2007 Annual Report
We are united in purpose
to safely serve our customers,
communities and industry.
We value respect and trust.
We value integrity.
We value pride.
We care about DPL
being a great company!
M I C H I G A N
Detroit
Toledo
p
Montpelier
D P & L
S E R V I C E A R E A
A
N
A
I
D
N
I
Tait
Hutchings
Dayton
Miami Fort
Cincinnati
East Bend
Beckjord
Zimmer
Stuart
Killen
E
E
I
I
R
R
E
E
E
E
K
K
A
A
L
L
Cleveland
A
I
N
A
V
L
Y
S
N
N
E
P
O H I O
Columbus
Conesville
Pittsburgh
O hio Riv er
Louisville
Frankfort
K E N T U C K Y
Charleston
W E S T V I R G I N I A
DPL Generating Units
p Natural Gas Peaking Generation Units ● Wholly & Commonly Owned Coal-Fired Generating Plants
Corporate Profi le
DPL Inc. (NYSE: DPL) is a regional energy 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
515,000 retail customers in West Central Ohio; DPLE engages in the operation of peaking
generation facilities; and DPLER is a competitive retail electric supplier in Ohio, selling
to major industrial and commercial customers. DPL, through its subsidiaries, owns
approximately 3,750 megawatts of generation capacity, of which 2,850 megawatts are low
cost coal-fi red units and 900 megawatts are natural gas and diesel peaking units.
Further information can be found at www.dplinc.com.
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
Net cash provided by operating activities (millions)
Long term debt including current portion (millions)
Interest expense (millions)
Construction additions (millions)
Dividends paid per share
$
$
$
$
$
$
$
$
$
$
2007
29.65
221.8
1.97
0.09
–
2.06
1.80
0.08
–
1.88
107.9
117.8
318.1
$
$ 1,642.2
81.0
$
347
1.04
$
$
System peak load – MW (calendar year)
Average retail price per kWh (calendar year) (cents/kWh)
3,270
7.83
2006
2005
$ 27.78
$ 139.6
$ 26.01
$ 174.4
$
$
$
$
$
$
$
$
1.12
0.12
–
1.24
1.03
0.12
–
1.15
112.3
121.9
$ 286.8
$ 1,777.7
$ 102.2
$
$
352
1.00
3,240
7.59
$
$
$
$
$
$
$
$
1.03
0.44
(0.03)
1.44
0.97
0.41
(0.03)
1.35
121.0
129.1
$ 303.6
$ 1,678.0
$ 137.7
$
$
180
0.96
3,243
6.96
About the Cover
In 2007, a joint union-management team developed
the DPL values statement, depicted on the fold-out cover.
Central to our values is the tremendous pride that
DPL employees have in their company and their mission
to serve customers.
Chairman’s Letter
Dear Fellow Stakeholders:
Thanks to the commitment and dedication of our 1,500
employees, the executive team and my fellow directors,
I am proud to report that the strategic moves initiated
since 2004 are paying off. Today, DPL Inc. is a
healthy, focused, integrated electric company, striving
for excellence in every facet of our business.
Once again, we had a good year as earnings per
share from continuing operations increased from
$1.03 in 2006 to $1.80. Our fi nancial position allowed
us to announce dividend increases on two separate
occasions during 2007 for a total increase of 10%.
We met our commitment to achieve an investment
grade credit profi le. With Standard and Poor’s
upgrade in early 2007, all three rating agencies have
at least an investment grade rating on DPL. This is a
positive refl ection of the actions we have taken to
strengthen our balance sheet and corporate governance
while reducing our risk profi le.
The future is equally exciting. As new energy
legislation and regulations work their way through Ohio
state government, DPL will continue to adapt while
keeping an eye on the basics of running a quality
electric business, focusing on operational excellence
and investing in quality customer service.
For strategic oversight, my fellow directors provide
Board of Directors
an excellent balance of business and fi nancial expertise,
industry experience and community knowledge.
On this front, I would like to express our sincere
gratitude to Ernie Green who chose to retire as a
director after 16 years of outstanding service.
Ernie’s integrity and business expertise were of great
value to the company and set a standard of excellence
for all of us to emulate. Thank you, Ernie.
At the same time, we welcome Frank Gallaher to
the board. Frank brings more than 30 years of experience
in positions of leadership in the electric business.
His operational knowledge will be a tremendous asset.
Likewise, we continue to invest in the outstanding
group of employees we have at DPL. In a joint union-
management effort, we are reinforcing the positive
values that make DPL a great company, proudly serving
515,000 customers. And at the executive level, we
are strengthening our leadership team and broadening
our bench strength.
Our company’s future is bright, our viewpoint is
optimistic, and our mindset is opportunistic.
Thank you for allowing the board of directors the honor
of serving you.
And, thank you for your investment in DPL.
Standing, left to right:
Frank F. Gallaher Former President, Fossil Operations and Transmission,
Entergy Corporation, New Orleans, Louisiana
Lester L. Lyles Retired General, U.S. Air Force; Former Commander of
the Air Force Materiel Command, Dayton, Ohio
Glenn E. Harder Non-Executive Chairman, DPL Inc. and DP&L;
President, GEH Advisory Services; Former Executive Vice President and
Chief Financial Offi cer, Carolina Power and Light, Raleigh, North Carolina
Barbara S. Graham Former Senior Vice President, Pepco Holdings,
Washington, D.C.
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
Seated, left to right:
Paul R. Bishop Chairman and Chief Executive Offi cer,
H-P Products, Inc., Louisville, Ohio
Robert D. Biggs Former Executive Chairman, DPL Inc. and DP&L;
Retired Managing Partner, PricewaterhouseCoopers
Paul M. Barbas President and Chief Executive Offi cer,
DPL Inc. and DP&L, Dayton, Ohio
Dr. Ned J. Sifferlen President Emeritus, Sinclair Community College,
Dayton, Ohio
Glenn E. Harder, Chairman
February 22, 2008
1
President & CEO’s Letter
To My Fellow DPL Stakeholders:
We are DPL –
It’s not just a slogan that we created for the annual
report. It’s the opening line of our values statement –
a statement that was developed by a joint
union-management team representing all areas
of the company.
The team created a set of core values that refl ect
the tremendous pride that employees have in DPL
and set expectations for the manner in which we treat
our employees, customers, investors and all other
DPL stakeholders.
In the end, it is our people, and our values,
that are at the heart of our success.
Now, I’d like to share with you what our
outstanding workforce accomplished in 2007, and
how they are leading DPL into the future.
Solid Financial Performance
First, we are pleased with the year’s fi nancial perfor-
mance. Earnings per share from continuing operations
were up $0.77 to $1.80. These positive results were
driven by increased revenue as we recover rising fuel
and environmental costs. In addition, interest expense
was down due to debt retirement, and depreciation
costs were lower refl ecting, in part, the sale of two
peaking plants in 2006.
Our healthy fi nancial position and positive outlook
enabled the board to announce dividend increases on
two separate occasions in 2007 – for a total increase
of 10%. We understand the importance of the dividend
to our investors and will continue to review it on a
regular basis.
Cost-Competitive Generation
Turning to our generation assets, a renewed point
of emphasis for 2007 and going forward is operational
excellence. Simply put, that means safely and cost
effectively running the plants at a high level of effi ciency
and availability.
To this end, we made a number of moves during
the year to strengthen the management of these
valuable assets. Our power production group has new
leadership, we have added individuals with extensive
production experience, and we have reorganized
to better utilize our resources and share best practices
across plants.
At the same time, we are nearing completion of
the largest environmental capital project ever
undertaken by DPL – a $580 million investment in fl ue
gas desulfurization (FGD) equipment. FGDs, commonly
2
Paul M. Barbas
called scrubbers, remove almost all sulfur dioxide
from emissions and help DPL comply with environmental
regulations.
The DPL team has successfully brought scrubbers
on line for the one unit at Killen Station and the fi rst unit
at Stuart Station. By mid-year 2009, approximately 80%
of our coal-fi red generation will be scrubbed.
DPL’s environmental investment is unique in the
industry in that we were the fi rst major utility in North
America to utilize a new technology, developed by
the Chiyoda Corporation of Japan. Upon completion,
DPL’s scrubbers will have been installed at a cost per
megawatt that is well below the industry average.
This innovative solution will help keep our generation
competitive while controlling costs for customers.
Reliable Customer Service
In terms of customer service, our goal is continuous
improvement. We constantly measure performance
and evaluate ways to meet and exceed our customers’
expectations.
In 2006, we initiated a customer satisfaction survey
as a new performance metric. Based on these results,
we targeted communications with our customers
as an area of focus in 2007. Call center representatives
and fi eld employees attended training to help further
develop customer relations skills. The training also
allowed employees a forum to provide valuable input
and feedback on how best to serve customers.
The year-end 2007 survey results showed positive
gains. We earned higher marks in areas such as
professionalism, responsiveness and overall customer
service performance.
In addition to investing in our employees, we
continue to invest in the reliability of our distribution
system, allowing us to meet the demands of a record
peak load in 2007. Signifi cant capital projects were
completed to accommodate industrial growth in parts
of our West Central Ohio service area. We also
completed a collaborative project to improve reliability
in an area near the Indiana border by teaming up
with a neighboring utility.
Leadership and Bench Strength
Another accomplishment of note is the investment we
are making in our people. During the year, we hired
more than 140 new employees. Many of these were at
our power plants and will be involved in the operation of
the scrubbers. However, a number of employees have
been hired into areas throughout the company.
At the executive level, we have also made signifi -
cant moves. Ten of thirteen members of the executive
team are either new to the company or are in different
roles than in 2006. This includes the new position
of senior vice president of human resources, which we
added to increase our emphasis on the growth and
development of our employees.
The infusion of new talent is providing a good bal-
ance of experienced company personnel and employ-
ees with different backgrounds and perspectives.
Our Unifying Values
Most importantly, it is allowing us to improve our bench
strength, develop existing and future leaders, and
employ the human capital needed to grow this company.
Future Optimism
Going forward, we have a positive outlook for the
future. As the state of Ohio debates its regulatory
framework, DPL is uniquely positioned among Ohio
electric utilities by having a rate plan in place through
2010. The plan provides stable prices for customers
while allowing the company to partially recover
costs and grow revenues.
At the same time, our capital investment program
for environmental equipment is in its fi nal stages.
As a result, we are projecting positive free cash fl ow in
2008 and 2009. Likewise, earnings per share from
continuing operations are projected to steadily grow
through 2009.
We realize the energy landscape will continue to
change and there are challenges ahead, but those
challenges also create opportunities. While our near
term focus is execution, rest assured that we are
keeping our eye on the longer term opportunities.
Thank you for your continued support.
Paul M. Barbas
President and Chief Executive Offi cer
February 22, 2008
We are united in purpose to safely serve our customers, communities and industry.
We value:
Respect & Trust They are at the heart of everything we do. Open communication, shared interests and
shared knowledge are the cornerstone of our competitive advantage.
Integrity We will hold ourselves to the highest ethical standards; this is how we earn the
respect and confi dence of our stakeholders.
Pride We will strive for excellence in every facet of our business. We are committed to long-term success.
We care about DPL being a great company!
3
“ As a company, I think
we’re very good at working
together to get done
what needs to get done –
especially when it’s for
the customer.”
Kathy Hatton
Operations Manager / 28 Years of Service
“ We’ve gotten to the point
over the years that we’re like
a family. You don’t always
get along, but in the end,
you work hard and support
each other. And the new
folks, they’re a good group
of people.”
Kathy works to ensure billing is done
properly, meets customers’ needs and complies
Ron Wilson
Power Plant Maintenance Mechanic / 30 Years of Service
with regulations.
Ron uses his 30 years of machining and maintenance
experience to keep Stuart Station’s 4 units on line.
We care about DPL
being a great company!
DPL employees come from all
walks of life, with a variety of technical
and professional backgrounds. Some
have been with us for more than 50
years. Others are just beginning their
careers. In the end, our team consists of
a diverse group of people that truly
care about DPL being a great company!
It Starts with the Customer
Success in the utility business takes individuals
that enjoy serving people. We work 24/7, 365 days
a year. Sometimes, it requires personal sacrifi ce –
missing a holiday with family or traveling across the
country to help others in need. Our employees
answer the call and take great pride in their ability
to keep the lights on.
Reliability is the cornerstone of customer satisfaction.
In 2007, like previous years, we met or exceeded
reliability standards set by the Public Utilities
Commission of Ohio.
To consistently achieve these results, we constantly
analyze load data and system growth. This was
4
“ Working with electricity
everyday – it’s physically and
mentally demanding. I love
this type of hands-on work.”
Doug Whitaker
Leader Lineman / 29 Years of Service
Doug is one of DP&L’s veteran linemen.
His experience and skills keep the power
fl owing to our customers.
“ Often, customer service
representatives have the fi rst
contact with the customer,
and that can leave a lasting
impression. We all do what
we can to help our customers
and make sure the lasting
impression is a good one.”
Jessica Kubusch
Customer Service Representative / 2 Years of Service
Jessica is a member of the DP&L customer service
team that fi elds over 2 million calls each year.
particularly important in 2007 as our system was
pushed to new limits, setting a record peak demand
on August 8.
Part of this load growth is being driven by pockets
of industrial expansion within our service area.
In Greenville and Washington Court House, DPL
invested in its network to meet the needs of two new
ethanol plants. While in Sidney, increased demand
is due to the expansion of the area’s healthy
manufacturing base, thanks, in part, to the strong
automotive presence.
To better serve customers near our Indiana border,
DPL worked with local government offi cials in
Preble County and formed a unique partnership with
Richmond Power and Light (RP&L) to strengthen
reliability. When major accidents or storms disrupt
power to the area, DPL can temporarily direct
power from RP&L lines to DPL customers.
This collaborative solution allows the power to
keep fl owing while repairs are being made.
Beyond investments in reliability, we also ask
customers to grade our performance. In 2006, we
conducted a benchmark customer satisfaction survey
to prioritize service efforts. Based on this feedback,
additional customer relations training was
provided for our telephone representatives and
fi eld employees. Those who participated in the
training also offered excellent input on how best to
serve customers. The year-end 2007 survey
showed positive gains in a number of targeted areas,
including professionalism, responsiveness and
overall customer service.
5
“ Working here at Stuart, it’s
a great opportunity. There’s
a lot to learn. My goal is
to be an operator in the
control room some day, but
I’ve got to take it one step
at a time.”
“ DPL offered me the opportu-
nity to be a part of a team.
There are good people here
committed to providing an
important product and service.
That’s important to me and
that’s why I chose DPL.”
D.J. Jackson
Power Plant Operator / First Year of Service
Brian Hylander
Attorney / First Year of Service
D.J. monitors equipment throughout the plant
Brian keeps up-to-date with regulatory
to help the control room operators run the units
requirements and the latest in corporate
safely and at peak effi ciency.
governance trends while also working
on other company matters.
DPL employees are proud to serve customers –
no matter where they are. With major ice storms in
Michigan and Missouri during 2007, DPL crews
endured treacherous conditions to help restore
power to customers in those states. One Missouri
resident thanked our employees by writing,
“We are so blessed that you and others gave so
unselfi shly of yourselves to come to our aid
when our power went out.”
Serving Our Community
At DPL, service is more than the work we do inside
offi ces, on power lines, or at the plants. It is
visible in the way we care for our neighbors beyond
the normal course of business.
DPL has an ongoing commitment to the communities
it serves. Each year, the company and The DP&L
Foundation donate more than $1 million to
support local initiatives. While many causes have an
educational focus, DPL also places economic
development as a high priority. Most recently, the
DP&L Foundation made a signifi cant contribution to
support the Dayton Development Coalition’s
Wright-Patt 2020 initiative to help achieve a goal of
adding 10,000 jobs to the region by 2020.
Our employees are equally dedicated. To help their
generous contributions go farther, the company
initiated a charitable matching program in 2007. On
an annual basis, DPL will match personal charitable
contributions to qualifi ed nonprofi t organizations,
up to $2,000 per employee.
In addition, employees actively participate in the
company’s annual United Way and Culture Works
campaigns, and help their neighbors through
6
“ I like being a mechanic,
and I love the people here.
We know every inch of
this plant. Our experience
helps us keep it running.”
Mary Hughes
Power Plant Maintenance Mechanic /
26 Years of Service
Mary is a power plant mechanic at the
DPL-operated Killen Station. Her recent training
on the new scrubber system will help her
keep it running as well.
“ The people are so nice.
I’m doing exactly what I want
to do. I love my job.”
Sze-Shiang Feng
Quantitative Analyst / First Year of Service
Using quantitative modeling techniques, Sze-Shiang
considers a variety of factors, such as fuel prices,
weather, and energy markets, to maximize the value
of DPL’s generation portfolio.
food and blood drives. Thanks to these and many
other efforts, DPL and Local 175 were recognized by
the United Way with the Pinnacle Award and by
the Ohio Arts Council with the Governor’s Award
for the Arts.
Competitive Generation
DPL’s 2,850 megawatts of cost-competitive,
coal-fi red generation and 900 megawatts of peakers
supply the power for our more than 515,000 customers.
Produced at 10 different plants, approximately 65% of
this capacity is owned in combination with other
energy companies, allowing us to diversify operational
risk. This way, we are not overly dependent on any
single plant.
As a predominantly coal-fi red producer, DPL is
committed to operating in an environmentally respon-
sible and compliant manner. Earlier in the decade,
DPL invested $175 million in selective catalytic
reduction (SCR) equipment to reduce nitrogen oxide
(NOx) emissions. Since the SCRs were put into
service in 2004, NOx emissions have been reduced
by almost 40%.
Now, we are in the fi nal stages of our largest
environmental capital investment program ever. DPL
is investing $580 million to install fl ue gas desulfuriza-
tion (FGD) equipment, commonly called scrubbers,
on 1,700 megawatts of coal-fi red generation. The
scrubbers will reduce sulfur dioxide emissions,
produce cleaner air, and help the company comply
with environmental regulations. In addition, the
7
“ Sometimes the hours can
be long and you have to
make sacrifi ces, but
there’s a responsibility, an
obligation, that comes with
the job. Electricity is so
important that you’ve got
to keep the lights on.”
Marty Wright
Leader Lineman / 29 Years of Service
Marty saved the life of a fellow lineman by perform-
“ When we hire employees,
they may be with the
company for years to come.
Our new hires are some
of the most important
investments we make in
DPL’s future.”
Kim Utz
Recruiting Supervisor / 7 Years of Service
Kim coordinates DPL’s recruiting efforts.
In 2007, the company hired more than 140
ing emergency CPR – a reminder to us all about
new employees.
the importance of working safely around electricity.
scrubbers, in conjunction with existing electrostatic
precipitators, will capture signifi cant mercury and fi ne
particulate emissions.
DPL was the fi rst major utility in North America to
install the innovative Chiyoda scrubber technology
on its base load generating plants. Instead of using
a traditional limestone spray tower, DPL’s units pump
fl ue gas through a jet bubbling reactor containing a
bath of limestone. Our early adoption of this scrubber
technology will result in installed costs that are
well below the industry average. Plus, the simplicity
of the new design will help control operational and
maintenance expenses, resulting in a cost-effective
solution for our customers.
Our employees have done an outstanding job
managing the scrubber construction program at the
DPL-operated Killen and Stuart generating plants.
In June of 2007, we reached a signifi cant milestone
by bringing on line the scrubber at Killen. Since then,
the scrubber on the fi rst unit at Stuart was completed
in early 2008, with the remaining three scrubbers
scheduled to come on line at Stuart later in the year.
DPL Commitment
A commitment to being a great company comes
down to caring for all stakeholders – customers,
employees, communities, and investors.
As we move forward, we will be guided by our values:
We will strive for excellence in every facet of our
business. We are committed to long-term success.
We are DPL!
8
(DPL)
and
DPL Inc.
Dayton Power and Light (DP&L)
Combined Form 10-K
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, 2007
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
1-2385
Registrant, State of Incorporation,
Address and Telephone Number
DPL Inc.
(An Ohio Corporation)
1065 Woodman Drive, Dayton, Ohio 45432
937-224-6000
The Dayton Power and Light Company
(An Ohio Corporation)
1065 Woodman Drive, Dayton, Ohio 45432
937-224-6000
I.R.S. Employer
Identification No.
31-1163136
31-0258470
Each of the following classes or series of securities registered pursuant to Section 12 (b) of the
Act is registered on the New York Stock Exchange:
Registrant
DPL Inc.
Description
Common Stock, $0.01 par value and Preferred Share Purchase Rights
The Dayton Power
and Light Company
None
Securities registered pursuant to Section 12(g) of the Act: None
2
DPL Inc.
Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
DPL Inc.
The Dayton Power and Light Company
Yes __✔___
Yes _____
No _____
No __✔___
Indicate by check mark if each registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Exchange Act.
DPL Inc.
The Dayton Power and Light Company
Yes _____
Yes _____
No __✔___
No __✔___
Indicate by check mark whether each 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.
DPL Inc.
The Dayton Power and Light Company
Yes __✔___
Yes __✔___
No _____
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 each 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.
DPL Inc.
The Dayton Power and Light Company
__✔___
__✔___
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.
DPL Inc.
The Dayton Power and Light Company
Large
Accelerated
filer
__✔___
_____
Accelerated
filer
_____
_____
Non-accelerated
filer
_____
__✔___
Smaller
reporting
company
_____
_____
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
DPL Inc.
The Dayton Power and Light Company
Yes _____
Yes _____
No __✔___
No __✔___
The aggregate market value of DPL Inc.’s common stock held by non-affiliates of DPL Inc. as of June 29, 2007
was approximately $3.2 billion based on a closing sale price of $28.34 on that date as reported on the
New York Stock Exchange. All of the common stock of The Dayton Power and Light Company is owned by
DPL Inc. As of February 20, 2008, each registrant had the following shares of common stock outstanding:
Registrant
DPL Inc.
The Dayton Power
and Light Company
Description
Common Stock, $0.01 par value
and Preferred Share Purchase Rights
Shares Outstanding
113,600,669
Common Stock
41,172,173
This combined Form 10-K is separately filed by DPL Inc. and The Dayton Power and Light Company.
Information contained herein relating to any individual registrant is filed by such registrant on its own behalf.
Each registrant makes no representation as to information relating to a registrant other than itself.
Documents Incorporated by Reference
Portions of DPL’s definitive proxy statement for its 2008 Annual Meeting of Shareholders are incorporated
by reference in Part III of this Form 10-K.
DPL Inc.
3
DPL Inc. and The Dayton Power and Light Company
Index to Annual Report on Form 10K
Fiscal Year Ended December 31, 2007
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. and The Dayton Power and Light Company
Consent of Independent Registered Public Accounting Firm
Page No.
5
16
22
22
22
23
24
26
27
48
49
96
96
96
97
97
97
97
97
98
106
107
108
109
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
4
DPL Inc.
Part I
Item 1 Business
This report includes the combined filing of DPL Inc.
(DPL) and The Dayton Power and Light Company
(DP&L). DP&L is the principal subsidiary of DPL pro-
viding approximately 99% of DPL’s total consolidated
revenue and approximately 92% of DPL’s total con-
solidated asset base. Throughout this report the terms
we, us, our and ours are used to refer to both DPL and
DP&L, respectively and altogether, unless the context
indicates otherwise. Discussions or areas of this report
that apply only to DPL or DP&L will clearly be noted
in the section.
Website Access To Reports
DPL Inc. and DP&L file current, annual and quarterly
reports, proxy statement 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 reference 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 execu-
tive 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 guide-
lines, charters of various committees of the Board of
Directors and our code of business conduct and ethics
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.
Organization
DPL is a regional energy company organized in 1985
under the laws of Ohio. Our executive offices are
located at 1065 Woodman Drive, Dayton, Ohio 45432 –
telephone (937) 224-6000.
DPL’s principal subsidiary is DP&L. DP&L is a
public utility incorporated 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 515,000 retail customers. DP&L also pur-
chases retail peak load requirements from DPL Energy,
LLC (DPLE), one of DPL’s wholly-owned subsidiar-
ies. 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.
DPL’s 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
commercial customers in West Central Ohio; and Miami
Valley Insurance Company (MVIC), which is our captive
insurance company that provides insurance to us and
our subsidiaries.
DP&L has one significant subsidiary, DPL Finance
Company, Inc., which is wholly-owned and provides
financing to DPL, DP&L, and other affiliated companies.
DPL and DP&L conduct their 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. DPL believes it is exempt from
these requirements because DP&L’s operations are
confined to a single state. On January 31, 2006, DPL
filed a FERC 65B Waiver Notification, with the FERC,
requesting that the FERC approve DPL’s waiver and
avoid FERC regulation.
DPL, DP&L, and its subsidiaries employed 1,562
persons as of January 31, 2008, of which 1,333 were
full-time employees and 229 were part-time employ-
ees. Approximately 54% of our employees are under
a collective bargaining agreement. During the third
quarter of 2008, we will begin negotiation discussions
with employees covered under our collective bargain-
ing agreement which is set to expire in November
2008. If the collective bargaining agreement expires
before a new agreement is reached, we would attempt
to persuade our employees to continue working while
negotiations continue. We believe that we maintain a
satisfactory relationship with our employees; however, it
DPL Inc.
5
is possible that the expiration of the collective bargaining agreement could result in labor disruptions
affecting some or all of our operations.
Significant Developments
Credit Rating Upgrades
Our rating agencies upgraded our corporate credit and debt ratings. The following table outlines
the rating of each company and the date of the upgrade:
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corp.
DPL
BBB+
Baa2
BBB-
DP&L
A+
A2
BBB+
Outlook
Stable
Stable
Stable
Effective
March 2007
November 2007
February 2007
Long-Term Debt Redemption
On March 1, 2007, pursuant to the Company’s strategy
of reducing its long-term debt, DPL redeemed the $225
million 8.25% Senior Notes when they became due.
Insurance Recovery Claim
On April 18, 2007, DPL and Associated Electric & Gas
Insurance Services (AEGIS) mediated and reached
a settlement regarding an insurance claim filed with
AEGIS on January 13, 2006 to recoup legal fees asso-
ciated with the three former executives in which AEGIS
agreed to pay DPL $14.5 million for legal fees incurred
by DPL and associated with this litigation. The settle-
ment agreement was signed and executed on April
30, 2007 and the recovery was recorded by DPL as a
reduction to operation and maintenance expense.
Peaking Unit Sales
On April 25, 2007, DPLE completed the sale of its
Darby and Greenville electric peaking generation facili-
ties, providing DPL with approximately $151 million
in cash. Darby Station was sold to Columbus Southern
Power (CSP), a utility subsidiary of American Electric
Power (AEP), for approximately $102 million in cash.
Greenville Station was sold to Buckeye Power, Inc. for
approximately $49 million in cash.
Executive Litigation Settlement
On May 21, 2007, we settled the litigation with the three
former executives in exchange for our payment of $25
million. The $25 million settlement was funded from
the sale of financial assets held in DP&L’s Master Trust
for deferred compensation. As a result of this settle-
ment, DPL realized a net pretax gain in continuing and
discontinued operations of $31 million and $8.2 million,
respectively. As part of this settlement, the three former
executives relinquished and dismissed all their claims
including those related to certain deferred compensa-
tion, restricted stock units (RSUs), MVE, Inc. (discon-
tinued subsidiary of DPL) incentives, stock options
and legal fees. See Note 15 of Notes to Consolidated
Financial Statements.
FGD Project Implementation
Installation of flue gas desulfurization (FGD) equip-
ment at the Killen Station was successfully completed
in June 2007. DP&L is in the process of installing
the same FGD technology on the four units at Stuart
Station. The first Stuart Station unit was placed into
service in early February 2008 with the remaining units
to be commissioned prior to June 2008.
Transfer of Master Trust Assets to Pension
On October 26, 2007, the Board of Directors approved
a resolution permitting the transfer of 925,000 shares
of DPL Inc. common stock from the DP&L Master Trust
to The Dayton Power and Light Company Retirement
Income Plan Trust (Pension). This transaction was
completed on November 26, 2007, contributing shares
of common stock with a fair value of $27.4 million to
the Pension and resulting in a fully funded status at
December 31, 2007.
Pollution Control Bonds
On November 15, 2007, the Ohio Air Quality
Development Authority (OAQDA) issued $90 million of
OAQDA Revenue Bonds 2007 Series A, due November
2040. See Note 7 of Notes to Consolidated Financial
Statements.
Increase in Dividends on DPL’s Common Stock
On February 1, 2007 and on December 13, 2007, our
Board of Directors authorized dividend increases of
approximately 4% and 6%, respectively, increasing our
dividend per share from $1.00 per share to $1.10 per
share. The 4% increase to dividends was paid in
each quarter during 2007. The 6% increase to divi-
dends will be paid each quarter in 2008.
6
DPL Inc.
Electric Sales and Revenues
Electric Sales (millions of kWh)
Residential
Commercial
Industrial
Other retail
Total retail
Wholesale
Total
DPL Inc.
DP&L (a)
2007
2006
2005
2007
2006
2005
5,535
3,990
4,241
1,468
15,234
3,364
18,598
5,218
3,835
4,286
1,428
14,767
3,651
18,418
5,520
3,901
4,332
1,437
15,190
2,716
17,906
5,535
3,990
4,241
1,468
15,234
3,364
18,598
5,218
3,835
4,286
1,428
14,767
3,651
18,418
5,520
3,901
4,332
1,437
15,190
2,716
17,906
Operating Revenues ($ in thousands)
Residential
Commercial
Industrial
Other retail
Other miscellaneous revenues
$ 532,956 $ 490,514 $ 478,226
276,157
300,908
321,051
220,453
240,450
244,260
81,716
88,307
94,568
10,069
11,174
13,340
$ 532,956 $ 490,514 $ 478,226
247,912
278,082
301,455
126,506
130,119
132,359
81,877
88,203
77,184
10,317
11,215
13,387
Total retail
Wholesale
RTO ancillary revenues
Other revenues, net of fuel costs
1,206,175
180,257
118,386
10,911
1,131,353
174,114
77,231
10,821
1,066,621
133,283
74,419
10,586
1,057,341
331,725
118,386
–
998,133
309,885
77,231
–
944,838
257,632
74,419
–
Total
$ 1,515,729 $ 1,393,519 $ 1,284,909
$ 1,507,452 $ 1,385,249 $ 1,276,889
Electric Customers at End of Period
Residential
Commercial
Industrial
Other
Total
456,989
49,875
1,818
6,443
457,054
49,284
1,822
6,349
456,146
48,853
1,837
6,304
456,989
49,875
1,818
6,443
457,054
49,284
1,822
6,349
456,146
48,853
1,837
6,304
515,125
514,509
513,140
515,125
514,509
513,140
(a) DP&L sells power to DPLER (a subsidiary of DPL). These sales are classified as wholesale sales for DP&L and retail sales
for DPL. The kWh volumes contain all volumes distributed on the DP&L system which include the retail sales by DPLER. The sales for
resale volumes are omitted to avoid duplicate reporting.
Electric Operations and Fuel Supply
2007 Summer Generating Capacity
Amounts in MWs
DPL
DP&L
Coal Fired
2,850
2,850
Peaking
Units
919
435
Total
3,769
3,285
DPL’s present summer generating capacity, includ-
ing peaking units, is approximately 3,769 MW. Of this
capacity, approximately 2,850 MW, or 76%, is derived
from coal-fired steam generating stations and the bal-
ance of approximately 919 MW, or 24%, consists of
combustion turbine and diesel peaking units.
DP&L’s present summer generating capacity,
including peaking units, is approximately 3,285 MW.
Of this capacity, approximately 2,850 MW, or 87%, is
derived from coal-fired steam generating stations and
the balance of approximately 435 MW, or 13%, con-
sists of combustion turbine and diesel peaking units.
Combustion turbine output is dependent on ambi-
ent conditions and is higher in the winter than in the
summer. Our all-time net peak load was 3,300 MW,
occurring August 8, 2007.
Approximately 87% of the existing steam generat-
ing capacity is provided by certain units owned as ten-
ants in common with Duke Energy-Ohio (or its subsid-
iaries The Cincinnati Gas & Electric Company (CG&E),
or Union Heat, Light & Power) and AEP (or its subsid-
iary CSP). As tenants in common, each company owns
a 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 propor-
tionate 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.
DPL Inc.
7
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 2007, we generated 99% of our electric output from coal-fired units and 1% from oil and 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
DPL Portion
Total
Approximate Summer
MW Rating
Coal Units
Hutchings
Killen
Stuart
Conesville – Unit 4
Beckjord – Unit 6
Miami Fort – Units 7 & 8
East Bend – Unit 2
Zimmer
Combustion Turbines or Diesel
Hutchings
Yankee Street
Monument
Tait Diesels
Sidney
Tait Units 1-3
Killen
Stuart
Montpelier Units 1-4
Tait Units 4-7
W
C
C
C
C
C
C
C
W
W
W
W
W
W
C
C
W
W
DP&L
DP&L
DP&L
CSP
CG&E
CG&E
CG&E
CG&E
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DPLE
DPLE
Miamisburg, OH
Wrightsville, OH
Aberdeen, OH
Conesville, OH
New Richmond, OH
North Bend, OH
Rabbit Hash, KY
Moscow, OH
Miamisburg, OH
Centerville, OH
Dayton, OH
Dayton, OH
Sidney, OH
Moraine, OH
Wrightsville, OH
Aberdeen, OH
Montpelier, IN
Moraine, OH
365
402
836
129
207
360
186
365
23
107
12
10
12
256
12
3
192
292
365
615
2,388
780
414
1,000
600
1,300
23
107
12
10
12
256
18
10
192
292
Total approximate summer generating capacity
3,769
8,394
* W = Wholly-Owned C = Commonly-Owned
We have substantially all of the total expected coal volume needed to meet our retail and firm wholesale sales
requirements for 2008 under contract. The majority of our contracted coal is purchased at fixed prices.
Some contracts provide for periodic adjustments and some are priced based on market indices. Substantially
all contracts have features that limit price escalations in any given year. Our sulfur dioxide (SO2) allowance
consumption was reduced in 2007 due to the installation of emission control equipment at a portion of our genera-
tion facilities. As a result of this reduction, we will have emission allowance inventory in excess of our needs,
which we plan to sell during 2008 and in future years. We did not purchase SO2 allowances or nitrogen oxide
(NOx) allowances during 2007, nor do we plan to purchase any in 2008. Fuel costs are impacted by changes in
volume and price and are driven by a number of variables including weather, reliability of coal deliveries,
scheduled outages and generation plant mix. Based on higher volume and price, fuel costs are forecasted to be
15% to 25% higher in 2008 compared to 2007.
The average cost of fuel used per kilowatt-hour (kWh) was as follows:
Average Cost of Fuel Used (¢/kWh)
DPL
DP&L
8
DPL Inc.
2007
1.97
1.91
2006
2.00
1.94
2005
1.93
1.84
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
regulation by the Public Utilities Commission of Ohio
(PUCO). DP&L’s transmission and wholesale electric
rates to municipal corporations, rural electric co-
operatives and other distributors of electric energy are
subject to regulation by the Federal Energy Regulatory
Commission (FERC) under the Federal Power Act.
Ohio law establishes the process for determining
retail rates charged by public utilities. Regulation of
retail rates encompasses the timing of applications,
the effective date of rate increases, the cost basis
upon which the rates are based and other related mat-
ters. 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 and
FERC authorization, regulatory assets and liabilities
are recorded on the consolidated balance sheets. See
Note 3 of Notes to Consolidated Financial Statements.
