Annual Report 2005
Strengthening Our Company
Sharpening Its Focus
Highlights
Market value per share at December 31
Earnings (millions)
Earnings per share of common stock – Basic:
From continuing operations
From discontinued operations
From cumulative effect of accounting change
Total
Earnings per share of common stock – Diluted:
From continuing operations
From discontinued operations
From cumulative effect of accounting change
Total
Average shares outstanding (millions)
Basic
Diluted
Cash provided by operating activities (millions)
Long term debt including current portion (millions)
Interest expense (millions)
Total capital additions (millions)
Environmental capital additions (millions)
Dividends paid per share
Book value per share at December 31
System peak load – MW (calendar year)
Average retail price per kWh (calendar year) (cents/kWh)
2005
$ 26.01
$ 174.4
$
$
$
$
1.03
0.44
(0.03)
1.44
$
$
$
$
0.97
0.41
(0.03)
1.35
121.0
129.1
$ 314.1
$ 1,678.0
$ 137.7
180
$
90
$
0.96
$
8.53
$
3,243
6.96
2004
$ 25.11
$ 217.3
$
$
$
$
$
$
$
$
1.01
0.80
–
1.81
1.00
0.78
–
1.78
120.1
122.1
$ 132.7
$ 2,130.8
$ 160.2
98
$
18
$
0.96
$
8.67
$
2,896
6.94
Corporate Profi le
DPL Generating Units & Service Area
DPL Inc. (NYSE: DPL) is a regional electric
energy and utility company. DPL’s principal
subsidiaries include The Dayton Power
and Light Company (DP&L); DPL Energy,
LLC (DPLE); and DPL Energy Resources,
Inc. (DPLER). DP&L, a regulated electric
utility, provides service to over 500,000
retail customers in West Central Ohio;
DPLE engages in the operation of peak-
ing generation facilities; and DPLER is a
competitive retail electric supplier in Ohio,
selling to major industrial and commercial
customers. DPL, through its subsidiaries,
owns and operates approximately 4,400
megawatts of generation capacity, of which
2,800 megawatts are low cost coal-fi red
units and 1,600 megawatts are natural gas
and diesel peaking units. Further informa-
tion can be found at www.dplinc.com.
(cid:81) DP&L Service Area
(cid:79) Natural Gas Peaking Generation Units
(cid:79) Wholly & Commonly Owned Coal-Fired Generating Plants
M i c h i g a n
L a k e E r
i e
a
i
n
a
v
l
y
s
n
n
e
P
Cleveland
O H I O
Conesville
Columbus
Darby
W e s t
V i
r g i n i a
Montpelier
Greenville
Hutchings
Tait
Dayton
a
n
a
i
d
n
I
Miami For t
Cincinnati
Beckjord
Zimmer
Stuart
East Bend
Killen
K e n t u c k y
Taking Steps to
Strengthen our Company,
Sharpen its Focus
Sale of Private Equity Fund DPL management
sharpened its focus on the core strategic and operational
issues of the electric generation and delivery business by
executing on the sale of its private equity fund. In 2005,
DPL sold or transferred its benefi cial interests in
forty-six private equity funds, which provided approxi-
mately $868 million in net proceeds. In addition to
the fi nancial and strategic benefi ts, the sale allows DPL
to improve its risk and credit profi le and enhance its
earnings transparency.
Debt Reduction, Stock Buyback Using the
proceeds of the private equity fund sale, DPL undertook
a fi nancial restructuring program to strengthen the Com-
pany and provide shareholder value. During 2005, DPL
reduced debt by approximately $450 million. Combined
with debt refi nancing of $214 million, the Company will
save approximately $35 million in interest expense in
the fi rst full year. In addition, the Board authorized the
repurchase of up to $400 million of DPL common stock.
The stock buyback began in 2005 and will proceed
throughout 2006. The fi nancial restructuring moves have
been received positively on Wall Street by both bond
and equity markets.
Rate Stabilization Plan On December 28, 2005, the
Public Utilities Commission of Ohio approved the Rate
Stabilization Plan of DPL Inc.’s principal subsidiary, The
Dayton Power and Light Company (DP&L). Under the
plan, DP&L is phasing into rates the impact of increasing
fuel and environmental costs over a fi ve year period, from
January 1, 2006 through December 31, 2010. As DP&L’s
fi rst rate increase request since 1991, the Company is
able to recover reasonably incurred costs while at the
same time, provide customers with stable prices and
protection from potentially volatile energy markets.
New Three-Year Labor Agreement A quality and
competitive workforce is the foundation of any service
business, especially an electric utility. Dayton Power and
Light, working in partnership with Local 175 of the Utility
Workers Union of America, successfully negotiated a
new labor agreement that runs through 2008. Modeled
on the previous labor compact, the new agreement
minimizes rules, emphasizes fl exibility and customer
focus, and rewards employees for quality service and
productivity. In the end, the Company has a compact in
place that mutually benefi ts employees, customers
and shareholders alike.
Operational Performance Operational excellence
continues to be one of the fundamental tenets of the
energy business and will continue to be a strategic focus.
DPL power plants generated near record levels of
electricity at one of the best effi ciency levels in the past
10 years. Likewise, the energy distribution business
continues to deliver quality service by meeting or
exceeding all PUCO reliability standards. Perhaps most
importantly, employees worked safely, both at the
plants and in the fi eld.
1
To Our Shareholders
Robert D. Biggs
Executive Chairman
James V. Mahoney
President &
Chief Executive Officer
Improving Credit Ratings
DPL Inc. Senior Unsecured
DPL had a solid year in 2005. We
took a number of meaningful steps to
strengthen the Company and sharpen
12/31/2005 12/31/2004
our focus on the electric generation
and delivery business.
Moody’s
Ba1
Standard & Poor’s BB
Fitch
BBB-
Ba3
BB-
BB
to recover incurred costs for rising fuel
prices, environmental expenditures,
and a return on environmental invest-
ments, providing shareholders with
the potential for fi ve years of revenue
and earnings growth.
DPL also favorably resolved a Code
of Conduct audit with the Federal
Energy Regulatory Commission and
successfully concluded the 2004 PUCO
Commission Ordered Investigation.
Operationally, DPL employees
continued their strong track record
of generating and delivering low-cost,
reliable power for our customers.
In 2005, we had the second highest level
of generation output in the Company’s
history at effi ciency levels that were
The Company reported basic earnings
among the best in the past 10 years.
per share of $1.44 in 2005 compared
As a result, we were able to produce
to $1.81 in 2004. Earnings per share
more electricity from the same amount
All three credit rating agencies upgraded
from continuing operations were $1.03
of coal, an important performance
DPL debt during 2005.
in 2005 compared to $1.01 in 2004
metric during times of rising fuel
and were at the high end of our earn-
prices. On the distribution side of the
ings guidance of $0.95 to $1.05. Basic
business, employees did an excellent
earnings per share from discontinued
job keeping the lights on, once again
operations, comprised of income and
meeting or exceeding all PUCO
net gains from the sale of the private
reliability standards. Most importantly,
equity funds, were $0.44 in 2005 com-
our employees continued to perform
2005 Retail & Wholesale Revenues
(millions)
pared to $0.80 in 2004.
A Year of Meaningful
Accomplishments
Behind the year-end fi nancial results,
DP&L
Regulated Retail, Net
$ 943
the employees of DPL achieved a
number of signifi cant accomplish-
ments. Most notably on the regulatory
front, DP&L received approval from
the Public Utilities Commission of Ohio
(PUCO) of its Rate Stabilization Plan
(RSP). We believe the RSP is good
for both shareholders and customers
alike. As the Company’s fi rst rate in-
DPL Energy Resources,
Competitive Retail
$124
Wholesale
$133
their jobs with care and caution,
showing signifi cant improvements in
safety measures.
A new three-year labor agreement is
an additional 2005 accomplishment
that will have a positive effect on
operations going forward. Developed
in partnership with Local 175 of the
Utility Workers Union of America, the
new agreement minimizes rules, em-
phasizes fl exibility and customer focus
and rewards employees for quality
service and productivity.
crease request since 1991, it provides
Financially, the Company successfully
customers with stable prices through
sold or transferred its benefi cial inter-
2010 and protection from potentially
ests in forty-six private equity funds,
volatile retail energy markets. At
which provided approximately $868
the same time, the plan allows DPL
million in net proceeds. In addition to
2
Total Return Dividends Reinvested
1 year (2005)
2 years (2004-05)
DPL
S&P 400 Utilities Index
S&P 400
Dow Jones Industrial Average
Steady Growth
By focusing on these fundamentals,
we believe we are well positioned to
steadily grow income and dividends.
This past February, the Board raised
the quarterly dividend 4% to an an-
nualized rate of $1.00 per share. This
action refl ects the Board’s confi dence
in future sustained earnings growth,
(cid:228)(cid:175)(cid:202)
(cid:163)(cid:228)(cid:175)(cid:202)
(cid:211)(cid:228)(cid:175)(cid:202)
(cid:206)(cid:228)(cid:175)(cid:202)
(cid:123)(cid:228)(cid:175)
which in turn, supports our ability to
maintain a competitive dividend rate.
Further, management has provided
earnings per share guidance of $1.35
to $1.50 for 2006 and $1.65 to $1.80
the fi nancial and strategic benefi ts, the
These fundamentals include:
sale allows DPL to improve its risk and
credit profi le and enhance earnings
transparency.
Operational Excellence:
for 2007. These targets represent solid
Continuing to achieve high levels of
and steady growth.
plant availability, output and effi ciency
With proceeds from the private equity
while delivering reliable, quality ser-
sale, we undertook a fi nancial restruc-
vice to customers.
Like most companies, we have our
challenges and must maintain our
focus. Nonetheless, we believe the
turing program that included debt re-
duction of approximately $450 million
and refi nancing of $214 million. In the
fi rst full year, the Company will save
approximately $35 million in interest
This past February, the
Board raised the quarterly
dividend 4% to an annualized
rate of $1.00 per share.
Fuel Management & Cost Control:
employee team at DPL is taking the
Controlling costs in all areas of our
right steps to continue to strengthen
business with a special emphasis on
the Company and return value to
managing fuel costs in a market of
shareholders.
fl uctuating coal and natural
gas prices.
Planning for the Future:
As a fi nal note, Mr. Jim Dicke retired
from the DPL Board of Directors
during 2005. Jim is an exceptionally
Evaluating our portfolio of generation
broad and experienced business
assets and determining the most cost-
executive who has provided DPL with
effective balance between our coal
insight and imaginative leadership
expense. In addition, the Board of
plants and natural gas fi red peaking
during his 15 years on the Board, and
Directors authorized a common stock
units. At the same time, we will
we wish him the very best.
buyback program of up to $400 million.
continue to invest in the reliability of
The stock buyback began in 2005 and
the DP&L distribution system.
Thank you for your confi dence and
support of DPL Inc.
will proceed throughout 2006. The
fi nancial restructuring moves were
received positively on Wall Street, and
all three debt rating agencies an-
nounced upgrades of DPL.
A Focus on Being a Quality,
Regional Utility
Regulatory Outlook:
Continuing to support the movement
in Ohio toward quasi-regulation, which
we view as the opportunity to recover
costs and earn a reasonable return on
future investments.
Environmental Stewardship:
As we look forward to 2006 and beyond,
Completing our multi-year investment
we will focus on the fundamentals
in the installation of scrubbers at our
Robert D. Biggs
Executive Chairman
of fulfi lling our strategic mission, which
coal-fi red power plants in a manner
James V. Mahoney
is, simply stated – to be a reliable,
that controls costs for customers and
President and Chief Executive Officer
effi cient, profi table and well-regarded
shareholders while protecting the
investor-owned regional utility.
environment.
March 6, 2006
3
4,400 Megawatts of Generation Power
DPL continued to focus on operational excellence
With the return of seasonably hot weather during
at its power plants and turned in a strong year in terms
the summer, DPL hit a new production record
of output, effi ciency and safety.
Pictured above is the inside of Unit #2’s boiler at Stuart
Station. When the unit is operating, temperatures inside
the boiler reach 2,500 degrees Fahrenheit.
Base Load Coal Heat Rate
(Btu/kWh) (Lower is Better)
(cid:153)(cid:93)(cid:110)(cid:110)(cid:123)
(cid:153)(cid:93)(cid:110)(cid:200)(cid:206)
(cid:153)(cid:93)(cid:110)(cid:211)(cid:123)
(cid:153)(cid:93)(cid:110)(cid:211)(cid:163)
(cid:153)(cid:93)(cid:110)(cid:120)(cid:163)
(cid:153)(cid:93)(cid:110)(cid:206)(cid:110)
(cid:153)(cid:93)(cid:110)(cid:206)(cid:120)
(cid:153)(cid:93)(cid:199)(cid:199)(cid:200)
(cid:153)(cid:93)(cid:199)(cid:110)(cid:153)
(cid:153)(cid:93)(cid:199)(cid:200)(cid:123)
(cid:202)(cid:163)(cid:153)(cid:153)(cid:200)(cid:202)
(cid:163)(cid:153)(cid:153)(cid:199)(cid:202)
(cid:163)(cid:153)(cid:153)(cid:110)(cid:202)
(cid:163)(cid:153)(cid:153)(cid:153)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:228)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:163)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:211)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:206)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:123)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:120)
4
for the third quarter of 2005 and fi nished the year
with the second highest output ever. This accom-
plishment is a positive refl ection of our emphasis
on continuous investment in plant performance and
regularly-scheduled planned maintenance pro-
grams. In 2005 alone, DPL coal plants underwent
45 weeks of planned maintenance to help ensure
that the units were available when customers
needed them.
To help mitigate the effects of increasing coal
costs, selective investments to strengthen effi cien-
cy, such as the new dense pack turbine at Stuart
Station Unit #3, are paying off. The newly designed
dense pack turbine blades capture more energy
from the steam, producing the same amount
of electricity while using less coal. The end result –
DPL base load coal plants achieved one of their
best effi ciency levels in the past 10 years.
At the same time, we are investing more than
$500 million to install fl ue gas desulfurization
equipment, more commonly called scrubbers,
on approximately 1,700 megawatts of generation.
The investment will allow DPL to cost-effectively
comply with federal environmental regulations
while providing the Company with the ability to use
traditionally lower-cost coal. The scrubbers will
become operational on various units beginning in
2007 and be completed in 2009.
Finally, a critical element in DPL’s focus on opera-
tional performance is safety. Through a variety
of measures, including daily safety de-briefs and
regularly scheduled training, power production
employees improved safety performance by 34%.
DP&L base load coal plants had one of the best heat
rates in the past decade. Heat rate is a measure
of effi ciency, or in other words, how much electricity is
produced from a given amount of coal.
In 2005, DP&L’s 2,400 megawatt Stuart Station
in a new 800-foot high stack at Stuart Station. The new
produced approximately one-third of the Company’s
stack is part of DPL’s investment in fl ue gas desulfurization
total electric generation output. DP&L owns 35%
systems (scrubbers) at its coal-fi red plants.
of Stuart and has operating responsibility for the plant.
Pictured above are eight of the 64 fl ue liners that will be inserted
Total System Generation
(GWh)
(cid:163)(cid:199)(cid:93)(cid:199)(cid:228)(cid:110)
(cid:163)(cid:199)(cid:93)(cid:123)(cid:206)(cid:153)
(cid:163)(cid:199)(cid:93)(cid:163)(cid:199)(cid:206)
(cid:163)(cid:199)(cid:93)(cid:228)(cid:163)(cid:153)
(cid:163)(cid:200)(cid:93)(cid:153)(cid:153)(cid:120)
(cid:163)(cid:200)(cid:93)(cid:110)(cid:120)(cid:206)
(cid:163)(cid:200)(cid:93)(cid:153)(cid:120)(cid:123)
(cid:163)(cid:200)(cid:93)(cid:199)(cid:211)(cid:110)
(cid:163)(cid:200)(cid:93)(cid:211)(cid:153)(cid:199)
(cid:163)(cid:200)(cid:93)(cid:163)(cid:200)(cid:206)
(cid:163)(cid:120)(cid:93)(cid:199)(cid:228)(cid:110)
(cid:163)(cid:123)(cid:93)(cid:120)(cid:163)(cid:228)
(cid:163)(cid:153)(cid:153)(cid:123)(cid:202)
(cid:163)(cid:153)(cid:153)(cid:120)(cid:202)
(cid:163)(cid:153)(cid:153)(cid:200)(cid:202)
(cid:163)(cid:153)(cid:153)(cid:199)(cid:202)
(cid:163)(cid:153)(cid:153)(cid:110)(cid:202)
(cid:163)(cid:153)(cid:153)(cid:153)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:228)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:163)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:211)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:206)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:123)(cid:202)
(cid:211)(cid:228)(cid:228)(cid:120)
5
The new three-year labor agreement, signed in 2005, strengthens
productivity, fl exibility and commitment to customer service while
rewarding employee performance. From left to right: Tom Thompson,
Aaron Cozatt, Chris Clark, JaMaal Sibert, and Lee Eversole.
In 2005, DP&L’s operational
Outage Frequency per customer per year
performance met or
exceeded all Public Utilities
PUCO Target: 0.99
Commission of Ohio (PUCO)
(cid:202)(cid:211)(cid:228)(cid:228)(cid:206)(cid:202)
(cid:228)(cid:176)(cid:153)(cid:211)
reliability standards.*
* Calculations contain certain
PUCO approved exclusions.
(cid:202)(cid:211)(cid:228)(cid:228)(cid:123)(cid:202)
(cid:228)(cid:176)(cid:110)(cid:211)
(cid:202)(cid:211)(cid:228)(cid:228)(cid:120)(cid:202)
(cid:228)(cid:176)(cid:153)(cid:199)
Outage Duration in minutes
PUCO Target: 98.38
(cid:202)(cid:211)(cid:228)(cid:228)(cid:206)(cid:202)
(cid:110)(cid:110)(cid:176)(cid:153)(cid:123)
(cid:202)(cid:211)(cid:228)(cid:228)(cid:123)(cid:202)
(cid:110)(cid:199)(cid:176)(cid:228)(cid:199)
(cid:202)(cid:211)(cid:228)(cid:228)(cid:120)(cid:202)
(cid:153)(cid:206)(cid:176)(cid:120)(cid:228)
6
DP&L:
The Reliable, Regulated Utility
Reliable – That describes DPL’s regulated utility,
The Dayton Power and Light Company (DP&L).
From a shareholder point of view, the utility
produces a steady stream of income and cash
fl ow. Despite electric deregulation, there has
been little to no customer switching in DP&L’s
service territory. Overall, approximately 80% of
DPL’s retail and wholesale revenues comes
from regulated, DP&L standard offer customers.
Its West Central Ohio service territory offers a
balance of residential, commercial and industrial
customers with no single customer representing
more than 2% of retail revenue.
In 2005, the Company gained approval for
its Rate Stabilization Plan, providing customers
with stable generation rates through 2010 and
allowing the Company to recover increasing
fuel and environmental costs. Beginning
in 2006, generation rates increase 11% and then
5.4% for each of the next four years thereafter.
This represents DP&L’s fi rst rate increase
request since 1991, a strong record of delivering
competitive prices for our customers.
At the same time, reliability is DP&L’s primary
operational focus. Whether it’s restoring service
after one of the worst ice storms to hit West Central
Ohio in years or providing assistance after the
devastating hurricane season, DP&L employees
DP&L’s Tony Norman is a part of the team that conducts the
Think Hot safety program for local emergency personnel.
The demonstration teaches a healthy respect for the power
of electricity as well as proper safety procedures.
DP&L Peak Load
Driven by hot summer weather,
pride themselves in their ability to keep the lights
(megawatts)
on. To further strengthen performance, employees
committed to new standards for emergency
response in the latest labor agreement. In addition,
we have restructured the customer call center by
working closely with Local 175, which has already
produced positive results.
(cid:206)(cid:93)(cid:228)(cid:123)(cid:120)
(cid:206)(cid:93)(cid:228)(cid:120)(cid:163)
(cid:211)(cid:93)(cid:153)(cid:110)(cid:163)
(cid:211)(cid:93)(cid:110)(cid:153)(cid:200)
DP&L generated and delivered
a new record peak load on
(cid:206)(cid:93)(cid:211)(cid:123)(cid:206)
July 25, 2005.
(cid:211)(cid:228)(cid:228)(cid:163)(cid:202)
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(cid:211)(cid:228)(cid:228)(cid:120)
7
Supporting Our Community
At DPL, we are committed to doing our part
to support the quality of life in West Central Ohio.
We recognize that the success of the Company
is directly impacted by the success of the
Dayton region.
Each year, The Dayton Power and Light
Company Foundation donates more than $1 million
in support of a variety of civic, cultural and youth
organizations, with a particular emphasis on those
that have an educational focus.
Corporately, the Company also supports a
number of community initiatives. Most recently,
DPL continued its partnership with the Dayton
Area Chamber of Commerce by committing
to a three-year sponsorship of an online recruiting
tool, GreaterDaytonWorks.com. DPL’s support
allows local employers free access to this
economic development tool, potentially saving
area businesses millions.
In recognition of these efforts, and the many
contributions of our employees, the local chapter
of the Association of Fundraising Professionals
presented DPL with the 2005 Outstanding
Corporation Award.
Pictured below is Yemi Mekonnen with her son
Theddy Melaku. Yemi, like many employees, volunteers
for a variety of worthy causes. Her activities include the
Great Miami River Corridor Clean Up, Rebuilding
Together Dayton, and the Leukemia and Lymphoma
Society’s Team in Training.
Dayton’s RiverScape, completed in 2001 with support
from DPL, hosts numerous community events, including
musical performances and laser light shows projected
against the river’s fountain.
In 2005, the Dayton Visual Arts Center opened a new
exhibition gallery in the heart of downtown Dayton, thanks
in part to the support of DPL and the DP&L Foundation.
Pictured are DPL employees Bob Stallman, Lynn Harbut
and Abby Jenkins.
8
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, 2005
or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File Number: 1-9052
DPL Inc.
Exact name of registrant as specified in its charter
Ohio
State or other jurisdiction of incorporation or organization
31-1163136
I.R.S. Employer Identification Number
1065 Woodman Drive, Dayton, Ohio
Address of principal executive offices
45432
Zip Code
937-224-6000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value and Preferred Share Purchase Rights
Name of each exchange on which registered
New York Stock Exchange
Outstanding at February 28, 2006
126,556,404
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Security Act.
YES ___✔
YES ___✔
YES ___ NO ___
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
NO ___✔NO ___
Exchange Act. YES ___ NO ___
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 ___✔
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ___✔
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ___ NO ___
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. ___✔
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ___ Accelerated filer ___ Non-accelerated filer ___
Non-accelerated filer ___✔
Non-accelerated filer ___
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
NO ___✔NO ___
YES ___ NO ___
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2005,
was approximately $3.5 billion based on a closing sale price on that date as reported on the New York Stock Exchange.
Documents Incorporated by Reference
Portions of the registrant’s definitive proxy statement for its 2006 Annual Meeting of Shareholders are incorporated by
reference in Part III of this Form 10-K.
DPL Inc.
1
Index to Annual Report on Form 10K
Fiscal Year Ended December 31, 2005
Part I
Item 1
Item 1a
Item 1b
Item 2
Item 3
Item 4
Part II
Item 5
Item 6
Item 7
Item 7a
Item 8
Item 9
Item 9a
Item 9b
Part III
Item 10
Item 11
Item 12
Item 13
Item 14
Part IV
Item 15
Other
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for Registrant’s Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Controls and Procedures
Other Information
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Signatures
Schedule II – Valuation and Qualifying Accounts
Subsidiaries of DPL Inc.
Consent of Independent Registered Public Accounting Firm
Page No.
3
14
18
18
18
20
21
22
23
38
39
75
75
75
76
76
76
76
76
77
83
84
85
86
Available Information
DPL Inc. (DPL, the Company, we, us, our, or ours unless the context indicates otherwise) files current, annual and quarterly
reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended, with the Securities
and Exchange Commission (SEC). You may read and copy any document we file at the SEC’s public reference room located at
100 F Street N.E., Washington, D.C. 20549, USA. Please call the SEC at (800) SEC-0330 for further information on the public refer-
ence rooms. Our SEC filings are also available to the public from the SEC’s web site at http://www.sec.gov.
Our public internet site is http://www.dplinc.com. We make available, free of charge, through our internet site, our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and Forms 3, 4 and 5 filed on behalf of our directors
and executive officers and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as
amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
In addition, our public internet site includes other items related to corporate governance matters, including, among other things,
our governance guidelines, charters of various committees of the Board of Directors and our code of business conduct and eth-
ics applicable to all employees, officers and directors. You may obtain copies of these documents, free of charge, by sending a
request, in writing, to DPL Investor Relations, 1065 Woodman Drive, Dayton, Ohio 45432.
2
DPL Inc.
Part I
Item 1 Business
DPL Inc.
We are a diversified regional energy company orga-
nized in 1985 under the laws of Ohio. Our executive
offices are located at 1065 Woodman Drive, Dayton,
Ohio 45432 - telephone (937) 224-6000.
Our principal subsidiary is The Dayton Power and
Light Company (DP&L). DP&L is a public utility incor-
porated in 1911 under the laws of Ohio. DP&L sells
electricity to residential, commercial, industrial and
governmental customers in a 6,000 square mile area
of West Central Ohio. Electricity for DP&L’s 24 county
service area is primarily generated at eight coal-fired
power plants and is distributed to more than 500,000
retail customers. DP&L also purchases retail peak load
requirements from DPL Energy LLC (DPLE, one of our
wholly-owned subsidiaries). Principal industries served
include automotive, food processing, paper, plastic
manufacturing, and defense. DP&L’s sales reflect the
general economic conditions and seasonal weather
patterns of the area. DP&L sells any excess energy
and capacity into the wholesale market.
Our significant subsidiaries (all of which are
wholly-owned) include DPLE, which engages in the
operation of peaking generating facilities; DPL Energy
Resources, Inc. (DPLER), which sells retail electric
energy under contract to major industrial and com-
mercial customers in West Central Ohio; MVE, Inc.,
which was primarily responsible for the management
of our financial asset portfolio; DPL Finance Company,
Inc., which provides financing to us and our subsidiar-
ies; and Miami Valley Insurance Company (MVIC), our
captive insurance company that provides insurance
sources to us and our subsidiaries.
We conduct our principal business in one business
segment - Electric.
Under the recently-enacted Public Utility Holding
Company Act of 2005, the Federal Energy Regulatory
Commission (FERC) requires that utility holding compa-
nies comply with certain accounting, record retention
and filing requirements. We believe we are exempt
from these requirements because DP&L’s operations
are confined to a single state. On January 31, 2006,
we filed a FERC 65B Waiver Notification with the FERC,
requesting that the FERC approve our waiver and
avoid FERC regulation.
DPL and our subsidiaries employed 1,381 persons
as of December 31, 2005, of which 1,147 were full-time
employees and 234 were part-time employees.
Significant Developments
Sale of Private Equity Funds
On February 13, 2005, our subsidiaries, MVE and
MVIC, entered into an agreement to sell their respec-
tive interests in forty-six private equity funds to
AlpInvest/Lexington 2005, LLC, a joint venture of
AlpInvest Partners and Lexington Partners, Inc. Sales
proceeds and any related gains or losses were recog-
nized as the sale of each fund closed. Among other
closing conditions, each fund required the transaction
to be approved by the respective general partner.
During 2005, MVE and MVIC completed the sale of
their interests in forty-three private equity funds and a
portion of one private equity fund resulting in a $46.6
million pre-tax gain ($53.1 million less $6.5 million
professional fees) from discontinued operations and
providing approximately $796 million in net proceeds,
including approximately $52 million in net distributions
from funds while held for sale. As part of this pre-
tax gain, we realized $30 million that was previously
recorded as an unrealized gain in other comprehensive
income.
During this same period, MVE entered into alter-
native closing arrangements with AlpInvest/Lexington
2005, LLC for funds where legal title to said funds
could not be transferred until a later time. Pursuant to
these arrangements, MVE transferred the economic
aspects of the remaining private equity funds, con-
sisting of two funds and a portion of another fund, to
AlpInvest/Lexington 2005, LLC without a change in
ownership of the interests. The terms of the alternative
arrangements do not meet the criteria for recording a
sale. We are obligated to remit to AlpInvest/Lexington
2005, LLC any distributions MVE receives from these
funds, and AlpInvest/Lexington 2005, LLC is obligated
to provide funds to us to pay any contribution notice,
capital call or other payment notice or bill for which
MVE receives notice with respect to such funds. The
alternative arrangements resulted in a deferred gain of
$27.1 million until such terms of a sale can be complet-
ed (contingent upon receipt of general partner approv-
als of the transfer) and provided approximately $72.3
million in net proceeds on these funds. We recorded
an impairment loss of $5.6 million to write down to esti-
mated fair value the assets transferred pursuant to the
alternative arrangements. Ownership of these funds will
transfer after the general partners of each of the sepa-
rate funds consent to the transfer. It is anticipated that
this will occur no later than the first quarter of 2007.
DPL Inc.
3
Debt Reduction
During 2005 we used part of the proceeds from the
sale of its private equity funds to retire all or part of four
outstanding long-term debt issues in the aggregate
amount of $446.6 million as described below.
On May 15, 2005 we redeemed all of the outstand-
ing 7.83% Senior Notes due 2007 in the amount of $39
million. A premium of 5.38% was paid on the 7.83%
Senior Notes that were redeemed.
On July 14, 2005, we extended an Offer to
Purchase three debt securities for a maximum aggre-
gate purchase price of $246 million. The Offer to
Purchase was made in three tiers. The first tier was to
purchase all the tendered 8.125% Capital Securities
due 2031 up to the aggregate purchase price of $246
million. The second tier was to purchase as many
of the tendered 6.875% Senior Notes due 2011 with
funds remaining from the aggregate purchase price.
If any funds were still remaining, the third tier was to
purchase as many as possible of the tendered 8.0%
Senior Notes due 2009.
On August 11, 2005, we executed the results of
the Offer to Purchase and purchased $105.0 million
of the 8.125% Capital Securities, $102.6 million of the
6.875% Senior Notes and none of the 8.0% Senior
Notes. Premiums of 26.46% and 10.32% were paid
on the 8.125% Capital Securities and on the 6.875%
Senior Notes, respectively, that were tendered and
accepted for purchase.
On August 29, 2005, we executed a make whole
call option and purchased $200 million of the 8.25%
Senior Notes due 2007. A premium of 5.69% was paid
on the 8.25% Senior Notes that were tendered and
accepted for purchase.
Stock Repurchase Plan
On July 27, 2005, our Board authorized the repurchase
of up to $400 million of stock from time to time in the
open market through private transactions. During
December 2005, a total of 406,000 shares at a cost of
$10.6 million were repurchased and settled in January
2006. These shares are currently held as treasury
shares. There were no other repurchases during 2005
and 2004.
Rate Stabilization Surcharge
On April 4, 2005, DP&L filed a request at the Public
Utilities Commission of Ohio (PUCO) to implement
a new rate stabilization surcharge effective January
1, 2006 to recover cost increases associated with
environmental capital and related Operations and
Maintenance costs, and fuel expenses. On November
3, 2005, DP&L entered into a settlement agreement
that extended DP&L’s rate stabilization period through
December 31, 2010. During this time, the Company
will continue to provide retail electric service at fixed
rates with the ability to recover increased fuel and
environmental costs through surcharges and riders.
Specifically, the agreement provides for:
■ A rate stabilization surcharge equal to 11% of gen-
eration rates beginning January 1, 2006 and continuing
through December 2010. Based on 2004 sales, this
rider is expected to result in approximately $65 million
in net revenues per year.
■ A new environmental investment rider to begin
January 1, 2007 equal to 5.4% of generation rates, with
incremental increases equal to 5.4% each year through
2010. Based on 2004 sales, this rider is expected
to result in approximately $35 million in annual net
revenues beginning January 2007, growing to approxi-
mately $140 million by 2010.
■ An increase to the residential generation discount
from January 1, 2006 through December 31, 2008
which is expected to result in a revenue decrease
of approximately $7 million per year for three years,
based on 2004 sales. The residential discount will
expire on December 31, 2008.
On December 28, 2005, the PUCO adopted the
settlement with certain modifications (RSS Stipulation).
The PUCO ruled that the environmental rider will be
bypassable by all customers who take service from
alternate generation suppliers. Future additional rev-
enues are dependent upon actual sales and levels of
customer switching. On February 22, 2006, the PUCO
denied applications for rehearing filed by the Office of
the Ohio Consumers’ Counsel (OCC), as well as Ohio
Partners for Affordable Energy.
Collective Bargaining Agreement Ratification
On December 2, 2005, Local 175 of the Utility Workers
of America ratified a new three year collective bargain-
ing agreement with DP&L. Major components include:
3%, 2% and 2.5% annual wage increases over three
years, improvements to the pension and 401(k) pro-
grams, increases in DP&L’s contribution to employees’
healthcare costs, employment security for three years,
measurable productivity and service improvements,
an emergency response program targeted to enhance
customer service response time and changes in
DP&L’s illness benefits. On December 31, 2005, 760
employees were members of Local 175.
4
DPL Inc.
Increase in Dividends on Common Stock
On February 1, 2006, our Board of Directors
announced that it had raised the quarterly dividend to
$0.25 per share payable March 1, 2006 to common
shareholders of record on February 14, 2006.
This increase results in an annualized dividend rate
of $1.00 per share, or a 4% increase.
Governmental and Regulatory Inquiries
On April 7, 2004, we received notice that the staff of
the PUCO was conducting an investigation into the
financial condition of DP&L as a result of previously
disclosed matters raised by one of our executives dur-
ing the 2003 year-end financial closing process (the
Memorandum). On May 27, 2004, the PUCO ordered
DP&L to file a plan of utility financial integrity that out-
lined the actions the Company had taken or will take
to insulate DP&L utility operations and customers from
its unregulated activities. DP&L was required to file this
plan by March 2, 2005. On February 4, 2005, DP&L
filed its protection plan with the PUCO. On June 29,
2005, the PUCO closed its investigation citing signifi-
cant positive actions we had taken including changes
in our Board of Directors as well as our executive man-
agement of DP&L, and that no apparent diminution of
service quality had occurred because of the events
that initiated the investigation.
On May 20, 2004, the staff of the SEC notified us
that it was conducting an inquiry covering our exempt
status under the Public Utility Holding Company Act
of 1935 (the ’35 Act). The staff of the SEC requested
we provide certain documents and information on a
voluntary basis. On October 8, 2004, we received
a notice from the SEC that a question existed as to
whether such exemption from the Public Utility Holding
Company Act was detrimental to the public interest or
the interests of investors or consumers. On November
5, 2004, we filed a good faith application seeking an
order of exemption from the SEC. In light of the repeal
of the ’35 Act, effective February 8, 2006, and based
upon the information previously provided to the staff of
the SEC, this inquiry is moot.
On March 3, 2005, DP&L received a notice that the
Federal Energy Regulatory Commission (FERC) had
instituted an operational audit of DP&L regarding its
compliance with the Code of Conduct within the trans-
mission and generation areas. On October 7, 2005, the
FERC issued its Findings and Conclusions, stating that
DP&L “generally complied with the FERC Standard of
Conduct” except for three areas, all of which were cor-
rected to the satisfaction of the FERC prior to the issu-
ance of these Findings and Conclusions.
Sale of Warrants and Repurchase of
Voting Preferred Shares
As a result of an investment made by Dayton Ventures,
LLC, an affiliate of Kohlberg, Kravis & Roberts & Co.
(KKR), in March 2000, Dayton Ventures, LLC owned
31,560,000 warrants. During the twelve year period
commencing March 13, 2000, each warrant can be
exercised and converted into a common share of
our common stock for an exercise price of $21.00.
Additionally, as a part of Dayton Ventures, LLC’s invest-
ment in us, we sold and issued 6,800,000 shares
of voting preferred shares, 200,000 shares of which
we redeemed in 2001. During December 2004 and
January 2005 in four transactions, Dayton Ventures,
LLC transferred all of its warrants to an unaffiliated
third party which has subsequently transferred approxi-
mately 25 million warrants to unaffiliated third parties.
In conjunction with transactions in 2005, we repur-
chased at par of $0.01 per share all of the outstanding
6,600,000 voting preferred shares. As a result of the
reduction of Dayton Ventures, LLC’s warrant owner-
ship below 12,640,000, KKR was no longer eligible to
receive an annual $1 million management, consulting
and financial services fee and Dayton Ventures, LLC
no longer had the right to designate one person to
serve as a DPL and DP&L director or to designate one
person to serve as a non-voting observer on DPL and
DP&L Boards of Directors.
Competition and Regulation
DP&L has historically operated in a rate-regulated
environment providing electric generation and energy
delivery, consisting of transmission and distribution ser-
vices, as a single product to its retail customers. Prior
to the legislation discussed below, DP&L did not have
retail competitors in its service territory.
In October 1999, legislation became effective in
Ohio that gave electric utility customers a choice of
energy providers beginning on January 1, 2001. Under
this legislation, electric generation, power marketing,
and power brokerage services supplied to retail cus-
tomers in Ohio are deemed to be competitive and are
not subject to supervision and regulation by the PUCO.
DP&L filed an Electric Transition Plan with the
PUCO and received regulatory approval of the plan on
September 21, 2000 which provided for a three-year
market development period and specified rates, which
included the recovery of approximately $600 million in
transition costs.
On October 28, 2002, DP&L filed with the PUCO
a request for an extension of its market development
period through December 31, 2005. On September 2,
DPL Inc.
5
2003, the PUCO adopted a Stipulation entered into by
DP&L and certain parties to the proceeding with modi-
fications (the MDP Stipulation). The MDP Stipulation
also provided that beginning January 1, 2006, rates
may be modified by up to 11% of generation rates to
reflect increased costs associated with fuel, environ-
mental compliance, taxes, regulatory changes, and
security measures. Further, the PUCO conditionally
approved an increase to the residential generation
discount commencing January 1, 2006. The PUCO’s
decision was appealed to the Ohio Supreme Court. On
December 17, 2004, the Ohio Supreme Court affirmed
the PUCO’s Order, approving the MDP Stipulation.
On April 4, 2005, DP&L filed a request at the
Public Utilities Commission of Ohio (PUCO) to imple-
ment a new rate stabilization surcharge effective
January 1, 2006 to recover cost increases associated
with environmental capital and related Operations and
Maintenance costs, and fuel expenses. On November
3, 2005, DP&L entered into a settlement agreement
that extended DP&L’s rate stabilization period through
December 31, 2010. During this time, the Company
will continue to provide retail electric service at fixed
rates with the ability to recover increased fuel and
environmental costs through surcharges and riders.
Specifically, the agreement provides for:
■ A rate stabilization surcharge equal to 11% of gen-
eration rates beginning January 1, 2006 and continuing
through December 2010. Based on 2004 sales, this
rider is expected to result in approximately $65 million
in net revenues per year.
■ A new environmental investment rider to begin
January 1, 2007 equal to 5.4% of generation rates, with
incremental increases equal to 5.4% each year through
2010. Based on 2004 sales, this rider is expected to
result in approximately $35 million in annual net rev-
enues beginning January 2007, growing to approxi-
mately $140 million by 2010.
■ An increase to the residential generation discount
from January 1, 2006 through December 31, 2008
which is expected to result in a revenue decrease
of approximately $7 million per year for three years,
based on 2004 sales. The residential discount will
expire on December 31, 2008.
On December 28, 2005, the PUCO adopted the
settlement with certain modifications (RSS Stipulation).
The PUCO ruled that the environmental rider will be
bypassable by all customers who take service from
alternate generation suppliers. Future additional rev-
enues are dependent upon actual sales and levels of
customer switching. On February 22, 2006, the PUCO
denied applications for rehearing filed by the Office
of the Ohio Consumers’ Counsel (OCC), as well
as Ohio Partners for Affordable Energy.
As a part of the MDP Stipulation, DP&L agreed to
implement a Voluntary Enrollment Process that would
provide customers with an option to choose a competi-
tive supplier to provide their retail generation service
should switching not reach 20% in each customer
class by October 2004. During 2005, approximately
51 thousand residential customers that volunteered for
the program were bid out to Competitive Retail Electric
Service (CRES) providers who were registered in
DP&L’s service territory. In August 2005, the fourth and
final bid took place, however no bids were received
and the 2005 program ended. As part of the RSS
Stipulation, DP&L agreed to implement the Voluntary
Enrollment Program again in 2006 and 2007. The
magnitude of any customer switching and the financial
impact of this program were not material to our results
of operations, cash flows or financial position in 2005.
Future period effects cannot be determined at this time.
On February 20, 2003, the PUCO requested com-
ments from interested stakeholders on the proposed
rules for the conduct of a competitive bidding process
that will take place at the end of the rate stabilization
period. DP&L submitted comments in March 2003. The
PUCO issued final rules on December 23, 2003. Under
DP&L’s RSS Stipulation discussed above, these rules
will not affect DP&L until January 1, 2011. However, the
PUCO retains the authority to, at any time, require an
Ohio electric utility to conduct a competitive bidding
process to measure the market price of competitive
retail generation.
As of December 31, 2005, four unaffiliated mar-
keters were registered as CRES providers in DP&L’s
service territory; to date, there has been no significant
activity from these suppliers. DPL Energy Resources,
Inc. (DPLER), an affiliated company, is also a regis-
tered CRES provider and accounted for nearly all load
served by CRES providers within DP&L’s service terri-
tory in 2005. In addition, several communities in DP&L’s
service area have passed ordinances allowing the
communities to become government aggregators for
the purpose of offering alternative electric generation
supplies to their citizens. To date, none of these com-
munities have aggregated their generation load.
There was a complaint filed on January 21, 2004
at the PUCO concerning the pricing of DP&L’s bill-
ing services. Previously, on December 16, 2003, a
complaint was filed at the PUCO alleging that DP&L
had established improper barriers to competition. On
October 13, 2004, the parties reached a settlement
on the pricing of DP&L’s billing services that DP&L will
charge CRES providers. Additionally, on October 19,
2004, DP&L entered into a settlement that resolves all
6
DPL Inc.
matters in the barrier to competition complaint. This
settlement provides that DP&L will modify the man-
ner in which customer partial payments are applied to
billing charges and DP&L will no longer offer to pur-
chase the receivables of CRES providers who operate
in DP&L’s certified territory. On February 2, 2005, the
PUCO issued an Order approving both settlements
with minor modifications. This Order gives DP&L the
right to defer costs of approximately $16 million and
later file for recovery over a five year period, subject
to PUCO approval. The Office of the Ohio Consumers’
Counsel (OCC) filed a Motion for Rehearing which was
later denied by the PUCO and on May 23, 2005, the
OCC appealed the order to the Ohio Supreme Court.
On June 17, 2005, DP&L filed a subsequent case,
requesting PUCO approval for recovery of the deferred
billing costs plus carrying charges beginning January
1, 2006. If approved as proposed, this new rider will
result in approximately $7 million in additional annual
revenue through 2010. A hearing was held on January
23, 2006, and a PUCO decision is pending in this
case. On August 16, 2005, the OCC filed a Complaint
against DP&L in Mercer County Common Pleas Court
relating to billing costs that may be charged to resi-
dential customers. DP&L filed a motion to dismiss the
case. On February 24, 2006, the OCC filed a notice of
voluntary dismissal of the Mercer County proceeding.
On September 1, 2005, DP&L filed an applica-
tion requesting the PUCO grant it authority to recover
distribution costs associated with storm restoration
efforts for ice storms that took place in December 2004
and January 2005. On February 22, 2006, DP&L filed
updated schedules in support of its application upon
discussions with PUCO Staff. If approved as proposed,
this new rider is designed to recover over $6.5 million
in previously deferred costs, plus carrying costs for a
total of $8.6 million over a two year period. (See Note 3
of Notes to Consolidated Financial Statements.)
Like other electric utilities and energy marketers,
DP&L and DPLE may sell or purchase electric products
on the wholesale market. DP&L and DPLE compete
with other generators, power marketers, privately and
municipally-owned electric utilities, and rural electric
cooperatives when selling electricity. The ability of
DP&L and DPLE to sell this electricity will depend on
how DP&L’s and DPLE’s price, terms and conditions
compare to those of other suppliers.
