1998 Annual Report
DPL The Holding Company for The Dayton Power and Light Company
Among the best --- and working to be even better
(see appendix for photograph description)
[cover]
CORPORATE PROFILE
DPL Inc.'s 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 490,000 retail customers. Natural gas is
provided to 305,000 customers in 16 counties. The corporate
offices of DPL Inc. are located at:
Courthouse Plaza Southwest, Dayton, Ohio 45402
(937) 224-6000
ABOUT THE COVER
DPL Inc. remains focused on achieving industry leading
operational and financial performance. We have built an
outstanding record of productivity and efficiency, along with a
high level of reliability for our customers. One hallmark of our
success is our ability to develop customized and innovative
solutions for our customers' energy needs. Achievements and
programs such as these have established a strong competitive
position for the Company, and have prepared us for future
success, as we enter a changing energy environment.
(see appendix for photograph description)
(see appendix for logo description)
[inside front cover]
FINANCIAL & OPERATING HIGHLIGHTS
1998 1997 % change
- ------------------------------------------------------------------------
Financial Performance:
- ---------------------
Earnings per share of common stock $ 1.24 1.20 3
Dividends paid per share $ 0.94 0.91 3
Return on shareholders' equity % 14.1 14.6
Return on total capital % 11.8 11.8
Market value per share at December 31 $ 21 5/8 19 3/16 13
Book value per share at December 31 $ 9.01 8.45 7
Total electric and natural gas
utility revenues (millions) $ 1,281.9 1,251.5 2
Taxes per share $ 1.68 1.58 6
Average number of common shares
outstanding (millions) 152.8 151.4 1
Cash provided by operating
activities (millions) $ 309.6 339.9 (9)
First Mortgage Bond Ratings:
- ---------------------------
Duff & Phelps, Inc. AA AA
Standard & Poor's Corporation AA- AA-
Moody's Investor Service Aa3 Aa3
Capital Investment Performance:
- ------------------------------
Construction additions (millions) $ 111.5 110.6 1
Construction expenditures paid
from internal funds % 100 100
DP&L Operating Performance:
- --------------------------
Electric--
Average price per kWh--retail
and wholesale customers (calendar
year) (cents) 6.03 6.01 -
Fuel efficiency--
Heat rate - Btu per kWh 9,903 9,931 -
Industry average 10,324 10,359 -
Fuel savings (millions) $ 9.3 9.2 1
System peak load - MW (calendar year) 3,007 2,848 6
Gas--
Average price per MCF - total
(calendar year) $ 3.93 3.93 -
TOTAL RETURN-FIVE YEAR
AVERAGE ANNUAL RETURN
Percent - with dividends reinvested
(see appendix for bar graph description)
EARNINGS PER SHARE
Dollars
(see appendix for bar graph description)
DIVIDENDS PER SHARE
Dollars
(see appendix for bar graph description)
DPL 1998 Annual Report 1
Among the best and working to be even better!
Dear Shareholder:
Creating shareholder value, regardless of changing market conditions or
industry restructuring, is our challenge. We are committed to maximizing
the opportunities and overcoming the obstacles that present themselves
every year. This past year was no exception.
1998 was a successful year. Earnings increased to $1.24 from $1.20
last year. We split the stock three-for-two in January 1998. And despite
major legislative uncertainty, increased dividends to $0.94 per share.
DPL Inc. was selected to the S&P 400, an index with about $20 billion
in total investment, and our stock achieved an all-time high of $21-5/8.
Our total return to you in 1998 was over 18% and has averaged more than
18% for the last ten years. $1,000 invested in DPL in 1988 is worth
$5,436 at the end of 1998, an accomplishment we are proud of.
Excellent performance by all of our team members, operations in both
customer service and power plants, and the dedication to produce results
when they count most, get the credit for this outstanding year. Our
focus on providing reliable service and efficiently running and
maintaining our systems again paid off.
You have read about changes in the electric industry as they sweep
across the nation - mergers, acquisitions, swaps, asset sales and
purchases. Ohio is on the threshold of enacting...
Caption to photograph:
Board of Directors
Thomas J. Danis, James F. Dicke, II, Peter H. Forster, Ernie Green
(see appendix for photograph description)
DPL 1998 Annual Report 2
...major legislation which will deregulate the electric industry,
dramatically changing the way customers buy energy, and modifying the
expected returns in our portfolio of businesses. Accordingly, it will
be even more important to match our business strengths with the right
business units.
We feel confident that like changes in any industry, change in our
electric business will bring with it new and exciting opportunities to
increase shareholder value. Our focus will be to take advantage quickly
of favorable opportunities and minimize the financial risk of new
ventures by diversifying capital allocation to investments which have a
high near term return.
We will continue to shape the Company in a way that takes advantage of
our strengths and provides you, our shareholder, with a meaningful return.
Best regards,
/s/Peter H. Forster
Peter H. Forster
Chairman, DPL Inc.
/s/Allen M. Hill
Allen M. Hill
President and Chief Executive
Officer, DPL Inc.
Caption to photograph:
Board of Directors
Jane G. Haley, Allen M. Hill, W August Hillenbrand, David R.
Holmes, Burnell R. Roberts
(see appendix for photograph description)
DPL 1998 Annual Report 3
SUPERIOR OPERATIONS
DPL Inc. continued to focus on fundamentals in 1998 and produced solid
results. Superior operating performance in all areas of our business,
attention to costs, and a total customer focus all contributed to our
strong financial performance. Excellence in these fundamentals is an
important component to our continuing success as the electric industry
begins its transition towards customer choice. The strong West Central
Ohio economy, a quality total energy product and competitive prices for
our customers further improve our competitive position.
In 1998, customer accounts grew by 9,000 for both our electric and
natural gas businesses and our total electric sales were up five percent
over 1997 sales. The base of industrial and commercial customers
increased and, when coupled with the expansion of existing facilities,
resulted in the strong sales growth. Last year, Ohio again ranked among
the leaders nationally for economic development, with over 1,200 new and
expanded corporate facilities. Ohio was first in the nation in
attracting international firms, with 187 projects. Since 1995, Ohio has
added over 2,900 corporate facilities and expansions, with over 550
additional manufacturing projects.
West Central Ohio was a significant contributor to the state's overall
economic performance. Local companies invested nearly $800 million in
the regional economy, the highest level in five years. Over 5,000 new
jobs were created, and the unemployment rate of 3.7% in the communities
we serve continues to be lower than both Ohio and the nation.
DP&L was awarded the Grand Prize from the editors of Business
Facilities magazine for our Partners in Business Plus program.
DP&L - Way to Go - Partners in Business Plus
caption to logo:
Partners in Business Plus is DP&L's award-winning economic
development program.
(see appendix for logo description)
caption to photograph:
New microprocessor-based Distributed Control Systems allow
precise monitoring of generating unit performance.
(see appendix for photograph description)
DPL 1998 Annual Report 4
caption to photograph:
Neaton Auto products, located in Eaton, Ohio, manufactures
steering wheels and other injection molded parts for several
automobile manufactures. DP&L's Partners in Business Plus
program, along with expert engineering advice from DP&L's Energy
Resource Center, has aided Neaton's steady growth.