Competition and Regulation
Ohio Matters
Ohio Retail Rates
Since January 2001, DP&L’s electric customers have
been permitted to choose their retail electric generation
supplier. DP&L continues to have the exclusive right
to provide delivery service in its state certified territory
and the obligation to supply retail generation service to
customers that do not choose an alternative supplier.
The PUCO maintains jurisdiction over DP&L’s delivery
of electricity, standard service offer, and other retail
electric services.
On October 31, 2007, the Ohio Senate passed
Senate Bill 221. The Ohio House of Representatives
has assigned the bill to the committee and is taking
testimony from interested parties. In its current form,
the bill states that the standard service offer in effect
at the end of the utility’s rate plan will remain in effect
until the utility files either an electric security plan or a
market rate option. Under the market rate option, the
retail generation price will be set by a periodic com-
petitive bid process after the utility demonstrates that
there is effective competition in its service territory and
that it can meet other market criteria set out in the pro-
posed bill. Under the electric security plan option, the
PUCO will establish rules for filing an electric security
plan which may allow for adjustments to the standard
offer for costs associated with environmental compli-
ance; fuel and purchased power; construction of new
or investment in specified generating facilities; the
provision of standby and default service, operating,
maintenance, or other costs including taxes. Once an
electric security plan is approved by the PUCO, the
utility is required to file an infrastructure improvement
plan that will specify the initiatives the utility will take
to rebuild, upgrade or replace its electric distribution
system. The proposed bill establishes a goal that by
2025, twenty-five percent of the generation used to
supply standard offer generation service in the state
will come from advanced energy resources, which may
include: sustainable resources, clean coal technol-
ogy, advanced nuclear generation, fuel cells and co-
generation of which half must be met through facilities
located in Ohio. Full compliance with the advanced
energy standards may not be mandated if the price
impact of compliance exceeds three percent. The bill
creates an advanced energy advisory committee and
a federal energy advocate that will evaluate the costs
and benefits associated with Regional Transmission
Organizations (RTO) on behalf of the state. It promotes
construction of advanced energy projects by providing
low interest loans and grants, promotes energy efficien-
cy and requires a carbon control plan to be developed
for each generating facility located in the state. As the
bill is not yet in final form, the outcome of this proceed-
ing and its financial impact on the Company cannot be
determined at this time.
On April 4, 2005, DP&L filed a request with the
PUCO to implement a rate stabilization surcharge
(RSS), effective January 1, 2006, to recover cost
increases associated with environmental capital, relat-
ed operation and maintenance costs and fuel expens-
DPL Inc.
9
es. Subsequently, DP&L entered into a settlement
agreement that extended DP&L’s rate stabilization peri-
od through December 31, 2010 and allowed for recov-
ery of certain fuel and environmental investment costs
through an environmental rider. The PUCO adopted
the settlement, but ruled that the environmental rider
shall be by-passable by all customers who take service
from alternate generation suppliers. Consistent with
the RSS Stipulation approved by the PUCO and prior
orders, DP&L made a tariff filing that was approved by
the PUCO in November 2006 to implement the envi-
ronmental investment rider beginning January 1, 2007.
The case was appealed to the Ohio Supreme Court by
the OCC. On September 5, 2007, the Ohio Supreme
Court affirmed the PUCO’s approval of the settlement
agreement but remanded one aspect of the order, that
the RSS tariff should be part of the Company’s genera-
tion tariffs instead of distribution tariffs. On December
6, 2007, DP&L filed to modify its tariffs accordingly and
does not expect this change to impact future revenues.
Effective December 19, 2007, the PUCO issued a
90-day moratorium on the disconnection of electric and
natural gas services to residential customers who meet
low-income guidelines. Under this regulation, DP&L,
along with other Ohio electric and gas utilities, are
prohibited from disconnecting residential customers for
non-payment of utility bills for a 90-day period provided
the customer agrees to enroll in the state’s low-income
program or enter into other available payment plans.
DP&L believes that the moratorium will not have a
material impact on its results of operation, financial
position or its cash flows.
Ohio Competitive Considerations and Proceedings
As of December 31, 2007, four unaffiliated market-
ers were registered as Competitive Retail Electric
Service (CRES) providers in DP&L’s service territory.
While there has been some customer switching to
date associated with unaffiliated marketers, it repre-
sented less than 0.15% of sales in 2007. DPLER, an
affiliated company, is also a registered CRES provider
and accounted for 99.3% of the total kWh supplied by
CRES providers within DP&L’s service territory in 2007.
In addition, several communities in DP&L’s service
area have passed ordinances allowing the communi-
ties to become government aggregators for the pur-
pose of offering alternative electric generation supplies
to their citizens. To date, none of these communities
have aggregated their generation load.
DP&L agreed to implement a Voluntary Enrollment
Program (VEP) that would provide customers with an
option to choose a competitive supplier to provide
their retail generation service should switching not
reach 20% in each customer class. The 20% threshold
has never been reached. Customers who elected to
participate in the program were grouped together and
collectively bid out to CRES providers. Four rounds of
bidding were conducted for the 2007 program result-
ing in no bids being received. DP&L has completed its
obligations under this program.
Other State Regulatory Proceedings
On August 28, 2006, the Staff of the PUCO issued a
report relating to compliance with the Federal Energy
Policy of 2005. In that report the Staff makes recom-
mendations to the Commission to implement new rules
and procedures relating to net metering, customer
generator interconnection, stand by power, time-of-
use rates, and renewable energy portfolio standards.
DP&L, among others, filed comments and reply com-
ments. In 2007, the Commission held a series of tech-
nical conferences on automated meter infrastructure,
interconnection, net metering, and standby power
rates. On December 21, 2007, DP&L filed a series of
tariffs to comply with this rule making. The potential
cost associated with new regulations from these pro-
ceedings cannot be quantified at this time.
On April 3, 2007, the PUCO issued proposed revi-
sions to the Commission’s minimum electric service
and safety standards. These rules govern a variety of
utility operations such as maintenance programs, new
construction, meter reading, and distribution circuit
performance. The proposed changes impact customer
service requirements, reliability reporting and distribu-
tion inspection and maintenance programs, as well as
increase the penalty the Commission may invoke if a
utility is found to be in violation of these rules. DP&L,
among others, filed comments and reply comments.
DP&L may experience an increase in distribution
operation and maintenance expense associated with
the new rules. We are unable to determine the potential
financial impact of these changes at this time.
Federal Matters
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
10 DPL Inc.
the state’s investor-owned utilities are required to join
an RTO. In October 2004, DP&L successfully inte-
grated its 1,000 miles of high-voltage transmission into
the PJM Interconnection, L.L.C. (PJM) RTO. The role of
the RTO is to administer an electric marketplace and
ensure reliability of the transmission grid. PJM ensures
the reliability of the high-voltage electric power system
serving 51 million people in all or parts of Delaware,
Illinois, Indiana, Kentucky, Maryland, Michigan, New
Jersey, North Carolina, 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 larg-
est competitive wholesale electricity market and plans
regional transmission expansion improvements to main-
tain grid reliability and relieve congestion.
As a member of PJM, DP&L is subject to charges
and costs associated with PJM operations as approved
by the FERC. On April 19, 2007, the FERC issued an
order that modified the traditional method of allocating
costs associated with new high voltage planned trans-
mission facilities. FERC ordered that the cost of new,
high-voltage facilities be socialized across the PJM
region. The costs of the new facilities at lower voltages
will continue to be assigned to the load centers that
benefit from the new facilities. In a companion order
also issued on April 19, 2007, FERC did not change
the existing allocation of costs associated with exist-
ing transmission facilities, upholding the existing PJM
rate design. On February 1, 2008, FERC issued an
order on rehearing that upheld its original decision. The
overall impact of FERC’s orders cannot be definitively
assessed at this time because not all new planned
construction is likely to happen. The additional costs
allocated to the Company for new large transmis-
sion approved projects are expected to be immate-
rial in 2008 and 2009 but could rise to approximately
$12 million or more annually by 2012. As a result, on
December 21, 2007, DP&L filed an application seeking
PUCO authority to defer costs associated with these
new high-voltage transmission projects for future recov-
ery through retail rates.
As a member of PJM, the value of DP&L’s gen-
eration capacity is affected by changes in and the
clearing results of the PJM capacity construct. The
construct utilizes a Reliability Pricing Model (RPM) that
changes the way generation capacity is priced and
planned for by PJM. PJM held its first RPM auction
during April 2007 for the 2007/2008 planning year and
held subsequent auctions during July and October
2007 and January 2008. The results of these auctions
have not had a material impact on our results of opera-
tions, financial position or cash flows. The FERC deci-
sions establishing RPM have been appealed by vari-
ous entities to the Federal appeals court. RPM remains
in effect pending the outcome of the appeal. DP&L has
intervened and supports the FERC decisions.
In connection with DP&L and other utilities join-
ing PJM, the FERC ordered utilities to eliminate certain
charges to implement transitional payments, known
as Seams Elimination Charge Adjustment (SECA),
effective December 1, 2004 through March 31, 2006,
subject to refund. Through this proceeding, DP&L
was obligated to pay SECA charges to other utilities,
but received a net benefit from these transitional pay-
ments. The hearing was held in May 2006 and an
initial decision was issued on August 10, 2006 that,
if upheld by the FERC, would reduce the amount of
SECA charges DP&L and other parties are permitted
to recover. DP&L, among others, has taken exception
to the initial decision. A final FERC order on this issue
is still pending. We have entered into a significant
number of bi-lateral settlement agreements with certain
parties to resolve the matter, which by design will be
unaffected by the FERC’s decision to affirm, modify or
reject the initial decision. DP&L management believes
that appropriate reserves have been established in the
event that SECA collections not resolved by settlement
are required to be refunded. The ultimate outcome of
the proceeding establishing 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 results of operations.
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 and
preservation of a diverse fuel supply for electricity
generation and energy efficiency. In response to the
2005 Act, the FERC issued a Notice of Proposed
Rulemaking to amend its regulations to incorporate the
criteria which an entity must satisfy in order to qualify
to be an Electric Reliability Organization (ERO). Part
of the ERO’s goals is to propose and enforce reliability
standards subject to FERC approval. The proposed
rule also included related matters on delegating
ERO authority, the creation of advisory bodies and
reporting requirements.
In October 2006, the FERC also approved new
mandatory reliability standards which become effective
in 2007, with requirements applying to certain assets
and activities of DPL, DP&L and DPLE. FERC subse-
DPL Inc.
11
quently has promulgated some revisions and additional
reliability standards, including cyber-security stan-
dards. The new regulations include potential penalties
for failure to comply with these standards. DPL, DP&L
and DPLE are currently assessing and modifying com-
pliance documents and procedures as needed. We are
working with consultants, other utilities and other orga-
nizations to comply with the new mandatory standards
and their compliance documentation requirements.
DP&L provides transmission and wholesale elec-
tric service to twelve municipal customers in its service
territory, which in turn distribute electricity principally
within their incorporated limits. DP&L also maintains
an interconnection agreement with one municipality
that has the capability to generate a portion of its own
energy requirements. Approximately one percent
of total electricity sales in 2007 represented sales to
these municipalities.
On September 28, 2007, the Internal Revenue
Service (IRS) published proposed regulations which
would change the treatment of transactions involv-
ing the provision of insurance between members of
a consolidated tax group. If adopted, these regula-
tions would affect the tax position previously held by
Miami Valley Insurance Company (MVIC), our captive
insurance company that provides insurance to us
and our subsidiaries. The IRS requested comments
by December 27, 2007. MVIC filed comments as part
of a coalition formed for this purpose which included
captive insurance companies and parent companies,
captive insurance industry associations and insurance
departments of numerous states which have captive
insurance regulations. These entities all oppose the
IRS’ proposed regulations. The IRS will review all com-
ments received and may publish a final regulation in
the same form, or may substantially change or aban-
don its proposed regulation. Since we do not know
what steps the IRS will take, we cannot predict the
impact on DPL, DP&L or MVIC at this time.
Environmental Considerations
DPL, DP&L and our subsidiaries’ facilities and opera-
tions are subject to a wide range of environmental reg-
ulations and laws by federal, state and local authorities.
The environmental issues that may impact us include:
■ The Federal Clean Air Act (CAA) and state laws
and regulations (including State Implementation Plans)
which require compliance, obtaining permits and
reporting as to air emissions.
■ Litigation with the federal and certain state govern-
ments and certain special interest groups regarding
whether modifications to or maintenance of certain
coal-fired generating plants required additional permit-
ting or pollution control technology, and/or whether
emissions from coal-fired generating plants cause or
contribute to global climate changes.
■ Rules issued by the United States Environmental
Protection Agency (USEPA) and Ohio Environmental
Protection Agency (Ohio EPA) that require substantial
reductions in SO2, mercury and NOx emissions.
DPL is installing (and has installed) emission control
technology and is taking other measures to comply
with required reductions.
■ The Federal Clean Water Act (FCWA), which prohib-
its the discharge of pollutants into waters of the United
States except pursuant to appropriate permits. In July
2004, the USEPA adopted a new Clean Water Act rule
to reduce the number of fish and other aquatic organ-
isms killed by discharges from cooled power plants.
■ Solid and hazardous waste laws and regulations,
which govern the management and disposal of cer-
tain waste. The majority of solid waste created from
the combustion of coal and fossil fuels is fly ash and
other coal combustion by-products, which the EPA has
determined are not hazardous waste subject to the
Resource Conservation and Recovery Act (RCRA).
As well as imposing continuing compliance obliga-
tions, these laws and regulations authorize the impo-
sition of substantial penalties for noncompliance,
including fines, injunctive relief and other sanctions.
In the normal course of business, we have investiga-
tory and remedial activities underway at these facili-
ties to comply, or to determine compliance, with such
regulations. We record liabilities for probable esti-
mated loss in accordance with Statement of Financial
Accounting Standards No. 5 (SFAS 5) “Accounting for
Contingencies,” as discussed in Note 1 of the Notes
to Consolidated Financial Statements. DPL, through its
wholly-owned captive insurance subsidiary MVIC, has
an actuarially calculated reserve for environmental
matters. We evaluate the potential liability related to
probable losses quarterly and may revise our esti-
mates. Such revisions in the estimates of the potential
liabilities could have a material effect on our results of
operations, financial position or cash flows.
In addition to the requirements related to emis-
sions of SO2, mercury, and NOx noted above, there
is a growing concern nationally and internationally
about global climate change and the contribution of
emissions of greenhouse gases, including most signifi-
cantly, carbon dioxide (CO2). This concern has led to
12 DPL Inc.
increased interest in legislation at the federal level and
actions at the state level as well as litigation relating
to greenhouse gas emissions, including a recent U.S.
Supreme Court decision holding that the USEPA has
the authority to regulate carbon dioxide emissions from
motor vehicles under the CAA. Increased pressure
for carbon dioxide emissions reduction also is coming
from investor organizations and the international
community. Environmental advocacy groups are also
focusing considerable attention on carbon dioxide
emissions from power generation facilities and their
potential role in climate change. Although several bills
have been introduced in Congress that would compel
CO2 emission reductions, no bills have passed to date.
Future changes in environmental regulations governing
these pollutants could make some of our electric
generating units uneconomical to maintain or oper-
ate. In addition, any legal obligation that would require
extensive mitigation efforts and, in the case of CO2
legislation, would raise uncertainty about the future
viability of fossil fuels, particularly coal, as an energy
source for new and existing electric generation facili-
ties. If legislation or regulations are passed at the
federal or state levels imposing mandatory reductions
of carbon dioxide and other greenhouse gases
on generation facilities, the cost to DPL and DP&L of
such reductions could be material.
Environmental Regulation and Litigation
Related to Air Quality
Regulation Proceedings – Air
In 1990, the federal government amended the CAA to
further regulate air pollution. Under the law, the USEPA
sets limits on how much of a pollutant can be in the air
anywhere in the United States. The CAA allows individ-
ual states to have stronger pollution controls, but states
are not allowed to have weaker pollution controls than
those set for the whole country. The CAA has a material
effect on our operations and such effects are detailed
below with respect to certain programs under the CAA.
On October 27, 2003, the USEPA published 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 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 generating units. At this time, we are
unable to determine the impact of the ERP appeal or
the outcome of the proposed emissions test.
In a regulation proceeding relating to the same
issue decided by the U.S. Supreme Court in the Duke
Energy case discussed below, the USEPA issued a
proposed rule in October 2005 concerning the test for
measuring whether modifications 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
actual emission levels after the modification. A third
option that tests emissions increase based upon emis-
sions per unit of energy output is also available for
comment. We cannot predict the outcome of this rule-
making or its impact on current environmental litigation.
On December 17, 2003, the USEPA proposed
the Interstate Air Quality Rule (IAQR) designed to
reduce and permanently cap 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 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, 2005,
the USEPA proposed additional revisions to the CAIR
and initiated reconsideration on one issue. Although
we cannot predict the outcome of the reconsideration
proceedings, the petitions or the pending litigation,
CAIR has had and will have a material effect on our
operations. Phase I CAIR requirements tend to promote
decisions to install FGD equipment and continuous
operation of the currently installed Selective Catalytic
Reduction equipment. In 2007, the Ohio EPA revised
their State Implementation Plan (SIP) to incorporate a
CAIR program consistent with the IAQR. The Ohio EPA
is awaiting approval from the USEPA. Upon approval,
the USEPA will distribute related CAIR NOx seasonal
and annual emission allowances. As a result, DP&L
has installed FGD equipment at the Killen generating
station and is proceeding with the installation of FGD
equipment at the Stuart generating station.
On January 30, 2004, the USEPA published its
proposal to restrict mercury and other air toxins from
coal-fired and oil-fired utility plants. The USEPA “de-
DPL Inc.
13
listed” mercury as a hazardous air pollutant from coal-
fired and oil-fired utility plants and, instead, proposed
a cap-and-trade approach to regulate the total amount
of mercury emissions allowed from such sources. The
final Clean Air Mercury Rule (CAMR) was signed March
15, 2005 and was published on May 18, 2005. On
March 29, 2005, nine states sued USEPA, opposing the
cap-and-trade regulatory approach taken by USEPA.
In 2007, the Ohio EPA adopted rules implementing the
CAMR program. On February 8, 2008, the Court of
Appeals struck down the USEPA regulations, finding
that the USEPA had not complied with statutory require-
ments applicable to “de-listing” a hazardous air pollut-
ant and that a cap-and-trade approach was not autho-
rized by law for “listed” hazardous air pollutants. The
order is subject to appeal to the U.S. Supreme Court
which has a discretionary power to decide whether or
not to hear an appeal.
Due to the ongoing uncertainties associated with
an appeal that may be taken to the U.S. Supreme
Court and the USEPA regulatory process if the D.C.
Circuit’s ruling is not reversed, we cannot project the
final costs we may incur to comply with any resulting
mercury restriction regulations.
On July 15, 2003, the Ohio EPA submitted to the
USEPA its recommendations for eight-hour ozone non-
attainment boundaries for the metropolitan areas within
Ohio. On April 15, 2004, the USEPA issued its list of
ozone non-attainment designations. Since these initial
designations, the Ohio EPA has recommended that
nine areas designated non-attainment be designated
as attainment. Currently USEPA has redesignated eight
of those areas as attainment for the eight-hour ozone
national ambient air quality standards, including coun-
ties where DP&L owns and/or operates a number of
facilities. In redesignating these counties as attainment,
the Ohio EPA submitted and USEPA approved amend-
ments to the SIP that include maintenance plans for
these areas. In June 2007, the Ohio EPA submitted a
plan to USEPA for attaining the eight-hour ozone stan-
dard for the Cincinnati-Hamilton area in which DP&L
owns a number of facilities. DP&L cannot determine
the outcome of this redesignation effort at this time.
On January 5, 2005, the USEPA published its final
non-attainment designations for the national ambient
air quality standard for Fine Particulate Matter 2.5 (PM
2.5). These designations included counties and partial
counties in which DP&L operates and/or owns gen-
erating 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 designations.
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 court ordered a brief-
ing schedule with final briefs due in July 2008 and oral
arguments to be scheduled for fall 2008. The Ohio
EPA must submit regulations to attain and maintain
compliance with the PM 2.5 national ambient air qual-
ity standard in April 2008. DP&L cannot determine the
outcome of the petition for review or the effect such
Ohio EPA regulations will have on its operations.
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, provid-
ing 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.
Sierra Club Litigation
On April 2, 2007, the U.S. Supreme Court unanimously
overturned the rulings of two lower courts and con-
cluded that the CAA’s NSR requirements are triggered
when a major physical or operational change at a facil-
ity results in an increase in the facility’s annual emis-
sions (Environmental Defense et al. v. Duke Energy
Corp. et al.). The outcome of this case is significant to
DP&L because it eliminates one of DP&L’s major argu-
ments in the lawsuit filed against it by the Sierra Club.
The Court decided that an annual rate of emissions
could be used to determine if major modifications have
been made to a plant as opposed to an hourly emis-
sion rate as Duke had argued. Using the annual rate
makes it more likely that most plant modifications will
be found to be “major” modifications, thus requiring
EPA permits. DP&L can still defend against the allega-
tions of NSR violations if it can establish that the activi-
ties at issue did not cause total annual emissions to
increase or that the projects that resulted in increased
emissions were undertaken for routine maintenance,
repair and replacement activities.
In September 2004, the Sierra Club filed a lawsuit
against us and the other owners of the Stuart generat-
ing station in the United States District Court for the
Southern District of Ohio for alleged violations of the
CAA, including issues similar to those presented in the
14 DPL Inc.
Duke Energy case and other issues relating to alleged
violations of opacity limitations. DP&L, on behalf
of all co-owners, is leading the defense of this mat-
ter. A sizable amount of discovery has taken place
and expert reports were filed at various times from
May through September 2007. On February 14, 2008,
upon the request of the Sierra Club, DP&L and the
other owners of the Stuart generating station, the Court
approved another sixty day stay of proceedings
to permit the parties the opportunity to determine if a
settlement of the case could be reached. Settlement
negotiations are ongoing.
Litigation Involving Co-Owned Plants
In March 2000, as amended in June 2004, the United
States Department of Justice filed a complaint in an
Indiana federal court against Cinergy Corp. (now part
of Duke Energy) and two Cinergy subsidiaries for
alleged violations of the CAA at various generation
units operated by PSI Energy, Inc. and CG&E, includ-
ing generation units co-owned by DP&L (Beckjord Unit
6 and Miami Fort Unit 7). The defense is being led by
Duke Energy and a trial is currently scheduled to begin
later in 2008.
In November 2004, the State of New York and
seven other states filed suit against AEP and vari-
ous subsidiaries, 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.
AEP settled this case on October 9, 2007 and DP&L
will be required to pay approximately $0.5 million for
its partial ownership of Conesville Unit 4.
In November 2004, various residents of the Village
of Moscow, Ohio sued CG&E, as the operator of
Zimmer generating station (co-owned by CG&E, DP&L
and CSP), for alleged violations of the CAA and air
pollution nuisances. CG&E, on behalf of all co-owners,
is leading the defense of this matter.
Notices of Violation Involving Co-Owned Plants
In June 2000, the USEPA issued a Notice of Violation
(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 the 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.
In November 1999, the USEPA filed civil com-
plaints and NOVs against operators and owners of
certain generation facilities for alleged violations of the
CAA. Generation units operated by CG&E (Beckjord
Unit 6) and CSP (Conesville Unit 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.
In December 2007, the Ohio EPA issued a NOV to
DP&L-operated Killen generating station (co-owned
by DP&L and CG&E) for alleged violations of the CAA.
The NOVs alleged deficiencies in the continuous
monitoring of opacity. A compliance plan has been
submitted to the Ohio EPA. To date, no further actions
have been taken by the Ohio EPA.
Other Issues Involving Co-Owned Plants
In 2006, DP&L detected a malfunction with its emis-
sion monitoring system at DP&L-operated Killen gen-
erating station (co-owned by DP&L and CG&E) and
ultimately determined its SO2 and NOx emissions data
were under reported. DP&L has petitioned the USEPA
to accept an alternative methodology for calculating
actual emissions for 2005 and the first quarter 2006.
DP&L has sufficient allowances in its general account
to cover the understatement and is working with the
USEPA to resolve the matter. Management does
not believe the ultimate resolution of this matter will
have a material impact on results of operations, finan-
cial position or cash flows.
Notices of Violation Involving Wholly-Owned Plants
In 2007, the Ohio EPA and the USEPA issued NOVs
to DP&L for alleged violations of the CAA at the O.H.
Hutchings Station. The NOVs alleged deficiencies
relate to stack opacity and particulate emissions.
Discussions are under way with the USEPA and Ohio
EPA and DP&L has provided data to those agencies
regarding its maintenance expenses and operating
results. DP&L is unable to determine whether any addi-
tional actions will take place with respect to this matter.
Environmental Regulation and Litigation
Related to Water Quality
On July 9, 2004, the USEPA issued final rules pursuant
to the Clean Water Act governing existing facilities that
have cooling water intake structures. The rules require
an assessment of impingement and/or entrainment
of organisms as a result of cooling water withdrawal.
A number of parties appealed the rules to the Federal
DPL Inc.
15
Court of Appeals for the Second Circuit in New York
and the Court issued an opinion on January 25, 2007
remanding several aspects of the rule to USEPA for
reconsideration. We are undertaking studies at two
facilities but cannot predict the impact such studies
may have on future operations or the outcome of the
remanded rulemaking.
On May 4, 2004, the Ohio EPA issued a final
National Pollutant Discharge Elimination System per-
mit (Permit) for J.M. Stuart Station that continued our
authority to discharge water from the station into the
Ohio River. During the three-year term of the Permit,
we conducted a thermal discharge study to evaluate
the technical feasibility and economic reasonableness
of water cooling methods other than cooling towers.
In December 2006, we submitted an application for
the renewal of the Permit that was due to expire on
June 30, 2007. In July 2007 we received a draft permit
proposing to continue our authority to discharge water
from the station into the Ohio River. On February 5,
2008 we received a letter from Ohio EPA indicating that
they intend to impose a compliance schedule as part
of the final Permit, that requires us to implement one of
two diffuser options for the discharge of water from the
station into the Ohio River as identified in the thermal
discharge study. The two diffuser options identified by
Ohio EPA could cost approximately $33 million based
on preliminary cost estimates, of which our pro-rata
share would be approximately $11.5 million. We have
not seen the compliance schedule and cannot predict
the final outcome of this issue on future operations.
Environmental Regulation and Litigation Related to
Land Use and Solid Waste Disposal
DP&L has been identified, either by a government
agency or by a private party seeking contribution to
site clean-up costs, as a Potentially Responsible Party
(PRP) at two sites pursuant to state and federal laws.
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. In August 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. In October 2005, DP&L received
a special notice letter inviting it to enter into negotia-
tions with USEPA to conduct the RI/FS. Information
available to DP&L does not demonstrate that it contrib-
uted hazardous substances to the site. Should USEPA
pursue a civil action, DP&L will vigorously challenge it.
In December 2003, 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 Tremont City landfill site. Information available to
DP&L does not demonstrate that it contributed hazard-
ous substances to the site.
In November 2007, a PRP group contacted DP&L
seeking our financial participation in a settlement that
the group had reached with the federal government
with respect to the clean-up of an industrial site once
owned by Carolina Transformer, Inc. DP&L’s business
records clearly show we did not conduct business with
Carolina Transformer that would require our participa-
tion in any clean-up of the site. DP&L has declined to
participate in the clean-up of this site.
In August 2006, Ohio EPA issued draft rules for
interested party comment related to the disposal of
industrial waste. DP&L, through the Ohio Electric Utility
Institute submitted comments on the draft rules.
DP&L cannot predict the impact of the draft rules on
future operations.
Capital Expenditures for Environmental Matters
DPL’s construction additions were approximately $347
million, $352 million and $180 million in 2007, 2006
and 2005, respectively, and are expected to approxi-
mate $205 million for 2008. DP&L’s construction
additions were approximately $344 million, $349 million
and $178 million in 2007, 2006 and 2005, respectively.
Planned construction additions of DP&L for 2008
are expected to approximate $203 million and relate
to DP&L’s environmental compliance program, power
plant equipment, and its transmission and distribution
system. All environmental additions made during the
past three years pertain to DP&L and approximate
$206 million, $246 million and $90 million in 2007,
2006 and 2005, respectively.
Item 1a Risk Factors
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 are not guarantees of future
performance and there are a number of factors includ-
ing, but not limited to, those listed below, which could
cause actual outcomes and results to differ materially
from the results contemplated by such forward-looking
16 DPL Inc.
statements. We do not undertake any obligation to
publicly update or revise any forward-looking state-
ments, whether as a result of new information, future
events or otherwise. These forward-looking state-
ments 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 DPL
and DP&L consider to be the most significant to your
decision to invest in our stock. If any of these events
occur, our business, results of operations, financial
position or cash flows could be materially affected.
Regulatory Environment
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 environ-
mental compliance, fuel and purchased power costs
and investments made under traditional regulation
through rates; and changes to the frequency and tim-
ing of rate increases could affect our results of opera-
tions, financial condition or cash flows. Additionally,
financial or regulatory accounting principles or policies
imposed by governing bodies can increase our
operational, monitoring and information technology
costs affecting our results of operations and financial
condition.
Before 2001, electric utilities provided electric
generation, transmission and distribution services as a
single product to retail customers at prices set by the
PUCO. In 1999, Ohio enacted legislation that partially
deregulated utility service, effective January 1, 2001,
making retail generation service a competitive service.
Customers may choose to take generation service from
CRES providers that register with the PUCO but are
otherwise unregulated. In connection with this deregu-
lation of the electric industry in Ohio, electric utilities
have had to restructure their service and their rates to
accommodate competition.
Many of the requirements of the Ohio deregulation
law were premised on the assumption that the whole-
sale generation market and, in turn, the retail genera-
tion 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. That did not occur. As a result, the
PUCO and the utilities, including DP&L, have worked
out plans to provide market-based pricing for genera-
tion 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 whole-
sale and retail electric generation markets have devel-
oped and the final outcome of the pending energy
legislation in Ohio.
On September 25, 2007, Senate Bill 221 was intro-
duced in the Ohio Legislature. The bill codifies, in draft
form, the governor’s proposed energy policy. The bill
was passed by the Senate on October 31, 2007. The
Ohio House of Representatives has assigned the bill
to committee and is taking testimony from interested
parties. As the bill is not yet in final form, the outcome
of this proceeding and its financial impact on the
Company cannot be determined at this time.
Customer Switching
Changes in our customer base, including government
aggregation, could lead to the entrance of competitors
in our marketplace, affecting our results of operations,
financial condition or cash flows. Although retail gen-
eration service has been a competitive service since
January 1, 2001, the competitive generation market
has not developed in DP&L’s service territory to any
significant degree. The following are factors that could
result in increased switching by customers to CRES
providers in the future:
■ DP&L’s Standard Service Offer
The RSS Stipulation discussed above, permits custom-
ers that take service from a CRES provider to bypass
the Environmental Investment Rider (EIR). Because
this charge increases each year, the price that a CRES
provider can offer to save customers money changes
each year. Depending on the development of the
wholesale market and the level of wholesale prices,
CRES providers could become more active in DP&L’s
service territory.
■ CRES Supplier Initiatives
Customers can elect to take generation service from
a CRES provider offering services to customers in
DP&L’s service territory. As of December 31, 2007, five
CRES providers have been certified by the PUCO to
provide generation service to DP&L customers. One
of those five, DPL Energy Resources, Inc. (DPLER), is
a wholly-owned affiliate of DPL. Although DPLER sup-
plied 99.3% of the total kWh consumed by customers
served by CRES providers in DP&L’s service territory
in 2007, at the end of 2007 there was a slight increase
DPL Inc.
17
in the non-residential customers served by unaffiliated
CRES providers. There has been no residential custom-
er switching to date. Depending on the development of
the wholesale market and the level of wholesale prices,
CRES providers could become more active in DP&L’s
service territory and may begin to offer prices lower
than DP&L’s standard offer. This could result in more
switching by DP&L’s customers and a further loss of
revenues by DP&L.
■ Governmental Aggregation Programs
Another way in which DP&L could experience cus-
tomer switching is through “governmental aggrega-
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
provided CRES providers offer prices below DP&L’s
standard offer.
Risks Associated with Our Pre-determined Rates
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% rate reduction in the genera-
tion component of its residential rates, a further 2.5%
reduction to the residential generation rate through
2008, fixed generation rates through December 31,
2010, and frozen 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. 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 RSS was implemented
that recovered approximately $65 million additional rev-
enue in 2006, net of customer discounts. The EIR could
result in approximately $35 million additional revenue
each year, net of customer discounts and assuming
insignificant levels of customer switching. The PUCO
ruled this rider will be bypassable by all customers
who take service from alternative generation suppli-
ers. Accordingly, the rates DP&L is allowed to charge
may or may not match its expenses at any given time.
Therefore, during this period (or possibly earlier by
order of the PUCO), while DP&L will be subject to pre-
vailing market prices for electricity, it would not neces-
sarily be able to charge rates that produce timely or full
recovery of its expenses. DP&L has historically main-
tained its rates at consistent levels since 1994, when
the final 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.
Commodity Prices
The supply and price of fuel and other commodities
may impact our financial results. We are dependent
on coal for much of our electrical generating capac-
ity. Price fluctuations and fuel supply disruptions could
have a negative impact on our ability to profitably gen-
erate electricity. The price for most solid fuels generally
has been increasing. Management has responded to
increases in the price of coal by entering into contracts
to hedge our exposure to fuel requirements and other
energy-related commodities. We may not be able to
hedge the entire exposure of our operations from com-
modity price volatility. To the extent we are not able to
hedge against price volatility, our results of operations,
financial position or cash flows could be negatively
affected. We have contracts of varying durations for
the supply of coal for most of our existing generation
capacity, but as these contracts end or otherwise are
not honored, we may not be able to purchase coal on
favorable terms. If we are unable to secure adequate
coal supplies in a timely manner, either due to the fail-
ure of our suppliers to deliver the contracted commod-
ity or the inability to secure additional quantities, our
results of operations, financial condition or cash flows
may be adversely impacted.
Regional Transmission Organizational Risks
On October 1, 2004, in compliance with Ohio law,
DP&L turned over control of its transmission functions
and fully integrated into PJM. The price at which DPL
and DP&L can sell its generation capacity and energy
is now more dependent upon the overall operation
of the PJM market. While DP&L can continue to make
bi-lateral transactions to sell its generation through
a willing-buyer and willing-seller relationship, any
transactions that are not pre-arranged are subject to
market conditions at PJM. The rules governing the vari-
ous regional power markets also change from time to
time which could affect DP&L’s costs and revenues.
DP&L incurs fees and costs to participate in the RTO.
18 DPL Inc.
We may be limited with respect to the price at which
power may be sold from certain generating units and
we may be required to expand our transmission system
according to decisions made by the RTO rather than
our internal planning process. While RTO transmission
rates were initially designed to be revenue neutral,
various proposals and proceedings currently taking
place at FERC may cause transmission rates to change
from time to time. In addition, developing rules associ-
ated with the allocation and methodology of assigning
costs associated with improved transmission reliability,
reduced transmission congestion and firm transmission
rights may have a financial impact on DP&L. Likewise,
in December 2006, FERC approved PJM’s RPM. RPM
became effective in 2007 and provides forward and
locational pricing for generation capacity. The finan-
cial impact of RPM on DP&L will depend on a variety
of factors, including the market behavior of various
participants. The RPM auctions have been held for
the 2007/2008 through 2010/2011 delivery years. At
this time, these auction results are expected to have
no material financial impact to DPL. 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.