As part of Ohio’s electric deregulation law, all of
the state’s investor-owned utilities are required to join a
Regional Transmission Organization (RTO). In October
2004, DP&L successfully integrated its 1,000 miles of
high-voltage transmission into the PJM Interconnection,
L.L.C. (PJM) RTO. The role of the RTO is to admin-
ister an electric marketplace and insure reliability.
PJM ensures the reliability of the high-voltage electric
power system serving 51 million people in all or parts
of Delaware, Indiana, Illinois, Kentucky, Maryland,
Michigan, New Jersey, Ohio, Pennsylvania, Tennessee,
Virginia, West Virginia and the District of Columbia.
PJM coordinates and directs the operation of the
region’s transmission grid; administers the world’s
largest competitive wholesale electricity market, and
plans regional transmission expansion improvements
to maintain grid reliability and relieve congestion.
As a member of PJM, the value of DP&L’s gen-
eration capacity may be affected by a PJM pro-
posal pending before The Federal Energy Regulatory
Commission (FERC). The proposal introduces a new
Reliability Pricing Model (RPM) that would change the
way generation capacity is priced and planned for by
PJM. The outcome of this proceeding is uncertain at
this time.
DP&L provides transmission and wholesale electric
service to twelve municipal customers in its service
territory, which distributes electricity principally within
their incorporated limits. DP&L also maintains an inter-
connection agreement with one municipality that has
the capability to generate a portion of its own energy
requirements. Sales to these municipalities represented
less than 1% of total electricity sales in 2005. DP&L’s
contract with one municipality expired in February
2005, creating reduced future generation sales to
municipalities.
As of December 31, 2004, DP&L had invested
a total of approximately $18.0 million in its efforts to
join an RTO. On March 8, 2005, DP&L, along with
Commonwealth Edison and American Electric Power
Service Corporation, filed to recover a portion of inte-
gration expenses to join an RTO. On May 6, 2005,
FERC approved the filing subject to certain modifica-
tions, allowing for recovery to begin in 2005. Recovery
of these costs is dependent on pending settlement
discussions.
Effective October 1, 2004, PJM began to assess a
FERC-approved administrative fee on every megawatt
consumed by DP&L customers. On October 26, 2004,
DP&L filed an application with the PUCO for authority
to modify its accounting procedures to defer collection
of this PJM administrative fee, plus carrying charges,
until such time as DP&L obtained the authority to adjust
its rates to recover this cost from customers (i.e., after
January 1, 2006). On June 1, 2005, the PUCO autho-
rized DP&L to defer the PJM administrative fee, plus
carrying charges incurred after the date of our appli-
cation. On July 1, 2005, the OCC filed an Application
for Rehearing, which was subsequently denied by
DPL Inc.
7
the PUCO, and on September 9, 2005 the case was
appealed to the Ohio Supreme Court. On July 1, 2005,
DP&L filed a subsequent case requesting PUCO
authority for recovery of the PJM administrative fee
from retail customers. On January 25, 2006, the PUCO
issued an order approving the tariff as filed, which
should result in approximately $8 million in additional
revenue per year for three years beginning in February
2006. On February 13, 2006, the OCC filed an appli-
cation for rehearing claiming the PUCO erred by not
conducting a hearing and rejecting the OCC’s request
for intervention. Commission action on the rehearing
application is pending.
On July 23, 2003, the FERC issued an Order that
the rates for transmission service of seven compa-
nies, including DP&L, may be unjust, unreasonable, or
unduly discriminatory or preferential. DP&L is operating
under FERC-approved rates through December 2008.
In addition, the FERC ordered transitional payments,
known as Seams Elimination Charge Adjustment
(SECA), effective December 1, 2004 through March
31, 2006, subject to refund. Through this proceeding,
we are obligated to pay SECA charges to other utili-
ties but we receive a net benefit from these transitional
payments. Several parties have sought rehearing of the
FERC orders and there likely will be appeals filed in the
matter. All motions for rehearing are pending. The hear-
ing is scheduled to take place in May 2006. Beginning
May 2005, DP&L began receiving these FERC ordered
transitional payments and has received over $23 mil-
lion of SECA collections, net of SECA charges, through
December 2005. DP&L management believes that
appropriate reserves have been established in the
event that SECA collections are required to be refund-
ed. The ultimate outcome of the proceeding estab-
lishing SECA rates is uncertain at this time. However,
based on the amount of reserves established for this
item, the results of this proceeding are not expected to
have a material adverse effect on DP&L’s financial con-
dition, results of operations or cash flows.
On May 31, 2005, the FERC instituted a proceed-
ing under Federal Power Act Section 206 concern-
ing the justness and reasonableness of PJM’s rate
design. This proceeding sets the rates for hearing and
requests that all of PJM members, which include DP&L,
address the justness and reasonableness of the cur-
rent rate design. On November 22, 2005, DP&L, along
with ten other transmission owners, filed in support of
PJM’s existing rate design. DP&L cannot determine
what effect, if any, the outcome of this proceeding may
have on its future recovery of transmission revenues.
An April 18, 2006 hearing is scheduled in this case.
On August 8, 2005, the Energy Policy Act of 2005
(the 2005 Act) was enacted. This new law encompass-
es several areas including, but not limited to: electric
reliability, repeal of the Public Utility Holding Company
Act of 1935, promotion of energy infrastructure, preser-
vation of a diverse fuel supply for electricity generation
and energy efficiency. As a result of this legislation,
the PUCO initiated an investigation to review their
actions with respect to net metering, smart metering
and demand response, cogeneration, and interconnec-
tion standards. The PUCO received comments on this
proceeding and has established a series of technical
conferences. At the conclusion of the conferences,
parties will have an opportunity to provide additional
comments by April 28, 2006. The PUCO could approve
new regulatory requirements as a result of this pro-
ceeding. Also in response to the Energy Policy Act of
2005, on September 1, 2005, the FERC issued a Notice
of Proposed Rulemaking to amend its regulations to
incorporate the criteria any entity must satisfy to qualify
to be an Electric Reliability Organization (ERO) that will
propose and enforce reliability standards subject to
FERC approval. The proposed rule also included relat-
ed matters on delegating ERO authority, the creation
of advisory bodies and reporting requirements. Other
rulemakings are expected as a result of the Energy
Policy Act of 2005, such that DP&L cannot at this time
measure the financial, operating and reporting impact
of this new law.
On October 11, 2005, the FERC issued a proposed
rulemaking relating to significant modifications to the
FERC’s regulations on the Public Utility Regulatory
Policies Act (PURPA). A final rule was issued on
February 2, 2006 that supports the development of
new cogeneration facilities that truly conserve energy.
The new rules (1) assume new cogeneration facilities
of 5 megawatts or less satisfy the requirement that
the thermal output of the new cogeneration facility is
used in a productive and beneficial manner; (2) ensure
that there is continuing progress in the development
of efficient electric energy generating technology and
extend existing efficiency standards from gas and oil-
fired qualified facilities to coal-fired qualifying facilities;
(3) partially eliminate qualifying facility exemptions from
regulation under the Federal Power Act; and (4) require
that 50 percent of the annual energy output of the facil-
ity will be used for industrial, commercial, institutional
or residential purposes and not sold to a utility.
The impact of this rule change on DP&L is unclear
at this time.
On March 3, 2005, DP&L received a notice that
the FERC had instituted an operational audit of DP&L
8
DPL Inc.
regarding its compliance with its Code of Conduct with-
in the transmission and generation areas. On October
7, 2005, the FERC issued its Findings and Conclusions,
stating that DP&L “generally complied with the FERC’s
Standard of Conduct” with a few recommendations that
were corrected to the satisfaction of the FERC prior to
the issuance of their Findings and Conclusions.
On April 7, 2004, DP&L received notice that the
staff of the PUCO was conducting an investigation into
the financial condition of DP&L as a result of finan-
cial reporting and governance issues raised by the
Memorandum. On May 27, 2004, the PUCO ordered
DP&L to file a plan of utility financial integrity that out-
lines the actions the Company has taken or will take to
insulate DP&L utility operations and customers from
its unregulated activities. DP&L was required to file this
plan by March 2, 2005. On February 4, 2005, DP&L
filed its protection plan with the PUCO and expressed
its intention to continue to cooperate with the PUCO
in their investigation. On March 29, 2005, the OCC filed
comments with the PUCO on DP&L’s financial plan of
integrity, requesting the PUCO continue the investiga-
tion and monitor DP&L’s progress toward implementa-
tion of its financial plan of integrity. On June 29, 2005,
the PUCO closed its investigation, citing significant
positive actions taken by DP&L including changes
in the Board of Directors as well as executive manage-
ment of DP&L, and that no apparent diminution of ser-
vice quality has occurred because of the events
that initiated the investigation.
On August 2, 2004, in order to strengthen MVIC’s
financial position, the Vermont Department of Banking,
Insurance, Securities and Health Care Administration
notified MVIC of MVIC’s requirement to reduce its
intercompany receivable to a maximum no greater
than MVIC’s total capital and surplus plus $250,000
minimum capital. As a result, we transferred $5 million
from our operating cash to our subsidiary, MVIC, in sat-
isfaction of this requirement during the fourth quarter
of 2004. In January 2005, MVE transferred a private
equity financial asset valued in excess of $31.5 million
to MVIC to further strengthen MVIC’s financial position.
During 2005 the private equity financial assets owned
by MVIC were sold along with the rest of the private
equity funds. MVIC distributed dividends to DPL
from the proceeds of these sales. During the review of
the second quarter financial statements, we noted
that these transactions inadvertently caused the share-
holder equity of MVIC to fall below the required level.
In discussions with the Vermont Department of Banking,
Insurance, Securities and Health Care Administration
it was decided that we would maintain a loss reserve
to shareholder equity ratio of 3:1 in MVIC. As a result,
during the third quarter of 2005 we transferred $12.3
million from our operating cash to MVIC in satisfaction
of this new requirement.
Construction Additions
Construction additions were $180 million, $98 million
and $102 million in 2005, 2004 and 2003, respec-
tively, and are expected to approximate $365 million in
2006. Planned construction additions for 2006 relate
to DP&L’s environmental compliance program, power
plant equipment, and its transmission and distribution
system.
Capital projects are subject to continuing review
and are revised in light of changes in financial and
economic conditions, load forecasts, legislative and
regulatory developments and changing environmental
standards, among other factors. Over the next three
years, we are projecting to spend an estimated $750
million in capital projects, approximately 60% of which
is to meet changing environmental standards. Our
ability to complete capital projects and the reliability
of future service will be affected by our financial condi-
tion, the availability of internal funds and the reason-
able cost of external funds, and adequate and timely
return on these capital investments. We expect to
finance our construction additions in 2006 with a com-
bination of cash and short-term investments on hand,
tax-exempt debt and internally-generated funds.
Environmental Considerations
Environmental Considerations for a description
See Environmental Considerations for a description
of environmental control projects and regulatory pro-
ceedings that may change the level of future construc-
tion additions. The potential effect of these events on
our operations cannot be estimated at this time.
Electric Operations and Fuel Supply
Our present summer generating capacity – includ-
ing Peaking Units - is approximately 4,405 MW. Of
this capacity, approximately 2,856 MW or 65% is
derived from coal-fired steam generating stations and
the balance of approximately 1,549 MW or 35% con-
sists of combustion turbine and diesel peaking units.
Combustion turbine output is dependent on ambient
conditions and is higher in the winter than in the sum-
mer. Our all-time net peak load was 3,243 MW, occur-
ring July 25, 2005.
Approximately 87% of the existing steam generat-
ing capacity is provided by certain units owned as
tenants in common with The Cincinnati Gas & Electric
Company (CG&E) or its subsidiary, Union Heat, Light
& Power, and Columbus Southern Power Company
(CSP). As tenants in common, each company owns a
DPL Inc.
9
specified undivided share of each of these units, is entitled to its share of capacity and energy output, and has
a capital and operating cost responsibility proportionate to its ownership share. DP&L’s remaining steam generating
capacity (approximately 365 MW) is derived from a generating station owned solely by DP&L. Additionally,
DP&L, CG&E and CSP own as tenants in common, 884 circuit miles of 345,000-volt transmission lines. DP&L has
several interconnections with other companies for the purchase, sale and interchange of electricity.
In 2005, we generated 99% of our electric output from coal-fired units and 1% from oil or natural gas-fired units.
The following table sets forth DP&L’s and DPLE’s generating stations and, where indicated, those stations
which DP&L owns as tenants in common.
Station
Ownership*
Operating Company
Location
Coal Units
Hutchings
Hutchings
Killen
Killen
Stuart
Stuart
Conesville – Unit 4
Conesville – Unit 4
Beckjord – Unit 6
Beckjord – Unit 6
Miami Fort – Units 7 & 8
Miami Fort – Units 7 & 8
East Bend – Unit 2
East Bend – Unit 2
Zimmer
Zimmer
Combustion Turbines or Diesel
Hutchings
Hutchings
Yankee Street
Yankee Street
Monument
Monument
Tait Diesels
Tait Diesels
Sidney
Sidney
Tait Units 1-3
Tait Units 1-3
Killen
Killen
Stuart
Stuart
Greenville Units 1-4
Greenville Units 1-4
Darby Station Units 1-6
Darby Station Units 1-6
Montpelier Units 1-4
Montpelier Units 1-4
Tait Units 4-7
Tait Units 4-7
W
W
C
C
C
C
C
C
C
C
C
C
C
C
C
C
W
W
W
W
W
W
W
W
W
W
W
W
C
C
C
C
W
W
W
W
W
W
W
W
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
CSP
CSP
CG&E
CG&E
CG&E
CG&E
CG&E
CG&E
CG&E
CG&E
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DPLE
DPLE
DPLE
DPLE
DPLE
DPLE
DPLE
DPLE
Miamisburg, OH
Miamisburg, OH
Wrightsville, OH
Wrightsville, OH
Aberdeen, OH
Aberdeen, OH
Conesville, OH
Conesville, OH
New Richmond, OH
New Richmond, OH
North Bend, OH
North Bend, OH
Rabbit Hash, KY
Rabbit Hash, KY
Moscow, OH
Moscow, OH
Miamisburg, OH
Miamisburg, OH
Centerville, OH
Centerville, OH
Dayton, OH
Dayton, OH
Dayton, OH
Dayton, OH
Sidney, OH
Sidney, OH
Moraine, OH
Moraine, OH
Wrightsville, OH
Wrightsville, OH
Aberdeen, OH
Aberdeen, OH
Greenville, OH
Greenville, OH
Darby, OH
Darby, OH
Montpelier, IN
Montpelier, IN
Moraine, OH
Moraine, OH
Approximate Summer
MW Rating
DPL Portion
Total
365
365
412
412
832
832
129
129
207
207
360
360
186
186
365
365
23
23
107
107
12
12
10
10
12
12
256
256
12
12
3
3
192
192
438
438
192
192
292
292
365
365
615
615
2,376
2,376
780
780
414
414
1,000
1,000
600
600
1,300
1,300
23
23
107
107
12
12
10
10
12
12
256
256
18
18
10
10
192
192
438
438
192
192
292
292
Total approximate summer generating capacity
Total approximate summer generating capacity
4,405
4,405
9,012
9,012
* W = Wholly-Owned C = Commonly-Owned
We have approximately 95% of the total expected coal volume needed for 2006 under contract. The percentage
of coal under contract at our individual facilities is as low as 80%. Contracted coal volumes at certain facilities
exceed 100% of the expected need. Due to the differences in contracted volumes at various facilities, it is expect-
ed we will be in the spot market for more than 5% of our 2006 coal volume at some facilities while we may make no
spot purchases at other facilities. We may have excess coal volumes to meet 2007 needs at some facilities.
The majority of our contracted coal is purchased at fixed prices. Some contracts provide for periodic adjustment
and some are priced based on market indices. Substantially all contracts have features that limit price escalations
in any given year. Our 2006 emission allowance (SO2) consumption is expected to be similar to 2005. Our holdings
of 2006 SO2 allowances are approximately equal to our expected needs. There may be small exchanges of
allowances between 2006 and future years to balance our 2006 position. We do not expect to purchase allowances
outright for 2006. The exact consumption of SO2 allowances will depend on market prices for power, availability
of our generating units and the actual sulfur content of the coal burned.
The average cost of fuel used per kilowatt-hour (kWh) generated was 1.93¢ in 2005, 1.56¢ in 2004 and
1.33¢ in 2003.
10
DPL Inc.
Seasonality
The power generation and delivery business is sea-
sonal and weather patterns have a material impact on
operating performance. In the region served by our
subsidiaries, demand for electricity is generally greater
in the summer months associated with cooling and
in the winter months associated with heating as com-
pared to other times of the year. Historically, the power
generation and delivery operations of our subsidiar-
ies have generated less revenue and income when
weather conditions are warmer in the winter and cooler
in the summer.
Rate Regulation and Government Legislation
DP&L’s sales to retail customers are subject to rate reg-
ulation by the PUCO. DP&L’s wholesale electric rates to
municipal corporations and other distributors of electric
energy are subject to regulation by the 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 established the Office of the Ohio Consumers’
Counsel (OCC), which has the authority to represent
residential consumers in state and federal judicial and
administrative rate proceedings.
Ohio legislation extends the jurisdiction of the
PUCO to the records and accounts of certain public
utility holding company systems, including DPL. 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. Based on existing PUCO authori-
zation, regulatory assets and liabilities are recorded on
the Consolidated Balance Sheets. (See Note 3 of Notes
to Consolidated Financial Statements.)
Competition and Regulation
Competition and Regulation for more detail
See Competition and Regulation for more detail
regarding the effect of legislation.
Environmental Considerations
The operations of DPL and DP&L, including DP&L’s
commonly-owned facilities, are subject to a wide range
of federal, state, and local environmental regulations
and laws as to air and water quality, disposal of solid
waste and other environmental matters. Governance
also includes the location, construction and operation
of new and existing electric generating facilities and
most electric transmission lines. As such, existing envi-
ronmental regulations may be periodically revised and
new legislation could be enacted that may affect our
estimated construction expenditures. See Construction
Additions. In the normal course of business, DP&L has
ongoing programs and activities underway at these
facilities to comply, or to determine compliance, with
such existing, new and/or proposed regulations and
legislation.
DP&L has been identified, either by a govern-
ment agency or by a private party seeking contribu-
tion to site clean-up costs, as a potentially responsible
party (PRP) at two sites pursuant to state and federal
laws. DP&L records liabilities for probable estimated
loss in accordance with Statement of Financial
Accounting Standards No. 5 (SFAS 5), “Accounting
for Contingencies.” To the extent a probable loss can
only be estimated by reference to a range of equally
probable outcomes, and no amount within the range
appears to be a better estimate than any other amount,
DP&L accrues for the low end of the range. Because
of uncertainties related to these matters, accruals are
based on the best information available at the time.
DP&L evaluates the potential liability related to prob-
able losses quarterly and may revise its estimates.
Such revisions in the estimates of the potential liabilities
could have a material effect on the Company’s results
of operations and financial position.
Air and Water Quality
In November 1999, the United States Environmental
Protection Agency (USEPA) filed civil complaints and
Notices of Violations (NOVs) against operators and
owners of certain generation facilities for alleged viola-
tions of the Clean Air Act (CAA). Generation units oper-
ated by CG&E (Beckjord 6) and Columbus Southern
Power Company (CSP) (Conesville 4) and co-owned
by DP&L were referenced in these actions. Numerous
northeast states have filed complaints or have indicat-
ed that they will be joining the USEPA’s action against
CG&E and CSP. DP&L was not identified in the NOVs,
civil complaints or state actions.
On March 1, 2000, the United States Department
of Justice filed a complaint against Cinergy Corporation
and two subsidiaries (USA v. Cinergy Corp. et al.) for
alleged violations of the CAA at various generation
units operated by PSI Energy, Inc. and CG&E. The
complaint was amended June 24, 2004 and includes
generation units operated by CG&E and co-owned by
DP&L (Beckjord 6 and Miami Fort 7). The suit seeks (1)
injunctive relief to require installation of pollution control
technology on various generating units at CG&E’s W.C.
DPL Inc.
11
Beckjord and Miami Fort Stations, and PSI’s Cayuga,
Gallagher, Wabash River, and Gibson Stations, and
(2) civil penalties in amounts of up to $27,500 per day
for each violation. In addition, three northeast states
and two environmental groups have intervened in the
case. In August 2005, the district court issued a ruling
regarding the emissions test that it will apply to Cinergy
at the trial of the case. Contrary to Cinergy’s argument,
the district court ruled that in determining whether a
project was projected to increase annual emissions, it
would not hold hours of operation constant. However,
the district court subsequently certified the matter for
interlocutory appeal to the Seventh Circuit Court of
Appeals, which has the discretion to accept the appeal
at this time. Oral arguments have been scheduled for
May 29, 2006.
In June 2000, the USEPA issued a NOV to DP&L-
operated Stuart Generating Station (co-owned by
DP&L, CG&E, and CSP) for alleged violations of the
CAA. The NOV contained allegations consistent with
NOVs and complaints that the USEPA had recently
brought against numerous other coal-fired utilities in
the Midwest. The NOV indicated USEPA may (1) issue
an order requiring compliance with the requirements
of the Ohio SIP or (2) bring a civil action seeking
injunctive relief and civil penalties of up to $27,500
per day for each violation. To date, neither action has
been taken.
On September 21, 2004, the Sierra Club filed a
lawsuit against the Company and the other owners
of the Stuart Generating Station in the United States
District Court for the Southern District of Ohio for
alleged violations of the CAA. The case is currently in
discovery; a trial date has not been set.
On July 27, 2004, various residents of the Village
of Moscow, Ohio notified CG&E, as the operator of
Zimmer (co-owned by CG&E, DP&L and CSP), of their
intent to sue for alleged violations of the CAA and air
pollution nuisances. On November 17, 2004, a citizens’
suit was filed against CG&E (Freeman v. CG&E). DP&L
believes the allegations are meritless and believes
CG&E, on behalf of all co-owners, will vigorously
defend the matter. The plaintiffs have filed a number
of additional notices of intent to sue and two lawsuits
raising claims similar to those in the original claim. One
lawsuit was dismissed on procedural grounds and the
remaining two have been consolidated. The plaintiffs
have filed for class action status; a decision has not yet
been reached on this matter.
On November 18, 2004, the State of New York
and seven other states filed suit against the American
Electric Power Corporation (AEP) and various subsid-
iaries, alleging various CAA violations at a number of
AEP electric generating facilities, including Conesville
Unit 4 (co-owned by CG&E, DP&L and CSP). DP&L
believes the allegations are without merit and that AEP,
on behalf of all co-owners, will vigorously defend the
matter. On January 6, 2006, the court ordered the con-
solidation of this case with another similar suit; a trial
date for the remedy phase of the consolidated cases
has not yet been set.
On October 27, 2003, the USEPA published its final
rules regarding the equipment replacement provision
(ERP) of the routine maintenance, repair and replace-
ment (RMRR) exclusion of the CAA. Subsequently,
on December 24, 2003, the United States Court of
Appeals for the D.C. Circuit stayed the effective date of
the rule pending its decision on the merits of the law-
suits filed by numerous states and environmental orga-
nizations challenging the final rules. As a result of the
stay, the Ohio Environmental Protection Agency (Ohio
EPA) delayed its previously announced intent to adopt
the RMRR rule. On October 20, 2005, USEPA proposed
to revise the emissions test for existing electric gener-
ating units. At this time, we are unable to determine the
impact of the ERP appeal or the outcome of the pro-
posed emissions test.
In September 1998, the USEPA issued a final rule
requiring states to modify their State Implementation
Plans (SIPs) under the CAA. On July 18, 2002, the
Ohio EPA adopted rules that constitute Ohio’s NOx SIP,
which is substantially similar to the federal CAA Section
126 rulemaking and federal NOx SIP. On August 5,
2003, the USEPA published its conditional approval
of Ohio’s nitrogen oxide (NOx) SIP, with an effective
date of September 4, 2003. Ohio’s SIP requires NOx
reductions at coal-fired generating units effective May
31, 2004. On May 31, 2004, DP&L began operation of
its Selective Catalytic Reduction equipment (SCRs).
DP&L’s NOx reduction strategy and incurred expendi-
tures to meet the federal reduction requirements should
satisfy the Ohio SIP NOx reduction requirements.
On December 17, 2003, the USEPA proposed the
Interstate Air Quality Rule (IAQR) designed to reduce
and permanently cap sulfur dioxide (SO2) and NOx
emissions from electric utilities. The proposed IAQR
focused on states, including Ohio, whose power plant
emissions are believed to be significantly contributing
to fine particle and ozone pollution in other downwind
states in the eastern United States. On June 10, 2004,
the USEPA issued a supplemental proposal to the
IAQR, now renamed as the Clean Air Interstate Rule
(CAIR). The final rules were signed on March 10, 2005
and were published on May 12, 2005. On August 24,
12
DPL Inc.
2005, the USEPA proposed additional revisions to
the CAIR and initiated reconsideration on one issue.
Although we cannot predict the outcome of the recon-
sideration proceedings, the petitions or the pending
litigation, CAIR has had and will have a material effect
on our operations. We anticipate that Phase I of CAIR
will require the installation of flue gas desulphurization
(FGD) equipment and continual operation of the cur-
rently-installed SCR. As a result, DP&L is proceeding
with the installation of FGD equipment at various gen-
erating units.
On January 30, 2004, the USEPA published its
proposal to restrict mercury and other air toxics from
coal-fired and oil-fired utility plants. The final Clean Air
Mercury Rule (CAM-R) was signed March 15, 2005
and was published on May 18, 2005. The final rules will
have a material effect on our operations. We anticipate
that the FGD being planned to meet the requirements
of CAIR may be adequate to meet the Phase I require-
ments of CAM-R. We expect that additional controls will
be needed to meet the Phase II requirements of CAM-
R that go into effect January 1, 2018. On March 29,
2005, nine states sued USEPA, opposing the regulatory
approach taken by USEPA. On March 31, 2005, various
groups requested that USEPA stay implementation of
CAM-R. On August 4, 2005, the United States Court of
Appeals for the District of Columbia denied the motion
for stay. EPA is expected to initiate reconsideration pro-
ceedings on one or more issues. We cannot predict the
outcome of the reconsideration proceedings or pend-
ing litigation.
Under the CAIR and CAM-R cap and trade pro-
grams for SO2, NOx and mercury, we estimate we will
spend more than $453 million from 2006 through 2008
to install the necessary pollution controls. If CAM-R
litigation results in plant specific mercury controls, our
costs may be higher. Due to the ongoing uncertainties
associated with the litigation of the CAM-R, we cannot
project the final costs at this time.
On July 15, 2003, the Ohio EPA submitted to the
USEPA its recommendations for eight-hour ozone
nonattainment boundaries for the metropolitan areas
within Ohio. On April 15, 2004, the USEPA issued its
list of ozone nonattainment designations. DP&L owns
and/or operates a number of facilities in counties
designated as nonattainment with the ozone national
ambient air quality standard. DP&L does not know at
this time what future regulations may be imposed
on its facilities and will closely monitor the regulatory
process. Ohio EPA will have until April 15, 2007 to
develop regulations to attain and maintain compliance
with the eight-hour ozone national ambient air qual-
ity standard. Numerous parties have filed petitions for
review. DP&L cannot predict the outcome of USEPA’s
reconsideration petitions.
On January 5, 2005, the USEPA published its final
nonattainment designations for the national ambient air
quality standard for Fine Particulate Matter 2.5 (PM 2.5)
designations. These designations included counties
and partial counties in which DP&L operates and/or
owns generating facilities. On March 4, 2005, DP&L
and other Ohio electric utilities and electric generators
filed a petition for review in the D.C. Circuit Court of
Appeals, challenging the final rule creating these des-
ignations. On November 30, 2005, the court ordered
USEPA to decide on all petitions for reconsideration by
January 20, 2006. On January 20, 2006, USEPA denied
the petitions for reconsideration. The Ohio EPA will
have three years to develop regulations to attain and
maintain compliance with the PM 2.5 national ambient
air quality standard. DP&L cannot determine the out-
come of the petition for review or the effect such Ohio
EPA regulations will have on its operations.
In April 2002, the USEPA issued proposed rules
governing existing facilities that have cooling water
intake structures. Final rules were published in the
Federal Register on July 9, 2004. A number of parties
appealed the rules to the federal Court of Appeals for
the Second Circuit in New York. The Company antici-
pates that future studies may be needed at certain
generating facilities. We cannot predict the impact
such studies may have on future operations or the out-
come of litigation proceedings.
On May 5, 2004, the USEPA issued its proposed
regional haze rule, which addresses how states should
determine the best available retrofit technology (BART)
for sources covered under the regional haze rule. Final
rules were published July 6, 2005, providing States
with several options for determining whether sources
in the State should be subject to BART. In the final rule,
USEPA made the determination that CAIR achieves
greater progress than BART and may be used by
States as a BART substitute. Numerous units owned
and operated by us will be impacted by BART. We
cannot determine the extent of the impact until Ohio
determines how BART will be implemented.
On May 4, 2004, the Ohio EPA issued a final
National Pollutant Discharge Elimination System per-
mit for J.M. Stuart Station that continues the station’s
316(a) variance. During the three-year term of the draft
permit, DP&L will conduct a thermal discharge study
to evaluate the technical feasibility and economic
reasonableness of water cooling methods other than
cooling towers.
DPL Inc.
13
On October 13, 2005, the USEPA issued a proposed rule concerning the test for measuring whether modifica-
tions to electric generating units should trigger application of New Source Review (NSR) standards under the CAA.
The proposed rule seeks comments on two different hourly emissions test options as well as the USEPA’s current
method of measuring previous actual emission levels to projected emission levels after the modification. A third
option that tests emissions increase based upon emissions per unit of energy output is also available for comment.
We cannot predict the outcome of this rulemaking or its impact on current environmental litigation.
Land Use
In September 2002, DP&L and other parties received a special notice that the USEPA considers us to be PRPs for
the clean-up of hazardous substances at the South Dayton Dump landfill site. On August 4, 2005, DP&L and other
parties received a general notice regarding the performance of a Remedial Investigation and Feasibility Study
(RI/FS) under a Superfund Alternative approach. On October 5, 2005, DP&L received a special notice letter inviting
it to enter into negotiations with USEPA to conduct the RI/FS. Although the information available to DP&L does not
demonstrate that it contributed hazardous substances to the site, DP&L will seek from USEPA a de minimis settle-
ment at the site. Should USEPA pursue a civil action, DP&L will vigorously challenge it.
DPL Inc. Operating Statistics
Electric Operations
Electric Sales (millions of kWh)
Residential
Commercial
Industrial
Other retail
Total retail
Wholesale
Total
Operating Revenues ($ in thousands)
Residential
Commercial
Industrial
Other retail
Other miscellaneous revenues
Total retail
Wholesale
RTO ancillary revenues
Other revenues, net of fuel costs
Total
Electric Customers at End of Period
Residential
Commercial
Industrial
Other
Total
Item 1a Risk factors
Years Ended December 31,
2005
2004
2003
5,520
3,901
4,332
1,437
15,190
2,716
17,906
$ 478,226
276,157
220,453
81,716
10,069
1,066,621
133,283
74,419
10,586
$ 1,284,909
456,146
48,853
1,837
6,304
513,140
5,140
3,777
4,393
1,407
14,717
3,748
1 8,465
$ 449,411
267,831
223,335
80,370
15,863
1,036,810
135,129
17,905
10,054
$ 1,199,898
453,653
48,1 72
1,851
6,337
510,013
5,071
5,071
3,699
3,699
4,330
4,330
1,409
1,409
14,509
14,509
4,836
4,836
19,345
19,345
$ 442,239
$ 442,239
264,067
264,067
221,961
221,961
80,583
80,583
12,895
12,895
1,021,745
1,021,745
159,250
159,250
–
–
9,970
9,970
$ 1,190,965
$ 1,190,965
450,958
450,958
47,253
47,253
1,863
1,863
6,322
6,322
506,396
506,396
This annual report and other documents that we file with the SEC and other regulatory agencies, as well as other
oral or written statements we may make from time to time, contain information based on management’s beliefs and
include forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that
involve a number of known and unknown risks, uncertainties and assumptions. These forward-looking statements
14
DPL Inc.
are not guarantees of future performance, and there
are a number of factors including, but not limited to,
those listed below, which could cause actual outcomes
and results to differ materially from the results contem-
plated by such forward-looking statements. We do not
undertake any obligation to publicly update or revise
any forward-looking statements, whether as a result
of new information, future events or otherwise. These
forward-looking statements are identified by terms
and phrases such as “anticipate”, “believe”, “intend”,
“estimate”, “expect”, “continue”, “should”, “could”,
“may”, “plan”, “project”, “predict”, “will”, and similar
expressions.
The following is a listing of risk factors that we
consider to be the most significant to your decision to
invest in our stock. If any of these events occur, our
business, financial position or results of operation could
be materially affected.
Our stock price may fluctuate
The market price of our common stock has fluctu-
ated over a wide range. In addition, the stock market
in recent years has experienced significant price and
volume variations that have often been unrelated to
our operating performance. Over the past three years,
the market price of our common stock has fluctuated
with a low of $11.95 and a high of $28.12. The market
price of our common stock may continue to fluctuate
in the future and may be affected adversely by factors
such as actual or anticipated changes in our operat-
ing results, acquisition activity, changes in financial
estimates by securities analysts, general market condi-
tions, rumors and other factors.
The electric industry in Ohio is partially deregulated
Before 2001, electric utilities provided electric genera-
tion, transmission and distribution services as a single
product to retail customers at prices set by The Public
Utilities Commission of Ohio (PUCO). But in 1999,
Ohio enacted legislation, effective January 1, 2001,
that partially deregulated utility service, making retail
generation service a competitive service. Customers
may choose to take generation service from competi-
tive retail electric service (CRES) providers that register
with the PUCO but are otherwise unregulated. In
connection with this partial deregulation of the electric
industry in Ohio, electric utilities have had to restruc-
ture their service and their rates to accommodate
competition.
Many of the requirements of the Ohio deregula-
tion law were premised on the assumption that the
wholesale generation market and, in turn, the retail
generation market, would fully develop by the end of
2005, and that the price for generation for even those
customers who choose to continue to purchase the
service from the regulated utility would be set purely
by the market. But that did not occur. As a result, the
Commission and the utilities, including DP&L, have
worked out plans to provide market-based pricing for
generation service, but also to stabilize those rates for
several years. What DP&L may propose, and what the
PUCO will approve, in the future regarding pricing and
cost recovery will depend on the degree to which the
wholesale and retail electric generation markets have
developed.
Moreover, the uncertainty of the future of the whole-
sale and retail markets could cause the Ohio General
Assembly to revisit the issue of competition and cus-
tomer choice.
Although there has not yet been significant
switching by DP&L’s customers to CRES providers,
that could occur in the future.
Although retail generation service has been a competi-
tive service since January 1, 2001, the competitive
generation market has not developed in DP&L’s service
territory to any significant degree. But there are factors
that could result in increased switching by customers
to CRES providers in the future:
■ Voluntary Enrollment Procedure
As part of a settlement in a PUCO proceeding, DP&L
initiated, in November 2004, a voluntary enrollment
procedure (VEP) to encourage customers to change
electric suppliers. Although the VEP did not result in a
significant increase in the number of customers switch-
ing to CRES providers, the VEP will be initiated again in
2006 and 2007 and could produce different results.
■ CRES Supplier Initiatives
Even without the VEP, customers can elect to take gen-
eration service from a competitive retail electric service
(CRES) provider. As of December 31, 2005, five CRES
providers have been certified by the PUCO to provide
generation service in DP&L’s service territory. One of
those five, DPL Energy Resources, Inc. (DPLER), is
an affiliate of DP&L. Although DPLER has accounted
for nearly all of the load served by CRES providers in
DP&L’s service territory since retail competition began
in 2001, that could change. Depending on the devel-
opment of the wholesale market and the level of whole-
sale prices, CRES providers could become more active
in DP&L’s service territory and could begin to offer bet-
ter prices than they do now. This could result in more
switching by DP&L’s customers and a further loss by
DP&L of its generation business.
■ Governmental Aggregation Programs
Another possible way in which DP&L could lose gen-
eration customers is through “governmental aggrega-
DPL Inc.
15
tion,” which was permitted in the restructuring legisla-
tion. Under this program, municipalities may contract
with a CRES provider to provide generation service to
the customers located within the municipal boundaries.
Several communities in DP&L’s service territory have
passed ordinances allowing them to become govern-
ment aggregators. Although none has yet implemented
an aggregation program, that too, could change if
CRES providers are able to make lower-priced offers as
a result of decreasing prices in the wholesale market.
DP&L’s ability to increase its rate to recover
increased costs is limited.
As a result of the failure of the market to develop as
anticipated, DP&L has proposed to stabilize its market-
based generation rates rather than subject customers
to the volatile rates that would otherwise be applicable
in the absence of the rate stabilization plan. DP&L’s
distribution rates will be unchanged through December
31, 2008 and its generation rates will be maintained
through December 31, 2008. Although the PUCO has
approved several riders that will permit DP&L to offset
increases in fuel and environmental costs, the envi-
ronmental rider is not payable by customers that take
generation service from a CRES provider. Thus, a sig-
nificant migration of customers from DP&L’s generation
service to CRES providers could affect DP&L’s ability to
recover those costs. Moreover, DP&L will not be able
to adjust its rates during the rate stabilization period
for increases in other expenses or to recover capital
expenditures.
DP&L has agreed to provide service at pre-determined
rates through December 31, 2010, which limits
its ability to pass through its costs to customers.
DP&L has provided service at rates governed by the
PUCO-approved transition, market development, and
rate stabilization plans. Those rates have included a
statutorily-required 5% residential rate reduction in
the generation component of its rates, a further 2.5%
reduction to the residential generation rate, with its
generation rates frozen through December 31, 2010,
and guaranteed distribution rates through December
31, 2008. The protection afforded by retail fuel clause
recovery mechanisms was eliminated effective January
1, 2001 by the implementation of customer choice
in Ohio. The RSS Stipulation (as defined above),
although subject to judicial review, extends DP&L’s
commitment to maintain pre-determined rates for
distribution through December 31, 2008, with limited
ability to recover certain costs after December 31,
2005. Likewise, through the RSS Stipulation, DP&L
extended its commitment to maintain pre-determined
rates for generation through December 31, 2010, and
in exchange is permitted to charge two new rate rid-
ers to offset increases in fuel and environmental costs.
Beginning January 1, 2006 a new Rate Stabilization
Surcharge was implemented that should recover
approximately $60 to $65 million additional revenue in
2006, net of customer discounts and considering less
than a full twelve months recovery due to the timing of
the PUCO order. The new environmental investment
rider could result in approximately $35 million addi-
tional revenue in 2007, net of customer discounts and
assuming no customer switching. The PUCO ruled this
rider will be bypassable by all customers who take ser-
vice from alternative generation suppliers. Accordingly,
the rates DP&L is allowed to charge may or may not
match its expenses at any given time. Therefore, dur-
ing this period (or possibly earlier by order of the
PUCO), and, thereafter, while DP&L will be subject
to prevailing market prices for electricity, it would not
necessarily be able to charge rates that produce timely
or full recovery of its expenses. DP&L has historically
maintained its rates at consistent levels since 1994,
when the last phase of DP&L’s last traditional rate case
was implemented. However, as DP&L operates under
its PUCO-approved RSS Stipulation, there can be no
assurance that DP&L would be able to timely or fully
recover unanticipated levels of expenses, including but
not limited to those relating to fuel, coal and purchased
power, compliance with environmental regulation, reli-
ability initiatives, and capital expenditures for the main-
tenance or repair of its plants or other properties.
There are uncertainties relating to the ultimate
development of Regional Transmission Organizations
(RTOs), including the PJM to which DP&L has given
control of its transmission functions.
On October 1, 2004, DP&L gave PJM control of its
transmission functions and fully integrated into PJM.
Problems or delays that may arise in the operation
of RTOs may restrict DP&L’s ability to sell power pro-
duced by its generating capacity to certain markets
if there is insufficient transmission capacity otherwise
available. The rules governing the various regional
power markets may also change from time to time
which could affect DP&L’s costs and revenues. While
RTO rates are designed to be revenue neutral, DP&L’s
revenues from customers to whom they currently
provide transmission services could decrease. DP&L
will incur fees and increased costs to participate in
an RTO, it may be limited with respect to the price
at which power may be offered for sale from certain
generating units, and it may be required to expand
its transmission system according to decisions made
16
DPL Inc.
by an RTO rather than its internal planning process.
Because the RTO market rules are continuing to
evolve, we cannot fully assess the impact that these
power markets or other ongoing RTO developments
may have on DP&L and us.
We rely principally on coal as the fuel to operate
virtually all of the power plants that serve our custom-
ers daily. We are dependant on our coal suppliers
to continually supply our power plants to avoid an
interruption in our generation of electricity.
Some of our coal suppliers have not performed their
contracts as promised and have failed to timely deliver
all coal as specified under their contracts. Such failure
could significantly reduce DP&L’s inventory of coal and
may cause DP&L to purchase higher priced coal on
the spot market. When the failure is for a short period
of time, DP&L can absorb the irregularity due to exist-
ing inventory levels. If we are required to purchase coal
on the spot market, it may affect our cost of operations.
There are additional factors, including, but not limited
to, regulation and competition, economic conditions,
reliance on third parties, operating results fluctuations,
regulatory uncertainties and litigation, warrant exercise,
internal controls and environmental compliance, that
may affect our future results.
Regulation/Competition
We operate in a rapidly changing industry with evolv-
ing industry standards and regulations. In recent years
a number of federal and state developments aimed at
promoting competition triggered industry restructuring.
Regulatory factors, such as changes in the policies
and procedures that set rates; changes in tax laws,
tax rates, and environmental laws and regulations;
changes in DP&L’s ability to recover expenditures for
environmental compliance, fuel and purchased
power costs and investments made under traditional
regulation through rates; and changes to the frequency
and timing of rate increases can affect our results of
operations and financial condition. Changes in our
customer base, including municipal customer aggrega-
tion, could lead to the entrance of competitors in our
marketplace, affecting our results of operations and
financial condition. Additionally, financial or regulatory
accounting principles or policies imposed by govern-
ing bodies can increase our operational and monitoring
costs affecting our results of operations and financial
condition.
Economic Conditions
Economic pressures, as well as changing market con-
ditions and other factors related to physical energy and
financial trading activities, which include price, credit,
liquidity, volatility, capacity, transmission, and interest
rates can have a significant effect on our operations
and the operations of our retail, industrial and commer-
cial customers.
On October 8, 2005, Delphi Corporation filed
for Chapter 11 bankruptcy protection in the U.S.
Bankruptcy Court for the Southern District of New York.
Delphi represents approximately 1% of our annual
revenues.
During the past few years, the merchant energy
industry in many parts of the United States has suf-
fered from oversupply of merchant generation and a
decline in trading and marketing activity. These market
conditions are expected to continue for several years.
As a result of these market conditions, we continue
to evaluate the carrying values of certain long-lived
generation assets.
Reliance on Third Parties
We rely on many suppliers for the purchase and deliv-
ery of inventory, including coal, and equipment compo-
nents to operate our energy production, transmission
and distribution functions. Unanticipated changes
in our purchasing processes, delays and supplier avail-
ability may affect our business and operating results.
In addition, we rely on others to provide professional
services, such as, but not limited to, actuarial calcula-
tions, internal audit services, payroll processing and
various consulting services.
Operating Results Fluctuations
Future operating results are subject to fluctuations
based on a variety of factors, including but not limited
to: unusual weather conditions; catastrophic weather-
related damage; unscheduled generation outages;
unusual maintenance or repairs; changes in coal
costs, gas supply costs, emissions allowance costs,
or availability constraints; environmental compliance;
and electric transmission system constraints.
Regulatory Uncertainties and Litigation
In the normal course of business, we are subject to
various lawsuits, actions, proceedings, claims and
other matters asserted under laws and regulations.
