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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-2385
------
THE DAYTON POWER AND LIGHT COMPANY
(Exact name of registrant as specified in its charter)
OHIO 31-0258470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Courthouse Plaza Southwest, Dayton, Ohio 45402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 937-224-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
-------------------- ------------------------
First Mortgage Bonds New York Stock Exchange
8% Series Due 2003
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Number of shares of registrant's common stock outstanding as of
February 28, 1997, all of which were held by DPL Inc., was
41,172,173.
PART I
Item 1 - Business*
- --------------------------------------------------------------------
THE COMPANY
The Dayton Power and Light Company (the "Company") is a
public utility incorporated under the laws of Ohio in 1911.
Located in West Central Ohio, it furnishes electric service to
480,000 retail customers in a 24 county service area of
approximately 6,000 square miles and furnishes natural gas
service to 298,000 customers in 16 counties. The Company serves
an estimated population of 1.3 million. Principal industries
served include electrical machinery, automotive and other
transportation equipment, non-electrical machinery, agriculture,
paper, and rubber and plastic products. The Company's sales
reflect the general economic conditions and seasonal weather
patterns of the area. In 1996, a 3% decline in electric sales
resulted in slightly lower revenues with a 2% increase in sales
to business customers offset by lower sales to other public
utilities. Gas revenues increased 7% in 1996. Sales increased
7% from higher deliveries to business customers and the effects
of colder weather. During 1996, cooling degree days were 8%
below the twenty year average and 19% below 1995. Heating degree
days in 1996 were 7% above the thirty year average and 5% above
1995. Sales patterns will change in future years as weather and
the economy fluctuate. The Company employed 2,722 persons as of
December 31, 1996, of which 2,287 are full-time employees and 435
are part-time employees.
All of the outstanding shares of common stock of the Company
are held by DPL Inc., which became the Company's corporate
parent, effective April 21, 1986. Subsidiaries of the Company
include MacGregor Park, Inc., an owner and developer of real
estate and Miami Valley Equipment, Inc., which owns retail sales
and transportation equipment and provides support services to DPL
Inc. and its subsidiaries.
The Company's principal executive and business office is
located at Courthouse Plaza Southwest, Dayton, Ohio 45402 -
telephone (937)224-6000.
Information relating to industry segments is contained in
Item 8 - Note 12 of Notes to Consolidated Financial Statements on
Page II-23 of this document, which Note is incorporated herein by
reference.
* Unless otherwise indicated, the information given in
"Item 1 - BUSINESS" is current as of March 21, 1997. No
representation is made that there have not been subsequent
changes to such information.
I-1
COMPETITION
The Company competes with privately and municipally owned
electric utilities and rural electric cooperatives, natural gas
suppliers and other alternate fuel suppliers. The Company
competes on the basis of price and service.
Like other utilities, the Company from time to time may have
electric generating capacity available for sale to other
utilities. The Company competes with other utilities to sell
electricity provided by such capacity. The ability of the
Company to sell this electricity will depend on how the Company's
price, terms and conditions compare to those of other utilities.
In addition, from time to time, the Company makes power purchases
from neighboring utilities.
In an increasingly competitive energy environment,
cogenerated power may be used by customers to meet their own
power needs. Cogeneration is the dual use of a form of energy,
typically steam, for an industrial process and for the generation
of electricity. The Public Utilities Regulatory Policies Act of
1978 ("PURPA") provides regulations that govern the purchase of
excess electric energy from cogeneration and small power
production facilities that have obtained qualifying status under
PURPA.
The National Energy Policy Act of 1992, which reformed the
Public Utilities Holding Company Act of 1935, allows the federal
government to mandate access by others to a utility's electric
transmission system and may accelerate wholesale competition in
the supply of electricity.
The Company provides transmission and other wholesale
electric service to 12 municipal customers which distribute
electricity within their corporate limits. In 1994, 11 of these
municipal customers signed new 20-year service agreements which
were approved by the Federal Energy Regulatory Commission
("FERC"), in June 1995. The twelfth municipal customer signed a
20-year agreement, approved by FERC in February 1995, that allows
the Company to supply 97% of its power requirements. In addition
to these municipal customers, the Company maintains an
interconnection agreement with one municipality which has the
capability to generate all or a portion of its energy
requirements. Sales to municipalities represented 1.2% of total
electricity sales in 1996.
In October 1994, the Public Utilities Commission of Ohio
("PUCO") initiated roundtable discussions on the introduction of
competition in the electric industry. The "Electric Competition
Series" is a result of the Ohio Energy Strategy issued in April
1994. To date, roundtable discussions have focused largely on
short-term initiatives that are possible under the current
regulatory framework. On February 15, 1996, the PUCO issued
guidelines for interruptible service, including services that
accommodate the attainment and delivery of replacement
electricity during periods when the utility...
I-2
...faces constraints on its own resources. On April 11, 1996, the
PUCO issued an Entry on Rehearing ordering utilities to file
interruptible electric service tariffs. On June 14, 1996, the
Company filed for approval of a non-firm electric service rate
schedule and replacement power rate riders.
On December 24, 1996 the PUCO issued guidelines for
conjunctive electric service which govern the terms and
conditions under which different service locations may be
aggregated for cost-of-service, rate design, rate negotiation,
and billing purposes.
In January 1997, plans were announced to create a 12 member
joint select committee of the Ohio Senate and House of
Representatives to explore and possibly draft retail wheeling
legislation. Other legislative proposals at the federal level
are pending concerning wholesale and retail wheeling which are
designed to increase competition.
On April 24, 1996, FERC issued final rules requiring all
electric utilities that own or control transmission facilities to
file open-access transmission service tariffs. Open-access
transmission tariffs provide third parties with non-
discriminatory transmission service comparable to what the
utility provides itself. In this rulemaking, FERC also set forth
principles to entitle utilities to full recovery of legitimate
and verifiable stranded costs on both the state and federal
level. In compliance with these rules, on January 2, 1997, the
Company re-filed its open-access tariff with FERC.
On September 30, 1996, FERC conditionally accepted the
Company's market-based sales tariff which will allow the Company
to sell wholesale generation supply at prices that reflect
current market prices.
General deregulation of the natural gas industry has
continued to prompt the influence of market competition as the
driving force behind natural gas procurement. The evolution of
an efficient natural gas spot market in combination with open-
access interstate transportation pipelines has provided the
Company, as well as its end-use customers, with an array of
procurement options. Customers with alternate fuel capability
can continue to choose between natural gas and their alternate
fuel based upon overall performance and economics. Therefore,
demand for natural gas purchased from the Company or purchased
elsewhere and transported to the end-use customer by the Company
could fluctuate based on the economics of each in comparison with
changes in alternate fuel prices. For the Company, price
competition and reliability among both natural gas suppliers and
interstate pipeline sources are major factors affecting
procurement decisions.
I-3
CONSTRUCTION AND FINANCING PROGRAM OF THE COMPANY
1997-2001 Construction Program
The estimated construction additions for the years 1997-2001
are set forth below:
Estimated
1997 1998 1999 2000 2001 1997-2001
---- ---- ---- ---- ---- ---------
millions
Electric generation and
transmission commonly owned
with neighboring utilities $ 32 $ 34 $ 36 $ 30 $ 34 $166
Other electric generation and
transmission facilities 35 36 32 40 36 179
Electric distribution 34 34 36 34 34 172
General 8 5 5 5 5 28
Gas and other facilities 14 14 14 14 14 70
---- ---- ---- ---- ---- ----
Total construction $123 $123 $123 $123 $123 $615
Estimated construction additions over the next five years
average $123 million annually which is less than the projected
depreciation expense over the same period.
The construction program includes plans for the construction
of a series of 80 MW combustion turbine generating units. The
first unit was completed in May 1995 and the second unit was
completed ahead of schedule and under budget in December 1996.
Construction plans are subject to continuing review and are
expected to be revised in light of changes in financial and
economic conditions, load forecasts, legislative and regulatory
developments and changing environmental standards, among other
factors. The Company's ability to complete its capital projects
and the reliability of future service will be affected by its
financial condition, the availability of external funds at
reasonable cost and adequate and timely rate recovery.
See ENVIRONMENTAL CONSIDERATIONS for a description of
environmental control projects and regulatory proceedings which
may change the level of future construction additions. The
potential impact of these events on the Company's operations
cannot be estimated at this time.
I-4
1997-2001 Financing Program
The Company will require a total of $42 million during the next
five years for debt maturities and sinking funds in addition to
any funds needed for the construction program.
At year-end 1996, the Company had a cash and temporary
investment balance of $2 million and debt and equity financial
assets were $56 million. Proceeds from temporary cash
investments, together with internally generated cash and future
outside financings, will provide for the funding of the
construction program, sinking funds and general corporate
requirements.
In December 1996, the Company redeemed a series of first
mortgage bonds in the principal amount of $25 million with an
interest rate of 6.75%. The bonds had been scheduled to mature
in 1998.
In September 1995, a new series of Air Quality Development
Revenue Refunding Bonds was issued in principal amount of
$110 million with an interest rate of 6.10%. Proceeds from the
financing were used to redeem a similar principal amount of First
Mortgage Bonds with an interest rate of 9.50%.
In March 1994, DPL Inc. issued 3,200,000 shares of common stock
through a public offering. Proceeds from the sale were used in
connection with the redemption of all outstanding shares of the
Company's Preferred Stock Series D, E, F, H and I.
In November 1989, DPL Inc. entered into a revolving credit
agreement ("the Credit Agreement") with a consortium of banks
renewable through 2000 which allows total borrowings by DPL Inc.
and its subsidiaries of $200 million. The Company has authority
from the PUCO to issue short-term debt up to $200 million with a
maximum debt limit of $300 million including loans from DPL Inc.
under the terms of the Credit Agreement. At December 31, 1996,
DPL Inc. had no outstanding borrowings under this Credit
Agreement. The Company also has $97 million available in short-
term lines of credit. At year-end, the Company had no borrowings
outstanding from these lines of credit and $10 million in
commercial paper outstanding.