As a member of PJM, DP&L and DPLE are subject
to certain additional risks including those associated
with the allocation among PJM members of losses
caused by unreimbursed defaults of other participants
in PJM markets and those associated with complaint
cases filed against PJM that may seek refunds of rev-
enues previously earned by PJM members including
DP&L and DPLE.
PJM Infrastructure Risks
Annually, PJM performs a review of the capital addi-
tions required to provide reliable electric transmission
services throughout its territory. PJM traditionally allo-
cated the costs of constructing these facilities to those
entities that benefited directly from the additions. On
April 19, 2007, the FERC issued an order that modified
the traditional method of allocating costs associated
with new high voltage planned transmission facilities.
FERC ordered that the cost of new high-voltage facili-
ties be socialized across the PJM region. The costs
of the new facilities at lower voltages will continue to
be assigned to the load centers that benefit from the
new facilities. In a companion order also issued on
April 19, 2007, FERC did not change the existing allo-
cation of costs associated with existing transmission
facilities, upholding the existing PJM rate design. The
overall impact of FERC’s orders cannot be definitively
assessed at this time because not all new planned
construction is likely to happen. The additional costs
allocated to the Company for new large transmission
approved projects are expected to be immaterial in
2008 and 2009 but could rise to approximately $12 mil-
lion or more annually by 2012. As a result, DP&L filed
an application seeking PUCO authority to defer costs
associated with these new high-voltage transmission
projects for future recovery through retail rates.
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 ser-
vices, such as, but not limited to, actuarial calculations,
internal audit services, payroll processing and various
consulting services.
Historically, some of our coal suppliers have not
performed their contracts as promised and have failed
to timely deliver all coal as specified under their con-
tracts. 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 fail-
ure is for a short period of time, DP&L can absorb the
irregularity due to existing inventory levels. If we are
required to purchase coal on the spot market, it may
affect our cost of operations.
DP&L is a co-owner in certain generation facilities
where it is a non-operating partner. DP&L does not
procure the fuel for these facilities. Partner operated
facilities do not always have realized coal costs that
are equal to our co-owners’ projections.
Greenhouse Gas Emissions and Climate Change
Recently we have seen a growing interest in consider-
ing legislation or regulation in response to greenhouse
gases generated by numerous sources, vehicles,
manufacturing and the electric utility industry. Although,
DPL, DP&L and its subsidiaries have operated facili-
ties in compliance with state and federal environmental
laws and regulations and are currently engaged in sig-
nificant capital improvements of four units at the Stuart
generating station for the reduction of SO2, Congress
or the State of Ohio could approve legislation or regula-
tions that in the long term may impact operations of the
units we and our partners manage or increase the cost
for us to do so.
Greenhouse gas (GHG) emissions, consisting
primarily of carbon dioxide emissions, are presently
unregulated. Numerous bills have been introduced in
DPL Inc.
19
Congress to regulate GHG emissions, but to date none
have been passed. Future regulation of GHG emis-
sions is uncertain. However, such regulation would
be expected to impose costs on our operations. Such
costs could include measures as advanced by various
constituencies, including a carbon tax; investments in
energy efficiency; installation of CO2 emissions control
technology, to the extent such technology exists; pur-
chase of emission allowances, should a trading mech-
anism be developed; or the use of higher-cost, lower
CO2 emitting fuels. Costs of compliance with these
proposed environmental regulations could adversely
affect our results of operations and financial posi-
tion, especially if emission and/or discharge limits are
tightened, more extensive permitting requirements are
imposed, additional substances become regulated and
the number and types of assets we operate increase.
All of our estimates are subject to significant uncertain-
ties about the outcome of several interrelated assump-
tions and variables, including timing of implementation,
required levels of reductions, allocation requirements
of the new rules and our selected compliance alterna-
tives. As a result, we cannot estimate our compliance
cost with certainty. The actual cost to comply could
differ materially from the estimates. We will continue to
evaluate investments in energy efficiency that reduce
our GHG emissions.
Environmental Compliance
Our facilities (both wholly-owned and co-owned with
others) are subject to continuing federal and state envi-
ronmental laws and regulations. We own a non-con-
trolling, minority interest in several generating stations
operated by CG&E or its affiliate, Union Heat, Light
& Power, and CSP. Either or both of these parties are
likely to take steps to ensure that these stations remain
in compliance with applicable environmental laws
and regulations. As a non-controlling owner in these
generating stations, we will be responsible for our pro
rata share of these expenditures based upon our
ownership interest.
Flue Gas Desulfurization Project
We have constructed or are currently constructing
flue gas desulfurization (FGD) facilities at four units
located at our J. M. Stuart electric generating station.
Construction of the FGD facilities at each unit was
completed or is scheduled to be completed in 2008.
We are also co-owners of electric generating stations
operated by other investor-owned utilities, who are in
various stages of constructing FGD facilities at these
stations. Significant construction delays could adverse-
ly affect our ability to operate or may substantially
increase our cost to operate these electric generating
stations under federal environmental laws and regula-
tions that become effective in 2010. For those electric
generating stations where we are co-owners but do not
operate, significant construction delays may substan-
tially increase our pro rata share of the cost to operate
those facilities beginning in 2010.
Our Stock Price May Fluctuate
The market price of DPL’s 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 $24.08 and a high of $31.91. 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.
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.
DPL and DP&L’s results of operations may be
negatively affected by sustained downturns or a slug-
gish economy, all of which are beyond our control.
Sustained downturns or a sluggish economy generally
affect the markets in which DP&L operates and nega-
tively influences DP&L’s energy operations. A falling,
slow or sluggish economy could reduce the demand
for energy in areas in which we are doing business.
Our commercial and industrial customers use our ener-
gy in the production of their products. During economic
downturns, these customers may see a decrease
in demand for their products, which in turn may lead to
a decrease in the amount of energy they require
for production.
Credit Crisis
The current global credit crisis may adversely affect
our business and financial results. During 2007, higher
interest rates, falling property prices and a signifi-
cant increase in the number of sub-prime mortgages
originated in 2005 and 2006 contributed to dramatic
increases in mortgage delinquencies and defaults in
2007. The anticipated future delinquencies among
20 DPL Inc.
high-risk, or sub-prime, borrowers in the United States
is expected to continue in the foreseeable future.
The widespread dispersion of credit risk related to
mortgage delinquencies and defaults through the
securitization of mortgage-backed securities, sales of
collateralized debt obligations (CDOs) and the creation
of structured investment vehicles (SIVs), as well as the
unclear impact on large banks of mortgage-backed
securities, CDOs and SIVs, caused banks to reduce
their loans to each other or make them at higher inter-
est rates. Similarly, the ability of corporations to obtain
funds through the issuance of debt was negatively
impacted. We issue debt to cover the costs of certain
of our operations and expenditures and the inability
to issue such debt on reasonable terms or at all could
negatively affect our business.
On November 14th, 2007 the OAQDA issued $90
million of collateralized, variable rate revenue bonds,
2007 Series A due November 1, 2040 (the Series A
Revenue Bonds). In turn, DP&L borrowed these funds
from the OAQDA. The Series A Revenue Bonds are
auction rate bonds. Every 35 days, the bonds are
offered for sale to the market. The auction process
sets the interest rate for the upcoming holding period
by selling the bonds to the purchasers who bid to pur-
chase the bonds at the lowest interest rate. A credit
enhancement feature of the Series A Revenue Bonds
is the insurance policy issued by Financial Guaranty
Insurance Company (FGIC), which insures principal
and interest payments on the Series A Revenue Bonds
when such payments are due. FGIC’s credit rating was
recently downgraded by Fitch Ratings and Standard
& Poor’s from AAA to AA, and by Moody’s from Aaa to
A3. The current credit crisis and economic conditions,
along with FGIC’s recent credit rating downgrades, has
resulted in fewer investors participating in the auction
process for the Series A Revenue Bonds, which has
resulted in increased interest rates on the Series A
Revenue Bonds.
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 fuel and
purchased power 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-
es may substantially increase costs to our organization
and could affect our future operating results.
Warrant Exercise
DPL’s warrant holders could exercise their warrants
to purchase 31.6 million shares of common stock at
their discretion until March 12, 2012. As a result, DPL
could be required to issue up to 31.6 million 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 would have a
dilutive effect on us and would increase the number of
common shares outstanding and increase our common
share of dividend costs, thus affecting any existing
guidance on EPS and our cash flows.
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
generally accepted accounting principles (GAAP) in
the United States of America, laws and regulations,
taxation 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 (the “Act”).
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, policies, 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 results of operations,
financial condition or cash flows.
Collective Bargaining Agreements
Approximately 54% of our employees are under a col-
lective bargaining agreement. During the third quarter
of 2008, we will begin negotiation discussions with
employees covered under our collective bargaining
DPL Inc.
21
agreement which is set to expire in November 2008. If
the collective bargaining agreement expires before a
new agreement is reached, we would attempt to per-
suade our employees to continue working while nego-
tiations continue. We believe that we maintain a satis-
factory relationship with our employees, however, it is
possible that the expiration of the collective bargaining
agreement could result in labor disruptions affecting
some or all of our operations. We recognize the impact
that any resulting labor stoppages could have on our
customers and have begun contingency planning if
the collective bargaining agreement expires before a
new one is reached. A lengthy strike by our employees
would have an adverse effect on our operations and
financial condition.
Cyber Security and Terrorism
Man-made problems such as computer viruses or ter-
rorism may disrupt our operations and harm our oper-
ating results. We operate in a highly regulated industry
that requires the continued operation of sophisticated
information technology systems and network infrastruc-
ture. Despite our implementation of security measures,
all of our technology systems are vulnerable to dis-
ability or failures due to hacking, viruses, acts of war or
terrorism, and other causes. If our technology systems
were to fail and we were unable to recover in a timely
way, we would be unable to fulfill critical business func-
tions, which could have a material adverse effect on
our business, operating results, and financial condition.
In addition, our generation plants, fuel storage facilities,
transmission and distribution facilities may be targets
of terrorist activities that could disrupt our ability to pro-
duce or distribute some portion of our energy products.
Any such disruption could result in a material decrease
in revenues and significant additional costs to repair
and insure our assets, which could have a material
adverse effect on our business, operating results, and
financial condition. The continued threat of terrorism
and heightened security and military action in response
to this threat, or any future acts of terrorism, may cause
further disruptions to the economies of the United
States and other countries and create further uncertain-
ties or otherwise materially harm our business, operat-
ing results, and financial condition.
Item 1b Unresolved Staff Comments
None.
Item 2 Properties
Information relating to our properties is contained in
Item 1 – Electric Operations and Fuel Supply and Note
4 of Notes to Consolidated Financial Statements.
Substantially all property and plants of DP&L are
subject 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
are also from time to time involved in other reviews,
investigations and proceedings by governmental and
regulatory agencies regarding our business, certain of
which may result in adverse judgments, settlements,
fines, penalties, injunctions or other relief. 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 required to satisfy alleged
liabilities from various legal proceedings, claims and
other matters discussed below, and to comply with
applicable laws and regulations will not exceed the
amounts reflected in our consolidated financial state-
ments. As such, costs, if any, that may be incurred in
excess of those amounts provided as of December 31,
2007, cannot be reasonably determined.
Executive Litigation
On May 21, 2007, we settled the litigation with the
three former executives in exchange for our payment of
$25 million. As part of this settlement, the three former
executives relinquished and dismissed all their claims
including those related to certain deferred compensa-
tion, restricted stock units (RSUs), MVE, Inc. (discon-
tinued subsidiary of DPL) incentives, stock options,
and legal fees. See Note 15 of Notes to Consolidated
Financial Statements.
22 DPL Inc.
Insurance Recovery Claim
Environmental
On April 18, 2007, DPL and Associated Electric & Gas
Insurance Services (AEGIS) mediated and reached
a settlement regarding an insurance claim filed with
AEGIS on January 13, 2006 to recoup legal fees asso-
ciated with the three former executives in which AEGIS
agreed to pay DPL $14.5 million for legal fees incurred
by DPL and associated with this litigation. The settle-
ment agreement was signed and executed on April
30, 2007 and the recovery was recorded by DPL as a
reduction to the operation and maintenance expense.
On May 16, 2007, DPL filed a similar claim with
Energy Insurance Mutual (EIM), to recoup additional
legal expenses associated with our litigation against
the former executives. That claim is pending.
State Income Tax Audit
On February 13, 2006, we received correspondence
from the Ohio Department of Taxation (ODT) notify-
ing us that ODT has completed their examination
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
are vigorously contesting the ODT findings and notice
of assessment through all administrative and judicial
means available. On March 29, 2006, we filed peti-
tions for reassessment with the ODT to protest each
assessment as well as request corrected assessments
for each tax year. On October 12, 2006, we signed
a Memorandum of Understanding with the ODT that
stated if the ODT’s positions are ultimately sustained
in judicial proceedings, the total additional tax liability
that we would be subject to for tax years 2002 through
2004 would be no more than $50.7 million before inter-
est as opposed to the $90.8 million stated in the ODT’s
correspondence of February 13, 2006. 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.
We are also under audit review by various state
agencies for tax years 2002 through 2006. 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 April 2, 2007, the U.S. Supreme Court unani-
mously overturned the rulings of two lower courts and
concluded that the CAA’s New Source Review (NSR)
requirements are triggered when a major physical or
operational change at a facility results in an increase in
the facility’s annual emissions (Environmental Defense
et al. v. Duke Energy Corp. et al.). The outcome of this
case is significant to DP&L because it eliminates one
of DP&L’s major arguments in the lawsuit filed against
it by the Sierra Club. The Court decided that an annual
rate of emissions could be used to determine if major
modifications have been made to a plant as opposed
to an hourly emission rate as Duke had argued. Using
the annual rate makes it more likely that most plant
modifications will be found to be “major” modifications,
thus requiring EPA permits. DP&L can still defend
against the allegations of NSR violations if it can
establish that the activities at issue did not cause total
annual emissions to increase or that the projects that
resulted in increased emissions were undertaken for
routine maintenance, repair, and replacement activities.
In September 2004, the Sierra Club filed a law-
suit 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 viola-
tions of the CAA, including issues similar to those
presented in the Duke Energy case and other issues
relating to alleged violations of opacity limitations.
DP&L, on behalf of all co-owners, is leading the
defense of this matter. A sizable amount of discovery
has taken place and expert reports were filed at vari-
ous times from May through September, 2007. On
February 14, 2008, upon the request of the Sierra Club,
DP&L and the other owners of the Stuart generating
station, the Court approved another sixty day stay of
proceedings to permit the parties the opportunity to
determine if a settlement of the case could be reached.
Settlement negotiations are ongoing.
Additional information relating to legal proceed-
ings involving DPL and DP&L is contained in Item 1
– Environmental Considerations, Item 1 – Competition
and Regulation, and Item 8 – Note 18 of Notes to
Consolidated Financial Statements.
Item 4 Submission of Matters to a
Vote of Security Holders
None
DPL Inc.
23
Part II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
As of December 31, 2007, there were 22,771 holders of record of DPL 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 2007 and 2006:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2007
2006
High
$ 31.44
$ 31.91
$ 29.36
$ 30.83
Low
$ 27.56
$ 28.08
$ 26.04
$ 26.05
High
$ 27.58
$ 27.82
$ 27.93
$ 28.72
Low
$ 25.11
$ 26.25
$ 26.74
$ 27.16
DP&L’s common stock is held solely by DPL and, as a
result, is not listed for trading on any stock exchange.
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 distribut-
ed 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 December 31, 2007, all earnings reinvest-
ed in the business of DP&L were available for DP&L
common stock dividends. We expect all 2007 earnings
reinvested in the business of DP&L to be available for
DP&L common stock dividends, payable to DPL.
On February 1, 2007, our Board of Directors autho-
rized a 4% dividend increase on DPL’s common stock,
raising the annual dividend on common shares from
$1.00 per share to $1.04 per share. These dividends
were paid in each quarter during 2007.
On December 13, 2007, our Board of Directors
authorized a 6% dividend increase on DPL’s common
stock, raising the annual dividend on common shares
from $1.04 per share to $1.10 per share. These
dividends will be paid in each quarter during 2008.
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, 2007 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 2008 Annual Meeting
of Shareholders.
24 DPL Inc.
The graph below compares the cumulative 5-year total return of holders of DPL Inc.’s common stock with
the cumulative total returns of the Dow Jones US Industrial Average index, the S&P Utilities index and
the S&P Electric Utilities index. The graph tracks the performance of a $1,000 investment in our common
stock and in each index (with the reinvestment of all dividends) from 12/31/2002 to 12/31/2007.
Comparison of 5 Year Cumulative Total Return*
Among DPL Inc., The Dow Jones US Industrial Average Index,
The S&P Electric Utilities Index and The S&P Utilities Index
$ 3,000
2,500
2,000
1,500
1,000
500
$2,803 S&P Electric Utilities
$2,648 S&P Utilities
$2,395 DPL Inc.
$1,781 Dow Jones
US Industrial Average
12/2002
12/2003
12/2004
12/2005
12/2006
12/2007
* $1000 invested on 12/31/02 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31.
Copyright ©2008, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
12/02
12/03
12/04
12/05
12/06
12/07
DPL Inc.
1,000
Dow Jones US Industrial Average 1,000
1,000
S&P Electric Utilities
1,000
S&P Utilities
1,449
1,283
1,241
1,263
1,818
1,351
1,570
1,569
1,953
1,374
1,848
1,833
2,165
1,636
2,277
2,218
2,395
1,781
2,803
2,648
The stock price performance included in this graph is not necessarily indicative
of future stock price performance.
DPL Inc.
25
Item 6 Selected Financial Data
$ in millions except per share amounts or as indicated
2007
2006
2005
2004
2003
For years ended December 31,
DPL Inc.
Basic earnings (loss) per share of common stock:
Continuing operations (d)
Discontinued operations
Cumulative effect of accounting change (a)
Total basic earnings per common share
Diluted earnings (loss) per share of common stock:
Continuing operations (d)
Discontinued operations
Cumulative effect of accounting change (a)
Total diluted earnings per common share
Dividends paid per share
Dividend payout ratio
$
$
$
$
$
$
$
$
1.97
0.09
–
2.06
1.80
0.08
–
1.88
$
$
$
$
$
$
$
$
1.12
0.12
–
1.24
1.03
0.12
–
1.15
$
$
$
$
$
$
$
$
1.03
0.44
(0.03)
1.44
0.97
0.41
(0.03)
1.35
$
$
$
$
$
$
$
$
1.01
0.80
–
1.81
1.00
0.78
–
1.78
$
$
$
$
$
$
$
$
0.96
0.14
0.14
1.24
0.94
0.14
0.14
1.22
1.04
$
50.5%
$
1.00
80.7%
$
0.96
66.7%
$
0.96
53.0%
$
0.94
75.8%
Total Electric sales (millions of kWh)
18,598
18,418
17,906
18,465
19,345
Results of Operations:
Revenues
Earnings from continuing operations, net of tax (d)
Earnings (loss) from discontinued operations, net of tax
Cumulative effect of accounting change, net of tax
Net income
Financial Position items at December 31,:
Total Assets
Long-term Debt (b)
Total construction additions
Senior unsecured debt ratings at December 31,: (c)
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corporation
$ 1,515.7
$ 211.8
10.0
$
–
$
$ 221.8
$ 1,393.5
$ 125.6
14.0
$
–
$
$ 1,284.9
$ 124.7
52.9
$
(3.2)
$
$ 1,199.9
$ 121.5
95.8
$
–
$
$ 1,191.0
$ 114.9
16.6
$
17.0
$
$ 139.6
$ 174.4
$ 217.3
$ 148.5
$ 3,566.6
$ 1,541.5
346.7
$
$ 3,612.2
$ 1,551.8
$ 351.6
$ 3,791.7
$ 1,677.1
$ 179.7
$ 4,165.5
$ 2,117.3
98.0
$
$ 4,444.7
$ 1,954.7
$ 102.2
BBB+
Baa2
BBB-
BBB
Baa3
BB
BBB-
Ba1
BB-
BB
Ba3
B+
BBB
Ba1
BB-
Number of Shareholders – Common Stock
22,771
24,434
26,601
28,079
30,366
The Dayton Power and Light Company
Total Electric sales (millions of kWh)
18,598
18,418
17,906
18,465
19,345
Results of Operations:
Revenues
Earnings on Common Stock (d)
Financial Position items at December 31,:
Total Assets
Long-term Debt (b)
Senior secured debt ratings at December 31,: (c)
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corporation
Number of Shareholders – Preferred Stock
$ 1,507.4
270.7
$
$ 1,385.2
$ 241.6
$ 1,276.9
$ 210.9
$ 1,192.2
$ 208.1
$ 1,183.4
$ 238.5
$ 3,276.7
874.6
$
$ 3,090.3
$ 785.2
$ 2,738.6
$ 685.9
$ 2,641.4
$ 686.6
$ 2,660.1
$ 687.3
A+
A2
BBB+
281
A
A3
BBB
290
A-
Baa1
BBB-
BBB
Baa3
BBB-
A
Baa1
BBB-
329
357
402
(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.
(c) During 2007, our rating agencies upgraded our corporate credit and debt ratings.
(d) In the fourth quarter of 2006, DPL entered into agreements to sell two of its peaking facilities resulting in a $44.2 million ($71 million
pre-tax) impairment charge. The sale was finalized in April 2007. During 2006, DPL recorded a $37.3 million ($61.2 million pre-tax) charge for
early redemption of debt. DP&L recorded a $2.5 million ($4.1 million pre-tax) charge for early redemption of debt. In May 2007, DPL
settled the litigation with the former executives resulting in a $19.7 million ($31 million pre-tax) gain. In April 2007, DPL also recouped legal
costs associated with the litigation with the former executives from one of its insurers resulting in a $9.2 million ($14.5 million pre-tax) gain.
26 DPL Inc.
Item 7 Management’s Discussion
and Analysis of Financial Condition
and Results of Operations
This report includes the combined filing of DPL Inc.
(DPL) and The Dayton Power and Light Company
(DP&L). DP&L is the principal subsidiary of DPL pro-
viding approximately 99% of DPL’s total consolidated
revenue and approximately 92% of DPL’s total con-
solidated asset base. Throughout this report the terms
we, us, our and ours are used to refer to both DPL and
DP&L, respectively and altogether, unless the context
indicates otherwise. Discussions or areas of this report
that apply only to DPL or DP&L will clearly be noted
in the section.
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 manage-
ment’s beliefs, assumptions and expectations of
future economic performance, taking into account the
information currently available to management. These
statements are not statements of historical fact and
are typically identified by terms and phrases such as
“anticipate,” “believe,” “intend,” “estimate,” “expect,”
“continue,” “should,” “could,” “may,” “plan,” “project,”
“predict,” “will” and similar expressions. Such forward-
looking statements are subject to risks and uncertain-
ties, 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 and catastroph-
ic weather-related damage; unusual maintenance
or repair requirements; changes in fuel costs and pur-
chased power, coal, environmental emissions, natural
gas and other commodity prices; volatility and changes
in markets for electricity and other energy-related
commodities; performance of our suppliers; increased
competition and deregulation in the electric utility
industry; increased competition in the retail generation
market; changes in interest rates; state, federal and
foreign legislative and regulatory initiatives that affect
cost and investment recovery, emission levels, rate
structures or tax laws; changes in federal and/or state
environmental laws and regulations to which DPL
and its subsidiaries are subject; the development of
Regional Transmission Organizations (RTOs), includ-
ing PJM Interconnection, L.L.C. (PJM) to which DPL’s
operating subsidiary (DP&L) has given control of its
transmission functions; changes in our purchasing pro-
cesses, pricing, delays, contractor and supplier perfor-
mance and availability; significant delays associated
with large construction projects; growth in our service
territory and changes in demand and demographic
patterns; changes in accounting rules and the effect
of accounting pronouncements issued periodically by
accounting standard-setting bodies; financial market
conditions; the outcomes of litigation and regulatory
investigations, proceedings or inquiries; general
economic conditions; and the risks and other fac-
tors discussed in DPL’s and DP&L’s filings with the
Securities and Exchange Commission.
Forward-looking statements speak only as of the
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.
The following discussion should be read in con-
junction with the accompanying financials and related
footnotes included in Item 8 – Financial Statements
and Supplementary Data.
Business Overview
DPL is a regional electric energy and utility company
and through its principal subsidiary, DP&L, is primarily
engaged in the generation, transmission and distribu-
tion of electricity in West Central Ohio. DPL and
DP&L strive to achieve disciplined growth in energy
margins while limiting volatility in both cash flows and
earnings and to achieve stable, long-term growth
through efficient operations and strong customer and
regulatory relations. More specifically, DPL and DP&L’s
strategy is to match energy supply with load or
customer demand, maximizing profits while effectively
managing exposure to movements in energy and fuel
prices and utilizing the transmission and distribution
assets that transfer electricity at the most efficient cost
while maintaining the highest level of customer service
and reliability.
We operate and manage generation assets and
are exposed to a number of risks through this manage-
ment. These risks include but are not limited to elec-
tricity wholesale price risk, fuel supply and price risk
and power plant performance. We attempt to manage
these risks through various means. For instance, we
operate a portfolio of wholly-owned and jointly-owned
generation assets that is diversified as to fuel source,
cost structure and operating characteristics. We are
DPL Inc.
27
focused on the operating efficiency of these power
plants and maintaining their availability.
We operate and manage transmission and dis-
tribution assets in a rate-regulated environment.
Accordingly, this subjects us to regulatory risk in terms
of the costs that we may recover and the investment
returns that we may collect in customer rates. We are
focused on delivering electricity and maintaining
high standards of customer service and reliability in
a cost-effective manner.
As we look forward, there are a number of issues
that we believe may have a significant impact on
our business and operations described above. The
following issues mentioned below are not meant
to be exhaustive but to provide insight to matters that
have or are likely to have an effect on our industry
and business:
■ Governor’s Bill
On September 25, 2007, Senate Bill 221 was intro-
duced in the Ohio Legislature. The bill codifies, in draft
form, the governor’s proposed energy policy. The bill
was passed by the Senate on October 31, 2007. The
Ohio House of Representatives has assigned the bill to
committee and is taking testimony from interested
parties. As the bill is not yet in final form, the outcome
of this proceeding and its financial impact on
the Company cannot be determined at this time.
■ Greenhouse Gases
The rules issued by the United States Environmental
Protection Agency (USEPA) and Ohio Environmental
Protection Agency (Ohio EPA) that require substantial
reductions in sulfur dioxide (SO2), mercury and nitro-
gen oxides (NOx) emissions may impact our business
and operations. We are installing (and have installed)
emission control technology and are taking other
measures to comply with required reductions.
In addition to the requirements related to emis-
sions of SO2, NOx and mercury noted above, there is
a growing concern nationally and internationally about
global climate change and the contribution of emis-
sions of greenhouse gases, including most significant-
ly, carbon dioxide (CO2). This concern has led
to increased interest in legislation at the federal level
and actions at the state level as well as litigation
relating to greenhouse gas emissions, including a
recent U.S. Supreme Court decision holding that the
USEPA has the authority to regulate CO2 emissions
from motor vehicles under the Clean Air Act (CAA).
Increased pressure for carbon dioxide emissions
reduction is also coming from investor organizations
and the international community. If legislation or regula-
tions are passed at the federal or state levels imposing
mandatory reductions of CO2 and other greenhouse
gases on generation facilities, the cost to DPL and
DP&L of such reductions could be material.
■ Fuel Prices
Recently, the coal market has experienced unprec-
edented price increases. To highlight the significance
of this volatility, the coal settle price on the New York
Mercantile Exchange (NYMEX) increased significantly
during the first few weeks of 2008. We are now in
a market for coal that clears on international, rather
than solely domestic supply and consumption. Our
domestic price is increasingly affected by international
supply disruptions and demand balance. Exports from
the U.S. have increased in recent years and most
significantly during the last six months. In addition,
domestic issues like government-imposed direct costs
and permitting issues are affecting mining costs and
supply availability. We have responded to increases in
the price of coal by entering into contracts to hedge
our exposure to fuel requirements and other energy-
related commodities. We may not be able to hedge the
entire exposure of our operations from commodity price
volatility. To the extent we are not able to hedge against
price volatility, our results of operations, financial
position or cash flows could be materially affected.
2007 Financial Overview
As more fully discussed in later sections of this
MD&A, the following were the significant themes and
events for 2007:
■ For the year ended December 31, 2007, DPL’s basic
and diluted earnings per share (EPS) of $2.06
and $1.88, respectively, increased over the basic and
dilutive EPS for the same period in 2006 by $0.82
and $0.73, respectively.
■ DPL’s revenues increased 9% over 2006 primarily
due to increases in weather driven retail sales volume,
28 DPL Inc.
increases in average retail and wholesale rates and
the revenue realized from the PJM capacity auctions.
DPL’s fuel costs decreased 6% from 2006, while pur-
chased power costs and operation and maintenance
expense increased over 2006.
■ DP&L’s revenues increased 9% over 2006 primarily
due to increases in weather driven retail sales volume,
increases in average retail rates and the revenue
realized from the PJM capacity auctions. DP&L’s
fuel costs decreased 6% from 2006 while purchased
power costs and operation and maintenance expense
increased over 2006.
■ On March 1, 2007, pursuant to the Company’s
strategy of reducing its long-term debt, DPL redeemed
the $225 million 8.25% Senior Notes when they
became due.
■ On April 18, 2007, DPL and Associated Electric
& Gas Insurance Services (AEGIS) mediated and
reached a settlement regarding an insurance claim
filed with AEGIS, on January 13, 2006, to recoup legal
fees associated with the three former executives
in which AEGIS agreed to pay DPL $14.5 million for
legal fees incurred by DPL and associated with this
litigation. The settlement agreement was signed and
executed on April 30, 2007 and the recovery was
recorded by DPL as a reduction to operation and
maintenance expense.
■ On April 25, 2007, DPLE completed the sale of its
Darby and Greenville electric peaking generation facili-
ties, providing DPL with approximately $151 million
in cash. Darby Station was sold to Columbus Southern
Power (CSP), a utility subsidiary of American Electric
Power (AEP), for approximately $102 million in cash.
Greenville Station was sold to Buckeye Power, Inc. for
approximately $49 million in cash.
■ On May 21, 2007, we settled the litigation with the
three former executives in exchange for our payment
of $25 million. The $25 million settlement was funded
from the sale of financial assets held in DP&L’s Master
Trust deferred compensation. As a result of this
settlement, DPL realized a net pretax gain in continu-
ing and discontinued operations of $31 million and
$8.2 million, respectively. As part of this settlement, the
three former executives relinquished and dismissed all
their claims including those related to certain deferred
compensation, restricted stock units (RSUs), MVE
(discontinued subsidiary of DPL) incentives, stock
options and legal fees. See Note 15 of Notes to
Consolidated Financial Statements.
■ In July 2007, DPL completed a depreciation rate
study for non-regulated generation property based
on its property, plant and equipment balances as of
December 31, 2005, with adjustments for subsequent
scrubber additions. The results of the depreciation
study concluded that depreciation rates should be
reduced due to asset lives being extended beyond
previously estimated lives. DPL adjusted the depre-
ciation rates for its non-regulated generation prop-
erty, effective August 1, 2007, reducing depreciation
expense. For the year ended December 31, 2007,
the reduction in depreciation expense increased
income from continuing operations by $9.5 million,
increased net income by approximately $6.0 million
and increased basic EPS by approximately $0.06
per share. See Note 1 of Notes to Consolidated
Financial Statements.
■ On October 26, 2007, the Board of Directors
approved a resolution permitting the transfer of
925,000 shares of DPL Inc. common stock from the
DP&L Master Trust to The Dayton Power and Light
Company Retirement Income Plan Trust (Pension).
This transaction was completed on November 26,
2007, contributing shares of common stock with a fair
value of $27.4 million to the Pension and resulting in
fully funded status at December 31, 2007.
■ On November 15, 2007, the Ohio Air Quality
Development Authority (OAQDA) issued $90 million of
OAQDA Revenue Bonds 2007 Series A, due November
2040. See Note 7 of Notes to Consolidated Financial
Statements.
■ On February 1, 2007 and on December 13, 2007,
our Board of Directors authorized dividend increases
of approximately 4% and 6%, respectively, increasing
our dividend per share from $1.00 per share to $1.10
per share. The 4% increase to dividends, were paid
in each quarter during 2007. The 6% increase to divi-
dends will be paid each quarter in 2008.
DPL Inc.
29
Results of Operations – DPL Inc.
DPL’s results of operations include the results of its
subsidiaries, including the consolidated results of its
principal subsidiary DP&L and all of DP&L’s consoli-
dated subsidiaries. DP&L provides approximately 99%
of the total revenues of DPL. All material intercompany
accounts and transactions have been eliminated in
consolidation. A separate specific discussion of the
results of operations for DP&L is presented elsewhere
in this report.
Income Statement Highlights – DPL
$ in millions
2007
2006
2005
Factors impacting DPL’s wholesale sales volume each
hour of the year include wholesale market prices;
DPL’s retail demand; retail demand elsewhere through-
out the entire wholesale market area; DPL and non-
DPL plants’ availability to sell into the wholesale
market and weather conditions across the multi-state
region. DPL’s plan is to make wholesale sales when
market prices allow for the economic operation of
its generation facilities not being utilized to meet its
retail demand.
The following table provides a summary of chang-
es in revenues from prior periods:
$ in millions
2007 vs. 2006
2006 vs. 2005
Revenues:
Retail
Wholesale
RTO ancillary
Capacity revenues
Other revenues
$ 1,206.2 $ 1,131.4 $ 1,066.6
133.3
174.1
180.3
74.4
77.2
87.4
–
–
30.9
10.6
10.8
10.9
Retail
Rate
Volume
Other miscellaneous
Total retail change
Total Revenues
$ 1,515.7 $ 1,393.5 $ 1,284.9
Cost of Revenues:
Fuel
Purchased power
RTO ancillary charges (b)
Capacity charges (b)
Gross Margin (a)
$ 328.2 $ 349.1 $ 336.9
84.8
109.6
208.4
48.5
49.4
50.4
–
–
28.4
$ 900.3 $ 885.4 $ 814.7
Wholesale
Rate
Volume
Total wholesale change
RTO Ancillary and Other
RTO Services
Capacity revenues
Other
Gross Margin as a
percentage of revenues 59.4%
63.5%
63.4%
Total other change
Operating Income
$ 370.1 $ 281.0 $ 339.1
Total revenues change
$ 38.4
34.1
2.3
$ 74.8
$ 19.8
(13.6)
$
6.2
$ 10.2
30.9
0.1
$ 41.2
$ 122.2
$ 93.0
(29.4)
1.2
$ 64.8
$ (5.0)
45.8
$ 40.8
$ 2.8
–
0.2
$ 3.0
$ 108.6
Earnings per share:
Continuing Operations $
Discontinued Operations
Cumulative effect of
1.97 $
0.09
1.12 $
0.12
1.03
0.44
accounting change
–
–
(0.03)
Net Income
$
2.06 $
1.24 $
1.44
(a) For purposes of discussing operating results, we present and
discuss gross 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.
(b) RTO ancillary and capacity charges are included in total purchased
power in Consolidated Statements of Results of Operations.
DPL Inc. – Revenues
Retail customers, especially residential and commercial
customers, consume more electricity on warmer and
colder days. Therefore, DPL’s retail sales volume is
impacted by the number of heating and cooling degree
days occurring during a year. Since DPL plans to uti-
lize its internal generating capacity to supply its retail
customers’ needs first, increases in retail demand will
decrease the volume of internal generation available to
be sold in the wholesale market and vice versa.
The wholesale market covers a multi-state area
and settles on an hourly basis throughout the year.