(see appendix for photograph description)
DPL 1998 Annual Report 5
caption to photograph:
Packaging Resources, in New Vienna, Ohio, is a plastic injection
molding and thermoforming facility that manufactures products for
the food industry. DP&L has worked with Packaging Resources in
their business expansion, upgrading equipment and analyzing
reliability trends. As a large volume food packaging and drink
cup supplier, Packaging Resources has developed many partnerships
with major customers in the marketplace.
(see appendix for photograph description)
DPL 1998 Annual Report 6
SUPERIOR OPERATIONS
The diversity of programs offered to customers, and the innovation,
effectiveness and pro-business climate were among the factors noted by
judges. The Partners in Business Plus program has had 400 companies
participate since 1997, creating more than 1,600 jobs and more than $72
million in capital investment.
We believe the Ohio legislature will introduce legislation in 1999
that will make customer choice a reality. The new rules should be fair
for customers, shareholders and all other concerned parties. This
change will create opportunities to refine our business portfolio.
As we transition to a more competitive environment, customer service
satisfaction will be a major advantage. Our service indicators were at
record levels in 1998, with 97% of our customers expressing positive
satisfaction with the quality of service they receive and 94% satisfied
overall with The Dayton Power and Light Company as their energy
provider. Our history of delivering high reliability energy at
competitive prices goes a long way to enhancing our customer satisfaction.
Our electric generating assets have a strong competitive profile from
the standpoint of reliability, productivity and efficiency making us
one of the lowest cost producers in the region. All of our base-load
capacity is coal-fired, with the majority located on the Ohio River
with easy access to abundant regular and low sulfur coal reserves in
Central Appalachia. Our fuel costs rank among the lowest in the
Midwest reflecting the high degree of flexibility in our coal contracts.
QUALITY OF SERVICE
Percent positive responses
(see appendix for bar graph description)
caption to bar graph:
In frequent surveys, our customers tell us that they are satisfied with
the quality of service they receive from DP&L, consistently ranking at
the 96% level or higher.
caption to photographs:
The location of DP&L generating units on the Ohio River allows for
choices in the method of transportation of coal to the units.
Transportation is a significant component of total fuel cost and this
flexibility helps us keep our energy prices competitive.
(see appendix for photograph description)
DPL 1998 Annual Report 7
SUPERIOR OPERATIONS
Productivity measures, such as equivalent forced outage rate and
equivalent availability, rank DP&L among the best in the industry.
Over the past decade, we have employed a maintenance philosophy founded
on the concept of "Plan, Predict and Prevent". Plants are maintained
so that they will be ready to deliver when they are needed most.
Maintenance is performed during off-peak times and is designed to
prevent problems before they happen. As a result, we achieve high
reliability while keeping costs down.
Our maintenance strategy paid off during a stretch of extreme
temperatures in June. At that time, numerous power plants in the
Midwest were not available for operation. With the hot weather
increasing demand and straining the electrical systems throughout the
region, electricity became a scarce commodity and prices soared to as
much as 300 times above normal. Many utilities were unable to meet the
needs of their customers. Because of the exceptional performance of
our employees and the reliability of our system, all of our generating
units were available. We met the needs of our customers without
purchasing premium priced replacement power. In fact, a report
released by the Public Utilities Commission of Ohio recognized The
Dayton Power and Light Company as being Ohio's only major electric
company that did not have to curtail power to its customers.
On July 21, we recorded a peak usage of 3,007,000 kilowatts, exceeding
our previous peak set in 1995 by nearly 2%. The economic growth along
with hot summer temperatures resulted in this all-time record level of
peak electricity usage by our customers.
caption to photograph:
Sophisticated testing equipment communicates with "smart"
transmitters to measure levels of air and water flow for boilers
and pumps.
(see appendix for photograph description)
Caption to photograph:
Stuart Station, like most of DP&L's base-load generation, is
located on the Ohio River with easy access to plentiful, low cost
coal supplies.
(see appendix for photograph description)
DPL 1998 Annual Report 8
PLAN, PREDICT AND PREVENT
Caption to photograph:
Our operating philosophy to Plan, Predict and Prevent contributed
to our superior operational performance and enhances our
competitive position.
(see appendix for photograph description)
PRODUCTIVITY
percent better than industry average
Caption to bar graph:
Productivity of electric generating units is measured by
equivalent forced outage rate (EFOR) and DP&L-operated units
perform better than the industry average.
(see appendix for bar graph description)
DPL 1998 Annual Report 9
Caption to photograph:
"At DP&L we're using the latest technologies to deliver reliable,
low-cost power."
(see appendix for photograph description)
DPL 1998 Annual Report 10
SUPERIOR OPERATIONS
In order to meet the record-setting demands for electricity by our
customers we have added three natural gas-fired peaking units to our
system over the past four years. These units are economical to
construct and can be brought on-line quickly to meet peak energy
requirements. We have sites for further expansion of such units to
help meet our peak needs.
DP&L has one of the best records of production efficiency, as measured
by heat rate, in the industry, ranking second in the Midwest in 1997
and consistently in the top ten nationally. Heat rate shows how
efficiently coal is converted to electricity and contributes to our low
electric fuel costs. This performance translates into over $9 million
of savings for our customers. Efficiency in power production is key to
controlling costs and providing competitively priced energy.
One of our plants, Killen Station, gained national recognition for its
efficient performance from NUS Information Services, a worldwide energy
consulting firm. DP&L is recognized as one of the best companies in
the industry in cost control. Annually, the operating and maintenance
expenses per kilowatt hour produced at our generating units are the
lowest in the Midwest and in the lowest quartile nationally. As the
generation market will be the first to open to competition, being among
the best in the industry in cost, productivity and reliability is a
significant platform for our future success.
Our natural gas costs in 1998 were the lowest in Ohio. The ability to
provide customers with both natural gas and electricity is also a key
strategic advantage. Our natural gas business strengthens our position
within the region by allowing us to provide a price competitive total
energy package to our customers. Access to five major pipelines
contributes to adequate supply from several natural gas production...
EFFICIENCY-HEAT RATE
Total System, Btu per kWh
Caption to line graph:
Heat rate measures the efficiency of how well coal is converted to
electricity, with a lower number representing higher efficiency.
DP&L's heat rate ranks among the top ten in the nation and is
consistently better than the industry average, helping to keep
costs low.
(see appendix for line graph description)
GENERATION OPERATING AND MAINTENANCE EXPENSE
Cents/kWh
Caption to bar graph:
DP&L operating and maintenance expenses for generation rank as
the lowest in the Midwest and in the lowest quartile nationally.
(see appendix for bar graph description)
DPL 1998 Annual Report 11
SUPERIOR OPERATIONS
...regions and provides us superior procurement capabilities. We also
have the ability to offer customers unique solutions for their natural
gas needs by managing supply and utilizing storage as weather
conditions change. The end result is a service that enhances customer
satisfaction and our competitive position.
Conservative management of our capital structure provides the
foundation to take advantage of opportunities in the changing energy
industry. Stable AA credit ratings from all three major rating
agencies reflect our strong financial position and lower risk profile.