Under the Company's First and Refunding Mortgage, First
Mortgage Bonds may be issued on the basis of (i) 60% of unfunded
property additions, subject to net earnings, as defined, being at
least two times interest on all First Mortgage Bonds outstanding
and to be outstanding, and (ii) 100% of retired First Mortgage
Bonds. The Company anticipates that, during 1997-2001, it will
be able to issue sufficient First Mortgage Bonds to satisfy its
long-term debt requirements in connection with the financing of
its construction and refunding programs discussed above.
The maximum amount of First Mortgage Bonds which may be issued
in the future will fluctuate depending upon interest rates, the
amounts of bondable property additions, earnings and retired
First Mortgage Bonds. There are no coverage tests for the
issuance of preferred stock under the Company's Amended Articles
of Incorporation.
I-5
ELECTRIC OPERATIONS AND FUEL SUPPLY
The Company's present winter generating capability is
3,264,000 KW. Of this capability, 2,843,000 KW (approximately
87%) is derived from coal-fired steam generating stations and the
balance consists of combustion turbine and diesel-powered peaking
units. Approximately 87% (2,472,000 KW) of the existing steam
generating capability is provided by certain units owned as
tenants in common with The Cincinnati Gas & Electric Company
("CG&E") or with CG&E and Columbus Southern Power Company
("CSP"). Under the agreements among the companies, each company
owns a specified undivided share of each facility, is entitled to
its share of capacity and energy output, and has a capital and
operating cost responsibility proportionate to its ownership
share.
The remaining steam generating capability (371,000 KW) is
derived from a generating station owned solely by the Company.
The Company's all time net peak load was 2,961,000 KW, which
occurred in August 1995. The present summer generating
capability is 3,194,000 KW.
GENERATING FACILITIES
MW Rating
--------------
Operating Company
Station Ownership* Company Location Portion Total
------- ---------- --------- -------- ------- -----
Coal Units
- ----------
Hutchings W Company Miamisburg, OH 371 371
Killen C Company Wrightsville, OH 418 600
Stuart C Company Aberdeen, OH 823 2,340
Conesville-Unit 4 C CSP Conesville, OH 129 780
Beckjord-Unit 6 C CG&E New Richmond, OH 210 420
Miami Fort-Units 7&8 C CG&E North Bend, OH 360 1,000
East Bend-Unit 2 C CG&E Rabbit Hash, KY 186 600
Zimmer C CG&E Moscow, OH 365 1,300
Combustion Turbines or Diesel
- -----------------------------
Hutchings W Company Miamisburg, OH 32 32
Yankee Street W Company Centerville, OH 144 144
Monument W Company Dayton, OH 12 12
Tait W Company Dayton, OH 10 10
Sidney W Company Sidney, OH 12 12
Tait Gas Turbine 1 W Company Moraine, OH 95 95
Tait Gas Turbine 2 W Company Moraine, OH 97 97
* W = Wholly Owned
C = Commonly Owned
I-6
In order to transmit energy to their respective systems from
their commonly owned generating units, the companies have
constructed and own, as tenants in common, 847 circuit miles of
345,000-volt transmission lines. The Company has several
interconnections with other companies for the purchase, sale and
interchange of electricity.
The Company derived over 99% of its electric output from
coal-fired units in 1996. The remainder was derived from units
burning oil or natural gas which were used to meet peak demands.
The Company estimates that approximately 65-85% of its coal
requirements for the period 1997-2001 will be obtained through
long-term contracts, with the balance to be obtained by spot
market purchases. The Company has been informed by CG&E and CSP
through the procurement plans for the commonly owned units
operated by them that sufficient coal supplies will be available
during the same planning horizon.
The prices to be paid by the Company under its long-term
coal contracts are subject to adjustment in accordance with
various indices. Each contract has features that will limit
price escalations in any given year.
The total average price per million British Thermal Units
("MMBTU") of coal received was $1.24/MMBTU in 1996, $1.35/MMBTU
in 1995 and $1.39/MMBTU in 1994.
The average fuel cost per kWh generated of all fuel burned
for electric generation (coal, gas and oil) for the year was
1.29 cents which represents a decrease from 1.36 cents in 1995 and
1.42 cents in 1994. Through the operation of a fuel cost adjustment
clause applicable to electric sales, the increases and decreases in
fuel costs are reflected in customer rates on a timely basis. See
RATE REGULATION AND GOVERNMENT LEGISLATION and ENVIRONMENTAL
CONSIDERATIONS.
GAS OPERATIONS AND GAS SUPPLY
The Company has long-term firm pipeline transportation
agreements with ANR Gas Pipeline Company ("ANR"), Texas Gas
Transmission Corporation ("Texas Gas"), Panhandle Eastern Pipe
Line Company ("Panhandle"), Columbia Gas Transmission Corporation
("Columbia") and Columbia Gulf Transmission Corporation for
varying terms, up to late 2004. Along with firm transportation
services, the Company has approximately 16 billion cubic feet of
firm storage service with various pipelines. The Company also
maintains and operates four propane-air plants with a daily rated
capacity of approximately 70,000 thousand cubic feet ("MCF") of
natural gas.
I-7
In addition, the Company is interconnected with CNG
Transmission Corporation. Interconnections with interstate
pipelines provide the Company the opportunity to purchase
competitively-priced natural gas supplies and pipeline services.
The Company purchases its natural gas supplies using a portfolio
approach that minimizes price risks and ensures sufficient firm
supplies at peak demand times. The portfolio consists of long-
term, short-term and spot supply agreements. In 1996, firm
agreements provided approximately 50% of total supply, with the
remaining supplies purchased on a spot/short-term basis.
In 1996, the Company purchased natural gas at an average
price of $3.45 per MCF, compared to $2.79 per MCF in 1995 and
$3.34 per MCF in 1994. Through the operation of a natural gas
cost adjustment clause applicable to gas sales, increases and
decreases in the Company's natural gas costs are reflected in
customer rates on a timely basis. SEE RATE REGULATION AND
GOVERNMENT LEGISLATION.
The PUCO supports open access, nondiscriminatory
transportation of natural gas by the state's local distribution
companies for end-use customers. The PUCO has guidelines to
provide a standardized structure for end-use transportation
programs which requires a tariff providing the prices, terms and
conditions for such service. The Company has an approved tariff
and provides transportation service to approximately 300 end-use
customers, delivering a total quantity of nearly 17,000,000 MCF
per year.
RATE REGULATION AND GOVERNMENT LEGISLATION
The Company's sales of electricity and natural gas to retail
customers are subject to rate regulation by the PUCO and various
municipalities. The Company's wholesale electric rates to
municipal corporations and other distributors of electric energy
are subject to regulation by FERC under the Federal Power Act.
Ohio law establishes the process for determining rates
charged by public utilities. Regulation of rates encompasses the
timing of applications, the effective date of rate increases, the
cost basis upon which the rates are based and other related
matters. Ohio law also establishes the Office of the Ohio
Consumers' Counsel (the "OCC"), which has the authority to
represent residential consumers in state and federal judicial and
administrative rate proceedings.
The Company's electric and natural gas rate schedules
contain certain recovery and adjustment clauses subject to
periodic audits by, and proceedings before, the PUCO. Electric
fuel and gas costs are expensed as recovered through rates.
On June 18, 1996, Governor Voinovich signed into law House
Bill 476 which allows for alternate natural gas rate plans and
exemption from PUCO jurisdiction for some gas services, and
establishes a code of conduct for natural gas distribution
companies. Final rules were issued on March 12, 1997.
I-8
Ohio legislation extends the jurisdiction of the PUCO to the
records and accounts of certain public utility holding company
systems, including DPL Inc. The legislation extends the PUCO's
supervisory powers to a holding company system's general
condition and capitalization, among other matters, to the extent
that they relate to the costs associated with the provision of
public utility service. Additionally, the legislation
(i) requires PUCO approval of certain transactions and transfers
of assets between public utilities and entities within the same
holding company system, and (ii) prohibits investments by a
holding company in subsidiaries which are not public utilities in
an amount in excess of 15% of the aggregate capitalization of the
holding company on a consolidated basis at the time such
investments are made.
Regulatory assets recorded during the phase-in of electric
rates are being amortized and recovered in current rates. In
addition, deferred interest charges on the William H. Zimmer
Generating Station are being amortized at $3 million per year
over the projected life of the asset.
A 1992 PUCO-approved settlement agreement and a subsequent
stipulation in 1995 allowed accelerated recovery of demand-side
management costs and, thereafter, production plant costs to the
extent that the Company return on equity exceeds a baseline 13%
(subject to upward adjustment). If the return exceeds the
baseline return by one to two percent, one-half of the excess is
used to accelerate recovery of these costs. If the return is
greater than two percent over the baseline, the entire excess is
used for such purpose.
Regulatory deferrals on the balance sheet were:
Dec. 31 Dec. 31
1996 1995
------- -------
--millions--
Phase-in $ 46.7 $ 61.4
DSM 35.3 36.2
Deferred interest - Zimmer 55.3 58.1
------ ------
Total $137.3 $155.7
====== ======
In 1989 the PUCO approved rules for the implementation of a
comprehensive Integrated Resource Planning ("IRP") program for
all investor-owned electric utilities in Ohio. Under this
program, each utility is required to file an IRP as part of its
Long Term Forecast Report ("LTFR"). The IRP requires each
utility to evaluate available demand-side resource options in
addition to supply-side options to determine the most cost-
effective means for satisfying customer requirements. The rules
currently allow a utility...
I-9
...to apply for deferred recovery of DSM program expenditures and
lost revenues between LTFR proceedings. Ultimate recovery of
expenditures is contingent on review and approval of such
programs as cost-effective and consistent with the most recent
IRP proceeding. The rules also allow utilities to submit
alternative proposals for the recovery of DSM programs and
related costs.
In 1991 the PUCO issued a Finding and Order which encourages
electric utilities to undertake the competitive bidding of new
supply-side energy projects. The policy also encourages
utilities to provide transmission grid access to those supply-
side energy providers awarded bids by utilities. Electric
utilities are permitted to bid on their own proposals. The PUCO
has issued for comment proposed rules for competitive bidding but
has not issued final rules at this time.