For the year ended December 31, 2007, revenues
increased $122.2 million, or 9%, to $1,515.7 from
$1,393.5 for the same period in the prior year. This
increase was primarily the result of higher average
rates for retail and wholesale sales, higher retail sales
volume and an increase in RTOs ancillary revenue.
Retail revenues increased $74.8 million, resulting from
a 3% increase in weather driven sales volume as total
degree days increased 9%, and a 3% increase in aver-
age retail rates primarily relating to the environmental
investment and storm recovery riders. These increases
resulted in a $38.4 million rate variance and a $34.1
million sales volume variance. Wholesale revenue
increased $6.2 million primarily resulting from a 12%
increase in wholesale average rates, partially offset
by an 8% decrease in sales volume. This resulted in a
favorable $19.8 million wholesale price variance and
an unfavorable $13.6 million volume variance. RTO
ancillary and other revenues, consisting primarily of
compensation for use of DP&L’s transmission assets,
regulation services, reactive supply and operating
reserves and capacity payments under the RPM con-
struct, increased $41.2 million over the same period
in 2006. This increase primarily resulted from $30.9
30 DPL Inc.
million realized from the PJM capacity auction, $8.7
million of PJM transmission losses and congestion
credits and $2.3 million from the sale of financial trans-
mission rights (FTRs). RTO ancillary revenues from the
PJM capacity auction are substantially offset by RTO
ancillary charges for PJM capacity charges included
in purchased power. Other RTO ancillary revenues are
partially offset by other RTO ancillary charges in pur-
chased power.
For the year ended December 31, 2006, revenues
increased $108.6 million, or 8%, to $1,393.5 from
$1,284.9 for the same period in the prior year. This
increase was primarily the result of higher average
retail rates and higher wholesale sales volume, partially
offset by lower retail sales volume and lower average
rates for wholesale revenues. Retail revenues increased
$64.8 million primarily resulting from an increase in
average rates related to the Rate Stabilization Plan
surcharge and other regulated asset recovery riders
resulting in a $93.0 million price variance, partially
offset by lower retail sales volume resulting in a $29.4
million volume variance. Sales volume declined 3% in
2006 from 2005 due to milder weather which resulted
in lower heating and cooling degree days. Heating
degree days declined 11% and cooling degree days
declined 20%. Wholesale revenue increased $40.8 mil-
lion primarily related to a 34% increase in sales volume
resulting in a $45.8 million volume variance, partially
offset by a decrease in wholesale average rates result-
ing in a $5.0 million price variance. For 2006, the RTO
ancillary revenues increased $2.8 million, or 4%, to
$77.2 million from $74.4 million in 2005.
DPL Inc. – Margins, Fuel and Purchased Power
For 2007, gross margin of $900.3 million increased
$14.9 million, or 2%, from $885.4 million in 2006. As a
percentage of total revenues, gross margin decreased
to 59.4% in 2007 compared to 63.5% in 2006. This
result primarily reflects the favorable impact of both
retail and wholesale revenues discussed above and
lower fuel costs offset by increased purchased power
costs. Fuel costs, which include coal, gas, oil and
emission allowance costs, decreased by $20.9 mil-
lion, or 6%, in 2007 compared to the same period in
2006 primarily due to lower generation output of 4%
resulting from scheduled and unscheduled plant out-
ages, as well as a 2% decrease in average fuel prices.
Purchased power increased $128.2 million in 2007
compared to the same period in 2006 resulting from a
$57.6 million increase in charges relating to higher pur-
chased power volume and a $41.2 million increase due
to higher average market rates. Also included in pur-
chased power is a $28.4 million increase related large-
ly to RTO ancillary charges for PJM capacity charges.
The increase in purchased power volume was primarily
the result of increased retail sales volume and partner
operated generating facilities being less available com-
pared to the prior year due to planned and unplanned
outages. In addition, we purchase power when market
prices are below the marginal costs associated with
our higher cost generating facilities. The RTO ancillary
charges for PJM capacity charges are substantially off-
set by RTO ancillary revenues for PJM capacity result-
ing in minimal impact to gross margin.
For 2006, gross margin of $885.4 million increased
$70.7 million, or 9%, from $814.7 million in 2005. As a
percentage of total revenues, gross margin remained
flat in 2006 at 63.5% compared to 63.4% in 2005. This
result reflects the favorable impact of the rate stabiliza-
tion plan on revenues offsetting the increasing fuel and
purchase power costs. In prior years, rising fuel and
purchase power costs had eroded gross margin. Fuel
costs, which include coal, gas, oil and emission allow-
ance costs, increased by $12.2 million, or 4%, in 2006
compared to the same period in 2005 primarily due
to increased fuel prices. Purchased power increased
$25.7 million, or 19%, in 2006 compared to the same
period in 2005 primarily resulting from increased
charges of $30.8 million relating to higher purchased
power volume and an increase of $0.9 million in RTO
ancillary costs. These increases were partially offset
by lower average market rates reducing purchased
power costs by $6.0 million. The increase in purchased
power volume resulted from our decision to purchase
power at lower average market rates instead of running
our higher cost generating facilities. In addition, from
time to time, we purchased power when our generating
facilities were not available due to scheduled mainte-
nance and forced outages.
DPL Inc. – Operation and Maintenance
$ in millions
2007 vs. 2006
$ 17.7
Boiler maintenance costs
9.4
Generating facilities operating expenses
Turbine maintenance costs
3.5
Overhead line and substation maintenance costs 3.0
(0.4)
Employee benefits including pension
(4.2)
Legal costs
(6.0)
Gain on sale of corporate aircraft
(14.5)
Insurance settlement
(1.1)
Other, net
Total operation and maintenance expense
$ 7.4
For 2007, operation and maintenance expense
increased $7.4 million, or 3%, compared to 2006. This
variance was primarily the result of increased boiler
maintenance costs of $17.7 million, a $9.4 million
DPL Inc.
31
increase related to operating expenses for the generat-
ing facilities, a $3.5 million increase related to turbine
maintenance costs, and a $3.0 million increase in over-
head line and substation maintenance costs. These
increases were partially offset by a $14.5 million insur-
ance settlement reimbursing us for legal fees relating to
the litigation with the three former executives, a gain on
the sale of the corporate aircraft of $6.0 million, a $4.2
million decrease in legal costs primarily resulting from
the settlement of the litigation with the former execu-
tives, and $0.4 million decrease in employee benefits
costs resulting from a $5.2 million reduction in pension
expense, partially offset by a $4.8 million increase in
employee benefits.
$ in millions
2006 vs. 2005
Legal costs
RTO administrative fees
Low-Income Assistance Program
Coal brokering credits
Lump sum bonus and retirement payments
Removal and peaker engine repair costs
Line clearance
Mark-to-market adjustments and forfeitures
of restricted stock units (RSUs)
Long-term incentive compensation
Pension and benefits
Directors’ & Officers’ liability insurance
Sarbanes-Oxley compliance fees
Other, net
$ 13.5
5.5
5.1
4.1
3.7
3.1
2.7
2.6
2.1
1.0
(3.2)
(1.1)
7.3
offset by a $3.2 million decrease in Directors’ and
Officers’ liability insurance premiums and a $1.1 million
decrease in Sarbanes-Oxley compliance fees.
DPL Inc. – Impairment of Peaking Stations
In 2006, DPL recorded a $71.0 million impairment
charge relating to the sale of the Greenville and Darby
Stations’ peaking generation facilities. There was
no impairment charge in 2007. See Note 5 of Notes to
Consolidated Financial Statements.
DPL Inc. – Depreciation and Amortization
For 2007, depreciation and amortization expense
decreased $17.0 million from 2006, primarily reflecting
the absence of depreciation for the peaking units sold
in April 2007 which reduced the expense by $10.0
million and the impact of lower depreciation rates
for generation property which were put into effect on
August 1, 2007, reducing the expense by $9.5 million.
This decrease was partially offset by a $2.4 million
increase to the expense related to increased plant
balances primarily resulting from the installation of
pollution control equipment.
For 2006, depreciation and amortization expense
increased $4.5 million from 2005 relating to completed
projects in both the distribution and production areas
increasing our overall plant base.
Total operation and maintenance expense
$ 46.4
DPL Inc. – Amortization of Regulatory Assets
For 2006, operation and maintenance expense
increased $46.4 million, or 21%, compared to 2005
primarily resulting from a $13.5 million increase in legal
fees primarily related to the litigation with former execu-
tives; $5.5 million increase in PJM administrative fees,
which include $2.5 million deferred in 2005 by Public
Utilities Commission of Ohio (PUCO) authority (rate
relief was granted in February 2006); a $5.1 million
increase in the low-income assistance program costs;
$4.1 million of coal brokering credits received in 2005
that were not received in 2006; a $3.7 million increase
related to lump sum bonus and retirement payments
to former executives (not related to our litigation with
the three former executives); a $3.1 million increase in
operating and maintenance expenses, which related to
removal costs and peaker engine repairs; a $2.7
million increase in line clearance expenses; a $2.6
million increase in mark-to-market adjustments and
forfeitures of RSUs; $2.1 million in long-term incentive
compensation relating to performance and restricted
shares and a $1.0 million increase in pension and
benefits expenses. These increases were partially
For 2007, amortization of regulatory assets increased
$3.2 million to $10.8 million from $7.6 million in
2006, primarily reflecting the amortization of incremen-
tal 2004/2005 severe storm costs that began on
August 1, 2006.
For 2006, amortization of regulatory assets
increased $5.6 million to $7.6 million compared to the
same period in 2005. The increase in amortization of
regulatory assets reflects $2.6 million for the amortiza-
tion of costs incurred to accommodate unbundled rates
and electric choice bills in the customer billing system;
$1.3 million for the amortization of PJM administrative
fees deferred for the period October 2004 through
January 2006 and $1.2 million for the amortization of
incremental 2004/2005 severe storm costs.
DPL Inc. – Investment Income
For 2007, investment income of $11.3 million
decreased $6.5 million from $17.8 million for the same
period in 2006. This decrease was primarily the result
of lower interest income relating to lower cash and
short-term investment balances in 2007 compared to
2006. This decrease was partially offset by $3.2 million
32 DPL Inc.
in realized gains from the sale of financial assets
held in DP&L’s Master Trust Plan for deferred com-
pensation used for the settlement payment to the three
former executives.
For 2006, investment income of $17.8 million
decreased $33.1 million from $50.9 million for the same
period in 2005. This decrease was primarily the result
of a $23.4 million decrease in gains on public and
income investments realized in 2005, a $4.6 million
decrease in foreign currency translation gains realized
in 2005 for the liquidation of investments denominated
in Euros and a $4.8 million decrease in interest
income resulting from lower cash balances in 2006
compared to 2005.
DPL Inc. – Net Gain on Settlement of
Executive Litigation
On May 21, 2007, we settled the litigation with the three
former executives. In exchange for our payment of $25
million, the three former executives relinquished and
dismissed all of their claims including those related to
deferred compensation, RSUs, MVE (previously owned
subsidiary of DPL) incentives, stock options and legal
fees. As a result of this settlement, during the second
quarter ended June 30, 2007, DPL realized a net pre-
tax gain in continuing operations of approximately
$31.0 million. See Note 15 of Notes to Consolidated
Financial Statements.
DPL Inc. – Interest Expense
For 2007, interest expense decreased $21.2 million,
or 21%, compared to the same period in 2006 primar-
ily as a result of $15.5 million less interest associated
with the redemption of DPL debt ($225 million, 8.25%
Senior Notes) and $9.1 million of greater capitalized
interest primarily related to increased pollution control
capital expenditures. These decreases were partially
offset by $3.4 million of interest expense associated
with DP&L’s new $100 million, 4.8% Series pollution
control bonds issued September 13, 2006.
For 2006, interest expense decreased $35.5 mil-
lion, or 26%, compared to the same period in 2005
resulting from the debt reduction that occurred in 2005
and a higher capitalized interest of $10.9 million in
2006 compared to 2005 associated with our major con-
struction projects.
DPL Inc. – Charge for Early Redemption of Debt
In 2005, DPL recorded $61.2 million in charges result-
ing from premiums paid for the early redemption of
debt, including write-offs of unamortized debt expense
and debt discounts. These charges did not recur in
2006 or 2007.
DPL Inc. – Other Income (Deductions)
For 2007, other income of $2.9 million increased $4.1
million from other deductions of $1.2 million recorded
for the same period of the prior year. The increase
primarily resulted from the recognition of a $2.1 million
deferred credit related to a litigation settlement (which
was not part of the executive litigation settlement).
For 2006, other income (deductions) was $14.7
million less than the same period in 2005 primarily due
to gains of $12.3 million realized in 2005 from the
sale of pollution control emission allowances. There
were no sales of pollution control emission allowances
during 2006.
DPL Inc. – Income Tax Expense
For 2007, income taxes from continuing operations
increased $52.7 million, or 76%, compared to 2006 due
to an increase in pre-tax book income, a decrease in
the effective tax rate primarily reflecting the phase-out
of the Ohio Franchise Tax and adjustments recorded in
2006 to true-up book tax expense to the tax return.
For 2006, income taxes from continuing operations
decreased $10.1 million, or 13%, compared to 2005
due to a decrease in pre-tax book income, a decrease
in the effective tax rate primarily reflecting the phase-
out of the Ohio Franchise Tax and adjustments record-
ed in 2005 and 2006 to true-up book tax expense to
the tax return.
On June 30, 2005, Governor Taft signed House
Bill 66 into law which significantly changed the tax
structure 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 tax-
payers 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 increased by
$1.4 million in 2007 and reduced by $1.5 million in
2006 while income taxes from discontinued operations
were increased by $1.3 million in 2006 as a result of
the tax law change. Other applicable provisions of
House Bill 66 have been reflected in Note 8 of Notes to
Consolidated Financial Statements.
DPL Inc. – 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.
DPL Inc.
33
Results of Operations –
The Dayton Power and Light Company (DP&L)
Income Statement Highlights – DP&L
The following table provides a summary of changes
in revenues from prior periods:
$ in millions
2007 vs. 2006
2006 vs. 2005
$ in millions
2007
2006
2005
Revenues:
Retail
Wholesale
RTO ancillary
Capacity revenues
$ 1,057.4 $ 998.1 $ 944.9
257.6
309.9
331.7
74.4
77.2
87.4
–
–
30.9
Total Revenues
$ 1,507.4 $ 1,385.2 $ 1,276.9
Fuel
Purchased power
RTO ancillary charges (b)
Capacity charges (b)
Gross margins (a)
$ 315.4 $ 335.2 $ 317.9
98.6
122.5
221.5
48.5
49.4
50.4
–
–
28.4
$ 891.7 $ 878.1 $ 811.9
Retail
Rate
Volume
Other miscellaneous
Total retail change
Wholesale
Rate
Volume
Total wholesale change
RTO Ancillary and Other
RTO Services
Capacity revenues
Total other change
$ 25.8
31.2
2.3
$ 59.3
$ 46.2
(24.4)
$ 21.8
$ 10.2
30.9
$ 41.1
$ 122.2
$ 78.3
(26.0)
0.9
$ 53.2
$ (36.3)
88.6
$ 52.3
$ 2.8
–
$ 2.8
$ 108.3
Gross margins as a
percentage of revenues 59.2%
63.4%
63.6%
Total revenues change
(a) For purposes of discussing operating results, we present and
discuss gross 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.
(b) RTO ancillary and capacity charges are included in total purchased
power in Consolidated Statements of Results of Operations.
DP&L – Revenues
Retail customers, especially residential and commercial
customers, consume more electricity on warmer and
colder days. Therefore, DP&L’s retail sales volume is
impacted by the number of heating and cooling degree
days occurring during a year. Since DP&L plans to
utilize its internal generating capacity to supply its retail
customers’ needs first, increases in retail demand will
decrease the volume of internal generation available to
be sold in the wholesale market and vice versa.
The wholesale market covers a multi-state area
and settles on an hourly basis throughout the year.
Factors impacting DP&L’s wholesale sales volume
each hour of the year include wholesale market pric-
es; DP&L’s retail demand, retail demand elsewhere
throughout the entire wholesale market area; DP&L
and non-DP&L plants’ availability to sell into the whole-
sale market and weather conditions across the multi-
state region. DP&L’s plan is to make wholesale sales
when market prices allow for the economic operation
of its generation facilities that are not being utilized to
meet its retail demand.
For the year ended December 31, 2007, revenues
increased $122.2 million, or 9%, to $1,507.4 million
from $1,385.2 million for the same period in the prior
year. This increase was primarily the result of higher
average rates for retail and wholesale sales, higher
retail sales volume and an increase in RTO ancillary
revenue. These increases were partially offset by lower
wholesale sales volume. Retail revenues increased
$59.3 million, primarily as result of a 3% increase in
weather driven sales volume as total degree days
increased 9%, and a 3% increase in the average retail
rates primarily relating to the environmental investment
and storm recovery riders. These increases resulted
in a $31.2 million sales volume variance and a $25.8
million rate variance. Wholesale revenue increased
$21.8 million primarily resulting from a 15% increase
in wholesale average rates, partially offset by an 8%
decrease in sales volume. This resulted in a favorable
$46.2 million wholesale price variance and an unfa-
vorable $24.4 million volume variance. RTO ancillary
revenues, consisting primarily of compensation for use
of DP&L’s transmission assets, regulation services,
reactive supply and operating reserves and capacity
payments under the RPM construct, increased $41.1
million over the same period in 2006. This increase
primarily resulted from $30.9 million realized from the
PJM capacity auction, $8.7 million of PJM transmission
losses and congestion credits and $2.3 million from
the sale of financial transmission rights (FTRs). RTO
ancillary revenues from the PJM capacity auction are
substantially offset by RTO ancillary charges for PJM
capacity charges included in purchased power. Other
34 DPL Inc.
RTO ancillary revenues are partially offset by other
RTO ancillary charges in purchased power.
For 2006, revenues increased 8% to $1,385.2 mil-
lion compared to $1,276.9 million in 2005, reflecting an
increase of $108.3 million. This increase was primar-
ily the result of higher average rates for retail sales,
greater wholesale sales volume and increased ancil-
lary revenues associated with participation in a RTO.
These increases were partially offset by lower retail
sales volume and lower average rates for wholesale
sales. Retail revenues increased $53.2 million, primarily
resulting from a $78.3 million increase relating to higher
average rates and increased miscellaneous revenues
of $0.9 million, partially offset by decreased sales
volume of $26.0 million resulting from milder weather
experienced in 2006 compared to 2005. The higher
average rates were primarily the result of the rate sta-
bilization plan surcharge, and regulated asset recov-
ery riders implemented throughout 2006. Wholesale
revenues increased $52.3 million, primarily related
to an $88.6 million increase in sales volume, partially
offset by a $36.3 million decrease in average market
rates. During 2006, RTO ancillary revenues increased
$2.8 million to $77.2 million from $74.4 million in 2005.
Heating degree-days were down 11% to 5,076 in
2006 compared to 5,702 in 2005. In addition, cooling
degree-days were down 20% to 855 in 2006 compared
to 1,075 in 2005.
DP&L – Margins, Fuel and Purchased Power
For 2007, gross margin of $891.7 million increased
$13.6 million, or 1.5%, from $878.1 million in 2006. As a
percentage of total revenues, gross margin decreased
to 59.2% in 2007 compared to 63.4% in 2006. This
result primarily reflects the favorable impact of both
retail and wholesale revenues discussed above and
lower fuel costs offset by increased purchased power
costs. Fuel costs, which include coal, gas, oil and
emission allowance costs, decreased by $19.8 mil-
lion, or 6%, in 2007 compared to the same period in
2006 primarily due to lower generation output of 4%
resulting from scheduled and unscheduled plant out-
ages, as well as a 2% decrease in average fuel prices.
Purchased power increased $128.4 million in 2007
compared to the same period in 2006. The increase
in purchased power primarily results from a $57.6 mil-
lion increase relating to higher volumes of purchased
power, a $41.2 million increase due to higher average
market rates and $28.4 million related to RTO ancil-
lary charges for PJM capacity charges. The increase
in purchased power volume was primarily the result
of increased retail sales volume and partner operated
generating facilities being less available compared to
the prior year due to planned and unplanned outages.
In addition, we purchase power when market prices
are below the marginal costs associated with our high-
er cost generating facilities. The RTO ancillary charges
for PJM capacity charges are substantially offset by
RTO ancillary revenues for PJM capacity resulting in
minimal impact to gross margin.
For 2006, gross margin increased $66.2 million to
$878.1 million from $811.9 million in 2005. As a per-
centage of total revenues, gross margin remained rela-
tively flat in 2006 at 63.4% compared to 63.6% in 2005.
This result reflects the favorable impact of the rate
stabilization plan on revenues offsetting the increas-
ing fuel and purchased power costs. In prior years,
rising fuel and purchased power costs had eroded
gross margin. Fuel costs, which include coal, gas, oil
and emission allowance costs, increased by $17.3 mil-
lion, or 5%, in 2006 as a result of higher market prices.
Purchased power costs increased by $24.8 million, or
17%, in 2006 compared to 2005 primarily resulting from
higher volumes of power purchased. The increase in
purchased power volume resulted from our decision to
purchase power at lower average market rates instead
of running our higher cost generating facilities. In
addition, from time to time, we had to purchase power
to source power sales when our generating facilities
were not available due to scheduled maintenance and
forced outages.
DP&L – Operation and Maintenance
$ in millions
2007 vs. 2006
$ 17.7
Boiler maintenance costs
9.4
Generating facilities operating expenses
Turbine maintenance costs
3.5
Overhead line and substation maintenance costs 3.0
(0.3)
Employee benefits including pension
6.0
Other, net
Total operation and maintenance expense
$ 39.3
For the year ended December 31, 2007, operation and
maintenance expense increased $39.3 million, or 17%,
compared to 2006. This variance was primarily the
result of increased boiler maintenance costs of $17.7
million, a $9.4 million increase related to operating
expenses for the generating facilities, a $3.5 million
increase related to turbine maintenance costs, and a
$3.0 million increase in overhead line and substation
DPL Inc.
35
maintenance costs. These increases were partially
offset by a $0.3 million decrease in employee benefits
costs resulting from a $5.1 million reduction in pension
expense, partially offset by a $4.8 million increase in
employee benefits.
$ in millions
2006 vs. 2005
Low-Income Assistance Program
RTO administrative fees
Coal brokering credits
Lump sum bonus and retirement payments
Removal and peaker engine repair costs
Line clearance
Long-term incentive compensation
Reserves for insurance,
injuries/damages/environmental
Pension and benefits
Mark-to-market adjustments and forfeitures
of restricted stock units (RSUs)
Directors’ & Officers’ liability insurance
Sarbanes-Oxley compliance fees
Other, net
$ 5.6
5.5
4.1
3.7
3.1
2.7
1.9
1.9
0.9
0.9
(1.2)
(1.1)
5.4
Total operation and maintenance expense
$ 33.4
For 2006, operation and maintenance expense
increased $33.4 million, or 17%, compared to 2005
primarily resulting from a $5.6 million increase in the
Low-Income Assistance Program costs; $5.5 million in
PJM administrative fees, including $2.5 million deferred
in 2005 by PUCO authority (rate relief was granted in
February 2006); $4.1 million of coal brokering credits
received in 2005 that were not received in 2006; $3.7
million of lump sum bonus and retirement payments
for former executives (not related to our litigation with
the three former executives); a $3.1 million increase in
operating and maintenance expenses which related
to removal costs and peaker engine repairs; $2.7 mil-
lion related to line clearance; $1.9 million increase in
long-term incentive costs; a $1.9 million increase in
reserves for insurance, injuries and damages; a $0.9
million increase in pension and benefits expenses; and
a $0.9 million increase in mark-to-market adjustments
and forfeitures of RSUs. These increases were partially
offset by a $1.2 million decrease in Directors’ and
Officers’ liability insurance premiums and a $1.1 million
decrease in Sarbanes-Oxley compliance fees.
DP&L – Depreciation and Amortization
For 2007, depreciation and amortization expense
decreased $5.5 million from 2006, primarily reflecting
the impact of lower depreciation rates for generation
property which were put into effect on August 1, 2007,
reducing the expense by $9.5 million. This decrease
was partially offset by an increase to the expense relat-
ed to increased plant balances primarily resulting from
the installation of pollution control equipment.
Depreciation and amortization increased $6.1
million in 2006 compared to 2005 primarily reflecting a
higher plant base.
DP&L – Amortization of Regulatory Assets
For 2007, amortization of regulatory assets increased
$3.2 million to $10.8 million from $7.6 million in 2006,
primarily reflecting the amortization of incremental
2004/2005 severe storm costs that began on August 1,
2006.
For 2006, amortization of regulatory assets
increased $5.6 million to $7.6 million compared to the
same period in 2005. The increase in amortization of
regulatory assets reflects $2.6 million for the amortiza-
tion of costs incurred to accommodate unbundled rates
and electric choice bills in the customer billing system;
$1.3 million for the amortization of PJM administrative
fees deferred for the period October 2004 through
January 2006 and $1.2 million for the amortization of
incremental 2004/2005 severe storm costs.
DP&L – Investment Income
For 2007, investment income increased $17.0 million
to $23.7 million from $6.7 million for the same period
in 2006. This increase was primarily the result of a
realized gain of $14.8 million on the transfer of DPL
common stock to the DP&L Retirement Income Plan
Trust (Pension) and $3.2 million in realized gains
from the sale of financial assets held in DP&L’s Master
Trust Plan for deferred compensation used for the
settlement payment to the three former executives.
DP&L – Net Gain on Settlement of Executive Litigation
On May 21, 2007, we settled the litigation with the three
former executives. In exchange for our payment of $25
million, the three former executives relinquished and
dismissed all of their claims including those related to
deferred compensation, RSUs, MVE incentives, stock
options and legal fees. As a result of this settlement,
during the second quarter ended June 30, 2007, DP&L
realized a net pre-tax gain in continuing operations
of $35.3 million. See Note 15 of Notes to Consolidated
Financial Statements.
DP&L – Interest Expense
For 2007, interest expense decreased $1.1 million, or
5%, compared to 2006 primarily as a result of $9.1
million of greater capitalized interest primarily related to
increased pollution control capital expenditures. These
36 DPL Inc.
decreases were partially offset by $3.4 million of inter-
est expense associated with DP&L’s new $100 million,
4.8% Series pollution control bonds issued September
13, 2006 and $2.8 million in interest on a short-term
loan from DPL.
Interest expense decreased $14.7 million, or 39%,
in 2006 compared to 2005, primarily relating to $10.9
million of increased capitalized interest resulting from
higher pollution control capital expenditures at the
generating plants and $5.3 million of lower interest
expense reflecting the refinancing of pollution control
bonds at reduced interest rates in 2005, lower debt
service charges associated with DPL’s early retire-
ment of ESOP debt, and the elimination of the interest
penalty resulting from the delayed exchange offer of
the $470 million 5.125% Series First Mortgage Bonds.
These decreases were slightly offset by $1.4 million
of interest expense associated with DP&L’s new $100
million 4.8% Series pollution control bonds issued
September 13, 2006.
DP&L – Charge for Early Redemption of Debt
In 2005, DP&L recorded $4.1 million in charges result-
ing from premiums paid for the early redemption of
debt, including write-offs of unamortized debt expense
and debt discounts. These charges did not recur in
2006 or 2007.
DP&L – Other Income (Deductions)
For 2007, other income of $2.9 million increased $4.1
million from the other deductions of $1.2 million record-
ed for the same period of the prior year. The increase
primarily resulted from the recognition of a $2.1 million
deferred credit related to a litigation settlement (which
was not part of the executive litigation settlement).
For 2006, other income (deductions) decreased
$7.8 million compared to the same period in 2005. This
decrease is primarily attributable to $12.3 million in
gains recognized on the sale of pollution control emis-
sion allowances during 2005, partially offset by $7.0
million in reduced investment management fees.
DP&L – Income Tax Expense
For 2007, income taxes from continuing operations
increased $0.9 million compared to 2006 due to an
increase in pre-tax book income, a decrease in the
effective tax rate primarily reflecting the phase-out of
the Ohio Franchise Tax and adjustments recorded in
2006 to true-up book tax expense to the tax return.
For 2006, income tax expense increased $4.1
million compared to the same period in 2005 primarily
resulting from higher income.
On June 30, 2005, Governor Taft signed House
Bill 66 into law which significantly changed the tax
structure in Ohio. The major provisions of the bill
include phasing-out the Ohio Franchise Tax, phasing-
out the Personal Property Tax for non-utility taxpayers
and phasing-in a Commercial Activities Tax. As a result
of House Bill 66, income taxes were reduced by $0.7
million and $1.6 million, in 2007 and 2006, respectively.
Other applicable provisions of House Bill 66 have been
reflected in the consolidated financial statements.
DP&L – 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.
Financial Condition, Liquidity and
Capital Requirements
DPL’s financial condition, liquidity and capital require-
ments, includes the consolidated results of its principal
subsidiary DP&L and all of DP&L’s consolidated
subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
During the fourth quarter of 2007 we identified
immaterial changes in certain accounts payable
balances that had not been correctly presented in
our prior period cash flow statements. Changes in
accounts payable balances representing capital
expenditures had previously been classified with cash
flows from operating activities and should have been
classified with capital expenditures as part of investing
activities. Accordingly, the Consolidated Statements of
Cash Flows for all periods presented have been reclas-
sified to conform to the current presentation.
On July 27, 2005, DPL’s Board authorized the
repurchase of up to $400 million of common stock
from time to time in the open market or through private
transactions. DPL completed this share repurchase
program through a series of open market purchases
on August 21, 2006. This resulted in 14.9 million shares
being repurchased at an average price of $26.91 per
share and at a total cost of $400 million. These shares
are currently held as treasury shares at DPL. No shares
were repurchased during 2007.
DPL Inc.
37
DPL’s Cash Position
DPL’s Cash provided by Operating Activities
DPL’s cash and cash equivalents totaled $134.9 million
at December 31, 2007, compared to $262.2 million at
December 31, 2006, a decrease of $127.3 million. The
decrease in cash and cash equivalents was primar-
ily attributed to $346.2 million in capital expenditures,
$225.0 million used to retire long-term debt and $111.7
million in dividends paid on common stock, partially
offset by $318.1 million in cash generated from operat-
ing activities, $158.4 million proceeds from the sale of
the peakers and aircraft and $63.2 million restricted
fund draws to fund pollution control capital expendi-
tures. At December 31, 2007, DPL had $37.0 million
restricted funds held in trust relating to the issuance of
$90.0 million pollution control bonds. These funds will
be used to fund pollution control capital expenditures.
DP&L’s Cash Position
DP&L’s cash and cash equivalents totaled $13.3 mil-
lion at December 31, 2007, compared to $46.1 million
at December 31, 2006, a decrease of $32.8 million.
The decrease in cash and cash equivalents was pri-
marily attributed to $343.2 million in capital expendi-
tures and $125.0 million in dividends paid on common
stock to the parent, partially offset by $353.0 million in
cash generated from operating activities and $63.2 mil-
lion restricted fund draws to fund pollution control capi-
tal expenditures. At December 31, 2007, DP&L had
$37.0 million restricted funds held in trust relating to the
issuance of the $90.0 million pollution control bonds.
These funds will be used to fund the pollution control
capital expenditures.
Operating Activities
For the years ended December 31, 2007, 2006 and
2005, cash flows from operations were as follows:
Net Cash provided by Operating Activities
$ in millions
DPL
DP&L
2007
2006
2005
$ 318.1 $ 286.8 $ 303.6
$ 353.0 $ 343.8 $ 356.3
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 customer mix of residential, commer-
cial, and industrial classes coupled with the rate relief
approved by the PUCO for 2006 and beyond provides
us with a reasonably predictable gross cash flow
from operations.
DPL generated net cash from operating activities of
$318.1 million, $286.8 million and $303.6 million in
2007, 2006, and 2005, respectively. The net cash pro-
vided by operating activities for 2007, 2006, and 2005
was primarily the result of cash received from utility
customers, partially offset by cash used for fuel, pur-
chased power, operating expenditures, interest, and
taxes. The year-to-year fluctuations in working capital
results from the timing of payments made and cash
receipts from our utility customers.
DP&L’s Cash provided by Operating Activities
DP&L generated net cash from operating activities
of $353.0 million, $343.8 million and $356.3 million
in 2007, 2006 and 2005, respectively. The net cash
provided by operating activities for 2007, 2006 and
2005 was primarily the result of cash received from
utility customers, partially offset by cash used for fuel,
purchased power, operating expenditures, interest and
taxes. The year-to-year fluctuations in working capital
results from the timing of payments made and cash
receipts from our utility customers.
Investing Activities
For the years ended December 31, 2007, 2006
and 2005, cash flows from investing activities were
as follows:
Net Cash (used for) / provided by Investing Activities
$ in millions
2007
2006
2005
DPL
DP&L
$ (187.8) $ (207.6) $ 700.1
$ (343.2) $ (332.9) $ (167.9)
DPL’s Cash (used for) / provided by
Investing Activities
DPL’s net cash flows used for investing activities were
$187.8 million and $207.6 million in 2007 and 2006,
respectively, compared to DPL’s net cash flows pro-
vided by investing activities of $700.1 million in 2005.
Net cash flows used for investing activities in 2007
were related to capital expenditures, partially offset by
the sale of peakers and aircraft. Net cash flows used
for investing activities in 2006 were related to capital
expenditures and the purchases of short-term invest-
ments and securities, partially offset by the sale of
short-term investments and securities. Net cash flows
provided by investing activities for 2005 were related
to the proceeds from the sale of the private equity
securities which are classified as discontinued opera-
38 DPL Inc.
tions and the sale of short-term investments and public
securities unrelated to discontinued operations,
partially offset by capital expenditures and purchases
of short-term investments and securities.
DP&L’s Cash used for Investing Activities
DP&L’s net cash flows used for investing activities
were $343.2 million, $332.9 million and $167.9 million
in 2007, 2006 and 2005, respectively. Net cash flows
used for investing activities for 2007, 2006 and 2005
were due to capital expenditures.
Financing Activities
For the years ended December 31, 2007, 2006
and 2005, cash flows from financing activities were
as follows:
Net Cash used for Financing Activities
$ in millions
2007
2006
2005
DPL
DP&L
$ (257.6) $ (412.8) $ (610.0)
$ (42.7) $ (11.0) $ (159.4)
DPL’s Cash used for Financing Activities
DPL’s net cash flows used for financing activities were
$257.6 million, $412.8 million and $610.0 million in
2007, 2006 and 2005, respectively. Net cash flows
used for financing activities in 2007 were the result of
cash used to redeem the $225.0 million 8.25% Senior
Notes on March 1, 2007 and to pay dividends to com-
mon stockholders of $111.7 million. These uses of cash
were partially offset by $63.2 million of withdrawals
from the trust set up as a result of issuing the pollution
control bonds. Net cash flows used for financing activi-
ties in 2006 were the result of cash used to repurchase
$400.0 million of common stock and pay dividends to
common stockholders of $112.4 million. These uses
of cash were partially offset by $89.9 million of with-
drawals from the trust set up as a result of issuing the
pollution control bonds. Net cash flows used for financ-
ing activities for 2005 were primarily the result of cash
used to retire $462.6 million of long-term debt, pay pre-
miums 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.
On February 1, 2007, our Board of Directors
announced that it had raised the quarterly dividend
to $0.26 per share payable March 1, 2007 to com-
mon shareholders of record on February 14, 2007.
This increase results in an annualized dividend rate of
$1.04 per share, or a 4% increase that was paid during
2007. On December 13, 2007 our Board of Directors
announced that it had raised the quarterly dividend
to $0.275 per share effective with the next dividend
declaration date. This increase results in an annualized
dividend rate of $1.10 per share, or a 6% increase that
will be paid during 2008.