We have consistently achieved superior earnings and dividend growth.
In 1998, we grew earnings to $1.24 per share, an increase of more than
three percent over 1997 earnings of $1.20 per share. Our ability to
control costs and adjust our operations to allow for weather
uncertainty was critical this year. All aspects of our business
performed at superior levels and all contributed to our financial
results.
The stock closed the year at a record high of $21 5/8, a 13% increase
over the year-end price in 1997. Total return to shareholders was more
than 18% in 1998, and has averaged more than 18% annually over the last
ten years. We will continue to pursue financial performance objectives
that provide you with a return on your investment that places us in the
top quartile in the industry.
We will continue to focus on the fundamentals that will only increase
in importance in a competitive environment. We will concentrate on
businesses in our portfolio that, as a result of the deregulation of
the electric industry, are the most profitable and achieve the highest
returns. Capital will be allocated to projects that generate the
highest near-term shareholder value. And, finally, all of us commit to
bring you top of the industry results in the exciting future that awaits.
DP&L - The Way to Go - Personally
caption to logo:
Way to Go Personally programs provide energy services tailored to
the individual needs of customers.
(see appendix for logo description)
CREDIT RATINGS
(see appendix for line graph description)
DPL 1998 Annual Report 12
FINANCIAL REVIEW
ELECTRIC UTILITY REVENUES GAS UTILITY REVENUES TOTAL TAXES
$ in millions $ in millions $ in millions
(see appendix for bar (see appendix for bar (see appendix for bar
graph description) graph description) graph description)
ELECTRIC UTILITY SALES GAS UTILITY SALES OPERATING EXPENSES
Thousand of GWH Millions of MCF $ in millions
(see appendix for bar (see appendix for bar (see appendix for bar
graph description) graph description) graph description)
AVERAGE PRICE-ELECTRIC TOTAL AVERAGE PRICE-GAS CONSTRUCTION EXPENDITURES
CALENDAR YEAR CALENDAR YEAR $ in millions
cents/kWh $/MCF
(see appendix for bar (see appendix for bar (see appendix for bar
graph description) graph description) graph description)
DPL 1998 Annual Report 13
Financial and Statistical Summary DPL Inc.
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
For the years ended December 31,
DPL
Inc.: Earnings per share of common stock $ 1.24 1.20 1.15 1.09 1.03
Dividends paid per share $ 0.94 0.91 0.87 0.83 0.79
Dividend payout ratio % 75.8 75.8 75.7 76.1 76.7
Net income (millions) $ 189.1 181.4 172.9 164.7 154.9
Utility service revenues
(millions) $1,281.9 1,252.2 1,256.1 1,255.1 1,187.9
Construction additions
(millions) $ 111.5 110.6 115.5 87.3 101.1
Market value per share at
December 31 $ 21-5/8 19-3/16 16-3/16 16-1/2 13-11/16
DP&L: Electric sales (millions of kWh) --
Residential 4,790 4,788 4,924 4,871 4,465
Commercial 3,518 3,408 3,407 3,425 3,068
Industrial 4,655 4,749 4,540 4,401 4,388
Other 4,518 3,664 3,443 4,117 2,298
------ ------ ------ ------ ------
Total 17,481 16,609 16,314 16,814 14,219
Gas sales (thousands of MCF) --
Residential 24,877 29,277 31,087 29,397 27,911
Commercial 7,433 9,567 9,424 8,307 8,081
Industrial 1,916 2,520 3,404 2,584 3,150
Other 1,699 2,153 2,829 3,006 2,909
Transported gas 17,788 18,523 16,953 16,376 15,147
------ ------ ------ ------ ------
Total 53,713 62,040 63,697 59,670 57,198
At December 31,
DPL
Inc.: Book value per share $ 9.01 8.45 7.97 7.69 7.45
Total assets (millions) $3,855.9 3,585.2 3,418.7 3,322.8 3,232.7
Long-term debt (millions) $1,065.9 971.0 1,014.3 1,081.5 1,093.7
DP&L: First mortgage bond ratings --
Duff & Phelps, Inc. AA AA AA AA AA
Standard & Poor's Corporation AA- AA- AA- AA- AA-
Moody's Investors Service Aa3 Aa3 Aa3 Aa3 A1
Number of Shareholders
DPL
Inc.: Common 41,791 43,689 46,532 48,919 51,270
DP&L: Preferred 559 625 684 733 795
DPL 1998 Annual Report 14
Financial Review
- ----------------
Income Statement Highlights
- ---------------------------
$ in millions except per share amounts 1998 1997 1996
- -------------------------------------------------------------------
Electric Utility:
Revenues $1,071 $1,008 $1,014
Fuel and purchased power 257 227 234
------ ------ ------
Net revenues 814 781 780
Gas Utility:
Revenues 211 244 239
Gas purchased for resale 128 151 145
------ ------ ------
Net revenues 83 93 94
Other income 98 104 74
Operation and maintenance expense 236 256 266
Income taxes 120 105 104
Net income 189 181 173
Earnings per share of common stock 1.24 1.20 1.15
The 1998 earnings increased to $1.24 per share, compared to earnings per
share of $1.20 in 1997 and $1.15 in 1996.
In 1998, electric revenues increased 6% due to higher sales to other
public utilities and commercial business customers. Fuel and purchased
power expense increased 13% primarily related to the higher sales. In
1997, a 3% decline in electric residential sales resulted in slightly
lower revenue which offset a 3% increase in sales to business customers
and higher sales to other public utilities.
Utility gas revenues and gas purchased for resale in 1998 decreased 13%
and 15%, respectively, due to the effects of milder weather. Gas utility
revenues increased 2% in 1997 due to increased sales to business customers.
Other income decreased 6% in 1998 due to lower non-utility revenue partially
offset by increased investment income. The 40% increase in 1997 resulted
from higher non-utility revenues and increased investment income.
Operation and maintenance expense decreased 8% in 1998 due to lower
insurance, claims and production maintenance costs. These decreases were
partially offset by increased compensation and benefit expense and higher
electric distribution maintenance. Operation and maintenance expense
decreased 4% in 1997 due to cost containment efforts and lower
actuarially-determined benefit expense.
Regulatory assets recorded during the phase-in of electric rates are
being amortized and recovered in current revenues. Once the phase-in
balance is fully recovered, the 1992 stipulation provides that revenues
will be used for accelerated recovery of production plant costs. 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 provided for 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%. 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. In 1998, amortization of regulatory
assets included an additional $10 million of accelerated cost recovery.
Depreciation and amortization expense increased 3% in 1998 and 2% in 1997
primarily as a result of increased depreciable assets.
General taxes increased 2% in 1998 and 3% in 1997 as a result of higher
property taxes from additional property.
Interest expense increased 7% in 1998 primarily due to higher short-term
debt. Interest expense declined 3% in 1997 primarily due to the
redemption of first mortgage bonds.
Certain risks of DPL Inc. and its subsidiaries are insured through a
wholly-owned captive insurance company. Decreases in insurance and claims
cost balances resulted primarily from lower actuarially-determined reserve
requirements, which were partially offset by additional insurance coverage.