The Company has in place a percentage of income payment plan
("PIPP") for eligible low-income households as required by the
PUCO. This plan prohibits disconnections for nonpayment of
customer bills if eligible low-income households pay a specified
percentage of their household income toward their utility bill.
The PUCO has approved a surcharge by way of a temporary base rate
tariff rider which allows companies to recover arrearages
accumulated under PIPP.
The Company initiated a competitive bidding process in
January 1993 for the construction of electric peaking capacity
and energy by 1997. Through an Ohio Power Siting Board ("OPSB")
investigative process, the Company's self-built option was
evaluated to be the least cost option. On March 7, 1994, the
OPSB approved the Company's applications for up to three
combustion turbines and two natural gas supply lines for the
proposed site.
On April 15, 1996 and June 1, 1996, respectively, the
Company filed its electric and natural gas LTFR with the PUCO.
An IRP filed as part of the electric LTFR included plans for the
construction of a series of 80 MW combustion turbine generating
units. The first combustion turbine became operational June 1,
1995 and the second unit began operation on December 23, 1996.
On January 25, 1996, Governor Voinovich reappointed Chairman
Craig A. Glazer to the PUCO for a five year term which commenced
on April 11, 1996 and will extend until April 10, 2001.
On February 7, 1997, Governor Voinovich appointed Judith A.
Jones, a Toledo City Councilwoman, to the PUCO replacing Richard
Fanelly. Pending approval by the Senate of the State of Ohio,
her five year term will commence April 11.
I-10
ENVIRONMENTAL CONSIDERATIONS
The operations of the Company, including the commonly owned
facilities operated by the Company, CG&E and CSP, are subject to
federal, state, and local regulation as to air and water quality,
disposal of solid waste and other environmental matters,
including the location, construction and initial operation of new
electric generating facilities and most electric transmission
lines. The Company expended $5 million for environmental control
facilities during 1996. The possibility exists that current
environmental regulations could be revised which could change the
level of estimated 1997-2001 construction expenditures. See
CONSTRUCTION AND FINANCING PROGRAM OF THE COMPANY.
Air Quality
The Clean Air Act Amendments of 1990 (the "Act") have
limited sulfur dioxide and nitrogen oxide emissions nationwide.
The Act restricts emissions in two phases. Phase I compliance
requirements became effective on January 1, 1995 and Phase II
requirements will become effective on January 1, 2000.
Compliance by the Company has not caused any material changes in
the Company's costs or operations.
The Company's environmental compliance plan ("ECP") was
approved by the PUCO on May 6, 1993. Phase I requirements are
being met by switching to lower sulfur coal at several commonly
owned electric generating facilities and increasing existing
scrubber removal efficiency. Total capital expenditures to
comply with Phase I of the Act were approximately $5.5 million.
Phase II requirements can be met primarily by switching to lower
sulfur coal at all non-scrubbed coal-fired electric generating
units. Overall compliance is projected to have a minimal 1% to 2%
approximate price impact. Costs to comply with the Act are
eligible for recovery in fuel hearings and other regulatory
proceedings.
As required by Ohio law, in April 1995, the PUCO initiated
proceedings to conduct a review of the Company's ECP. On
November 9, 1995, the PUCO approved the continued prudency of the
Company's ECP and the related update report.
Land Use
The Company and numerous other parties have been notified by
the United States Environmental Protection Agency ("U.S. EPA") or
the Ohio Environmental Protection Agency ("Ohio EPA") that it
considers them Potentially Responsible Parties ("PRPs") for clean-
up at four superfund sites in Ohio: the Sanitary Landfill Site
on Cardington Road in Montgomery County, Ohio; the United Scrap
Lead Site in Miami County, Ohio; the Powell Road Landfill in
Huber Heights, Montgomery County, Ohio; and the North Sanitary
(a.k.a. Valleycrest) Landfill in Dayton, Montgomery County, Ohio.
I-11
The Company received notification from the U.S. EPA in July
1987 for the Cardington Road site. The Company has not joined
the PRP group formed at that site because of the absence of any
known evidence that the Company contributed hazardous substances
to this site. The Record of Decision issued by the U.S. EPA
identifies the chosen clean-up alternative at a cost estimate of
$8.1 million. The final resolution will not have a material
effect on the Company's financial position, earnings or cashflow.
The Company received notification from the U.S. EPA in
September 1987 for the United Scrap Lead Site. The Company has
joined a PRP group for this site, which is actively conferring
with the U.S. EPA. The initial Record of Decision issued by the
U.S. EPA estimating clean-up costs at $27.1 million has been
amended. The amended alternative estimates clean-up costs at
$32 million. The Company is one of over 200 parties to this
site, and its estimated contribution to the site is less than
.01%. Nearly 60 PRPs are actively working to settle the case.
The Company is participating in the sponsorship of a study to
evaluate alternatives to the U.S. EPA's clean-up plan. The U.S.
EPA is also currently considering a proposal for a less expensive
clean-up method. The final resolution will not have a material
effect on the Company's financial position, earnings or cashflow.
The Company and numerous other parties received notification
from the U.S. EPA on May 21, 1993 that it considers them PRPs for
clean-up of hazardous substances at the Powell Road Landfill Site
in Huber Heights, Ohio. The Company has joined the PRP group for
the site. On October 1, 1993, the U.S. EPA issued its Record of
Decision identifying a cost estimate of $20.5 million for the
chosen remedy. The Company is one of over 200 PRPs to this site,
and its estimated contribution is less than 1%. The final
resolution will not have a material effect on the Company's
financial position, earnings or cashflow.
The Company and numerous other parties received notification
from the Ohio EPA on July 27, 1994 that it considers them PRPs
for clean-up of hazardous substances at the North Sanitary
Landfill site in Dayton, Ohio. The Company has not joined the
PRP group formed for the site because the available information
does not demonstrate that the Company contributed wastes to the
site. The final resolution will not have a material effect on
the Company's financial position, earnings or cashflow.
I-12
THE DAYTON POWER AND LIGHT COMPANY
OPERATING STATISTICS
ELECTRIC OPERATIONS
Years Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
Electric Output (millions of kWh)
General -
Coal-fired units 16,142 15,679 14,483
Other units 21 29 27
Power purchases 1,098 2,115 897
Exchanged and transmitted power (1) 1 3
Company use and line losses (946) (1,010) (1,191)
---------- ---------- --------
Total 16,314 16,814 14,219
========== ========== ========
Electric Sales (millions of kWh)
Residential 4,924 4,871 4,465
Commercial 3,407 3,425 3,068
Industrial 4,540 4,401 4,388
Public authorities and railroads 1,392 1,378 1,333
Private utilities and wholesale 2,051 2,739 965
---------- ---------- --------
Total 16,314 16,814 14,219
========== ========== ========
Electric Customers at End of Period
Residential 428,973 425,347 420,487
Commercial 43,381 42,582 41,647
Industrial 1,858 2,017 2,400
Public authorities and railroads 5,651 5,573 5,320
Other 29 17 18
---------- ---------- --------
Total 479,892 475,536 469,872
========== ========== ========
Operating Revenues (thousands)
Residential $ 422,876 $ 422,153 $390,531
Commercial 236,598 237,799 218,046
Industrial 222,941 224,135 228,546
Public authorities and railroads 78,140 78,225 75,387
Private utilities and wholesale 43,730 57,799 24,273
Other 12,115 9,807 9,110
---------- ---------- --------
Total $1,016,400 $1,029,918 $945,893
========== ========== ========
Residential Statistics
(per customer-average)
Sales - kWh 11,537 11,518 10,676
Revenue $ 990.89 $ 998.27 $ 933.70
Rate per kWh (month of December)
(cents) 7.91 8.01 8.68
I-13
THE DAYTON POWER AND LIGHT COMPANY
OPERATING STATISTICS
GAS OPERATIONS
Years Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
Gas Output (thousands of MCF)
Direct market purchases 46,696 44,376 43,140
Liquefied petroleum gas 90 18 144
Company use and unaccounted for (676) (1,594) (1,227)
Transportation gas received 17,587 16,870 15,141
------- ------- -------
Total 63,697 59,670 57,198
======= ======= =======
Gas Sales (thousands of MCF)
Residential 31,087 29,397 27,911
Commercial 9,424 8,307 8,081
Industrial 3,404 2,584 3,150
Public authorities 2,829 3,006 2,909
Transportation gas delivered 16,953 16,376 15,147
------- ------- -------
Total 63,697 59,670 57,198
======= ======= =======
Gas Customers at End of Period
Residential 272,616 269,694 266,116
Commercial 22,085 21,451 21,060
Industrial 1,331 1,574 1,528
Public authorities 1,463 1,423 1,317
-------- -------- --------
Total 297,495 294,142 290,021
======== ======== ========
Operating Revenues (thousands)
Residential $156,709 $149,006 $157,193
Commercial 44,092 39,047 42,382
Industrial 14,110 11,447 14,949
Public authorities 12,013 12,589 14,165
Other 11,660 9,950 8,433
-------- -------- --------
Total $238,584 $222,039 $237,122
======== ======== ========
Residential Statistics
(per customer-average)
Sales - MCF 114.8 109.8 105.7
Revenue $ 578.68 $ 556.72 $ 595.30
Rate per MCF (month of December) $ 5.13 $ 4.44 $ 5.57
I-14
Item 2 - Properties
- ------------------------------------------------------------------------
Electric
Information relating to the Company's electric properties is
contained in Item 1 - BUSINESS, THE COMPANY (page I-1),
CONSTRUCTION AND FINANCING PROGRAM OF THE COMPANY (pages I-4 and
I-5), ELECTRIC OPERATIONS AND FUEL SUPPLY (pages I-6 and I-7) and
Item 8 - Notes 2 and 5 of Notes to Consolidated Financial
Statements on pages II-14 and II-18, respectively, which pages
are incorporated herein by reference.
Gas
Information relating to the Company's gas properties is
contained in Item 1 - BUSINESS, THE COMPANY (page I-1), and GAS
OPERATIONS AND GAS SUPPLY (pages I-7 and I-8), which pages are
incorporated herein by reference.