DP&L’s Cash used for Financing Activities
DP&L’s net cash flows used for financing activities
were $42.7 million, $11.0 million and $159.4 million
in 2007, 2006 and 2005, respectively. Net cash flows
used for financing activities for 2007 were the result
of cash used to pay common stock dividends to DPL
of $125.0 million, partially offset by $63.2 million of
withdrawals from the trust set up as a result of issuing
the pollution control bonds and net cash received from
the issuance of short-term debt. Net cash flows used
for financing activities for 2006 were the result of cash
used to pay common stock dividends to DPL of $100.0
million, partially offset by $89.9 million of withdrawals
from the trust set up as a result of issuing the pollution
control bonds. Net cash flows used for financing activi-
ties for 2005 were primarily the result of cash used to
retire $218.9 million of long-term debt and pay com-
mon stock dividends to DPL of $150.0 million. These
uses of cash were partially offset by the net cash
received from the issuance of long-term debt.
DPL and DP&L have obligations to make future
payments for capital expenditures, debt agreements,
lease agreements and other long-term purchase obli-
gations, and have certain contingent commitments
such as guarantees. We believe our cash flows from
operations, 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 is dependent on
general economic conditions, competitive pressures,
and other business and risk factors described in Item
1a of this Form 10-K. If we are unable to generate suf-
ficient cash flows or otherwise 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 financing alternatives. A
discussion of each of our critical liquidity commitments
is outlined below.
DPL Inc.
39
Capital Requirements
Construction Additions
$ in millions
DPL Inc.
DP&L
2007
$ 347
$ 344
Actual
2006
$ 352
$ 349
2005
$ 180
$ 178
2008
$ 205
$ 203
Projected
2009
$ 145
$ 143
2010
$ 140
$ 138
DPL’s construction additions were $347 million, $352
million and $180 million in 2007, 2006 and 2005,
respectively, and are expected to approximate $205
million in 2008. Planned construction additions for 2008
relate to DP&L’s environmental compliance program,
power plant equipment, and its transmission and
distribution system.
DP&L’s construction additions were $344 million,
$349 million and $178 million in 2007, 2006 and 2005,
respectively, and are expected to approximate $203
million in 2008. Planned construction additions for 2008
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, DPL, through its subsidiary DP&L, is projecting
to spend an estimated $490 million in capital projects.
Our ability to complete capital projects and the reli-
ability of future service will be affected by our financial
condition, the availability of internal funds and the rea-
sonable cost of external funds. We expect to finance
our construction additions in 2008 with a combination
of cash on hand, short-term financing, tax-exempt
debt and cash flows from operations.
Debt and Debt Covenants
On March 25, 2004, DPL completed a $175 million
private placement of unsecured 8% Series Senior
Notes due March 2009. The purchasers were granted
registration rights in connection with the private place-
ment under an Exchange and Registration Rights
Agreement. Pursuant to this agreement, DPL was
obligated to file an exchange offer registration state-
ment by July 22, 2004, have the registration statement
declared effective by September 20, 2004 and
consummate the exchange offer by October 20, 2004.
DPL failed (1) to have a registration statement
declared effective and (2) to complete the exchange
offer according to this timeline. As a result, DPL
had been accruing additional interest at a rate of
0.5% per year for each of these two violations, up to
an additional interest rate not to exceed in the aggre-
gate 1.0% per year. As each violation was cured, the
additional interest rate decreased by 0.5% per annum.
DPL’s exchange offer registration statement for these
securities was declared effective by the SEC on June
27, 2006. As a result, on June 27, 2006, DPL ceased
accruing 0.5% of the additional interest. On July 31,
2006, DPL ceased accruing the other 0.5% of addi-
tional interest when the exchange of registered notes
for the unregistered notes was completed.
During the first quarter 2006, the Ohio Department
of Development (ODOD) awarded DP&L the ability to
issue, over the next three years, up to $200 million of
qualified tax-exempt financing from the ODOD’s 2005
volume cap carryforward. The financing is to be used
to partially fund the ongoing flue gas desulfurization
capital projects. The PUCO approved DP&L’s applica-
tion for this additional financing on July 26, 2006.
On September 13, 2006, the Ohio Air Quality
Development Authority (OAQDA) issued $100 million
of 4.80% fixed interest rate OAQDA Revenue bonds
2006 Series A due September 1, 2036. In turn, DP&L
borrowed these funds from the OAQDA. The payment
of principal and interest on the bonds when due is
insured by an insurance policy issued by Financial
Guaranty Insurance Company. DP&L is using the
proceeds from these borrowings to assist in financing
its portion of the costs of acquiring, constructing
and installing certain solid waste disposal and air
quality facilities at Miami Fort, Killen and Stuart gener-
ating stations.
On November 15, 2007, the Ohio Air Quality
Development Authority issued $90 million of collater-
alized, variable rate OAQDA Revenue bonds, 2007
Series A due November 1, 2040. In turn, DP&L bor-
rowed these funds from the OAQDA. The payment
of principal and interest on the bonds when due is
insured by an insurance policy issued by Financial
Guaranty Insurance Company. On January 30, 2008,
FGIC’s credit rating was downgraded by Fitch Ratings
from ‘AAA’ to ‘AA’ and remains on negative ratings
watch. On January 31, 2008, FGIC’s credit rating was
downgraded by Standard & Poor’s from ‘AAA’ to ‘AA’
and placed on credit watch. On February 14, 2008,
FGIC’s credit rating was downgraded by Moody’s from
40 DPL Inc.
‘Aaa to A3.’ These downgrades, as well as the recent downgrades or pending downgrades of other major bond
insurers, could result in DP&L’s variable rate bonds having substantially higher interest rate in succeeding auctions
and increase the risk that these bonds may have a failed auction. The maximum interest rate is capped at 12%.
Management will continue to evaluate the current market conditions. If these conditions do not improve, we may
redeem our variable rate bonds and issue fixed rate bonds. We have sufficient liquidity to redeem the variable rate
bonds using cash on hand or through funds available to us by our revolving credit line until fixed rate bonds
are issued. DP&L is using the proceeds from these borrowings to assist in financing its portion of the costs of
acquiring, constructing and installing certain solid waste disposal and air quality facilities at Miami Fort, Killen,
Stuart and Conesville generating stations. These facilities are currently under construction and the proceeds from
the borrowing have been placed in escrow with the trustee (the Bank of New York) and are being drawn upon
only as facilities are built and qualified costs are incurred. In the event any of the proceeds are not drawn, DP&L
would eventually be required to return the unused proceeds to bondholders. DP&L expects to draw down the
remaining available funds from this borrowing over the next two years.
On November 21, 2006, DP&L entered into a new $220 million unsecured revolving credit agreement replac-
ing its $100 million facility. This new agreement has a five year term that expires on November 21, 2011 and that
provides DP&L with the ability to increase the size of the facility by an additional $50 million at any time. The facil-
ity contains one financial covenant: DP&L’s 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, 2007.
Fees associated with this credit facility are approximately $0.2 million per year. Changes in credit ratings, however,
may affect fees and the applicable interest. This revolving credit agreement also contains a $50 million letter
of credit sub-limit. 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, 2007, DP&L had no outstanding letters of credit against the facility.
On February 24, 2005, DP&L entered into an amendment to extend the term of its Master Letter of Credit
Agreement with a financial lending institution for one year and to reduce the maximum dollar volume of letters of credit
to $10 million. On February 17, 2006, DP&L renewed its $10 million agreement for one year. This agreement sup-
ports performance assurance needs in the ordinary course of business. This agreement was not renewed in 2007.
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 connection 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.
During the second quarter ended June 30, 2007, DPL entered into a short-term loan to DP&L for $105 million.
DP&L paid down $15 million of this loan during the third quarter ended September 30, 2007, and an additional $70
million during the fourth quarter ended December 31, 2007, leaving a current outstanding balance of $20 million.
This short-term loan does not affect our debt covenants. There are no other inter-company debt collateralizations
or debt guarantees between DPL, DP&L and their subsidiaries. None of the debt obligations of DPL or DP&L are
guaranteed or secured by affiliates and no cross-collateralization exists between any subsidiaries.
Credit Ratings
Currently, DPL’s senior unsecured and DP&L’s senior secured debt credit ratings are as follows:
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corp.
Off-Balance Sheet Arrangements
DPL Inc. – Guarantees
DPL
BBB+
Baa2
BBB-
DP&L
Outlook
Effective
A+
A2
BBB+
Stable
Stable
Stable
March 2007
November 2007
February 2007
In the normal course of business, DPL enters into various agreements with our wholly-owned generating
subsidiary DPLE providing financial or performance assurance to third parties. These agreements are entered
into primarily to support or enhance the creditworthiness otherwise attributed to DPLE on a stand-alone basis,
thereby facilitating the extension of sufficient credit to accomplish DPLE’s intended commercial purposes.
DPL Inc.
41
Such agreements fall outside the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”
At December 31, 2007, DPL had $33.3 million of guarantees to third parties for future financial or
performance assurance under such agreements, on behalf of DPLE. The guarantee arrangements entered into
by DPL with these third parties cover all present and future obligations of DPLE to such beneficiaries and
are terminable at any time by DPL upon written notice to the beneficiaries. The carrying amount of obligations
for commercial transactions covered by these guarantees and recorded in our consolidated balance sheets
was $0.5 million at December 31, 2007.
In two separate transactions in November and December 2006, DPL also agreed to be a guarantor of the
obligations of DPLE regarding the sale in April 2007 of the Darby Electric Peaking Station to American Electric
Power and the sale of the Greenville Electric Peaking Station to Buckeye Electric Power, Inc. In both cases,
DPL agreed to guarantee the obligations of DPLE over a multiple year period as follows:
$ in millions
Darby
Greenville
2008
$ 23.0
$ 11.1
2009
$ 15.3
$ 7.4
2010
$ 7.7
$ 3.7
We believe it is unlikely that either DPL or DP&L would be required to perform or incur any losses associated
with any of the above guarantees of DPLE’s obligations.
DP&L – Equity Ownership Interest
DP&L owns a 4.9% equity ownership interest in an electric generation company. As of December 31, 2007, DP&L
could be responsible for the repayment of 4.9%, or $36.5 million, of a $745 million debt obligation that matures in 2026.
Other than the guarantees discussed above, DPL and DP&L do not have any other off-balance sheet
arrangements that have or are reasonably likely to have a current or future material effect on results of operations,
financial condition, or cash flows.
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, 2007, these include:
$ in millions
Total
2008
2009-2010
2011-2012
Therafter
Payment Year
DPL Inc.
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts
Reserve for uncertain tax positions
Other contractual obligations
Total contractual obligations
DP&L
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts
Reserve for uncertain tax positions
Other contractual obligations
Total contractual obligations
$ 1,641.8
1,154.9
234.7
2.0
0.6
874.0
57.0
65.3
220.0
$ 4,250.3
$ 874.4
685.0
234.7
2.0
0.6
874.0
57.0
65.3
220.0
$ 3,013.0
(a) DP&L-operated units
42 DPL Inc.
$ 100.0
96.3
22.4
0.7
0.3
321.5
4.3
–
154.0
$ 699.5
$
–
43.6
22.4
0.7
0.3
321.5
4.3
–
154.0
$ 546.8
$ 175.0
163.4
45.5
1.3
0.2
507.5
10.5
65.3
56.1
$ 1,024.8
$
–
87.3
45.5
1.3
0.2
507.5
10.5
65.3
56.1
$ 297.4
132.6
46.4
–
0.1
45.0
11.2
–
7.5
$ 540.2
$
–
87.3
46.4
–
0.1
45.0
11.2
–
7.5
$ 773.7
$ 197.5
$ 1,069.4
762.6
120.4
–
–
–
31.0
–
2.4
$ 1,985.8
$ 874.4
466.8
120.4
–
–
–
31.0
–
2.4
$ 1,495.0
Long-term debt:
DPL’s long-term debt as of December 31, 2007, con-
sists of DP&L’s first mortgage bonds, tax-exempt pollu-
tion control bonds, DPL unsecured notes and includes
current maturities and unamortized debt discounts.
DP&L’s long-term debt as of December 31, 2007,
consists of first mortgage bonds, tax-exempt pollution
control bonds and includes an unamortized debt
discount. During 2007, DP&L entered into $90.0 million
of long-term tax-exempt pollution control bonds due
in 2040.
See Note 7 of Notes to Consolidated Financial
Statements.
Interest payments:
Interest payments associated with the long-term
debt described above.
Pension and postretirement payments:
As of December 31, 2007, DPL, through its principal
subsidiary, DP&L, had estimated future benefit pay-
ments as outlined in Note 9 of Notes to Consolidated
Financial Statements. These estimated future benefit
payments are projected through 2017.
Capital leases:
As of December 31, 2007, DPL, through its principal
subsidiary, DP&L, had one capital lease that expires
in September 2010.
Operating leases:
As of December 31, 2007, DPL, through its principal
subsidiary, DP&L, had several operating leases with
various terms and expiration dates.
Coal contracts:
DPL, through its principal subsidiary, DP&L, has
entered into various long-term coal contracts to
supply portions of its coal requirements for its gener-
ating plants. Contract prices are subject to periodic
adjustment and have features that limit price
escalation in any given year.
Limestone contracts:
DPL, through its principal subsidiary, DP&L, has
entered into various limestone contracts to supply
limestone for its generating facilities.
Reserve for uncertain tax positions:
On January 1, 2007, we adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (FIN 48).
As of December 31, 2007, our total reserve for uncer-
tain tax positions is $65.3 million including interest
($42.5 million net of federal tax benefit). See Note 1 of
Notes to Consolidated Financial Statements.
Other contractual obligations:
As of December 31, 2007, DPL and DP&L had various
other contractual obligations including non-cancelable
contracts to purchase goods and services with various
terms and expiration dates.
We enter into various commercial commitments, which
may affect the liquidity of our operations. At December
31, 2007, these include:
Credit facilities:
In November 2006, DP&L replaced its previous $100
million revolving credit agreement with a $220 million
five year facility that expires on November 21, 2011.
At December 31, 2007, there were no borrowings
outstanding under this credit agreement. DP&L has
the ability to increase the size of the facility by an
additional $50 million at any time.
Market Risk
During the conduct of our business, we are subject
to certain market risks including, but not limited to,
changes in commodity prices for electricity, coal, envi-
ronmental emissions and gas, and fluctuations in inter-
est rates. Commodity pricing exposure includes the
impacts of weather, market demand, increased com-
petition, 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.
Our Risk Management Committee (RMC) is respon-
sible for establishing risk management policies and the
monitoring and reporting of risk exposures. The RMC
meets on a regular basis with the objective of identify-
ing, assessing, and quantifying material risk issues and
developing strategies to manage these risks.
Commodity Pricing Risk
Recently, the coal market has experienced unprec-
edented price increases. To highlight the significance
of this volatility, the coal settle price on the New York
Mercantile Exchange (NYMEX) increased significantly
during the first few weeks of 2008. We are now in
a market for coal that clears on international, rather
than solely domestic supply and consumption. Our
domestic price is increasingly affected by international
supply disruptions and demand balance. Exports from
the U.S. have increased in recent years and most
significantly during the last six months. In addition,
domestic issues like government-imposed direct costs
and permitting issues are affecting mining costs and
supply availability. We have responded to increases in
DPL Inc.
43
the price of coal by entering into contracts to hedge
our exposure to fuel requirements and other energy-
related commodities. We may not be able to hedge the
entire exposure of our operations from commodity price
volatility. To the extent we are not able to hedge against
price volatility, our results of operations, financial posi-
tion or cash flows could be materially affected.
Approximately 12% of DPL’s and 22% of DP&L’s
2007 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 opportunities with positive margins. As
of December 31, 2007, a hypothetical increase or
decrease of 10% in DPL’s annual wholesale revenues
could result in approximately an $11 million increase
or decrease to net income, assuming no increases
in fuel and purchased power costs. As of December
31, 2007, a hypothetical increase or decrease of 10%
in DP&L’s annual wholesale revenues could result in
approximately a $22 million increase or decrease to net
income, assuming no increases in fuel and purchased
power costs.
DPL’s fuel (including coal, gas, oil and emission
allowances) and purchased power costs as a percent
of total operating costs in 2007 and 2006 were 54%
and 46%, respectively. DP&L’s fuel (including coal,
gas, oil and emission allowances) and purchased
power costs as a percent of total operating costs in
2007 and 2006 were 54% and 52%, respectively. We
have substantially all of the total expected coal volume
needed to meet our retail and firm wholesale sales
requirements for 2008 under contract. 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 consumption of SO2 allowances
should decline in 2008 due to planned emission control
upgrades. We do not expect to purchase SO2 allow-
ances for 2008. The exact consumption of SO2 allow-
ances will depend on market prices for power, avail-
ability of our generation units, the timing of emission
control equipment upgrade completion, and the actual
sulfur content of the coal burned. DP&L does not plan
to purchase NOx allowances for 2008. Fuel costs are
impacted by changes in volume and price and are
driven by a number of variables including weather, reli-
ability of coal deliveries, scheduled outages and gen-
eration plant mix. Based on higher volume and price,
fuel costs are forecasted to be 15% to 25% higher in
2008 compared to 2007.
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, 2007, a hypothetical increase or decrease of 10%
in DPL’s annual fuel and purchased power costs could
result in approximately a $34 million increase
or decrease to net income. As of December 31, 2007,
a hypothetical increase or decrease of 10% in DP&L’s
annual fuel and purchased power costs could result
in approximately a $35 million increase or decrease to
net income.
Interest Rate Risk
As a result of our normal investing and borrowing
activities, our financial results are exposed to fluctua-
tions in interest rates, which we manage through our
regular financing activities. We maintain both cash on
deposit and investments in cash equivalents that
may be affected by adverse interest rate fluctuations.
The Company has both fixed and variable rate long-
term debt; our variable rate debt is comprised of
publicly held secured notes. The variable rate bonds
bear interest based on a prevailing rate determined via
auction and which is applicable during each 35 day
auction period. The auction rate is, among other fac-
tors, driven by market demand, supply, market interest
rates and other economic conditions.
DP&L’s variable rate bonds were issued with bond
insurance, a credit enhancement feature that enabled
these bonds to be issued with a ‘AAA’ credit rating.
Bond insurance for DP&L’s bonds was provided by
the Financial Guaranty Insurance Company (FGIC). On
January 30, 2008, FGIC’s credit rating was downgrad-
ed by Fitch Ratings from ‘AAA’ to ‘AA’ and remains on
negative ratings watch. On January 31, 2008, FGIC’s
credit rating was downgraded by Standard & Poor’s
from ‘AAA’ to ‘AA’ and placed on credit watch. On
February 14, 2008, FGIC’s credit rating was downgrad-
ed by Moody’s from ‘Aaa to A3.’ These downgrades,
as well as the recent downgrades or pending down-
grades of other major bond insurers, could result in
DP&L’s variable rate bonds having substantially higher
interest rate in succeeding auctions and increase the
risk that these bonds may have a failed auction. The
maximum interest rate is capped at 12%. Management
will continue to evaluate the current market conditions.
If these conditions do not improve, we may redeem
our variable rate bonds and issue fixed rate bonds.
We have sufficient liquidity to redeem the variable rate
bonds using cash on hand or through funds available
to us by our revolving credit line until fixed rate
bonds are issued.
44 DPL Inc.
The carrying value of DPL’s debt was $1,642.2 million at December 31, 2007, consisting of DP&L’s first mortgage
bonds, DP&L’s tax-exempt pollution control bonds, our unsecured notes and DP&L’s capital leases. The fair
value of this debt was $1,664.3 million, based on current market prices or discounted cash flows using current
rates for similar issues with similar terms and remaining maturities. The following table provides information
about our debt obligations that are sensitive to interest rate changes:
Principal Payments and Interest Rate Detail by Contractual Maturity Date
DPL Inc.
$ in millions
Long-term debt
2008
2009
2010
2011
2012
Carrying
value at
Fair
value at
December 31, December 31,
2007
2007
Thereafter
Variable auction rate debt
Average interest rate
Fixed-rate debt
Average interest rate
$
–
0.0%
$ 100.7
6.3%
$
–
0.0%
$ 175.7
8.0%
$
–
0.0%
$ 0.6
6.1%
$
–
0.0%
$ 297.4
6.9%
$
–
0.0%
$
–
0.0%
$ 90.0
5.0%
$ 977.8
5.6%
$
90.0
5.0%
$ 1,552.2
6.2%
$
90.0
$ 1,574.3
Total
$ 1,642.2
$ 1,664.3
The carrying value of DP&L’s debt was $875.3 million at December 31, 2007, consisting of our first mortgage
bonds, our tax-exempt pollution control bonds, and our capital leases. The fair value of this debt was $871.5
million, based on current market prices or discounted cash flows using current rates for similar issues with similar
terms and remaining maturities. The following table provides information about our debt obligations that are
sensitive to interest rate changes:
Principal Payments and Interest Rate Detail by Contractual Maturity Date
DP&L
$ in millions
Long-term debt
2008
2009
2010
2011
2012
Carrying
value at
Fair
value at
December 31, December 31,
2007
2007
Thereafter
Variable auction rate debt
Average interest rate
Fixed-rate debt
Average interest rate
–
$
0.0%
$
0.7
6.1%
–
$
0.0%
$ 0.7
6.1%
–
$
0.0%
$ 0.6
6.1%
–
$
0.0%
$
–
0.0%
–
$
0.0%
$
–
0.0%
$ 90.0
5.0%
$ 783.3
5.0%
$
90.0
5.0%
$ 785.3
5.1%
$
90.0
$ 781.5
Total
$ 875.3
$ 871.5
Debt maturities for DPL and DP&L in 2008 are
expected to be financed with internal funds.
Debt retirements occurring in 2008 are discussed
under Financial Condition, Liquidity and Capital
Requirements.
Critical Accounting Estimates
DPL’s and DP&L’s consolidated financial statements
are prepared in accordance with US GAAP. In connec-
tion with the preparation of these financial statements,
our management is required to make assumptions, esti-
mates and judgments that affect the reported amounts
of assets, liabilities, revenues, expenses and the relat-
ed disclosure of contingent liabilities. These assump-
tions, estimates and judgments are based on our his-
torical 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 determination of estimates requires the
exercise of judgment. 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.
Historically, however, recorded estimates have not
differed materially from actual results. Significant items
subject to such judgments include: the carrying value
of property, plant and equipment; unbilled revenues;
income taxes; valuation of regulatory assets and
liabilities; the valuation of insurance and claims costs;
the valuation of assets and liabilities related to employ-
ee benefits; and the valuation of contingent and
other obligations.
DPL Inc.
45
Impairments and Assets Held for Sale: 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 when-
ever events or circumstances indicate that the carry-
ing 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 recover-
ability using future cash flows, we make projections
based on a number of assumptions and estimates of
growth rates, future economic conditions, 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 recoverable from its undis-
counted cash flows. The measurement 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 (including Unbilled Revenue): 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
collection is reasonably assured. The determination of
the energy sales to customers is based on the reading
of their meters, which occurs on a systematic basis
throughout the month. We recognize revenues using an
accrual method for retail and other energy sales that
have not yet been billed, but where electricity has been
consumed. This is termed “unbilled revenues” and
is a widely recognized and accepted practice for utili-
ties. At the end of each month, unbilled revenues are
determined by the estimation of unbilled energy provid-
ed to customers since the date of the last meter read-
ing, projected line losses, the assignment of unbilled
energy provided to customer classes and the average
rate per customer class. Given our estimation method
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 subsequently billed.
Income Taxes: Judgment and the use of estimates are
required in developing the provision for income taxes
and reporting of tax-related assets and liabilities. The
interpretation of tax laws involves uncertainty, since tax
authorities may interpret them differently. Ultimate
resolution of income tax matters may result in favorable
or unfavorable impacts to net income and cash flows
and adjustments to tax-related assets and liabilities
could be material. Effective January 1, 2007, we adopt-
ed Financial Accounting Standards Board Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes. Taking into consideration the uncertainty and
judgment involved in the determination and filing of
income taxes, FIN 48 establishes standards for rec-
ognition and measurement, in financial statements, of
positions taken, or expected to be taken, by an entity in
its income tax returns. Positions taken by an entity in its
income tax returns that are recognized in the financial
statements must satisfy a more-likely-than-not recogni-
tion threshold, assuming that the position will
be examined by taxing authorities with full knowledge
of all relevant information.
Deferred income tax assets and liabilities are pro-
vided, representing future effects on income taxes for
temporary differences between the bases of assets
and liabilities for financial reporting and tax purposes.
We evaluate quarterly the probability of realizing
deferred tax assets by reviewing a forecast of future
taxable income and the availability of tax planning
strategies that can be implemented, if necessary, to
realize deferred tax assets. Failure to achieve forecast-
ed taxable income or successfully implement tax
planning strategies may affect the realization of
deferred tax assets.
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) requires us to reflect the effect
of rate regulation in our Financial Statements. For regu-
lated businesses subject to federal or state cost-of-
service rate regulation, regulatory practices that assign
costs to accounting periods may differ from accounting
methods generally applied by nonregulated compa-
nies. When it is probable that regulators will permit the
recovery of current costs through future rates charged
to customers, we defer these costs as regulatory
assets that otherwise would be expensed by nonregu-
lated companies. Likewise, we recognize regulatory
liabilities when it is probable that regulators will require
46 DPL Inc.
customer refunds through future rates and when
revenue is collected from customers for expenditures
that are not yet incurred. Regulatory assets are
amortized into expense and regulatory liabilities are
amortized into income over the recovery period
authorized by the regulator.
We evaluate whether or not recovery of our regula-
tory assets through future rates is probable and make
various assumptions in our analyses. The expectations
of future recovery are generally based on orders issued
by regulatory commissions or historical experience, as
well as discussions with applicable regulatory authori-
ties. If recovery of a regulatory asset is determined to
be less than probable, it will be written off in the period
such assessment is made. We currently believe the
recovery of our regulatory assets is probable. See Note
3 of our Consolidated Financial Statements.
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 retire-
ment obligations or not, must be removed from a com-
pany’s accumulated depreciation reserve. We make
assumptions, estimates, and judgments that affect
the reported amounts of assets, liabilities, and expens-
es as they relate to asset retirement obligations. These
assumptions and estimates are based on historical
experience and assumptions that we believe to be
reasonable at the time.
Insurance and Claims Costs: In addition to insurance
provided through third-party providers, our wholly-
owned captive subsidiary (MVIC) provides insur-
ance coverage solely to us and to our subsidiaries.
Insurance and Claims Costs on the consolidated bal-
ance sheets includes insurance reserves of approxi-
mately $20.0 million and $22.0 million for 2007 and
2006, 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 uncer-
tainty 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.
Pension and Postretirement Benefits: We account
and disclose pension and postretirement benefits
in accordance with the provisions of Statement of
Financial Accounting Standards No. 158, “Employers’
Accounting for Defined Benefit Pensions and other
Postretirement Plans, an amendment to FASB
Statements 87, 88, 106 and 132R.” This Standard
requires 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.
In 2008, we are maintaining our long-term rate of
return assumptions of 8.50% for pension and 6.00%
for other postretirement benefits assets that reflect the
effect of recent trends on our long-term view. We are
also maintaining 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 postretirement benefits costs will result in
a decrease of pension costs of $2.5 million, excluding
any special adjustments required under SFAS 88.
We do not anticipate any special adjustments to
expense in 2008.
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.
Contingent and Other Obligations: During the conduct
of our business, we are subject to a number of federal
and state laws and regulations, as well as other factors
and conditions that potentially subject us to environ-
mental, litigation, insurance, and other risks. We peri-
odically evaluate our exposure to such risks and record
reserves for those matters where a loss is considered
probable and reasonably estimable in accordance
with generally accepted accounting principles. In
recording such reserves, we may make assumptions,
DPL Inc.
47
estimates, and judgments that affect the reported
amounts of assets, liabilities, and expenses as they
relate to contingent and other obligations. These
assumptions and estimates are based on historical
experience and assumptions and may be subject to
change. We, however, believe such estimates and
assumptions to be reasonable at the time.
Legal and Other Matters
A discussion of Legal and Other Matters is described
in Note 18 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 Condition and Results of
Operations and made a part hereof.
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 –
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
48 DPL Inc.
Item 8 Financial Statements and Supplementary Data
This report includes the combined filing of DPL Inc. (DPL) and The Dayton Power and Light Company (DP&L).
DP&L is the principal subsidiary of DPL providing approximately 99% of DPL’s total consolidated revenue and
approximately 92% of DPL’s total consolidated asset base. Throughout this report the terms we, us, our and ours
are used to refer to both DPL and DP&L, respectively and altogether, unless the context indicates otherwise.
Discussions or areas of this report that apply only to DPL or DP&L will clearly be noted in the section.
DPL Inc.
Consolidated Statements of Results of Operations
$ in millions except per share amounts
2007
2006
2005
For the years ended December 31,
Revenues
Cost of revenues:
Fuel
Purchased power
Total cost of revenues
Gross margin
Operating expenses:
Operation and maintenance
Impairment of peaking stations
Depreciation and amortization
General taxes
Amortization of regulatory assets
Total operating expenses
Operating income
Other income /(expense), net
Investment income
Net gain on settlement of executive litigation
Interest expense
Charge for early redemption of debt
Other income (deductions)
Total other income/(expense), net
Earnings from continuing operations before income tax
Income tax expense
Earnings from continuing operations
Earnings from discontinued operations, net of tax
Cumulative effect of accounting change, net of tax
$ 1,515.7
$ 1,393.5
$ 1,284.9
328.2
287.2
615.4
900.3
272.8
–
134.8
111.8
10.8
530.2
370.1
11.3
31.0
(81.0)
–
2.9
(35.8)
334.3
122.5
211.8
10.0
–
349.1
159.0
508.1
885.4
265.4
71.0
151.8
108.6
7.6
604.4
336.9
133.3
470.2
814.7
219.0
–
147.3
107.3
2.0
475.6
281.0
339.1
17.8
–
(102.2)
–
(1.2)
(85.6)
195.4
69.8
125.6
14.0
–
50.9
–
(137.7)
(61.2)
13.5
(134.5)
204.6
79.9
124.7
52.9
(3.2)
Net Income
$ 221.8
$ 139.6
$ 174.4
Average number of common shares outstanding (millions)
Basic
Diluted
107.9
117.8
112.3
121.9
121.0
129.1
Earnings per share of common stock
Basic:
Earnings from continuing operations
Earnings from discontinued operations
Cumulative effect of accounting change
Total Basic
Diluted:
Earnings from continuing operations
Earnings from discontinued operations
Cumulative effect of accounting change
Total Diluted
$
1.97
0.09
–
$
1.12
0.12
–
$
1.03
0.44
(0.03)
$
2.06
$
1.24
$
1.44
$
1.80
0.08
–
$
1.03
0.12
–
$
0.97
0.41
(0.03)
$
1.88
$
1.15
$
1.35
Dividends paid per share of common stock
$
1.04
$
1.00
$
0.96
See Notes to Consolidated Financial Statements.
DPL Inc.
49
DPL Inc.
Consolidated Statements of Cash Flows
$ in millions
Cash flows from operating activities:
Net income
Less: income from discontinued operations
Income from continuing operations
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Impairment of peaking stations
Amortization of regulatory assets, net
Gain on settlement of executive litigation
Gain on sale of aircraft
Charge for early redemption of debt
Cumulative effect of accounting change, net of tax
Deferred income taxes
Captive insurance provision
Gain on sale of other investments
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
For the years ended December 31,
2007
2006
2005
$ 221.8
(10.0)
211.8
$ 139.6
(14.0)
125.6
$ 174.4
(52.9)
121.5
134.8
–
10.8
(31.0)
(6.0)
–
–
0.3
(1.9)
–
(19.1)
(0.5)
21.3
(9.4)
(0.9)
(19.6)
3.3
1.1
23.1
151.8
71.0
7.6
–
–
–
–
(32.7)
(2.4)
(2.2)
(36.4)
19.9
(12.7)
4.9
5.4
(5.2)
0.4
2.3
(10.5)
Net cash provided by operating activities
318.1
286.8
Cash flows from investing activities:
Capital expenditures
Proceeds from the sale of property – peakers
Proceeds from the sale of property – aircraft
Purchases of short-term investments and securities
Sales of short-term investments and securities
Cash flow from discontinued operations
Net cash (used for) / provided by investing activities
Cash flows from financing activities:
Issuance of long-term debt, net
Exercise of stock options
Tax impact related to exercise of stock options
Retirement of long-term debt
Premiums paid for early redemption of debt
Retirement of preferred securities
Issuance of pollution control bonds
Pollution control bond proceeds held in trust
Withdrawal of restricted funds held in trust, net
Dividends paid on common stock
Issuance of short-term debt
Retirement of short-term debt
Purchase of Company’s common stock
Net cash used for financing activities
Cash and cash equivalents:
Net change
Balance at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest paid, net of amounts capitalized
Income taxes paid, net
Non-cash financing and investing activities:
Restricted funds held in trust
Capital expenditures financed by payables
See Notes to Consolidated Financial Statements.
50 DPL Inc.
(346.2)
151.0
7.4
–
–
–
(187.8)
–
14.6
1.3
(225.0)
–
–
90.0
(90.0)
63.2
(111.7)
95.0
(95.0)
–
(257.6)
(127.3)
262.2
$ 134.9
$ 87.8
$ 115.6
$ 37.0
$ 45.6
(335.6)
–
–
(856.0)
984.0
–
(207.6)
–
7.8
1.9
–
–
–
100.0
(100.0)
89.9
(112.4)
–
–
(400.0)
(412.8)
(333.6)
595.8
$ 262.2
$ 91.4
$ 113.6
$ 10.1
$ 43.0
147.3
–
2.0
–
–
61.2
3.2
(7.1)
(0.6)
(28.8)
(12.5)
(22.2)
15.0
(13.2)
2.2
(8.0)
4.4
7.4
31.8
303.6
(169.6)
–
–
(641.2)
642.5
868.4
700.1
211.2
22.7
–
(673.8)
(54.7)
(0.1)
–
–
–
(115.3)
–
–
–
(610.0)
393.7
202.1
$ 595.8
$ 146.1
$ 71.2
$
–
$ 23.1
DPL Inc.
Consolidated Balance Sheets
$ in millions
Assets
Current assets:
Cash and cash equivalents
Restricted funds held in trust
Accounts receivable, less provision for uncollectible
accounts of $1.5 and $1.4, respectively
Inventories, at average cost
Taxes applicable to subsequent years
Other current assets
Total current assets
Property:
Held and used:
Property, plant and equipment
Less: Accumulated depreciation and amortization
Total net property held and used
Assets held for sale (Note 5):
Property, plant and equipment
Less: Accumulated depreciation and amortization
Total net property held for sale
Other noncurrent assets:
Regulatory assets (Note 3)
Other assets
Total other noncurrent assets
Total Assets
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion – long-term debt
Accounts payable
Accrued taxes
Accrued interest
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Long-term debt
Deferred taxes
Unamortized investment tax credit
Insurance and claims costs
Other deferred credits
Total noncurrent liabilities
At December 31,
2007
2006
$
134.9
37.0
241.2
105.0
48.0
11.8
577.9
$
262.2
10.1
225.0
85.4
48.0
37.7
668.4
5,011.6
(2,234.6)
2,777.0
4,718.5
(2,159.2)
2,559.3
–
–
–
165.2
46.5
211.7
283.5
(132.3)
151.2
169.0
64.3
233.3
$ 3,566.6
$ 3,612.2
$
100.7
163.1
110.8
25.8
27.2
427.6
1,541.5
374.9
40.7
20.0
266.3
2,243.4
$
225.9
169.4
155.2
35.2
38.3
624.0
1,551.8
355.2
43.6
21.9
280.7
2,253.2
Cumulative preferred stock not subject to mandatory redemption
22.9
22.9
Commitments and contingencies (Note 17)
Common shareholders’ equity:
Common stock, at par value of $0.01 per share:
December 2007 December 2006
Shares authorized
Shares issued
Shares outstanding
250,000,000
163,724,211
113,558,444
250,000,000
163,724,211
113,018,972
Warrants
Common stock held by employee plans
Accumulated other comprehensive loss
Retained earnings
Total common shareholders’ equity
1.1
50.0
(39.7)
(9.2)
870.5
872.7
1.1
50.0
(69.0)
(6.5)
736.5
712.1
Total Liabilities and Shareholders’ Equity
$ 3,566.6
$ 3,612.2
See Notes to Consolidated Financial Statements.