Additionally, we are subject to diverse and complex
laws and regulations, including those relating to corpo-
rate governance, public disclosure and reporting, and
taxation, which are rapidly changing and subject to
additional changes in the future. As further described
in Item 3 -“Legal Proceedings,” we are also currently
involved in various pieces of litigation in which the out-
come is uncertain. Compliance with these rapid chang-
DPL Inc.
17
es may substantially increase costs to our organization
and could affect our future operating results.
Item 1b Unresolved Staff Comments
Warrant Exercise
Our warrant holders could exercise their 31,560,000
warrants at their discretion until March 12, 2012. As a
result, we could be required to issue up to 31,560,000
common shares in exchange for the receipt of the
exercise price of $21.00 per share or pursuant to a
cashless exercise process. The exercise of all warrants
could have a significant dilutive effect on us and
would increase our common share dividend cost and
may affect any existing guidance on basic earnings
per share.
Internal Controls
Our internal controls, accounting policies and prac-
tices, and internal information systems are designed
to enable us to capture and process transactions in
a timely and accurate manner in compliance with
accounting principles generally accepted in the United
States of America (GAAP), laws and regulations, taxa-
tion requirements, and federal securities laws and
regulations. We implemented corporate governance,
internal control and accounting rules issued in connec-
tion with the Sarbanes-Oxley Act of 2002. Our internal
controls and policies have been and continue to be
closely monitored by management and our Board of
Directors to ensure continued compliance with Section
404 of the Act. While we believe these controls, poli-
cies, practices and systems are adequate to verify
data integrity, unanticipated and unauthorized actions
of employees, temporary lapses in internal controls
due to shortfalls in oversight or resource constraints
could lead to improprieties and undetected errors that
could impact our financial condition, cash flows or
results of operations.
Environmental Compliance
Our generating facilities (both wholly-owned and co-
owned with others) are subject to continuing federal
and state environmental laws and regulations. We
believe that we currently comply with all existing fed-
eral and state environmental laws and regulations
We own a non-controlling, minority interest in several
generating stations operated by The Cincinnati Gas &
Electric Company (CG&E) or its affiliate, Union Heat,
Light & Power, and Columbus Southern Power Company
(CSP). Either or both of these parties are likely to
take steps to ensure that these stations remain in com-
pliance with applicable environmental laws and regula-
tions. As non-controlling owners in these generating
stations, we will be responsible for our pro rata share of
these expenditures based upon our ownership interest.
None
Item 2 Properties
Electric
Information relating to our properties is contained
in Item 1 – Construction Additions, and Electric
Operations and Fuel Supply, and Note 10 of Notes to
Consolidated Financial Statements.
Substantially all property and plant of DP&L is sub-
ject to the lien of the mortgage securing DP&L’s First
and Refunding Mortgage, dated as of October 1, 1935
with the Bank of New York, as Trustee (Mortgage).
Item 3 Legal Proceedings
In the normal course of business, we are subject to
various lawsuits, actions, proceedings, claims and
other matters asserted under laws and regulations.
We believe the amounts provided in our consolidated
financial statements, as prescribed by GAAP, for these
matters are adequate in light of the probable and
estimable contingencies. However, there can be no
assurances that the actual amounts may be required
to satisfy alleged liabilities from various legal proceed-
ings, claims, and other matters discussed below, and
to comply with applicable laws and regulations will
not exceed the amounts reflected in our Consolidated
Financial Statements. As such, costs, if any, that may
be incurred in excess of those amounts provided as of
December 31, 2005, cannot be reasonably determined.
On August 24, 2004, we, and our subsidiaries
DP&L and MVE, filed a Complaint against Mr. Forster,
Ms. Muhlenkamp and Mr. Koziar (the Defendants)
in the Court of Common Pleas of Montgomery County,
Ohio asserting legal claims against them relating to
the termination of the Valley Partners Agreements,
challenging the validity of the purported amendments
to the deferred compensation plans and to the employ-
ment and consulting agreements with the Defendants,
and the propriety of the distributions from the plans
to the Defendants, and alleging that the Defendants
breached their fiduciary duties and breached their
consulting and employment contracts. We, DP&L and
MVE seek, among other things, damages in excess
of $25,000, disgorgement of all amounts improperly
withdrawn by the Defendants from the plans and
a court order declaring that we, DP&L and MVE have
no further obligations under the consulting and employ-
18
DPL Inc.
ment contracts due to those breaches.
We continue to evaluate all of the matters relevant
The Defendants filed motions to dismiss the
Complaint, which the Court subsequently denied. On
June 15, 2005, Defendants filed their answers deny-
ing liability and filed counterclaims against us, DP&L,
MVE, various compensation plans (the Plans), and
against the then-current members of our Board of
Directors and two of our former Board members. These
counterclaims allege generally that DPL, DP&L, MVE,
the Plans and the individual defendants breached the
terms of the employment and consulting contracts of
the Defendants, and the terms of the Plans. They fur-
ther allege theories of breach of fiduciary duty, breach
of contract, promissory estoppel, tortious interference,
conversion, replevin and violations of ERISA under
which they seek distribution of deferred compensa-
tion balances, conversion of stock incentive units,
exercise of options and payment of amounts allegedly
owed under the contracts and the Plans. Defendants’
counterclaims also demand payment of attorneys’ fees.
Motions to dismiss certain of the counterclaims were
denied on February 23, 2006.
On March 15, 2005, Mr. Forster and Ms.
Muhlenkamp filed a lawsuit in New York state court
against the purchasers of the private equity invest-
ments in the financial asset portfolio and against out-
side counsel to us and DP&L concerning purported
entitlements in connection with the purchase of those
investments. We, DP&L and MVE are not defendants
in that case; however, the three of us are parties to
an indemnification agreement with respect to the pur-
chaser defendants. We, DP&L and MVE filed a Motion
for Preliminary Injunction in the Ohio case, requesting
that the court issue a preliminary injunction against Mr.
Forster and Ms. Muhlenkamp regarding the New York
lawsuit. On August 18, 2005, the Ohio court issued
a preliminary injunction against Mr. Forster and Ms.
Muhlenkamp that precludes them from pursuing certain
key issues raised by Mr. Forster and Ms. Muhlenkamp
in their New York lawsuit that are identical to the issues
raised in the pending Ohio lawsuit in the New York
court or any other forum other than the Ohio litigation.
In addition, the New York court has stayed the New
York litigation pending the outcome of the Ohio litiga-
tion. Mr. Forster and Ms. Muhlenkamp have appealed
the preliminary injunction and the appeal is pending at
the Ohio Supreme Court.
The parties continue to proceed with the discov-
ery phase of the litigation, and a number of motions
have been filed and briefed with respect to document
discovery and depositions. The trial court granted
some and overruled some of these pending motions
on February 23, 2006.
to this litigation and are considering other claims
against Defendants, Forster, Muhlenkamp and Koziar
that include, but are not limited to, breach of fiduciary
duty or other claims relating to personal and DPL
investments, the calculation of benefits under the
Supplemental Executive Retirement Program (SERP)
and financial reporting with respect to such benefits,
and with respect to Mr. Koziar, the fulfillment of duties
owed to us as our legal counsel. Cumulatively through
December 31, 2005, we have accrued for account-
ing purposes, obligations of approximately $52 mil-
lion to reflect claims regarding deferred compensa-
tion, estimated MVE incentives and/or legal fees that
Defendants assert are payable per contracts. We dis-
pute Defendants’ entitlement to any of those sums and,
as noted above, are pursuing litigation against them
contesting all such claims.
On or about June 24, 2004, the SEC commenced
a formal investigation into the issues raised by the
Memorandum. We are cooperating with the investigation.
On April 7, 2004, the Company received notice
that the staff of the PUCO was conducting an investi-
gation into the financial condition of DP&L as a result
of the issues raised by the Memorandum. On May 27,
2004, the PUCO ordered DP&L to file a plan of utility
financial integrity that outlines the actions the Company
has taken or will take to insulate DP&L utility operations
and customers from its unregulated activities. DP&L
was required to file this plan by March 2, 2005. On
February 4, 2005, DP&L filed its protection plan with
the PUCO. On June 29, 2005, the PUCO closed its
investigation, citing significant positive actions we had
taken including changes in the Board of Directors as
well as the executive management of DP&L, and that
no apparent diminution of service quality had occurred
because of the events that initiated the investigation.
On May 20, 2004, the staff of the SEC notified us
that it was conducting an inquiry covering our exempt
status under the Public Utility Holding Company Act of
1935 (the ’35 Act). The staff of the SEC requested we
provide certain documents and information on a volun-
tary basis. On October 8, 2004, we received a notice
from the SEC that a question exists as to whether such
exemption from the Public Utility Holding Company Act
may be detrimental to the public interest or the inter-
ests of investors or consumers. On November 5, 2004,
we filed a good faith application seeking an order of
exemption from the SEC. In light of the repeal of the ’35
Act, effective February 8, 2006, and based upon the
information previously provided to the staff of the SEC,
this inquiry is moot.
On May 28, 2004, the U.S. Attorney’s Office for
DPL Inc.
19
the Southern District of Ohio, assisted by the Federal
Bureau of Investigation, notified us that it has initiated
an inquiry involving the subject matters covered by
our internal investigation. We are cooperating with this
investigation.
On June 24, 2004, the Internal Revenue Service
(IRS) began an audit of tax years 1998 through 2003
and issued a series of data requests to us includ-
ing issues raised in the Memorandum. The staff of
the IRS has requested that we provide certain docu-
ments, including but not limited to, matters concern-
ing executive/director deferred compensation plans,
management stock incentive plans and MVE financial
statements. On September 1, 2005, the IRS issued an
audit report for tax years 1998 through 2003 that shows
proposed changes to our federal income tax liability for
each of those years. The proposed changes result in
a total tax deficiency, penalties and interest of approxi-
mately $23.9 million as of December 31, 2005. On
November 4, 2005, we filed a written protest to one of
the proposed changes. We believe we are adequately
reserved for any tax deficiency, penalties and interest
resulting from the proposed changes and as a result,
the proposed changes did not adversely affect our
results from operations.
We are also under audit review by various state
agencies for tax years 2002 through 2004. We have
also filed an appeal to the Ohio Board of Tax Appeals
for tax years 1998 through 2001. Depending upon the
outcome of these audits and the appeal, we may be
required to increase our tax provision if actual amounts
ultimately determined exceed recorded reserves. We
believe we have adequate reserves in each tax juris-
diction but cannot predict the outcome of these audits.
On February 13, 2006, we received correspon-
dence from the Ohio Department of Taxation (ODT)
notifying us that ODT has completed their examina-
tion and review of our Ohio Corporation Franchise Tax
Returns for tax years 2002 through 2004 and that the
final proposed audit adjustments result in a balance
due of $90.8 million before interest and penalties.
We have reviewed the proposed audit adjustments
and plan to vigorously contest the ODT findings and
forthcoming notice of assessment through all admin-
istrative and judicial means available. We believe we
have recorded adequate tax reserves related to the
proposed adjustments; however, we cannot predict
the outcome, which could be material to our results of
operations and cash flows.
On December 12, 2003, the Office of Federal
Contract Compliance Programs (OFCCP) notified
DP&L by letter alleging it had discriminated in the hir-
ing of meter readers during 2000-2001 by utilizing
credit checks to determine if applicants had paid their
electric bills. On February 12, 2004, DP&L and the
OFCCP entered into a Conciliation Agreement whereby
DP&L agreed to distribute approximately $0.2 million
in compensation to certain affected applicants. DP&L
has completed these payments to the affected appli-
cants and supplied to the OFCCP all follow-up reports
required under the Conciliation Agreement.
In June 2002, a contractor’s employee received
a verdict against DP&L for injuries he sustained while
working at a DP&L power station. The Adams County
Court of Common Pleas awarded the contractor’s
employee compensatory damages of approximately
$0.8 million and prejudgment interest of approximately
$0.6 million. On April 28, 2004, the 4th District Court
of Appeals upheld this verdict except the award for
prejudgment interest. On September 1, 2004, the Ohio
Supreme Court refused to hear the case, so the matter
was remanded to the Adams County Court of Common
Pleas for a re-determination of the amount of prejudg-
ment interest that should be awarded. The trial court
heard this matter on October 15, 2004. On November
1, 2004, DP&L paid approximately $976,000 to the
contractor’s employee to satisfy the judgment and post-
judgment interest. On December 6, 2004, the Adams
County Court of Common Pleas ruled that the prejudg-
ment interest should be reduced to approximately $30
thousand. Both parties appealed this decision. On
January 25, 2006, the Fourth District Court of Appeals
ruled in DP&L’s favor, finding it owed no prejudgment
interest to the Plaintiff.
Additional information relating to legal proceedings
involving DPL is contained in Item 1 – Environmental
Considerations, and Item 8 – Note 14 of Notes to
Consolidated Financial Statements.
In November 2005, AMP-Ohio, a wholesale sup-
plier of electricity to its thirteen member municipalities,
requested arbitration of its power supply agreement
with DP&L. AMP-Ohio alleges it has a right to receive
certain capacity credits. DP&L disagrees with this posi-
tion and has agreed to arbitrate the dispute. The arbi-
tration is pending. We are unable at this time to deter-
mine whether this will have any material impact on our
results of operations, cash flows or financial position.
Item 4 Submission of Matters to a
Vote of Security Holders
None
20
DPL Inc.
Part II
Item 5 Market for Registrant’s Common Equity and Related Stockholder Matters
As of December 31, 2005, there were 26,061 holders of record of our common equity, excluding individual
participants in security position listings. The following table presents the high and low per share sales prices for
DPL common stock as reported by the New York Stock Exchange for each quarter of 2005 and 2004.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2005
2004
High
$ 26.77
$ 26.77
$ 27.67
$ 27.67
$ 28.12
$ 28.12
$ 28.01
$ 28.01
Low
$ 24.27
$ 24.27
$ 24.08
$ 24.08
$ 26.70
$ 26.70
$ 24.55
$ 24.55
High
$ 20.77
$ 20.77
$ 1 9.77
9.77
$ 20.64
$ 20.64
$ 25.36
$ 25.36
Low
$ 17.60
$
$ 17.21
$
$
$ 19.02
$ 20.30
$ 20.30
As long as DP&L preferred stock is outstanding, DP&L’s Amended Articles of Incorporation contain provisions
restricting the payment of cash dividends on any of its common stock if, after giving effect to such dividend,
the aggregate of all such dividends distributed subsequent to December 31, 1946 exceeds the net income of
DP&L available for dividends on its Common Stock subsequent to December 31, 1946, plus $1.2 million. As
of year-end, all earnings reinvested in the business of DP&L were available for DP&L common stock dividends.
We expect all 2006 earnings reinvested in the business of DP&L to be available for DP&L common stock
dividends, payable to DPL.
Issuer Purchases of Equity Securities
(a)
(b)
(c)
(d)
Period
Period
Period
Period
Total Number of Shares Average Price Paid
Total Number of Shares Average Price Paid
Total Number of Shares Average Price Paid
Total Number of Shares Average Price Paid
Total Number of Shares Average Price Paid
per Share (or Unit)
per Share (or Unit)
(or Units) Purchased
(or Units) Purchased
per Share (or Unit)
(or Units) Purchased
per Share (or Unit)
(or Units) Purchased
Total Number of Shares
Total Number of Shares
Total Number of Shares
Total Number of Shares
Total Number of Shares
(or Units) Purchased as
(or Units) Purchased as
(or Units) Purchased as
(or Units) Purchased as
(or Units) Purchased as
Part of Publicly Announced May Yet Be Purchased Under
Part of Publicly Announced May Yet Be Purchased Under
Part of Publicly Announced May Yet Be Purchased Under
Part of Publicly Announced May Yet Be Purchased Under
Part of Publicly Announced May Yet Be Purchased Under
Plans or Programs (1)
Plans or Programs
Plans or Programs
Plans or Programs
Maximum Number
Maximum Number
Maximum Number
Maximum Number
Maximum Number
(or Approximate Dollar Value)
(or Approximate Dollar Value)
(or Approximate Dollar Value)
(or Approximate Dollar Value)
(or Approximate Dollar Value)
of Shares (or Units) that
of Shares (or Units) that
of Shares (or Units) that
of Shares (or Units) that
of Shares (or Units) that
the Plans or Programs
December 1-31, 2005 406,000
December 1-31, 2005 406,000
December 1-31, 2005 406,000
December 1-31, 2005 406,000
December 1-31, 2005 406,000
$ 26.10
$ 26.10
$ 26.10
$ 26.10
$ 26.10
406,000
406,000
406,000
406,000
406,000
$ 389.4 million
$ 389.4 million
$ 389.4 million
$ 389.4 million
$ 389.4 million
(1) Our Board announced the common share repurchase program in a press release dated July 28, 2005. In this announcement our Board
authorized up to $400 million to be spent on the repurchase program without a specified expiration date. During December 2005, a total
of 406,000 shares at a cost of $10.6 million were repurchased and settled in January 2006. These common shares are currently held as treasury
shares. There were no other repurchases during 2005 and 2004.
On April 30, 2004, we and DP&L announced that we suspended our quarterly dividend payments. On
December 1, 2004, we and DP&L resumed our regular quarterly dividends, including payments normally made
in June and September.
On February 1, 2006, our Board of Directors authorized a 4% dividend increase on our common stock,
raising the annual dividend on common shares from $0.96 per share to $1.00 per share.
On July 27, 2005, our Board authorized the repurchase up to $400 million of stock from time to time in the open
market, through private transactions. During December 2005 a total of 406,000 shares at a cost of $10.6
million were repurchased and settled in January 2006. These shares are currently held as treasury shares.
There were no other repurchases during 2005 and 2004.
Additional information concerning dividends paid on DPL common stock is set forth under Selected Quarterly
Information in Item 8 – Financial Statements and Supplementary Data.
Information regarding our equity compensation plans as of December 31, 2005, is disclosed in Item 12 –
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, which
incorporates such information by reference to our proxy statement for the 2006 Annual Meeting of Shareholders.
DPL Inc.
21
Item 6 Selected Financial Data
For the years ended December 31,
DPL Inc.
Basic earnings (loss) per share of common stock:
Continuing operations
Discontinued operations
Cumulative effect of accounting change (a)
Total basic earnings per common share
Diluted earnings (loss) per share of common stock:
Continuing operations
Discontinued operations
Cumulative effect of accounting change (a)
Total diluted earnings per common share
Dividends paid per share
Dividend payout ratio
$ 124.7
Earnings from continuing operations, net of tax
Earnings (loss0 from discontinued operations, net of taxes $
52.9
Cumulative effect of accounting change, net of taxes (a)
$
$
(3.2)
$
(3.2)
$ 174.4
Net income
Revenues (millions)
Total construction additions (millions)
Market value per share at December 31
DPL Inc.
Electric sales (millions of kWh) –
Residential
Commercial
Industrial
Other retail
Total retail
Wholesale
Total
At December 31,
DPL Inc.
Book value per share
Total assets (millions)
Long-term debt (millions) (b)
Trust preferred securities (b)
At December 31,
DPL Inc.
Senior unsecured debt ratings –
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corporation
DP&L
Senior secured debt ratings –
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corporation
Number of Shareholders
DPL Inc. Common
DP&L Preferred
2005
2004
2003
2002
2001
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
%
1.03
0.44
(0.03)
(0.03)
1.44
0.97
0.41
(0.03)
(0.03)
1.35
0.96
0.96
66.7
$ 1,284.9
$
$ 1,284.9
$ 179.7
$ 26.01
5,520
3,901
4,332
1,437
15,190
2,716
17,906
1.
1.01
0.80
–
–
–
–
–
1.81
1.81
1.81
1.81
1.81
1.
1.00
0.78
–
–
–
–
–
1.78
1.78
1.78
1.78
1.78
0.96
53.0
121.5
95.8
–
–
–
–
–
217.3
217.3
217.3
217.3
217.3
1,199.9
1,199.9
1,199.9
1,199.9
1,199.9
98.0
25.11
5,140
3,777
4,393
1,407
1 4,717
3,748
18,465
0.96
0.96
0.96
0.96
0.14
0.14
0.14
0.14
0.14
0.14
0.14
0.14
0.14
1.24
1.24
1.24
1.24
1.24
0.94
0.94
0.94
0.94
0.14
0.14
0.14
0.14
0.14
0.14
0.14
0.14
0.14
1.22
1.22
1.22
1.22
1.22
0.94
0.94
0.94
0.94
75.8
75.8
75.8
75.8
114.9
114.9
114.9
114.9
16.6
16.6
16.6
16.6
17.0
17.0
17.0
17.0
17.0
148.5
148.5
148.5
148.5
148.5
1,191.0
1,191.0
1,191.0
1,191.0
1,191.0
102.2
102.2
102.2
102.2
20.88
20.88
20.88
20.88
5,071
5,071
5,071
5,071
3,699
3,699
3,699
3,699
4,330
4,330
4,330
4,330
1,409
1,409
1,409
1,409
14,509
14,509
14,509
14,509
4,836
4,836
4,836
4,836
19,345
19,345
19,345
19,345
1.48
1.48
1.48
1.48
(0.72)
(0.72)
(0.72)
(0.72)
–
–
–
–
–
0.76
0.76
0.76
0.76
0.76
1.42
1.42
1.42
1.42
(0.69)
(0.69)
(0.69)
(0.69)
–
–
–
–
–
0.73
0.73
0.73
0.73
0.73
0.94
0.94
0.94
0.94
123.7
123.7
123.7
123.7
177.6
177.6
177.6
177.6
(86.5)
(86.5)
(86.5)
(86.5)
–
–
–
–
–
1.87
1.87
1.87
1.87
(0.26)
(0.26)
(0.26)
(0.26)
0.01
0.01
0.01
0.01
0.01
1.62
1.62
1.62
1.62
1.62
1.75
1.75
1.75
1.75
(0.24)
(0.24)
(0.24)
(0.24)
0.01
0.01
0.01
0.01
0.01
1.52
1.52
1.52
1.52
1.52
0.94
0.94
0.94
0.94
58.0
58.0
58.0
58.0
227.0
227.0
227.0
227.0
(31.2)
(31.2)
(31.2)
(31.2)
1.0
1.0
1.0
1.0
1.0
91.1
91.1
91.1
91.1
91.1
196.8
196.8
196.8
196.8
196.8
1,186.4
1,186.4
1,186.4
1,186.4
1,186.4
165.9
165.9
165.9
165.9
15.34
15.34
15.34
15.34
1,201.8
1,201.8
1,201.8
1,201.8
1,201.8
338.9
338.9
338.9
338.9
24.08
24.08
24.08
24.08
5,302
5,302
5,302
5,302
3,710
3,710
3,710
3,710
4,472
4,472
4,472
4,472
1,405
1,405
1,405
1,405
14,889
14,889
14,889
14,889
4,358
4,358
4,358
4,358
19,247
19,247
19,247
19,247
4,909
4,909
4,909
4,909
3,618
3,618
3,618
3,618
4,568
4,568
4,568
4,568
1,369
1,369
1,369
1,369
14,464
14,464
14,464
14,464
3,591
3,591
3,591
3,591
18,055
18,055
18,055
18,055
8.53
$
$ 3,791.7
$
$ 3,791.7
$
$ 1,677.1
$ 1,677.1
–
$
8.67
8.67
4,165.5
2,117.3
–
7.52
7.52
7.52
7.52
4,444.7
4,444.7
4,444.7
4,444.7
1,954.7
1,954.7
1,954.7
1,954.7
–
–
–
–
6.89
6.89
6.89
6.89
4,277.7
4,277.7
4,277.7
4,277.7
2,142.3
2,142.3
2,142.3
2,142.3
292.6
292.6
292.6
292.6
7.13
7.13
7.13
7.13
4,370.8
4,370.8
4,370.8
4,370.8
2,150.8
2,150.8
2,150.8
2,150.8
292.4
292.4
292.4
292.4
BBB-
Ba1
BB
BB
Ba3
BB-
BBB
BBB
BBB
BBB
Ba1
Ba1
Ba1
Ba1
BB-
BB-
BB-
BB-
BBB
BBB
BBB
BBB
Baa2
Baa2
Baa2
Baa2
BBB-
BBB-
BBB-
BBB-
A-
A-
A-
A-
Baa1
Baa1
Baa1
Baa1
BBB
BBB
BBB
BBB
A-
Baa1
BB
BBB
Baa3
BB-
A
A
A
A
Baa1
Baa1
Baa1
Baa1
BBB-
BBB-
BBB-
BBB-
A
A
A
A
A2
A2
A2
A2
BBB
BBB
BBB
BBB
AA
AA
AA
AA
A2
A2
A2
A2
BBB+
BBB+
BBB+
BBB+
26,061
329
28,079
357
30,366
30,366
30,366
30,366
402
402
402
402
31,856
31,856
31,856
31,856
426
426
426
426
33,729
33,729
33,729
33,729
476
476
476
476
(a) In 2003, we recorded a cumulative effect of an accounting change related to the adoption of SFAS 143 “Accounting for Asset
Retirement Obligations”. In 2005, we recorded an additional obligation in response to FASB Interpretation Number (FIN) 47, “Accounting
for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143.” See Item 7 - Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
(b) Excludes current maturities of long-term debt. Upon adoption of FASB Interpretation Number 46R “Consolidation of Variable Interest
Entities (Revised December 2003) – an interpretation of ARB No. 51” at December 31, 2003, DPL deconsolidated the DPL Capital Trust II.
22
DPL Inc.
Item 7 Management’s Discussion
and Analysis of Financial Condition
and Results of Operations
Certain statements contained in this discussion are
“forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995.
Matters discussed in this report that relate to events
or developments that are expected to occur in the
future, including management’s expectations, strategic
objectives, business prospects, anticipated economic
performance and financial condition and other similar
matters constitute forward-looking statements. Forward-
looking statements are based on management’s
beliefs, assumptions and expectations of our future
economic performance, taking into account the infor-
mation currently available to management. These state-
ments are not statements of historical fact. Such for-
ward-looking statements are subject to risks and uncer-
tainties and investors are cautioned that outcomes and
results may vary materially from those projected due
to various factors beyond our control, including but not
limited to: abnormal or severe weather; unusual main-
tenance or repair requirements; changes in fuel costs
and purchased power, coal, environmental emissions,
gas and other commodity prices; increased competi-
tion; regulatory changes and decisions; changes in
accounting rules; financial market conditions; and gen-
eral economic conditions.
ated by Regional Transmission Organizations (RTOs).
As part of Ohio’s electric deregulation law, all of the
state’s investor-owned utilities were required to join an
RTO. DP&L successfully integrated its 1,000 miles of
high-voltage transmission into the PJM Interconnection,
L.L.C. (PJM) RTO in October 2004. As an RTO, PJM’s
role is to administer an electric marketplace and ensure
the reliability of the high-voltage electric power system
serving 51 million people in all or parts of Delaware,
Indiana, Illinois, Kentucky, Maryland, Michigan, New
Jersey, Ohio, Pennsylvania, Tennessee, Virginia, West
Virginia and the District of Columbia. PJM coordinates
and directs the operation of the region’s transmission
grid; administers a competitive wholesale electricity
market, the world’s largest; and plans regional trans-
mission expansion improvements to maintain grid reli-
ability and relieve congestion.
On December 28, 2005, the PUCO approved
DP&L’s Rate Stabilization Plan with certain modifica-
tions. The new Rate Stabilization Plan will phase into
rates two new rate riders related to increasing fuel and
environmental costs over a five-year period that runs
from January 1, 2006 through December 31, 2010. The
environmental portion of the increase, which goes into
effect in 2007 and runs through 2010, will be avoidable
for customers who switch generation providers. This
Plan provides customers with price protection through
capped generation prices through 2010 and provides
some level of revenue stability for DP&L.
Forward-looking statements speak only as of the
Fuel costs are impacted by changes in volume and
date of the document in which they are made. We
disclaim any obligation or undertaking to provide any
updates or revisions to any forward-looking state-
ment to reflect any change in our expectations or any
change in events, conditions or circumstances on
which the forward-looking statement is based. (See
Factors That May Affect Future Results.)
General Overview
The electric utility industry has historically operated
in a regulated environment. However, in recent years,
there have been a number of federal and state regu-
latory and legislative decisions aimed at promoting
competition and providing customer choice. Market
participants have therefore created new business mod-
els to exploit opportunities. The marketplace is now
comprised of independent power producers, energy
marketers and traders, energy merchants, transmission
and distribution providers and retail energy suppliers.
There have also been new market entrants and activity
among the traditional participants, such as mergers,
acquisitions, asset sales and spin-offs of lines of busi-
ness. In addition, transmission systems are being oper-
price and are driven by a number of variables includ-
ing weather, reliability of coal deliveries, scheduled
outages and generation plant mix. Based on weather
normalized sales, fuel costs are forecasted to be flat in
2006 compared to 2005 and are forecasted to increase
approximately 5% in 2007 compared to 2006. This
forecast assumes coal prices will increase approxi-
mately 10% in 2006 as compared to 2005 and remain
flat in 2007 as compared to 2006.
On February 13, 2005, our subsidiaries, MVE
and MVIC, entered into an agreement to sell their
respective interests in forty-six private equity funds
to AlpInvest/Lexington 2005, LLC, a joint venture of
AlpInvest Partners and Lexington Partners, Inc. Sales
proceeds and any related gains or losses were recog-
nized as the sale of each fund closed. Among other
closing conditions, each fund required the transaction
to be approved by the respective general partner.
During 2005, MVE and MVIC completed the sale of
their interests in forty-three and a portion of one private
equity funds resulting in a $46.6 million pre-tax gain
($53.1 million less $6.5 million professional fees) from
discontinued operations and providing approximately
DPL Inc.
23
$796 million in net proceeds, including approximately
$52 million in net distributions from funds while held for
sale. As part of this pre-tax gain, we realized $30 mil-
lion that was previously recorded as an unrealized gain
in other comprehensive income.
During this same period, MVE entered into alter-
native closing arrangements with AlpInvest/Lexington
2005, LLC for funds where legal title to said funds
could not be transferred until a later time. Pursuant to
these arrangements, MVE transferred the economic
aspects of the remaining private equity funds, con-
sisting of two funds and a portion of another fund, to
AlpInvest/Lexington 2005, LLC without a change in
ownership of the interests. The terms of the alternative
arrangements do not meet the criteria for recording a
sale. We are obligated to remit to AlpInvest/Lexington
2005, LLC any distributions MVE receives from these
funds, and AlpInvest/Lexington 2005, LLC is obligated
to provide funds to us to pay any contribution notice,
capital call or other payment notice or bill for which
MVE receives notice with respect to such funds. The
alternative arrangements resulted in a deferred gain of
$27.1 million until such terms of a sale can be complet-
ed (contingent upon receipt of general partner approv-
als of the transfer) and provided approximately $72
million in net proceeds on these funds. We recorded
an impairment loss of $5.6 million to write down to esti-
mated fair value the assets transferred pursuant to the
alternative arrangements. Ownership of these funds will
transfer after the general partner of each fund consents
to the transfer. It is anticipated that ownership of these
funds will transfer no later than the first quarter of 2007.
Earnings Overview
Earnings Per Share (Basic)
Earnings from
Continuing Operations
Earnings from
Discontinued Operations
Cumulative Effect of
Accounting Change
Net Income
2005
2004
2003
0.44
0.80
0.80
0.80
0.14
0.14
0.14
(0.03)
–
–
–
0.14
0.14
0.14
$ 1.44
$ 1.81 $ 1.24
$ 1.81 $ 1.24
$ 1.81 $ 1.24
2005 Compared to 2004
In 2005, basic earnings per share were $0.37 lower
than 2004. The decline was primarily due to a $0.36
per share decrease in Earnings from Discontinued
Operations (represented by the private equity funds
that we agreed to sell in February 2005). Basic earn-
ings per share for Earnings from Continuing Operations
were $0.02 higher in 2005 compared to 2004. Our
operating income increased $2.6 million as a result
24
DPL Inc.
of lower operating expenses, excluding fuel and pur-
chased power, of $11.6 million that were offset by lower
net margin of $9.0 million. Net margin is revenues less
fuel and purchased power costs. The decrease in net
margin of $9.0 million was the result of higher revenues
of $85.0 million reflecting increased retail sales and
ancillary revenues associated with participation in PJM
that were more than offset by significantly higher fuel
and purchased power costs of $94.0 million. The lower
operating expenses, excluding fuel and purchased
power, of $11.6 million was primarily due to lower
operation and maintenance expense of $18.1 million
that primarily resulted from lower corporate costs. Also
contributing to higher basic earnings per share in 2005
were higher investment income of $42.5 million (result-
ing from the sale of public securities and from interest
on invested proceeds from the private equity funds
sale) and lower interest expense of $22.5 million as a
result of the refinancing of debt in 2004 and the early
redemption and refinancing of debt in 2005, offset by a
$61.2 million charge for the early redemption of debt.
Basic earnings per share for Earnings from
Discontinued Operations decreased by $0.36 primar-
ily due to lower investment income as a result of the
sale of the private equity funds, offset by the related
gains on the sale. In February 2005, we agreed to
sell our respective interests in forty-six private equity
funds. Accordingly, investment income and related
expenses for these funds have been recorded in
2005 as Discontinued Operations in the Consolidated
Statements of Results of Operations, with prior period
results for the private equity funds reclassified to
Discontinued Operations.
For 2005, basic earnings per share includes a
$0.03 after-tax charge related to the cumulative effect
of a change in accounting for asset retirement obliga-
tions at certain power generating stations.
In 2004, basic earnings per share were $0.57 higher
than 2003. The increase was primarily due to a $0.66
per share increase in Earnings from Discontinued
Operations (represented by the private equity funds
that we agreed to sell in February 2005). Basic earn-
ings per share for Earnings from Continuing Operations
were $0.05 higher in 2004 compared to 2003. Our
operating income declined $35.4 million as a result of
relatively flat revenues and increased fuel, purchased
power, and operation and maintenance expenses. Net
electric margins declined $44.8 million and operation
and maintenance expense increased $37.3 million,
primarily due to higher corporate costs and increased
electric production, transmission and distribution
expenses, partially offset by lower amortization of regu-
$ 1.03
$ 1.01 $ 0.96
$ 1.01 $ 0.96
$ 1.01 $ 0.96
2004 Compared to 2003
latory assets of $48.3 million due to the completion of
the three-year regulatory transition cost recovery peri-
od. The lower operating income of $35.4 million was
offset by improved non-operating income and expense
of $33.7 million which was due to the 2003 settlement
of the shareholder litigation lawsuits and lower interest
expense as a result of refinanced debt, partially offset
by the 2003 release of an insurance claims reserve and
lower investment income resulting from the 2003 gain
on interest rate hedges that did not recur in 2004. A
lower effective income tax rate related to the recogni-
tion in 2004 of state coal tax credits also contributed to
higher net income in 2004 as compared to 2003.
Basic earnings per share for Earnings from
Discontinued Operations increased by $0.66 due
to improved investment performance in 2004 of the
private equity funds. In February 2005, we agreed to
sell our respective interests in forty-six private equity
funds. Accordingly, 2004 and 2003 investment income
and related expenses for these funds have been
reclassified in 2005 as Discontinued Operations in the
Consolidated Statements of Results of Operations.
Basic earnings per share for 2003 includes a credit
of $0.14 related to the cumulative effect of a change in
accounting for asset retirement obligations at certain
power generating stations.
See Item 8 - Notes to Financial Statements and
the Management’s Discussion and Analysis section
“Factors That May Affect Future Results.”
Results of Operations
Income Statement Highlights
$ in millions
2005
2004
2003
Revenues:
Retail
Wholesale
RTO ancillary (a)
Other revenues,
net of fuel costs
Total Revenues
Less: Fuel
Purchased power (b)
$ 1,066.6
$
$ 1,066.6
133.3
74.4
$ 1,036.8 $ 1,021.7
159.3
135.1
159.3
135.1
159.3
135.1
–
17.9
–
17.9
–
17.9
10.6
10.1
10.1
10.1
10.0
10.0
10.0
1,199.9 $ 1,191.0
$ 1,284.9 $ 1,199.9 $ 1,191.0
234.6
263.1
336.9
87.9
113.1
87.9
133.3 113.1
Net margins (c)
$ 823.7 $ 868.5
$ 814.7 $ 823.7 $ 868.5
$ 823.7 $ 868.5
Net margins as a
percentage of revenues 63.4%
68.6%
68.6%
68.6%
72.9%
72.9%
72.9%
Operating income
$ 336.5 $ 371.9
$ 339.1 $ 336.5 $ 371.9
$ 336.5 $ 371.9
(a) Revenues include PJM revenues, discussed as ‘RTO ancillary
revenues’ in the detail provided in Item 1 – Business.
(b) Purchased power includes charges from PJM of $48.5 million,
$12.3 million and zero for 2005, 2004 and 2003 respectively.
(c) For purposes of discussing operating results, we present and
discuss net margins. This format is useful to investors because
it allows analysis and comparability of operating trends and includes
the same information that is used by management to make decisions
regarding our financial performance.
Revenues
Revenues increased 7% to $1,284.9 million for 2005
compared to $1,199.9 million for 2004, reflecting an
increase of $85.0 million. This increase was primar-
ily the result of increased retail sales volume, higher
average rates for wholesale revenues, and ancillary
revenues associated with participation in PJM that was
partially offset by lower wholesale sales volume. Retail
revenues increased $29.8 million, primarily resulting
from increased sales volume of $32.8 million and $2.8
million in higher average rates, partially offset by $5.8
million in lower miscellaneous retail revenues reflect-
ing transmission services provided in 2004 that are
now provided through PJM. Residential customers
comprised the bulk of the increase in sales volume
reflecting greater weather extremes experienced in
2005 compared to 2004 as cooling degree days were
up 39% to 1,075 in 2005 compared to 771 in 2004
and heating degree days were up 4% to 5,702 in
2005 compared to 5,500 in 2004. Wholesale revenue
decreased $1.8 million, primarily related to a $37.2 mil-
lion decline in sales volume that was nearly offset by a
$35.4 million increase related to higher average market
rates. For 2005, ancillary revenues from RTOs were
$74.4 million compared to $17.9 million for 2004, as
we did not participate in PJM until October 2004. RTO
ancillary revenues primarily consist of compensation for
use of DP&L’s transmission assets, regulation services,
reactive supply and operating reserves.
Revenues increased $8.9 million to $1,199.9 mil-
lion in 2004 compared to $1,191.0 million in 2003.
Retail revenues increased $15.1 million or 2% in 2004
resulting from higher retail sales volume. Wholesale
revenues decreased $24.2 million or 15% in 2004 pri-
marily relating to lower wholesale sales volume that
was partially offset by higher average market rates.
Ancillary revenues from PJM increased $17.9 million as
we did not participate in PJM in 2003. Cooling degree-
days increased 12% to 771 in 2004 compared to 687
in 2003.
Margins, Fuel and Purchased Power
For 2005, net margin of $814.7 million decreased by
$9.0 million from $823.7 million for 2004. As a percent-
age of total revenues, net margin decreased by 5.2
percentage points to 63.4% from 68.6%. This decline
is primarily the result of increased fuel and purchased
power costs, partially offset by an increase in rev-
enues, principally from RTO ancillary revenues and
higher average wholesale rates. Fuel costs, which
include coal, gas, oil and emission allowance costs,
increased by $73.8 million or 28% for 2005 compared
to the same period in 2004 primarily resulting from
higher average fuel prices of $64.1 million as well as
DPL Inc.
25
increased generation of $9.7 million. Purchased power costs increased by $20.2 million for 2005 compared to
2004 primarily resulting from increased charges of $36.2 million associated with operating in PJM (we did not
participate in PJM until October 2004) and $28.2 million related to higher average market prices, partially offset
by $44.2 million related to lower purchased power volume.
The net margin of $823.7 million in 2004 decreased by $44.8 million from $868.5 million in 2003. This decline in
net margin was primarily the result of a lower volume of wholesale sales and increased fuel and purchased power
costs, partially offset by a slight increase in retail sales and ancillary PJM revenues. As a percentage of total
revenues, net margin decreased by 4.3 percentage points to 68.6% in 2004 from 72.9% in 2003. This decrease in
net margin was primarily attributable to higher fuel and purchased power costs per kWh. Fuel costs increased by
$28.5 million or 12% in 2004 compared to 2003 primarily related to rising prices in the coal market. Purchased
power costs including PJM costs increased by $25.2 million or 29% in 2004 compared to 2003, primarily resulting
from higher average market prices.
Operation and Maintenance
$ in millions
Electric production, transmission and distribution costs
Pension and benefits
Low Income Payment Program costs
Sarbanes-Oxley compliance and external/internal audit fees
Executive and management compensation
Legal and special investigations
Directors’ & Officers’ liability insurance
Other – net increase
Total
2005 vs. 2004 change
2004 vs. 2003 change
$
4.5
(0.7)
(2.3)
(3.5)
(5.8)
(5.8)
(8.3)
3.8
$ (18.1)
$ 13.1
$ 13.1
7.8
7.8
1.8
1.8
6.4
6.4
(13.6)
(13.6)
12.5
12.5
5.3
5.3
4.0
4.0
$ 37.3
$ 37.3
Operation and maintenance expense decreased
$18.1 million or 8% in 2005 compared to 2004 as a
result of lower corporate costs that was partially offset
by increased electric production, transmission and
distribution expenses. Corporate costs declined from
the prior year primarily resulting from a decrease of
$8.3 million in Directors’ and Officers’ liability insur-
ance premiums; approximately $5.8 million related
to the decreased level of activity regarding various
internal and governmental investigations as well as
the securities litigation; $5.8 million in lower executive
and management compensation costs; $3.5 million in
reduced Sarbanes-Oxley 404 compliance costs and
external/internal audit fees; $2.3 million in decreased
Low Income Payment Program costs; and $0.7 million
of lower benefits costs (a decrease of $2.8 million for
a 2004 adjustment in disability reserves was nearly
offset by an increase in pension costs of $2.1 million).
These decreases were partially offset by a $4.5 million
increase in electric production, transmission, and distri-
bution costs, primarily related to generation operations
costs for lime used for pollution control and electric
production boiler maintenance costs as well as higher
costs related to electric distribution operation and
maintenance.
Operation and maintenance expense increased
$37.3 million or 19% in 2004 compared to 2003 as a
result of higher corporate costs and increased electric
production, transmission, and distribution expenses.
Corporate costs exceeded the prior year primar-
ily resulting from an increase of approximately $12.5
million related to various internal and governmental
investigations, litigation with the Company’s former
executives and securities litigation. In addition, pension
and benefits costs increased by $7.8 million; Sarbanes-
Oxley 404 compliance costs and external/internal audit
fees increased $6.4 million; Directors’ and Officers’
liability insurance premiums increased $5.3 million
and Low Income Payment Program costs increased
$1.8 million. These increases to corporate costs were
partially offset by a $13.6 million decrease in execu-
tive and management compensation. Electric produc-
tion, transmission and distribution expenses increased
$13.1 million, primarily related to planned maintenance
during scheduled outages, ash disposal and other
maintenance charges.
Depreciation and Amortization
Depreciation and amortization expense was $3.2
million higher in 2005 as compared to 2004 primarily
26
DPL Inc.
as a result of completed projects in the distribution area (including new services, line transformers, poles, station
equipment, and overhead and underground conductor) and in the production area (mainly due to the SCRs for
Stuart, Killen and Zimmer) that were put into service in the second quarter of 2004.
Depreciation and amortization expense was $5.2 million or 4% higher in 2004 compared to 2003, as a
result of completed construction projects and a full year of depreciation on environmental compliance equipment
installations completed in 2003.