Other
The Company owns a number of area service buildings located
in various operating centers.
Substantially all property and plant of the Company is
subject to the lien of the Mortgage securing the Company's First
Mortgage Bonds.
Item 3 - Legal Proceedings
- ------------------------------------------------------------------------
Information relating to legal proceedings involving the
Company is contained in Item 1 - BUSINESS, THE COMPANY (page I-
1), COMPETITION (Pages I-2 and I-3) ELECTRIC OPERATIONS AND FUEL
SUPPLY (pages I-6 and I-7), GAS OPERATIONS AND GAS SUPPLY (pages
I-7 and I-8), RATE REGULATION AND GOVERNMENT LEGISLATION (pages I-
8 through I-10), ENVIRONMENTAL CONSIDERATIONS (pages I-11 and I-
12) and Item 8 - Note 2 of Notes to Consolidated Financial
Statements on page II-14, which pages are incorporated herein by
reference.
Item 4 - Submission Of Matters To A Vote Of Security Holders
- ------------------------------------------------------------------------
None.
I-15
PART II
Item 5 - Market For Registrant's Common Equity And Related
Stockholder Matters
- ------------------------------------------------------------------------
The Company's common stock is held solely by DPL Inc.
and as a result is not listed for trading on any stock exchange.
The information required by this item of Form 10-K is set
forth in Item 8 - Selected Quarterly Information on page II-24
and the Financial and Statistical Summary on page II-25, which
pages are incorporated herein by reference.
The Company's Mortgage restricts the payment of dividends
on the Company's Common Stock under certain conditions. In
addition, so long as any Preferred Stock is outstanding, the
Company's Amended Articles of Incorporation contain provisions
restricting the payment of cash dividends on any of its Common
Stock if, after giving effect to such dividend, the aggregate of
all such dividends distributed subsequent to December 31, 1946
exceeds the net income of the Company available for dividends on
its Common Stock subsequent to December 31, 1946, plus
$1,200,000. As of year end, all earnings reinvested in the
business of the Company were available for Common Stock
dividends.
The Credit Agreement requires that the aggregate assets
of the Company and its subsidiaries constitute not less than 60%
of the total consolidated assets of DPL Inc., and that the
Company maintain common shareholder's equity (as defined in the
Credit Agreement) at least equal to $550 million.
Item 6 - Selected Financial Data
- ------------------------------------------------------------------------
The information required by this item of Form 10-K is
set forth in Item 8 - Financial and Statistical Summary on page
II-25, which page is incorporated herein by reference.
II-1
Item 7 - Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
- ------------------------------------------------------------------------
The Dayton Power and Light Company
Performance Highlights 1996 1995 1994
- ----------------------------------------------------------------
CAPITAL INVESTMENT PERFORMANCE:
Capital Structure (millions)
Common shareholder's equity $ 1,217.5 1,190.5 1,160.3
Preferred stock $ 22.9 22.9 22.9
Long-term debt $ 926.3 991.5 1,003.7
------- ------- -------
Total $ 2,166.7 2,204.9 2,186.9
OPERATING PERFORMANCE:
Electric--
Sales (millions of kWh)
Residential 4,924 4,871 4,465
Commercial 3,407 3,425 3,068
Industrial 4,540 4,401 4,388
Other 3,443 4,117 2,298
------ ------ ------
Total 16,314 16,814 14,219
Revenues (millions)
Residential $ 422.9 422.2 390.5
Commercial $ 236.6 237.8 218.1
Industrial $ 222.9 224.1 228.5
Other $ 134.0 145.8 108.8
------- ------- -----
Total $ 1,016.4 1,029.9 945.9
Average price per kWh--retail
and wholesale customers
(calendar year) (cents) 6.16 6.07 6.59
Gas--
Sales (thousands of MCF)
Residential 31,087 29,397 27,911
Commercial 9,424 8,307 8,081
Industrial 3,404 2,584 3,150
Other 19,782 19,382 18,056
------ ------ ------
Total 63,697 59,670 57,198
Revenues (millions)
Residential $ 156.7 149.0 157.2
Commercial $ 44.1 39.0 42.4
Industrial $ 14.1 11.4 14.9
Other $ 23.7 22.6 22.6
----- ----- -----
Total $ 238.6 222.0 237.1
Average price per MCF--all
customers (calendar year) $ 4.85 4.90 5.44
II-2
Results of Operations
The 1996 earnings on common stock are $164 million
compared to $159 million in 1995 and $148 million 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 1% 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 12% 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 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 the Company 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 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.
II-3
Credit Ratings
The Company'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 the Company's
senior debt credit rating three times from 1992-1995. Duff &
Phelps and Standard & Poor's both upgraded the Company's senior
debt credit ratings in 1994. The credit ratings are the highest
the Company 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.
Construction Program and Financing
Construction additions were $124 million, $79 million
and $94 million in 1996, 1995 and 1994, respectively.
During 1996, total cash provided by operating activities
was $288 million. At year-end, cash and temporary cash
investments were $2 million, and debt and equity financial
assets were $56 million.
In December 1996, the Company 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 the Company's Preferred Stock Series D, E, F, H and I.
The capital program for the five years ending 2001 consists
of construction costs of $615 million, with a total of $123
million in 1997. The program includes a series of 80 MW
combustion turbine generating units, and debt maturities and
sinking fund payments of $42 million.
II-4
Issuance of additional amounts of first mortgage bonds
by the Company 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. The Company anticipates that it has
sufficient capacity to issue 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.
The Company also has $97 million available in short-term
lines of credit. At year-end, the Company had no borrowings
outstanding from these lines of credit and $10 million in
commercial paper outstanding.
Issues and Financial Risks
As a public utility, the Company 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, 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.
II-5
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 income of the Company exceeds the allowed return.
The Environmental Protection Agency ("EPA") has notified
numerous parties, including the Company, 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 the Company's financial position, earnings
or cash flow.
Income Statement Highlights
$ in Millions 1996 1995 1994
- -----------------------------------------------------------------
Electric utility:
Revenues $1,016 $1,030 $946
Fuel and purchased power 234 256 218
------ ------ ----
Net revenues 782 774 728
Gas utility:
Revenues 239 222 237
Gas purchased for resale 145 133 151
------ ------ ----
Net revenues 94 89 86
Interest and other income 9 12 9
Operation and maintenance expense 270 271 243
Amortization (deferral) of regulatory
assets, net 15 15 11
Income taxes 98 98 96
Earnings on common stock 164 159 148
II-6
Item 8 - Financial Statements And Supplementary Data
- ------------------------------------------------------------------------
Index to Consolidated Financial Statements Page No.
- ------------------------------------------ --------
Consolidated Statement of Results of
Operations for the three years in the
period ended December 31, 1996 II-8
Consolidated Statement of Cash Flows
for the three years in the period ended
December 31, 1996 II-9
Consolidated Balance Sheet as of
December 31, 1996 and 1995 II-10 - II-11
Notes to Consolidated Financial Statements II-12 - II-23
Reports of Independent Accountants II-26 - II-27
Index to Supplemental Information Page No.
- --------------------------------- --------
Selected Quarterly Information II-24
Financial and Statistical Summary II-25
II-7
The Dayton Power and Light Company
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS
- ------------------------------------------------------------------------
For the years ended December 31,
$ in millions 1996 1995 1994
- ------------------------------------------------------------------------
INCOME
Utility service revenues--
Electric $1,016.4 $1,029.9 $ 945.9
Gas and other 242.0 227.6 244.4
-------- -------- --------
Total utility service revenues 1,258.4 1,257.5 1,190.3
Interest and other income 9.3 11.8 9.4
-------- -------- --------
Total income 1,267.7 1,269.3 1,199.7
-------- -------- --------
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) 269.5 271.3 242.8
Depreciation and amortization (Note 1) 122.3 115.4 111.9
Amortization of regulatory assets,
net (Note 2) 15.3 15.4 10.9
General taxes 129.3 124.9 120.6
Interest expense 89.1 94.4 93.5
-------- -------- --------
Total expenses 1,005.2 1,012.1 951.2
-------- -------- --------
INCOME BEFORE INCOME TAXES 262.5 257.2 248.5
Income taxes (Notes 1 and 3) 97.7 97.8 96.1
-------- -------- --------
NET INCOME 164.8 159.4 152.4
Preferred dividends (Note 9) 0.9 0.9 4.7
-------- -------- --------
EARNINGS ON COMMON STOCK $ 163.9 $ 158.5 $ 147.7
======== ======== ========
See Notes to Consolidated Financial Statements.
II-8
The Dayton Power and Light Company
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------
For the years ended December 31,
$ in millions 1996 1995 1994
- ------------------------------------------------------------------------
OPERATING ACTIVITIES
Cash received from utility customers $1,231.2 $1,205.9 $1,201.4
Other operating cash receipts 10.7 11.0 9.9
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 (85.9) (87.5) (88.3)
Nonlabor operating expenditures (194.2) (164.4) (168.9)
Interest (87.8) (92.1) (92.4)
Income taxes (89.1) (106.4) (100.7)
Property, excise and payroll
taxes (125.7) (123.9) (121.1)
-------- -------- --------
Net cash provided by operating
activities (Note 11) 288.3 261.1 271.1
-------- -------- --------
INVESTING ACTIVITIES
Property expenditures (116.9) (78.9) (94.4)
Other activities (50.3) - -
-------- -------- --------
Net cash used for investing
activities (167.2) (78.9) (94.4)
-------- -------- ---------
FINANCING ACTIVITIES
Dividends paid on common stock (138.3) (132.6) (103.7)
Dividends paid on preferred stock (0.9) (0.9) (5.4)
Retirement of long-term debt (25.4) (126.7) (9.2)
Issuance (retirement) of short-term
debt 6.5 - (25.0)
Issuance of long-term debt - 108.8 -
Redemption of preferred stock - - (94.2)
Capital contribution - - 63.1
-------- -------- --------
Net cash used for financing
activities (158.1) (151.4) (174.4)
-------- -------- --------
Cash and temporary cash investments--
Net change (37.0) 30.8 2.3
Balance at beginning of year 39.1 8.3 6.0
-------- -------- --------
Balance at end of year $ 2.1 $ 39.1 $ 8.3
======== ======== ========
See Notes to Consolidated Financial Statements.