Credit Ratings
- --------------
DP&L's senior debt credit ratings are as follows:
Duff & Phelps, Inc. AA
Standard & Poor's Corporation AA-
Moody's Investors Service Aa3
Each rating was affirmed in 1998 by its respective rating agency.
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.
Construction Program and Financing
- ----------------------------------
Construction additions were $111 million in 1998 and 1997 and
$116 million in 1996. The capital program for 1999 consists of
construction costs of approximately $82 million.
During 1998, total cash provided by operating activities was $310 million.
At year-end, cash and temporary cash investments were $14 million, and
debt and equity financial assets were $697 million. Cash and financial
assets are held with a view towards investing in future opportunities
in the industry.
In May 1998, DPL Inc. issued $100 million of a new series of Senior Notes
due 2008 with an interest rate of 6.25%.
DPL 1998 Annual Report 15
In December 1997, DP&L redeemed a series of first mortgage bonds in the
principal amount of $40 million with an interest rate of 8.0%. The bonds
had been scheduled to mature in 2003. Another series of first mortgage
bonds in the principal amount of $40 million matured in 1997. 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. Sinking fund payments for the five years
ended 2003 are $32 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.
In addition, DPL Inc. has revolving credit agreements which allow total
borrowings by DPL Inc. and its subsidiaries of $300 million. At year-end
1998, DPL Inc. had no outstanding borrowings under these credit
agreements. DPL Inc. also has $15 million available in a short-term
informal line of credit. At year-end 1998, DPL Inc. had $15 million in
borrowings outstanding from this line.
DP&L also has $97 million available in short-term lines of credit. At
year-end, DP&L had $81 million and $10 million outstanding from these
lines of credit for 1998 and 1997, respectively, and $99 million and $70
million in commercial paper outstanding for 1998 and 1997, respectively.
A three-for-two common stock split effected in the form of a stock
dividend was paid on January 12, 1998 to stockholders of record on
December 16, 1997.
Issues and Financial Risks
- --------------------------
This report contains certain forward-looking statements regarding plans
and expectations for the future. Investors are cautioned that actual
outcomes and results may vary materially from those projected due to
various factors beyond DP&L's control, including abnormal weather,
unusual maintenance or repair requirements, changes in fuel costs,
increased competition, regulatory changes and decisions, changes in
accounting rules and adverse economic conditions.
Computer applications of many companies may not properly recognize dates
beginning with the year 2000. This "Y2K" issue, if not corrected, could
cause disruptions in information technology systems and operating control
systems.
DP&L has implemented a plan to identify and correct Y2K issues in its
computer applications. This plan includes (1) evaluation of applications
and systems, (2) assessment of Y2K errors, (3) correction of errors and
(4) testing of applications and systems. At year end, the evaluation and
assessment phases are substantially complete. The correction and testing
phases continue on schedule and are expected to be completed in the third
quarter of 1999. The estimated cost of this corrective action is $20
million, and includes modification and replacement of hardware and software.
The electric industry relies on computer applications to monitor and
control interdependent power systems. These systems are also susceptible
to Y2K problems. The utility industry has organized work groups to
identify and solve potential problems. DP&L is evaluating the possibility
of Y2K disruptions in the industry and is adopting proper contingency plans.
The United States and Ohio Environmental Protection Agencies ("EPA") have
notified numerous parties, including DP&L, that they are considered
"Potentially Responsible Parties" for clean up of two hazardous waste sites
in Ohio. The United States EPA has estimated total costs of under
$10 million for its preferred clean-up plans at one of these sites. The
Ohio EPA has not provided an estimated cost for the second site. During
1998, DP&L settled its potential liability for two other sites at a minimal
cost. The final resolution of the remaining investigations will not have a
material effect on DP&L's financial position, earnings or cash flow.
In September 1998, the United States EPA issued a final rule requiring
states to modify their State Implementation Plans ("SIPs") under the Clean
Air Act. The modified SIPs are likely to result in further NOx reduction
requirements placed on coal-fired generating units by 2003. In order to
meet these NOx requirements, DP&L's total capital expenditures are
estimated to be approximately $175 million over the next five years.
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 under existing rules are based on historical costs,
cash flows may not cover the total future costs of providing services.
Restructuring of the electric utility industry continued to evolve in
1998. Legislative proposals have been introduced in Congress and in Ohio
concerning electric 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 and that future cash flows and operating results may be adversely
impacted.
DP&L is part of a legislative work group addressing issues pertaining to
restructuring the electric industry, including taxes. In September 1998,
the major Ohio electric utilities, including DP&L, offered a comprehensive
restructuring proposal.
In 1996 and 1997, the Federal Energy Regulatory Commission ("FERC")
issued orders creating a more competitive wholesale electric power market.
These orders required all electric utilities that own or control
transmission facilities to file open-access transmission service tariffs.
In 1997, DP&L reached an agreement in principle with staff and intervenors
in its first pending tariff case and filed a subsequent case based on an
updated test year. In December 1998, DP&L was able to negotiate terms of
settlement in reaching an agreement in principle with staff and intervenors
in the second pending tariff case.
DPL 1998 Annual Report 16
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS DPL INC.
For the years ended December 31,
$ in millions except per share amounts 1998 1997 1996
- -----------------------------------------------------------------------------
Income
Utility service revenues --
Electric $1,070.7 $1,007.8 $1,014.1
Gas 211.2 244.4 242.0
Other income 97.7 103.6 74.2
-------- -------- --------
Total income 1,379.6 1,355.8 1,330.3
-------- -------- --------
Expenses
Fuel and purchased power 257.4 227.9 234.9
Gas purchased for resale 186.4 219.5 193.0
Operation and maintenance 235.9 256.1 265.7
Depreciation and amortization (Note 1) 127.1 123.5 121.0
Amortization of regulatory assets, net
(Note 2) 33.0 20.9 19.7
General taxes 136.5 133.8 129.7
Interest expense 93.8 87.3 89.9
-------- -------- --------
Total expenses 1,070.1 1,069.0 1,053.9
-------- -------- --------
Income Before Income Taxes 309.5 286.8 276.4
Income taxes (Notes 1 and 3) 120.4 105.4 103.5
-------- -------- --------
Net Income $ 189.1 $ 181.4 $ 172.9
======== ======== ========
Average Number of Common Shares
Outstanding (millions) 152.8 151.4 150.9
Earnings Per Share of Common Stock $ 1.24 $ 1.20 $ 1.15
Dividends Paid Per Share of Common Stock $ 0.94 $ 0.91 $ 0.87
See Notes to Consolidated Financial Statements.
DPL 1998 Annual Report 17
CONSOLIDATED STATEMENT OF CASH FLOWS DPL INC.