General Taxes
$ in millions
kWh excise
Property
Other
Excise
Total
2005
2004
2005 vs. 2004
change
2003
2004 vs. 2003
change
$ 52.9
45.6
8.8
–
$ 107.3
$ 50.5
$ 50.5
$ 50.5
$ 50.5
$ 50.5
47.0
47.0
47.0
47.0
47.0
7.8
7.8
7.8
7.8
7.8
–
–
–
–
–
$ 105.3
$ 105.3
$ 105.3
$ 105.3
$ 105.3
$ 2.4
$ 2.4
$ 2.4
$ 2.4
$ 2.4
(1.4)
(1.4)
(1.4)
(1.4)
(1.4)
1.0
1.0
1.0
1.0
1.0
–
–
–
–
–
$ 2.0
$ 2.0
$ 2.0
$ 2.0
$ 2.0
$ 49.6
$ 49.6
$ 49.6
$ 49.6
$ 49.6
47.3
47.3
47.3
47.3
47.3
6.6
6.6
6.6
6.6
6.6
5.4
5.4
5.4
5.4
5.4
$ 108.9
$ 108.9
$ 108.9
$ 108.9
$ 108.9
$ 0.9
$ 0.9
$ 0.9
$ 0.9
$ 0.9
(0.3)
(0.3)
(0.3)
(0.3)
(0.3)
1.2
1.2
1.2
1.2
1.2
(5.4)
(5.4)
(5.4)
(5.4)
(5.4)
$ (3.6)
$ (3.6)
$ (3.6)
$ (3.6)
$ (3.6)
General taxes increased $2.0 million or 2% in 2005
compared to 2004. The increase is primarily from
$2.4 million increased expense for the kWh excise tax
resulting from higher sales volumes from electric retail
customers. The increase in other taxes of $1.0 million
includes higher payroll taxes, PUCO maintenance
and the new State of Ohio Commercial Activities Tax.
These increases were partially offset by lower property
tax expense.
2004 compared to 2003. This decrease is primarily the
result of a 2003 realized gain on interest rate hedges
of $21.2 million that did not recur in 2004, as well
as gains on investments of $4.6 million and investment
income of $4.2 million recognized in 2003 for equity
securities not related to discontinued operations. These
decreases were partially offset by a $3.4 million gain
on investments denominated in Euros that occurred
in 2004.
General taxes declined $3.6 million or 3% in 2004
The portion of investment income related to the
compared to 2003 primarily as a result of a 2003
excise tax of $5.4 million related to the three year regu-
latory transition period that ended in 2003.
private equity funds sold in 2005 has been classified
as discontinued operations. (See Note 11 of Notes to
Consolidated Financial Statements.)
Amortization of Regulatory Assets
Interest Expense
Amortization of regulatory assets increased $1.3 million
to $2.0 million in 2005 as compared to the prior year
primarily resulting from PJM start-up costs amortization
of $1.1 million and PJM integration costs amortization
of $0.2 million reflecting DP&L’s entrance into the PJM
market on October 1, 2004.
Amortization of regulatory assets decreased $48.3
million in 2004 from 2003 primarily reflecting the
completion in 2003 of the three-year regulatory transi-
tion cost recovery period granted by the Public Utilities
Commission of Ohio.
Investment Income
Investment income increased by $42.5 million in 2005
compared to 2004 primarily resulting from a net gain
on the disposal of public equity investments of $23.5
million and from $18.5 million in interest income, princi-
pally from new short-term investments.
Investment income decreased by $25.5 million in
Interest expense decreased $22.5 million or 14%
compared to 2004 due to the debt reduction of $462.6
million and a full year impact of the $500 million debt
retirement completed in 2004 (partially financed with a
$175 million note).
Interest expense decreased $21.5 million or 12%
in 2004 compared to 2003 primarily resulting from the
refinancing of debt in 2004 and 2003 for which inter-
est expense was lower by $25.1 million, despite $3.1
million of additional interest incurred in 2004 relating to
the failure to file exchange offer registration statements
and the failure to timely file the 2003 Form 10-K. This
decrease in interest expense was partially offset by
lower capitalized interest in 2004 compared to 2003 of
$6.6 million.
Shareholder Litigation
In 2003, we recorded a $76.7 million charge for the
settlement of shareholder lawsuits.
DPL Inc.
27
Charge for Early Redemption of Debt
Discontinued Operations, Net of Tax
In 2005, we recorded $61.2 million in charges resulting
from premiums paid for the early redemption of debt,
including write-offs of unamortized debt expense and
debt discounts. (See Note 8 of Notes to Consolidated
Financial Statements.)
Other Income
Other income was $10.2 million greater than 2004
primarily reflecting $3.5 million of additional gains real-
ized in 2005 over 2004 resulting from sales of pollution
control emission allowances; $1.6 million of lower fees
resulting from the 2004 cancellation and replacement
of DP&L’s revolving credit facility and our term loan ter-
mination and $1.5 million from the 2004 write-off of the
remaining term loan debt expense resulting from our
term loan termination.
Other income decreased $39.0 million in 2004
compared to 2003 primarily resulting from the $39.7
million release of the insurance claims reserve in 2003
relating to the termination of DP&L’s business interrup-
tion risk insurance policy. This expense increase was
partially offset by a $8.4 million gain on the sale of pol-
lution control emission allowances.
Income Tax Expense
Income tax expense from continuing operations for
2005 increased $13.4 million compared to prior year
resulting from higher income, increased accrual for
open tax years and lower state tax coal credits.
On June 30, 2005, Governor Taft signed House Bill
66 into law which significantly changed the tax struc-
ture in Ohio. The major provisions of the bill included
phasing-out the Ohio Franchise Tax, phasing-out the
Ohio Personal Property Tax for non-utility taxpayers
and phasing-in a Commercial Activities Tax. The Ohio
Franchise Tax phase-out required second quarter 2005
adjustments to income tax expense. Income taxes
from continuing operations were reduced by $1.5 mil-
lion while income taxes from discontinued operations
were increased by $1.3 million as a result of the tax law
change. Other applicable provisions of House Bill 66
have been reflected in the consolidated financial
statements.
For 2004, income tax expense from continuing
operations decreased $8.3 million compared to 2003
primarily reflecting the recognition of $11.7 million of
available state tax credits related to the consumption
of coal mined in Ohio and a 2003 adjustment for non-
deductible compensation.
On February 13, 2005, our subsidiaries, MVE and
MVIC, entered into an agreement to sell their respec-
tive interests in forty-six private equity funds to
AlpInvest/Lexington 2005, LLC, a joint venture of
AlpInvest Partners and Lexington Partners, Inc. Sales
proceeds and any related gains or losses were recog-
nized as the sale of each fund closed. Among other
closing conditions, each fund required the transaction
to be approved by the respective general partner.
During 2005, MVE and MVIC completed the sale of
their interests in forty-three and a portion of one private
equity funds resulting in a $46.6 million pre-tax gain
($53.1 million less $6.5 million professional fees) from
discontinued operations and providing approximately
$796 million in net proceeds, including approximately
$52 million in net distributions from funds while held for
sale. As part of this pre-tax gain, we realized $30 mil-
lion that was previously recorded as an unrealized gain
in other comprehensive income.
During this same period, MVE entered into alter-
native closing arrangements with AlpInvest/Lexington
2005, LLC for funds where legal title to said funds
could not be transferred until a later time. Pursuant to
these arrangements, MVE transferred the economic
aspects of the remaining private equity funds, con-
sisting of two funds and a portion of another fund, to
AlpInvest/Lexington 2005, LLC without a change in
ownership of the interests. The terms of the alternative
arrangements do not meet the criteria for recording a
sale. We are obligated to remit to AlpInvest/Lexington
2005, LLC any distributions MVE receives from these
funds, and AlpInvest/Lexington 2005, LLC is obligated
to provide funds to us to pay any contribution notice,
capital call or other payment notice or bill for which
MVE receives notice with respect to such funds. The
alternative arrangements resulted in a deferred gain of
$27.1 million until such terms of a sale can be complet-
ed (contingent upon receipt of general partner approv-
als of the transfer) and provided approximately $72
million in net proceeds on these funds. We recorded
an impairment loss of $5.6 million to write down to esti-
mated fair value the assets transferred pursuant to the
alternative arrangements. Ownership of these funds will
transfer after the general partners of each of the sepa-
rate funds consent to the transfer. It is anticipated that
ownership of these funds will transfer no later than the
first quarter of 2007.
28
DPL Inc.
$ in millions
Earnings from discontinued operations:
Investment income
Investment expenses
Income from discontinued operations
Gain realized from sale
Broker fees and other expenses
Loss recorded
Net gain on sale
Earnings before income taxes
Income tax expense
Earnings from discontinued operations, net
Cash Flow:
Net proceeds from sale of portfolio
Net proceeds from transfer
Net distributions from funds
Total cash flow from discontinued operations
For the years ended December 31,
2005
2004
2003
$
41.3
(9.5)
31.8
53.1
(6.5)
(5.6)
41.0
72.8
(19.9)
$ 52.9
$ 744.2
$
$ 744.2
72.3
51.9
$ 868.4
$
$ 178.5
(23.6)
154.9
–
–
–
–
154.9
(59.1)
$ 95.8
$
$
–
–
203.9
$
$ 203.9
$ 43.8
$ 43.8
(18.5)
(18.5)
25.3
25.3
–
–
–
–
–
–
–
–
25.3
25.3
(8.7)
(8.7)
$ 16.6
$ 16.6
$
$
–
–
–
–
83.1
83.1
$ 83.1
$ 83.1
Income from discontinued operations (pre-tax) for the
year ended December 31, 2005 of $31.8 million is
comprised of $41.3 million of investment income less
$9.5 million of associated management fees and other
expenses. Income from discontinued operations (pre-
tax) for the year ended December 31, 2004 of $154.9
million is comprised of $178.5 million of investment
income less $23.6 million of associated management
fees and other expenses.
For the year ended December 31, 2005, we rec-
ognized a $46.6 million pre-tax gain ($53.1 million less
$6.5 million of professional fees), recorded a $5.6 mil-
lion impairment loss, deferred gains of $27.1 million on
transferred funds from discontinued operations, and
provided approximately $868 million in net proceeds,
including approximately $52 million in net distribu-
tions from funds held for sale. We will continue to incur
minor amounts of fees in the near term. (See Note 11 of
Notes to Consolidated Financial Statements.)
Cumulative Effect of Accounting Change, Net of Tax
In 2005, the cumulative effect of an accounting
change resulted in a charge of $3.2 million related to
the adoption of the provisions of FASB Interpretation
No. 47, “Accounting for Conditional Asset Retirement
Obligations an interpretation of FASB Statement No.
143” (FIN 47). (See Note 1 of Notes to Consolidated
Financial Statements.)
The cumulative effect of an accounting change
in 2003 resulted in a credit of $17.0 million reflecting
the adoption of the provisions of FASB Statement of
Financial Accounting Standards No. 143, “Accounting
for Asset Retirement Obligations” (SFAS 143). (See
Note 1 of Notes to Consolidated Financial Statements.)
Financial Condition, Liquidity and
Capital Resources
Our cash and cash equivalents totaled $595.8 million
at December 31, 2005, compared to $202.1 million
at December 31, 2004. In addition, we had $125.8
million of short-term investments available for resale
at December 31, 2005. The increase in cash and
short-term investments of $519.5 million was primarily
attributed to $868.4 million of net proceeds received
from the sale of the financial asset portfolio and $314.1
million from operating activities. These proceeds were
used for the early retirement of a portion of long-term
debt of $446.6 million, capital expenditures of $180.1
million, and dividends paid to common shareholders of
$115.3 million.
During the third quarter of 2005, we began invest-
ing in Auction Rate Securities (ARS). ARS are variable
rate state and municipal bonds that trade at par value.
Interest rates on ARS are reset every seven, twenty-
eight or thirty-five days through a modified Dutch auc-
tion. We have the option to hold at market, re-bid or sell
each ARS on the interest reset date. Although ARS are
issued and rated as long-term bonds, they are priced
and traded as short-term securities available for resale
because of the market liquidity provided through the
interest rate reset mechanism. Each ARS purchased
by us is tax-exempt, AAA rated and insured by a third-
party insurance company.
DPL Inc.
29
We generated net cash from operating activities
of $314.1 million, $132.7 million, and $350.2 million in
2005, 2004 and 2003, respectively. The net cash pro-
vided by operating activities for 2005 was primarily the
result of operating profitability, partially offset by cash
used for working capital, specifically for interest pay-
ments, accounts payable, and accounts receivable.
The net cash provided by operating activities in 2004
was primarily the result of operating profitability, par-
tially offset by cash used for the shareholder litigation
settlement and cash used for working capital, specifi-
cally payments for taxes and inventories. The net cash
provided by operating activities in 2003 was primarily
the result of operating profitability and working capital,
specifically the timing of tax payments. The tariff-based
revenue from our energy business continues to be
the principal source of cash from operating activities.
Management believes that the diversified retail custom-
er mix of residential, commercial, and industrial classes
coupled with the rate relief approved by the PUCO for
2006 and beyond provides us with a reasonably pre-
dictable gross cash flow from utility operations.
Net cash flows provided by investing activities
were $689.6 million, $182.3 million, and $65.5 million
in 2005, 2004, and 2003, respectively. Net cash flows
provided by investing activities in 2003 were primarily
due to capital expenditures and purchases of short-
term investments and securities unrelated to discontin-
ued operations, largely offset by the sale of short-term
investments and securities unrelated to discontinued
operations as well as the settlement of interest rate
hedges. Net cash flows used for investing activities for
2005 were primarily due to capital expenditures and
purchases of short-term investments and securities,
partially offset by the sale of short-term investments
and securities, all of which were unrelated to discontin-
ued operations. Our capital expenditures increased in
2005 as compared to 2004 in response to more strin-
gent environmental regulations. These increased capi-
tal expenditures are expected to continue for the next
three years. Net cash flows used for investing activities
for 2004 were primarily due to capital expenditures and
purchases of short-term investments and securities
unrelated to discontinued operations, largely offset by
the sale of short-term investments and securities unre-
lated to discontinued operations as well as proceeds
from the sale of property.
Net cash flows used for financing activities were
$610.0 million, $450.5 million, and $118.9 million in
2005, 2004 and 2003, respectively. Net cash flows
used for financing activities for 2005 were primarily
the result of cash used to retire $462.6 million of long-
term debt, pay premiums on the early redemption of
debt of $54.7 million and pay dividends to common
stockholders of $115.3 million. These uses of cash
were partially offset by cash received relating to the
exercise of stock options of $22.7 million. Net cash
flows used for financing activities for 2004 were primar-
ily the result of funds used for the retirement of $500
million of the 6.82% Series Senior Notes and dividends
paid to common stockholders, partially offset by the
issuance of $175 million unsecured 8% Series Senior
Notes used to provide partial funding for the retirement
of the $500 million 6.82% Series Senior Notes. Annual
dividends declared increased to $0.96 per share in
2004 from $0.94 per share in 2003. Net cash flows
used for financing activities in 2003 primarily related to
dividends paid to common stockholders and the early
retirement of long-term debt. These uses were largely
offset by the net proceeds related to the issuance of
lower-interest long-term debt.
On February 1, 2006, our Board of Directors
announced that it had raised the quarterly dividend to
$0.25 per share payable March 1, 2006 to common
shareholders of record on February 14, 2006. This
increase results in an annualized dividend rate of $1.00
per share, or a 4% increase.
We have obligations to make future payments for
capital expenditures, debt agreements, lease agree-
ments, capital calls and other long-term purchase
obligations, and have certain contingent commitments
such as guarantees. We believe our cash flows from
operations, the remaining proceeds from the financial
asset portfolio sale in 2005, the credit facilities (existing
or future arrangements), the senior notes, and other
short- and long-term debt financing, will be sufficient to
satisfy our future working capital, capital expenditures
and other financing requirements for the foreseeable
future. Our ability to generate positive cash flows from
operations is dependent on general economic condi-
tions, competitive pressures, and other business and
risk factors described in “Risk Factors” and “Factors
That May Affect Future Results.” If we are unable to
generate sufficient cash flows from operations, or oth-
erwise comply with the terms of our credit facilities and
the senior notes, we may be required to refinance all or
a portion of our existing debt or seek additional financ-
ing alternatives. A discussion of each of our critical
liquidity commitments is outlined below.
Capital Requirements
Construction additions were $180 million, $98 million
and $102 million in 2005, 2004 and 2003, respectively,
and are expected to approximate $365 million in 2006.
Planned construction additions for 2006 relate to
our environmental compliance program, power plant
30
DPL Inc.
equipment, and our transmission and distribution
system. During the last three years, capital expendi-
tures of $144 million have been incurred to meet
DPL’s state and federal standards for Nitrogen Oxide
(NOx), Sulfur Dioxide (SO2) and mercury emissions
from power plants.
Capital projects are subject to continuing review
and are revised in light of changes in financial and
economic conditions, load forecasts, legislative and
regulatory developments and changing environmental
standards, among other factors. Over the next three
years, we are projecting to spend an estimated $750
million in capital projects, approximately 60% of which
is to meet changing environmental standards. Our abil-
ity to complete our capital projects and the reliability of
future service will be affected by our financial condi-
tion, the availability of internal and external funds at
reasonable cost, and adequate and timely return on
these capital investments. We expect to finance our
construction additions in 2006 with a combination of
cash and short-term investments on hand, tax-exempt
debt and internally-generated funds.
Debt and Debt Covenants
At December 31, 2005, our scheduled maturities of
long-term debt, including capital lease obligations,
over the next five years are $0.9 million in 2006, $225.9
million in 2007, $100.7 million in 2008, $175.7 million
in 2009 and $0.6 million in 2010. Substantially all prop-
erty of DP&L is subject to the mortgage lien securing
the first mortgage bonds. Debt maturities in 2006 are
expected to be financed with a combination of internal
funds and tax-exempt financing. Certain debt agree-
ments contain reporting and financial covenants for
which we are in compliance as of December 31, 2005
and expect to be in compliance during the near term.
On September 29, 2003, DP&L issued $470 mil-
lion principal amount of First Mortgage Bonds, 5.125%
Series due 2013. The net proceeds from the sale of
the bonds, after expenses, were used on October 30,
2003, to (i) redeem $226 million principal amount of
DP&L’s First Mortgage Bonds, 8.15% Series due 2026,
at a redemption price of 104.075% of the principal
amount plus accrued interest to the redemption date
and (ii) redeem $220 million principal amount of DP&L’s
First Mortgage Bonds, 7.875% Series due 2024, at a
redemption price of 103.765% of the principal amount
plus accrued interest to the redemption date. The
5.125% Series due 2013 were not registered under
the Securities Act of 1933, but were offered and sold
through a private placement in compliance with Rule
144A under the Securities Act of 1933. The bonds
include step-up interest provisions requiring DP&L to
pay additional interest if (i) DP&L’s registration state-
ment was not declared effective by the SEC within 180
days from issuance of new bonds or (ii) the exchange
offer was not completed within 210 days from the issu-
ance of the new bonds. The registration statement was
not declared effective and the exchange offer was not
timely completed and, as a result, DP&L was required
to pay additional interest of 0.50% until a registration
statement was declared effective, at which point the
additional interest was reduced by 0.25%. The remain-
ing additional interest of 0.25% continued until the
exchange offer was completed. The exchange offer
registration statement for these securities was filed and
declared effective on May 20, 2005 and the exchange
was completed on June 23, 2005.
Issuance of additional amounts of first mortgage
bonds by DP&L is limited by the provisions of its
mortgage; however, management believes that DP&L
continues to have sufficient capacity to issue first
mortgage bonds to satisfy its requirements in con-
nection with its current refinancing and construction
programs. The amounts and timing of future financings
will depend upon market and other conditions, rate
increases, levels of sales and construction plans.
On March 25, 2004, we completed a $175 mil-
lion private placement of unsecured 8% series Senior
Notes due March 2009. The Senior Notes will not be
redeemable prior to maturity except that we have the
right to redeem the notes for a make-whole payment at
the adjusted treasury rate plus 0.25%. The proceeds
from these notes were used to provide partial funding
for the retirement of $500 million of the 6.82% series
Senior Notes redeemed on April 6, 2004. The pro-
ceeds from these notes, combined with $202 million of
internal funds provided by the financial asset portfolio
and $123 million from core operations, were used to
fund the retirement of $500 million of the 6.82% series
Senior Notes retired April 6, 2004.
The 8% series Senior Notes were issued pursuant
to our indenture dated as of March 1, 2000, and pursu-
ant to authority granted in our Board resolutions dated
March 25, 2004. The notes impose a limitation on the
incurrence of liens on the capital stock of any of our
significant subsidiaries and require we and our subsid-
iaries to meet a consolidated coverage ratio of 2 to 1
prior to incurring additional indebtedness. The limita-
tion on the incurrence of additional indebtedness does
not apply to (i) indebtedness incurred to refinance
existing indebtedness, (ii) subordinated indebtedness
and (iii) up to $150 million of additional indebted-
ness. In addition to the events of default specified
in the indenture, an event of default under the notes
includes a payment default or acceleration of indebted-
DPL Inc.
31
ness under any other indebtedness of ours or any of our subsidiaries which aggregates $25 million or more. The
purchasers of the Senior Notes were granted registration rights in connection with the private placement under an
Exchange and Registration Rights Agreement. Pursuant to this agreement, we were obligated to file an exchange
offer registration statement by July 22, 2004, have the registration statement declared effective by September
20, 2004 and consummate the exchange offer by October 20, 2004. We failed to have a registration statement
declared effective and to complete the exchange offer according to this timeline. As a result, we are accruing addi-
tional interest at a rate of 0.5% per annum per violation, up to an additional interest rate not to exceed in the aggre-
gate 1.0% per annum. As each violation is cured, the additional interest rate will decrease by 0.5%. The exchange
offer registration statement for these securities is expected to be filed with the SEC during the first quarter of 2006.
In May 2005, DP&L obtained a $100 million unsecured revolving credit agreement that extended and replaced
its previous revolving credit agreement of $100 million. The new agreement, renewable annually, expires on May
30, 2010 and provides credit support for DP&L’s business requirements during this period. This may be increased
up to $150 million. The facility contains one financial covenant: DP&L total debt to total capitalization ratio is not to
exceed 0.65 to 1.00. This covenant is currently met. DP&L had no outstanding borrowings under this credit facility
at December 31, 2005. Fees associated with this credit facility are approximately $0.2 million per year. Changes in
credit ratings, however, may affect the applicable interest rate for DP&L’s revolving credit agreement.
On August 11, 2005, we repurchased approximately $207.6 million principal amount of our notes listed below
pursuant to offers to purchase that commenced on July 14, 2005 and expired on August 10, 2005.
$ in millions
Title of Security; CUSIP Number
Principal Amount Outstanding
8.125% Capital Securities due 2031; 23330AAC4
8.125% Capital Securities due 2031; 23330AAC4
6.875% Senior Notes due 2011; 233293AH2
6.875% Senior Notes due 2011; 233293AH2
$ 300.0
$ 300.0
$ 400.0
$ 400.0
Aggregate Principal Amount of
Tendered Notes Accepted for Purchase
$ 105.0
$ 105.0
$ 102.6
$ 102.6
The total consideration paid for these notes totaled
$252.9 million, which includes accrued and unpaid
interest.
In addition, on August 29, 2005, we redeemed
$200 million of our 8.25% Senior Notes due 2007, leav-
ing $225 million of our 8.25% Senior Notes outstanding.
We used a portion of the proceeds from the sale of
the private equity funds in our financial asset portfolio
to fund these repurchases and redemptions.
On May 15, 2005, we redeemed all of the out-
standing 7.83% Senior Notes due 2007 in the amount
of $39 million. A premium of 5.38% was paid on the
7.83% Senior Notes that were redeemed.
On August 17, 2005, DP&L completed the refi-
nancing of $214.4 million of pollution control bonds.
The specific issues refinanced consisted of:
■ $41.3 million of Ohio Water Development Authority
(OWDA) bonds;
■ $137.8 million of Ohio Air Quality Development
Authority (OAQDA) bonds; and
■ $35.3 million of Boone County, Kentucky (Boone
County) bonds.
On August 17, 2005, DP&L entered into a separate
loan agreement with the OWDA, OAQDA and Boone
County for new pollution control bonds with a weighted
average interest rate of 4.78%. The proceeds of the
bonds were used to repay the previously existing pol-
lution control bonds with a weighted average interest
rate of 6.26% on September 16, 2005. To secure the
repayment of its obligations to the OWDA, OAQDA and
Boone County, DP&L entered into a 43rd Supplemental
Indenture to its First and Refunding Mortgage for a like
amount ($214.4 million) of First Mortgage Bonds with
The Bank of New York serving as Trustee.
On February 17, 2006, DP&L renewed its $10 mil-
lion Master Letter of Credit Agreement with a financial
lending institution. This agreement supports perfor-
mance assurance needs in the ordinary course of busi-
ness. DP&L has certain contractual agreements for the
sale and purchase of power, fuel and related energy
services that contain credit rating related clauses
allowing the counter parties to seek additional surety
under certain conditions. As of December 31, 2005,
DP&L had two outstanding letters of credit for a total of
$2.2 million.
There are no inter-company debt collateralizations
or debt guarantees between us and our subsidiaries.
None of the debt obligations of DPL or DP&L are guar-
anteed or secured by affiliates and no cross-collateral-
ization exists between any subsidiaries.
32
DPL Inc.
Credit Ratings
Currently, our senior unsecured and DP&L’s senior secured debt credit ratings are as follows:
Fitch Ratings
Fitch Ratings
Fitch Ratings
Fitch Ratings
Fitch Ratings
Moody’s Investors Service
Moody’s Investors Service
Moody’s Investors Service
Moody’s Investors Service
Moody’s Investors Service
Standard & Poor’s Corp.
Standard & Poor’s Corp.
Standard & Poor’s Corp.
Standard & Poor’s Corp.
Standard & Poor’s Corp.
DPL Inc.
DP&L
BBB-
BBB-
BBB-
BBB-
BBB-
Ba1
Ba1
Ba1
Ba1
Ba1
BB
BB
BB
BB
BB
A-
A-
A-
A-
A-
Baa1
Baa1
Baa1
Baa1
Baa1
BB
BB
BB
BB
BB
Outlook
Stable
Stable
Stable
Stable
Stable
Positive
Positive
Positive
Positive
Positive
Positive
Positive
Positive
Positive
Positive
Effective
July 2005
July 2005
July 2005
July 2005
July 2005
July 2005
July 2005
July 2005
July 2005
July 2005
April 2005
April 2005
April 2005
April 2005
April 2005
Rate Stabilization Surcharge
On April 4, 2005, DP&L filed a request at the Public
Utilities Commission of Ohio (PUCO) to implement
a new rate stabilization surcharge effective January
1, 2006 to recover cost increases associated with
environmental capital and related Operations and
Maintenance costs, and fuel expenses. On November
3, 2005, DP&L entered into a settlement agreement
that extended DP&L’s rate stabilization period through
December 31, 2010. During this time, the Company
will continue to provide retail electric service at fixed
rates with the ability to recover increased fuel and
environmental costs through surcharges and riders.
Specifically, the agreement provides for:
■ A rate stabilization surcharge equal to 11% of gen-
eration rates beginning January 1, 2006 and continuing
through December 2010. Based on 2004 sales, this
rider is expected to result in approximately $65 million
in net revenues per year.
■ A new environmental investment rider to begin
January 1, 2007 equal to 5.4% of generation rates, with
incremental increases equal to 5.4% each year through
2010. Based on 2004 sales, this rider is expected to
result in approximately $35 million in annual net rev-
enues beginning January 2007, growing to approxi-
mately $140 million by 2010.
■ An increase to the residential generation discount
from January 1, 2006 through December 31, 2008
which is expected to result in a revenue decrease
of approximately $7 million per year for three years,
based on 2004 sales. The residential discount will
expire on December 31, 2008.
On December 28, 2005, the PUCO adopted the
settlement with certain modifications (RSS Stipulation).
The PUCO ruled that the environmental rider will be
bypassable by all customers who take service from
alternate generation suppliers. Future additional rev-
enues are dependent upon actual sales and levels of
customer switching. On February 22, 2006, the PUCO
denied applications for rehearing filed by the Office
of the Ohio Consumers’ Counsel (OCC), as well as
Ohio Partners for Affordable Energy.
Transfer of Assets to MVIC
On August 2, 2004, in order to strengthen MVIC’s
financial position, the Vermont Department of Banking,
Insurance, Securities and Health Care Administration
notified MVIC of MVIC’s requirement to reduce its
intercompany receivable to a maximum no greater
than MVIC’s total capital and surplus plus $250,000
minimum capital. As a result, we transferred $5 million
from our operating cash to our subsidiary, MVIC, in sat-
isfaction of this requirement during the fourth quarter
of 2004. In January 2005, MVE transferred a private
equity financial asset valued in excess of $31.5 million
to MVIC to further strengthen MVIC’s financial position.
During 2005, the private equity financial assets owned
by MVIC were sold along with the rest of the private
equity funds. MVIC distributed dividends to DPL from
the proceeds of these sales. During the review of the
second quarter financial statements, we noted that
these transactions inadvertently caused the share-
holder equity of MVIC to fall below the required level. In
discussions with the Vermont Department of Banking,
Insurance, Securities and Health Care Administration,
it was decided that we would maintain a loss reserve
to shareholder equity ratio of 3:1 in MVIC. As a result,
during the third quarter of 2005, we transferred $12.3
million from our operating cash to MVIC in satisfaction
of this new requirement.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current
or future effect on our financial condition, revenues
or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to
investors.
DPL Inc.
33
Contractual Obligations and Commercial Commitments
We enter into various contractual obligations and other commercial commitments that may affect the liquidity
of our operations. At December 31, 2005, these include:
Contractual Obligations
Payment Year
$ in millions
Total
Less than 1 Year
2 -3 Years
4 -5 Years
More than 5 Years
Long-term debt
Long-term debt
Long-term debt
Long-term debt
Long-term debt
Interest payments
Interest payments
Interest payments
Interest payments
Interest payments
Pension and postretirement payments
Pension and postretirement payments
Pension and postretirement payments
Pension and postretirement payments
Pension and postretirement payments
Capital leases
Capital leases
Capital leases
Capital leases
Capital leases
Operating leases
Operating leases
Operating leases
Operating leases
Operating leases
Coal contracts (a)
Other contractual obligations
Other contractual obligations
Other contractual obligations
Other contractual obligations
Other contractual obligations
Total contractual obligations
Total contractual obligations
Total contractual obligations
Total contractual obligations
Total contractual obligations
$ 1,674.1
$ 1,674.1
$ 1,674.1
$ 1,674.1
$ 1,674.1
1,068.8
1,068.8
1,068.8
1,068.8
1,068.8
240.3
240.3
240.3
240.3
240.3
3.9
3.9
3.9
3.9
3.9
0.9
0.9
0.9
0.9
0.9
795.1
795.1
795.1
795.1
795.1
506.3
506.3
506.3
506.3
506.3
$ 4,289.4
$ 4,289.4
$ 4,289.4
$ 4,289.4
$ 4,289.4
$
–
–
$
–
$
–
$
–
$
109.9
109.9
109.9
109.9
109.9
22.8
22.8
22.8
22.8
22.8
0.9
0.9
0.9
0.9
0.9
0.5
0.5
0.5
0.5
0.5
390.1
390.1
390.1
390.1
390.1
358.5
358.5
358.5
358.5
358.5
$ 882.7
$ 882.7
$ 882.7
$ 882.7
$ 882.7
$ 324.9
$ 324.9
$ 324.9
$ 324.9
$ 324.9
180.9
180.9
180.9
180.9
180.9
46.3
46.3
46.3
46.3
46.3
1.7
1.7
1.7
1.7
1.7
0.4
0.4
0.4
0.4
0.4
273.0
273.0
273.0
273.0
273.0
147.8
147.8
147.8
147.8
147.8
$ 975.0
$ 975.0
$ 975.0
$ 975.0
$ 975.0
$ 175.0
$ 175.0
$ 175.0
$ 175.0
$ 175.0
144.8
144.8
144.8
144.8
144.8
47.4
47.4
47.4
47.4
47.4
1.3
1.3
1.3
1.3
1.3
–
–
–
–
–
87.0
87.0
87.0
87.0
87.0
–
–
–
–
–
$ 455.5
$ 455.5
$ 455.5
$ 455.5
$ 455.5
$ 1,174.2
$ 1,174.2
$ 1,174.2
$ 1,174.2
$ 1,174.2
633.2
633.2
633.2
633.2
633.2
123.8
123.8
123.8
123.8
123.8
–
–
–
–
–
–
–
–
–
–
45.0
45.0
45.0
45.0
45.0
–
–
–
–
–
$ 1,976.2
$ 1,976.2
$ 1,976.2
$ 1,976.2
$ 1,976.2
(a) DP&L-operated units
Long-term debt:
Long-term debt as of December 31, 2005, consists of
DP&L’s first mortgage bonds, tax-exempt pollution control
bonds, DPL unsecured notes and includes current maturi-
ties and unamortized debt discounts. During 2005,
we redeemed $446.6 million of long-term debt earlier than
termed. (See Note 8 of Notes to Consolidated Financial
Statements.)
Other contractual obligations:
In January 2006, DP&L entered into a contract for lime-
stone that is expected to generate an obligation of $6.0
million in 2006 through 2008; $10.5 million in 2009 through
2010; and $42.2 million thereafter. As of December 31,
2005, we had various other contractual obligations includ-
ing non-cancelable contracts to purchase goods and
services with various terms and expiration dates.
Interest payments:
Interest payments associated with the Long-term debt
described above.
DPL enters into various commercial commitments,
which may affect the liquidity of its operations. At
December 31, 2005, these include:
Pension and postretirement payments:
As of December 31, 2005, we had estimated future benefit
payments as outlined in Note 5 of Notes to Consolidated
Financial Statements. These estimated future benefit pay-
ments are projected through 2015.
Capital leases:
As of December 31, 2005, we had two capital leases that
expire in November 2007 and September 2010.
Operating leases:
As of December 31, 2005, we had several operating leas-
es with various terms and expiration dates. Not included
in this total is approximately $88,000 per year related
to right of way agreements that are assumed to have no
definite expiration dates.
Coal contracts:
DP&L has entered into various long-term coal contracts
to supply portions of its coal requirements for its generat-
ing plants. Contract prices are subject to periodic
adjustment, and have features that limit price escalation
in any given year.
Credit facilities:
In May 2005, DP&L replaced its previous $100 million
revolving credit agreement with a $100 million, 364-day
unsecured credit facility that is renewable annually
and expires on May 30, 2010. At December 31, 2005,
there were no borrowings outstanding under this credit
agreement. The new facility may be increased up to
$150 million.
Guarantees:
DP&L owns a 4.9% equity ownership interest in an electric
generation company. As of December 31, 2005, DP&L
could be responsible for the repayment of 4.9%, or $14.9
million, of a $305 million debt obligation and also 4.9%,
or $2.9 million, of a separate $60 million debt obligation.
Both obligations mature in 2006.
Other:
We completed the sale of or entered into alternative
closing arrangements for all private equity funds in our
financial asset portfolio as of June 20, 2005. We have an
obligation to fund any cash calls or other commitments
in which the purchaser of the private equity funds
defaults with respect to the funds for which we entered
into an alternative closing arrangement. This obligation
is estimated not to exceed $8.0 million.
34
DPL Inc.
Market Risk
As a result of its operating, investing and financing
activities, we are subject to certain market risks, includ-
ing changes in commodity prices for electricity, coal,
environmental emissions and gas; and fluctuations
in interest rates. Commodity pricing exposure includes
the impacts of weather, market demand, increased
competition and other economic conditions. For
purposes of potential risk analysis, we use sensitivity
analysis to quantify potential impacts of market rate
changes on the results of operations. The sensitivity
analysis represents hypothetical changes in market
values that may or may not occur in the future.
Commodity Pricing Risk
Approximately 10 percent of our 2005 electric revenues
were from sales of excess energy and capacity in
the wholesale market. Energy and capacity in excess
of the needs of existing retail customers are sold in
the wholesale market when we can identify opportuni-
ties with positive margins. As of December 31, 2005,
a hypothetical increase or decrease of 10% in annual
wholesale revenues could result in approximately an
$8 million increase or decrease to net income, assum-
ing no increases in fuel and purchased power costs.
Fuel (including coal, gas, oil and emission allow-
ances) and purchased power costs as a percent of
total operating costs in 2005 and 2004 were 50% and
44%, respectively. We have approximately 95% of the
total expected coal volume needed for 2006 under
contract. The percentage of coal under contract at
our individual facilities is as low as 80%. Contracted
coal volumes at certain facilities exceed 100% of the
expected need. Due to the differences in contracted
volumes at various facilities, it is expected we will be
in the spot market for more than 5% of our 2006 coal
volume at some facilities while we may make no spot
purchases at other facilities. We may have excess coal
volumes to meet 2007 needs at some facilities. The
majority of our contracted coal is purchased at fixed
prices. Some contracts provide for periodic adjust-
ment and some are priced based on market indices.
Substantially all contracts have features that limit price
escalations in any given year. Our 2006 emission allow-
ance (SO2) consumption is expected to be similar
to 2005. Our holdings of 2006 SO2 allowances are
approximately equal to its expected needs. There may
be small exchanges of allowances between 2006 and
future years to balance our 2006 position. We do not
expect to purchase allowances outright for 2006. The
exact consumption of SO2 allowances will depend on
market prices for power, availability of our generating
units and the actual sulfur content of the coal burned.
Fuel costs are impacted by changes in volume and
price and are driven by a number of variables includ-
ing weather, reliability of coal deliveries, scheduled
outages and generation plant mix. Based on weather
normalized sales, fuel costs are forecasted to be flat in
2006 compared to 2005 and are forecasted to increase
approximately 5% in 2007 compared to 2006. This fore-
cast assumes coal prices will increase approximately
10% in 2006 as compared to 2005 and remain flat in
2007 as compared to 2006.
Purchased power costs depend, in part, upon the
timing and extent of planned and unplanned outages
of our generating capacity. We will purchase power on
a discretionary basis when wholesale market condi-
tions provide opportunities to obtain power at a cost
below our internal production costs. As of December
31, 2005, a hypothetical increase or decrease of 10%
in annual fuel and purchased power costs could result
in approximately a $29 million increase or decrease to
net income.
Interest Rate Risk
As a result of our normal borrowing and leasing activi-
ties, our results are exposed to fluctuations in interest
rates, which we manage through our regular financ-
ing activities. We maintain both cash on deposit and
investments in cash equivalents that may be affected
by adverse interest rate fluctuations. Our long-term
debt represents publicly and privately held secured
and unsecured notes and debentures with fixed inter-
est rates. At December 31, 2005, we had no short-term
borrowings.
The carrying value of our debt was $1,678 mil-
lion at December 31, 2005, consisting of DP&L’s first
mortgage bonds, DP&L’s tax-exempt pollution con-
trol bonds, our unsecured notes and DP&L’s capital
leases. The fair value of this debt was $1,717.5 million,
based on current market prices or discounted cash
flows using current rates for similar issues with similar
terms and remaining maturities. The principal cash
repayments and related weighted average interest
DPL Inc.
35
rates by maturity date for long-term, fixed-rate debt at
December 31, 2005, are as follows:
Expected
Maturity Date
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
Thereafter
Thereafter
Total
Total
Fair Value
Long-term Debt
Amount
($ in millions)
Average Rate
$
$
0.9
0.9
225.9
225.9
100.7
100.7
175.7
175.7
0.6
0.6
1,174.2
1,174.2
$ 1,678.0
$ 1,678.0
$ 1,717.5
5.3%
5.3%
8.2%
8.2%
6.3%
6.3%
8.0%
8.0%
5.8%
5.8%
6.0%
6.0%
6.6%
6.6%
Debt maturities in 2006 are expected to be financed
with internal funds.
Debt retirements occurring in 2005 are discussed
under Financial Condition, Liquidity and Capital
Requirements, Debt and Debt Covenants.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in
accordance with GAAP. In connection with the prepa-
ration of these financial statements, our management
is required to make assumptions, estimates and judg-
ments that affect the reported amounts of assets, liabili-
ties, revenues, expenses and the related disclosure
of contingent liabilities. These assumptions, estimates
and judgments are based on our historical experience
and assumptions that we believed to be reasonable
at the time. However, because future events and their
effects cannot be determined with certainty, the deter-
mination of estimates requires the exercise of judg-
ment. Our critical accounting estimates are those which
require assumptions to be made about matters that are
highly uncertain.
Different estimates could have a material effect
on our financial results. Judgments and uncertainties
affecting the application of these policies and esti-
mates may result in materially different amounts being
reported under different conditions or circumstances.
Significant items subject to such judgments include:
the carrying value of property, plant and equipment;
unbilled revenues; the valuation of derivative instru-
ments; the valuation of insurance and claims costs; val-
uation allowances for receivables and deferred income
taxes; the valuation of reserves related to current liti-
gation; and assets and liabilities related to employee
benefits.
Long-Lived Assets: In accordance with Statement of
Financial Accounting Standards No. 144 “Accounting
for the Impairment or Disposal of Long-Lived Assets”
(SFAS 144), long-lived assets to be held and used are
reviewed for impairment whenever events or circum-
stances indicate that the carrying amount may not be
recoverable. When required, impairment losses on
assets to be held and used are recognized based on
the fair value of the asset. We determine the fair value
of these assets based upon estimates of future cash
flows, market value of similar assets, if available, or
independent appraisals, if required. In analyzing the
fair value and recoverability using future cash flows, we
make projections based on a number of assumptions
and estimates of growth rates, future economic condi-
tions, assignment of discount rates and estimates of
terminal values. An impairment loss is recognized if the
carrying amount of the long-lived asset is not recover-
able from its undiscounted cash flows. The measure-
ment of impairment loss is the difference between the
carrying amount and fair value of the asset. Long-lived
assets to be disposed of and/or held for sale are
reported at the lower of carrying amount or fair value
less cost to sell. We determine the fair value of these
assets in the same manner as described for assets
held and used.
Revenue Recognition: We consider revenue realized,
or realizable, and earned when persuasive evidence
of an arrangement exists, the products or services
have been provided to the customer, the sales price is
fixed or determinable, and collectibility is reasonably
assured. We record electric revenues when delivered
to customers. Customers are billed throughout the
month as electric meters are read. We recognize rev-
enues for retail energy sales that have not yet been
billed, but where electricity has been consumed. This
is termed “unbilled revenues” and is a widely recog-
nized and accepted practice for utilities. Our estimates
of unbilled revenues use systems that consider various
factors to calculate retail customer consumption at the
end of each month. Given the use of these systems
and the fact that customers are billed monthly, we
believe it is unlikely that materially different results will
occur in future periods when these amounts are subse-
quently billed.
Additionally, DP&L is subject to regulatory orders
addressing the justness and reasonableness of the
PJM and Midwest Independent Transmission System
Operator (MISO) rates and related revenue distribution
protocols. DP&L’s management is required to make
assumptions, estimates and judgments relating to the
possibility of refund of these revenues. These assump-
tions, estimates and judgments are based on manage-
ment’s experience and are believed to be reasonable
at the time. As a result of these assumptions, estimates
36
DPL Inc.
and judgments, DP&L is deferring a portion of these
revenues for which management believes is subject to
refund. The deferred amount recorded was $20.5 mil-
lion for 2005. The above amount collected under the
Seams Elimination Charge Adjustment (SECA) rates
are subject to refund, and the ultimate outcome of the
proceeding establishing SECA rates is uncertain at this
time. However, based on the amount of reserves estab-
lished for this item, the results of this proceeding are
not expected to have a material adverse effect on our
financial condition, results of operations or cash flows.
Income Taxes: We apply the provisions of FASB
Statement of Financial Accounting Standards No. 109,
“Accounting for Income Taxes” (SFAS 109). SFAS 109
requires an asset and liability approach for financial
accounting and reporting of income taxes with tax
effects of differences, based on currently enacted
income tax rates between the financial reporting and
tax basis of accounting reported as Deferred Taxes in
the Consolidated Balance Sheets. Deferred Tax Assets
are recognized for deductible temporary differences.
Valuation reserves are provided unless it is more likely
than not that the asset will be realized.
Investment tax credits, which have been used
to reduce federal income taxes payable, have been
deferred for financial reporting purposes. These
deferred investment tax credits are amortized over the
useful lives of the property to which they are related.