II-9
The Dayton Power and Light Company
CONSOLIDATED BALANCE SHEET
- ----------------------------------------------------------------
At December 31,
$ in millions 1996 1995
- ----------------------------------------------------------------
ASSETS
Property $3,493.2 $3,376.8
Less--
Accumulated depreciation and amortization (1,249.4) (1,134.6)
-------- --------
Net property 2,243.8 2,242.2
-------- --------
Current Assets
Cash and temporary cash investments 2.1 39.1
Accounts receivable, less provision for
uncollectible accounts of $5.1 and $6.5
respectively 193.4 144.5
Inventories, at average cost 75.2 81.6
Taxes applicable to subsequent years 87.3 82.4
Other 54.3 45.8
-------- --------
Total current assets 412.3 393.4
-------- --------
Other Assets
Income taxes recoverable through future
revenues (Note 1) 222.4 238.6
Regulatory assets (Note 2) 137.3 155.7
Financial assets 56.0 3.8
Other assets 171.4 170.6
-------- --------
Total other assets 587.1 568.7
-------- --------
TOTAL ASSETS $3,243.2 $3,204.3
======== ========
See Notes to Consolidated Financial Statements.
II-10
The Dayton Power and Light Company
CONSOLIDATED BALANCE SHEET
(continued)
- ----------------------------------------------------------------
At December 31,
$ in millions 1996 1995
- ----------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholder's equity--(Note 8)
Common stock $ 0.4 $ 0.4
Other paid-in capital 738.9 738.7
Earnings reinvested in the business 478.2 451.4
-------- --------
Total common shareholder's equity 1,217.5 1,190.5
-------- --------
Preferred stock (Note 9) 22.9 22.9
Long-term debt (Note 7) 926.3 991.5
-------- --------
Total capitalization 2,166.7 2,204.9
-------- --------
Current Liabilities
Accounts payable 109.6 97.0
Accrued taxes 136.6 115.9
Accrued interest 21.6 21.7
Current portion of long-term debt 40.4 0.4
Short-term debt (Note 6) 11.3 4.8
Other 49.1 42.4
-------- --------
Total current liabilities 368.6 282.2
-------- --------
Deferred Credits And Other
Deferred taxes (Note 3) 513.2 532.1
Unamortized investment tax credit 75.2 79.4
Other 119.5 105.7
-------- --------
Total deferred credits and other 707.9 717.2
-------- --------
TOTAL CAPITALIZATION AND LIABILITIES $3,243.2 $3,204.3
======== ========
See Notes to Consolidated Financial Statements.
II-11
The Dayton Power and Light Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary Of Significant Accounting Policies
Principles of Consolidation and Nature of Operations
The Company is a wholly-owned subsidiary of DPL Inc. The
accounts of the Company and its wholly-owned subsidiaries are
included in the accompanying consolidated financial statements.
The consolidated financial statements principally reflect the
results of operations and financial condition of the Company.
DPL Inc. and its other wholly-owned subsidiaries provide certain
administrative services to the Company including leases,
equipment, insurance and other services. These costs (in
millions) were $52.6 in 1996, $26.7 in 1995 and $13.2 in 1994.
The Company is a public utility 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 the
Company'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.
The Company 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.
II-12
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.
II-13
2. Regulatory Matters
Regulatory assets on the Consolidated Balance Sheet include:
At December 31,
1996 1995
---- ----
--millions--
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 the Company'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 the Company 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.
II-14
3. Income Taxes
For the years ended December 31,
$ in millions 1996 1995 1994
- -------------------------------------------------------------------
COMPUTATION OF TAX EXPENSE
Federal income tax (a) $ 91.9 $ 90.0 $ 87.0
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 (5.2) (3.3) 0.2
------------------------
Total tax expense $ 97.7 $ 97.8 $ 96.1
========================
COMPONENTS OF TAX EXPENSE
Taxes currently payable $102.1 $ 93.1 $103.4
Deferred taxes--
Regulatory assets (3.5) (1.7) 1.6
Liberalized depreciation and
amortization 7.2 13.9 16.9
Property taxes - - (6.1)
Fuel and gas costs 2.5 (3.1) (12.7)
Other (6.4) (2.6) (3.4)
Deferred investment tax credit, net (4.2) (1.8) (3.6)
------------------------
Total tax expense $ 97.7 $ 97.8 $ 96.1
========================
(a) The statutory rate of 35% applied to pre-tax income.
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
At December 31,
$ in millions 1996 1995
--------------------------------------------------
NON-CURRENT LIABILITIES
Depreciation/property basis $(447.9) $(449.7)
Income taxes recoverable (77.4) (82.9)
Regulatory assets (45.8) (52.3)
Investment tax credit 26.3 27.8
Other 31.6 25.0
------- -------
Net non-current liability $(513.2) $(532.1)
------- -------
Net Current Asset $ 1.7 $ 6.1
======= =======
II-15
4. Pensions And Postretirement Benefits
Pensions
Substantially all Company 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.
II-16
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.
The Company 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 2.9 3.0
----- ----- -----
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.
II-17
5. Commonly Owned Facilities
The Company 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,
the Company had $4.2 million of commonly owned facilities under
construction. The Company's share of expenses is included in the
Consolidated Statement of Results of Operations.
The following table presents the Company's share of the commonly
owned facilities at December 31, 1996:
Company Share Investment
---------------------- --------------
Production Gross Plant in
Ownership Capacity Service
(%) (MW) ($ millions)
- -------------------------------------------------------------------
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., the Company's parent, has $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.
The Company also has $96.6 million available in short-term
informal lines of credit. To support these lines of credit, the
Company is required to maintain average daily compensating
balances of approximately $400,000 and also pay $103,550 per year
in fees.
At year-end, the Company 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%.
II-18
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
-----------------
Total $926.3 $991.5
=================
(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) $40.4 in 1997 and $0.4
in 1998 through 2001. Substantially all property of the Company
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.
II-19
8. Common Shareholder's Equity
Common Stock (a)
------------------- Earnings
Outstanding Other Paid-in Reinvested in
$ in millions Shares Amount Capital the Business Total
- -------------------------------------------------------------------------------------
1994:
Beginning Balance 41,172,173 $ 0.4 $675.2 $373.6 $1,049.2
Net income 152.4 152.4
Common stock dividends (103.7) (103.7)
Preferred stock dividends (4.7) (4.7)
Contribution to capital 63.1 - 63.1
Other 0.2 3.8 4.0
---------------------------------------------------------
Ending balance 41,172,173 $ 0.4 $738.5 $421.4 $1,160.3
1995:
Net income 159.4 159.4
Common stock dividends (132.6) (132.6)
Preferred stock dividends (0.9) (0.9)
Other 0.2 4.1 4.3
---------------------------------------------------------
Ending balance 41,172,173 $ 0.4 $738.7 $451.4 $1,190.5
1996:
Net income 164.8 164.8
Common stock dividends (138.3) (138.3)
Preferred stock dividends (0.9) (0.9)
Other 0.2 1.2 1.4
---------------------------------------------------------
Ending balance 41,172,173 $ 0.4 $738.9 $478.2 $1,217.5
=========================================================
(a) 50,000,000 shares authorized.
II-20
9. Preferred Stock
$25 par value, 4,000,000 shares authorized, no shares
outstanding; and $100 par value, 4,000,000 shares authorized,
228,508 shares without mandatory redemption provisions
outstanding.
Current Current Par Value
Redemption Shares At December 31, 1996 and 1995
Series Rate Price Outstanding ($ 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 the Company 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, 90.1 75.4 40.1 27.6
included in financial assets
Held to maturity securities,
including temporary cash investments
of $2.0 in 1996 and $31.6 in 1995 50.9 50.7 78.2 76.8
Liabilities (b)
Debt 1,018.6 976.7 1,076.2 992.0
(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.
II-21
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 $164.8 $159.4 $152.4
Adjustments:
Depreciation and amortization 122.3 115.4 111.9
Deferred income taxes (3.3) 4.4 (7.3)
Amortization of regulatory assets, net 15.3 15.4 10.9
Operating expense provisions (10.2) (0.4) 22.9
Accounts receivable (48.9) (44.7) 30.3
Accounts payable 10.0 21.4 (41.1)
Accrued taxes payable 20.7 (7.6) 9.9
Inventory 6.5 1.7 2.0
Other 11.1 (3.9) (20.8)
--------------------------
Net cash provided by operating activities $288.3 $261.1 $271.1
==========================
II-22
12. Financial Information By Business Segments
For the years ended December 31,
$ in millions 1996 1995 1994
- ------------------------------------------------------------------------
Utility service revenues
Electric $1,016.4 $1,029.9 $ 945.9
Gas 238.6 222.0 237.1
Other 3.4 5.6 7.3
------------------------------
Total utility service revenues 1,258.4 1,257.5 1,190.3
Interest and other income 9.3 11.8 9.4
------------------------------
Total income $1,267.7 $1,269.3 $1,199.7
==============================
Operating profit before tax
Electric $ 326.9 $ 335.8 $ 325.2
Gas 23.7 18.9 10.3
Other (5.7) (4.4) (0.7)
------------------------------
Total operating profit before tax 344.9 350.3 334.8
Other income, net (a) 6.7 1.3 7.3
Interest expense (89.1) (94.4) (93.5)
------------------------------
Income before income taxes $ 262.5 $ 257.2 $ 248.6
==============================
Depreciation and amortization
Electric $ 112.8 $ 108.1 $ 104.8
Gas 6.7 6.4 6.2
Other 2.8 0.9 0.9
------------------------------
Total depreciation and amortization $ 122.3 $ 115.4 $ 111.9
==============================
Construction additions
Electric $ 109.4 $ 66.6 $ 82.1
Gas 14.1 11.7 11.6
Other - 0.6 0.3
------------------------------
Total construction additions $ 123.5 $ 78.9 $ 94.0
==============================
Assets
Electric $2,754.3 $2,763.1 $2,772.3
Gas 259.9 223.7 201.7
Other (b) 229.0 217.5 173.0
------------------------------
Total assets at year-end $3,243.2 $3,204.3 $3,147.0
==============================
(a) Includes primarily interest income less bond redemption costs in 1995.