For the years ended December 31,
$ in millions 1998 1997 1996
- ----------------------------------------------------------------------------
Operating Activities
Cash received from utility customers $1,255.7 $1,228.1 $1,228.9
Other operating cash receipts 85.3 88.2 87.0
Cash paid for:
Fuel and purchased power (266.5) (235.9) (207.6)
Purchased gas (197.2) (236.1) (211.6)
Operation and maintenance labor (85.4) (83.2) (87.4)
Nonlabor operating expenditures (125.9) (96.4) (149.3)
Interest (89.6) (85.2) (87.7)
Income taxes (135.5) (108.8) (108.1)
Property, excise and payroll taxes (131.3) (130.8) (126.1)
-------- -------- --------
Net cash provided by operating
activities (Note 11) 309.6 339.9 338.1
-------- -------- --------
Investing Activities
Property expenditures (106.7) (113.7) (108.8)
Other activities (265.7) (178.0) (144.4)
-------- -------- --------
Net cash used for investing activities (372.4) (291.7) (253.2)
-------- -------- --------
Financing Activities
Dividends paid on common stock (143.6) (137.2) (131.2)
Issuance of long-term debt 98.5 - -
Issuance of short-term debt 79.2 105.7 10.0
Issuance of common stock 19.7 19.5 -
Retirement of long-term debt (3.4) (82.9) (25.5)
Purchase of treasury stock - - (15.8)
-------- -------- --------
Net cash provided by (used for)
financing activities 50.4 (94.9) (162.5)
-------- -------- --------
Cash and temporary cash investments -
Net change (12.4) (46.7) (77.6)
Balance at beginning of year 26.1 72.8 150.4
-------- -------- --------
Balance at end of year $ 13.7 $ 26.1 $ 72.8
======== ======== ========
See Notes to Consolidated Financial Statements.
DPL 1998 Annual Report 18
CONSOLIDATED BALANCE SHEET DPL INC.
At December 31,
$ in millions 1998 1997
- ------------------------------------------------------------------------
Assets
Property $3,743.3 $3,642.8
Accumulated depreciation and amortization (1,504.6) (1,386.6)
-------- --------
Net property 2,238.7 2,256.2
-------- --------
Current Assets
Cash and temporary cash investments 13.7 26.1
Accounts receivable, net (Note 1) 227.7 211.4
Inventories, at average cost 112.4 87.5
Taxes applicable to subsequent years 93.4 91.9
Other current assets 47.6 54.2
-------- --------
Total current assets 494.8 471.1
-------- --------
Other Assets
Financial assets 697.1 384.0
Income taxes recoverable through future
revenues (Notes 1 and 2) 195.5 208.2
Other regulatory assets (Note 2) 82.2 116.7
Other 147.6 149.0
-------- --------
Total other assets 1,122.4 857.9
-------- --------
Total Assets $3,855.9 $3,585.2
======== ========
Capitalization and Liabilities
Capitalization
Common shareholders' equity (Note 6)--
Common stock $ 1.6 $ 1.6
Other paid-in capital 799.0 777.3
Common stock held by employee plans (94.4) (98.0)
Accumulated other comprehensive income 47.2 19.9
Earnings reinvested in the business 630.3 585.2
-------- --------
Total common shareholders' equity 1,383.7 1,286.0
Preferred stock (Note 9) 22.9 22.9
Long-term debt (Note 8) 1,065.9 971.0
-------- --------
Total capitalization 2,472.5 2,279.9
-------- --------
Current Liabilities
Accounts payable 109.0 129.8
Accrued taxes 165.2 158.5
Accrued interest 24.8 24.2
Short-term debt (Note 7) 194.9 115.7
Other 54.9 49.7
-------- --------
Total current liabilities 548.8 477.9
-------- --------
Deferred Credits and Other
Deferred taxes (Note 3) 460.6 464.9
Unamortized investment tax credit 69.4 72.4
Insurance and claims costs 150.7 151.6
Other 153.9 138.5
Total deferred credits and other 834.6 827.4
-------- --------
Total Capitalization and Liabilities $3,855.9 $3,585.2
======== ========
See Notes to Consolidated Financial Statements.
DPL 1998 Annual Report 19
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY DPL INC.
Common Accum.
Common Stock (a) Stock Other Earnings
------------------- Other Held by Compre- Reinvested
Outstanding Paid-in Employee hensive in the
$ in millions Shares Amount Capital Plans Income Business Total
- ---------------------------------------------------------------------------------------------------------
1996: Beginning balance 106,696,923 $1.1 $771.4 $(107.2) $(0.1) $499.6 $1,164.8
Comprehensive income:
Net income 172.9 172.9
Net unrealized gains on
securities after tax (b) 4.2 4.2
Adjustment for net realized
gains after tax (c) (0.5) (0.5)
--------
Total comprehensive income 176.6
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 (0.2) -
----------- ---- ------ ------- ----- ------ --------
Ending balance 106,009,923 1.1 756.8 (102.1) 3.6 541.1 1,200.5
1997: Comprehensive income:
Net income 181.4 181.4
Net unrealized gains on
securities after tax (b) 16.3 16.3
--------
Total comprehensive income 197.7
Common stock dividends (137.2) (137.2)
Three-for-two stock split 53,400,983 0.5 (0.5) -
Dividend reinvestment plan 792,043 - 19.4 19.4
Employee stock plans 1.4 4.1 5.5
Other 0.2 (0.1) 0.1
----------- ---- ------ ------- ----- ------ --------
Ending balance 160,202,949 1.6 777.3 (98.0) 19.9 585.2 1,286.0
1998: Comprehensive income:
Net Income 189.1 189.1
Net unrealized gains on
securities after tax (b) 27.3 27.3
--------
Total comprehensive income 216.4
Common stock dividends (143.6) (143.6)
Dividend reinvestment plan 1,070,430 - 19.8 19.8
Employee stock plans 1.9 3.6 5.5
Other (8,775) - - (0.4) (0.4)
----------- ---- ------ ------- ----- ------ --------
Ending balance 161,264,604 $1.6 $799.0 $ (94.4) $47.2 $630.3 $1,383.7
=========== ==== ====== ======= ===== ====== ========
(a) $0.01 par value, 250,000,000 shares authorized.
(b) Net of taxes of $2.2 million, $8.8 million and $14.7
million in 1996, 1997 and 1998, respectively.
(c) Net of taxes of $(0.2) million in 1996.
DPL 1998 Annual Report 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DPL INC.
1. Summary of Significant Accounting Policies
The accounts of DPL Inc. and its wholly-owned subsidiaries are included
in the accompanying consolidated financial statements. These statements
are presented in accordance with generally accepted accounting
principles which require management to make estimates and assumptions
related to future events. The Company's results are presented as one
segment. Reclassifications have been made in certain prior years'
amounts to conform to the current reporting presentation.
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.
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)
$99.5 in 1998 and $78.3 in 1997.
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%.
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.
DPL 1998 Annual Report 21
2. Regulatory Matters
DP&L applies the provisions of Statement of Financial Accounting
Standard (SFAS) No. 71, Accounting for the Effects of Certain Types of
Regulation. This accounting standard provides for the deferral of
costs authorized for future recovery by regulators. These costs would
be charged to expense without regulatory authorization. Regulatory
assets on the Consolidated Balance Sheet include:
At December 31,
$ in millions 1998 1997
- --------------------------------------------
Phase-in (a) $ 12.9 $ 30.6
DSM (b) 19.6 33.6
Deferred interest (c) 49.7 52.5
Income taxes recoverable
through future revenues 195.5 208.2
------ ------
Total $277.7 $324.9
====== ======
(a) Amounts deferred during a 1992-1994 electric rate increase phase-
in (including carrying charges) are being recovered in current revenues.