For rate-regulated operations, 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.
We file a consolidated U.S. federal income tax
return in conjunction with our subsidiaries. The con-
solidated tax liability is allocated to each subsidiary as
specified in our tax allocation agreement which pro-
vides a consistent, systematic and rational approach.
(See Note 4 of Notes to Consolidated Financial
Statements.)
Depreciation and Amortization: Depreciation expense is
calculated using the straight-line method, which depre-
ciates the cost of property over its estimated useful life.
For generation, transmission and distribution assets,
straight-line depreciation is applied on an average
annual composite basis using group rates that approxi-
mated 3.3% in 2005 and 3.4% in 2004 and 2003.
Regulatory Assets and Liabilities: Application of FASB
Statement of Financial Accounting Standards No.
71, “Accounting for the Effects of Certain Types of
Regulation” (SFAS 71), depends on our ability to col-
lect cost-based rates from customers. The recognition
of regulatory assets requires a continued assessment
of the recovery of the costs based on actions of the
regulators. We capitalize incurred costs as deferred
regulatory assets when there is a probable expectation
that the costs incurred will be recovered in future rev-
enues as a result of the regulatory process. Regulatory
liabilities represent current recovery of expected future
costs. When applicable we apply judgment in the use
of these principles and these estimates are based
on expected usage by a customer class over the
designated recovery period. (See Note 3 of Notes to
Consolidated Financial Statements for further disclo-
sure of regulatory amounts.)
Asset Retirement Obligations: In accordance with
FASB Statement of Financial Accounting Standards
No. 143, “Accounting for Asset Retirement Obligations”
(SFAS 143) and FASB Interpretation No. 47 (FIN No.
47), “Accounting for Conditional Asset Retirement
Obligations, an interpretation of FASB Statement No.
143,” legal obligations associated with the retirement of
long-lived assets are required to be recognized at their
fair value at the time those obligations are incurred.
Upon initial recognition of a legal liability, costs are
capitalized as part of the related long-lived asset and
allocated to expense over the useful life of the asset.
SFAS 143 also requires that components of previously
recorded depreciation related to the cost of removal of
assets upon retirement, whether legal asset retirement
obligations or not, must be removed from a company’s
accumulated depreciation reserve. We make assump-
tions, estimates and judgments that affect the reported
amounts of assets, liabilities and expenses as they
relate to asset retirement obligations. These assump-
tions and estimates are based on historical experience
and assumptions that we believed to be reasonable at
the time.
Unbilled Revenues: We record revenue for retail and
other energy sales under the accrual method. For retail
customers, revenues are recognized when the services
are provided on the basis of periodic cycle meter read-
ings and include an estimated accrual for the value
of electricity provided from the meter reading date to
the end of the reporting period. These estimates are
based on the volume of energy delivered, historical
usage and growth by customer class, and the effect of
weather variations on usage patterns.
Financial Instruments: We apply the provisions of FASB
Statement of Financial Accounting Standards No. 115,
“Accounting for Certain Investments in Debt and Equity
Securities” (SFAS 115), for our investments in debt and
equity financial instruments of publicly traded entities
and classify the securities into different categories:
DPL Inc.
37
held-to-maturity and available-for-sale. Available-for-
sale securities are carried at fair value and unrealized
gains and losses on those securities, net of deferred
income taxes, are presented as a separate component
of shareholders’ equity. Declines in value that are other
than temporary are recognized currently in earnings.
Financial instruments classified as held-to-maturity
are carried at amortized cost. The valuation of public
equity security investments is based upon market quo-
tations. The cost basis for public equity security and
fixed maturity investments is average cost and amor-
tized cost, respectively.
Insurance and Claims Costs: In addition to insurance
provided through third-party providers, a wholly-owned
captive subsidiary (MVIC) of ours provides insur-
ance coverage solely to us and to our subsidiaries.
Insurance and Claims Costs on the Consolidated
Balance Sheets includes insurance reserves of approx-
imately $24 million and $25 million for 2005 and 2004,
respectively, based on actuarial methods and loss
experience data. Such reserves are actuarially deter-
mined, in the aggregate, based on a reasonable esti-
mation of insured events occurring. There is uncertainty
associated with the loss estimates, and actual results
may differ from the estimates. Modification of these
loss estimates based on experience and changed
circumstances is reflected in the period in which the
estimate is re-evaluated.
During the three-year regulatory transition period
ending December 31, 2003, business interruption
policy payments from the captive subsidiary to DP&L
and/or the release of the appropriate reserves occurred
and were reflected in income. In June 2003, the ulti-
mate value of the business interruption risk coverage
was settled between MVIC and DP&L. The total settle-
ment resulted in a $76 million reduction to insurance
reserves of MVIC and a release from the business
interruption policy reserve of $39.7 million, which is
reported as Other Income in 2003.
In 2003, we submitted a claim for $10 million to
MVIC to recover legal expenses related to the share-
holder litigation. This claim was settled in December
2003.
Pension and Postretirement Benefits: We account for
our pension and postretirement benefit obligations
in accordance with the provisions of Statement of
Financial Accounting Standards No. 87, “Employers’
Accounting for Pensions” and No. 106 “Employers’
Accounting for Postretirement Benefits Other than
Pensions.” These standards require the use of assump-
tions, such as the discount rate and long-term rate of
return on assets, in determining the obligations, annual
cost, and funding requirements of the plans. We dis-
close our pension and postretirement benefit plans
as prescribed by Statement of Financial Accounting
Standards No. 132, “Employers’ Disclosures about
Pensions and Other Postretirement Benefits, an amend-
ment of FASB Statements No. 87, 88, and 106.”
In 2006, we maintained our long-term rate of return
assumptions of 8.50% for pension and 6.75% for other
postretirement benefits assets that reflect the effect
of recent trends on our long-term view. We also main-
tained our assumed discount rate of 5.75% for pension
and postretirement benefits expense to reflect current
interest rate conditions. Changes in other components
used in the determination of pension and postretire-
ment benefits costs will result in an overall increase of
approximately $2 million in such costs in 2006 com-
pared to 2005.
In future periods, differences in the actual return on
pension plan assets and assumed return, or changes
in the discount rate, will affect the timing of contribu-
tions to the pension plan, if any. We provide postretire-
ment healthcare benefits to employees who retired
prior to 1987. A one percentage point change in the
assumed healthcare trend rate would affect postretire-
ment benefit costs by approximately $0.1 million.
Legal and Other Matters
Legal and Other Matters
Legal and Other Matters is described
A discussion of Legal and Other Matters is described
in Note 14 of Notes to Consolidated Financial
Statements and in Item 3 - Legal Proceedings. Such
discussions are incorporated by reference in this
Management’s Discussion and Analysis of Financial
Condition and Results of Operations and made a
part hereof.
Recently Issued Accounting Pronouncements
A discussion of recently issued accounting pronounce-
ments is described in Note 1 of Notes to Consolidated
Financial Statements and such discussion is incorpo-
rated by reference in this Management’s Discussion
and Analysis of Financial
Item 7a Quantitative and Qualitative
Disclosures about Market Risk
The information required by this item of Form 10-K
is set forth in the Market Risk section under Item 7
Market Risk
Market Risk section under Item 7
- Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
38
DPL Inc.
Item 8 Financial Statements and Supplementary Data
Consolidated Statements of Results of Operations
$ in millions except per share amounts
Revenues
Operating expenses:
Fuel
Purchased power
Operation and maintenance
Depreciation and amortization
General taxes
Amortization of regulatory assets, net
Total operating expenses
Operating income
Investment income
Interest expense
Shareholder litigation expense
Charge for early redemption of debt
Other income
Earnings from continuing operations before income taxes
Income tax expense
Earnings from continuing operations
Earnings from discontinued operations, net of tax
Cumulative effect of accounting change, net of tax
For the years ended December 31,
2004 (a)
2003 (a)
2005
$ 1,284.9
$ 1,199.9
$ 1,199.9
$ 1,199.9
$ 1,191.0
$ 1,191.0
$ 1,191.0
336.9
133.3
219.0
147.3
107.3
2.0
945.8
339.1
49.0
(137.7)
–
(61.2)
15.4
204.6
79.9
124.7
52.9
(3.2)
263.1
113.1
237.1
1 44.1
105.3
0.7
863.4
336.5
6.5
6.5
6.5
(160.2)
(160.2)
(160.2)
–
–
–
–
5.2
5.2
5.2
188.0
188.0
188.0
66.5
66.5
66.5
121.5
121.5
121.5
95.8
95.8
95.8
–
–
–
234.6
234.6
87.9
87.9
199.8
199.8
138.9
138.9
108.9
108.9
49.0
49.0
819.1
819.1
371.9
371.9
32.0
32.0
32.0
(181.7)
(181.7)
(181.7)
(76.7)
(76.7)
–
–
–
44.2
44.2
44.2
1
189.7
1
74.8
74.8
74.8
114.9
114.9
114.9
16.6
16.6
16.6
17.0
17.0
17.0
Net Income
$
174.4
$ 217.3
$ 217.3
$ 217.3
$ 148.5
$ 148.5
$ 148.5
Average number of common shares outstanding (millions):
Basic
Diluted
Basic earnings per share of common stock:
Continuing operations
Discontinued operations
Cumulative effect of accounting change
Net income per basic common share
Diluted earnings per share of common stock:
Continuing operations
Discontinued operations
Cumulative effect of accounting change
Net income per diluted common share
121.0
129.1
1.03
0.44
(0.03)
1.44
0.97
0.41
(0.03)
1.35
$
$
$
$
120.1
120.1
120.1
122.1
122.1
122.1
$
$
$
1.01
1.01
1.01
0.80
0.80
0.80
–
–
–
$
$
$
1.81
1.81
1.81
$
$
$
1.00
1.00
1.00
0.78
0.78
0.78
–
–
–
$
$
$
1.78
1.78
1.78
119.8
119.8
119.8
121.7
121.7
121.7
0.96
0.96
0.96
0.14
0.14
0.14
0.14
0.14
0.14
1.24
1.24
1.24
0.94
0.94
0.94
0.14
0.14
0.14
0.14
0.14
0.14
1.22
1.22
1.22
$
$
$
$
$
$
$
$
$
$
$
$
Dividends paid per share of common stock
$
0.96
$
$
$
0.96
0.96
0.96
$
$
$
0.94
0.94
0.94
(a) Revised – See Note 11.
See Notes to Consolidated Financial Statements.
DPL Inc.
39
For the years ended December 31,
2004 (a)
2005
2003 (a)
$ 174.4
(52.9)
$ 217.3
(95.8)
(95.8)
(95.8)
$ 148.5
$ 148.5
(16.6)
(16.6)
(16.6)
121.5
121.5
121.5
121.5
131.9
131.9
131.9
147.3
2.0
61.2
3.2
–
(7.1)
(0.6)
–
(28.8)
–
(12.5)
(11.7)
15.0
(13.2)
2.2
(8.0)
2.9
6.7
34.0
314.1
(180.1)
(641.2)
642.5
–
–
868.4
689.6
211.2
22.7
(673.8)
(54.7)
(0.1)
(115.3)
(610.0)
144.1
0.7
–
–
(70.0)
22.2
(1.1)
–
(3.3)
(1.8)
7.1
(
(12.9)
(62.8)
(8.0)
0.4
(20.0)
12.6
5.2
(1.2)
132.7
132.7
132.7
(87.7)
(26.1)
89.9
–
2.3
203.9
182.3
182.3
182.3
174.7
–
(510.4)
–
–
(114.8)
(450.5)
(450.5)
(450.5)
393.7
202.1
$ 595.8
(135.5)
(135.5)
(135.5)
337.6
337.6
337.6
$ 202.1
$ 202.1
$ 202.1
$ 146.1
71.2
$
$ 162.1
$ 162.1
$ 162.1
$ 107.9
$ 107.9
$ 107.9
138.9
138.9
49.0
49.0
–
–
(17.0)
(17.0)
66.6
66.6
(4.8)
(4.8)
(46.8)
(46.8)
(21.2)
(21.2)
(3.9)
(3.9)
–
–
(3.7)
(3.7)
(8.1)
(8.1)
70.4
70.4
(9.1)
(9.1)
(7.4)
(7.4)
4.0
4.0
49.0
49.0
(47.0)
(47.0)
9.4
9.4
350.2
350.2
350.2
(120.9)
(120.9)
(75.8)
(75.8)
127.7
127.7
51.4
51.4
–
–
83.1
83.1
65.5
65.5
65.5
465.1
465.1
–
–
(471.9)
(471.9)
–
–
–
–
(112.1)
(112.1)
(118.9)
(118.9)
(118.9)
296.8
296.8
296.8
40.8
40.8
40.8
$ 337.6
$ 337.6
$ 337.6
$ 184.0
$ 184.0
$ 184.0
$ 15.2
$ 15.2
$ 15.2
Consolidated Statements of Cash Flows
$ in millions
Cash Flows from Operating Activities:
Net income
Less: Earnings from discontinued operations
Earnings from continuing operations and cumulative effect of
accounting change
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Amortization of regulatory assets, net
Charge for early redemption of debt
Cumulative effect of accounting change, net of tax
Shareholder litigation
Deferred income taxes
Captive insurance provision
Income from interest rate hedges
Gain on sale of other investments
Gain on sale of property
Changes in certain assets and liabilities:
Accounts receivable
Accounts payable
Accrued taxes payable
Accrued interest payable
Prepayments
Inventories
Deferred compensation assets
Deferred compensation obligations
Other
Net cash provided by operating activities
Cash Flows from Investing Activities:
Capital expenditures
Purchases of short-term investments and securities
Sales of short-term investments and securities
Settlement of interest rate hedges
Proceeds from the sale of property
Cash flow from discontinued operations
Net cash provided by investing activities
Cash Flows from Financing Activities:
Issuance of long-term debt, net of issue costs
Exercise of stock options
Retirement of long-term debt
Premiums paid for early redemption of debt
Retirement of preferred securities
Dividends paid on common stock
Net cash used for financing activities
Cash and Cash Equivalents:
Net change
Balance at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Interest paid, net of amounts capitalized
Income taxes paid, net
(a) Revised – See Note 11.
See Notes to Consolidated Financial Statements.
40
DPL Inc.
Consolidated Balance Sheets
$ in millions
Assets
Property:
Property, plant and equipment
Less: Accumulated depreciation and amortization
Net property
Current assets:
Cash and cash equivalents
Short-term investments available for sale
Accounts receivable, less provision for uncollectible accounts
of $1.0 and $1.1, respectively
Inventories, at average cost
Prepaid taxes
Other current assets
Total current assets
Other assets:
Financial assets:
Public securities
Private securities under the equity method
Private securities under the cost method
Total financial assets
Regulatory assets
Other deferred assets
Total other assets
Total Assets
Capitalization and Liabilities
Capitalization:
Common shareholders’ equity
Common stock: par value $0.01 per share, 250,000,000 shares
authorized and 163,724,211 shares issued at December 31, 2005
and 2004; 127,526,404 shares and 126,501,404 shares outstanding
at December 31, 2005 and 2004, respectively
Other paid-in capital, net of treasury stock
Warrants
Common stock held by employee plans
Accumulated other comprehensive income
Earnings reinvested in the business
Total common shareholders’ equity
Preferred stock
Long-term debt
Total capitalization
Current Liabilities:
Current portion – long-term debt
Accounts payable
Accrued taxes
Accrued interest
Other current liabilities
Total current liabilities
Deferred Credits:
Deferred taxes
Unamortized investment tax credit
Insurance and claims costs
Other deferred credits
Total deferred credits
Commitments and Contingencies (Note 14)
Total Capitalization and Liabilities
See Notes to Consolidated Financial Statements.
At December 31,
2005
2004
$ 4,667.7
(2,094.8)
2,572.9
$ 4,495.0
$ 4,495.0
(1,964.9)
(1,964.9)
2,530.1
2,530.1
595.8
125.8
194.9
80.2
45.9
20.2
1,062.8
–
–
–
–
83.8
72.2
156.0
$ 3,791.7
$
1.3
25.1
50.0
(86.1)
(14.2)
1,062.0
1,038.1
22.9
1,677.1
2,738.1
0.9
130.2
178.5
28.9
31.1
369.6
327.0
46.4
24.3
286.3
684.0
202.1
202.1
–
175.7
72.1
46.4
34.3
530.6
86.3
304.0
522.3
912.6
74.0
118.2
1,1 04.8
$ 4,165.5
$ 4,165.5
$
$
1.3
1.3
15.8
15.8
50.0
50.0
(85.7)
(85.7)
65.5
65.5
997.1
997.1
1,044.0
1,044.0
23.0
23.0
2,117.3
2,117.3
3,184.3
3,184.3
13.5
13.5
113.4
113.4
137.2
137.2
42.1
42.1
20.7
20.7
326.9
326.9
384.8
384.8
49.3
49.3
24.9
24.9
195.3
195.3
654.3
654.3
$ 3,791.7
$ 4,165.5
$ 4,165.5
DPL Inc.
41
Consolidated Statements of Shareholders’ Equity
$ in millions
Beginning balance
2003
Net income
Net income
Net income
Net income
Net income
Net income
Net income
Net change in unrealized gains
(losses) on financial instruments,
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
Net change in unrealized gains (losses)
on foreign currency translation
adjustments
adjustments
adjustments
adjustments
adjustments
adjustments
Net change in deferred gains on
cash flow hedges
cash flow hedges
cash flow hedges
cash flow hedges
cash flow hedges
cash flow hedges
Minimum pension liability
Minimum pension liability
Minimum pension liability
Minimum pension liability
Minimum pension liability
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Common stock dividends (b)
Employee / Director stock plans
Employee / Director stock plans
Employee / Director stock plans
Other
Common Stock
Common Stock
(a)
(a)
Outstanding
Shares Amount
Other
Paid-in
Capital Warrants
Common
Stock Held
by Employee
Plans
Accumulated
Other
Comprehensive
Income
Earnings
Reinvested
in the
Business
Total
126,501,404
126,501,404
126,501,404
126,501,404
126,501,404
126,501,404
126,501,404
126,501,404
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 8.4
$ 8.4
$ 8.4
$ 8.4
$ 8.4
$ 8.4
$ 8.4
$ 8.4
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ (89.6)
$ (89.6)
$ (89.6)
$ (89.6)
$ (89.6)
$ (89.6)
$ (89.6)
$ (89.6)
$
$
$
$
$
$
$
$
(2.2) $ 856.9 $ 824.8
(2.2) $ 856.9 $ 824.8
(2.2) $ 856.9 $ 824.8
(2.2) $ 856.9 $ 824.8
(2.2) $ 856.9 $ 824.8
(2.2) $ 856.9 $ 824.8
(2.2) $ 856.9 $ 824.8
(2.2) $ 856.9 $ 824.8
148.5
10.0
37.3
29.4
(0.2)
(16.6)
0.2
0.2
0.2
0.2
0.2
0.2
3.4
3.4
3.4
3.4
3.4
3.4
5.2
5.2
5.2
5.2
5.2
5.2
208.4
(140.8) (140.8)
(140.8) (140.8)
6.5
6.5
6.5
6.5
6.5
6.5
3.4
3.4
3.4
3.4
3.4
3.4
1.1
1.1
1.1
1.1
1.1
1.1
Ending balance
126,501,404
126,501,404
126,501,404
126,501,404
126,501,404
126,501,404
126,501,404
126,501,404
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 12.0
$ 12.0
$ 12.0
$ 12.0
$ 12.0
$ 12.0
$ 12.0
$ 12.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ (84.4)
$ (84.4)
$ (84.4)
$ (84.4)
$ (84.4)
$ (84.4)
$ (84.4)
$ (84.4)
$ 57.7 $ 865.7 $ 902.3
$ 57.7 $ 865.7 $ 902.3
$ 57.7 $ 865.7 $ 902.3
$ 57.7 $ 865.7 $ 902.3
$ 57.7 $ 865.7 $ 902.3
$ 57.7 $ 865.7 $ 902.3
$ 57.7 $ 865.7 $ 902.3
$ 57.7 $ 865.7 $ 902.3
2004
Net income
Net income
Net income
Net income
Net income
Net income
Net income
Net change in unrealized gains
(losses) on financial instruments,
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
Net change in unrealized gains (losses)
on foreign currency translation
adjustments
adjustments
adjustments
adjustments
adjustments
adjustments
Net change in deferred gains on
cash flow hedges
cash flow hedges
cash flow hedges
cash flow hedges
cash flow hedges
cash flow hedges
Minimum pension liability
Minimum pension liability
Minimum pension liability
Minimum pension liability
Minimum pension liability
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Common stock dividends (b)
Employee / Director stock plans
Employee / Director stock plans
Employee / Director stock plans
Other
Other
Other
217.3
9.3
6.2
(1.5)
(0.4)
(5.8)
4.1
4.1
4.1
)
)
)
)
(0.3)
)
(1.3)
)
)
(86.2)
0.4
0.4
0.4
0.4
0.1)
(0.1)
225.1
(86.2)
3.2
3.2
3.2
3.2
(0.4)
Ending balance
1,404
126,501,404
1,404
$ 1.3
$ 1.3
$ 1.3
5.8
$ 15.8
$
$
0.0
$ 50.0
$
85.7)
$ (85.7)
$
7.1 $ 1,044.0
$ 65.5 $ 9 97.1 $ 1,044.0
$
5.5 $
2005
Net income
Net income
Net income
Net income
Net income
Net income
Net income
Net change in unrealized gains
(losses) on financial instruments,
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
net of reclassification adjustments
Net change in unrealized gains (losses)
on foreign currency translation
adjustments
adjustments
adjustments
adjustments
adjustments
adjustments
Net change in deferred gains on
cash flow hedges
cash flow hedges
cash flow hedges
cash flow hedges
cash flow hedges
cash flow hedges
Minimum pension liability
Minimum pension liability
Minimum pension liability
Minimum pension liability
Minimum pension liability
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
unrealized gains (losses)
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Total comprehensive income
Common stock dividends (b)
Treasury shares purchased (c)
Treasury stock reissued
Employee / Director stock plans
Employee / Director stock plans
Other
Other
Other
Other
Other
Other
Ending balance (c)
174.4
(15.3)
(46.3)
(3.4)
(63.0)
48.2
–
–
–
–
–
–
–
–
1,025,000
1,025,000
1,025,000
1,025,000
1,025,000
1,025,000
1,025,000
1,025,000
(10.6)
(10.6)
(10.6)
(10.6)
(10.6)
(10.6)
(10.6)
(10.6)
16.9
16.9
16.9
16.9
16.9
16.9
16.9
16.9
3.0
3.0
3.0
3.0
3.0
3.0
(115.3)
(115.3)
5.8
5.8
5.8
5.8
5.8
5.8
5.8
5.8
94.6
(115.3)
(115.3)
(10.6)
(10.6)
(10.6)
(10.6)
(10.6)
(10.6)
(10.6)
(10.6)
22.7
22.7
22.7
22.7
22.7
22.7
22.7
22.7
2.6
2.6
2.6
2.6
2.6
2.6
0.1
0.1
0.1
(0.4)
(0.4)
(0.4)
(0.4)
(0.4)
(0.4)
0.1
0.1
0.1
127,526,404
127,526,404
127,526,404
127,526,404
127,526,404
127,526,404
127,526,404
127,526,404
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 1.3
$ 25.1
$ 25.1
$ 25.1
$ 25.1
$ 25.1
$ 25.1
$ 25.1
$ 25.1
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ 50.0
$ (86.1)
$ (86.1)
$ (86.1)
$ (86.1)
$ (86.1)
$ (86.1)
$ (86.1)
$ (86.1)
$ (14.2) $ 1,062.0 $
$ (14.2) $ 1,062.0 $ 1,038.1
$ (14.2) $ 1,062.0 $
$ (14.2) $ 1,062.0 $
$ (14.2) $ 1,062.0 $
$ (14.2) $ 1,062.0 $
$ (14.2) $ 1,062.0 $
$ (14.2) $ 1,062.0 $
(a) $0.01 par value, 250,000,000 shares authorized.
(b) Common stock dividends were $0.94 per share in 2003 and $0.96 per share in 2004 and 2005.
(c) Number of shares outstanding at December 31, 2005 not affected by a transaction to purchase 406,000 shares began December 30th for
which the share repurchase was settled in early January 2006. See Note 6 of Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
42
DPL Inc.
Notes to Consolidated Financial Statements
1 Summary of Significant Accounting
Policies and Overview
Description of Business
DPL Inc. (DPL, the Company, we, our, or ours unless
the context indicates otherwise) is a diversified,
regional energy company organized in 1985 under the
laws of Ohio. We conduct our principal business in one
business segment - Electric.
Our principal subsidiary is The Dayton Power and
Light Company (DP&L). DP&L is a public utility incor-
porated in 1911 under the laws of Ohio. DP&L sells
electricity to residential, commercial, industrial and
governmental customers in a 6,000 square mile area
of West Central Ohio. Electricity for DP&L’s 24 county
service area is primarily generated at eight coal-fired
power plants and is distributed to more than 500,000
retail customers. DP&L also purchases retail peak load
requirements from DPL Energy LLC (DPLE). Principal
industries served include automotive, food process-
ing, paper, plastic manufacturing, and defense. DP&L’s
sales reflect the general economic conditions and
seasonal weather patterns of the area. DP&L sells any
excess energy and capacity into the wholesale market.
Our other significant subsidiaries (all of which are
wholly-owned) include DPLE, which engages in the
operation of peaking generating facilities; DPL Energy
Resources, Inc. (DPLER), which sells retail electric
energy under contract to major industrial and commer-
cial customers in West Central Ohio; MVE, Inc. (MVE),
which was primarily responsible for the management
of our financial asset portfolio; DPL Finance Company,
which provides financing to us and our subsidiaries;
and Miami Valley Insurance Company (MVIC), a cap-
tive insurance company for us and our subsidiaries.
Basis of Consolidation
We prepare our consolidated financial statements
in accordance with accounting principles generally
accepted in the United States of America (GAAP).
The consolidated financial statements include the
accounts of DPL and its majority-owned subsidiaries.
Investments that are not majority owned are accounted
for using the equity method when our investment allows
us the ability to exert significant influence, as defined
by GAAP. Undivided interests in jointly-owned genera-
tion facilities are consolidated on a pro rata basis. All
material intercompany accounts and transactions are
eliminated in consolidation.
Estimates, Judgments and Reclassifications
The preparation of financial statements in conformity
with GAAP requires us to make estimates and judg-
ments that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and
the revenue and expenses of the period reported.
Different estimates could have a material effect on our
financial results. Judgments and uncertainties affect-
ing the application of these policies and estimates may
result in materially different amounts being reported
under different conditions or circumstances. Significant
items subject to such estimates and judgments include
the carrying value of property, plant and equipment;
unbilled revenues; the valuation of derivative instru-
ments; the valuation of insurance and claims costs; val-
uation allowances for receivables and deferred income
taxes; reserves recorded for income tax exposures;
litigation; and assets and liabilities related to employee
benefits. Actual results may differ from those estimates.
Certain amounts from prior periods have been reclassi-
fied to conform to the current reporting presentation. In
2005, we have separately disclosed the earnings from
discontinued operations, net of income taxes, which in
prior periods were reported with elements of continued
operations. In 2005, we have separately disclosed
the investing portions of the cash flows attributable to
its discontinued operations (there was no impact on
the operating or investing portions of the cash flows),
which in prior periods were reported on a combined
basis as a single amount.
Revenues
We record revenue for services provided but not yet
billed to more closely match revenues with expenses.
Accounts receivable on the Consolidated Balance
Sheets include unbilled revenue of $63.6 million and
$60.5 million in 2005 and 2004, respectively. Also
included in revenues are amounts charged to custom-
ers through a surcharge for recovery of uncollected
amounts from certain eligible low-income households.
These charges were $6.2 million for 2005, $8.3 million
for 2004, and $6.3 million for 2003.
Allowance for Uncollectible Accounts
We establish provisions for uncollectible accounts
using both historical average credit loss percentages
of accounts receivable balances to project future loss-
es and specific provisions for known credit issues.
Property, Plant and Equipment
We record our ownership share of our undivided inter-
est in jointly-held plants as an asset in property, plant
and equipment. Property, plant and equipment are
stated at cost. For regulated property, cost includes
direct labor and material, allocable overhead costs
and an allowance for funds used during construction
DPL Inc.
43
(AFUDC). AFUDC represents the cost of borrowed funds and equity used to finance regulated construction proj-
ects. Capitalization of AFUDC ceases at either project completion or as of the date specified by regulators. AFUDC
capitalized related to borrowed funds was zero in 2005 and 2004, and $0.1 million in 2003. AFUDC capitalized for
equity funds was zero in 2005, $0.5 million in 2004, and $0.6 million in 2003.
For unregulated property, cost includes direct labor, material and overhead costs and interest capitalized dur-
ing construction. Capitalized interest was $2.6 million in 2005, $1.8 million in 2004 and $8.3 million in 2003.
For substantially all depreciable property, when a unit of property is retired, the original cost of that property
less any salvage value is charged to Accumulated Depreciation and Amortization.
Property is evaluated for impairment when events or changes in circumstances indicate that its carrying
amount may not be recoverable.
Depreciation
Depreciation expense is calculated using the straight-line method, which depreciates the cost of property over its
estimated useful life. For generation, transmission, and distribution assets, straight-line depreciation is applied on
an average annual composite basis using group rates that approximated 3.3% in 2005 and 3.4% in both 2004 and
2003. Depreciation expense was $147.3 million in 2005, $144.1 million in 2004, and $138.9 million in 2003.
The following is a summary of property, plant and equipment with corresponding composite depreciation rates
at December 31, 2005 and 2004:
$ in millions
Regulated:
Transmission
Distribution
General
Non-depreciable
Total regulated
Unregulated:
Production
Other
Non-depreciable
Total unregulated
Total property in service
Construction work in process
Total property,
plant and equipment
2005
Composite Rate
2004
Composite Rate
$ 341.8
$ 341.8
968.9
968.9
63.1
63.1
54.0
54.0
$ 1,427.8
$ 3,008.3
$ 3,008.3
45.2
45.2
18.4
18.4
$ 3,071.9
$ 4,499.7
$ 4,499.7
168.0
168.0
$ 4,667.7
2.6%
2.6%
3.4%
3.4%
9.5%
9.5%
0.0%
0.0%
3.2%
3.2%
7.6%
7.6%
0.0%
0.0%
3.3%
3.3%
0.0%
0.0%
7.8
$ 337.8
929.6
929.6
58.9
58.9
54.4
54.4
$ 1,380.7
$ 2,975.3
75.3
43.4
3.4
8.2
18.2
$ 3,036.9
$ 3,036.9
$ 3,036.9
$ 3,036.9
$ 4,417.6
7.6
77.4
77.4
$ 4,495.0
2.6%
2.6%
3.6%
3.6%
8.7%
8.7%
0.
0.0%
3.2%
3.2%
7.2%
7.2%
0.
0.0%
3.4%
3.
0.
0.0%
Asset Retirement Obligations
We adopted the provisions of the Financial Accounting
Standards Board (FASB) Statement of Financial
Accounting Standards No. 143, “Accounting for Asset
Retirement Obligations” (SFAS 143) during 2003.
SFAS 143 requires legal obligations associated with
the retirement of long-lived assets to be recognized
at their fair value at the time those obligations are
incurred. Upon initial recognition of a legal liability,
costs are capitalized as part of the related long-lived
asset and allocated to expense over the useful life of
the asset. SFAS 143 also requires that components of
previously recorded depreciation related to the cost
of removal of assets upon retirement, whether legal
asset retirement obligations or not, must be removed
from a company’s accumulated depreciation reserve.
Our legal obligations associated with the retirement
of our long-lived assets under SFAS 143 consisted
primarily of river intake and discharge structures, coal
unloading facilities, loading docks, ice breakers and
ash disposal facilities. Application of SFAS 143 in
2003 resulted in an increase in net property, plant and
equipment of $0.8 million, the recognition of an asset
retirement obligation of $4.6 million and reduced our
accumulated depreciation reserve by $32.1 million due
to cost of removal related to the non-regulated genera-
tion assets. Beginning in January 2003, depreciation
rates were reduced to reflect the discontinuation of the
cost of removal accrual for applicable non-regulated
generation assets. In addition, costs for the removal
of retired assets are charged to operation and main-
tenance when incurred. Since the generation assets
are not subject to Ohio regulation, we recorded the net
effect of adopting this standard in our Consolidated
44
DPL Inc.
Statement of Results of Operations. The total cumu-
lative effect of the adoption of SFAS 143 increased
net income and shareholders’ equity by $28.3 million
before tax in 2003.
In March of 2005, the FASB issued FASB
Interpretation No. 47 (FIN No. 47), “Accounting for
Conditional Asset Retirement Obligations, an interpreta-
tion of FASB Statement No. 143.” We implemented FIN
No. 47 in the fourth quarter of 2005 effective January 1,
2005 for certain asset retirement obligations, primarily
the removal of asbestos, at some of our generation sta-
tions. Application of FIN No. 47 resulted in an increase
in our net property, plant and equipment of $1.8 million
and an increase in our asset retirement obligation of
$7.2 million. The difference of $5.3 million represents
the before tax ($3.2 million after tax) cumulative effect
of the adoption of FIN No. 47, as of January 1, 2005
on 2005 net income. The before tax impact on 2005
net income was $0.9 million ($0.5 million after tax)
which consisted of $0.6 million of accretion expense
and $0.3 million depreciation expense. The following
table sets forth the effect of the accounting change on
net income as previously reported for 2004 and 2003
as adjusted, if FIN No. 47 had been applied effective
January 1, 2003. Application of FIN No. 47 would have
had no impact on reported basic or diluted earnings
per share in 2004 and 2003.
$ in millions
Reported net income
Reported net income
Earnings effect of adopting
FIN No. 47
FIN No. 47
2004
2003
$ 217.3
$ 217.3
$ 148.5
$ 148.5
(0.5)
(0.5)
(0.4)
(0.4)
Adjusted net income
Adjusted net income
$ 216.8
$ 216.8
$ 148.1
$ 148.1
If FIN No. 47 had been applied as of January 1, 2003,
our asset retirement obligation would have increased
by $9.4 million and $10.3 million at January 1, 2004
and December 31, 2004, respectively. Our asset retire-
ment obligation was $13.2 million at December 31,
2005, which consisted of $5.4 million related to the
adoption of SFAS 143 in 2003 and $7.8 million related
to the adoption of FIN No. 47 in 2005.
We continue to record cost of removal for our
regulated transmission and distribution assets through
our depreciation rates and recover those amounts in
rates charged to our customers. There are no known
legal asset retirement obligations associated with these
assets. We have recorded $81.7 million and $77.5 mil-
lion in estimated costs of removal at December 31,
2005 and 2004, respectively as regulatory liabilities for
our transmission and distribution property. (See Note 3
of Notes to Consolidated Financial Statements.)
Regulatory Accounting
We apply the provisions of FASB Statement of Financial
Accounting Standards No. 71, (SFAS 71) “Accounting
for the Effects of Certain Types of Regulation”. In
accordance with SFAS 71, regulatory assets and liabili-
ties are recorded in the Consolidated Balance Sheets.
Regulatory assets are the deferral of costs expected to
be recovered in future customer rates and regulatory
liabilities represent current recovery of expected
future costs.
We evaluate our regulatory assets each period and
believe recovery of these assets is probable. We have
received or requested a return on certain regulatory
assets for which we are currently recovering or seek-
ing recovery through rates. (See Note 3 of Notes to
Consolidated Financial Statements).
If we were required to terminate application of
SFAS 71 for all of our regulated operations, we would
have to record the amounts of all regulatory assets
and liabilities in the Consolidated Statement of Results
of Operations at that time. (See Note 3 of Notes to
Consolidated Financial Statements.)
Accounts Receivable
Our accounts receivable includes utility customer
receivables, amounts due from our partners for jointly-
owned property, wholesale and subsidiary customer
receivables, and electric unbilled revenue. We also
include miscellaneous accounts receivables such as
refundable Franchise taxes. The amount is presented
net of a provision for uncollectible accounts on the
accompanying balance sheets.
Inventory
Inventories, carried at average cost, include coal,
emission allowances, oil and gas used for electric
generation, and materials and supplies for utility
operations.
Emission Allowances
We account for our emission allowances as inventory,
and record emission allowance inventory at histori-
cal cost. We calculate the weighted average cost by
each vintage (year) for which emission allowances can
be used, and charge to fuel costs the weighted aver-
age cost of emission allowances used each quarter.
Emission allowances are added to inventory when the
EPA issues us emission allowances at no cost or when
we purchase emission allowances. Purchased emission
allowances are recorded in inventory at the purchase
price, including any related transaction fees. Emission
allowances are deducted from inventory when used
DPL Inc.
45
in the production of electricity or when we sell excess
emission allowances. Emission allowances used during
the production of electricity are charged to fuel costs at
the weighted average cost for that vintage. The excess
/ (shortfall) of the sales price over the weighted aver-
age cost for any emission allowances sold, less related
fees, is recorded as a gain / (loss) in other income.
Emission allowances received as part of an exchange
of emission allowances are recorded at the carrying
cost of the emission allowances given up, with no gain
or loss recorded.
Repairs and Maintenance
Costs associated with all planned work and mainte-
nance activities, primarily power plant outages, are
recognized at the time the work is performed. These
costs, which include labor, materials and supplies, and
outside services required to maintain equipment and
facilities, are either capitalized or expensed based on
defined units of property as required by the Federal
Energy Regulatory Commission (FERC).
Income Taxes
We apply the provisions of FASB Statement of Financial
Accounting Standards No. 109, “Accounting for Income
Taxes” (SFAS 109). SFAS 109 requires an asset and lia-
bility approach for financial accounting and reporting of
income taxes with tax effects of differences, based on
currently enacted income tax rates between the finan-
cial reporting and tax basis of accounting reported as
Deferred Taxes in the Consolidated Balance Sheets.
Deferred tax assets are recognized for deductible
temporary differences. Valuation reserves are provided
unless it is more likely than not that the asset will be
realized.
Investment tax credits, which have been used
to reduce federal income taxes payable, have been
deferred for financial reporting purposes. These
deferred investment tax credits are amortized over the
useful lives of the property to which they are related.
For rate-regulated operations, 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.
We file a consolidated U.S. federal income tax
return in conjunction with our subsidiaries. The con-
solidated tax liability is allocated to each subsidiary as
specified in our tax allocation agreement which pro-
vides a consistent, systematic and rational approach.
(See Note 4 of Notes to Consolidated Financial
Statements.)
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which
approximates fair value. All highly liquid short-term
investments with original maturities of three months or
less are considered cash equivalents. Cash and cash
equivalents were $595.8 million at December 31, 2005
and $202.1 million at December 31, 2004.
Short-term Investments Available for Sale
As of December 31, 2005, we owned Auction Rate
Securities (ARS) with a total par value of $125.8 million,
which equals fair value. ARS are variable rate state and
municipal bonds that trade at par value. Interest rates
on ARS are reset every seven, twenty-eight, or thirty-
five days through a modified Dutch auction. We have
the option to hold at market, re-bid, or sell each ARS
on the interest reset date. Although ARS are issued and
rated as long-term bonds, they are priced and traded
as short-term securities held for resale because of the
market liquidity provided through the interest rate reset
mechanism. Each ARS owned by us at year end was
tax-exempt, AAA rated and insured by a third-party
insurance company. Interest earned but not received is
accrued at the end of each reporting period.
Captive Insurance Subsidiary
In addition to insurance provided through third-party
providers, a wholly-owned captive subsidiary of ours
provides insurance coverage solely to us and to our
subsidiaries. Insurance and Claims Costs on the
Consolidated Balance Sheets includes insurance
reserves of approximately $24 million and $25 million
for 2005 and 2004, respectively, based on actuarial
methods and loss experience data. Such reserves are
actuarially determined, in the aggregate, based on
a reasonable estimation of insured events occurring.
There is uncertainty associated with the loss estimates,
and actual results may differ from the estimates.
Modification of these loss estimates based on experi-
ence and changed circumstances is reflected in the
period in which the estimate is re-evaluated.
During the three-year regulatory transition period
ending December 31, 2003, business interruption
policy payments from MVIC to DP&L or the release of
the appropriate reserves occurred and was reflected
in income. In June 2003, the ultimate value of the busi-
ness interruption risk coverage was settled between
MVIC and DP&L. The total settlement resulted in a $76
million reduction to insurance reserves of MVIC and
a release from the business interruption policy reserve
of $39.7 million, which was reported as Other Income
in 2003.
46
DPL Inc.
In 2003, we submitted a claim for $10 million
to MVIC to recover legal expenses related to
the shareholder litigation. This claim was settled in
December 2003.
Financial Derivatives
We follow FASB Statement of Financial Accounting
Standards No. 133, “Accounting for Derivative
Instruments and Hedging Activity” (SFAS 133), as
amended. SFAS 133 requires that all derivatives
be recognized as either assets or liabilities in the
Consolidated Balance Sheets and be measured at fair
value, and changes in the fair value be recorded in
earnings, unless they are designated as a cash flow
hedge of a forecasted transaction.
The FASB issued Statement of Financial
Accounting Standards No. 149, “Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities” (SFAS 149). SFAS 149 amends and clarifies
financial accounting and reporting for derivative instru-
ments, including those embedded in other contracts,
and for hedging activities and is effective for contracts
entered into or modified after June 30, 2003. This stan-
dard did not have a material effect on us.
We use forward contracts and options to reduce
our exposure to changes in energy and commodity
prices and as a hedge against the risk of changes in
cash flows associated with expected electricity pur-
chases. These purchases are required to meet full load
requirements during times of peak demand or during
planned and unplanned generation facility outages. We
also hold forward sales contracts that hedge against
the risk of changes in cash flows associated with
power sales during periods of projected generation
facility availability. The FASB concluded that electric
utilities could apply the normal purchases and sales
exception for option-type contracts and forward con-
tracts in electricity subject to specific criteria for the
power buyers and sellers under capacity contracts.
Accordingly, we apply the normal purchases and sales
exception as defined in SFAS 133 and account for
these contracts upon settlement.
In May 2003, DP&L entered into 60-day interest
rate swaps designed to capture existing favorable
interest rates in anticipation of future financings of
$750 million first mortgage bonds. These hedges were
settled in July 2003, at a fair value of $51.4 million,
reflecting increasing U.S. Treasury interest rates, and
as a result, DP&L received this amount. During 2003,
the ultimate effectiveness of the hedges resulted in a
gain of $30.2 million and was recorded in Accumulated
Other Comprehensive Income on the Consolidated
Balance Sheets. This amount is amortized into income
as a reduction to interest expense over the ten- and
fifteen-year lives of the hedges. The ineffective portion
of the hedge of $21.2 million was recognized as Other
Income on the Consolidated Statement of Results of
Operations during 2003.
We held emission allowance options, which were in
effect until December 31, 2004, that were classified as
derivatives not subject to hedge accounting. The fair
value of these contracts is reflected as Other Current
Assets or Other Current Liabilities on the Consolidated
Balance Sheets and changes in fair value are recorded
as Other Income on the Consolidated Statements of
Results of Operations. The effect was not material to
results of operations during 2003 through 2004. We did
not hold any emission allowance options in 2005.
Financial Instruments
We apply the provision of FASB Statement of Financial
Accounting Standards No. 115, “Accounting for Certain
Investments in Debt and Equity Securities” (SFAS
115), for our investments in debt and equity financial
instruments of publicly traded entities and classify the
securities into different categories: held-to-maturity and
available-for-sale. Available-for-sale securities are car-
ried at fair value and unrealized gains and losses on
those securities, net of deferred income taxes, are pre-
sented as a separate component of shareholders’ equi-
ty. Other-than-temporary declines in value are recog-
nized currently in earnings. Financial instruments clas-
sified as held-to-maturity are carried at amortized cost.
The valuation of public equity security investments
is based upon market quotations. The cost basis for
public equity security and fixed maturity investments is
average cost and amortized cost, respectively.
