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] 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 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 ... 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 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 (see appendix for photograph description) (see appendix for photograph description) ...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 ...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 (see appendix for photograph description) (see appendix for photograph description) ...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 ...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 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 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 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 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 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 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 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 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 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 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 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
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 - ------------------------------------------------------------------------------------------------------- 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.
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 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 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 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
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 $ $ $ $ $ $ $ $ - --------------------------------------------------------------------------------------- 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
DPL 27 1996 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 DPL INC. Courthouse Plaza Southwest Dayton, Ohio 45402 (see appendix for photograph description) [back cover] 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. EX-21 3 1996 DPL INC. LIST OF SUBSIDIARIES 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 EX-23 4 1996 DPL INC. CONSENT OF ACCOUNTANTS 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 EX-27 5 1996 DPL INC. FINANCIAL DATA SCHEDULE
UT 1,000 YEAR DEC-31-1996 DEC-31-1996 PER-BOOK 2268900 0 491500 359700 298600 3418700 1100 654700 544700 1200500 0 22900 1014300 0 0 10000 42400 0 0 0 1128600 3418700 1256100 103500 915800 1019300 236800 26000 262800 89000 173800 900 172900 131200 87700 338100 1.72 1.72
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