(b) Includes primarily cash, temporary cash investments, debt and equity
financial assets and certain deferred items.
II-23
SELECTED QUARTERLY INFORMATION
March 31, June 30, September 30, December 31,
$ in millions 1996 1995 1996 1995 1996 1995 1996 1995
- -----------------------------------------------------------------------------------
$ $ $ $ $ $ $ $
Utility service revenues 369.0 356.2 282.0 266.5 278.2 300.7 329.2 334.1
Income before income taxes 101.5 94.2 54.2 51.8 67.3 65.0 39.5 46.2
Net income 62.8 59.3 33.1 33.8 41.7 38.9 27.2 27.4
Earnings on common stock 62.5 59.1 32.9 33.5 41.5 38.7 27.0 27.2
Dividends paid 34.7 33.2 34.7 33.1 34.5 33.2 34.4 33.1
II-24
FINANCIAL AND STATISTICAL SUMMARY
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
For the years ended December 31,
Utility service revenues (millions) $1,258.4 1,257.5 1,190.3 1,153.7 1,019.8
Earnings on common stock (millions) $ 163.9 158.5 147.7 134.9 132.6
Earnings per share of common stock $ 3.98 3.85 3.59 3.28 3.22
Dividends paid (millions) $ 138.3 132.6 103.7 107.8 103.6
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,
Total assets (millions) $3,243.2 3,204.3 3,147.0 3,211.3 2,866.7
Long-term debt and preferred stock
with mandatory redemption
provisions (millions) $ 926.3 991.5 1,003.7 1,042.9 990.6
First mortgage bond ratings--
Duff & Phelps, Inc. AA AA AA AA- A+
Standards & Poor's Corporation AA- AA- AA- A A
Moody's Investors Service Aa3 Aa3 A1 A2 A2
Number of Preferred Shareholders 684 733 795 1,873 1,969
II-25
Report of Independent Accountants
---------------------------------
To the Board of Directors of The Dayton Power and Light Company
In our opinion, the consolidated financial statements listed
in the index, appearing under Item 8 on page II-7 of this Form 10-
K, present fairly, in all material respects, the financial
position of The Dayton Power and Light Company (the "Company")
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
consolidated financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion
on these consolidated 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated 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.
Price Waterhouse LLP
Dayton, Ohio
January 21, 1997
II-26
Report of Independent Accountants
on Financial Statement Schedule
---------------------------------
To the Board of Directors of The Dayton Power and Light Company
Our audits of the consolidated financial statements of The Dayton
Power and Light Company and its subsidiaries referred to in our
report dated January 21, 1997 appearing on page II-26 of this
Annual Report on Form 10-K also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form 10-
K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.
Price Waterhouse LLP
Dayton, Ohio
January 21, 1997
II-27
Item 9 - Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure.
- ------------------------------------------------------------------------
None.
PART III
Item 10 - Directors And Executive Officers Of The Registrant
- ------------------------------------------------------------------------
Directors of the Registrant
The Board is presently authorized to consist of nine
directors. These nine directors are also directors of DPL Inc.,
the holding company of the Company. Nine directors are to be
elected this year to serve until the Annual Meeting of
Shareholders in 1998 or until their successors are duly elected
and qualified. Should any nominee become unable to accept
nomination or election, the Board will vote for the election of
such other person as a director as the present directors may
recommend in the place of such nominee.
The following information regarding the nominees is
based on information furnished by them:
Director
Principal Occupation and Other Information Since
- ------------------------------------------------------------------------
THOMAS J. DANIS, Age 47 1989
Former Chairman and Chief Executive Officer,
The Danis Companies, Dayton, Ohio,
construction, real estate and environmental services.
Director: CSR America Inc.
Trustee: University of Dayton, Dayton Foundation,
Miami Valley Research Park Foundation.
JAMES F. DICKE, II, Age 51 1990
President, Crown Equipment Corporation, New Bremen, Ohio,
international manufacturer and distributor of electric lift
trucks and material handling products.
Director: Regional Boys and Girls Clubs of America,
Dayton Art Institute.
Vice Chairman: Trinity University Board of Trustees
Secretary: Culver Educational Foundation.
III-1
PETER H. FORSTER, Age 54 1979
Chairman, DPL Inc. and The Dayton Power and Light Company.
Chairman: Miami Valley Research Foundation.
Director: Bank One, Dayton, NA, Amcast Industrial Corp.,
Comair Holdings, Inc.
Trustee: F. M. Tait Foundation, Arts Center Foundation.
ERNIE GREEN, Age 58 1991
President and Chief Executive Officer, Ernie Green
Industries, Dayton, Ohio, automotive components manufacturer.
Director: Bank One, Dayton, NA, WPTD-TV,
The Duriron Company, Acordia, Inc., Eaton Corp.,
Fluor Daniel/GTI, Gradall.
JANE G. HALEY, Age 66 1978
President and Chief Executive Officer, Gosiger, Inc.,
Dayton, Ohio, national importer and distributor of machine
tools.
Director: Key Bank, Advisory Board, Dayton, Ohio.
Trustee: University of Dayton, Chaminade-Julienne
High School, Dayton, Ohio, Miami Valley Economic
Development Coalition.
Member: Area Progress Council.
ALLEN M. HILL, Age 51 1989
President and Chief Executive Officer, DPL Inc. and
The Dayton Power and Light Company.
Chairman: Dayton Business Committee.
Director: Citizens Federal Bank, F.S.B.,
Dayton Boys/Girls Club, Ohio Electric Utility Institute.
Trustee: The University of Dayton, Miami Valley Economic
Development Coalition.
III-2
W AUGUST HILLENBRAND, Age 56 1992
President and Chief Executive Officer, Hillenbrand
Industries, Batesville, Indiana, a diversified
public holding company with five wholly-owned and
autonomously operated subsidiaries manufacturing
caskets, hospital furniture, hospital supplies,
high-tech security locks and providing funeral planning
services.
Director: Forecorp, Inc., Forethought Life Insurance Company.
Trustee: Denison University, National Committee for
Quality Health Care, Batesville Girl Scouts.
DAVID R. HOLMES, Age 56 1994
Chairman, President and Chief Executive Officer,
The Reynolds and Reynolds Company, Dayton, Ohio,
information management systems.
Director: NCR Corporation
Advisor: J. L. Kellogg Graduate School of Management,
Northwestern University.
Member: Dayton Business Committee, Area Progress Council,
Downtown Dayton Partnership.
BURNELL R. ROBERTS, Age 69 1987
Chairman, Sweetheart Holdings, Inc.
Retired Chairman of the Board and Chief Executive
Officer, The Mead Corporation, Dayton, Ohio,
forest products producer.
Director: Armco, Inc., The Perkin-Elmer Corporation,
Rayonier, Inc., Universal Protective Plastics, Inc.,
Day International Group, Inc.
III-3
EXECUTIVE OFFICERS OF THE REGISTRANT
(As of March 1, 1997)
Business Experience,
Last Five Years
(Positions with Registrant
Name Age Unless Otherwise Indicated) Dates
- ----------------- --- --------------------------- -----------------
Peter H. Forster 54 Chairman 4/06/92 - 3/01/97
Chairman, DPL Inc. 1/01/97 - 3/01/97
Chairman and Chief Executive 9/26/95 - 1/01/97
Officer, DPL Inc.
Chairman, President and Chief 4/05/88 - 9/26/95
Executive Officer, DPL Inc.
Chairman and Chief Executive 8/02/88 - 4/06/92
Officer
Allen M. Hill 51 President and Chief Executive 4/06/92 - 3/01/97
Officer
President and Chief Executive 1/01/97 - 3/01/97
Officer, DPL Inc.
President and Chief Operating 9/26/95 - 1/01/97
Officer, DPL Inc.
President and Chief Operating 8/02/88 - 4/06/92
Officer
Paul R. Anderson 54 Controller 4/12/81 - 3/01/97
Stephen P. Bramlage 50 Assistant Vice President 1/01/94 - 3/01/97
Director, Service Operations 10/29/89 - 1/01/94
Jeanne S. Holihan 40 Assistant Vice President 3/17/93 - 3/01/97
Treasurer 11/06/90 - 3/17/93
III-4
EXECUTIVE OFFICERS OF THE REGISTRANT
(As of March 1, 1997)
Business Experience,
Last Five Years
(Positions with Registrant
Name Age Unless Otherwise Indicated) Dates
- ----------------- --- --------------------------- ------------------
Thomas M. Jenkins 45 Group Vice President and 5/14/96 - 3/01/97
Treasurer, DPL Inc. and
the Company
Group Vice President 6/27/95 - 5/14/96
Group Vice President and
Treasurer, DPL Inc.
Group Vice President and 5/09/94 - 6/27/95
Treasurer, DPL Inc. and
the Company
Group Vice President and 11/06/90 - 5/09/94
Treasurer, DPL Inc.
Group Vice President
Stephen F. Koziar,
Jr. 52 Group Vice President and 1/31/95 - 3/01/97
Secretary, DPL Inc. and
the Company
Group Vice President, 12/10/87 - 1/31/95
DPL Inc. and the Company
Judy W. Lansaw 45 Group Vice President, 1/31/95 - 3/01/97
DPL Inc. and the Company
Group Vice President and 12/07/93 - 1/31/95
Secretary, DPL Inc. and
the Company
Vice President and 8/01/89 - 12/07/93
Secretary, DPL Inc. and
the Company
Bryce W. Nickel 40 Assistant Vice President 1/01/94 - 3/01/97
Director, Service Operations 10/29/89 - 1/01/94
H. Ted Santo 46 Group Vice President 12/08/92 - 3/01/97
Vice President 2/28/88 - 12/08/92
III-5
Item 11 - Executive Compensation
- ------------------------------------------------------------------------
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees receive
$12,000 annually for services as a director, $600 for attendance
at a Board meeting, and $500 for attendance at a committee
meeting or operating session of DPL Inc. and the Company.