Prior to the sale of the financial asset portfolio,
we accounted for our investments in private financial
instruments under either the cost or equity method
of accounting. The equity method of accounting was
applied to those investments in limited partnership
interests when our ownership was 5% or more of the
private equity fund. Under the cost method, our pri-
vate investments were carried at cost unless an other-
than-temporary decline in value was recognized, and
income was recognized as distributed by the private
equity fund. Under the equity method, private invest-
ments were carried at our share of the capital of
the private equity fund, and we recognized our share
of the income reported by the private equity fund,
which included unrealized gains and losses. Other-
than-temporary declines in value were recognized
currently in earnings.
DPL Inc.
47
Investment Income
Investment income included in the Consolidated
Financial Statements is comprised of realized invest-
ment income from the following sources:
$ in millions
Public securities
Other
2005
2004
2003
$ 23.9
25.1
$ 1.1 $ 9.2
$ 1.1 $ 9.2
$ 1.1 $ 9.2
22.8
22.8
5.4
5.4
22.8
5.4
Total investment income
$ 49.0
$ 6.5 $ 32.0
$ 6.5 $ 32.0
$ 6.5 $ 32.0
Investment income increased by $42.5 million in 2005
compared to 2004 primarily resulting from a net gain
on the sale of public securities of $23.5 million and
$18.5 million in interest income, principally on short-
term investments and tax-exempt investments of public
securities.
Investment income decreased by $25.5 million in
2004 compared to 2003. This decrease is primarily the
result of a 2003 realized gain on interest rate hedges
of $21.2 million that did not recur in 2004, as well
as gains on investments of $4.6 million and investment
income of $4.2 million recognized in 2003 for equity
securities not related to discontinued operations. These
decreases were partially offset by a $3.4 million gain
on investments denominated in Euros that occurred
in 2004.
The portion of investment income related to the
private equity funds sold in 2005 has been classified
as discontinued operations. At December 31, 2005,
we held no beneficial interests in limited partner-
ships. (See Note 11 of Notes to Consolidated Financial
Statements).
Pension and Postretirement Benefits
We account for our pension and postretirement ben-
efit obligations in accordance with the provisions of
Statement of Financial Accounting Standards No. 87,
“Employers’ Accounting for Pensions” and No. 106
“Employers’ Accounting for Postretirement Benefits
Other than Pensions.” These standards require the
use of assumptions, such as the discount rate and
long-term rate of return on assets, in determining the
obligations, annual cost, and funding requirements
of the plans. We disclose our pension and postretire-
ment benefit plans as prescribed by Statement of
Financial Accounting Standards No. 132, “Employers’
Disclosures about Pensions and Other Postretirement
Benefits, an amendment of FASB Statements No. 87,
88, and 106.”
Legal, Environmental
and Regulatory Contingencies
In the normal course of business, we are subject to
various lawsuits, actions, proceedings, claims and
other matters asserted under laws and regulations.
We believe the amounts provided in our consolidated
financial statements, as prescribed by GAAP, ade-
quately reflect probable and estimable contingencies.
However, there can be no assurances that the actual
amounts required to satisfy alleged liabilities from vari-
ous legal proceedings, claims, and other matters, and
to comply with applicable laws and regulations, will
not exceed the amounts reflected in our consolidated
financial statements or will not have a material adverse
effect on our consolidated results of operations, finan-
cial condition or cash flows. As such, costs, if any, that
may be incurred in excess of those amounts provided
as of December 31, 2005, cannot currently be reason-
ably determined.
Recently Issued Accounting Standards
Stock-Based Compensation
In December 2004, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standard No. 123 (revised 2004) “Share-Based
Payment” (SFAS 123R). SFAS 123R replaces SFAS
123, “Accounting for Stock-Based Compensation”,
and supersedes Accounting Principles Board Opinion
No. 25 (Opinion 25), “Accounting for Stock Issued to
Employees”. SFAS 123R requires a public entity to
measure the cost of employee services received and
paid for by equity instruments to be based on the
fair-value of such equity on the grant date. This cost
is recognized in results of operations over the period
in which employees are required to provide service.
Liabilities initially incurred will be based on the fair-
value of equity instruments and then be re-measured
at each subsequent reporting date until the liability is
ultimately settled. The fair-value for employee share
options and other similar instruments at the grant date
will be estimated using option-pricing models and
excess tax benefits will be recognized as an addition to
paid-in capital. Cash retained from the excess tax ben-
efits will be presented in the statement of cash flows as
financing cash inflows. The provisions of this Statement
shall be effective for fiscal periods beginning after
December 31, 2005. We are currently accounting for
48
DPL Inc.
such share-based transactions granted after January
1, 2003, using SFAS 123, “Accounting for Stock-Based
Compensation.”
We use the Black-Scholes option-pricing model to
determine the fair value of each option as of the date
of grant for expense incurred. In applying the Black-
Scholes option-pricing model, the following assump-
tions were used:
Dividend yield – 3.8%
Risk-free interest rate – 3.6%
Expected option terms ranging from 0.5 to 4.5 years
Volatility factors ranging from 14% to 28%
Share price as of December 31, 2005 – $26.01
Option strike prices ranging from $14.95 to $29.63
SFAS 123R permits public companies to adopt its
requirements using one of two methods; “modified pro-
spective” method and “modified retrospective” method.
Under the “modified prospective” method, compensa-
tion cost is recognized beginning with the effective
date (a) based on the requirements of SFAS 123R for
all new awards and for awards modified, repurchased,
or canceled after the effective date, and (b) for all
awards granted to employees prior to the effective date
of SFAS 123R that remain unvested on the effective
date. The “modified retrospective” method includes
the requirements of the modified prospective method
described above, but also permits entities to restate
based on the amounts previously recognized under
SFAS 123 for purposes of pro forma disclosures for
either (a) all prior periods presented or (b) prior interim
periods of the year of adoption. We plan to adopt SFAS
123R using the modified prospective method. The
adoption of SFAS 123R’s fair value method is expected
to have an immaterial impact on our operating expens-
es for fiscal year 2006.
The Stock Incentive Units (SIUs) that meet the
requirements of a liability will be marked to market
each quarter. The SIUs that are fully vested will contin-
ue to be marked to market on a quarterly basis. Under
SFAS 123, these SIUs were valued at the quarter-end
market price for our common shares. If SFAS 123R had
been adopted at December 31, 2005, then a credit of
$0.2 million would have been booked to comply with
the new valuation method. The first quarter financials
for 2006 will reflect the new valuation method and we
are anticipating that a credit to compensation expense
of approximately $0.2 million will be needed to comply
with SFAS 123R.
Inventory Costs
In November 2004, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 151, (SFAS 151)”Inventory Costs, an
amendment of ARB No. 43, Chapter 4”. The amend-
ments made by SFAS 151 clarify that abnormal
amounts of idle facility expense, freight, handling costs,
and wasted materials (spoilage) should be recognized
as current-period charges and require the allocation
of fixed production overheads to inventory based on
the normal capacity of the production facilities. The
guidance is effective for inventory costs incurred dur-
ing fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred
during fiscal years beginning after November 23, 2004.
The adoption of SFAS 151 had no impact on our results
of operations, cash flows, and financial position.
Exchange of Nonmonetary Assets
In December 2004, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 153, “Exchange of Nonmonetary Assets,
an amendment of APB Opinion No. 29” (SFAS 153).
The guidance in APB Opinion No. 29, “Accounting for
Nonmonetary Transactions”, is based on the principle
that exchanges of nonmonetary assets should be mea-
sured based on the fair value of the assets exchanged.
The guidance in that Opinion, however, included cer-
tain exceptions to that principle. SFAS 153 amends
Opinion 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces
it with a general exception for exchanges of nonmon-
etary assets that do not have commercial substance.
A nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The
provisions of SFAS 153 shall be effective for nonmone-
tary asset exchanges occurring in fiscal periods begin-
ning after June 15, 2005. The adoption of SFAS 153
had no impact on our results of operations, cash flows
and financial position.
The American Jobs Creation Act of 2004
On October 22, 2004, the President signed the
American Jobs Creation Act of 2004 (the Act). On
December 21, 2004, the FASB issued two FASB Staff
Positions (FSP) regarding the accounting implications
of the Act related to (1) the deduction for qualified
domestic production activities (FSP FAS 109-1) and
DPL Inc.
49
(2) the one-time tax benefit for the repatriation of for-
eign earnings (FSP FAS 109-2). The guidance in the
FSPs applies to financial statements for periods ending
after the date the Act was enacted. The Act provides
a deduction up to 9 percent (when fully phased-in) of
the lesser of (a) qualified production activities income
(as defined by the Act) or (b) taxable income (after the
deduction for the utilization of any net operating loss
carryforwards). This tax deduction is limited to 50 per-
cent of W-2 wages paid by the taxpayer. The Act also
creates a temporary incentive for U.S. corporations to
repatriate accumulated income earned abroad by pro-
viding an 85 percent dividends received deduction for
certain dividends from controlled foreign corporations.
We have incorporated all applicable provisions of the
Act in our 2005 financial statements. The incorporation
of these ‘Section 199’ provisions generated a tax
benefit of $1.6 million during 2005.
Ohio House Bill 66
On June 30, 2005, Governor Taft signed House Bill
66 into law which significantly changed how we are
taxed in Ohio. The major provisions of the bill included
phasing-out the Ohio Franchise Tax, phasing-out
the Ohio Personal Property Tax for non-utility taxpayers
and phasing-in a Commercial Activities Tax. The
Ohio Franchise Tax phase-out required second quarter
2005 adjustments to income tax expense. Income
taxes from continuing operations were reduced by $1.5
million while income taxes from discontinued opera-
tions were increased by $1.3 million as a result of the
tax law change. Other applicable provisions of
House Bill 66 have been reflected in our consolidated
financial statements.
Discontinued Operations
In November 2004, the Emerging Issues Task Force
(EITF) issued EITF 03-13, “Applying the Conditions in
Paragraph 42 of FASB Statement No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets,
in Determining Whether to Report Discontinued
Operations” (SFAS No. 144). This guidance should
be applied to a component of an enterprise that is
either disposed of or classified as held for sale in fiscal
periods beginning after December 15, 2004. We have
accounted for the sale of the private equity invest-
ments in the financial asset portfolio according to SFAS
No. 144; and EITF 03-13 does not affect our results of
operations, cash flows, or financial position.
Accounting Changes and Error Corrections
Accounting Changes and Error Corrections
In June 2005, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 154, (SFAS 154) “Accounting Changes
and Error Corrections - a replacement of APB Opinion
No. 20 and FASB Statement No. 3”. This Statement
replaces APB Opinion No. 20, “Accounting Changes,”
and FASB Statement No. 3, “Reporting Accounting
Changes in Interim Financial Statements,” and changes
the requirements for the accounting for and reporting
of a change in accounting principle. This Statement
applies to all voluntary changes in accounting princi-
ple. It also applies to changes required by an account-
ing pronouncement in the unusual instance that the
pronouncement does not include specific transition
provisions. When a pronouncement includes specific
transition provisions, those provisions should be fol-
lowed. This Statement shall be effective for accounting
changes and corrections of errors made in fiscal years
beginning after December 15, 2005.
Accounting for Conditional Asset
Retirement Obligations
In March 2005, the Financial Accounting Standards
Board issued FASB Interpretation No. 47, (FIN No.
47) “Accounting for Conditional Asset Retirement
Obligations”. This Interpretation clarifies that the
term ‘conditional asset retirement obligation’ as used
in FASB Statement No. 143, “Accounting for Asset
Retirement Obligations”, refers to a legal obligation to
perform an asset retirement activity in which the tim-
ing and (or) method of settlement are conditional on a
future event that may or may not be within the control
of the entity. The obligation to perform the asset retire-
ment activity is unconditional even though uncertainty
exists about the timing and (or) method of settlement.
Thus, the timing and (or) method of settlement may be
conditional on a future event. Accordingly, an entity
is required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value
of the liability can be reasonably estimated. The fair
value of a liability for the conditional asset retirement
obligation should be recognized when incurred - gen-
erally upon acquisition, construction, or development
and (or) through the normal operation of the asset.
Uncertainty about the timing and (or) method of settle-
ment of a conditional asset retirement obligation should
be factored into the measurement of the liability when
sufficient information exists. SFAS 143 acknowledges
that in some cases, sufficient information may not
be available to reasonably estimate the fair value of
an asset retirement obligation. This Interpretation also
clarifies when an entity would have sufficient informa-
tion to reasonably estimate the fair value of an asset
retirement obligation. We adopted FIN No. 47 during
the fourth quarter 2005, effective January 1, 2005.
(See Asset Retirement Obligations in Note 1 to Notes
to Consolidated Financial Statements).
50
DPL Inc.
2 Supplemental Financial Information
$ in millions
Accounts receivable, net:
Utility customers
Unbilled revenue
Partners in commonly-owned plants
Refundable franchise tax
Wholesale and subsidiary customers
Other
Provision for uncollectible accounts
Total accounts receivable, net
Inventories, at average cost:
Fuel and emission allowances
Plant materials and supplies
Other
Total inventories, at average cost
Other current assets:
Deposits and other advances
Current deferred income taxes
Prepayments
Other
Total other current assets
Other deferred assets:
Prepaid pension
Master Trust assets
Unamortized loss on reacquired debt
Unamortized debt expense
Investment in Capital Trust
Other
Total other deferred assets
Other current liabilities:
Customer security deposits and other advances
Payroll taxes payable
Other
Total other current liabilities
Other deferred credits:
Asset retirement obligations – regulated property
Trust obligations
Retirees health and life benefits
Deferred gain on sale of portfolio
Pension liability
SECA net revenue subject to refund
Asset retirement obligations – generation
Legal reserves
Environmental reserves
Other
Total other deferred credits
At December 31,
2005
2004
$ 71.1
63.6
37.7
14.3
6.6
2.6
(1.0)
$ 194.9
$ 48.6
31.4
0.2
80.2
$
9.2
5.4
5.0
0.6
$ 62.7
$ 62.7
60.6
60.6
29.5
29.5
7.7
7.7
10.0
10.0
6.3
6.3
(1.1)
(1.1)
$ 175.7
$ 175.7
$
$ 40.1
31.4
0.6
$ 72.1
$
$
6.6
6.8
1 6.3
4.6
$ 20.2
$ 34.3
$
–
$
$
32.0
22.0
10.2
6.8
1.2
$ 72.2
$ 19.2
2.2
9.7
$ 31.1
$ 81.7
74.5
32.9
27.1
23.5
20.5
13.2
3.0
0.1
9.8
$ 286.3
$
$ 38.2
34.8
23.8
9.7
10.0
1.7
$ 118.2
$
$ 17.3
–
3.4
$ 20.7
$ 77.5
68.2
32.4
–
–
–
5.1
3.3
0.1
8.7
$ 195.3
DPL Inc.
51
3 Regulatory Matters
We apply the provisions of SFAS 71 to our regulated
operations. This accounting standard defines regula-
tory assets as the deferral of costs expected to be
recovered in future customer rates and regulatory
liabilities as current cost recovery of expected future
expenditures.
Regulatory liabilities are reflected on the
Consolidated Balance Sheets under the caption entitled
“Deferred Credits – Other”. Regulatory assets and
liabilities on the Consolidated Balance Sheets include:
$ in millions
At December 31,
2005
2004
Regulatory Assets:
Deferred recoverable income taxes $ 28.8
Electric Choice systems costs
19.8
Regional transmission
organization costs
PJM administrative costs
PJM integration costs
Deferred storm costs
Power plant emission fees
Other costs
12.9
5.6
1.9
6.5
3.8
4.5
$ 32.5
$ 32.5
19.8
19.8
13.6
13.6
–
–
–
–
1.0
1.0
3.6
3.6
3.5
3.5
Total regulatory assets
$ 83.8
$ 74.0
$ 74.0
Regulatory Liabilities:
Asset retirement obligations –
regulated property
SECA net revenue subject
81.7
77.5
77.5
to refund
20.5
–
–
Total regulatory liabilities
$ 102.2
$ 77.5
$ 77.5
Regulatory Assets
We evaluate our regulatory assets each period and
believe recovery of these assets is probable. We have
received or requested a return on certain regulatory
assets for which we are currently recovering or seeking
recovery through rates.
Deferred recoverable income taxes represent deferred
income tax assets recognized from the normalization
of flow-through items as the result of amounts previ-
ously provided to customers. Since currently existing
temporary differences between the financial statements
and the related tax basis of assets will reverse in sub-
sequent periods, deferred recoverable income taxes
are amortized.
Electric Choice systems costs represent costs incurred
to modify the customer billing system for unbundled
rates and electric choice bills relative to other genera-
tion suppliers, supplier energy settlements, and infor-
mation reports provided to the state administrator of
the low-income electric program. In February 2005, the
PUCO approved a stipulation allowing DP&L to recover
certain costs incurred for modifications to its billing
system from all customers in its service territory. The
case was appealed to the Ohio Supreme Court, and is
still pending. DP&L filed a subsequent case to imple-
ment the PUCO’s order to begin charging customers
for billing costs. A hearing took place on January 23,
2006 in this case. A PUCO order is still pending.
Regional transmission organization costs repre-
sent costs incurred to join a Regional Transmission
Organization that controls the receipts and delivery
of bulk power within the service area and are being
recovered over a 10-year period that commenced in
October 2004.
PJM administration costs contain the administra-
tive fees billed by PJM to DP&L as a member of the
PJM Interconnection, LLC Regional Transmission
Organization (RTO). Pursuant to a PUCO order issued
on January 25, 2006, these deferred costs will be
recovered over a 3-year period from retail ratepayers
beginning February 2006.
PJM integration costs include infrastructure costs and
other related expenses incurred by PJM to integrate
DP&L into the RTO. Pursuant to a FERC order, the
costs are being recovered over a 10-year period begin-
ning May 2005 from wholesale customers within PJM.
Deferred storm costs (2004 and 2005) include
costs incurred by DP&L to repair damage from the
December 2004 and the January 2005 ice storms.
DP&L filed to recover these costs from retail ratepayers
over a two year period. A PUCO order is pending.
Power plant emission fees represent costs paid to the
State of Ohio for environmental oversight that are or will
be recovered over various periods under a PUCO rate
rider from customers.
Other costs include consumer education advertising
regarding electric deregulation and costs pertaining to
the recent rate case and are or will be recovered over
various periods.
Regulatory Liabilities
Asset retirement obligations reflect an estimate of
amounts recovered in rates that are expected to be
expended to remove existing regulated transmission
and distribution property from service upon retirement.
SECA (Seams Elimination Charge Adjustment) net
revenue subject to refund
revenue subject to refund represents DP&L’s estimate
revenue subject to refund represents DP&L’s estimate
of probable refunds for net revenue collected in 2005.
SECA revenue and expenses represent FERC-ordered
transitional payments for the use of transmission lines
within PJM. These transitional payments are subject to
52
DPL Inc.
refund, depending on the results of a FERC hearing in mid 2006. DP&L began receiving and paying these
transitional payments in May of 2005. DP&L received $23 million net SECA revenue in 2005.
4 Income Taxes
$ in millions
Computation of Tax Expense
Federal income tax (a)
Increases (decreases) in tax resulting from –
State income taxes, net of federal effect (b)
Depreciation
Investment tax credit amortized
Non-deductible compensation
Section 199 – domestic production deduction
Accrual for open tax years (c)
Other, net
Total tax expense (d)
Components of Tax Expense
Taxes currently payable (b)
Deferred taxes –
Regulatory assets
Depreciation and amortization
Insurance and claims costs
Shareholder litigation
Other
Deferred investment tax credit, net
Total tax expense (d)
Components of Deferred Tax Assets and Liabilities
Components of Deferred Tax Assets and Liabilities
Components of Deferred Tax Assets and Liabilities
$ in millions
Net Non-Current Assets (Liabilities)
Depreciation / property basis
Income taxes recoverable
Regulatory assets
Investment tax credit
Investment loss
Compensation and employee benefits
Insurance
Other (e)
Net non-current (liabilities)
Net Current Asset
Other
Net Current Asset
For the years ended December 31,
2005
2004
2003
$ 71.9
$ 66.3
$ 66.3
$ 66.3
$ 66.8
$ 66.8
$ 66.8
1.2
(1.3)
(2.9)
0.2
(1.6)
11.2
1.2
1.2
1.2
1.2
(4.0)
(4.0)
(4.0)
(2.9)
(2.9)
(2.9)
–
–
–
–
–
–
5.3
5.3
5.3
0.6
0.6
0.6
(2.5)
(2.5)
(2.5)
(2.3)
(2.3)
(2.3)
(2.9)
(2.9)
(2.9)
13.4
13.4
13.4
–
–
–
4.6
4.6
4.6
(2.3)
(2.3)
(2.3)
$ 79.9
$ 66.5
$ 66.5
$ 66.5
$ 74.8
$ 74.8
$ 74.8
$ 85.0
$ 44.3
$ 44.3
$ 44.3
$ 79.7
$ 79.7
$ 79.7
–
(11.7)
(0.2)
–
9.7
(2.9)
–
–
–
(3.3)
(3.3)
(3.3)
(0.7)
(0.7)
(0.7)
23.2
23.2
23.2
5.9
5.9
5.9
(2.9)
(2.9)
(2.9)
(17.3)
(17.3)
(17.3)
(2.2)
(2.2)
(2.2)
27.6
27.6
27.6
(23.2)
(23.2)
(23.2)
13.1
13.1
13.1
(2.9)
(2.9)
(2.9)
$ 79.9
$ 66.5
$ 66.5
$ 66.5
$ 74.8
$ 74.8
$ 74.8
At December 31,
At December 31,
2005
2004
$ (402.2)
(10.1)
(9.4)
16.3
9.6
38.7
1.8
28.3
$ (327.0)
$ (415.2)
$ (415.2)
(11.4)
(11.4)
(6.5)
(6.5)
17.3
17.3
13.9.
13.9.
34.9
34.9
2.1
2.1
(19.9)
(19.9)
$ (384.8)
$ (384.8)
$
$
5.4
5.4
6.8
6.8
6.8
6.8
$
$
(a) The statutory tax rate of 35% was applied to pre-tax income from continuing operations before preferred dividends.
(b) We have recorded $(2.1) million, $11.7 million and $1.8 million in 2005, 2004 and 2003, respectively, for state tax credits available related
to the consumption of coal mined in Ohio.
(c) We have recorded $11.2 million, $5.3 million and $4.6 million in 2005, 2004 and 2003, respectively, of tax provision for tax deduction or
income positions taken in prior tax returns that we believe were properly treated on such tax returns but for which it is possible that these positions
may be contested. The Internal Revenue Service has issued an examination report for tax years 1998 through 2003 that shows proposed changes
to our federal income tax liability for each of those years. (See Note 14 of Notes to Consolidated Financial Statements.)
(d) Excludes $(2.1) million in 2005 and $11.3 million in 2003 of income taxes reported as cumulative effect of accounting change, net of income
taxes. Also excludes $19.9 million in 2005, $59.1 million in 2004 and $8.7 million in 2003 of income taxes reported as discontinued operations.
(e) The Other non-current liabilities caption includes deferred tax assets related to state tax net operating loss carryforwards, net of related
valuation allowances of $6.8 million in 2005 and $5.3 million in 2004. The majority of these net operating losses are Ohio franchise tax loss
carryforwards that expire after the phase-out of the Ohio franchise tax is completed in 2008. Remaining Ohio franchise tax loss carryforwards after
2008 can be used to offset the Ohio Commercial Activity Tax liability and do not expire until after 2029.
DPL Inc.
53
5 Pension and Postretirement Benefits
DP&L sponsors a defined benefit plan for substantially all employees. For collective bargaining employees, the
defined benefits are based on a specific dollar amount per year of service. For all other employees, the defined
benefit plan is based primarily on compensation and years of service. We fund pension plan benefits as accrued
in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974
(ERISA). In addition, DP&L has a Supplemental Executive Retirement Plan (SERP) for certain active and retired
key executives. Benefits under this SERP have been frozen and no additional benefits can be earned.
Qualified employees who retired prior to 1987 and their dependents are eligible for health care and life
insurance benefits. DP&L has funded the union-eligible health benefit using a Voluntary Employee Beneficiary
Association Trust.
We use a December 31 measurement date for the majority of our plans.
The following tables set forth our pension and postretirement benefit plans obligations, assets and amounts
recorded on the Consolidated Balance Sheets as of December 31. The amounts presented in the following
tables for pension include both the defined benefit pension plan and the Supplemental Executive Retirement Plan
in the aggregate.
$ in millions
2005
2004
2005
2004
Pension
Postretirement
Change in Projected Benefit Obligation
Projected benefit obligation at January 1
Service cost
Interest cost
Plan amendments
Actuarial (gain) loss
Benefits paid
Projected benefit obligation at December 31
Change in Plan Assets
Fair value of plan assets at January 1
Actual return on plan assets
Contribution to plan assets
Benefits paid
Fair value of plan assets at December 31
Reconciliation to the Consolidated Balance Sheets
Funded status of the plan
Unrecognized transition (asset) liability
Unrecognized prior service cost
Unrecognized net (gain) loss
Net amount recognized
Total Amounts Recognized in the
Consolidated Balance Sheets
Other deferred assets
Accumulated other comprehensive income
Other deferred credits
Net amount recognized
$ 280.5
3.9
15.7
9.3
8.2
(18.5)
$ 299.1
$ 265.9
12.2
0.4
(18.5)
$ 260.0
$ (39.1)
–
17.1
78.4
$ 56.4
$ 264.5
$ 264.5
3.5
3.5
3.5
16.0
16.0
16.0
–
–
–
15.0
15.0
15.0
(18.5)
(18.5)
(18.5)
$ 280.5
$ 280.5
$ 258.9
$ 258.9
25.1
25.1
25.1
0.4
0.4
0.4
(18.5)
(18.5)
(18.5)
$ 265.9
$ 265.9
$ (14.6)
$ (14.6)
–
–
–
10.2
10.2
10.2
64.9
64.9
64.9
$ 60.5
$ 60.5
$
–
66.9
(10.5)
$
56.4
$ 56.6
$ 56.6
3.9
3.9
3.9
–
–
–
$ 60.5
$ 60.5
$ 32.0
–
1.8
–
0.4
(3.1)
$ 31.1
$
8.9
0.1
2.0
(3.1)
$
7.9
$ (23.2)
0.4
–
(9.6)
$ (32.4)
$
–
–
(32.4)
$ (32.4)
$ 33.5
$ 33.5
–
–
1.9
1.9
–
–
(0.3)
(0.3)
(3.1)
(3.1)
$ 32.0
$ 32.0
$ 9.7
$ 9.7
0.2
0.2
2.1
2.1
(3.1)
(3.1)
$ 8.9
$ 8.9
$ (23.1)
$ (23.1)
0.5
0.5
–
–
(11.2)
(11.2)
$ (33.8)
$ (33.8)
$
$
–
–
–
–
(33.8)
(33.8)
$ (33.8)
$ (33.8)
The accumulated benefit obligation for DP&L’s defined benefit plans was $287.6 million and $269.4 million at
December 31, 2005, and 2004, respectively.
54
DPL Inc.
The net periodic benefit cost (income) of the pension and postretirement benefit plans at December 31 were:
Net Periodic Benefit (Income) Cost
Pension
Postretirement
$ in millions
2005
2004
2003
2005
2004
2003
Service cost
Interest cost
Expected return on assets (a)
Amortized of unrecognized:
Actuarial (gain) loss
Prior service cost
Transition obligation
Net pension benefit cost (income)
before adjustments
Special termination benefit cost (b)
Curtailment cost (c)
Net pension benefit cost (income)
3.9
$
15.7
(21.5)
$
3.5
3.5
$
3.5
$
16.0
16.0
16.0
16.0
(21.7)
(21.7)
(21.7)
(21.7)
$
3.3
3.3
$
3.3
$
16.3
16.3
16.3
16.3
(25.1)
(25.1)
(25.1)
(25.1)
$
–
1.8
(0.5)
$
$
3.8
2.3
–
4.2
0.2
0.1
2.0
2.0
2.0
2.0
2.7
2.7
2.7
2.7
–
–
–
–
2.5
2.5
2.5
2.5
–
–
–
–
–
–
–
–
$
$
$
$
$
$
$
$
$
$
$
$
0.1
0.1
0.1
0.1
2.8
2.8
2.8
2.8
–
–
–
–
(0.8)
–
0.2
$
$
$
$
$
$
$
$
$
$
$
$
(2.6)
(2.6)
(2.6)
(2.6)
–
–
–
–
–
–
–
–
0.7
–
–
–
–
1.9
1.9
1.9
(0.6)
(0.6)
(0.6)
(1.1)
(1.1)
(1.1)
–
–
–
0.2
0.2
0.2
0.4
0.4
0.4
–
–
–
–
–
–
$
$
–
–
2.1
2.1
2.1
(0.7)
(0.7)
(0.7)
(1.3)
(1.3)
(1.3)
–
–
–
0.2
0.2
0.2
0.3
0.3
0.3
–
–
–
–
–
–
after adjustments
$
4.5
$
$
$
2.5
2.5
2.5
$
$
$
(2.6)
(2.6)
(2.6)
$ 0.7
$
$
$
0.4
0.4
0.4
$
$
$
0.3
0.3
0.3
(a) The market-related value of assets is equal to the fair value of assets at implementation with subsequent asset gains and losses
recognized in the market-related value systematically over a three-year period.
(b) In 2005, a special termination benefit cost was recognized as a result of 16 employees who participated in a voluntary early retirement
program and retired at various dates during 2005.
(c) In 2005, a curtailment cost was recognized as a result of a freeze in benefits for the remaining active employee participating in the
Supplemental Executive Retirement Plan.
DP&L’s pension and postretirement plan assets were comprised of the following asset categories at December 31:
Asset Category
Common stocks
Mutual funds
Cash and cash equivalents
Fixed income government securities
Alternative investments
Total
Pension
2005
2004
9%
87%
1%
–
3%
100%
9%
9%
84%
84%
84%
3%
3%
3%
–
–
–
4%
4%
4%
100%
100%
Postretirement
2005
–
–
–
100%
–
100%
2004
–
–
–
–
4%
4%
96%
96%
–
–
100%
100%
Plan assets are invested using a total return investment approach whereby a mix of equity securities, mutual funds,
fixed income investments, alternative investments, and cash and cash equivalents are used to preserve asset
values, diversify risk and achieve our target investment return benchmark. Investment strategies and asset alloca-
tions are based on careful consideration of plan liabilities, the plan’s funded status and our financial condition.
Investment performance and asset allocation are measured and monitored on an ongoing basis. At December 31,
2005, $23.4 million of our common stock was held as plan assets.
DP&L’s expected return on plan asset assumptions, used to determine benefit obligations, are based on
historical long-term rates of return on investment, which uses the widely accepted capital market principle that
assets with higher volatility generate a greater return over the long run. Current market factors, such as inflation
and interest rates, as well as asset diversification and portfolio rebalancing, are evaluated when long-term capital
market assumptions are determined. Peer data and historical returns are reviewed to verify reasonability and
appropriateness.
DP&L’s overall expected long-term rate of return on assets is approximately 8.50% for pension plan assets and
approximately 6.75% for retiree welfare plan assets. This expected return is based exclusively on historical returns,
without adjustments. There can be no assurance of DP&L’s ability to generate that rate of return in the future.
DP&L’s overall discount rate was evaluated in relation to the December 31, 2005 Hewitt Yield Curve. The Hewitt
Yield Curve represents a portfolio of top-quartile AA-rated bonds used to settle pension obligations and supported
DPL Inc.
55
a weighted average discount rate of 5.75% at December 31, 2005. Peer data and historical returns were
also reviewed to verify the reasonability and appropriateness of DP&L’s discount rate used in the calculation of
benefit obligations and expense.
The weighted average assumptions used to determine benefit obligations for the years ended
December 31 were:
Benefit Obligation Assumptions
Discount rate for obligations
Rate of compensation increases
Pension
2005
2004
5.75%
4.00%
5.75%
5.75%
4.00%
4.00%
Postretirement
2005
2004
5.75%
–
5.75%
5.75%
–
–
The weighted-average assumptions used to determine net periodic benefit cost (income) for the years
ended December 31 were:
Net Periodic Benefit (Income) Cost Assumptions
Discount rate
Expected rate of return on plan assets
Rate of compensation increases
2005
5.75%
8.50%
4.00%
Pension
2004
6.25%
6.25%
6.25%
8.50%
8.50%
8.50%
8.50%
4.00%
4.00%
4.00%
4.00%
Postretirement
2003
2005
2004
6.75%
6.75%
6.75%
8.75%
8.75%
8.75%
8.75%
4.00%
4.00%
4.00%
4.00%
5.75%
6.75%
–
6.25%
6.25%
6.25%
6.75%
6.75%
6.75%
–
–
–
2003
6.75%
6.75%
6.75%
6.75%
6.75%
6.75%
–
–
–
The assumed health care cost trend rates at December 31 are as follows:
Health Care Cost Assumptions
Current health care cost trend rate
Ultimate health care cost trend rate
Ultimate health care cost trend rate – year
Expense
2005
2004
10.00%
5.00%
2010
10.00%
10.00%
5.00%
5.00%
2009
2009
Benefit Obligations
2005
2004
10.00%
5.00%
2011
10.00%
10.00%
5.00%
5.00%
2010
2010
The assumed health care cost trend rates have a significant effect on the amounts reported for the health care
plans. A one-percentage point change in assumed health care cost trend rates would have the following effects
on the net periodic postretirement benefit cost and the accumulated postretirement benefit obligation:
Effect of Change in Health Care Cost Trend Rate
$ in millions
Service cost plus interest cost
Service cost plus interest cost
Benefit obligation
Increase 1%
Decrease 1%
$
$
$
0.1
0.1
1.7
$ (0.1)
$ (0.1)
$ (1.6)
$ (1.6)
The following benefit payments, which reflect future service, are expected to be paid as follows:
Estimated Future Benefit Payments
$ in millions
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011 – 2015
Pension
$ 19.8
$ 19.8
$ 20.0
$ 20.0
$ 20.2
$ 20.2
$ 20.5
$ 20.5
$ 21.0
$ 21.0
$ 112.1
Postretirement
3.0
$
3.0
$
3.1
$
3.1
$
3.0
$
3.0
$
3.0
$
3.0
$
$
2.9
$
2.9
$ 11.7
$ 11.7
DP&L expects to contribute $0.4 million to its pension plan and $3.0 million to its other postretirement
benefit plan in 2006.
56
DPL Inc.
6 Common Shareholder’s Equity
We have 250,000,000 authorized common shares,
of which 127,526,404 are outstanding at December
31, 2005. We had 902,490 authorized but unissued
shares reserved for its dividend reinvestment plan
at December 31, 2005. The plan provides that either
original issue shares or shares purchased on the open
market may be used to satisfy plan requirements.
On July 27, 2005, our Board authorized the repur-
chase up to $400 million of stock from time to time in
the open market, through private transactions. During
December 2005 a total of 406,000 shares at a cost of
$10.6 million were repurchased and settled as 203,000
shares on January 3, 2006 and 203,000 shares on
January 4, 2006. These shares are currently held as
treasury shares. There were no other repurchases dur-
ing 2005 and 2004.
In September 2001, our Board of Directors
renewed our Shareholder Rights Plan, attaching one
right to each common share outstanding at the close of
business on December 13, 2001. The rights separate
from the common shares and become exercisable at
the exercise price of $130 per right in the event of cer-
tain attempted business combinations. The renewed
plan expires on December 31, 2011.
In February 2000, we entered into a series of
recapitalization transactions including the issuance of
$550 million of a combination of voting preferred and
trust preferred securities and warrants to an affiliate of
investment company Kohlberg Kravis Roberts & Co.
(KKR). As part of this recapitalization transaction, 31.6
million warrants were issued. These warrants were
sold for an aggregate purchase price of $50 million.
The warrants are exercisable, in whole or in part, for
common shares at any time during the twelve-year
period commencing on March 13, 2000. Each warrant
is exercisable for one common share, subject to anti-
dilution adjustments. The exercise price of the warrants
is $21.00 per common share, subject to anti-dilution
adjustments.
In addition, in the event of a declaration, issuance
or consummation of any dividend, spin-off or other dis-
tribution or similar transaction by us of the capital stock
of any of our subsidiaries, additional warrants of such
subsidiary will be issued to the warrant holder so that
after the transaction, the warrant holder will have the
same interest in the fully diluted number of common
shares of such subsidiary the warrant holder had in us
immediately prior to such transaction.
Pursuant to the warrant agreement, we have
reserved authorized common shares sufficient to pro-
vide for the exercise in full of all outstanding warrants.
During December 2004 and January 2005, Dayton
Ventures, LLC requested that we transfer all of Dayton
Ventures, LLC’s warrants to Lehman Brothers, Inc.
(Lehman) in four transactions. Lehman has subse-
quently transferred a large number of these warrants
to unaffiliated third parties. During one of these trans-
actions in 2005, Dayton Ventures, LLC agreed to sell
back to us at par all of the outstanding 6,600,000
voting preferred shares. As a result of the reduction
of Dayton Ventures, Inc.’s warrant ownership below
12,640,000, Dayton Ventures, LLC was no longer eli-
gible to receive an annual $1 million management, con-
sulting and financial services fee and it no longer had
the right to designate one person to serve as a director
of the DPL and DP&L and no longer had the right to
designate one person to serve as a non-voting observ-
er of DPL and DP&L. Currently, Dayton Ventures, LLC
does not have any ownership interest in us or DP&L.
We have a leveraged Employee Stock Ownership
Plan (ESOP) to fund matching contributions to DP&L’s
401(k) retirement savings plan and certain other pay-
ments to full-time employees. Common shareholders’
equity is reduced for the cost of 3.8 million unallocated
shares held by the trust and for 2.7 million shares
related to other employee plans, of which a total of 6.5
million shares reduce the number of common shares
used in the calculation of earnings per share.
Dividends received by the ESOP for unallocated
shares were used to repay the principal and interest on
an ESOP loan to us. As debt service payments were
made on the loan, shares are released on a pro-rata
basis. Dividends on the allocated shares are charged
to retained earnings.
ESOP cumulative shares allocated to employees
and outstanding for the calculation of earnings per
share were 3.2 million in 2005, 3.0 million in 2004 and
2.8 million in 2003. Compensation expense associated
with the ESOP, which is based on the fair value of the
shares allocated, amounted to $3.1 million in 2005,
$2.5 million in 2004 and $2.8 million in 2003.
DPL Inc.
57
7 Preferred Stock
DPL
Series B, no par value, 8,000,000 shares authorized; no shares outstanding as of December 31, 2005 and
6,600,000 shares outstanding as of December 31, 2004. As part of our 2000 recapitalization, 6.8 million shares of
voting preferred securities, redeemable par value of $0.01 per share, were issued at an aggregate purchase price
of $68,000. During 2001, we redeemed 200,000 shares. These preferred securities carried voting rights for up to
4.9% of our total voting rights and the nomination of one Board seat and one non-voting observer. See Note 15 of
Notes to Consolidated Financial Statements. On January 12, 2005, we repurchased all of the outstanding voting
preferred shares at par for an aggregate purchase price of $66,000.
DP&L
$25 par value, 4,000,000 shares authorized, no shares outstanding; and $100 par value, 4,000,000 shares
authorized, 228,508 shares without mandatory redemption provisions outstanding.
Preferred Stock
DPL Series B
DP&L Series A
DP&L Series B
DP&L Series C
Total
Rate
0.00%
3.75%
3.75%
3.90%
Current
Redemption
Price
0.01
0.01
$
$
$ 102.50
$ 102.50
$ 103.00
$ 103.00
$ 101.00
$ 101.00
Current Shares
Outstanding at
December 31, 2005
Par Value at
December 31, 2005
($ in millions)(a)
Par Value at
December 31, 2004
($ in millions)
–
93,280
69,398
65,830
$
–
9.3
7.0
6.6
$ 22.9
$ 0.1
9.3
7.0
6.6
$ 23.0
(a) DPL purchased all of its outstanding Series B shares during 2005.
In February 2000, we entered into a series of recapi-
talization transactions including the issuance of $550
million of a combination of voting preferred and trust
preferred securities and warrants to an affiliate of
investment company KKR. As part of our 2000 recapi-
talization transaction, trust preferred securities sold to
KKR had an aggregate face amount of $550 million,
and were issued at an initial discounted aggregate
price of $500 million, with a maturity of 30 years (sub-
ject to acceleration six months after the exercise of
the warrants), and distributions at a rate of 8.5% of the
aggregate face amount per year. We recognized the
entire trust preferred securities original issue discount
of $50 million upon issuance.
In August 2001, we issued $300 million of trust
preferred securities to institutional investors at 8.125%
and $400 million of senior unsecured notes at 6.875%.
The August 2001 trust preferred securities have a
term of 30 years and the senior unsecured notes have
a term of 10 years. In the fourth quarter of 2003, we
adopted FIN46R and deconsolidated the DPL Capital
Trust II, which resulted in transferring the August 2001
trust preferred securities to the DPL Capital Trust II and
establishing a note to Capital Trust II for $300 million at
8.125%.
The voting preferred shares (DPL Series B) were
not redeemable, except at the option of the holder.
We agreed to redeem such number so that at no time
would the holder and its affiliates maintain an owner-
ship interest of greater than 4.9% of the voting rights
of DPL. Our Series B preferred shares may only be
transferred or otherwise disposed of together with a
corresponding number of warrants, unless the holder
and its affiliates hold a greater number of warrants than
our Series B preferred shares, in which case the holder
may transfer any such excess warrants without trans-
ferring our Series B preferred shares. If the holder of a
warrant wishes to exercise warrants that are not excess
warrants, we will redeem simultaneously with the exer-
cise of such warrants an equal number of our Series B
preferred shares held by such holder. We repurchased
6,600,000 DPL Series B preferred shares on January
12, 2005 at par for an aggregate purchase price of
$66,000. There are currently no Series B preferred
shares outstanding.
The DP&L preferred stock may be redeemed at our
option at the per-share prices indicated, plus cumula-
tive accrued dividends.
As long as any DP&L preferred stock is outstand-
ing, DP&L’s Amended Articles of Incorporation contain
provisions restricting the payment of cash dividends
on any of its Common Stock if, after giving effect to
such dividend, the aggregate of all such dividends
distributed subsequent to December 31, 1946 exceeds
the net income of DP&L available for dividends on its
Common Stock subsequent to December 31, 1946,
58
DPL Inc.
plus $1.2 million. As of year-end, all earnings reinvested in the business of DP&L were available for Common Stock
dividends. DPL records dividends on preferred stock of DP&L as part of interest expense. We expect all 2006
earnings reinvested in the business of DP&L to be available for DP&L common stock dividends, payable to DPL.
8 Long-term Debt and Notes Payable
$ in millions
First mortgage bonds maturing: 2013 – 5.125%
Pollution control series maturing through 2027 – 6.43% (a)
Pollution control series maturing through 2034 – 4.78% (a)
Note to Capital Trust II 8.125% due 2031
Guarantee of Air Quality Development Obligations 6.10% Series due 2030
Senior Notes 6.875% Series due 2011
Senior Notes 6.25% Series due 2008
Senior Notes 8.25% Series due 2007
Senior Notes 8.00% Series due 2009
Notes maturing through 2007 – 7.83%
Obligation for capital leases
Unamortized debt discount and premium (net)
At December 31,
$
2005
470.0
–
214.4
684.4
195.0
–
297.4
1 00.0
225.0
175.0
–
3.0
(2.7)
$
2004
470.0
104.4
104.4
–
–
574.4
574.4
300.0
300.0
110.0
110.0
400.0
400.0
100.0
100.0
425.0
425.0
175.0
175.0
33.0
33.0
3.8
3.8
(3.9)
(3.9)
Total
$ 1,677.1
$ 2,117.3
$ 2,117.3
(a) Weighted average interest rates for 2005 and 2004.
The amounts of maturities and mandatory redemptions
for first mortgage bonds, notes and the capital leases
are $0.9 million in 2006, $225.9 million in 2007, $100.7
million in 2008, $175.7 million in 2009 and $0.6 million
in 2010. Substantially all property of DP&L is subject to
the mortgage lien securing the first mortgage bonds.
