(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.