DPL Inc.
51
DPL Inc.
Consolidated Statements of Shareholders’ Equity
$ in millions
Beginning balance
Common Stock
(a)
Outstanding
Shares Amount
Other
Paid-in
Capital Warrants
Common
Stock Held
by Employee
Plans
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
126,501,404
$ 1.3
$ 15.8
$ 50.0
$ (85.7)
$ 65.5 $ 997.1 $ 1,044.0
2005
Net income
Unrealized losses on financial instruments,
net of reclassification adjustments
Unrealized losses on foreign currency
translation adjustments
Unrealized losses on cash flow hedges
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends (b)
Treasury shares purchased (c)
Treasury stock reissued
Employee / Director stock plans
Other
174.4
(15.3)
(46.3)
(3.4)
(63.0)
48.2
1,025,000
(10.6)
16.9
3.0
(115.3)
5.8
94.6
(115.3)
(10.6)
22.7
2.6
0.1
(0.4)
0.1
Ending balance
127,526,404
$ 1.3
$ 25.1
$ 50.0
$ (86.1)
$ (14.2) $ 1,062.0 $ 1,038.1
2006
Net income
Unrealized gains on financial instruments,
net of reclassification adjustments
Unrealized gains on cash flow hedges
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends (b)
Treasury shares purchased (c)
Treasury stock reissued
Tax effects to equity
Employee / Director stock plans
Other
FAS 158 adjustment
(14,862,432)
355,000
(0.1)
(0.1)
(389.3)
360.4
1.8
1.8
0.2
139.6
1.6
0.7
11.8
(29.9)
(112.4)
(352.6)
(0.1)
123.8
(112.4)
(389.4)
7.8
1.8
18.8
0.1
23.5
17.1
23.5
Ending balance
113,018,972
$ 1.1
$ (0.0) $ 50.0
$ (69.0)
$
(6.5) $ 736.5 $ 712.1
2007
Net income
Unrealized losses on financial instruments,
net of reclassification adjustments
Unrealized losses on cash flow hedges
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends (b)
Treasury stock reissued
Tax effects to equity
Employee / Director stock plans
Other
539,472
(8.0)
1.3
6.6
0.1
29.2
0.1
221.8
(1.4)
(7.2)
3.4
2.5
(111.7)
24.0
(0.1)
219.1
(111.7)
16.0
1.3
35.7
0.2
Ending balance
113,558,444
$ 1.1
$ (0.0) $ 50.0
$ (39.7)
$
(9.2) $ 870.5 $ 872.7
(a) $0.01 par value, 250,000,000 shares authorized.
(b) Common stock dividends per share were $0.96 in 2005, $1.00 in 2006, and $1.04 in 2007.
(c) Number of shares outstanding at December 31, 2005 were not affected by the December 30, 2005 transaction to purchase 406,000 shares
as the share repurchase was settled in early January 2006. DPL completed the share repurchase program in August 2006.
See Notes to Consolidated Financial Statements.
52 DPL Inc.
The Dayton Power and Light Company
Consolidated Statements of Results of Operations
$ in millions except per share amounts
Revenues
Cost of revenues:
Fuel
Purchased power
Total cost of revenues
Gross margin
Operating expenses:
Operation and maintenance
Depreciation and amortization
General taxes
Amortization of regulatory assets
Total operating expenses
Operating income
Other income /(expense), net
Investment income
Net gain on settlement of executive litigation
Interest expense
Charge for early redemption of debt
Other income (deductions)
Total other income / (expense), net
For the years ended December 31,
2007
2006
2005
$ 1,507.4
$ 1,385.2
$ 1,276.9
315.4
300.3
615.7
335.2
171.9
507.1
317.9
147.1
465.0
891.7
878.1
811.9
271.0
124.5
110.3
10.8
516.6
231.7
130.0
106.3
7.6
475.6
198.3
123.9
105.1
2.0
429.3
375.1
402.5
382.6
23.7
35.3
(22.3)
–
2.9
39.6
6.7
–
(23.4)
–
(1.2)
(17.9)
384.6
142.2
242.4
–
6.1
–
(38.1)
(4.1)
6.6
(29.5)
353.1
138.1
215.0
(3.2)
Earnings before income tax and cumulative effect of accounting change
414.7
Income tax expense
Earnings before cumulative effect of accounting change
Cumulative effect of accounting change, net of tax
143.1
271.6
–
Net Income
Preferred dividends
Earnings on common stock
See Notes to Consolidated Financial Statements.
$ 271.6
$ 242.4
$ 211.8
0.9
0.8
0.9
$ 270.7
$ 241.6
$ 210.9
DPL Inc.
53
The Dayton Power and Light Company
Consolidated Statements of Cash Flows
$ in millions
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Gain on settlement of executive litigation
Gain on transfer of assets to pension
Amortization of regulatory assets
Deferred income taxes
Charge for early redemption of debt
Cumulative effect of accounting change, net of tax
Changes in certain assets and liabilities:
Accounts receivable
Accounts payable
Net receivables / payable from / to parent
Accrued taxes payable
Accrued interest payable
Prepayments
Inventories
Deferred compensation assets
Deferred compensation obligations
Other
For the years ended December 31,
2007
2006
2005
$ 271.6
$ 242.4
$ 211.8
124.5
(35.3)
(14.8)
10.8
(3.0)
–
–
(18.9)
1.9
0.5
19.6
0.3
–
(20.6)
3.4
1.1
11.9
130.0
–
–
7.6
(16.3)
–
–
(29.0)
21.4
0.5
0.5
1.3
5.5
(5.2)
2.5
0.1
(17.5)
123.9
–
–
2.0
(13.3)
4.1
3.2
(17.1)
(4.0)
(0.1)
31.5
(0.9)
2.3
(7.9)
0.7
6.7
13.4
Net cash provided by operating activities
353.0
343.8
356.3
Cash flows from investing activities:
Capital expenditures
Net cash used for investing activities
Cash flows from financing activities:
Issuance of long-term debt, net
Issuance of short-term debt
Payment of short-term debt
Issuance of pollution control bonds
Pollution control bond proceeds held in trust
Withdrawal of restricted funds held in trust, net
Retirement of long-term debt
Dividends paid on preferred stock
Dividends paid on common stock to parent
Net cash used for financing activities
Cash and cash equivalents:
Net change
Balance at beginning of period
(343.2)
(343.2)
–
105.0
(85.0)
90.0
(90.0)
63.2
–
(0.9)
(125.0)
(42.7)
(32.9)
46.1
(332.9)
(332.9)
–
–
–
100.0
(100.0)
89.9
–
(0.9)
(100.0)
(11.0)
(0.1)
46.2
(167.9)
(167.9)
210.4
–
–
–
–
–
(218.9)
(0.9)
(150.0)
(159.4)
29.0
17.2
Cash and cash equivalents at end of period
$ 13.2
$
46.1
$ 46.2
Supplemental cash flow information:
Interest paid, net of amounts capitalized
Income taxes paid, net
Non-cash financing activities:
Restricted funds held in trust
Capital expenditures financed by payables
See Notes to Consolidated Financial Statements.
$ 18.5
$ 114.7
$ 37.0
$ 45.6
$
77.9
$ 158.1
$
$
10.1
43.0
$ 36.5
$ 119.0
–
$
$ 23.1
54 DPL Inc.
The Dayton Power and Light Company
Consolidated Balance Sheets
$ in millions
Assets
Current assets:
Cash and cash equivalents
Restricted funds held in trust
Accounts receivable, less provision for uncollectible
accounts of $1.5 and $1.4, respectively
Inventories, at average cost
Taxes applicable to subsequent years
Other current assets
Total current assets
Property:
Property, plant and equipment
Less: Accumulated depreciation and amortization
Net property
Other noncurrent assets:
Regulatory assets
Other assets
Total other noncurrent assets
Total Assets
Liabilities and Shareholder’s Equity
Current liabilities:
Current portion – long-term debt
Accounts payable
Accrued taxes
Accounts payable
Short-term debt owed to parent
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Long-term debt
Deferred taxes
Unamortized investment tax credit
Other deferred credits
Total noncurrent liabilities
At December 31,
2007
2006
$
13.2
37.0
221.8
103.6
48.0
13.4
437.0
$
46.1
10.1
205.6
83.0
48.0
38.2
431.0
4,757.0
(2,159.1)
2,597.9
4,450.6
(2,079.0)
2,371.6
165.2
76.6
241.8
169.0
118.7
287.7
$ 3,276.7
$ 3,090.3
$
0.7
161.9
112.7
12.9
20.9
26.9
336.0
874.6
367.0
40.7
266.2
$
0.9
166.2
159.6
12.6
–
35.4
374.7
785.2
360.2
43.6
272.5
1,548.5
1,461.5
Cumulative preferred stock not subject to mandatory redemption
22.9
22.9
Commitments and contingencies (Note 17)
Common shareholder’s equity:
Common stock, at par value of $0.01 per share:
Other paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total common shareholder’s equity
Total Liabilities and Shareholder’s Equity
See Notes to Consolidated Financial Statements.
0.4
784.8
6.5
577.6
0.4
783.7
15.1
432.0
1,369.3
1,231.2
$ 3,276.7
$ 3,090.3
DPL Inc.
55
The Dayton Power and Light Company
Consolidated Statements of Shareholder’s Equity
$ in millions
Beginning balance
2005
Net income
Unrealized gains on financial instruments,
net of reclassification adjustments
Unrealized losses on cash flow hedges
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends
Preferred stock dividend
Employee / Director stock plans
Other
Common Stock (a)
Outstanding
Shares
Amount
Other
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
41,172,173
$ 0.4
$ 782.9
$ 43.1
$ 229.7
$ 1,056.1
211.8
1.9
(3.4)
(63.0)
26.4
(150.0)
(0.9)
0.1
(0.1)
173.7
(150.0)
(0.9)
0.5
–
0.5
Ending balance
41,172,173
$ 0.4
$ 783.4
$ 5.1
$ 290.5
$ 1,079.4
2006
Net income
Unrealized gains on financial instruments,
net of reclassification adjustments
Unrealized gains on cash flow hedges
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends
Preferred stock dividends
Tax effects to equity
Employee / Director stock plans
Other
FAS 158 adjustment
3.9
0.7
11.8
(30.2)
23.8
1.8
(1.6)
0.1
242.4
(100.0)
(0.8)
(0.1)
228.6
(100.0)
(0.8)
1.8
(1.6)
–
23.8
Ending balance
41,172,173
$ 0.4
$ 783.7
$ 15.1
$ 432.0
$ 1,231.2
2007
Net income
Unrealized losses on financial instruments,
net of reclassification adjustments
Unrealized losses on cash flow hedges
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends
Preferred stock dividends
Tax effects to equity
Employee / Director stock plans
Other
271.6
(11.9)
(7.2)
3.5
7.1
(125.0)
(0.9)
(0.1)
(0.1)
263.1
(125.0)
(0.9)
1.3
(0.3)
(0.1)
1.3
(0.3)
0.1
Ending balance
41,172,173
$ 0.4
$ 784.8
$ 6.5
$ 577.6
$ 1,369.3
(a) 50,000,000 shares authorized.
See Notes to Consolidated Financial Statements.
56 DPL Inc.
Notes to Consolidated Financial Statements
This report includes the combined filing of DPL and
DP&L. DP&L is the principal subsidiary of DPL pro-
viding approximately 99% of DPL’s total consolidated
revenue and approximately 92% of DPL’s total con-
solidated asset base. Throughout this report the terms
we, us, our and ours are used to refer to both DPL and
DP&L, respectively and altogether, unless the context
indicates otherwise. Discussions or areas of this report
that apply only to DPL or DP&L will clearly be noted in
the section.
DPL’s results of operations, financial position and
cash flows, includes the consolidated results of its sub-
sidiaries, including its principal subsidiary DP&L and
all of its consolidated subsidiaries. All material inter-
company accounts and transactions have been elimi-
nated in consolidation. Some of the Notes presented
in this report are only applicable to DPL or DP&L as
indicated. The other Notes apply to both registrants
and the financial information presented is segregated
by registrant.
1 Summary of Significant Accounting
Policies and Overview
Description of Business
DPL is a diversified regional energy company orga-
nized in 1985 under the laws of Ohio. DPL’s principal
subsidiary is The Dayton Power and Light Company
(DP&L). DP&L is a public utility incorporated 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 515,000 retail custom-
ers. DP&L also purchases retail peak load require-
ments from DPL Energy LLC (DPLE, one of DPL’s
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.
DPL’s 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; and Miami
Valley Insurance Company (MVIC), our captive insur-
ance company that provides insurance sources to
us and our subsidiaries. DP&L has one significant
subsidiary, DPL Finance Company, Inc., which is
wholly-owned and provides financing to DPL, DP&L
and other affiliated companies.
DPL and DP&L conduct their principal business
in one business segment – Electric.
Basis of Consolidation
We prepare consolidated financial statements in accor-
dance with generally accepted accounting principles
(GAAP) in the United States of America. The consoli-
dated financial statements include the accounts of
DPL and DP&L and their 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 and Judgments
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 liabili-
ties at the date of the financial statements and the rev-
enue and expenses of the period reported. We record
liabilities for probable estimated losses 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, we accrue for the low
end of the range. Because of uncertainties related to
these matters, accruals are based on the best informa-
tion available at the time. We evaluate the potential
liability related to probable losses quarterly and may
revise our estimates. Judgments and uncertain-
ties affecting the application of these estimates may
result in materially different amounts being reported
under different conditions or circumstances that may
affect our financial position and results of operations.
Significant items subject to such estimates and judg-
ments include: the carrying value of property, plant and
equipment; unbilled revenues; the valuation of deriva-
tive instruments; the valuation of insurance and claims
costs; the valuation allowances for receivables and
deferred income taxes; regulatory assets and liabilities;
reserves recorded for income tax exposures; litigation;
contingencies and assets and liabilities related
to employee benefits.
DPL Inc.
57
Reclassifications
During the fourth quarter of 2007 we identified imma-
terial changes in certain accounts payable balances
that had not been correctly presented in our prior
period cash flow statements. Changes in accounts
payable balances representing capital expenditures
had previously been classified with cash flows from
operating activities and should have been classified
with capital expenditures as part of investing activi-
ties. Accordingly, the Consolidated Statements of Cash
Flows for all periods presented have been reclassified
to conform to the current presentation. As a result of
these reclassifications, cash provided by operating
activities for DPL decreased by $21.9 million from
$308.7 million to $286.8 million and $10.5 million from
$314.1 million to $303.6 million for the years ended
December 31, 2006 and 2005, respectively. This same
adjustment also decreased cash used for capital
expenditures from investing activities to $335.6 million
from $357.5 million in 2006 and to $169.6 million from
$180.1 million in 2005. Cash provided by operating
activities for DP&L decreased by $21.9 million from
$365.7 million to $343.8 million and $10.5 million from
$366.8 million to $356.3 million for the years ended
December 31, 2006 and 2005, respectively. This same
adjustment also decreased cash used for capital
expenditures from investing activities to $332.9 million
from $354.8 million in 2006 and to $167.9 million from
$178.4 million in 2005. The reclassifications did not
impact operating income or net income, working capi-
tal, any earnings per share measures or net change in
cash and cash equivalents as previously reported.
Revenues
We record revenue for services provided but not yet
billed to more closely match revenues with expenses.
Accounts receivable on DPL’s consolidated balance
sheets include unbilled revenue of $68.4 million and
$68.7 million in 2007 and 2006, respectively. Accounts
receivable on DP&L’s consolidated balance sheets
include unbilled revenue of $60.5 million and $61.0
million in 2007 and 2006, respectively. Also included in
revenues are amounts charged to customers through
a surcharge for recovery of uncollected amounts from
certain eligible low-income households. These charges
for both DPL and DP&L were $13.1 million for 2007,
$11.9 million for 2006, and $6.2 million for 2005.
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 in
the accompanying consolidated balance sheets.
Allowance for Uncollectible Accounts
We establish provisions for uncollectible accounts
using both historical average credit loss percentages
of accounts receivable balances to project future
losses and specific provisions for known credit issues.
Property, Plant and Equipment
We record our ownership share of our undivided
interest 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
(AFUDC). AFUDC represents the cost of borrowed
funds and equity used to finance regulated construc-
tion projects. Capitalization of AFUDC ceases at
either project completion or as of the date specified
by regulators. AFUDC capitalized in 2007, 2006, and
2005 was not material.
For unregulated property, cost includes direct
labor, material and overhead costs and interest capi-
talized during construction using FASB Statement of
Accounting Standard No. 34, “Capitalization of Interest
Cost.” Capitalized interest was $21.8 million in 2007,
$12.9 million in 2006 and $2.6 million in 2005.
For substantially all depreciable property, when a
unit of property is retired, the original cost of that prop-
erty 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 DPL’s generation,
transmission, and distribution assets, straight-line
depreciation is applied on an average annual compos-
ite basis using group rates that approximated 2.9% in
2007, 3.3% in 2006 and 3.3% in 2005. In July 2007,
DPL completed a depreciation rate study for non-reg-
ulated generation property based on its property, plant
and equipment balances during 2007. The results of
the depreciation study concluded that DPL’s deprecia-
tion rates should be reduced due to asset lives beyond
previously established lives. DPL adjusted the depre-
ciation rates for its non-regulated generation property,
effective August 1, 2007. For the period from August 1,
58 DPL Inc.
2007 to December 31, 2007, the reduction in depreciation expense increased income from continuing operations
by approximately $9.5 million, increased net income by approximately $6.0 million, and increased basic EPS
by approximately $0.06 per share. DPL’s depreciation expense was $134.8 million in 2007, $151.8 million in 2006,
and $147.3 million in 2005.
The following is a summary of DPL’s property, plant and equipment with corresponding composite depreciation
rates at December 31, 2007 and 2006:
DPL
$ in millions
Regulated:
Transmission
Distribution
General
Non-depreciable
Total regulated
Unregulated:
Production (a)
Other
Non-depreciable
Total unregulated
Total property in service
Construction work in process
Total property, plant and equipment
2007
Composite Rate
2006
Composite Rate
$ 348.2
1,104.2
65.0
56.3
$ 1,573.7
$ 3,024.4
31.0
18.0
$ 3,073.4
$ 4,647.1
364.5
$ 5,011.6
2.4%
3.6%
8.9%
0.0%
2.6%
4.7%
0.0%
2.9%
0.0%
$ 343.5
1,050.8
66.0
54.2
$ 1,514.5
$ 3,048.0
44.9
18.6
$ 3,111.5
$ 4,626.0
376.0
$ 5,002.0
2.4%
3.8%
7.5%
0.0%
3.2%
7.0%
0.0%
3.3%
0.0%
(a) During 2006, DPL entered into agreements to sell 630 MW of its peaking capacity relating to the Darby and Greenville stations of which
$283.5 million of the assets presented in this table were held for sale at December 31, 2006. Disposition of these facilities occurred during 2007.
For DP&L’s generation, transmission, and distribution assets, straight-line depreciation is applied on an aver-
age annual composite basis using group rates that approximated 2.8% in 2007, 3.2% in 2006, and 3.2% in 2005.
DP&L’s depreciation expense was $124.5 million in 2007, $130.0 million in 2006, and $123.9 million in 2005.
The following is a summary of DP&L’s property, plant and equipment with corresponding composite depreciation
rates at December 31, 2007 and 2006:
DP&L
$ in millions
Regulated:
Transmission
Distribution
General
Non-depreciable
Total regulated
Unregulated:
Production
Non-depreciable
Total unregulated
Total property in service
Construction work in process
Total property, plant and equipment
2007
Composite Rate
2006
Composite Rate
$ 348.2
1,104.2
65.0
56.3
$ 1,573.7
$ 2,804.2
15.3
$ 2,819.5
$ 4,393.2
363.8
$ 4,757.0
2.4%
3.6%
8.9%
0.0%
2.5%
0.0%
2.8%
0.0%
$ 343.5
1,050.8
66.0
54.2
$ 1,514.5
$ 2,545.6
15.3
$ 2,560.9
$ 4,075.4
375.2
$ 4,450.6
2.4%
3.8%
7.5%
0.0%
3.0%
0.0%
3.2%
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.
DPL Inc.
59
Upon initial recognition of a legal liability, costs are
capitalized as part of the related long-lived asset and
depreciated over the useful life of the related 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, be removed from a company’s accu-
mulated 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.
In March of 2005, the FASB issued FASB
Interpretation No. 47, “Accounting for Conditional
Asset Retirement Obligations, an interpretation of FASB
Statement No. 143 (FIN No. 47).” 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.
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 deprecia-
tion expense.
Estimating the amount and timing of future expen-
ditures of this type requires significant judgment.
Management routinely updates these estimates as
additional information becomes available.
Changes in the Liability for Generation Asset
Retirement Obligations
$ in millions
Balance at January 1
Accretion expense
Additions
Settlements
Estimated cashflow revisions
2007
2006
$ 11.7
0.2
0.3
(0.6)
0.9
$ 13.2
0.3
–
(0.4)
(1.4)
Balance at December 31
$ 12.5
$ 11.7
We continue to record cost of removal for our regu-
lated 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 $91.5 million and $86.2 mil-
lion in estimated costs of removal at December 31,
2007 and 2006, respectively, as regulatory liabilities
for our transmission and distribution property. These
amounts represent the excess of the cumulative remov-
al costs recorded through depreciation rates versus the
cumulative removal expenditures actually incurred. See
Note 3 of Notes to Consolidated Financial Statements.
Changes in the Liability for Transmission and
Distribution Asset Retirement Obligations
$ in millions
Balance at January 1
Additions
Settlements
Balance at December 31
2007
2006
$ 86.2
8.0
(2.7)
$ 81.7
7.8
(3.3)
$ 91.5
$ (86.2)
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,” to
the transmission and distribution portion of our busi-
ness. In accordance with SFAS 71, regulatory assets
and liabilities 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 regula-
tory assets for which we are currently recovering or
seeking recovery through rates. 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.
Inventory
Inventories, carried at average cost, include coal,
limestone, oil and gas used for electric generation,
and materials and supplies for utility operations. We
account for our emission allowances as inventory, and
record emission allowance inventory at weighted aver-
age 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.
In June 2007, we successfully completed the
installation of flue gas desulfurization (FGD) equipment
at our Killen Station and are in the process of installing
similar equipment at the J.M. Stuart Station and part-
ner-owned facilities. The installation of the FGD equip-
ment is expected to significantly reduce our future
emissions resulting in emission allowance inventory in
excess of our needs. Accordingly, in fourth quarter
60 DPL Inc.
of 2007 we began planning for and managing our
excess allowances as part of our operations and will
record the net gains or losses from sales of these
excess allowances as income from continuing opera-
tions rather than reporting these transactions as non-
operating income. There were no transactions recorded
during the fourth quarter under the new policy.
Prior to this, emission allowances were peripheral to
the management of the business and the net gains
or losses from their sale were accounted for in other
income (deductions).
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 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
consolidated tax liability is allocated to each subsidiary
as specified in our tax allocation agreement which
provides a consistent, systematic and rational
approach. See Note 8 of Notes to Consolidated
Financial Statements.
Accounting for Uncertainty in Income Taxes
On January 1, 2007, we adopted FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes”
(FIN 48). There was no material impact to our overall
results of operations, cash flows or financial position. A
reconciliation of the beginning and ending amount of
unrecognized tax benefit is as follows:
$ in millions
Balance as of January 1, 2007
Tax positions taken during
prior periods
Tax positions taken during
current periods
Settlement with taxing authorities
Lapse of applicable statute of limitations
$ 56.3
0.8
–
(0.8)
–
Balance as of December 31, 2007
$ 56.3
None of the amount of unrecognized tax benefits is
due to uncertainty in the timing of deductibility.
We recognize interest and penalties related to
unrecognized tax benefits in income taxes. During
2007, we recognized $4.1 million in interest related to
unrecognized tax benefits. As of December 31, 2007,
$9.0 million in interest has been accrued. No penalties
have been accrued as of December 31, 2007.
Taxes for calendar years 2004 through 2006
remain open to examination by the jurisdictions in
which we are subject to taxation. None of the unrec-
ognized tax benefits are expected to significantly
increase or decrease within the next twelve months.
Accounting for Taxes Collected from Customers
and Remitted to Governmental Authorities
In January 2007, we adopted Emerging Issues Task
Force (EITF) No. 6-03 “How Taxes Collected from
Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement” (EITF
No. 6-03). EITF No. 6-03 requires a registrant to dis-
close how taxes collected from customers are pre-
sented in the financial statements, i.e., gross or net.
DP&L collects certain excise taxes levied by state or
local governments from its customers. DP&L’s excise
taxes are accounted for on a gross basis and record-
ed as revenues in the accompanying Consolidated
Statements of Results of Operations for the twelve
months ended December 31, 2007, December 31,
2006 and December 31, 2005 as follows:
$ in millions
2007
2006
2005
State/Local excise taxes
$ 53.2
$ 51.3
$ 52.6
DPL Inc.
61
Stock-Based Compensation
In December 2004, the FASB 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 (APB) Opinion No. 25 (Opinion 25), “Accounting
for Stock Issued to Employees.” SFAS 123R requires
a public entity to measure the cost of employee ser-
vices received and paid with 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 are based
on the fair-value of equity instruments and are to 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 are estimated using option-pricing models and
any excess tax benefits are recognized as an addition
to paid-in capital. Cash retained from the excess tax
benefits is presented in the statement of cash flows as
financing cash inflows. The provisions of this statement
became effective as of January 1, 2006. See Note 11
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. DPL’s cash and
cash equivalents were $134.9 million at December 31,
2007 and $262.2 million at December 31, 2006. DP&L’s
cash and cash equivalents were $13.2 million at December
31, 2007 and $46.1 million at December 31, 2006. At
December 31, 2007, we had $37.0 million restricted
funds held in trust relating to the issuance of the $90
million pollution control bonds. These funds will be
used to fund the pollution control capital expenditures.
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.
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 consoli-
dated balance sheets and be measured at fair value.
Changes in the fair value are recorded in earnings
unless they are designated as a cash flow hedge of
a forecasted transaction or qualify for the normal pur-
chases and sales exception as discussed below.
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 genera-
tion facility availability. We use cash flow accounting
under SFAS 133 guidance when the hedge is deemed
to be effective and mark to market accounting when
the hedge is not effective. See Note 10 of Notes to
Consolidated Financial Statements.
Captive Insurance Subsidiary
In addition to insurance provided through third-party
providers, a wholly-owned captive subsidiary of DPL
provides insurance coverage solely to us and to
our subsidiaries. Insurance and Claims Costs on
the consolidated balance sheets includes insurance
reserves of approximately $20.0 million and $22.0
million for 2007 and 2006, respectively. Such reserves
are actuarially determined, in the aggregate, based
on a reasonable estimation of insured events occur-
ring. There is uncertainty associated with the loss esti-
mates, 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.
Pension and Postretirement Benefits
In September 2006, the FASB issued Financial
Accounting Standards No. 158, “Employers’ Accounting
62 DPL Inc.
for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88,
106 and 132(R)” (SFAS 158). This Statement requires
an employer that is a business entity and sponsors
one or more single-employer defined benefit plans to:
recognize the funded status of a benefit plan;
recognize as a component of other comprehensive
income (OCI), net of tax, the gains or losses and prior
service costs or credits that arise during the period
but are not recognized as components of net periodic
benefit cost; measure defined benefit plan assets and
obligations as of the date of the employer’s fiscal year-
end statement of financial position; and disclose in
the notes to financial statements additional information
about certain effects on net periodic benefit costs for
the next fiscal year that arise from delayed recognition
of the gains or losses, prior service costs or credits,
and transition assets or obligations. This Statement
is effective for fiscal years ending after December 15,
2006, except for the measuring of plan assets at the
employer’s fiscal year end, which is effective for
fiscal years ending after December 15, 2008. We have
adopted SFAS 158 effective December 31, 2006.
We account and disclose pension and postretirement
benefits in accordance with the provisions of SFAS
158. See Note 9 of Notes to Consolidated Financial
Statements.
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 consoli-
dated financial statements, as prescribed by GAAP,
are adequate in light of the probable and estimable
contingencies. 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, 2007, cannot be reasonably determined.
Recently Issued Accounting Standards
Accounting for Fair Value Measurements
In September 2006, the FASB issued Statement of
Financial Accounting Standards No. 157, “Fair Value
Measurements,” (SFAS 157) effective for fiscal years
beginning after November 15, 2007. SFAS 157 applies
whenever other standards require (or permit) assets
or liabilities to be measured at fair value. SFAS 157
clarifies the principle that fair value should be based on
the assumptions market participants would use when
pricing the asset or liability. In support of this principle,
SFAS 157 establishes a fair value hierarchy that priori-
tizes the information used to develop those standards.
The fair value hierarchy gives the highest priority to
quoted prices in active markets and the lowest prior-
ity to unobservable data, for example, the reporting
entity’s own data. Under SFAS 157, fair value measure-
ments would be separately disclosed by level within
the fair value hierarchy. SFAS 157 does not expand
the use of fair value in any new circumstances. In
February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities – Including
an amendment of FASB Statement No. 115” (SFAS 159)
effective for fiscal years beginning after November 15,
2007. SFAS 159 permits entities to choose to measure
many financial instruments and certain warranty
and insurance contracts at fair value on a contract-
by-contract basis. We will adopt SFAS 157 and SFAS
159 on January 1, 2008. We have evaluated the
impact of adopting SFAS 157 and SFAS 159, and have
determined they will not have a material impact on
our overall results of operations, financial position
or cash flows.
Amendment of FASB Interpretation No. 39 “Offsetting
of Amounts Related to Certain Contracts”
In April 2007, the FASB issued Staff Position FIN 39-1,
“Amendment of FASB Interpretation 39,” (FSP FIN 39-1)
effective for fiscal years beginning after November
15, 2007. We will adopt FSP FIN 39-1 on January 1,
2008. FSP FIN 39-1 amends paragraph 10 of FIN 39 to
“permit a reporting entity to offset fair value amounts
recognized for the right to reclaim cash collateral (a
receivable) or the obligation to return cash collateral
(a payable) against fair value amounts recognized for
derivative instruments executed with the same counter-
party under the same master netting arrangement that
have been offset in accordance with that paragraph.”
We have evaluated the impact of adopting FSP FIN
39-1 and have determined it will not have a material
impact on our overall results of operations, financial
position or cash flows.
Accounting for Income Tax Benefits of Dividends
on Share-Based Payment Awards
In June 2007, the FASB ratified EITF Issue No. 06-11,
“Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards,” (EITF 06-11) effective
for fiscal years beginning after December 15, 2007. We
DPL Inc.
63
will adopt EITF 06-11 on January 1, 2008. The FASB
ratified the EITF consensus that a realized income tax
benefit from dividends that are charged to retained
earnings, and are paid to employees for equity classi-
fied non-vested equity shares, should be recognized
as an increase in additional paid-in-capital and should
be included in the pool of excess tax benefits available
to absorb potential future tax deficiencies on share-
based payment awards. We have evaluated the impact
of adopting EITF 06-11 and have determined it will not
have a material impact on our overall results of opera-
tions, financial position or cash flows.
Valuation of Employee Share Option Grants
In December 2007, the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin
110 “Valuation of Employee Share Option Grants – an
Amendment of SAB No. 107” (SAB 110). SAB 110
states, that the staff will continue to accept, under cer-
tain circumstances, the use of the simplified method
for estimating the term of plain vanilla stock options
beyond December 31, 2007. We have evaluated the
impact of adopting SAB 110 and have determined it
will not have a material impact on our overall results of
operations, financial position or cash flows.
Business Combinations
In December 2007, the FASB issued Statement of
Financial Accounting Standards No. 141R, “Business
Combinations,” (SFAS 141R) effective for fiscal years
beginning after December 15, 2008. Under SFAS
141R, an acquiring entity in a business combination is
required to recognize all assets acquired and liabili-
ties assumed in the transaction. The revised standard
also establishes the acquisition-date fair value as the
measurement objective for all assets acquired and
liabilities assumed. The rule requires an acquirer to
disclose all of the information users may need to evalu-
ate and understand the nature and financial effect of
the business combination. We are currently evaluating
SFAS 141R and do not expect these new rules to have
a material impact on our overall results of operations,
financial position or cash flows.
Non-controlling Interests in
Consolidated Financial Statements
In December 2007, the FASB issued Statement of
Financial Accounting Standards No. 160, “Non-
controlling Interests in Consolidated Financial
Statements – an amendment of ARB No. 51,” (SFAS
160) effective for fiscal years beginning after December
15, 2008. SFAS 160 requires all entities to report
non-controlling (minority) interests in subsidiaries as
equity in the consolidated financial statements. Its
intention is to eliminate the diversity in practice regard-
ing the accounting for transactions between an entity
and non-controlling interests. We are currently evaluat-
ing the impact of SFAS 160 and do not expect these
new rules to have a material impact on our overall
results of operations, financial position or cash flows.
64 DPL Inc.
2 Supplemental Financial Information
DPL Inc.
$ in millions
Accounts receivable, net:
Unbilled revenue
Retail customers
Partners in commonly-owned plants
Wholesale and subsidiary customers
PJM including financial transmission rights
Refundable franchise tax
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
Prepayments
Derivatives
Current deferred income taxes
Other
Total other current assets
Property, plant and equipment:
Construction work in process
Property, plant and equipment
Total property, plant and equipment (a)
Other deferred assets:
Master Trust assets
Unamortized debt expense
Commercial activities tax benefit
Investments
Prepaid pension
Other
Total other deferred assets
Accounts payable:
Trade payables
Fuel accruals
Other
Total accounts payable
Other current liabilities:
Customer security deposits
Low income service plan
Pension and retiree benefits payable
Financial transmission rights – future proceeds
Other
Total other current liabilities
Other deferred credits:
Asset retirement obligations – regulated property
Taxes payable
Deferred compensation obligations
Pension liabilities
Retiree health and life benefits
SECA net revenue subject to refund
Asset retirement obligations – generation property
Deferred gain on sale of portfolio
Litigation and claims reserves
Employee benefit reserves
Customer advances in aid of construction
Environmental reserves
Other
Total other deferred credits
(a) In 2006, $283.5 of the assets presented in this table were held for sale.