On September 29, 2003, DP&L issued $470 mil-
lion principal amount of First Mortgage Bonds, 5.125%
Series due 2013. The net proceeds from the sale of
the bonds, after expenses, were used on October 30,
2003, to (i) redeem $226 million principal amount of
DP&L’s First Mortgage Bonds, 8.15% Series due 2026,
at a redemption price of 104.075% of the principal
amount plus accrued interest to the redemption date
and (ii) redeem $220 million principal amount of DP&L’s
First Mortgage Bonds, 7.875% Series due 2024, at a
redemption price of 103.765% of the principal amount
plus accrued interest to the redemption date. The
5.125% Series due 2013 were not registered under
the Securities Act of 1933, but were offered and sold
through a private placement in compliance with Rule
144A under the Securities Act of 1933. The bonds
include step-up interest provisions requiring DP&L to
pay additional interest if (i) DP&L’s registration state-
ment was not declared effective by the SEC within 180
days from issuance of new bonds or (ii) the exchange
offer was not completed within 210 days from the issu-
ance of the new bonds. The registration statement was
not declared effective and the exchange offer was not
timely completed and, as a result, DP&L was required
to pay additional interest of 0.50% until a registration
statement was declared effective, at which point the
additional interest was reduced by 0.25%. The remain-
ing additional interest of 0.25% continued until the
exchange offer was completed. The exchange offer
registration for these securities was filed and declared
effective on May 20, 2005 and the exchange was com-
pleted on June 23, 2005.
In May 2005, DP&L obtained a $100 million unse-
cured revolving credit agreement that extended and
replaced its previous revolving credit agreement, of
$100 million. The new agreement, renewable annually,
expires on May 30, 2010 and provides credit support
of DP&L’s business requirements during this period.
This may be increased up to $150 million. The facility
contains one financial covenant: DP&L total debt to
total capitalization ratio is not to exceed 0.65 to 1.00.
This covenant is currently met. DP&L had no outstand-
ing borrowings under this credit facility at December
31, 2005. Fees associated with this credit facility are
approximately $0.2 million per year. Changes in credit
ratings, however, may affect the applicable interest rate
for DP&L’s revolving credit agreement.
In February 2004, DP&L entered into a $20 mil-
lion Master Letter of Credit Agreement with a finan-
cial lending institution. On February 24, 2005, DP&L
DPL Inc.
59
entered into an amendment to extend the term of this
Agreement for one year and reduce the maximum
dollar volume of letters of credit to $10 million. On
February 17, 2006, the company entered into a second
amendment to extend the term of this agreement for
another year. This agreement supports performance
assurance needs in the ordinary course of business.
DP&L has certain contractual agreements for the
sale and purchase of power, fuel and related energy
services that contain credit rating related clauses
allowing the counterparties to seek additional surety
under certain conditions. As of December 31, 2005,
DP&L had two outstanding letters of credit for a total
of $2.2 million.
In March 2004, we completed a $175 million pri-
vate placement of unsecured 8% series Senior Notes
due March 2009. The Senior Notes will not be redeem-
able prior to maturity except for a make-whole payment
at the adjusted treasury rate plus 0.25%. The proceeds
from these notes were used to provide partial funding
for the retirement of $500 million of the 6.82% Senior
Notes due April 2004. The 6.82% Senior Notes were
retired on April 6, 2004. We are in the process of regis-
tering these senior notes with the SEC. We expect
this registration to be completed in the second quarter
of 2006.
The 8% series Senior Notes were issued pursuant
to our indenture dated as of March 1, 2000, and pursu-
ant to authority granted in our Board resolutions dated
March 25, 2004. The notes impose a limitation on the
incurrence of liens on the capital stock of any of our
significant subsidiaries and require us and our subsid-
iaries to meet a consolidated coverage ratio of 2 to 1
prior to incurring additional indebtedness. The limita-
tion on the incurrence of additional indebtedness does
not apply to (i) indebtedness incurred to refinance
existing indebtedness, (ii) subordinated indebtedness
and (iii) up to $150 million of additional indebtedness.
In addition to the events of default specified in the
indenture, an event of default under the notes includes
a payment default or acceleration of indebtedness
under any other indebtedness of ours or any of our
subsidiaries which aggregates $25 million or more.
The purchasers were granted registration rights in con-
nection with the private placement under an Exchange
and Registration Rights Agreement. Pursuant to this
agreement, we were obligated to file an exchange offer
registration statement by July 22, 2004, have the regis-
tration statement declared effective by September 20,
2004 and consummate the exchange offer by October
20, 2004. We failed to have a registration statement
declared effective and to complete the exchange offer
according to this timeline. As a result, we are accru-
ing additional interest at a rate of 0.5% per annum per
violation, up to an additional interest rate not to exceed
in the aggregate 1.0% per annum. As each violation
is cured, the additional interest rate may decrease by
0.5%. The exchange offer registration for these securi-
ties is expected to be filed during the second quarter
of 2006.
The terms of the private placement also required
us to file our 2003 Form 10-K by July 30, 2004.
Because we failed to meet this deadline, we were
required to pay additional liquidated damages in
the form of additional interest at a rate of 1.0% until
November 5, 2004, the date the 2003 Form 10-K was
filed with the SEC.
On August 11, 2005, we repurchased approximate-
ly $207.6 million principal amount of its notes listed
below pursuant to offers to purchase that commenced
on July 14, 2005 and expired on August 10, 2005.
$ in millions
Title of Security;
CUSIP Number
8.125% Capital
Securities due 2031;
23330AAC4
23330AAC4
23330AAC4
6.875% Senior
Notes due 2011;
233293AH2
233293AH2
233293AH2
Principal
Amount
Outstanding
Aggregate
Principal Amount of
Tendered Notes
Accepted for Purchase
$ 300.0
$ 300.0
$ 300.0
$ 105.0
$ 105.0
$ 105.0
$ 400.0
$ 400.0
$ 400.0
$ 102.6
$ 102.6
$ 102.6
The total consideration paid for these notes totaled
$252.9 million, which includes accrued and unpaid
interest.
In addition, on August 29, 2005, we redeemed
$200 million of the 8.25% Senior Notes due 2007, leav-
ing $225 million of the 8.25% Senior Notes outstanding.
We used a portion of the proceeds from the sale of
the private equity funds in our financial asset portfolio
to fund these repurchases and redemptions.
On May 15, 2005 we redeemed all of the outstand-
ing 7.83% Senior Notes due 2007 in the amount of $39
million. A premium of 5.38% was paid on the 7.83%
Senior Notes that were redeemed.
On August 17, 2005, DP&L completed the refi-
nancing of $214.4 million of pollution control bonds.
The specific issues refinanced consisted of:
■ $41.3 million of Ohio Water Development Authority
(OWDA) bonds;
■ $137.8 million of Ohio Air Quality Development
Authority (OAQDA) bonds; and
■ $35.3 million of Boone County, Kentucky (Boone
County) bonds.
On August 17, 2005, DP&L entered into a separate
loan agreement with the OWDA, OAQDA and Boone
County for new pollution control bonds with a weighted
average interest rate of 4.78%. The proceeds of the
60
DPL Inc.
bonds were used to repay the previously existing pollution control bonds with a weighted average interest rate
of 6.26% on September 16, 2005. To secure the repayment of its obligations to the OWDA, OAQDA and
Boone County, DP&L entered into a 43rd Supplemental Indenture to its First and Refunding Mortgage for a like
amount ($214.4 million) of First Mortgage Bonds with The Bank of New York serving as Trustee.
In 2005, we recorded $61.2 million of charges resulting from premiums paid for the early redemption of
debt, including write-offs of unamortized debt expense.
There are no inter-company debt collateralizations or debt guarantees between us and our subsidiaries.
None of the debt obligations of us or DP&L are guaranteed or secured by affiliates and no cross-collateralization
exists between any subsidiaries.
9 Employee Stock Plans
In 2000, our Board of Directors adopted and our shareholders approved The DPL Inc. Stock Option Plan. The
plan provides that “no single Participant shall receive Options with respect to more than 2,500,000 shares.” The
exercise price of options granted approximates the market price of the stock on the date of grant. Options granted
in 2000 and 2001 represent three-year awards, which vested over five years from the grant date, and expire
ten years from the grant date. Options granted in 2002 vested over three years and expire ten years from the grant
date. Options granted in 2003 vest over five years and expire ten years from the grant date. In 2004, 200,000
options were granted that vest over nineteen months and expire approximately 6.5 years from the grant date;
20,000 options were granted that vest in five months and expire ten years from the grant date and 30,000 options
were granted that vest over three years and expire ten years from the grant date. In 2005, 350,000 options
were granted that vest in June 2006 and expire three years from the grant date. At December 31, 2005, there
were 1,488,500 options available for grant.
Summarized stock option activity was as follows:
2005
2004
2003
Options:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at year-end (a)
Exercisable at year-end
Weighted average option prices per share:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at year-end
Exercisable at year-end
6,165,500
350,000
(1,025,000)
(4,000)
5,486,500
4,100,000
$ 21.39
$ 26.82
$ 21.18
$ 29.63
$ 21.86
$ 20.98
6,895,500
6,895,500
6,895,500
250,000
250,000
250,000
–
–
–
(980,000)
(980,000)
(980,000)
6,165,500
6,165,500
6,165,500
–
–
–
$ 21.19
$ 21.19
$ 21.19
$ 21.86
$ 21.86
$ 21.86
–
–
–
$ 20.07
$ 20.07
$ 21.39
$ 21.39
$ 21.39
–
–
–
7,143,500
7,143,500
7,143,500
100,000
100,000
100,000
–
–
–
(348,000)
(348,000)
(348,000)
6,895,500
6,895,500
6,895,500
–
–
–
$ 21.47
$ 21.47
$ 21.47
$ 15.88
$ 15.88
$ 15.88
–
–
–
$ 24.99
$ 24.99
$ 21.19
$ 21.19
$ 21.19
–
–
–
(a) We originally granted 300,000 options during 2002 to Mr. Peter H. Forster, formerly DPL’s Chairman, that caused the number of options to
be held by Mr. Forster to exceed the maximum number allowed to be held by one participant under the option plan approved by the shareholders.
Therefore, 200,000 options representing the excess over the allowable maximum have been revoked. The number of options forfeited has been
increased by 980,000 in 2004 and 64,668 in 2003 to reflect additional forfeitures. The 980,000 options forfeited in 2004 and 3,620,000 options
outstanding are in dispute due to our ongoing litigation with Mr. Forster, Mr. Koziar and Ms. Muhlenkamp.
The weighted-average fair value of options granted was $3.80, $4.23 and $2.68 per share in 2005, 2004 and
2003, respectively. The fair values of the options were estimated as of the dates of grant using a Black-Scholes
option pricing model utilizing the following assumptions:
Volatility
Expected life (years)
Dividend yield rate
Risk-free interest rate
2005
25.6%
2.2%
3.7%
3.8%
2004
28.5%
28.5%
28.5%
6.4%
6.4
4.8%
4.8%
4.8%
3.9%
3.9%
3.9%
2003
24.0%
24.0%
24.0%
8.0%
8.0
4.5%
4.5%
4.5%
3.7%
3.7%
3.7%
DPL Inc.
61
The following table reflects information about stock options outstanding at December 31, 2005:
Range of
Exercise Prices
$ 14.95 – $ 21.00
$ 14.95 – $ 21.00
$ 14.95 – $ 21.00
$ 14.95 – $ 21.00
$ 14.95 – $ 21.00
$ 21.01 – $ 29.63
$ 21.01 – $ 29.63
$ 21.01 – $ 29.63
$ 21.01 – $ 29.63
$ 21.01 – $ 29.63
Outstanding
4,700,000
4,700,000
4,700,000
4,700,000
4,700,000
786,500
786,500
786,500
786,500
786,500
Options Outstanding
Options Exercisable
Weighted-Average
Contractual Life
Weighted-Average
Exercise Price
Exercisable
Weighted-Average
Exercise Price
4.5 years
4.5 years
4.5 years
4.5 years
4.5 years
3.7 years
3.7 years
3.7 years
3.7 years
3.7 years
$ 20.44
$ 20.44
$ 20.44
$ 20.44
$ 20.44
$ 28.01
$ 28.01
$ 28.01
$ 28.01
$ 28.01
4,060,000
4,060,000
4,060,000
4,060,000
4,060,000
40,000
40,000
40,000
40,000
40,000
$ 20.94
$ 20.94
$ 20.94
$ 20.94
$ 20.94
$ 24.48
$ 24.48
$ 24.48
$ 24.48
$ 24.48
We account for stock options granted on or after January 1, 2003, under the fair-value method set forth in FASB
Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123).
This standard requires the recognition of compensation expense for stock-based awards to reflect the fair
value of the award on the date of grant. We follow Accounting Principles Board Opinion No. 25, “Accounting for
Stock Issued to Employees” (Opinion 25) and related Accounting Principles Board and FASB interpretations in
accounting for stock-based compensation granted before January 1, 2003. If we had used the fair-value method
of accounting for stock-based compensation granted prior to 2003, net income and earnings per share would
have been reported as follows:
$ in millions
Net income, as reported
Adjustments:
Total stock-based compensation expense determined
under APB 25, net of related tax effects
Total stock-based compensation expense determined
under FAS 123, net of related tax effects
Pro-forma net income
Earnings per share:
Basic – as reported
Basic – pro-forma
Diluted – as reported
Diluted – pro-forma
10 Ownership of Facilities
Year Ended December 31,
2005
2004
2003
$ 174.4
$ 217.3
$ 217.3
$ 217.3
$ 148.5
$ 148.5
$ 148.5
(0.5)
2.0
$ 175.9
$ 1.44
$ 1.45
$ 1.35
$ 1.36
–
–
–
–
–
–
(3.0)
(3.0)
(3.0)
$ 214.3
$ 214.3
$ 214.3
(2.7)
(2.7)
(2.7)
$ 145.8
$ 145.8
$ 145.8
$ 1.81
$ 1.81
$ 1.81
$ 1.78
$ 1.78
$ 1.78
$ 1.78
$ 1.78
$ 1.78
$ 1.75
$ 1.75
$ 1.75
$ 1.24
$ 1.24
$ 1.24
$ 1.22
$ 1.22
$ 1.22
$ 1.22
$ 1.22
$ 1.22
$ 1.20
$ 1.20
$ 1.20
DP&L and other Ohio utilities have undivided ownership interests in seven electric generating facilities and
numerous transmission facilities. Certain expenses, primarily fuel costs for the generating units, are allocated to
the owners based on their energy usage. The remaining expenses, as well as investments in fuel inventory,
plant materials and operating supplies, and capital additions, are allocated to the owners in accordance with their
respective ownership interests. As of December 31, 2005, DP&L had $119 million of construction in progress
at such facilities. DP&L’s share of the operating cost of such facilities is included in the Consolidated Statement
of Results of Operations, and its share of the investment in the facilities is included in the Consolidated
Balance Sheets.
DP&L’s undivided ownership interest in such facilities at December 31, 2005, is as follows:
Production Units:
Beckjord Unit 6
Beckjord Unit 6
Beckjord Unit 6
Conesville Unit 4
Conesville Unit 4
Conesville Unit 4
East Bend Station
East Bend Station
East Bend Station
Killen Station
Miami Fort Units 7&8
Miami Fort Units 7&8
Miami Fort Units 7&8
Stuart Station
Stuart Station
Stuart Station
Zimmer Station
Zimmer Station
Zimmer Station
Transmission (at varying percentages)
Transmission (at varying percentages)
Transmission (at varying percentages)
62
DPL Inc.
DP&L Share
Ownership (%)
Production
Capacity (MW)
DP&L Investment
Gross Plant In Service
($ in millions)
50.0
50.0
50.0
16.5
16.5
16.5
31.0
31.0
31.0
67.0
67.0
67.0
36.0
36.0
36.0
35.0
35.0
35.0
28.1
28.1
28.1
207
207
207
129
129
129
186
186
186
412
412
412
360
360
360
832
832
832
365
365
365
$
$
$
62
62
62
33
33
33
195
195
195
421
421
421
194
194
194
365
365
365
1,041
1,041
1,041
88
88
88
11 Discontinued Operations
$ in millions
Investment income
Investment expenses
Income from discontinued operations
Gain realized from sale
Broker fees and other expenses
Loss recorded
Net gain on sales
Earnings before income taxes
Income tax expense
Earnings from discontinued operations, net
For the years ended December 31,
2005
2004
2003
$ 41.3
(9.5)
31.8
53.1
(6.5)
(5.6)
41.0
72.8
(19.9)
$ 52.9
$ 178.5
$ 178.5
$ 178.5
(23.6)
(23.6)
(23.6)
154.9
154.9
154.9
$ 43.8
$ 43.8
$ 43.8
(18.5)
(18.5)
(18.5)
25.3
25.3
25.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
154.9
154.9
154.9
(59.1)
(59.1)
(59.1)
$ 95.8
$ 95.8
$ 95.8
25.3
25.3
25.3
(8.7)
(8.7)
(8.7)
$ 16.6
$ 16.6
$ 16.6
On February 13, 2005, our subsidiaries, MVE and
MVIC, entered into an agreement to sell their respec-
tive interests in forty-six private equity funds to
AlpInvest/Lexington 2005, LLC, a joint venture of
AlpInvest Partners and Lexington Partners, Inc. Sales
proceeds and any related gains or losses were recog-
nized as the sale of each fund closed. Among other
closing conditions, each fund required the transaction
to be approved by the respective general partner.
During 2005, MVE and MVIC completed the sale of
their interests in forty-three and a portion of one private
equity funds resulting in a $46.6 million pre-tax gain
($53.1 million less $6.5 million professional fees) from
discontinued operations and providing approximately
$796 million in net proceeds, including approximately
$52 million in net distributions from funds while held for
sale. As part of this pre-tax gain, we realized $30 mil-
lion that was previously recorded as an unrealized gain
in other comprehensive income.
During this same period, MVE entered into alter-
native closing arrangements with AlpInvest/Lexington
2005, LLC for funds where legal title to said funds
could not be transferred until a later time. Pursuant
to these arrangements, MVE transferred the eco-
nomic aspects of the remaining private equity funds,
consisting of two funds and a portion of one fund, to
AlpInvest/Lexington 2005, LLC without a change in
ownership of the interests. The terms of the alternative
arrangements do not meet the criteria for recording a
sale. We are obligated to remit to AlpInvest/Lexington
2005, LLC any distributions MVE receives from these
funds, and AlpInvest/Lexington 2005, LLC is obligated
to provide funds to us to pay any contribution notice,
capital call or other payment notice or bill for which
MVE receives notice with respect to such funds. The
alternative arrangements resulted in a deferred gain of
$27.1 million until such terms of a sale can be complet-
ed (contingent upon receipt of general partner approv-
als of the transfer) and provided approximately $72.3
million in net proceeds on these funds. We recorded
an impairment loss of $5.6 million to write down assets
transferred pursuant to the alternative arrangements
to estimated fair value. Ownership of these funds will
transfer after the general partners of each of the sepa-
rate funds consent to the transfer. It is anticipated that
this will conclude no later than the first quarter of 2007.
Income from discontinued operations (pre-tax) for
the year ended December 31, 2005 of $31.8 million is
comprised of $41.3 million of investment income less
$9.5 million of associated management fees and other
expenses. Income from discontinued operations (pre-
tax) for the year ended December 31, 2004 of $154.9
million is comprised of $178.5 million of investment
income less $23.6 million of associated management
fees and other expenses. Income from discontinued
operations (pre-tax) for the year ended December 31,
2003 of $25.3 million is comprised of $43.8 million of
investment income less $18.5 million of associated
management fees and other expenses.
For the year ended December 31, 2005, we recog-
nized a $41.0 million pre-tax gain ($53.1 million less
$6.5 million of professional fees and $5.6 million
impairment loss), deferred gains of $27.1 million on
transferred funds from discontinued operations, and
provided approximately $816.5 million in net proceeds,
including approximately $52 million in net distributions
from funds held for sale. We will continue to incur minor
amounts of fees in the near term.
In 2005, we have separately disclosed the earn-
ings from discontinued operations, net of income taxes,
DPL Inc.
63
which in prior periods were reported with elements of
continued operations. Also in 2005 we have separately
disclosed the investing portions of the cash flows
attributable to its discontinued operations (there was no
impact on the operating or investing portions of the
cash flows), which in prior periods were reported on a
combined basis as a single amount.
Other assets and liabilities of the discontinued
operation were as follows:
$ in millions
Assets
Assets
Liabilities
Liabilities
2005
2004
$ 16.0
$ 16.0
$ 42.4
$ 42.4
$ 23.8
$ 23.8
$ 8.3
$ 8.3
Other assets in 2004 consist of prepaid management
fees. Other liabilities consist primarily of legal and pro-
fessional fees and a reserve for estimated obligations
under certain consulting and employment agreements
that are currently being challenged as described in
Legal Proceedings.
12 Financial Instruments
The fair value of our financial instruments is based on current public market prices, discounted cash flows using
current rates for similar issues with similar terms and remaining maturities or independent party valuations, which
are believed to approximate market. The basis on which the cost of a security sold or the amount reclassified
out of accumulated other comprehensive income was determined by specific identification. The table below pres-
ents the fair value, unrealized gains and losses, and cost of these instruments at December 31 2005, and 2004.
2005
Gross Unrealized
Gains
Losses
less
than 12
more
than 12
months months
At December 31,
Cost
Fair Value
2004
Gross Unrealized
Gains
Losses
less
than 12
more
than 12
months months
$ in millions
Fair Value
Assets
Public Securities
Available-for-sale
securities
$
Other
Held-to-maturity
24.8 $ 3.5 $ (3.1)
$ (3.1)
$ (3.1)
–
–
–
–
–
$ 3.5
–
–
–
–
–
–
$ – $
$
$ –
$ –
–
–
–
–
–
24.4
24.4
–
–
–
–
–
$ 107.0 $ 18.4 $
$ 107.0 $ 18.4 $
$ 107.0 $ 18.4 $
$ 107.0 $ 18.4 $
$ 107.0 $ 18.4 $
$ 107.0 $ 18.4 $
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
–
–
–
–
–
–
–
–
–
–
–
–
$ (2.8) $
$ (2.8) $
$ (2.8) $
$ (2.8) $
$ (2.8) $
$ (2.8) $
–
–
–
–
–
–
debt securities (a)
7.9
–
–
–
0.3)
(0.3)
0.3)
–
–
–
8.2
8.2
8.2
14.7
14.7
14.7
14.7
14.7
14.7
–
–
–
–
–
–
(0.1)
(0.1)
(0.1)
(0.1)
(0.1)
(0.1)
–
–
–
–
–
–
Cost
91.4
91.4
91.4
91.4
91.4
91.4
–
–
–
–
–
–
14.8
14.8
14.8
14.8
14.8
14.8
Private Securities
Cost method
Equity method
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
522.3
522.3
522.3
522.3
522.3
522.3
304.0
304.0
304.0
304.0
304.0
304.0
27.8
27.8
27.8
27.8
27.8
27.8
19.5
19.5
19.5
19.5
19.5
19.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.9)
(0.9)
(0.9)
(0.9)
(0.9)
(0.9)
494.5
494.5
494.5
494.5
494.5
494.5
285.4
285.4
285.4
285.4
285.4
285.4
Total assets
$
$
$
32.7 $ 3.5 $
32.7 $ 3.5 $ (3.4)
)
32.7 $ 3.5 $
)
$ – $
$ – $
$ – $
32.6
$ 948.8 $ 66.5 $ (0.1) $ (3.7) $ 886.1
$ 948.8 $ 66.5 $ (0.1) $ (3.7) $ 886.1
$ 948.8 $ 66.5 $ (0.1) $ (3.7) $ 886.1
$ 948.8 $ 66.5 $ (0.1) $ (3.7) $ 886.1
$ 948.8 $ 66.5 $ (0.1) $ (3.7) $ 886.1
$ 948.8 $ 66.5 $ (0.1) $ (3.7) $ 886.1
Liabilities
Long-term debt (b)
Capitalization
Unallocated shares
$ 1,717.5
$ 1,717.5
$ 1,717.5
$ 1,717.5
$ 1,717.5
$ 1,678.0
$
$
$
$
$ 2,266.7
$ 2,266.7
$ 2,266.7
$ 2,266.7
$ 2,266.7
$ 2,266.7
$ 2,130.8
$ 2,130.8
$ 2,130.8
$ 2,130.8
$ 2,130.8
$ 2,130.8
in ESOP
$ 100.1
$
$
$
$
$
49.1
49.1
49.1
49.1
49.1
$ 101.9
$ 101.9
$ 101.9
$ 101.9
$ 101.9
$ 101.9
$
$
$
$
$
$
51.7
51.7
51.7
51.7
51.7
51.7
(a) Maturities range from 2006 to 2035.
(b) Includes current maturities.
In the normal course of business, we enter into various financial instruments, including derivative financial instru-
ments. These instruments consist of forward contracts and options that are used to reduce our exposure to chang-
es in energy and commodity prices. These financial instruments are designated at inception as highly effective
cash-flow hedges and are measured for effectiveness both at inception and on an ongoing basis, with gains or
losses deferred in Accumulated Other Comprehensive Income until the underlying hedged transaction is realized,
canceled or otherwise terminated. The forward contracts and options generally mature within twelve months.
64
DPL Inc.
13 Earnings per Share
Basic earnings per share (EPS) are based on the weighted-average number of common shares outstanding during
the year. Diluted earnings per share are based on the weighted-average number of common and common equiva-
lent shares outstanding during the year, except in periods where the inclusion of such common equivalent shares
is anti-dilutive. Excluded from outstanding shares for this weighted average computation are shares held by the
Master Trust Plan for deferred compensation and by the ESOP.
For the years 2005, 2004, and 2003, respectively, approximately 0.5 million, 28.0 million, and 37.8 million war-
rants and stock options were excluded from the computation of diluted earnings per share because they were anti-
dilutive. These warrants and stock options could be dilutive in the future.
The following illustrates the reconciliation of the numerators and denominators of the basic and diluted earn-
ings per share computations for income after discontinued operations and cumulative effect of accounting change:
$ in millions
except per share amounts
2005
Income(a) Shares Per Share
2004
Income(a) Shares Per Share
2003
Income(a)
Shares Per Share
Basic EPS
$ 174.4
121.0 $ 1.44
21.0 $ 1.44
$ 217.3
$ 217.3
$ 217.3
$ 217.3
$ 217.3
$ 217.3
$ 217.3
120.1
120.1
120.1
120.1
120.1
120.1
120.1
$ 1.81
$ 1.81
$ 1.81
$ 1.81
$ 1.81
$ 1.81
$ 1.81
$ 148.5
$ 148.5
$ 148.5
$ 148.5
$ 148.5
$ 148.5
$ 148.5
119.8
119.8
119.8
119.8
119.8
119.8
119.8
$ 1.24
$ 1.24
$ 1.24
$ 1.24
$ 1.24
$ 1.24
$ 1.24
Effect of Dilutive Securities:
Stock Incentive Units
Stock Incentive Units
Warrants
Warrants
Stock options
Stock options
1.2
6.1
0.8
1.2
1.2
1.2
1.2
1.2
1.2
1.2
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.2
0.2
0.2
0.2
0.2
0.2
0.2
1.8
1.8
1.8
1.8
1.8
1.8
1.8
–
–
–
–
–
–
–
0.1
0.1
0.1
0.1
0.1
0.1
0.1
Diluted EPS
$ 174.4
129.1 $ 1.35
$ 1.35
$ 217.3
$ 217.3
$ 217.3
$ 217.3
$ 217.3
$ 217.3
$ 217.3
122.1
122.1
122.1
122.1
122.1
122.1
122.1
$ 1.78
$ 1.78
$ 1.78
$ 1.78
$ 1.78
$ 1.78
$ 1.78
$ 148.5
$ 148.5
$ 148.5
$ 148.5
$ 148.5
$ 148.5
$ 148.5
121.7
121.7
121.7
121.7
121.7
121.7
121.7
$ 1.22
$ 1.22
$ 1.22
$ 1.22
$ 1.22
$ 1.22
$ 1.22
(a) Income after discontinued operations and cumulative effect of accounting change.
14 Commitments and Contingencies
Contingencies
In the normal course of business, we are subject to
various lawsuits, actions, proceedings, claims and
other matters asserted under laws and regulations.
We believe the amounts provided in our consolidated
financial statements, as prescribed by GAAP, are ade-
quate in light of the probable and estimable contingen-
cies. (See Note 1 of Notes to Consolidated Financial
Statements.) However, there can be no assurances
that the actual amounts required to satisfy alleged
liabilities from various legal proceedings, claims, tax
examinations and other matters discussed below, and
to comply with applicable laws and regulations, will
not exceed the amounts reflected in our Consolidated
Financial Statements. As such, costs, if any, that may
be incurred in excess of those amounts provided as of
December 31, 2005, cannot be reasonably determined.
Environmental Matters
We and our subsidiaries’ facilities and operations are
subject to a wide range of environmental regulations
and law. In the normal course of business, DP&L has
investigatory and remedial activities underway at these
facilities to comply, or to determine compliance, with
such regulations. DP&L has been identified, either by a
government agency or by a private party seeking con-
tribution to site clean-up costs, as a potentially respon-
sible party (PRP) at two sites pursuant to state and
federal laws. DP&L records liabilities for probable esti-
mated loss in accordance with Statement of Financial
Accounting Standards No. 5 (SFAS 5), “Accounting
for Contingencies.” To the extent a probable loss can
only be estimated by reference to a range of equally
probable outcomes, and no amount within the range
appears to be a better estimate than any other amount,
DP&L accrues for the low end of the range. Because
of uncertainties related to these matters accruals are
based on the best information available at the time.
DP&L evaluates the potential liability related to prob-
able losses quarterly and may revise its estimates.
Such revisions in the estimates of the potential liabilities
could have a material effect on the Company’s results
of operations and financial position.
Legal Matters
On August 24, 2004, we, and our subsidiaries DP&L
and MVE, filed a Complaint against Mr. Forster, Ms.
Muhlenkamp and Mr. Koziar (the “Defendants”) in the
Court of Common Pleas of Montgomery County, Ohio
asserting legal claims against them relating to the
DPL Inc.
65
termination of the Valley Partners Agreements, chal-
lenging the validity of the purported amendments to
the deferred compensation plans and to the employ-
ment and consulting agreements with the Defendants,
and the propriety of the distributions from the plans
to the Defendants, and alleging that the Defendants
breached their fiduciary duties and breached their
consulting and employment contracts. We, DP&L and
MVE seek, among other things, damages in excess of
$25,000, disgorgement of all amounts improperly with-
drawn by the Defendants from the plans and a court
order declaring that we, DP&L and MVE have no fur-
ther obligations under the consulting and employment
contracts due to those breaches.
The Defendants filed motions to dismiss the
Complaint, which the Court subsequently denied. On
June 15, 2005, Defendants filed their answers deny-
ing liability and filed counterclaims against us, DP&L,
MVE, various compensation plans (the “Plans”), and
against the then-current members of our Board of
Directors and two of our former Board members. These
counterclaims allege generally that DPL, DP&L, MVE,
the Plans and the individual defendants breached the
terms of the employment and consulting contracts of
the Defendants, and the terms of the Plans. They fur-
ther allege theories of breach of fiduciary duty, breach
of contract, promissory estoppel, tortious interference,
conversion, replevin and violations of ERISA under
which they seek distribution of deferred compensa-
tion balances, conversion of stock incentive units,
exercise of options and payment of amounts allegedly
owed under the contracts and the Plans. Defendants’
counterclaims also demand payment of attorneys’ fees.
Motions to dismiss certain of the counterclaims were
denied on February 23, 2006.
On March 15, 2005, Mr. Forster and Ms.
Muhlenkamp filed a lawsuit in New York state court
against the purchasers of the private equity invest-
ments in the financial asset portfolio and against out-
side counsel to us and DP&L concerning purported
entitlements in connection with the purchase of those
investments. We, DP&L and MVE are not defendants
in that case; however, the three of us are parties to
an indemnification agreement with respect to the pur-
chaser defendants. We, DP&L and MVE filed a Motion
for Preliminary Injunction in the Ohio case, requesting
that the court issue a preliminary injunction against Mr.
Forster and Ms. Muhlenkamp regarding the New York
lawsuit. On August 18, 2005, the Ohio court issued
a preliminary injunction against Mr. Forster and Ms.
Muhlenkamp that precludes them from pursuing certain
key issues raised by Mr. Forster and Ms. Muhlenkamp
in their New York lawsuit that are identical to the issues
raised in the pending Ohio lawsuit in the New York
court or any other forum other than the Ohio litigation.
In addition, the New York court has stayed the New
York litigation pending the outcome of the Ohio litiga-
tion. Mr. Forster and Ms. Muhlenkamp have appealed
the preliminary injunction and the appeal is pending at
the Ohio Supreme Court.
The parties continue to proceed with the discov-
ery phase of the litigation, and a number of motions
have been filed and briefed with respect to document
discovery and depositions. The trial court granted
some and overruled some of these pending motions on
February 23, 2006.
We continue to evaluate all of the matters relevant
to this litigation and are considering other claims
against Defendants, Forster, Muhlenkamp and Koziar
that include, but are not limited to, breach of fiduciary
duty or other claims relating to personal and DPL
investments, the calculation of benefits under the
Supplemental Executive Retirement Program (SERP)
and financial reporting with respect to such benefits,
and with respect to Mr. Koziar, the fulfillment of duties
owed to us as our legal counsel. Cumulatively through
December 31, 2005, we have accrued for accounting
purposes, obligations of approximately $52 million
to reflect claims regarding deferred compensation,
estimated MVE incentives and/or legal fees that
Defendants assert are payable per contracts. We
dispute Defendants’ entitlement to any of those sums
and, as noted above, we are pursuing litigation against
them contesting all such claims.
On or about June 24, 2004, the SEC commenced
a formal investigation into the issues raised by the
Memorandum. We are cooperating with the investigation.
On April 7, 2004, the Company received notice
that the staff of the PUCO is conducting an investiga-
tion into the financial condition of DP&L as a result of
the issues raised by the Memorandum. On May 27,
2004, the PUCO ordered DP&L to file a plan of util-
ity financial integrity that outlines the actions we have
taken or will take to insulate DP&L utility operations and
customers from its unregulated activities. DP&L was
required to file this plan by March 2, 2005. On February
4, 2005, DP&L filed its protection plan with the PUCO.
On June 29, 2005, the PUCO closed its investigation,
citing significant positive actions we had taken includ-
ing changes in the Board of Directors as well as the
executive management of DP&L, and that no apparent
diminution of service quality had occurred because
66
DPL Inc.
of the events that initiated the investigation.
On May 20, 2004, the staff of the SEC notified us
that it was conducting an inquiry covering our exempt
status under the Public Utility Holding Company Act of
1935 (the ’35 Act). The staff of the SEC requested we
provide certain documents and information on a volun-
tary basis. On October 8, 2004, we received a notice
from the SEC that a question exists as to whether such
exemption from the Public Utility Holding Company Act
may be detrimental to the public interest or the inter-
ests of investors or consumers. On November 5, 2004,
we filed a good faith application seeking an order of
exemption from the SEC. In light of the repeal of the ’35
Act, effective February 8, 2006, and based upon the
information previously provided to the staff of the SEC,
this inquiry is moot.
On May 28, 2004, the U.S. Attorney’s Office for
the Southern District of Ohio, assisted by the Federal
Bureau of Investigation, notified us that it has initiated
an inquiry involving the subject matters covered
by our internal investigation. We are cooperating with
this investigation.
On June 24, 2004, the Internal Revenue Service
(IRS) began an audit of tax years 1998 through 2003
and issued a series of data requests to us includ-
ing issues raised in the Memorandum. The staff of
the IRS has requested that we provide certain docu-
ments, including but not limited to, matters concern-
ing executive/director deferred compensation plans,
management stock incentive plans and MVE financial
statements. On September 1, 2005, the IRS issued an
audit report for tax years 1998 through 2003 that shows
proposed changes to our federal income tax liability for
each of those years. The proposed changes result in
a total tax deficiency, penalties and interest of approxi-
mately $23.9 million as of December 31, 2005. On
November 4, 2005, we filed a written protest to one of
the proposed changes. We believe we are adequately
reserved for any tax deficiency, penalties and interest
resulting from the proposed changes and as a result,
the proposed changes did not adversely affect our
results from operations.
We are also under audit review by various state
agencies for tax years 2002 through 2004. We have
also filed an appeal to the Ohio Board of Tax Appeals
for tax years 1998 through 2001. Depending upon the
outcome of these audits and the appeal, we may be
required to increase our tax provision if actual amounts
ultimately determined exceed recorded reserves. We
believe we have adequate reserves in each tax juris-
diction but cannot predict the outcome of these audits.
On February 13, 2006, we received correspon-
dence from the Ohio Department of Taxation (ODT)
notifying us that ODT has completed their examina-
tion and review of our Ohio Corporation Franchise Tax
Returns for tax years 2002 through 2004 and that the
final proposed audit adjustments result in a balance
due of $90.8 million before interest and penalties.
We have reviewed the proposed audit adjustments
and plan to vigorously contest the ODT findings and
forthcoming notice of assessment through all admin-
istrative and judicial means available. We believe we
have recorded adequate tax reserves related to the
proposed adjustments; however, we cannot predict
the outcome, which could be material to our results of
operations and cash flows.
On December 12, 2003, the Office of Federal
Contract Compliance Programs (OFCCP) notified
DP&L by letter, alleging it had discriminated in the
hiring of meter readers during 2000-2001 by utilizing
credit checks to determine if applicants had paid their
electric bills. On February 12, 2004 DP&L and the
OFCCP entered into a Conciliation Agreement whereby
DP&L agreed to distribute approximately $0.2 million
in compensation to certain affected applicants. DP&L
has completed these payments to the affected appli-
cants and supplied to the OFCCP all follow-up reports
required under the Conciliation Agreement.
In June 2002, a contractor’s employee received
a verdict against DP&L for injuries he sustained while
working at a DP&L power station. The Adams County
Court of Common Pleas awarded the contractor’s
employee compensatory damages of approximately
$0.8 million and prejudgment interest of approximately
$0.6 million. On April 28, 2004, the 4th District Court
of Appeals upheld this verdict except the award for
prejudgment interest. On September 1, 2004, the Ohio
Supreme Court refused to hear the case, so the matter
was remanded to the Adams County Court of Common
Pleas for a re-determination of the amount of prejudg-
ment interest that should be awarded. The trial court
heard this matter on October 15, 2004. On November
1, 2004, DP&L paid approximately $976 thousand to
the contractor’s employee to satisfy the judgment and
post-judgment interest. On December 6, 2004, the
Adams County Court of Common Pleas ruled that pre-
judgment interest should be reduced to approximately
$30 thousand. Both parties appealed this decision. On
January 25, 2006, the Fourth District Court of Appeals
ruled in DP&L’s favor, finding it owed no prejudgment
interest to Plaintiff.
DPL Inc.
67
Contractual Obligations and Commercial Commitments
We enter into various contractual obligations and other commercial commitments that may affect the liquidity
of our operations. At December 31, 2005, these include:
Contractual Obligations
$ in millions
Total
Less than 1 Year
2 -3 Years
4 -5 Years
More than 5 Years
Payment Year
Long-term debt
Long-term debt
Long-term debt
Long-term debt
Long-term debt
Interest payments
Interest payments
Interest payments
Interest payments
Interest payments
Pension and postretirement payments
Pension and postretirement payments
Pension and postretirement payments
Pension and postretirement payments
Pension and postretirement payments
Capital leases
Capital leases
Capital leases
Capital leases
Capital leases
Operating leases
Operating leases
Operating leases
Operating leases
Operating leases
Coal contracts (a)
Other contractual obligations
Other contractual obligations
Other contractual obligations
Other contractual obligations
Other contractual obligations
Total contractual obligations
Total contractual obligations
Total contractual obligations
Total contractual obligations
Total contractual obligations
$ 1,674.1
$ 1,674.1
$ 1,674.1
$ 1,674.1
$ 1,674.1
1,068.8
1,068.8
1,068.8
1,068.8
1,068.8
240.3
240.3
240.3
240.3
240.3
3.9
3.9
3.9
3.9
3.9
0.9
0.9
0.9
0.9
0.9
795.1
795.1
795.1
795.1
795.1
506.3
506.3
506.3
506.3
506.3
$ 4,289.4
$ 4,289.4
$ 4,289.4
$ 4,289.4
$ 4,289.4
(a) DP&L-operated units
$
–
–
$
–
$
–
$
–
$
109.9
109.9
109.9
109.9
109.9
22.8
22.8
22.8
22.8
22.8
0.9
0.9
0.9
0.9
0.9
0.5
0.5
0.5
0.5
0.5
390.1
390.1
390.1
390.1
390.1
358.5
358.5
358.5
358.5
358.5
$ 882.7
$ 882.7
$ 882.7
$ 882.7
$ 882.7
$ 324.9
$ 324.9
$ 324.9
$ 324.9
$ 324.9
180.9
180.9
180.9
180.9
180.9
46.3
46.3
46.3
46.3
46.3
1.7
1.7
1.7
1.7
1.7
0.4
0.4
0.4
0.4
0.4
273.0
273.0
273.0
273.0
273.0
147.8
147.8
147.8
147.8
147.8
$ 975.0
$ 975.0
$ 975.0
$ 975.0
$ 975.0
$ 175.0
$ 175.0
$ 175.0
$ 175.0
$ 175.0
144.8
144.8
144.8
144.8
144.8
47.4
47.4
47.4
47.4
47.4
1.3
1.3
1.3
1.3
1.3
–
–
–
–
–
87.0
87.0
87.0
87.0
87.0
–
–
–
–
–
$ 455.5
$ 455.5
$ 455.5
$ 455.5
$ 455.5
$ 1,174.2
$ 1,174.2
$ 1,174.2
$ 1,174.2
$ 1,174.2
633.2
633.2
633.2
633.2
633.2
123.8
123.8
123.8
123.8
123.8
–
–
–
–
–
–
–
–
–
–
45.0
45.0
45.0
45.0
45.0
–
–
–
–
–
$ 1,976.2
$ 1,976.2
$ 1,976.2
$ 1,976.2
$ 1,976.2
Long-term debt:
Long-term debt as of December 31, 2005, consists of
DP&L’s first mortgage bonds, tax-exempt pollution control
bonds, DPL unsecured notes and includes current maturi-
ties and unamortized debt discounts. As of December 31,
2005, we have redeemed $446.6 million of long-term debt
earlier than termed. (See Note 8 of Notes to Consolidated
Financial Statements.)
Other contractual obligations:
In January 2006, DP&L entered a contract for limestone
that is expected to generate an obligation of $6.0 million
in 2006 through 2008; $10.5 million in 2009 through 2010;
and $42.2 million thereafter. As of December 31, 2005,
we had various other contractual obligations including
non-cancelable contracts to purchase goods and services
with various terms and expiration dates.
Interest payments:
Interest payments associated with the Long-term debt
described above.
We enter into various commercial commitments, which
may affect the liquidity of our operations. At December
31, 2005, these include:
Pension and Postretirement payments:
As of December 31, 2005, we had estimated future benefit
payments as outlined in Note 5 of Notes to Consolidated
Financial Statements. These estimated future benefit pay-
ments are projected through 2015.
Capital leases:
As of December 31, 2005, we had two capital leases that
expire in November 2007 and September 2010.
Operating leases:
As of December 31, 2005, we had several operating leas-
es with various terms and expiration dates. Not included
in this total is approximately $88,000 per year related
to right of way agreements that are assumed to have no
definite expiration dates.
Coal contracts:
DP&L has entered into various long-term coal contracts
to supply portions of its coal requirements for its generat-
ing plants. Contract prices are subject to periodic
adjustment, and have features that limit price escalation
in any given year.
Credit facilities:
In May 2005, DP&L replaced its previous $100 million
revolving credit agreement with a $100 million, 364-day
unsecured credit facility that is renewable annually
and expires on May 30, 2010. At December 31, 2005,
there were no borrowings outstanding under this credit
agreement. The new facility may be increased up to
$150 million.