Members of the Executive Committee of DPL Inc. receive $2,000
annually for services on that committee. Each committee chairman
receives an additional $1,600 annually. Directors who are not
employees of the Company also participate in a Directors'
Deferred Stock Compensation Plan (the "Stock Plan") under which a
number of DPL Inc. common shares are awarded to directors each
year. All shares awarded under the Stock Plan are transferred to
a grantor trust (the "Master Trust") maintained by DPL Inc. to
secure its obligations under various directors' and officers'
deferred and incentive compensation plans. Receipt of the shares
or cash equal to the value thereof is deferred until the
participant retires as a director or until such other time as
designated by the participant and approved by the Compensation
and Management Review Committee (the "Committee") of DPL Inc. In
the event of a change of control (as defined in the Stock Plan),
the authority and discretion which is exercisable by the
Committee will be exercised by the trustees of the Master Trust.
In April 1996, each non-employee director was awarded
1,600 shares.
DPL Inc. maintains a Deferred Compensation Plan (the
"Compensation Plan") for non-employee directors of DPL Inc. and
the Company in which payment of directors' fees may be deferred.
The Compensation Plan also includes a supplementary deferred
income program which provides that DPL Inc. will match $5,000
annually of deferred directors' fees for a maximum of ten years.
Under the supplementary program, a $150,000 death benefit is
provided until such director ceases to participate in the
Compensation Plan. Under the standard deferred income program
directors are entitled to receive a lump sum payment or payments
in installments over a period up to 20 years. A director may
elect payment in either cash or common shares. Participants in
the supplementary program are entitled to receive deferred
payments over a ten-year period in equal installments. The
Compensation Plan provides that in the event of a change in
control of DPL Inc., as defined in the Compensation Plan, all
benefits provided under the supplementary deferred income program
become immediately vested without the need for further
contributions by the participants and the discretion which, under
the Compensation Plan, is exercisable by the Chief Executive
Officer of DPL Inc. will be exercised by the trustees of the
Master Trust. If the consent of the Chief Executive Officer of
DPL Inc. is obtained, individuals who have attained the age of 55
and who are no longer directors of DPL Inc. or the Company may
receive a lump sum payment of amounts credited to them under the
supplementary deferred income program.
Mr. Forster has entered into an agreement with DPL Inc.
and DP&L pursuant to which Mr. Forster will serve as Chairman of
the Board of DPL Inc. and DP&L and will provide various advisory
and consulting services. The term of the agreement expires on
December 31, 1999 (which term is automatically extended on
December 31, 1999 and each December 31 thereafter for an
additional year unless either party gives advance notice of
nonrenewal). Under the agreement, Mr. Forster receives an annual
consulting fee of $500,000 (as well as...
III-6
...such bonuses, if any, as may be determined by the Compensation
and Management Review Committee in its discretion) and an award
opportunity of 35,000 restricted shares under the Stock Plan.
Commencing in 2000, Mr. Forster will participate in a bonus
program for individuals monitoring and managing DPL Inc.'s
financial assets pursuant to which he will have the opportunity
to receive an annual bonus if there is a positive cumulative cash
return on such financial assets (after recovery of all amounts
invested plus expenses). Payments under the bonus program, if
and as earned, will continue following termination of the
agreement for any reason.
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table
Set forth below is certain information concerning the
compensation of the Chief Executive Officer and each of the other
five most highly compensated executive officers of the Company
for the last three fiscal years, for services rendered in all
capacities to the Company and its subsidiaries, DPL Inc., and the
other subsidiaries of DPL Inc.
Long-Term
Compensation
Annual ------------
Compensation Restricted
--------------- Stock Unit All Other
Name and Principal Salary Bonus (1) Awards (2) Compensation (3)
Position Year ($) ($) ($) ($)
- ------------------------------------------------------------------------------
Peter H. Forster 1996 597,000 358,000 984,000 ('97-99) 1,000
Chairman 1995 572,000 344,000 784,000 ('96-98) 1,000
1994 526,000 318,000 708,000 ('95-97) 1,000
Allen M. Hill 1996 377,000 226,000 717,000 ('97-99) 1,000
President and Chief 1995 363,000 226,000 319,000 ('96-98) 1,000
Executive Officer 1994 336,000 205,000 333,000 ('95-97) 1,000
Stephen F. Koziar, Jr. 1996 218,000 98,000 216,000 ('97-99) 1,000
Group Vice President 1995 209,000 94,000 141,000 ('96-98) 1,000
and Secretary 1994 198,000 91,000 124,000 ('95-97) 1,000
Thomas M. Jenkins 1996 218,000 98,000 192,000 ('97-99) 1,000
Group Vice President 1995 207,000 94,000 194,000 ('96-98) 1,000
and Treasurer 1994 188,000 87,000 239,000 ('95-97) 1,000
Judy W. Lansaw 1996 214,000 96,000 393,000 ('97-99) 1,000
Group Vice President 1995 197,000 89,000 227,000 ('96-98) 1,000
1994 175,000 79,000 191,000 ('95-97) 1,000
H. Ted Santo 1996 205,000 92,000 305,000 ('97-99) 1,000
Group Vice President 1995 190,000 86,000 168,000 ('96-98) 1,000
1994 173,000 81,000 142,000 ('95-97) 1,000
III-7
(1) Amounts in this column represent awards made under the
Management Incentive Compensation Program ("MICP"). Awards
are based on achievement of specific predetermined operating
and management goals in the year indicated and paid in the
year earned or in the following year.
(2) Amounts shown in this column have not been paid, but are
contingent on performance and represent the dollar value of
restricted stock incentive units ("SIU's") awarded to the
named executive officer under the Management Stock Incentive
Plan ("MSIP") based on the closing price of a DPL Inc. common
share on the New York Stock Exchange--Consolidated
Transactions Tape on the date of award. The SIU's awarded
for 1994, 1995 and 1996 vest only to the extent that the
DPL Inc. average return on equity ("ROE") over a three-year
performance period is above the Regulatory Research
Associates industry median.
Depending on the performance of DPL Inc., these SIU's vest in
amounts ranging from 0% to 100% of the target award at an ROE
between 0 and 100 basis points above median ROE and from 100%
to 150% of target award at an ROE between 100 and 200 basis
points above median ROE.
No units vest if the three-year average ROE is below 10%.
Amounts shown for 1994, 1995 and 1996 reflect target awards.
For each SIU which vests, a participant receives the cash
equivalent of one DPL Inc. common share plus dividend
equivalents from the date of award. Prior to payout at
retirement, an individual may elect to convert a portion of
vested SIU's to a cash equivalent and accrue interest
thereon. All payouts of vested SIU's under the MSIP are
deferred until retirement.
Mr. Forster's 1996 award opportunity for the performance
period 1997-1999 represents restricted shares awarded under
the Director's Stock Plan which are subject to the same
earning and vesting criteria generally applicable to SIU's
awarded under the MSIP.
(3) Amounts in this column represent employer matching
contributions on behalf of each named executive under the
DP&L Employee Savings Plan made to the DPL Inc. Employee
Stock Ownership Plan.
Certain Severance Pay Agreements
DPL Inc. entered into severance pay agreements with
each of Messrs. Hill, Koziar, Jenkins and Santo and Mrs. Lansaw
providing for the payment of severance benefits in the event that
the individual's employment with DPL Inc. or its subsidiaries is
terminated under specified circumstances within three years after
a change in control of DPL Inc. or DP&L (generally, defined as
the acquisition of 15% or more of the voting securities or
certain mergers or other business combinations). The agreements
entered into between 1987 and 1991 require the individuals to
remain with DPL Inc. throughout the period during which any
change of control is pending in order to help put in place the
best plan for the shareholders. The principal severance benefits
under each agreement include payment of the following: (i) the
individual's full base salary and accrued benefits through the
date of termination and any awards for any completed or partial
period under the MICP and the individual's award for the current
period...
III-8
...under the MICP (or for a completed period if no award for that
period has yet been determined) fixed at an amount equal to his
average annual award for the preceding three years; (ii) 300% of
the sum of the individual's annual base salary at the rate in
effect on the date of termination (or, if higher, at the rate in
effect as of the time of the change in control) plus the average
amount awarded to the individual under the MICP for the three
preceding years; (iii) all awarded or earned but unpaid SIU's;
and (iv) continuing medical, life, and disability insurance. In
the event any payments under these agreements are subject to an
excise tax under the Internal Revenue Code of 1986, the payments
will be adjusted so that the total payments received on an after-
tax basis will equal the amount the individual would have
received without imposition of the excise tax. The severance pay
agreements are effective for one year but are automatically
renewed each year unless DPL Inc. or the participant notifies the
other one year in advance of its or his intent not to renew.
DPL Inc. has agreed to secure its obligations under the severance
pay agreements by transferring required payments to the Master
Trust. Mr. Forster's agreement with DPL Inc. and DP&L contains
similar severance benefits provisions.
Pension Plans
The following table sets forth the estimated total annual
benefits payable under the Company retirement income plan and the
supplemental executive retirement plan to executive officers at
ormal retirement date (age 65) based upon years of accredited service
and final average annual compensation (including base and incentive
compensation) for the three highest years during the last ten:
Total Annual Retirement Benefits for
Years of Accredited Service at Age 65
Final Average -------------------------------------
Annual Earnings 10 Years 15 Years 20-30 Years
--------------- -------- -------- -----------
$ 200,000 $ 52,500 $ 78,500 $105,000
400,000 109,500 164,000 219,000
600,000 166,500 249,500 333,000
800,000 223,500 335,000 447,000
1,000,000 280,500 420,500 561,000
1,200,000 337,500 506,000 675,000
1,400,000 394,500 591,500 789,000
The years of accredited service for the named executive
officers are Mr. Forster -- 30 yrs.; Mr. Hill -- 27 yrs.;
Mr. Koziar -- 27 yrs.; Mr. Jenkins -- 19 yrs.; Mrs. Lansaw --
17 yrs.; and Mr. Santo -- 21 yrs. Years of service under the
retirement income plan are capped at 30 years, however, the
retirement and supplemental plans, taken together, can provide
full benefits after 20 years of accredited service. Benefits are
computed on a straight-life annuity basis, are subject to
deduction for Social Security benefits and may be reduced by
benefits payable under retirement plans of other employers. For
each year an individual retires prior to age 62, benefits under
the supplemental plan are reduced by 3% or 21% for early
retirement at age 55.