(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, provides for 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 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. In 1998, amortization of regulatory assets included an
additional $10.4 million of accelerated cost recovery.
(c) Interest charges related to the William H. Zimmer Generating Station
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 1998 1997 1996
- ------------------------------------------------------------------
Computation of Tax Expense
- --------------------------
Federal income tax (a) $108.6 $100.7 $ 97.0
Increases (decreases) in tax from -
Regulatory assets 4.0 3.6 3.3
Depreciation 12.5 11.4 10.7
Investment tax credit amortized (3.0) (3.0) (3.0)
Other, net (1.7) (7.3) (4.5)
------ ------ ------
Total tax expense $120.4 $105.4 $103.5
====== ====== ======
Components of Tax Expense
- -------------------------
Taxes currently payable $136.1 $121.8 $117.4
Deferred taxes--
Regulatory assets (8.3) (4.0) (3.5)
Liberalized depreciation and
amortization 6.7 6.2 7.9
Fuel and gas costs (5.8) 5.5 2.5
Insurance and claims costs (1.1) (14.2) (11.1)
Other (4.2) (6.9) (5.5)
Deferred investment tax credit, net (3.0) (3.0) (4.2)
------ ------ ------
Total tax expense $120.4 $105.4 $103.5
====== ====== ======
(a) The statutory rate of 35% was applied to pre-tax income before
preferred dividends.
Components of Deferred Tax Assets and Liabilities
At December 31,
$ in millions 1998 1997
- -------------------------------------------------
Non-Current Liabilities
- -----------------------
Depreciation/property basis $(439.2) $(443.7)
Income taxes recoverable (68.4) (72.4)
Regulatory assets (28.0) (38.6)
Investment tax credit 24.2 25.3
Other 50.8 64.5
------- -------
Net non-current liability $(460.6) $(464.9)
------- -------
Net Current Asset (Liability) $ 3.7 $ (2.7)
======= =======
DPL 1998 Annual Report 22
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, compensation and year of retirement. The plans are funded in
amounts actuarially determined to provide for these benefits.
An interest rate for discounting the obligation and expense of 6.25%
and the expected rate of return of 7.5% were used in developing the
amounts in the following tables. Increases in compensation levels
approximating 5.0% were used for all years.
The following table sets forth the components of pension expense
(portions of which were capitalized):
$ in millions 1998 1997 1996
- ---------------------------------------------------------
Expense for Year
- ----------------
Service cost $ 5.9 $ 6.3 $ 6.2
Interest cost 15.9 15.2 15.0
Expected return on plan assets (23.3) (20.5) (18.1)
Amortization of unrecognized:
Actuarial (gain) loss 1.2 - 1.0
Prior service cost 2.1 2.1 2.1
Transition obligation (4.2) (4.2) (4.2)
------ ------ ------
Net pension cost $ (2.4) $ (1.1) $ 2.0
====== ====== ======
The following tables set forth the plans' obligations, assets and
amounts recorded in Other assets on the Consolidated Balance Sheet at
December 31:
$ in millions 1998 1997
- ---------------------------------------------------------
Change in Projected Benefit Obligation
- --------------------------------------
Benefit obligation, January 1 $259.1 $255.1
Service cost 5.9 6.3
Interest cost 15.9 15.2
Actuarial (gain) loss 0.8 7.4
Benefits paid (12.5) (24.9)
------ ------
Benefit obligation, December 31 269.2 259.1
------ ------
Change in Plan Assets
- ---------------------
Fair value of plan assets, January 1 330.2 321.4
Actual return on plan assets 41.2 33.7
Benefits paid (12.5) (24.9)
------ ------
Fair value of plan assets, December 31 358.9 330.2
------ ------
Plan assets in excess of projected
benefit obligation 89.7 71.1
Actuarial gains and losses (46.6) (28.3)
Unamortized prior service cost 11.8 13.9
Unamortized transition obligation (7.2) (11.3)
------ ------
Net pension assets $ 47.7 $ 45.4
====== ======
Postretirement Benefits
- -----------------------
Qualified employees who retired prior to 1987 and their dependents are
eligible for health care and life insurance benefits. DP&L has funded
the union-eligible health benefit using a Voluntary Employee
Beneficiary Association Trust.
The tables below have been developed based on the following
assumptions. The interest rate for discounting the obligation and
expense was 6.25% and the expected rate of return was 5.7%. The
assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.5% and 9.0% for 1998 and 1997,
respectively, and decreases to 5.0% by 2005. A one percentage point
change in the assumed health care trend rate would affect the service
and interest cost by $0.1 million. A one percentage point increase in
the assumed health care trend rate would increase the postretirement
benefit obligation by $2.1 million; and a one percentage point decrease
would decrease the benefit obligation by $1.9 million.
The following table sets forth the components of postretirement
benefit expense:
$ in millions 1998 1997 1996
- --------------------------------------------------------
Expense for Year
- ----------------
Interest cost $ 2.0 $ 2.2 $ 2.5
Expected return on plan assets (1.0) (0.8) (0.6)
Amortization of unrecognized:
Actuarial (gain) loss (2.2) (4.1) -
Transition obligation 3.0 3.0 2.9
----- ----- -----
Postretirement benefit cost $ 1.8 $ 0.3 $ 4.8
===== ===== =====
The following tables set forth the accumulated postretirement benefit
obligation ("APBO"), assets and funded status amounts recorded in Other
Deferred Credits on the Consolidated Balance Sheet at December 31:
$ in millions 1998 1997
- ----------------------------------------------------------
Change in APBO
- --------------
Benefit obligation, January 1 $ 36.5 $ 41.8
Interest cost 2.0 2.2
Actuarial (gain) loss (3.4) (5.3)
Benefits paid (2.2) (2.2)
------ ------
Benefit obligation, December 31 32.9 36.5
------ ------
Change in Plan Assets
- ---------------------
Fair value of plan assets, January 1 12.1 11.9
Actual return on plan assets 1.0 0.8
Benefits paid (0.6) (0.6)
------ ------
Fair value of plan assets, December 31 12.5 12.1
------ ------
APBO in excess of plan assets 20.4 24.4
Unamortized transition obligation (12.9) (15.9)
Actuarial gains and losses 26.4 25.5
------ ------
Accrued postretirement benefit liability $ 33.9 $ 34.0
====== ======
DPL 1998 Annual Report 23
5. Ownership of Facilities
DP&L owns an undivided interest in certain electric generating and
transmission facilities 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, 1998, DP&L had $4.3 million
of such facilities under construction. DP&L's share of expenses is
included in the Consolidated Statement of Results of Operations.
The following table presents DP&L's undivided interest in such
facilities at December 31, 1998:
DP&L Share DP&L Investment
----------------------- ---------------
Production Gross Plant
Ownership Capacity in Service
(%) (MW) ($ in millions)
- ---------------------------------------------------------------------
Production Units:
Beckjord Unit 6 50.0 210 56
Conesville Unit 4 16.5 129 31
East Bend Station 31.0 186 151
Killen Station 67.0 418 406
Miami Fort Units 7&8 36.0 360 124
Stuart Station 35.0 823 246
Zimmer Station 28.1 365 992
Transmission (at varying
percentages) 69
6. Common Shareholders' Equity
A three-for-two common stock split effected in the form of a stock
dividend was paid on January 12, 1998 to stockholders of record on
December 16, 1997.