At December 31,
2007
$
68.4
69.3
56.7
10.6
23.2
5.2
9.3
(1.5)
$ 241.2
$
70.5
34.1
0.4
$ 105.0
$
$
1.1
5.9
0.4
2.1
2.3
11.8
$ 364.5
4,647.1
$ 5,011.6
$
$
9.6
10.9
6.8
8.8
9.9
0.5
46.5
$
28.7
34.4
100.0
$ 163.1
$
$
19.2
2.2
0.8
–
5.0
27.2
$
91.5
65.3
20.4
12.3
28.3
20.1
12.5
–
4.3
4.3
3.5
0.1
3.7
$ 266.3
2006
68.7
65.0
51.5
15.8
13.1
5.2
7.1
(1.4)
225.0
52.4
32.6
0.4
85.4
17.8
13.3
3.2
2.0
1.4
37.7
$
$
$
$
$
$
$
376.0
4,626.0
$ 5,002.0
$
$
$
$
$
$
$
$
39.4
10.6
6.8
7.0
–
0.5
64.3
75.7
37.3
56.4
169.4
19.4
1.9
5.8
2.7
8.5
38.3
86.2
–
76.2
37.7
28.5
18.7
11.7
8.2
3.4
4.1
3.0
0.1
2.9
280.7
DPL Inc.
65
DP&L
$ in millions
Accounts receivable, net:
Retail customers
Partners in commonly-owned plants
Unbilled revenue
PJM including financial transmission rights
Wholesale and subsidiary customers
Refundable franchise tax
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
Prepayments
Derivatives
Current deferred income taxes
Other
Total other current assets
Property, plant and equipment:
Construction work in process
Property, plant and equipment
Total property, plant and equipment
Other deferred assets:
Master Trust assets
Unamortized debt expense
Prepaid pension
Investments
Other
Total other deferred assets
Accounts payable:
Trade payables
Fuel accruals
Other
Total accounts payable
Other current liabilities:
Customer security deposits
Low income service plan
Financial transmission rights – future proceeds
Payroll taxes payable
Pension and retiree benefits payable
Other
Total other current liabilities
Other deferred credits:
Asset retirement obligations – regulated property
Taxes payable
Deferred compensation obligations
Retiree health and life benefits
Pension liabilities
SECA net revenue subject to refund
Asset retirement obligations – generation property
Litigation and claims reserves
Employee benefit reserves
Customer advances in aid of construction
Other
Total other deferred credits
66 DPL Inc.
At December 31,
2007
2006
$
69.4
56.7
60.5
23.1
3.5
3.1
7.0
(1.5)
$ 221.8
$
70.5
32.7
0.4
$ 103.6
$
$
0.9
7.5
0.4
2.1
2.5
13.4
$ 363.8
4,393.2
$ 4,757.0
$
$
56.0
9.6
9.9
0.6
0.5
76.6
$
28.1
34.1
99.7
$ 161.9
$
$
19.2
2.2
–
–
0.8
4.7
26.9
$
91.5
65.3
20.4
31.6
8.9
20.1
12.5
4.3
4.3
3.5
3.8
$ 266.2
$
$
$
$
$
$
65.0
51.5
61.0
13.9
8.3
3.1
4.2
(1.4)
205.6
52.4
30.2
0.4
83.0
17.0
15.8
3.2
0.7
1.5
38.2
$
375.2
4,075.4
$ 4,450.6
$
$
$
$
$
$
$
$
109.0
8.6
–
0.6
0.5
118.7
74.7
36.7
54.8
166.2
19.4
1.9
2.7
0.2
5.8
5.4
36.4
86.2
–
76.2
28.5
37.7
18.7
11.7
3.4
4.1
3.0
3.0
272.5
DPL Inc.
$ in millions
Cash flows – Other:
Deposits and other advances
FERC transitional payment deferral
Deferred management fees
Other
Total cash flows – Other
DP&L
$ in millions
Cash flows – Other:
Deposits and other advances
FERC transitional payment deferral
Other
Total cash flows – Other
3 Regulatory Matters
For the years ended
2007
2006
2005
$ 17.0
–
–
6.1
$ 23.1
$
(8.5)
(1.8)
–
(0.2)
$ (10.5)
$ (0.9)
20.5
7.9
4.3
$ 31.8
For the years ended
2007
2006
2005
$ 16.4
–
(4.5)
$ 11.9
$ (11.0)
(1.8)
(4.7)
$ (17.5)
$ (2.1)
20.5
(5.0)
$ 13.4
We apply the provisions of SFAS 71 to our regulated operations. This accounting standard defines regulatory
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 “Other
Deferred Credits”. Regulatory assets and liabilities on the consolidated balance sheets include:
Type of
Recovery (a)
Amortization
Through
At December 31,
2007
2006
$ in millions
Regulatory Assets:
Deferred recoverable income taxes
Pension and postretirement benefits
Unamortized loss on reacquired debt
Electric Choice systems costs
Regional transmission organization costs
Deferred storm costs
PJM administrative costs
Power plant emission fees
Rate case expenses
Settlement system costs
Utility of the future costs
PJM integration costs
Other costs
Total regulatory assets
Regulatory Liabilities:
Asset retirement obligations – regulated property
Postretirement benefits
SECA net revenue subject to refund
Total regulatory liabilities
(a) F – Recovery of incurred costs plus rate of return.
C – Recovery of incurred costs only.
B – Balance has an offsetting liability resulting in no impact on rate base.
C/ B
C
C
F
C
C
F
C
F
Ongoing
Ongoing
Ongoing
2010
2014
2008
2009
Ongoing
2010
F
2015
$ 65.8
41.5
18.8
10.2
9.9
1.9
3.0
4.7
0.8
3.1
1.3
1.1
3.1
$ 165.2
$ 91.5
6.8
20.1
$ 18.4
$ 53.1
47.1
20.4
13.5
11.4
5.4
4.6
4.5
3.5
3.1
–
1.4
1.0
$ 169.0
$ 86.2
7.6
18.7
$ 112.6
DPL Inc.
67
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
subsequent periods, deferred recoverable income
taxes are amortized.
Pension and postretirement benefits represent the
unfunded benefit obligation related to the transmis-
sion and distribution areas of our electric business. We
have historically recorded these costs on the accrual
basis and this is how these costs have been historically
recovered through rates. This factor, combined with
the historical precedents from the PUCO and the FERC,
make these costs probable of future rate recovery.
Unamortized loss on reacquired debt represents costs
associated with the redemption of a series of bonds
financed by another issue. These costs are being
amortized over the life of the original issue.
Electric Choice systems costs represent costs incurred
to modify the customer billing system for unbundled
rates and electric choice bills relative to other
generation suppliers and information reports provided
to the state administrator of the low-income electric
program. In March 2006, the PUCO issued an order
that approved our tariff as filed. We began collecting
this rider immediately, and expect to recover all costs
over five years.
Regional transmission organization costs repre-
sent costs incurred to join a Regional Transmission
Organization (RTO) that controls the receipts and
delivery of bulk power within the service area. These
costs are being amortized over a 10-year period that
commenced in October 2004.
Deferred storm costs include costs incurred by us
to repair damage from December 2004 and January
2005 ice storms. We filed to recover these costs from
retail ratepayers over a two year period. The PUCO
approved our tariff as proposed and we began recov-
ering these deferred costs over a two-year period
beginning August 1, 2006.
PJM Interconnection, LLC (PJM) administrative costs
contain the administrative fees billed by PJM to us as
a member of the PJM RTO. Pursuant to a PUCO order
issued on January 25, 2006, these deferred costs will
be recovered over a 3-year period from retail ratepay-
ers beginning February 2006.
Power plant emission fees represent costs paid to the
State of Ohio for environmental monitoring that are or
will be recovered over various periods under a PUCO
rate rider from customers.
Settlement system costs represent costs to implement
a settlement system that reconciles the amount
of energy a competitive retail electric service (CRES)
supplier delivers to its customers and what its custom-
ers actually use. Based on case precedent in other
utilities’ cases, the cost of this system is recoverable
through DP&L’s next transmission rate case that will be
filed at the FERC. The timing of this case is uncertain
at this time.
PJM integration costs include infrastructure costs and
other related expenses incurred by PJM and reim-
bursed by DP&L to integrate us into the RTO. Pursuant
to a FERC order, the costs are being recovered over
a 10-year period beginning May 2005 from wholesale
customers within PJM.
Rate case expenses represent costs incurred in
connection with the Rate Stabilization Surcharge that
was approved by the PUCO and implemented in
January 2006. These costs are being amortized over
a five-year period.
PJM transmission expansion costs represent costs
incurred as a result of PJM Regional Transmission
Expansion Plan (RTEP) cost assignments. On
December 21, 2007, DP&L filed seeking PUCO
authority to defer these costs for future recovery.
These costs are included within Other costs.
Utility system of the future costs represent costs
incurred as a result of studying and developing
distribution system upgrades and implementation
of advanced metering infrastructure, as well
as DSM program development and various new
customer programs.
Other costs include consumer education advertising
regarding electric deregulation and rate case and are
or will be recovered over various periods.
Regulatory Liabilities
Asset retirement obligations – regulated property
reflect an estimate of amounts recovered in rates that
are expected to be expended to remove existing
transmission and distribution property from service
upon retirement.
68 DPL Inc.
Postretirement benefits reflect a regulatory liability that was recorded for the portion of the unrealized gain on our
postretirement trust assets related to the transmission and distribution areas of our electric business. The company
has historically recorded these transactions on the accrual basis and this is how these costs have historically been
recovered through rates. This factor, combined with the historical precedents from the PUCO and the FERC, make
it probable that these amounts will be reflected in future rates.
SECA (Seams Elimination Charge Adjustment) net revenue subject to refund represents our deferral of net revenues
collected in 2005 and 2006. SECA revenue and expenses represent FERC-ordered transitional payments for the
use of transmission lines within PJM. A hearing was held in early 2006 to determine if these transitional payments
are subject to refund, but no ruling has been issued. We began receiving and paying these transitional payments in
May 2005.
4 Ownership of Facilities
We 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, 2007, we had $356 million of construction in progress at such facilities. Our
share of the operating cost of such facilities is included in the Consolidated Statement of Results of Operations,
and our share of the investment in the facilities is included in the consolidated balance sheets.
Our undivided ownership interest in such facilities at December 31, 2007, is as follows:
DP&L Share
DP&L Investment
Ownership (%)
Production
Capacity (MW)
Gross Plant
In Service
($ in millions)
Construction
Accumulated
Depreciation Work in Progress
($ in millions)
($ in millions)
Production Units:
Beckjord Unit 6
Conesville Unit 4
East Bend Station
Killen Station
Miami Fort Units 7&8
Stuart Station
Zimmer Station
Transmission (at varying percentages)
50.0
16.5
31.0
67.0
36.0
35.0
28.1
210
129
186
428
360
839
365
$
63
33
200
582
272
394
1,058
89
$
53
27
128
252
105
208
572
50
Total
2,517
$ 2,691
$ 1,395
DPL’s share of operating costs associated with the jointly-owned generating facilities are included within the corresponding line
in Consolidated Statements of Results of Operations.
5
$
35
–
8
78
227
2
1
$ 356
5 Assets Sales
Peaker Sales
During 2006, in connection with DPLE’s (wholly-owned
subsidiary of DPL) decision to sell the Greenville
Station and Darby Station electric peaking generation
facilities, DPL concluded that the related assets were
impaired. Greenville Station consisted of four natural
gas peaking units with a net book value of approxi-
mately $66 million. Darby Station consisted of six natu-
ral gas peaking units with a net book value of approxi-
mately $156 million. During the fourth quarter of 2006,
DPL recorded a $71.0 million impairment charge to
write-down the assets to their fair value. The Greenville
Station and Darby Station assets were sold by DPLE in
April 2007 for $49.2 million and $102.0 million, respec-
tively, in two separate transactions.
The assets and liabilities held for sale in DPL’s
consolidated balance sheet are as follows:
DPL Inc.
69
$ in millions
Current Assets:
Inventories
Property:
Property, plant and equipment
Less: Accumulated depreciation and amortization
Net Property, plant and equipment
Current Liabilities:
Accounts payable and accrued expenses
Aircraft Sale
2007
2006
$
–
$
0.2
$
$
$
–
–
–
$ 283.5
$ (132.3)
$ 151.2
$
–
$
0.2
On June 7, 2007, Miami Valley CTC, Inc. (indirect, wholly-owned subsidiary of DPL), sold its corporate aircraft
and associated inventory and parts for $7.4 million. The net book value of the assets sold was approximately
$1.0 million, and severance and other costs of approximately $0.4 million were accrued. Miami Valley CTC, Inc.
recorded a net gain on the sale of approximately $6.0 million during the second quarter ending June 30, 2007,
which is included in DPL’s operation and maintenance expense.
6 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 sale
Settlement expense
Gain on settlement of executive litigation
Net gain on settlement
Earnings before income taxes
Income tax expense
Earnings from discontinued operations, net
For the years ended December 31,
$
2007
–
(0.4)
(0.4)
8.2
–
–
8.2
(5.2)
13.4
8.2
16.0
(6.0)
$ 10.0
2006
$
–
(1.3)
(1.3)
18.9
–
–
18.9
–
–
–
17.6
(3.6)
$ 14.0
2005
$ 41.3
(9.5)
31.8
53.1
(6.5)
(5.6)
41.0
–
–
–
72.8
(19.9)
$ 52.9
On February 13, 2005, DPL’s 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 recognized during 2005
as the sale of each fund closed.
During 2005, MVE entered into alternative 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, consisting of two funds and a portion of
one fund, to AlpInvest/Lexington 2005, LLC without a change in ownership of the interests. The alternative arrange-
ments resulted in a 2005 deferred gain of $27.1 million. DPL recognized $18.9 million of the deferred gain in 2006;
and the remaining portion of the gain, $8.2 million, was recognized in the first quarter ended March 31, 2007 as all
legal and economic considerations relating to the alternative closing arrangements were satisfied. Legal title to the
final fund subject to the alternative arrangement was transferred in the third quarter ended September 30, 2007.
As a result of the May 21, 2007 settlement of the litigation with three former executives (see Note 15 of Notes
to Consolidated Financial Statements), the three former executives relinquished all of their rights to certain
deferred compensation, RSUs, MVE incentives, stock options and reimbursement of legal fees. The reversal of
accruals related to the performance of the financial asset portfolio were recorded in discontinued operations.
Additionally, a portion of the $25 million settlement expense was allocated to discontinued operations.
These transactions resulted in a net gain of $8.2 million being recorded in discontinued operations related to
the settlement of the executive litigation in the second quarter ending June 30, 2007.
70 DPL Inc.
7 Long-term Debt
DPL Inc.
$ in millions
DP&L – First mortgage bonds maturing 2013 – 5.125%
DP&L – Pollution control series maturing 2036 – 4.80%
DP&L – Pollution control series maturing 2040 – variable rate
DP&L – Pollution control series maturing through 2034 – 4.78% (a)
DPL Inc. – Note to Capital Trust II 8.125% due 2031
DPL Inc. – Senior Notes 6.875% Series due 2011
DPL Inc. – Senior Notes 6.25% Series due 2008
DPL Inc. – Senior Notes 8.00% Series due 2009
DP&L – Obligations for capital leases
Unamortized debt discount
Total
(a) Weighted average interest rate for 2007 and 2006.
DP&L
$ in millions
DP&L – First mortgage bonds maturing 2013 – 5.125%
DP&L – Pollution control series maturing 2036 – 4.80%
DP&L – Pollution control series maturing 2040 – variable
DP&L – Pollution control series maturing through 2034 – 4.78% (a)
DP&L – Obligations for capital leases
Unamortized debt discount
Total
(a) Weighted average interest rate for 2007 and 2006.
At December 31,
2007
$ 470.0
100.0
90.0
214.4
874.4
195.0
297.4
–
175.0
1.3
(1.6)
2006
$ 470.0
100.0
–
214.4
784.4
195.0
297.4
100.0
175.0
2.0
(2.0)
$ 1,541.5
$ 1,551.8
At December 31,
2007
$ 470.0
100.0
90.0
214.4
874.4
1.3
(1.1)
2006
$ 470.0
100.0
–
214.4
784.4
2.0
(1.2)
$ 874.6
$ 785.2
At December 31, 2007, DPL’s scheduled maturities of long-term debt, including capital lease obligations, over
the next five years are $100.7 million in 2008, $175.7 million in 2009, $0.6 million in 2010, $297.4 million in 2011,
and none in 2012.
At December 31, 2007, DP&L’s scheduled maturities of long-term debt, including capital lease obligations,
over the next five years are $0.7 million in 2008, $0.7 million in 2009, $0.6 million in 2010 and none in 2011 and
2012. Substantially all property of DP&L is subject to the mortgage lien securing the first mortgage bonds.
On March 25, 2004, DPL completed a $175 million private placement of unsecured 8% Series Senior Notes
due March 2009. The purchasers were granted registration rights in connection with the private placement
under an Exchange and Registration Rights Agreement. Pursuant to this agreement, DPL was 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. DPL failed (1) to have a regis-
tration statement declared effective and (2) to complete the exchange offer according to this timeline. As a result,
DPL had been accruing additional interest at a rate of 0.5% per year for each of these two violations, up to an
additional interest rate not to exceed in the aggregate 1.0% per year. As each violation was cured, the additional
interest rate decreased by 0.5% per annum. DPL’s exchange offer registration statement for these securities
was declared effective by the SEC on June 27, 2006. As a result, on June 27, 2006, DPL ceased accruing 0.5%
of the additional interest. On July 31, 2006, DPL ceased accruing the other 0.5% of additional interest when the
exchange of registered notes for the unregistered notes was completed.
On February 24, 2005, DP&L entered into an amendment to extend the term of its Master Letter of Credit
Agreement with a financial lending institution for one year and to reduce the maximum dollar volume of letters of credit
to $10 million. On February 17, 2006, DP&L renewed its $10 million agreement for one year. This agreement sup-
ports performance assurance needs in the ordinary course of business. This agreement was not renewed in 2007.
DPL Inc.
71
On March 1, 2007, pursuant to the Company’s
strategy of reducing its long-term debt, DPL redeemed
the $225 million 8.25% Senior Notes when they
became due.
During the first quarter of 2006, the Ohio
Department of Development (ODOD) awarded DP&L
the ability to issue over the next three years up to
$200 million of qualified tax-exempt financing from the
ODOD’s 2005 volume cap carryforward. The financ-
ing is to be used to partially fund the ongoing flue
gas desulfurization (FGD) capital projects. The PUCO
approved DP&L’s application for this additional financ-
ing on July 26, 2006.
On September 13, 2006, the Ohio Air Quality
Development Authority (OAQDA) issued $100 million
of 4.80% fixed interest rate OAQDA Revenue Bonds
2006 Series A due September 1, 2036. In turn, DP&L
borrowed these funds from the OAQDA. The payment
of principal and interest on the Bonds when due
is insured by an insurance policy issued by Financial
Guaranty Insurance Company. DP&L is using the
proceeds from these borrowings to assist in financing
its portion of the costs of acquiring, constructing,
and installing certain solid waste disposal and air
quality facilities at Miami Fort, Killen, and Stuart gener-
ating stations.
On November 21, 2006, DP&L entered into a new
$220 million unsecured revolving credit agreement
replacing its $100 million facility. This new agreement
has a five-year term that expires November 21, 2011
and provides DP&L with the ability to increase the size
of the facility by an additional $50 million at any time.
The facility contains one financial covenant: DP&L’s
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 facil-
ity at December 31, 2007. Fees associated with this
credit facility are approximately $0.2 million per year.
Changes in credit ratings, however, may affect fees
and the applicable interest rate. This revolving credit
agreement also contains a $50 million letter of credit
sub-limit. DP&L has certain contractual agreements
for the sale and purchase of power, fuel and related
energy services that contain credit rating related claus-
es allowing the counter parties to seek additional sure-
ty under certain conditions. As of December 31, 2007,
DP&L had no outstanding letters of credit against the
facility.
During the second quarter ended June 30, 2007,
DPL entered into a short-term loan to DP&L for $105
million. DP&L paid down $15 million of this loan during
the third quarter ended September 30, 2007, and an
additional $70 million during the fourth quarter ended
December 31, 2007, leaving a current outstanding
balance of $20 million. This short-term loan does not
affect our debt covenants. Other than inter-company
payables due to DPL, by DP&L, in the amount of $0.9
million, there are no other inter-company debt collat-
eralizations or debt guarantees between DPL, DP&L,
and their subsidiaries at December 31, 2007. None of
the debt obligations of DPL or DP&L are guaranteed
or secured by affiliates and no cross-collateralization
exists between any subsidiaries.
On November 15, 2007, the OAQDA issued $90
million of collateralized, variable rate OAQDA Revenue
bonds 2007 Series A due November 1, 2040. In turn,
DP&L borrowed these funds from the OAQDA. The
payment of principal and interest on the Bonds when
due is insured by an insurance policy issued by
Financial Guaranty Insurance Company. On January
30, 2008, FGIC’s credit rating was downgraded by
Fitch Ratings from ‘AAA’ to ‘AA’ and remains on nega-
tive ratings watch. On January 31, 2008, FGIC’s credit
rating was downgraded by Standard & Poor’s from
‘AAA’ to ‘AA’ and placed on credit watch. On February
14, 2008, FGIC’s credit rating was downgraded by
Moody’s from ‘Aaa to A3.’ These downgrades, as well
as the recent downgrades or pending downgrades of
other major bond insurers, could result in DP&L’s vari-
able rate bonds having substantially higher interest
rates in succeeding auctions and increase the risk that
these bonds may have a failed auction. The maximum
interest rate is capped at 12%. Management will con-
tinue to evaluate the current market conditions. If these
conditions do not improve, we may redeem our vari-
able rate bonds and issue fixed rate bonds. We have
sufficient liquidity to redeem the variable rate bonds
using cash on hand or through funds available to
us by our revolving credit line until fixed rate bonds
are issued. DP&L is using the proceeds from these
borrowings to assist in financing its portion of the costs
of acquiring, constructing and installing certain solid
waste disposal and air quality facilities at Miami Fort,
Killen, Stuart and Conesville generating stations. These
facilities are currently under construction and the pro-
ceeds from the borrowing have been placed in escrow
with the trustee (the Bank of New York) and are being
drawn upon only as facilities are built and qualified
costs are incurred. In the event any of the proceeds
are not drawn, DP&L would eventually be required
to return the unused proceeds to bondholders. DP&L
expects to draw down the remaining available funds
from this borrowing over the next two years.
72 DPL Inc.
8 Income Taxes
For the years ended December 31, 2007, 2006 and 2005, DPL’s components of income tax were as follows:
DPL Inc.
$ 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 –
Depreciation and amortization
Investment loss
Compensation
Employee benefits
Other
Deferred investment tax credit, net
Total tax expense (d)
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 (f)
Other
Net current assets
For the years ended December 31,
2007
2006
2005
$ 117.3
$ 68.7
$ 71.9
11.6
(4.8)
(2.8)
–
(2.0)
2.7
0.5
(4.0)
(3.1)
(2.9)
0.2
(0.8)
5.1
6.6
1.2
(1.3)
(2.9)
0.2
(1.6)
11.2
1.2
$ 122.5
$ 69.8
$ 79.9
$ 100.8
$ 109.3
$ 85.0
4.6
–
16.6
6.3
(3.0)
(2.8)
(37.9)
6.6
–
(3.4)
(1.9)
(2.9)
(11.7)
–
–
(1.8)
11.3
( 2.9)
$ 122.5
$ 69.8
$ 79.9
At December 31,
2007
2006
$ (395.2)
(23.0)
(9.6)
14.3
0.1
15.5
1.1
21.9
$ (374.9)
$ (380.3)
(18.6)
(9.7)
15.2
2.9
39.2
1.6
(5.5)
$ (355.2)
$
$
2.1
2.1
$
$
2.0
2.0
(a) The statutory tax rate of 35% was applied to pre-tax income from continuing operations before preferred dividends.
(b) We have recorded $0.5 million, $10.4 million and ($2.1) million in 2007, 2006 and 2005, respectively, for state tax credits available
related to the consumption of coal mined in Ohio.
(c) We have recorded $2.7 million, $5.1 million, and $11.2 million in 2007, 2006 and 2005, 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.
(d) Excludes ($2.1) million in 2005 of income taxes reported as cumulative effect of accounting change, net of income taxes.
Also excludes $6.0 million in 2007, $3.6 million in 2006, and $19.9 million in 2005 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 $12.4 million in 2007 and $10.1 million in 2006. 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.
(f) Amounts are included within other current assets in the consolidated balance sheets.
DPL Inc.
73
For the years ended December 31, 2007, 2006 and 2005, DP&L’s components of income tax were as follows:
DP&L
$ 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 –
Depreciation and amortization
Compensation
Employee benefits
Other
Deferred investment tax credit, net
Total tax expense (d)
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
Compensation and employee benefits
Other (e)
Net non-current (liabilities)
Net Current Asset (f)
Other
Net current assets
For the years endved December 31,
2007
2006
2005
$ 145.1
$ 134.6
$ 123.6
9.6
(4.7)
(2.8)
–
(2.0)
2.7
4.8
2.4
(3.1)
(2.9)
0.1
(0.8)
5.1
6.8
7.4
(1.3)
(2.9)
0.2
(1.6)
11.2
1.5
$ 143.1
$ 142.2
$ 138.1
$ 124.7
$ 158.5
$ 149.4
1.7
19.5
6.3
(6.3)
(2.8)
(17.1)
–
(3.4)
7.1
(2.9)
(16.4)
(2.2)
(1.8)
12.0
(2.9)
$ 143.1
$ 142.2
$ 138.1
At December 31,
2007
2006
$ (378.5)
(23.0)
(9.6)
14.3
15.5
14.3
$ (367.0)
$ (368.1)
(18.6)
(9.7)
15.3
39.2
(18.3)
$ (360.2)
$
$
2.1
2.1
$
$
0.7
0.7
(a) The statutory tax rate of 35% was applied to pre-tax income from continuing operations before preferred dividends.
(b) We have recorded $0.5 million, $10.4 million and ($2.1) million in 2007, 2006 and 2005, respectively, for state tax credits available
related to the consumption of coal mined in Ohio.
(c) We have recorded $2.7 million, $5.1 million, and $11.2 million in 2007, 2006 and 2005, 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.
(d) Excludes ($2.1) million in 2005 of income taxes reported as cumulative effect of accounting change, net of income taxes.
(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 $0.3 million in 2007 and $0.3 million in 2006. 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.
(f) Amounts are included within other current assets in the consolidated balance sheets.
74 DPL Inc.
9 Pension and Postretirement Benefits
We sponsor 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 mini-
mum funding requirements of the Employee Retirement
Income Security Act of 1974 (ERISA). In addition,
we have 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. We also have
unfunded liabilities related to retirement benefits for
certain active, terminated and retired key executives.
These liabilities totaled approximately $0.9 million at
December 31, 2007.
On February 23, 2006, DPL’s Board of Directors
approved a new compensation and benefits program
that includes The DPL Inc. Supplemental Executive
Defined Contribution Retirement Plan (SEDCRP) which
replaces our Supplemental Executive Retirement Plan
(SERP) that was terminated as to new participants in
2000. The Compensation Committee of the Board of
Directors designates the eligible employees. Pursuant
to the SEDCRP, we provide a supplemental retirement
benefit to participants by crediting an account
established for each participant in accordance with
the Plan requirements. We designate as hypotheti-
cal investment funds under the SEDCRP one or more
of the investment funds provided under The Dayton
Power and Light Company Employee Savings Plan.
Each participant may change his or her hypothetical
investment fund selection at specified times. If a partic-
ipant does not elect a hypothetical investment fund(s),
then we select the hypothetical investment fund(s)
for such participant.
A participant shall become 100% vested in all
amounts credited to his or her account upon the com-
pletion of five vesting years, as defined in The Dayton
Power and Light Company Retirement Income Plan, or
upon a change of control or the participant’s death or
disability. If a participant’s employment is terminated,
other than by death or disability, prior to such partici-
pant becoming 100% vested in his or her account, the
account shall be forfeited as of the date of termination.
Qualified employees who retired prior to 1987
and their dependents are eligible for health care and
life insurance benefits, while qualified employees who
retired after 1987 are eligible for life insurance benefits.
We have funded the union-eligible health benefit using
a Voluntary Employee Beneficiary Association Trust.
We adopted SFAS 158 “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88,
106 and 132(R)” for the year ended December 31,
2006. SFAS 158 requires that an entity’s funded status
of its pension and other postretirement benefit obliga-
tions be recognized on the face of the financial state-
ments and not just in the footnotes.
Regulatory assets and liabilities are recorded for
the portion of the under- or over-funded obligations
related to the transmission and distribution areas of
our electric business. We have historically recorded
these costs on the accrual basis and this is how these
costs have been historically recovered. This factor,
combined with the historical precedents from the
PUCO and FERC, make these costs probable of future
rate recovery.
The following tables set forth our pension and
postretirement benefit plans’ obligations and assets
recorded on the consolidated balance sheets as of
December 31. The amounts presented in the fol-
lowing tables for pension include both the defined
benefit pension plan and the Supplemental Executive
Retirement Plan in the aggregate, and use a mea-
surement date of December 31, 2007. The amounts
presented for post-retirement include both health and
life insurance benefits and use a measurement date of
December 31, 2007.
DPL Inc.
75
$ in millions
2007
2006
2007
2006
Pension
Postretirement
Change in Benefit Obligation During Year
Benefit obligation at January 1
Service cost
Interest cost
Plan amendments
Actuarial (gain) loss
Benefits paid
Benefit obligation at December 31
Change in Plan Assets During Year
Fair value of plan assets at January 1
Actual return on plan assets
Contributions to plan assets
Benefits paid
Medical reimbursements
Fair value of plan assets at December 31
$ 294.5
3.2
16.2
–
(9.6)
(19.3)
$ 285.0
$ 266.4
16.1
27.8
(19.3)
–
$ 291.0
$ 299.1
4.2
16.7
–
0.3
(25.8)
$ 294.5
$ 260.0
26.8
5.4
(25.8)
–
$ 266.4
$ 27.1
–
1.5
–
0.6
(2.8)
$ 26.4
$
7.0
0.3
2.0
(2.9)
0.1
$ 31.1
–
1.5
–
(2.6)
(2.9)
$ 27.1
$
7.9
0.2
1.8
(2.9)
–
$
6.5
$
7.0
Funded Status of Plan
$
6.0
$ (28.1)
$ (19.9)
$ (20.1)
Amounts Recognized in the
Consolidated Balance Sheets at December 31
Non-current assets
Current liabilities
Non-current liabilities
$
9.9
(0.3)
(3.6)
$
–
(0.4)
(27.7)
Net asset/(liability) at December 31
$
6.0
$
(28.1)
$
–
(0.5)
(19.4)
$ (19.9)
$
–
(0.4)
(19.7)
$ (20.1)
Amounts Recognized in Accumulated Other
Comprehensive Income, Regulatory Assets and
Regulatory Liabilities
Net transition obligation (asset)
Prior service cost (credit)
Net actuarial loss (gain)
Accumulated other comprehensive income,
$
–
12.2
59.7
$
–
14.6
66.8
$
–
–
(8.9)
$
0.2
–
(10.6)
regulatory assets and regulatory liabilities, pre-tax
$ 71.9
$ 81.4
$
(8.9)
$ (10.4)
The accumulated benefit obligation for our defined benefit pension plans was $274.6 million and $282.7 million
at December 31, 2007 and 2006, respectively.
The net periodic benefit cost (income) of the pension and postretirement benefit plans at December 31 were:
Net Periodic Benefit Cost (Income)
$ in millions
2007
2006
2005
2007
2006
Pension
Postretirement
Service cost
Interest cost
Expected return on assets (a)
Amortization of unrecognized:
Actuarial (gain) loss
Prior service cost
Transition obligation
Net benefit cost (income) before adjustments
Settlement costs (b)
Special termination benefit cost (c)
Curtailment cost (d)
Net benefit cost (income) after adjustments
3.2
$
16.2
(22.0)
$
4.2
16.6
(21.7)
$
3.9
15.7
(21.5)
–
$
1.5
(0.5)
$
3.4
2.4
–
3.2
–
–
–
$
3.2
$
3.9
2.6
–
5.6
2.6
0.3
–
8.5
3.8
2.3
–
4.2
–
0.2
0.1
4.5
$
(0.9)
–
0.2
0.3
–
–
–
$
2005
–
1.8
(0.5)
(0.8)
–
0.2
0.7
–
–
–
–
1.5
(0.5)
(1.3)
–
0.2
(0.1)
–
–
–
$ 0.3
$
(0.1)
$
0.7
(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) The settlement cost related to a former officer who elected to receive a lump sum distribution in 2007 from the
Supplemental Executive Retirement Plan.
footnotes continue on page 77
76 DPL Inc.
footnotes continued from page 76
(c) In 2006 and 2005, special termination benefit costs were recognized as a result of 32 employees who participated in a voluntary
early retirement program. 16 employees retired at various dates during 2005 and 16 additional employees retired at various dates during
2006; this program was completed as of April 1, 2006.
(d) 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.
Other Changes in Plan Assets and Benefit Obligation Recognized in
Accumulated Other Comprehensive Income (a)
$ in millions
Net actuarial (gain) / loss
Prior service cost / (credit)
Reversal of amortization item:
Net actuarial (gain) / loss
Prior service cost / (credit)
Transition (asset) / obligation
Pension
2007
2006
$
(3.7)
–
N/A
N/A
(3.4)
(2.4)
–
N/A
N/A
N/A
Postretirement
2007
2006
$ 0.7
–
0.9
–
(0.2)
N/A
N/A
N/A
N/A
N/A
Total recognized in accumulated other
comprehensive income
Total recognized in net periodic benefit cost and
accumulated other comprehensive income
$
(9.5)
N/A
$ 1.4
N/A
$
(6.3)
N/A
$ 1.7
N/A
(a) This disclosure applies beginning with the second year of application of FAS 158 and is applied prospectively.
Therefore 2006 information is not available.
Estimated amounts that will be amortized from accumulated other comprehensive income into net periodic
benefit cost during 2008 are:
$ in millions
Net actuarial (gain) / loss
Prior service cost / (credit)
Transition (asset) / obligation
Pension
$
2.7
2.4
–
Postretirement
$ (0.7)
–
–
DP&L’s pension and postretirement plan assets were comprised of the following asset categories at December 31:
Asset Category
Equity securities
Debt securities
Real estate
Other
Total
Pension
2007
2006
56%
33%
0%
11%
100%
59%
38%
0%
3%
100%
Postretirement
2007
2006
0%
100%
0%
0%
100%
0%
100%
0%
0%
100%
Plan assets are invested using a total return investment approach whereby a mix of equity securities, debt
securities and other investments are used to preserve asset values, diversify risk and achieve our target
investment return benchmark. Investment strategies and asset allocations 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.
On November 26, 2007, DP&L contributed $27.4 million in DPL common stock from its Master Trust assets
to the Retirement Income Plan. This contribution fully funded the pension liability as of December 31, 2007.
DPL common stock is now 9% of plan assets.
Our expected return on plan asset assumptions, used to determine benefit obligations, are based on
historical long-term rates of return on investment, which use 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.
Our overall expected long-term rate of return on assets is approximately 8.50% for pension plan assets and
approximately 6.75% for retiree benefit plan assets. This expected return is based exclusively on historical returns,
DPL Inc.
77
without adjustments. There can be no assurance of our ability to generate that rate of return in the future.