Guarantees:
DP&L owns a 4.9% equity ownership interest in an electric
generation company. As of December 31, 2005, DP&L
could be responsible for the repayment of 4.9%, or $14.9
million, of a $305 million debt obligation and also 4.9%,
or $2.9 million, of a separate $60 million debt obligation.
Both obligations mature in 2006.
Other:
We completed the sale of or entered into alternative
closing arrangements for all private equity funds in our
financial asset portfolio as of June 20, 2005. We have an
obligation to fund any cash calls or other commitments
in which the purchaser of the private equity funds
defaults with respect to the funds for which we entered
into an alternative closing arrangement. This obligation is
estimated not to exceed $8.0 million.
68
DPL Inc.
15 Certain Relationships and
Related Transactions
On March 13, 2000, Dayton Ventures, Inc. and Dayton
Ventures LLC, affiliates of Kohlberg Kravis Roberts &
Co. LLC (KKR), purchased a combination of trust pre-
ferred securities issued by a trust established by us,
our voting preferred shares and warrants to purchase
our common shares for an aggregate of $550 million.
The trust preferred securities were redeemed at par
in 2001 with proceeds of a new issuance of trust pre-
ferred securities and our Senior Notes. The 6.6 million
Series B voting preferred shares had voting power not
exceeding 4.9% of the total outstanding voting power
of our voting securities and were purchased by Dayton
Ventures LLC for an aggregate purchase price of $68
thousand. The warrants to purchase approximately
31.6 million common shares (representing approxi-
mately 19.9% of the common shares then outstand-
ing) have a term of 12 years, an exercise price of $21
per share, and were purchased by Dayton Ventures
LLC for an aggregate purchase price of $50 million.
In connection with the March 13, 2000 transaction, we
and KKR also entered into an agreement under which
we paid KKR an annual management, consulting and
financial services fee of $1.0 million. The agreement
also stated that we would provide KKR with an oppor-
tunity to provide investment banking services on such
terms as the parties may agree and at such time as
any such services may be required. We also agreed
to reimburse KKR and their affiliates for all reason-
able expenses incurred in connection with the ser-
vices provided under this agreement, including travel
expenses and expenses of its counsel. We and KKR
terminated this agreement on January 12, 2005. During
December 2004 through January 2005, KKR initiated
a series of agreements to transfer all of the warrants to
an unaffiliated third party. This transferee subsequently
transferred a large portion of the warrants to multiple
unrelated third parties. In January 2005, as part of
one of these transfers, KKR sold back to us all of the
outstanding Series B voting preferred shares at par of
$0.01 per share for $66 thousand.
Under the Securityholders and Registration Rights
Agreement among us, DPL Capital Trust I, Dayton
Ventures LLC and Dayton Ventures, Inc., KKR had the
right to designate one person for election to, and one
person to attend as a non-voting observer at all meet-
ings of, the DPL and DP&L Boards of Directors for as
long as Dayton Ventures LLC and its affiliates continue
to beneficially own at least 12.64 million of our common
shares, including shares issuable upon exercise of
warrants. Scott M. Stuart, a director during fiscal 2003,
and George R. Roberts, a non-voting observer, were
the KKR designees in 2003 pursuant to this agreement.
Mr. Stuart resigned from the Board and Mr. Roberts
ceased to be a non-voting observer of the Board as of
April 2004. As a result of the transfer of warrants from
KKR to an unaffiliated third party during December
2004 through January 2005, KKR no longer owned any
warrants or common stock. Accordingly, KKR no longer
had the right to appoint one member and one observer
to both DPL and DP&L Boards of Directors and the
Securityholders and Registration Rights Agreement
was amended to delete these, and other, rights.
In 1996, we entered into a consulting contract pur-
suant to which Peter H. Forster agreed to (i) serve, in
a non-employee capacity, as Chairman of the Board of
Directors of DPL, DP&L and MVE, and as Chairman of
the Executive Committee of our Board of Directors and
(ii) provide advisory and strategic planning consulting
services. That contract became the subject of litigation
after Mr. Forster resigned on May 16, 2004. (See Note
14 of Notes to Consolidated Financial Statements.)
In June 2001, our subsidiaries, MVE, of which
Mr. Forster was Chairman, Miami Valley Development
Company (MVDC) and Miami Valley Insurance
Company, Inc. (MVIC), each entered into a manage-
ment services agreement (the MSAs) with Valley
Partners, Inc. (Valley) for the provision of ongoing over-
sight and management of each subsidiary’s financial
asset holdings following a change of control of DPL or
sale of the financial assets portfolio to an unaffiliated
third party. Valley was a Florida corporation the sole
stockholders, directors and officers of which were Mr.
Forster and Ms. Muhlenkamp.
In October 2001, we entered into an Administrative
Services Agreement (the ASA) with Valley and the indi-
vidual trustees of certain master trusts which hold the
assets of various executive and director compensation
plans. The ASA engaged Valley to provide adminis-
trative and recordkeeping functions on behalf of the
master trusts upon a change of control of DPL, as well
as the provision of investment advice, in exchange for
an administration fee in addition to the annual manage-
ment fee payable to Valley.
In October 2001, we and DP&L also entered
into a Trustee Fee Agreement (the TFA) with Richard
DPL Inc.
69
Chernesky, Richard Broock and Frederick Caspar,
attorneys at Chernesky, Heyman & Kress P.L.L. Upon a
change of control of DPL or DP&L, Messrs. Chernesky,
Broock and Caspar would become the sole trustees
of the master trusts for an annual fee of $500,000 and
would succeed to all of the duties of our Compensation
Committee under the compensation plans funded
through the master trusts.
The MSAs, ASA and TFA (Valley Partners
Agreements) were terminated by an agreement execut-
ed in January 2004, but effective as of December 15,
2003. The financial assets were not sold or transferred
prior to such termination and therefore the agreements
never became effective and no compensation was ever
paid under them. Copies of the Valley Partners Agree-
ments were filed as exhibits to our 2003 Form 10-K.
On April 26, 2004, we entered into a new Trustee
Fee Agreement (New TFA) with Messrs. Chernesky,
Broock and Caspar that would have become effec-
tive upon a change of control of DPL or DP&L. If the
New TFA became effective, it provided that Messrs.
Chernesky, Broock and Caspar would serve as the sole
trustees of the master trusts in exchange for an annual
fee of $250,000 during the New TFA’s term. A copy of
the New TFA was filed as an exhibit to our 2003 Form
10-K. On October 14, 2004, at the request of DPL and
DP&L, Messrs. Chernesky, Broock and Caspar submit-
ted their resignations to us and DP&L.
On February 2 and 3, 2004, Mr. Koziar sent let-
ters to Mr. Forster and Ms. Muhlenkamp purporting to
amend their consulting and employment agreements to
provide change of control protections regarding their
MVE payments. In addition, on February 2, 2004,
Mr. Koziar sent Mr. Forster a letter purporting to amend
his consulting agreement to provide additional terms
and to increase his compensation. However, none
of those purported amendments had been approved
by our Compensation Committee. Mr. Forster and
Ms. Muhlenkamp resigned and Mr. Koziar retired on
May 16, 2004.
We have initiated legal proceedings asserting
breach of fiduciary duty and breach of contract by
Messrs. Forster and Koziar and Ms. Muhlenkamp, and
challenging the propriety and/or validity of certain con-
tract terminations, purported amendments and agree-
ments. (See Note 14 of Notes to Consolidated Financial
Statements.)
70
DPL Inc.
16 Other Matters
Audit Committee Investigation and
Related Matters
On March 10, 2004, our Corporate Controller, sent a
memorandum (the Memorandum) to the Chairman
of the Audit Committee of our Board of Directors (the
Audit Committee). The Memorandum expressed the
Corporate Controller’s “concerns, perspectives and
viewpoints” regarding financial reporting and gover-
nance issues within the Company.
On March 15, 2004, our Audit Committee
retained the law firm of Taft, Stettinius & Hollister
LLP (TS&H) to represent the Audit Committee in an
independent review of each of the matters raised by
the Memorandum. TS&H subsequently retained an
accounting firm as a forensic accountant to assist in
this review. On April 27, 2004, TS&H submitted a writ-
ten report of its findings to the members of the Audit
Committee (the Report). A copy of the Report was filed
as an exhibit to our 2003 Form 10-K. While TS&H stat-
ed that it did not uncover and no person had indicated
to it any uncorrected material inaccuracies in our books
and records, it did, however, recommend further follow-
up by the Audit Committee and improvements relating
to disclosures, communication, access to information,
internal controls and the culture of the Company in cer-
tain areas. Based upon information received after issu-
ing the Report, TS&H revised its analysis and prepared
a supplement to the Report, dated May 25, 2004 (the
Supplement). A copy of the Supplement was filed as
an exhibit to our 2003 Form 10-K.
Our Audit Committee considered the Report and
Supplement at a meeting held on May 16, 2004. After
its review and consideration, the Audit Committee
recommended that the full Board of Directors accept
the Report and the Supplement. At a meeting held on
May 16, 2004, our Board of Directors accepted the
Report and Supplement, including the findings and
recommendations set forth therein. Mr. Forster and Ms.
Muhlenkamp resigned and Mr. Koziar retired on May
16, 2004, and subsequently the Company has been
involved in litigation with them (See Note 14 of Notes
to Consolidated Financial Statements.) In addition, in
2004 corrective action was taken with regard to internal
controls, process issues and tone at the top as identi-
fied in the Report.
Governmental and Regulatory Inquiries
On April 7, 2004, we received notice that the staff of
the PUCO was conducting an investigation into the
financial condition of DP&L as a result of previously
disclosed matters raised by one of our executives dur-
ing the 2003 year-end financial closing process (the
Memorandum). On May 27, 2004, the PUCO ordered
DP&L to file a plan of utility financial integrity that
outlines the actions we have taken or would take to
insulate DP&L utility operations and customers from our
unregulated activities. DP&L was required to file this
plan by March 2, 2005. On February 4, 2005, DP&L
filed its protection plan with the PUCO and expressed
its intention to continue to cooperate with the PUCO
in their investigation. On March 29, 2005, the Ohio
Consumers Counsel (OCC) filed comments with the
PUCO on DP&L’s financial plan of integrity, request-
ing the PUCO continue the investigation and monitor
DP&L’s progress toward implementation of its financial
plan of integrity. On June 29, 2005, the PUCO closed
its investigation, citing significant positive actions taken
by DP&L including changes in our Board of Directors
as well as executive management of DP&L, and that
no apparent diminution of service quality has occurred
because of the events that initiated the investigation.
On May 20, 2004, the staff of the SEC notified us
that it was conducting an inquiry covering our exempt
status under the Public Utility Holding Company Act
of 1935 (the ’35 Act). The staff of the SEC requested
we provide certain documents and information on a
voluntary basis. On October 8, 2004, we received
a notice from the SEC that a question existed as to
whether such exemption from the Public Utility Holding
Company Act was detrimental to the public interest or
the interests of investors or consumers. On November
5, 2004, we filed a good faith application seeking an
order of exemption from the SEC. In light of the repeal
of the ’35 Act, effective February 8, 2006, and based
upon the information previously provided to the staff of
the SEC, this inquiry is moot.
On May 28, 2004, the U.S. Attorney’s Office for
the Southern District of Ohio, assisted by the Federal
Bureau of Investigation, notified us that it had initiated
an inquiry involving matters connected to our internal
investigation. We are cooperating with this investigation.
On or about June 24, 2004, the SEC commenced
a formal investigation into the issues raised by the
Memorandum. We are cooperating with the investigation.
On March 3, 2005, DP&L received a notice that
the FERC had instituted an operational audit of DP&L
regarding our compliance with our Code of Conduct
within the transmission and generation areas. On
October 7, 2005, the FERC issued its Findings and
Conclusions, stating that we “generally complied with
the [FERC] Standard of Conduct” except for three (3)
areas, all of which were corrected to the satisfaction of
the FERC prior to the issuance of these Findings and
Conclusions.
DPL Inc.
71
Report of Independent Registered Public Accounting Firm
The Board of Directors
DPL Inc.:
We have audited the accompanying consolidated balance sheets of DPL Inc. and subsidiaries (the Company) as
of December 31, 2005 and 2004, and the related consolidated statement of results of operations, shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2005. In connection with
our audits of the consolidated financial statements, we have audited the consolidated financial statement schedule,
“Schedule II - Valuation and Qualifying Accounts” for each of the years in the three-year period ended December
31, 2005. These consolidated financial statements and the financial statement schedule 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 in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assess-
ing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2005 and 2004, and the consolidated results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in
conformity with United States generally accepted accounting principles. Also, in our opinion, the related financial
statement schedules when considered in relation to the basic consolidated financial statements taken as a whole,
present fairly in all materials respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2005, the Company
adopted FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an Interpretation of
Statement of Financial Accounting Standards No. 143.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Company’s internal controls over financial reporting as of December
31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee
Internal Control – Integrated Framework
Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2006
expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control
over financial reporting.
/s/ KPMG LLP
/s/ KPMG LLP
KPMG LLP
Kansas City, Missouri
February 27, 2006
72
DPL Inc.
Report of Independent Registered Public Accounting Firm on Internal Controls
The Board of Directors
DPL Inc.:
We have audited management’s assessment, included in the Management’s Report on Internal Control Over
Financial Reporting appearing under Item 9A, that DPL Inc. and subsidiaries (the Company) maintained effective
internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
- Integrated Framework
- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for maintaining effective internal control over financial report-
ing and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, evaluating management’s assess-
ment, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reason-
able basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstate-
ments. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or proce-
dures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over finan-
cial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Internal Control - Integrated Framework
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Also, in our opinion, the company maintained, in all material respects, effective internal con-
trols over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated
Framework
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO.
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of the Company as of December 31, 2005 and 2004, and the
related consolidated statements of results of operations, shareholders’ equity, and cash flows for the three-year
period ended December 31, 2005, and our report dated February 27, 2006, expressed an unqualified opinion on
those consolidated financial statements.
/s/ KPMG LLP
KPMG LLP
Kansas City, Missouri
February 27, 2006
DPL Inc.
73
Selected Quarterly Information (Unaudited)
$ in millions
except per share amounts
Revenues
Operating Income
Earnings from
continuing operations (a)
Earnings from discontinued
operations, net of taxes
Cumulative effect of accounting
change, net of taxes
Net income
Basic earnings per share of
For the three months ended
March 31,
June 30,
September 30,
December 31,
2005
2004
2005
2004
2005
2004
2005 (b)
2004
$ 307.1
81.9
$ 302.4
$ 302.4
98.9
98.9
98.9
$ 293.4
62.3
$ 284.8
81.2
81.2
81.2
$ 357.4
99.6
$ 312.2
$ 312.2
95.1
95.1
95.1
$ 327.0
95.3
$ 300.5
$ 300.5
61.3
36.1
38.9
38.9
38.9
16.7
25.8
25.7
33.7
46.2
23.1
37.6
10.8
10.8
10.8
5.2
30.6
0.2
50.0
50.0
50.0
9.9
4.4
–
$ 73.7
–
–
–
$ 49.7
$ 49.7
–
$ 21.9
–
$ 56.4
$ 56.4
–
$ 25.9
–
–
–
$ 83.7
$ 83.7
(3.2)
$ 52.9
–
$
$ 27.5
common stock:
Continuing operations
Discontinued operations
Cumulative effect of accounting change
$ 0.30 $ 0.32
$ 0.32
0.09
0.09
–
–
0.31
–
$ 0.14
0.04
–
$ 0.22
$ 0.22
0.25
0.25
–
–
$ 0.21
–
–
$ 0.28
$ 0.28
0.42
0.42
–
–
$
0.38
0.09
(0.03)
$ 0.19
0.04
–
Total basic earnings per
common share
Diluted earnings per share of
$ 0.41
$ 0.61 $ 0.41
$ 0.18
$ 0.47
$ 0.47
$ 0.21
$ 0.70
$ 0.70
$
0.44
$ 0.23
common stock:
Continuing operations
Discontinued operations
Cumulative effect of accounting change
$ 0.32
$ 0.28 $ 0.32
0.09
0.09
–
–
0.30
–
$ 0.13
0.04
–
$ 0.21
$ 0.21
0.25
0.25
–
–
$ 0.20
–
–
$ 0.28
$ 0.28
0.41
0.41
–
–
$
0.36
0.08
(0.03)
$ 0.19
0.03
–
Total diluted earnings per
common share
$ 0.41
$ 0.58 $ 0.41
$ 0.17
$ 0.46
$ 0.46
$ 0.20
$ 0.69
$ 0.69
$
0.41
$
0.22
Dividends paid per share
$ 0.24
$ 0.24 $ 0.24
$ 0.24
$
$
–
–
$ 0.24
$
$
–
–
$ 0.24
$ 0.72
Common stock market price
- High
- Low
$ 26.77 $ 20.77
$ 20.77
$ 17.60
$ 24.27 $ 17.60
$ 27.67
$ 24.08
$ 19.77
$ 19.77
$ 17.21
$ 17.21
$ 28.12
$ 26.70
$ 20.64
$ 20.64
$ 19.02
$ 19.02
$ 28.01
$ 24.55
$ 25.36
$ 2
$ 20.30
$ 20.30
(a) Earnings from continuing operations in the second and third quarter of 2005 include charges of $2.1 million and $59.1 million, respectively,
for the early redemption of debt.
(b) Earnings from continuing operations in the fourth quarter of 2005 were $23.1 million more than the fourth quarter of 2004 primarily due to
a $12.9 million reduction of interest expense, due largely to lower current year interest associated with the early redemption of debt, a $4.1 million
increase in investment income, principally on short-term and tax-exempt investments, lower net margins of $13.5 million (higher revenues of
$26.5 million offset by higher fuel and purchased power costs of $13.0 million), lower O&M expense of $17.1 million as a result of lower corporate
costs, offset by higher taxes (the fourth quarter tax expense was reduced by state and tax credits of $11.5 million).
74
DPL Inc.
Item 9 Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure
None
Item 9a Controls and Procedures
Disclosure Controls and Procedures
Our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO) are responsible for establishing and
maintaining our disclosure controls and procedures.
These controls and procedures were designed to
ensure that material information relating to us and our
subsidiaries are communicated to the CEO and CFO.
We evaluated these disclosure controls and proce-
dures as of the end of the period covered by this report
with the participation of our CEO and CFO. Based on
this evaluation, our CEO and CFO concluded that our
disclosure controls and procedures are effective in
timely alerting them to material information required to
be included in our periodic reports filed with the SEC.
There was no change in our internal control over
financial reporting during the most recently completed
fiscal period that has materially affected, or is reason-
ably likely to materially affect, internal control over
reporting.
The following report is our report on internal control
over financial reporting as of December 31, 2005.
Management’s Report on Internal Control
Over Financial Reporting
We are responsible for establishing and maintaining
adequate internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-
15(f). Under the supervision and with the participation
of management, including the CEO and CFO,
we conducted an evaluation of the effectiveness
of our internal control over financial reporting based
on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring
Framework
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on
an evaluation under the framework in Internal Control
- Integrated Framework, we concluded that our
internal control over financial reporting was effective
as of December 31, 2005.
Our assessment of the effectiveness of our internal
control over financial reporting as of December 31,
2005, has been audited by KPMG LLP, an independent
registered public accounting firm, as stated in their
report which is included herein.
Item 9b Other Information
None
DPL Inc.
75
Part III
Item 10 Directors and Executive Officers
of the Registrant (Company)
Item 12 Security Ownership of Certain
Beneficial Owners and Management and
Related Shareholder Matters
The information required to be furnished pursuant to
this item with respect to Directors of the Company will
be set forth under captioned “Election of Directors” in
the registrant’s proxy statement (the Proxy Statement)
to be furnished to shareholders in connection with
the solicitation of proxies by our Board of Directors for
use at the 2006 Annual Meeting of Shareholders to
be held on April 26, 2006 and is incorporated herein
by reference.
The information required to be furnished pursu-
ant to this item with respect to the identification of the
Audit Committee, the Audit Committee financial expert
and the registrant’s code of ethics will be set forth
under the caption “Corporate Governance” in the Proxy
Statement and is incorporated herein by reference.
Item 11 Executive Compensation
The information required to be furnished pursuant to
this item will be set forth under the caption “Executive
Compensation” in the Proxy Statement and is incorpo-
rated herein by reference.
The information required to be furnished pursuant to
this item will be set forth under the captions “Security
Ownership of Certain Beneficial Owners,” “Security
Ownership of Management” and “Equity Compensation
Plan Information” in the Proxy Statement and is incor-
porated herein by reference.
Item 13 Certain Relationships and
Related Transactions
The information required to be furnished pursuant to
this item will be set forth under the caption “Certain
Relationships and Related Transactions” in the Proxy
Statement and is incorporated herein by reference.
Item 14 Principal Accountant Fees
and Services
The information required to be furnished pursuant to
this item will be set forth under the caption “Audit and
Non-Audit Fees” in the Proxy Statement and is incorpo-
rated herein by reference.
76
DPL Inc.
Part IV
Item 15 Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Financial Statements
Page No.
Consolidated Statements of Results of Operations
for each of the three years in the period ended December 31, 2005
Consolidated Statements of Cash Flows
for each of the three years in the period ended December 31, 2005
Consolidated Balance Sheets at December 31, 2005 and 2004
Consolidated Statements of Changes to Shareholders’ Equity
for each of the three years in the period ended December 31, 2005
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Controls
2. Financial Statement Schedule
For each of the three years in the period ended December 31, 2005:
Schedule II – Valuation and Qualifying Accounts
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.
39
40
41
42
43
72
73
84
3. Exhibits
Exhibits are incorporated by reference as described unless otherwise filed as set forth herein.
The exhibits filed as a part of this Annual Report on Form 10-K are:
2(a)
Copy of Asset Purchase Agreement, dated December 14, 1999,
between The Dayton Power and Light Company, Indiana Energy, Inc.,
and Number-3CHK, Inc.
3(a)
Copy of Amended Articles of Incorporation of DPL Inc.
dated September 25, 2001
3(b)
Regulations of DPL Inc.
4(a)
Copy of Composite Indenture dated as of October 1, 1935,
between DP&L and The Bank of New York, Trustee with all
amendments through the Twenty-Ninth Supplemental Indenture
4(b)
Copy of Forty-First Supplemental Indenture dated as of
February 1, 1999, between DP&L and The Bank of New York, Trustee
Location
Exhibit 2 to Report on
Form 10-Q for the quarter
ended September 30, 2000
(File No. 1-9052)
Exhibit 3 to Report on
Form 10-K/A for the year
ended December 31, 2001
(File No. 1-2385)
Exhibit 3(b) to Form 8-K
filed on May 3, 2004
(File No. 1-9052)
Exhibit 4(a) to Report on
Form 10-K for the year
ended December 31, 1985
(File No. 1-2385)
Exhibit 4(m) to Report on
Form 10-K for the year
ended December 31, 1998
(File No. 1-2385)
DPL Inc.
77
4(c)
Copy of Forty-Second Supplemental Indenture dated as of
September 1, 2003, between DP&L and The Bank of New York, Trustee
Copy of Forty-Third Supplemental Indenture dated as of
August 1, 2005, between DP&L and The Bank of New York, Trustee
Copy of Rights Agreement between DPL Inc. and
Equiserve Trust Company, N.A.
Exhibit 4(r) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-2385)
Exhibit 4.4 to Report on
Form 8-K on August 24, 2005
(File No. 1-2385)
Exhibit 4 to Report on
Form 8-K dated
September 25, 2001
(File No. 1-9052)
Copy of Securities Purchase Agreement dated as of February 1, 2000
by and among DPL Inc. and DPL Capital Trust I, Dayton Ventures LLC
and Dayton Ventures Inc. and certain exhibits thereto
Exhibit 99(b) to Schedule TO-I
dated February 4, 2000
(File No. 1-9052)
Amendment to Securities Purchase Agreement dated as of
February 24, 2000 among DPL Inc., DPL Capital Trust I,
Dayton Ventures LLC and Dayton Ventures, Inc.
Filed herewith as Exhibit 4(g )
Copy of Warrant Form initially issued as of February 1, 2000
Filed herewith as Exhibit 4(h)
Securityholders and Registration Rights Agreement dated as of
February 1, 2000 among DPL Inc., DPL Capital Trust I,
Dayton Ventures LLC and Dayton Ventures, Inc.
Amendment to Securityholders and Registration Rights Agreement,
dated August 24, 2001 among DPL Inc., DPL Capital Trust I,
Dayton Ventures LLC and Dayton Ventures, Inc.
Amendment to Securityholders and Registration Rights Agreement,
dated December 6, 2004 among DPL Inc., DPL Capital Trust I,
Dayton Ventures LLC and Dayton Ventures, Inc.
Amendment to Securityholders and Registration Rights Agreement,
dated January 12, 2005 among DPL Inc., DPL Capital Trust I,
Dayton Ventures LLC and Dayton Ventures, Inc.
Filed herewith as Exhibit 4(i)
Filed herewith as Exhibit 4(j)
Filed herewith as Exhibit 4(k)
Filed herewith as Exhibit 4(l)
Copy of Credit Agreement dated as of June 1, 2004
between The Dayton Power and Light Company, KeyBank
National Association (as administrative agent and lead arranger)
and the lending institutions named therein
Exhibit 4(ee) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-2385)
Copy of Credit Agreement dated as of May 31, 2005,
between The Dayton Power & Light Company KeyBank
National Association (as administrative agent and lead arranger)
and the lending institutions named therein
Officer’s Certificate of DPL Inc. establishing $175 million Senior Note
due 2009, dated March 25, 2004
Exchange and Registration Rights Agreement dated March 25, 2004
between DPL Inc. and the purchasers
Exhibit 10.1 to Form 8-K
filed on June 28, 2005
(File No. 1-9052)
Exhibit 4.1 to Form 8-K,
filed on March 29, 2004
(File No. 1-9052)
Exhibit 4.2 to Form 8-K,
filed on March 29, 2004
(File No. 1-9052)
Indenture dated as of March 1, 2000 between DPL Inc. and
Bank One Trust Company, National Association
Exhibit 4(b) to Registration
Statement No. 333-37972
4(d)
4(e)
4(f)
4(g)
4(h)
4(i)
4(j)
4(k)
4(l)
4(m)
4(n)
4(o)
4(p)
4(q)
78
DPL Inc.
4(r)
4(s)
4(t)
4(u)
4(v)
4(w)
Officer’s Certificate of DPL Inc. establishing exchange notes,
dated March 1, 2000
Exhibit 4(c) to Registration
Statement No. 333-37972
Exchange and Registration Rights Agreement dated as of
August 24, 2001 between DPL Inc., Morgan Stanley & Co.,
Incorporated, Bank One Capital Markets, Inc., Fleet Securities, Inc.
and NatCity Investments, Inc.
Exhibit 4(a) to Registration
Statement No. 333-74568
Officer’s Certificate of DPL Inc. establishing exchange notes,
dated August 31, 2001
Exhibit 4(c) to Registration
Statement No. 333-74568
Indenture dated as of August 31, 2001 between DPL Inc. and
The Bank of New York, Trustee
Exhibit 4(a) to Registration
Statement No. 333-74630
First Supplemental Indenture dated as of August 31, 2001
relating to the subordinated debentures between DPL Inc. and
The Bank of New York
Amended and Restated Trust Agreement dated as of August 31, 2001
relating to DPL Capital Trust II, the Capital Securities and
the Common Securities among DPL Inc., the depositor, The Bank of
New York, as property trustee, The Bank of New York (Delaware),
as Delaware trustee, and Allen M. Hill and Stephen F. Koziar, Jr., as
administrative trustees, and the holders, from time to time of
undivided beneficial interests in DPL Capital Trust II
4(x)
Exchange and Registration Rights Agreement dated as of
August 24, 2001 among DPL Inc., DPL Capital Trust II and
Morgan Stanley & Co., Incorporated
10(a)* Copy of Directors’ Deferred Stock Compensation Plan amended
December 31, 2000
10(b)* Copy of Directors’ 1991 Amended Deferred Compensation Plan
as amended through December 31, 2000
Exhibit 4(b) to Registration
Statement No. 333-74630
Exhibit 4(c) to Registration
Statement No. 333-74630
Exhibit 4(d) to Registration
Statement No. 333-74630
Exhibit 10(a) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
Exhibit 10(b) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
10(c)* Amendment No. 1 to Directors’ 1991 Amended Deferred
Filed herewith as Exhibit 10(c)
Compensation Plan as amended through December 31, 2000
and dated as of December 7, 2004
10(d)* Copy of Management Stock Incentive Plan amended
December 31, 2000
Exhibit 10(c) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
10(e)* Amendment No. 1 to Management Stock Incentive Plan
Filed herewith as Exhibit 10(e)
amended December 31, 2000 and dated as of December 7, 2004
10(f)*
Copy of Key Employees Deferred Compensation Plan amended
December 31, 2000
10(g)* Amendment No. 1 to Key Employees Deferred Compensation
Plan amended through December 31, 2000 and dated
as of December 7, 2004
Exhibit 10(d) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
Filed herewith as Exhibit 10(g)
DPL Inc.
79
10(h)* Copy of Supplemental Executive Retirement Plan amended
February 1, 2000
10(i)*
Amendment No. 1 to Supplemental Executive Retirement
Plan amended through February 1, 2000 and dated
as of December 7, 2004
10(j)*
Copy of Stock Option Plan
10(k)*
Long Term Incentive Plan of DPL Inc. dated as of January 20, 2003
Exhibit 10(e) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-2385)
Filed herewith as Exhibit 10(i)
Exhibit 10(f) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
Exhibit 10(aa) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
10(l)*
Summary of Executive Life Insurance Plan
Filed herewith as Exhibit 10(l)
10(m)* Summary of Executive Medical Insurance Plan
Filed herewith as Exhibit 10(m)
10(n)* Amended and Restated Employment Agreement Dated as
of August 31, 2005 effective as of January 1, 2005
between DPL Inc., the Dayton Power and Light Company
and Robert D. Biggs
10(o) * Letter Agreement dated as of September 20, 2004 and
Management Stock Option Agreement, as amended, dated as
of October 5, 2004, between DPL Inc. and Robert D. Biggs
10(p)* Management Stock Option Agreement dated as of August 31, 2005
between DPL Inc. and Robert D. Biggs
10(q)*
10 (r)*
Employment agreement dated as of December 21, 2004
between DPL Inc., The Dayton Power and Light Company
and James V. Mahoney
Employment agreement dated as of January 3, 2003,
between DPL Inc., The Dayton Power and Light Company
and James V. Mahoney
10(s)* Change of Control Agreement dated as of January 3, 2003,
between DPL Inc., The Dayton Power and Light Company and
James V. Mahoney and Management Stock Option Agreement
dated January 3, 2003 between DPL Inc. and James V. Mahoney
10(t)*
Employment agreement dated as of December 14, 2004
between DPL Inc., The Dayton Power and Light Company
and John J. Gillen
Exhibit 10.1 to Report on
Form 8-K filed on
September 2, 2005
(File No. 1-9052)
Exhibits 10.2 and 10.3 to
to Report on Form 8-K
filed on October 8, 2004
(File No. 1-9052)
Exhibit 10.2 to Report on
Form 8-K filed on
September 2, 2005
(File No. 1-9052)
Exhibit 10.1 to Form 8-K
filed on December 28, 2004
(File No. 1-9052)
Exhibit 10(j) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 10(o) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 10.2 to Form 8-K
filed on December 28, 2004
(File No. 1-9052)
10(u)* Management Stock Option Agreement dated as of
Filed herewith as Exhibit 10(u)
December 29, 2004 between DPL Inc. and John J. Gillen
80
DPL Inc.
10(v)*
Employment agreement dated as of September 17, 2003,
between DPL Inc. and W. Steven Wolff
10(w)* Change of Control Agreement dated as of September 10, 2004,
between DPL Inc., The Dayton Power and Light Company
and W. Steven Wolff
10(x)*
Employment Agreement dated as of December 17, 2003 between
DPL Inc and Patricia K. Swanke
Exhibit 10(k) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 10(dd) to Report on
Form 8-K filed
September 23, 2004
(File No. 1-9052)
Exhibit 10(l) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
10(y) * Change of Control Agreement dated as of July 1, 2004 between
DPL Inc., The Dayton Power and Light Company and
Patricia K. Swanke and Management Stock Option Agreement dated
as of January 1, 2001 between DPL Inc. and Patricia K. Swanke
Exhibit 10(s) to Report on
Form 10-K for the year
ended December 31, 2004
(File No. 1-9052)
10(z)*
Employment Agreement and Change of Control Agreement dated
as of September 17, 2004 between DPL Inc., The Dayton Power and
Light Company and Gary Stephenson
10(aa)* Employment agreement dated as of June 9, 2003, as amended by
attached letter dated October 18, 2004, between DPL Inc.,
The Dayton Power and Light Company and Miggie E. Cramblit
10(bb) Change of Control Agreement dated as of December 15, 2000
between DPL Inc., The Dayton Power and Light Company
and Arthur G. Meyer
Exhibit 10(ee) to Report on
Form 8-K filed on
September 23, 2004
(File No. 1-9052)
Exhibit 10(gg) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Filed herewith as
Exhibit 10(bb)
10(cc) Management Stock Option Agreement dated as of January 1, 2001
Filed herewith as Exhibit 10cc)
between DPL Inc. and Arthur G. Meyer
10(dd) Collective Bargaining Agreement effective as of November 1, 2005
between The Dayton Power and Light Company and
Local 175 Utility Workers of America
10(ee) Purchase and Sale Agreement dated as of February 13, 2005
between MVE, Inc., Miami Valley Insurance Company and
AlpInvest/Lexington 2005, LLC
10(ff)
Purchase and Sale Agreement dated as of February 13, 2005
between MVE, Inc., Miami Valley Insurance Company and
AlpInvest/Lexington 2005, LLC
18
Copy of preferability letter relating to change in accounting for
unbilled revenues from Price Waterhouse LLP
21
List of Subsidiaries of DPL Inc.
23(a)
Consent of KPMG LLP
31(a)
Certifi cation of Chief Executive Offi cer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Filed herewith as
Exhibit 10(dd)
Filed herewith as
Exhibit 10(ee)
Exhibit 10.1 to Form 8-K
filed on February 18, 2005
(File No. 1-9052)
Exhibit 10.1 to Form 8-K
filed on February 18, 2005
(File No. 1-9052)
Filed herewith as Exhibit 21
Filed herewith as Exhibit 23(a)
Filed herewith as Exhibit 31(a)
DPL Inc.
81
31(b)
32(a)
32(b)
Certifi cation of Chief Financial Offi cer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Filed herewith as Exhibit 31(b)
Certifi cation of Chief Executive Offi cer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Filed herewith as Exhibit 32(a)
Certifi cation of Chief Financial Offi cer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Filed herewith as Exhibit 32(b)
99(a)
Report of Taft, Stettinius & Hollister LLP, dated April 26, 2004
99(b)
Supplement to the April 26, 2004 Report of Taft, Stettinius &
Hollister LLP, dated May 15, 2004
99(c)
Complaint fi led in Montgomery County Court of Common Pleas,
Montgomery County, Ohio – DPL Inc., The Dayton Power and Light
Company and MVE, Inc. v. Peter H. Forster, Caroline E. Muhlenkamp
and Stephen F. Koziar, Jr.
*Management contract or compensatory plan.
Exhibit 99(a) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 99(b) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 99(d) to Report
on Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of Regulation S-K, we have not filed as an exhibit to this
Form 10-K certain instruments with respect to long-term debt if the total amount of securities authorized thereunder
does not exceed 10% of the total assets of us and our subsidiaries on a consolidated basis, but we hereby
agree to furnish to the SEC on request any such instruments.
82
DPL Inc.
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.
February 28, 2006
By:
/s/ James V. Mahoney
DPL Inc.
James V. Mahoney
President and Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities Exchange 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/ R. D. Biggs
(R. D. Biggs)
/s/ P. R. Bishop
(P. R. Bishop)
/s/ B. S. Graham
(B. S. Graham)
/s/ E. Green
(E. Green)
/s/ G. E. Harder
(G. E. Harder)
/s/ W A. Hillenbrand
(W A. Hillenbrand)
/s/ L. L. Lyles
(L. L. Lyles)
/s/ J. V. Mahoney
(J. V. Mahoney)
/s/ N. J. Sifferlen
(N. J. Sifferlen)
/s/ J. J. Gillen
(J. J. Gillen)
/s/ D. L. Thobe
(D. L. Thobe)
Director and Executive Chairman
February 28, 2006
Director
Director
Director
Director
February 28, 2006
February 28, 2006
February 28, 2006
February 28, 2006
Director and Vice-Chairman
February 28, 2006
Director
February 28, 2006
Director, President and Chief Executive Officer
February 28, 2006
(principal executive officer)
Director
February 28, 2006
Senior Vice President and Chief Financial Officer
February 28, 2006
(principal financial and principal accounting officer)
Corporate Controller
February 28, 2006
DPL Inc.
83
Schedule II Valuation and Qualifying Accounts
For the years ended December 31, 2003-2005
$ in thousands
Description
2005:
Deducted from accounts receivable –
Provision for uncollectible accounts
2004:
Deducted from accounts receivable –
Provision for uncollectible accounts
Provision for uncollectible accounts
Provision for uncollectible accounts
Provision for uncollectible accounts
2003:
Deducted from accounts receivable –
Provision for uncollectible accounts
Provision for uncollectible accounts
Provision for uncollectible accounts
Provision for uncollectible accounts
Balance at
Beginning of Period
Additions
Deductions (1)
Balance at
End of Period
$ 1,085
$ 1,085
$ 1,085
$ 1,085
$ 3,582
$ 3,582
$ 3,582
$ 3,582
$ 3,623
$ 3,623
$ 3,623
$ 3,623
$ 1,0
$ 1,044
$ 1,0
$ 1,0
$ 6,003
$ 6,003
$ 6,003
$ 6,003
$ 3,371
$ 3,371
$ 3,371
$ 3,371
$ 8,289
$ 8,289
$ 8,289
$ 8,289
$ 1,085
$ 1,085
$ 1,085
$ 1,085
$ 11,094
$ 11,094
$ 11,094
$ 11,094
$ 3,672
$ 3,672
$ 3,672
$ 3,672
$ 8,763
$ 8,763
$ 8,763
$ 8,763
$ 6,003
$ 6,003
$ 6,003
$ 6,003
(1) Amounts written off, net of recoveries of accounts previously written off.
84
DPL Inc.
Exhibit 21 Subsidiaries of DPL Inc.
DPL Inc. had the following subsidiaries on December 31, 2005:
The Dayton Power and Light Company
Miami Valley Insurance Company
DPL Energy, LLC
MVE, Inc.
DPL Finance Company, Inc.
DPL Energy Resources, Inc.
State of Incorporation
Ohio
Vermont
Ohio
Ohio
Delaware
Ohio
DPL Inc.
85
Exhibit 23 Consent of Independent Registered Public Accounting Firm
The Board of Directors DPL Inc.:
We consent to the incorporation by reference in the Registration Statement (No. 333-44370) on Form S-3
and Registration Statement (No. 333-39982) on Form S-8 of DPL Inc. and Subsidiaries (the Company)
of our reports dated February 27, 2006, with respect to the consolidated balance sheets of the Company
as of December 31, 2005 and 2004, and the related consolidated statements of results of operations,
shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005,
and all related financial statement schedules, management’s assessment of the effectiveness of internal
control over financial reporting as of December 31, 2005 and the effectiveness of internal control over financial
reporting as of December 31, 2005, which reports appear in the December 31, 2005 annual report on
Form 10-K of the Company. Our report refers to a change in the method of accounting for conditional asset
retirement obligations.
/s/ KPMG LLP
/s/ KPMG LLP
KPMG LLP
Kansas City, Missouri
February 27, 2006
86
DPL Inc.
Exhibit 31a Certifications
I, James V. Mahoney, certify that:
1. I have reviewed this annual report on Form 10-K of DPL Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial report-
ing to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 28, 2006
/s/ James V. Mahoney
James V. Mahoney
President and Chief Executive Officer
DPL Inc.
87
Exhibit 31b Certifications
I, John J. Gillen, certify that:
1. I have reviewed this annual report on Form 10-K of DPL Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or cause such internal control over financial report-
ing to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 28, 2006
/s/ John J. Gillen
John J. Gillen
Senior Vice President and Chief Financial Officer
88
DPL Inc.
Exhibit 32a Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned officers of DPL Inc. (the “Issuer”) hereby certifies pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Issuer’s Annual Report on Form 10-K
for the period ended December 31, 2005, which this certificate accompanies, fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein
fairly presents, in all material respects, the financial condition and results of operations of the Issuer as of the dates
and for the periods expressed therein.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other
document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within
the electronic version of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002, has been
provided to the Issuer and will be retained by the Issuer and furnished to the Securities and Exchange Commission
or its staff upon request.
Signed:
/s/ James V. Mahoney
James V. Mahoney
President and Chief Executive Officer
Date: February 28, 2006
The foregoing certificate is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed
as part of the Issuer’s Annual Report or as a separate disclosure document.
DPL Inc.
89
Exhibit 32b Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned officers of DPL Inc. (the “Issuer”) hereby certifies pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Issuer’s Annual Report on Form 10-K
for the period ended December 31, 2005, which this certificate accompanies, fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein
fairly presents, in all material respects, the financial condition and results of operations of the Issuer as of the dates
and for the periods expressed therein.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other
document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within
the electronic version of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002, has been
provided to the Issuer and will be retained by the Issuer and furnished to the Securities and Exchange Commission
or its staff upon request.
Signed:
/s/ John J. Gillen
John J. Gillen
Senior Vice President and Chief Financial Officer
Date: February 28, 2006
The foregoing certificate is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed
as part of the Issuer’s Annual Report or as a separate disclosure document.
90
DPL Inc.
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Offi cers
Board of Directors
Robert D. Biggs
Executive Chairman -
DPL Inc. and DP&L
James V. Mahoney
President and
Chief Executive Offi cer -
DPL Inc. and DP&L
Joseph R. Boni III
Treasurer -
DPL Inc. and DP&L
Miggie E. Cramblit
Vice President,
General Counsel and
Corporate Secretary -
DPL Inc. and DP&L
John J. Gillen
Senior Vice President and
Chief Financial Offi cer -
DPL Inc. and DP&L
Arthur G. Meyer
Vice President -
DPL Inc. and DP&L
Gary G. Stephenson
Vice President,
Commercial Operations -
DPL Inc. and DP&L
Patricia K. Swanke
Vice President, Operations -
DP&L
Daniel L. Thobe
Corporate Controller -
DPL Inc. and DP&L
W. Steven Wolff
President, Power Production -
DPL Inc. and DP&L
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W August Hillenbrand
Non-Executive Vice-Chairman,
DPL Inc. and DP&L
Principal
Hillenbrand Capital Partners
Retired President and
Chief Executive Offi cer
Hillenbrand Industries
Batesville, Indiana
Lester L. Lyles
Retired General, U.S. Air Force
Former Commander of the
Air Force Materiel Command
Dayton, Ohio
James V. Mahoney
President and Chief Executive Offi cer
DPL Inc. and DP&L
Dayton, Ohio
Dr. Ned J. Sifferlen
President Emeritus
Sinclair Community College
Dayton, Ohio
Robert D. Biggs
Executive Chairman,
DPL Inc. and DP&L
Retired Managing Partner
PricewaterhouseCoopers
Paul R. Bishop
Chairman and Chief Executive Offi cer
H-P Products, Inc.
Louisville, Ohio
Barbara S. Graham
Former Senior Vice President
Pepco Holdings
Washington, D.C.
Ernie Green
President and Chief Executive Offi cer
Ernie Green Industries
Dayton, Ohio
Glenn E. Harder
President, GEH Advisory Services
Former Executive Vice President and
Chief Financial Offi cer
Carolina Power and Light
Raleigh, North Carolina
DPL Inc. 1065 Woodman Drive, Dayton, Ohio 45432 www.dplinc.com