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 5,413,045 unallocated
shares held by the trust and for 2,306,706 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
interest and principal on the loan.
Cumulative shares allocated to employees and outstanding for the
calculation of earnings per share were 1,646,780 in 1998 and 1,386,588
in 1997. Compensation expense, which is based on the fair value of the
shares allocated, amounted to $4.0 million in 1998, $4.4 million in
1997 and $4.1 million in 1996.
DPL Inc. had 902,490 authorized but unissued shares reserved for the
dividend reinvestment plan at December 31, 1998. 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 four-ninths
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 1998 Annual Report 24
7. Notes Payable and Compensating Balances
DPL Inc. and its subsidiaries have $300 million available through
revolving credit agreements with a consortium of banks. One agreement,
for $200 million, expires in 2002 and the other, for $100 million,
expires in 2000. Facility fees are approximately $315,000 per year.
The primary purpose of the revolving credit facilities is to provide
back-up liquidity for DP&L's commercial paper program. At December 31,
1998, DPL Inc. had no outstanding borrowings under these credit
agreements. At December 31, 1997, there was $36 million outstanding
under a previous credit agreement. DPL Inc. also has $15 million
available in a short-term informal line of credit with immaterial
commitment fees. At December 31, 1998, DPL Inc. had $15 million in
borrowings outstanding from this line at an interest rate of 6.3%.
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. The
commitment fees are immaterial. DP&L had $80.9 million and $10.0 million
in borrowings from these lines of credit at a weighted average interest
rate of 5.46% and 6.0% at December 31, 1998 and 1997, respectively.
DP&L had $99.0 million and $69.7 million in commercial paper outstanding
at a weighted average interest rate of 5.25% and 6.0% at December 31,
1998 and 1997, respectively.
8. Long-term Debt
At December 31,
$ in millions 1998 1997
- -------------------------------------------------------
First mortgage bonds maturing:
2022-2026 - 8.14% (a) $ 671.0 $671.0
Pollution control series
maturing through
2027 - 6.43% (a) 106.8 107.2
-------- ------
777.8 778.2
Guarantee of Air Quality
Development Obligations 6.10%
Series due 2030 110.0 110.0
Senior Notes 6.25% Series due 2008 100.0 -
Notes maturing through 2007 - 7.83% 81.0 85.0
Unamortized debt discount and
premium (net) (2.9) (2.2)
-------- ------
Total $1,065.9 $971.0
======== ======
(a) Weighted average interest rates for 1998 and 1997.
The amounts of maturities and mandatory redemptions for first mortgage
bonds and notes are (in millions) $4.4 in 1999, $5.4 in 2000, $6.4 in
2001, $7.4 in 2002 and $8.4 in 2003. Substantially all property of
DP&L is subject to the mortgage lien securing the first mortgage bonds.
During 1998, $100 million of a new series of Senior Notes due 2008 was
issued with an interest rate of 6.25%.
DPL 1998 Annual Report 25
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 $100 par value, 4,000,000 shares authorized, 228,508 shares
without mandatory redemption provisions outstanding.
Current Current Par Value
Redemption Shares At December 31, 1998 and 1997
Series/Rate Price Outstanding ($ 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,
1998 1997
------------------ -------------------
$ in millions Fair Value Cost Fair Value Cost
- ----------------------------------------------------------------------------
$ $ $ $
Assets
Available for sale securities 684.1 611.6 361.1 330.2
Held to maturity securities,
including temporary cash
investments of $12.0 in 1998
and $14.2 in 1997 (a) 63.1 61.9 72.2 71.2
Liabilities (b)
Debt 1,366.6 1,265.2 1,168.1 1,090.1
Capitalization
Unallocated stock in ESOP 117.1 69.0 108.7 72.3
(a) Maturities range from 1999 to 2011.
(b) Includes current maturities.
Assets with quoted market prices are carried at market; the remaining
financial assets are carried at cost.
11. Reconciliation of Net Income to Net Cash Provided by Operating Activities
For the years ended December 31,
$ in millions 1998 1997 1996
- ----------------------------------------------------------------------------
Net income $189.1 $181.4 $172.9
Adjustments:
Depreciation and amortization 127.1 123.5 121.0
Deferred income taxes (15.7) (16.4) (13.8)
Other deferred credits 20.4 7.0 7.4
Amortization of regulatory assets, net 33.0 20.9 19.7
Operating expense provisions 1.4 17.8 30.6
Accounts receivable (16.3) (9.5) (53.9)
Accounts payable (24.1) 17.2 14.7
Accrued taxes payable 6.6 20.8 18.3
Inventory (24.9) (11.6) 6.8
Other 13.0 (11.2) 14.4
------ ------ ------
Net cash provided by operating activities $309.6 $339.9 $338.1
====== ====== ======
DPL 1998 Annual Report 26
Report of Independent Accountants
PricewaterhouseCoopers 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, of
Shareholders' Equity, and of Cash Flows present fairly, in all material
respects, the financial position of DPL Inc. and its subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
1998, 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/ PricewaterhouseCoopers LLP
Dayton, Ohio
January 20, 1999
Selected Quarterly Information
For the Three Months Ended
------------------------------------------------------------------------
$ in millions except March 31, June 30, September 30, December 31,
per share amounts 1998 1997 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
$ $ $ $ $ $ $ $
Utility service
revenues 352.3 356.7 292.6 269.2 318.6 283.4 318.4 342.9
Income before income
taxes 111.9 101.4 59.4 55.4 80.4 73.1 57.8 56.9
Net income 70.2 66.3 35.2 35.0 47.5 44.9 36.2 35.2
Earnings per share
of common stock 0.46 0.44 0.23 0.23 0.31 0.30 0.24 0.23
Dividends paid per
share 0.235 0.227 0.235 0.227 0.235 0.227 0.235 0.227
Common stock market
price - High 19-9/16 16-3/4 19-7/16 16-1/2 19-5/8 16-9/16 21-5/8 19-3/16
- Low 18 15-15/16 16-15/16 15-5/16 16-15/16 15-1/2 18-11/16 15-13/16
DPL 1998 Annual Report 27
CORPORATE INFORMATION
Transfer Agent and Registrar - Common Stock and DP&L Preferred Stock
- --------------------------------------------------------------------
Securities Transfer & Shareholder Inquires:
- ------------------------------------------
EquiServe
P.O. Box 8040
Boston, MA 02266-8040
(781) 575-3100
(800) 736-3001
Dividend Reinvestment:
- ---------------------
EquiServe
P.O. Box 8040
Boston, MA 02266-8040
Also dividend paying agent
(781) 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 1998 Dividend Payments
- ---------------------------------------------------
Dividends paid in 1998 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 20, 1999, at Miami Trace High School, Washington
Court House, 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 EquiServe (781) 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 (56/25)
Chairman--DPL Inc. and DP&L
Allen M. Hill (53/31)
President and Chief Executive Officer--DPL Inc. and DP&L
Beth E. Mooney (43/1)
Executive Vice President and Chief Operating Officer--DPL Inc.