III-9
Item 12 - Security Ownership Of Certain Beneficial Owners And Management
- ------------------------------------------------------------------------
The Company's stock is beneficially owned by DPL Inc.
Set forth below is information concerning the
beneficial ownership of shares of Common Stock of DPL Inc. by
each director of the Company as of January 31, 1997.
Amount and Nature of
Name of Director Beneficial Ownership (1)
---------------- ------------------------
Thomas J. Danis 21,423 shares
James F. Dicke, II 58,963 shares
Peter H. Forster 21,586 shares
Ernie Green 19,890 shares
Jane G. Haley 31,713 shares
Allen M. Hill 21,240 shares
W August Hillenbrand 11,634 shares
David R. Holmes 5,292 shares
Burnell R. Roberts 21,271 shares
Set forth below is information concerning the
beneficial ownership of shares of Common Stock of DPL Inc. by
each executive officer of the Company named in the Summary
Compensation Table (other than executive officers who are
directors of the Company whose security ownership is found above)
as of January 31, 1997.
Amount and Nature of
Name of Executive Officer Beneficial Ownership (1)
------------------------- ------------------------
Stephen F. Koziar, Jr. 8,100 shares
Thomas M. Jenkins 5,308 shares
H. Ted Santo 2,258 shares
Judy W. Lansaw 2,116 shares
(1) The number of shares shown represents in each instance less
than 1% of the outstanding Common Shares of DPL Inc.
There were 241,609 shares or 0.23% of the total number of
Common Shares beneficially owned by all directors and
executive officers of DPL Inc. and the Company as a group at
January 31, 1997. The number of shares shown for the
directors includes Common Shares transferred to the Master
Trust for non-employee directors pursuant to the Directors'
Deferred Stock Compensation Plan.
Item 13 - Certain Relationships And Related Transactions
- ------------------------------------------------------------------------
None.
III-10
PART IV
Item 14 - Exhibits, Financial Statement Schedule And Reports On Form 8-K
- ------------------------------------------------------------------------
(a) Documents filed as part of the Form 10-K
1. Financial Statements
--------------------
See Item 8 - Index to Financial Statements on page II-7, which
page is incorporated herein by reference.
2. Financial Statement Schedule
----------------------------
For the three years in the period ended December 31, 1996:
Page No.
--------
Schedule II - Valuation and qualifying accounts IV-7
The information required to be submitted in Schedules I, III,
IV and V is omitted as not applicable or not required under rules
of Regulation S-X.
IV-1
3. Exhibits
--------
The following exhibits have been filed with the Securities
and Exchange Commission and are incorporated herein by
reference.
Incorporation by
Reference
---------------------
2 Copy of the Agreement of Merger among Exhibit A to the 1986
DPL Inc., Holding Sub Inc. and the Proxy Statement
Company dated January 6, 1986 (File No. 1-2385)
3(a) Regulations and By-Laws of the Company Exhibit 2(e) to
Registration Statement
No. 2-68136 to Form S-16
3(b) Copy of Amended Articles of Exhibit 3(b) to Report on
Incorporation of the Company dated Form 10K for the year
January 3, 1991 ended December 31, 1991
(File No. 1-2385)
4(a) Copy of Composite Indenture dated as Exhibit 4(a) to Report on
of October 1, 1935, between the Company Form 10-K for the year
and The Bank of New York, Trustee with ended December 31, 1985
all amendments through the Twenty-Ninth (File No. 1-2385)
Supplemental Indenture
4(b) Copy of the Thirtieth Supplemental Exhibit 4(h) to
Indenture dated as of March 1, 1982, Registration Statement
between the Company and The Bank of New No. 33-53906
York, Trustee
4(c) Copy of the Thirty-First Supplemental Exhibit 4(h) to
Indenture dated as of November 1, 1982, Registration Statement
between the Company and The Bank of New No. 33-56162
York, Trustee
4(d) Copy of the Thirty-Second Supplemental Exhibit 4(i) to
Indenture dated as of November 1, 1982, Registration Statement
between the Company and The Bank of New No. 33-56162
York, Trustee
4(e) Copy of the Thirty-Third Supplemental Exhibit 4(e) to Report on
Indenture dated as of December 1, 1985, Form 10-K for the year
between the Company and The Bank of New ended December 31, 1985
York, Trustee (File No. 1-2385)
4(f) Copy of the Thirty-Fourth Supplemental Exhibit 4 to Report on
Indenture dated as of April 1, 1986, Form 10-Q for the quarter
between the Company and The Bank of New ended June 30, 1986
York, Trustee (File No. 1-2385)
IV-2
4(g) Copy of the Thirty-Fifth Supplemental Exhibit 4(h) to Report on
Indenture dated as of December 1, 1986, Form 10-K for the year
between the Company and The Bank of New ended December 31, 1986
York, Trustee (File No. 1-9052)
4(h) Copy of the Thirty-Sixth Supplemental Exhibit 4(i) to
Indenture dated as of August 15, 1992, Registration Statement
between the Company and The Bank of New No. 33-53906
York, Trustee
4(i) Copy of the Thirty-Seventh Supplemental Exhibit 4(j) to
Indenture dated as of November 15, 1992, Registration Statement
between the Company and The Bank of New No. 33-56162
York, Trustee
4(j) Copy of the Thirty-Eighth Supplemental Exhibit 4(k) to
Indenture dated as of November 15, 1992, Registration Statement
between the Company and The Bank of New No. 33-56162
York, Trustee
4(k) Copy of the Thirty-Ninth Supplemental Exhibit 4(k) to
Indenture dated as of January 15, 1993, Registration Statement
between the Company and The Bank of New No. 33-57928
York, Trustee
4(l) Copy of the Fortieth Supplemental Exhibit 4(m) to Report on
Indenture dated as of February 15, 1993, Form 10-K for the year
between the Company and The Bank of New ended December 31, 1992
York, Trustee (File No. 1-2385)
10(a) Description of Management Incentive Exhibit 10(d) to Report on
Compensation Program for Certain Form 10-K for the year
Executive Officers ended December 31, 1986
(File No. 1-9052)
10(b) Copy of Severance Pay Agreement with Exhibit 10(g) to Report on
Certain Executive Officers Form 10-K for the year
ended December 31, 1987
(File No. 1-2385)
10(c) Copy of Supplemental Executive Exhibit 10(f) to Report on
Retirement Plan amended August 6, 1991 Form 10-K for the year
ended December 31, 1991
(File No. 1-2385)
10(d) Amended description of Directors' Exhibit 10(d) to Report on
Deferred Stock Compensation Plan Form 10-K for the year
effective January 1, 1993 ended December 31, 1993
(File No. 1-2385)
IV-3
10(e) Amended description of Deferred Exhibit 10(e) to Report on
Compensation Plan for Non-Employee Form 10-K for the year
Director's effective January 1, 1993 ended December 31, 1993
(File No. 1-2385)
10(f) Copy of Management Stock Incentive Exhibit 10(f) to Report on
Plan amended January 1, 1993 Form 10-K for the year
ended December 31, 1993
(File No. 1-2385)
18 Copy of preferability letter relating Exhibit 18 to Report on
to change in accounting for unbilled Form 10-K for the year
revenue from Price Waterhouse LLP ended December 31, 1988
(File No. 1-2385)
The following exhibits are filed herewith:
Page No.
--------
21 Copy of List of Subsidiaries of the Company
(b) Reports on Form 8-K
-------------------
None.
IV-4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE DAYTON POWER AND LIGHT COMPANY
Registrant
March 27, 1997 /s/ Allen M. Hill
-----------------------------
Allen M. Hill
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Paul R. Anderson Controller (principal March 27, 1997
- ------------------------ accounting officer)
(P. R. Anderson)
Director March , 1997
- -----------------------
(T. J. Danis)
Director March , 1997
- -----------------------
(J. F. Dicke, II)
/s/ Peter H. Forster Director and Chairman March 27, 1997
- -----------------------
(P. H. Forster)
/s/ Ernie Green Director March 27, 1997
- -----------------------
(E. Green)
/s/ Jane G. Haley Director March 27, 1997
- ------------------------
(J. G. Haley)
IV-5
/s/ Allen M. Hill Director, President and March 27, 1997
- ------------------------ Chief Executive Officer
(A. M. Hill)
Director March , 1997
- ------------------------
(W A. Hillenbrand)
Director March , 1997
- ------------------------
(D. R. Holmes)
/s/ Thomas M. Jenkins Group Vice President and March 27, 1997
- ------------------------ and Treasurer (principal
(T. M. Jenkins) financial officer)
/s/ Burnell R. Roberts Director March 27, 1997
- -----------------------
(B. R. Roberts)
IV-6
Schedule II
THE DAYTON POWER AND LIGHT COMPANY
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1996, 1995 and 1994
- -----------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------
Additions
--------------
Balance at Charged Balance
Beginning to Deductions at End
Description of Period Income Other (1) of Period
- -----------------------------------------------------------------------------------------
---------------------thousands----------------------
1996:
Deducted from accounts receivable--
Provision for uncollectible accounts $6,481 $4,056 $ - $5,454 $5,083
1995:
Deducted from accounts receivable--
Provision for uncollectible accounts $7,801 $1,096 $ - $2,416 $6,481
1994:
Deducted from accounts receivable--
Provision for uncollectible accounts $9,122 $1,553 $ - $2,874 $7,801
(1) Amounts written off, net of recoveries of accounts previously written off.
IV-7