and DP&L
Paul R. Anderson (56/20)
Controller--DP&L
Stephen P. Bramlage (52/30)
Assistant Vice President--DP&L
Jeanne S. Holihan (42/18)
Assistant Vice President--DP&L
Stephen F. Koziar, Jr. (54/31)
Group Vice President and Secretary--DPL Inc. and DP&L
Judy W. Lansaw (47/20)
Group Vice President--DPL Inc. and DP&L
Arthur G. Meyer (48/6)
Vice President--DP&L
Bryce W. Nickel (42/18)
Assistant Vice President--DP&L
H. Ted Santo (48/27)
Group Vice President--DP&L
James P. Torgerson (46/1)
Vice President, Chief Financial Officer and Treasurer--DPL Inc. and 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 Chief Executive Officer, Gosiger, Inc., Dayton, Ohio
Allen M. Hill (1) (3) (4)
President and Chief Executive Officer, DPL Inc. and DP&L, Dayton, Ohio
Thomas J. Danis (1) (4)
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.
1998 Committee Assignments:
DPL Inc. --Finance and Audit Review (1)
Compensation and Management Review (2)
Executive (3)
DP&L --Community and External Relations (4)
DPL 1998 Annual Report 28
DPL INC.
Courthouse Plaza Southwest
Dayton, Ohio 45402
(see appendix for logo description)
[back cover]
As required by Rule 304 of Regulation S-T, the following appendix
lists the graphic material contained in the 1998 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: Photograph: Depiction of a businessman and businesswoman
discussing work in an office setting.
Inside
Front Cover: Photograph: Inset photograph of the front cover of the
annual report.
Logo: "DPL listed NYSE" Logo for the New York
Stock Exchange
Page 1: Bar Graph: TOTAL RETURN-FIVE YEAR
AVERAGE ANNUAL RETURN
Percent
(with dividends reinvested)
---------------------------
DP&L Industry Average
---- ----------------
96: 13.2 6.2
97: 13.9 10.0
98: 15.5 10.5
Bar Graph: EARNINGS PER SHARE
Dollars
------------------
96: 1.15
97: 1.20
98: 1.24
Bar Graph: DIVIDENDS PER SHARE
Dollars
-------------------
96: 0.87
97: 0.91
98: 0.94
Page 2: Photograph: Board of Directors
Members are individually pictured with their
names appearing below the photographs as follows:
Thomas J. Danis, James F. Dicke, II, Peter H.
Forster, Ernie Green
Page 3: Photograph: Board of Directors
Members are individually pictured with their
names appearing below the photographs as follows:
Jane G. Haley, Allen M. Hill, W August
Hillenbrand, David R. Holmes, Burnell R. Roberts
Page 4: Logo: "DP&L" logo and "Way To Go" logo, the umbrella
name for energy conservation programs of the
Company. Logo contains the phrase, "Partners
in Business Plus".
Photograph: A DP&L employee pictured in a control room of a
power generating station.
Page 5: Photograph: An employee located in a manufacturing setting
installing steering wheel components at a company
named Neaton Auto Products.
Page 6: Photograph: An employee monitoring a conveyor line of plastics
cups at a company named Packaging Resources.
(Inset photograph of a Dannon yogurt cup)
Page 7: Bar Graph: QUALITY OF SERVICE
Percent positive responses
--------------------------
DP&L
----
96: 96
97: 96
98: 97
Photograph: Three separate photographs of a coal barge, dump
truck, and train locomotive.
Page 8: Photograph: A DP&L employee using a piece of hand held
testing equipment at a power generating station.
Photograph: A long range photograph of the exterior of the
Stuart Generating Station.
Page 9: Photograph: A DP&L employee using a monitoring device on a
piece of equipment at a power generating station.
Bar Graph: PRODUCTIVITY
Percent better than industry average
------------------------------------
DP&L
-----
95: 0.9
96: 1.8
97: 2.6
98: 4.4
Page 10: Photograph: A DP&L employee working at a computer in the
control room of a power generating station.
Page 11: Line Graph: EFFICIENCY-HEAT RATE
Total System, Btu per kWh
-------------------------
DP&L Industry Average
---- ----------------
95: 9,773 10,425
96: 9,830 10,365
97: 9,931 10,359
98: 9,903 10,324
Bar Graph: GENERATION OPERATING AND MAINTENANCE EXPENSE
cents/kWh
--------------------------------------------
DP&L Regional Average
---- ----------------
95: .40 .66
96: .36 .68
97: .36 .64
98: .36 .64 (estimate)
Page 12: Logo: "DP&L" logo and "Way To Go" logo, the umbrella
name for energy conservation programs of the
Company. Logo contains the word, "Personally".
Line Graph: CREDIT RATINGS
--------------
Moody's Investors Service Average
DP&L Electric Utility Credit Rating
---- ---------------------------------
96: Aa3 A2
97: Aa3 A2
98: Aa3 A3
Page 13: Bar Graphs: ELECTRIC UTILITY REVENUES
$ in millions
-------------------------
96 97 98
-------------------
Residential 423 410 420
Commercial 237 234 243
Industrial 223 226 229
Other 131 138 179
--------------------------------
Total 1,014 1,008 1,071
GAS UTILITY REVENUES
$ in millions
--------------------
96 97 98
-----------------
Residential 157 160 139
Commercial 44 48 38
Industrial 14 12 9
Transportation
& Other 24 24 25
--------------------------------
Total 239 244 211
TOTAL TAXES
$ in millions
-------------
96 97 98
-------------
233 239 257
ELECTRIC UTILITY SALES
Thousands of GWH
----------------------
96 97 98
----------------
Residential 4.9 4.8 4.8
Commercial 3.4 3.4 3.5
Industrial 4.5 4.7 4.7
Other 3.5 3.7 4.5
------------------------------
Total 16.3 16.6 17.5
GAS UTILITY SALES
Millions of MCF
-----------------
96 97 98
----------------
Residential 31 29 25
Commercial 9 10 7
Industrial 4 3 2
Transportation
& Other 20 20 20
------------------------------
Total 64 62 54
OPERATING EXPENSES
$ in millions
------------------
96 97 98
--------------
Fuel & Purchased
Power 235 228 257
Gas Purchased
for Resale 193 220 186
Operating and
Maintenance 266 256 236
------------------------------
Total 694 704 679
AVERAGE PRICE-ELECTRIC
CALENDAR YEAR
cents/kWh
----------------------
96 97 98
----------------
6.16 6.01 6.03
TOTAL AVERAGE PRICE-GAS
CALENDAR YEAR
$/MCF
-----------------------
96 97 98
-----------------------
3.75 3.93 3.93
CONSTRUCTION EXPENDITURES
$ in millions
-------------------------
96 97 98
-------------
116 111 111
Page 27: Artwork: Logo for PricewaterhouseCoopers LLP
(Independent Auditors).
Back Cover: Artwork: Logo - DPL Inc.