Our overall discount rate was evaluated in relation to the December 31, 2007 Hewitt Yield Curve, which
represents a portfolio of top-quartile AA-rated bonds used to settle pension obligations. Peer data and historical
returns were also reviewed to verify the reasonability and appropriateness of our 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
2007
2006
6.00%
4.00%
5.75%
4.00%
Postretirement
2007
2006
6.00%
N/A
5.75%
N/A
The weighted-average assumptions used to determine net periodic benefit cost (income) for the years
ended December 31 were:
Net Periodic Benefit Cost (Income) Assumptions
Discount rate
Expected rate of return on plan assets
Rate of compensation increases
2007
5.75%
8.50%
4.00%
Pension
2006
5.75%
8.50%
4.00%
Postretirement
2005
2007
2006
5.75%
8.50%
4.00%
5.75%
6.75%
N/A
5.75%
6.75%
N/A
2005
5.75%
6.75%
N/A
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
2007
2006
10.00%
5.00%
2012
10.00%
5.00%
2011
Benefit Obligations
2007
2006
10.00%
5.00%
2013
10.00%
5.00%
2012
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
Benefit obligation
Increase 1%
Decrease 1%
$
$
0.1
1.4
$ (0.1)
$ (1.3)
The following benefit payments, which reflect future service, are expected to be paid as follows:
Estimated Future Benefit Payments
$ in millions
2008
2009
2010
2011
2012
2013 – 2017
Pension
$ 19.7
$ 20.0
$ 20.3
$ 20.5
$ 21.0
$ 110.6
Postretirement
$
$
$
$
$
$
2.7
2.6
2.6
2.5
2.4
9.8
We expect to contribute $0.4 million to our pension plans and $2.7 million to our other postretirement
benefit plans in 2008.
78 DPL Inc.
10 Financial Instruments
Mark to Market
In the normal course of business, DPL and DP&L enter
into various financial instruments, including derivative
financial instruments. A description of these financial
instruments is as follows:
Derivatives
We use derivatives principally to manage the risk of
changes in market prices for commodities. The deriva-
tives that we use to hedge these risks are governed
by our risk management policies for forward contracts,
futures, options, and swaps. Our net positions are
continually assessed within our structured hedg-
ing programs to determine whether new or offsetting
transactions are required. The objective of the hedg-
ing program is generally to mitigate financial risks
while ensuring that sufficient volumes are available to
meet our requirements. We monitor and value deriva-
tive positions monthly as part of our risk management
processes. We use published sources for pricing when
possible to mark positions to market. We rely on mod-
eled valuations only when no other method exists.
DPL and DP&L recognized $0.0 million and $3.2
million in unrealized gains on derivative assets in OCI
in 2007 and 2006, respectively. $1.5 million and $0.0
million of unrealized losses on derivative liabilities
were recognized in OCI in 2007 and 2006, respectively.
Approximately $1.5 million of accumulated gains/
(losses) in OCI are expected to be reclassified to earn-
ings over the next twelve months.
Cash Flow Hedges
Our risk management processes identify the relation-
ships between hedging instruments and hedged items,
as well as the risk management objective and strategy
for undertaking various hedge transactions. The mark-
to-market value of cash flow hedges as determined by
current public market prices will continue to fluctuate
with changes in market prices up to contract expira-
tion. The effective portion of the hedging transaction
is recognized in OCI and transferred to earnings
when the forecasted transaction takes place, while the
impact of discontinued cash flow hedges is recognized
in earnings. These instruments are used to hedge the
risk of price changes for sales and purchases of
power and capacity. All risk components were taken
into account to determine the hedge effectiveness
of the cash flow hedges. Power hedges are usually
transacted over a 1 to 3 month period while capacity
swaps are for the 12 month PJM year (June-May).
Certain derivative contracts are entered into on a
regular basis as part of our risk management program
but do not qualify for hedge accounting or the normal
purchase and sales exceptions under SFAS No. 133,
“Accounting for Derivative Instruments and Hedging
Activities,” as amended. Accordingly, such contracts
are recorded at fair value with changes in the fair value
charged or credited to the income statement in the
period in which the change occurred. Contracts we
enter into as part of our risk management program
may be settled financially, by physical delivery, or net
settled with the counterparty.
Master Trust Assets
DP&L established a Master Trust to hold assets for the
benefit of employees participating in DP&L’s Deferred
Compensation Plan and other employee benefit
purposes and these assets are not used for general
operating purposes. These assets are primarily
comprised of mutual funds and DPL common stock.
The DPL common stock held by the Master Trust
in DP&L’s consolidated balance sheet is eliminated
in consolidation and is not reflected in DPL’s consoli-
dated balance sheet. These assets are valued using
current public market prices on a quarterly basis. Any
unrealized gains or losses are recognized in Other
Comprehensive Income until the securities are sold.
DPL recognized $6.2 million and $5.5 million of
unrealized gains and $5.9 million and $3.8 million
of unrealized losses in OCI in 2007 and 2006, respec-
tively. DP&L recognized $31.2 million and $41.1
million of unrealized gains and $5.9 million and $3.8
million of unrealized losses in OCI in 2007 and
2006, respectively. No unrealized gains or losses are
expected to be transferred to earnings in 2008.
Transfer of Master Trust Assets to Pension
On October 26, 2007, the Board of Directors approved
a resolution permitting the transfer of 925,000 shares
of DPL Inc. common stock from the DP&L Master Trust
to The Dayton Power and Light Company Retirement
Income Plan Trust (Pension). This transaction was
completed on November 26, 2007, contributing shares
of common stock with a fair value of $27.4 million
to the Pension and resulting in a fully funded status at
December 31, 2007.
Long-term Debt
Long-term debt is fair valued based on current public
market prices for disclosure purposes only. Unrealized
DPL Inc.
79
gains or losses are not recognized in the financial statements, as long-term debt is presented at amortized cost in
the financial statements. The long-term debt amounts include the current portion payable in the next twelve months
and have maturities that range from 2008 to 2035.
The fair values of our financial instruments and debt are based on market quotes of similar instruments and
represent estimates of possible value that may not be realized in the future. The table below presents the fair value
and cost of these instruments at December 31, 2007 and 2006.
$ in millions
DPL Inc.
Assets
Master Trust Assets
Derivative Assets
Total Assets
Liabilities
Debt
Derivative Liabilities
Total Liabilities
DP&L
Assets
Master Trust Assets
Derivative Assets
Total Assets
Liabilities
Debt
Derivative Liabilities
Total Liabilities
At December 31,
2007
2006
Cost
Fair Value
Cost
Fair Value
$
$
9.2
0.4
9.6
$
$
9.6
0.4
10.0
$
$
37.5
–
37.5
$
$
39.4
3.2
42.6
$ 1,642.2
–
$ 1,664.3
1.5
$ 1,777.7
0.6
$ 1,798.5
0.6
$ 1,642.2
$ 1,665.8
$ 1,778.3
$ 1,799.1
$
$
$
30.5
0.4
30.9
875.3
–
$
$
$
56.0
0.4
56.4
871.5
1.5
$
$
$
71.6
–
71.6
$
109.0
3.2
$
112.2
786.1
0.6
$
785.8
0.6
$
875.3
$
873.0
$
786.7
$
786.4
11 Stock-Based Compensation
As a result of the May 21, 2007 settlement of the litigation with three former executives (see Note 15 of the Notes to
Consolidated Financial Statements), the three former executives relinquished all of their rights to certain deferred
compensation, RSUs, MVE incentives, stock options and reimbursement of legal fees. A portion of this settlement
included the forfeitures and cancellations of RSUs and stock options of 1.3 million and 3.6 million, respectively.
The following table summarizes share-based compensation expense:
$ in millions
Stock options
Restricted stock units
Performance shares
Restricted shares
Non-employee directors’ RSUs
Share-based compensation included in operations and
maintenance expense
Income tax expense
Total share-based compensation, net of tax
Twelve months ended December 31,
2007
$
–
–
1.5
0.3
0.3
2.1
(0.7)
$ 1.4
2006
$ 1.3
3.0
2.0
–
–
6.3
(2.2)
$ 4.1
2005
$ 0.4
2.2
–
–
–
2.6
(0.9)
$ 1.7
Share-based awards issued in DPL’s common stock will be distributed from treasury stock. DPL believes
it has sufficient treasury stock to satisfy all outstanding share-based awards.
80 DPL Inc.
Determining Fair Value
Valuation and Amortization Method – We estimate the fair value of stock options and RSUs using a Black-
Scholes-Merton model; performance shares are valued using a Monte Carlo simulation; restricted shares are
valued at the market price on the day of grant and the Directors’ RSUs are valued at the market price on the
day prior to the grant date. We amortize the fair value of all awards on a straight-line basis over the requisite
service periods, which are generally the vesting periods.
Expected Volatility – Our expected volatility assumptions are based on the historical volatility of DPL stock. The
volatility range captures the high and low volatility values for each award granted based on its specific terms.
Expected Life – The expected life assumption represents the estimated period of time from grant until exercise
and reflects historical employee exercise patterns.
Risk-Free Interest Rate – The risk-free interest rate for the expected term of the award is based on the correspond-
ing yield curve in effect at the time of the valuation for U.S. Treasury bonds having the same term as the expected
life of the award, i.e., a five year bond rate is used for valuing an award with a five year expected life.
Expected Dividend Yield – The expected dividend yield is based on DPL’s current dividend rate, adjusted as
necessary to capture anticipated dividend changes and the 12 month average DPL stock price.
Expected Forfeitures – The forfeiture rate used to calculate compensation expense is based on DPL’s historical
experience, adjusted as necessary to reflect special circumstances.
Stock Options
In 2000, DPL’s Board of Directors adopted and DPL’s shareholders approved The DPL Inc. Stock Option Plan.
On April 26, 2006, DPL’s shareholders approved The DPL Inc. 2006 Equity and Performance Incentive Plan (EPIP).
With the approval of the EPIP, no new awards will be granted under The DPL Inc. Stock Option Plan, but shares
relating to awards that are forfeited or terminated under The DPL Inc. Stock Option Plan may be granted under the
EPIP. As of December 31, 2007, there were no unvested stock options.
The schedule of option activity for the twelve months ended December 31, 2007 was as follows:
$ in millions
Non-vested at January 1, 2007
Granted in 2007
Vested in 2007
Forfeited in 2007
Non-vested at December 31, 2007
Summarized stock option activity was as follows:
Options:
Outstanding at beginning of year
Granted
Exercised
Forfeited (a)
Outstanding at year-end
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
Number of Options
Weighted-Average
Grant Date Fair Value
10,000
–
(10,000)
–
–
$
$
$
$
$
–
–
–
–
–
Twelve months ended December 31,
2007
2006
2005
5,091,500
–
(525,000)
(3,620,000)
946,500
946,500
$
$
$
$
$
$
21.95
–
26.79
20.38
24.09
24.09
5,486,500
–
(355,000)
(40,000)
5,091,500
5,081,500
$ 21.86
–
$
$ 21.00
$ 15.88
$ 21.95
$ 21.94
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
(a) As a result of the settlement of the former executive litigation on May 21, 2007, 3.6 million outstanding options shown above were forfeited
in the second quarter of 2007 and another approximately one million disputed options not shown above were also forfeited.
DPL Inc.
81
The following table reflects information about stock options outstanding at December 31, 2007:
Range of
Exercise Prices
$ 14.95 – $ 21.00
$ 21.01 – $ 29.63
Outstanding
620,000
326,500
Options Outstanding
Options Exercisable
Weighted-Average Weighted-Average
Exercise Price
Contractual Life
Exercisable
Weighted-Average
Exercise Price
2.8 years
3.5 years
$ 20.60
$ 28.82
620,000
326,500
$ 20.60
$ 28.82
The following table reflects information about stock option activity during the period:
Twelve months ended December 31,
$ in millions
2007
Weighted-average grant date fair value of options granted during the period $
Intrinsic value of options exercised during the period
Proceeds from stock options exercised during the period
Excess tax benefits from proceeds of stock options exercised
Fair value of shares that vested during the period
Unrecognized compensation expense
–
$ 2.3
$ 14.6
$ 1.3
–
$
–
$
Weighted average period to recognize compensation expense (in years)
–
2006
$
–
$ 2.5
$ 7.8
$ 1.9
$ 1.3
$ 0.1
1.0
2005
$ 1.6
$
5.7
$ 22.7
$
–
$ 0.5
$ 1.4
0.7
No options were granted during 2006 and 2007.
Restricted Stock Units (RSUs)
RSUs were granted to certain key employees prior to 2001. As a result of the settlement of the former executive
litigation, all disputed RSUs were forfeited by the three former executives. There were 22,976 RSUs outstanding as
of December 31, 2007, none of which has vested. The non-vested RSUs will be paid in cash upon vesting
and will vest as follows: 11,253 in 2008; 7,878 in 2009 and 3,845 in 2010. Non-vested RSUs are valued quarterly
at fair value using the Black-Scholes-Merton model to determine the amount of compensation expense to be
recognized. Non-vested RSUs do not earn dividends.
$ in millions
Non-vested at January 1, 2007
Granted in 2007
Vested in 2007
Forfeited in 2007
Non-vested at December 31, 2007
Summarized RSU activity was as follows:
RSUs:
Outstanding at beginning of year
Granted
Dividends
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
Number of
RSUs
Weighted-Average
Grant Date Fair Value
49,998
–
(20,097)
(6,925)
22,976
$
$
$
$
$
1.2
–
(0.4)
(0.2)
0.6
Twelve months ended December 31,
2007
2006
2005
1,334,339
–
11,656
(20,097)
(1,302,922)
22,976
–
1,319,399
–
46,434
(22,516)
(8,978)
1,334,339
–
1,295,389
–
44,783
(20,773)
–
1,319,399
–
Compensation expense is recognized each quarter based on the change in the market price of
DPL common shares.
As of December 31, 2007, 2006, and 2005 liabilities recorded for outstanding RSUs were $0.6 million,
$36.9 million and $34.5 million, respectively, which are included in “Other deferred credits” on the consolidated
balance sheets. The decrease in the liability is due to the executive litigation settlement and the forfeiture of
1.3 million RSUs. See Note 15 of Notes to Consolidated Financial Statements.
82 DPL Inc.
The following table shows the assumptions used in the Black-Scholes-Merton model to calculate the fair value
of the non-vested RSUs during the respective periods:
Twelve months ended December 31,
2007
2006
2005*
Expected volatility
Weighted-average expected volatility
Expected life (years)
Expected dividends
Weighted-average expected dividends
Risk-free interest rate
6.1% - 15.3%
13.0%
1.0 - 3.0
3.8%
3.8%
3.0% - 3.3%
9.5% - 17.3%
14.6%
1.0 - 4.0
3.7%
3.7%
4.7% - 4.9%
* DPL used the market value of DPL common stock to value RSUs prior to FAS 123R being issued. Therefore, this data is not available.
Performance Shares
Under the EPIP, the Board adopted a Long-Term Incentive Plan (LTIP) under which DPL will grant a targeted
number of performance shares of common stock to executives. Grants under the LTIP will be awarded based
on a Total Shareholder Return Relative to Peers performance. No performance shares will be earned in a
performance period if the three-year Total Shareholder Return Relative to Peers is below the threshold of the
40th percentile. Further, the LTIP awards will be capped at 200% of the target number of performance shares,
if the Total Shareholder Return Relative to Peers is at or above the threshold of the 90th percentile. The Total
Shareholder Return Relative to Peers is considered a market condition under FAS 123R. There is a three year
requisite service period for each tranche of the performance shares.
The schedule of non-vested performance share activity for the twelve months ended
December 31, 2007 follows:
$ in millions
Non-vested at January 1, 2007
Granted in 2007
Vested in 2007
Forfeited in 2007
Non-vested at December 31, 2007
Performance Shares:
Outstanding at beginning of year
Granted
Exercised
Expired
Forfeited
Outstanding at period end
Exercisable at period end
* Performance shares were not issued in 2005.
Number of
Performance Shares
Weighted-Average
Grant Date Fair Value
110,723
78,559
(37,426)
(47,174)
104,682
$ 2.7
$ 2.6
$ (0.8)
$ (1.3)
$ 3.2
Twelve months ended December 31,
2007
2006
2005*
154,768
78,559
(22,462)
(21,583)
(47,174)
142,108
37,426
–
244,423
–
–
(89,655)
154,768
44,045
–
–
–
–
–
–
–
The following table reflects information about performance share activity during the period:
$ in millions
Twelve months ended December 31,
2007
2006
2005*
Weighted-average grant date fair value of performance shares granted
during the period
Intrinsic value of performance shares exercised during the period
Proceeds from performance shares exercised during the period
Excess tax benefits from proceeds of performance shares exercised
Fair value of performance shares that vested during the period
Unrecognized compensation expense
Weighted average period to recognize compensation expense (in years)
$ 2.6
$ 0.6
–
$
$
–
$ 0.8
$ 1.9
1.7
$ 6.3
–
$
–
$
$
–
$ 1.3
$ 1.5
1.6
* Performance shares were not issued in 2005.
$
$
$
$
$
$
–
–
–
–
–
–
–
DPL Inc.
83
The following table shows the assumptions used in the Monte Carlo Simulation to calculate the fair value
of the performance shares granted during the period:
Twelve months ended December 31,
2007
2006
2005*
Expected volatility
Weighted-average expected volatility
Expected life (years)
Expected dividends
Weighted-average expected dividends
Risk-free interest rate
* Performance shares were not issued in 2005.
Restricted Shares
15.8% - 17.3%
16.6%
3.0
3.3% - 3.9%
3.4%
4.5% - 4.9%
17.9% - 20.3%
20.1%
3.0
3.7%
3.7%
4.6% - 4.7%
Under the EPIP, the Board granted shares of DPL Restricted Shares to various executives. The Restricted
Shares are registered in the executive’s name, carry full voting privileges, receive dividends as declared and
paid on all DPL common stock and vest after a specified service period.
$ in millions
Non-vested at January 1, 2007
Granted in 2007
Vested in 2007
Forfeited in 2007
Non-vested at December 31, 2007
Restricted Shares:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
* Restricted shares were not issued in 2005.
Number of
Restricted Shares
Weighted-Average
Grant Date Fair Value
19,000
23,200
–
–
42,200
$ 0.5
$ 0.7
–
$
–
$
$ 1.2
Twelve months ended December 31,
2007
2006
2005*
19,000
23,200
–
–
42,200
–
–
19,000
–
–
19,000
–
–
–
–
–
–
–
The following table reflects information about restricted share activity during the period:
$ in millions
Weighted-average grant date fair value of restricted shares granted
during the period
Intrinsic value of restricted shares exercised during the period
Proceeds from restricted shares exercised during the period
Excess tax benefits from proceeds of restricted shares exercised
Fair value of restricted shares that vested during the period
Unrecognized compensation expense
Weighted average period to recognize compensation expense (in years)
* Restricted shares were not issued in 2005.
Twelve months ended December 31,
2007
2006
2005*
$ 0.7
–
$
–
$
–
$
$
–
$ 0.9
2.8
$ 0.5
–
$
–
$
–
$
$
–
$ 0.5
4.1
$
$
$
$
$
$
–
–
–
–
–
–
–
Non-Employee Director Restricted Stock Units
Under the EPIP, as part of their annual compensation for service to DPL and DP&L, each non-employee Director
received a $54,000 retainer in RSUs on the date of the annual meeting. The RSUs will become non-forfeitable
on April 15 of the following year. All of the RSUs become non-forfeitable in the event of death, disability, or change
in control but if the Director resigns or retires prior to the April 15 vesting date, the vested shares will be distributed
on a pro rata basis. The RSUs accrue quarterly dividends in the form of additional RSUs. Upon vesting, the
84 DPL Inc.
RSUs will become exercisable and will be distributed in DPL common shares, unless the Director chooses to
defer receipt of the shares until a later date. The RSUs are valued at the closing stock price on the day prior
to the grant and the compensation expense is recognized evenly over the vesting period.
$ in millions
Non-vested at January 1, 2007
Granted in 2007
Dividends accrued in 2007
Vested in 2007
Forfeited in 2007
Non-vested at December 31, 2007
Restricted stock units:
Outstanding at beginning of year
Granted
Dividends accrued
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
* Director RSUs were not issued in 2006 or 2005.
Number of
Director RSUs
Weighted-Average
Grant Date Fair Value
–
14,920
348
(10,238)
(1,553)
3,477
–
$
$ 0.5
–
$
(0.3)
$
(0.1)
$
$ 0.1
Twelve months ended December 31,
2007
2006*
2005*
–
14,920
348
(142)
(1,553)
13,573
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The following table reflects information about non-employee director RSU activity during the period:
$ in millions
Twelve months ended December 31,
2007
2006*
2005*
Weighted-average grant date fair value of non-employee director RSUs
granted during the period
$ 0.5
–
Intrinsic value of non-employee director RSUs exercised during the period
$
–
$
Proceeds from non-employee director RSUs exercised during the period
Excess tax benefits from proceeds of non-employee director RSUs exercised $
–
$ 0.3
Fair value of non-employee director RSUs that vested during the period
$ 0.1
Unrecognized compensation expense
Weighted average period to recognize compensation expense (in years)
0.3
$
$
$
$
$
$
–
–
–
–
–
–
–
$
$
$
$
$
$
–
–
–
–
–
–
–
* Director RSUs were not issued in 2006 or 2005.
12 Preferred Stock
DPL
Series B, no par value, 8,000,000 shares authorized; no shares outstanding as of December 31, 2006 and 2007.
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.
DPL Series B (a)
DP&L Series A
DP&L Series B
DP&L Series C
Total
Preferred
Stock Rate
0.00%
3.75%
3.75%
3.90%
Current
Redemption
Price
0.01
$
$ 102.50
$ 103.00
$ 101.00
Current Shares
Outstanding at
December 31, 2007
Par Value at
December 31, 2007
($ in millions)
Par Value at
December 31, 2006
($ in millions)
–
93,280
69,398
65,830
228,508
$
–
9.3
7.0
6.6
$
–
9.3
7.0
6.6
$ 22.9
$ 22.9
(a) DPL purchased all of its outstanding Series B shares during 2005.
DPL Inc.
85
The DP&L preferred stock may be redeemed at DPL’s
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 distribut-
ed 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 Common Stock
dividends. DPL records dividends on preferred stock
of DP&L as part of interest expense. We expect all
2007 earnings reinvested in the business of DP&L to
be available for DP&L common stock dividends, pay-
able to DPL.
In February 2000, DPL 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 affili-
ate of investment company Kohlberg Kravis Roberts
& Co. (KKR). As part of DPL’s 2000 recapitalization
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 (subject to accelera-
tion six months after the exercise of the warrants), and
distributions at a rate of 8.5% of the aggregate face
amount per year. DPL recognized the entire trust pre-
ferred securities original issue discount of $50 million
upon issuance.
In August 2001, DPL 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, DPL
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 mil-
lion at 8.125%. In August 2005, DPL redeemed $105
million of these Capital Securities, leaving $195 million
outstanding.
The voting preferred shares (DPL Series B) were
not redeemable, except at the option of the holder.
DPL 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. DPL’s 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
DPL’s Series B preferred shares, in which case the
holder may transfer any such excess warrants without
transferring DPL’s Series B preferred shares. If the
holder of a warrant wishes to exercise warrants that are
not excess warrants, DPL will redeem simultaneously
with the exercise of such warrants an equal number of
DPL’s Series B preferred shares held by such holder.
DPL 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.
13 Common Shareholder’s Equity
DPL has 250,000,000 authorized common shares,
of which 113,558,444 are outstanding at December
31, 2007. DPL had 902,490 authorized but unissued
shares reserved for its dividend reinvestment plan
at December 31, 2007. 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, DPL’s Board authorized the
repurchase of up to $400 million of common stock
from time to time in the open market or through private
transactions. DPL completed this share repurchase
program on August 21, 2006. In total, 14.9 million
shares were repurchased at a cost of $400.0 mil-
lion. These Board-authorized repurchase transactions
resulted in an 11.7% reduction of the outstanding stock
of December 31, 2005 at an average price of $26.91
per share. These shares are currently held as treasury
shares. There were no other repurchases during 2007
and 2006.
In September 2001, DPL’s Board of Directors
renewed its 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, DPL 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 KKR. As part of this recapitaliza-
tion 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 dur-
86 DPL Inc.
ing the twelve-year period commencing on March 13,
2000. Each warrant is exercisable for one common
share, subject to anti-dilution adjustments (i.e., stock
split, stock dividend). The exercise price of the war-
rants 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
distribution or similar transaction by DPL of the capital
stock of any of its 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 com-
mon shares of such subsidiary the warrant holder had
in DPL immediately prior to such transaction.
Pursuant to the warrant agreement, DPL has
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 DPL 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 DPL and DP&L and no longer had the right to des-
ignate one person to serve as a non-voting observer of
DPL and DP&L. Currently, Dayton Ventures, LLC does
not have any ownership interest in DPL or DP&L.
During October 1992, our Board of Directors
approved the formation of a Company-sponsored
Employee Stock Ownership Plan (ESOP) to fund
matching contributions to DP&L’s 401(k) retirement
savings plan and certain other payments to eligible full-
time employees. This leveraged ESOP is funded by an
exempt loan, which is secured by the ESOP shares. As
debt service payments are made on the loan, shares
are released on a pro-rata basis. ESOP shares used
to fund matching contributions to DP&L’s 401(k) vest
after three years of service; other compensation shares
awarded vest immediately.
In general, participants are eligible for lump sum
payments upon termination of their employment and
the submission and subsequent approval of an appli-
cation for benefits. Earlier distributions can occur for
Qualified Domestic Relations Order and for death.
Otherwise, distribution must occur within 60 days after
the plan year in which the later of one of the following
events occur: 65th birthday if already left the Company,
10th anniversary of participation if already left the
Company or termination after age 65. Distributions
are made in cash unless the participant requests the
distribution be made in Stock. A repurchase obligation
exists for vested shares held by the ESOP if they can-
not be sold in the open market. The fair value of shares
subject to the repurchase obligation at December 31,
2007 is approximately $52.5 million.
In 1992, the Plan entered into a $90 million loan
agreement with DPL in order to purchase shares of
DPL common stock in the open market. The term loan
agreement provided for principal and interest on the
loan to be paid prior to October 9, 2007, with the right
to extend the loan for an additional ten years. In 2007,
the maturity date was extended to October 7, 2017.
The loan bears interest at a fixed rate of 7.625%, pay-
able annually. Dividends received by the ESOP for
unallocated shares are used to repay the principal and
interest on the ESOP loan to DPL. Dividends on the
allocated shares are charged to retained earnings.
The ESOP used the full amount of the loan to pur-
chase 4.7 million shares of our common stock in the
open market. As a result of the 1997 stock split, the
ESOP held 7.1 million shares of our common stock. The
cost of shares held by the ESOP and not yet released
is reported as a reduction of shareholders’ equity. At
December 31, 2007, common shareholders’ equity is
reduced for the cost of 3.2 million unreleased shares
held in suspense by the trust. The fair value of the 3.2
million ESOP shares held in suspense at December 31,
2007 was $95.3 million. When shares are committed
to be released from the ESOP, compensation expense
is recorded based on the fair value of the shares com-
mitted to be released, with a corresponding credit to
our equity. Compensation expense associated with the
ESOP, which is based on the fair value of the shares
committed to be released for allocation, amounted to
$9.0 million in 2007, $4.1 million in 2006 and $3.1 mil-
lion in 2005.
For purposes of earnings per share (“EPS”) com-
putations and in accordance with SOP 93-6, we treat
ESOP shares as outstanding if they have been allo-
cated to participants, released or committed to be
released. As of December 31, 2007, the ESOP has 3.7
million shares allocated to participants with an addi-
tional 0.2 million shares which have been released but
unallocated to participants. ESOP cumulative shares
outstanding for the calculation of earnings per share
were 3.9 million in 2007, 3.4 million in 2006 and 3.2
million in 2005.
DPL Inc.
87
In April 2006, DPL’s Shareholders approved The DPL Inc. Equity and Performance Incentive Plan (the EPIP)
which became immediately effective and will remain in effect for a term of ten years, unless sooner terminated in
accordance with its terms. The Compensation Committee of the Board of Directors will designate the employees
and directors eligible to participate in the EPIP and the times and types of awards to be granted. Under the
EPIP, the Compensation Committee may grant equity-based compensation in the form of stock options, stock
appreciation rights, restricted stock, restricted stock units, performance shares and units, and other stock-based
awards. Awards may be subject to the achievement of certain management objectives. In addition, the EPIP
provides, upon recommendation of the Chief Executive Officer and Chairman of the Board, for a grant of a special
equity award to recognize outstanding performance. A total of 4,500,000 shares of the Company’s common
stock were reserved for issuance under the EPIP.
14 Earnings per Share
Basic earnings per share (EPS) are based on the weighted-average number of DPL common shares outstanding
during the year. Diluted EPS are based on the weighted-average number of DPL common and common equivalent
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 DP&L’s
Master Trust Plan for deferred compensation and unreleased shares held in ESOP.
The following table represents common equivalent shares excluded from the calculation of diluted EPS
because they were anti-dilutive. These shares may be dilutive in the future.
$ in millions
Common equivalent shares
2007
0.1
2006
0.4
2005
0.5
The following illustrates the reconciliation of the numerators and denominators of the basic and diluted EPS
computations for income after discontinued operations and cumulative effect of accounting change:
$ in millions
except per share amounts
2007
Income(a) Shares Per Share
2006
Income(a) Shares Per Share
2005
Income(a)
Shares Per Share
Basic EPS
$ 221.8
107.9
$ 2.06
$ 139.6
112.3
$ 1.24
$ 174.4
121.0
$ 1.44
Effect of Dilutive Securities:
Stock Incentive Units
Warrants
Stock options, performance
and restricted shares
0.5
8.6
0.8
1.3
7.1
1.2
1.2
6.1
0.8
Diluted EPS
$ 221.8
117.8
$ 1.88
$ 139.6
121.9
$ 1.15
$ 174.4
129.1
$ 1.35
(a) Income after discontinued operations and cumulative effect of accounting change.
15 Executive Litigation
On May 21, 2007, we settled the litigation with three former executives. As part of this settlement, the three former
executives relinquished and dismissed all their claims including those related to certain deferred compensation,
RSUs, MVE incentives, stock options and legal fees. The RSUs and stock options relinquished and forfeited
were 1.3 million and 3.6 million, respectively. Prior to the settlement date, we had accrued obligations of $64.2
million. Included in these amounts was $3.1 million associated with the forfeiture of stock options. In exchange for
our payment of $25 million and the relinquishment by the former executives of certain contested compensation
discussed above, all of these claims by all parties were settled and released.
As a result of this settlement during the second quarter ended June 30, 2007, DPL realized a net pre-tax
gain in continuing and discontinued operations of approximately $31.0 million and $8.2 million, respectively.
The net gain is comprised of the reversal of the $64.2 million of accrued obligations less the $25 million settlement.
The obligations related to the discontinued operations were associated with the management of DPL’s financial
88 DPL Inc.
asset portfolio, which was conducted in our MVE sub-
sidiary. The MVE operations were discontinued in 2005
with the sale of the financial asset portfolio. The $25
million settlement expense was allocated between con-
tinuing and discontinued operations based on
the proportionate share of continuing and discontinued
obligations. The following table outlines the compo-
nents of DPL’s net pre-tax gain for continuing and
discontinued operations:
$ in millions
Continuing operations:
Reversal of accrued obligations
Allocated settlement expense
Net gain from continuing operations
Discontinued operations:
Reversal of accrued obligations
Allocated settlement expense
Net gain from discontinued operations
$ 50.8
(19.8)
$ 31.0
$ 13.4
(5.2)
$ 8.2
As a result of this settlement during the second quarter
ended June 30, 2007, DP&L realized a net pre-tax gain
in continuing operations of $35.3 million. Accrued obli-
gations associated with the former executives’ litigation
were recorded by DP&L since the obligations were
associated with our non-qualified benefit plans. DP&L
had no ownership of DPL’s discontinued financial
asset portfolio business, therefore these liabilities were
reversed and DP&L’s net pre-tax gain was recorded
within continuing operations. The following table out-
lines the components of DP&L’s net gain:
$ in millions
Continuing operations:
Reversal of accrued obligations
Allocated settlement expense
Net gain from continuing operations
$ 60.3
(25.0)
$ 35.3
The $25 million settlement was funded from the sale of
financial assets held in DP&L’s Master Trust Plan for
deferred compensation. As part of this transaction dur-
ing the second quarter ended June 30, 2007, DPL and
DP&L recorded a $3.2 million realized gain which is
reflected in investment income.
16 Insurance Recovery
On April 30, 2007, DP&L executed a settlement
agreement for $14.5 million with one of our insurers,
Associated Electric & Gas Insurance Services (AEGIS),
under a fiduciary liability policy to recoup a portion
of legal fees associated with our litigation against three
former executives. This was recorded as a reduction
to operation and maintenance expense during the
second quarter ended June 30, 2007.
On May 16, 2007, DPL and DP&L notified another
of our insurers, Energy Insurance Mutual Limited, under
an excess fiduciary liability policy, of our intent to
pursue a claim for additional legal fees that DPL and
DP&L incurred in defending claims made by the three
former executives. That claim is pending.
17 Contractual Obligations, Commercial
Commitments and Contingencies
DPL Inc. – Guarantees
In the normal course of business, DPL enters into vari-
ous agreements with our wholly-owned generating
subsidiary DPLE providing financial or performance
assurance to third parties. These agreements are
entered into primarily to support or enhance the cred-
itworthiness otherwise attributed to DPLE on a stand-
alone basis, thereby facilitating the extension of suffi-
cient credit to accomplish DPLE’s intended commercial
purposes. Such agreements fall outside the scope of
FASB Interpretation No. 45, “Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.”
At December 31, 2007, DPL had $33.3 million of
guarantees to third parties for future financial or perfor-
mance assurance under such agreements, on behalf
of DPLE. The guarantee arrangements entered into
by DPL with these third parties cover all present and
future obligations of DPLE to such beneficiaries and
are terminable at any time by DPL upon written notice
to the beneficiaries. The carrying amount of obligations
for commercial transactions covered by these guaran-
tees and recorded in our consolidated balance sheets
was $0.5 million at December 31, 2007.
In two separate transactions in November and
December 2006, DPL also agreed to be a guarantor
of the obligations of DPLE regarding the sale, in April
2007, of the Darby Electric Peaking Station to American
Electric Power and the sale of the Greenville Electric
Peaking Station to Buckeye Electric Power, Inc. In both
cases, DPL agreed to guarantee the obligations of
DPLE over a multiple year period as follows:
$ in millions
Darby
Greenville
2008
$ 23.0
$ 11.1
2009
$ 15.3
$ 7.4
2010
$ 7.7
$ 3.7
We believe it is unlikely that either DPL or DP&L
would be required to perform or incur any losses
associated with any of the above guarantees of
DPLE’s obligations.
DPL Inc.
89
DP&L – Equity Ownership Interest
DP&L owns a 4.9% equity ownership interest in an electric generation company. As of December 31, 2007,
DP&L could be responsible for the repayment of 4.9%, or $36.5 million, of a $745 million debt obligation that
matures in 2026.
Other than the guarantees discussed above, DPL and DP&L do not have any other off-balance
sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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, 2007, these include:
Contractual Obligations
Payment Year
$ in millions
Total
2008
2009-2010
2011-2012
Therafter
DPL Inc.
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts
Reserve for uncertain tax positions
Other contractual obligations
Total contractual obligations
DP&L
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts
Reserve for uncertain tax positions
Other contractual obligations
Total contractual obligations
(a) DP&L-operated units
$ 1,641.8
1,154.9
234.7
2.0
0.6
874.0
57.0
65.3
220.0
$ 4,250.3
$ 874.4
685.0
234.7
2.0
0.6
874.0
57.0
65.3
220.0
$ 3,013.0
$ 100.0
96.3
22.4
0.7
0.3
321.5
4.3
–
154.0
$ 699.5
$
–
43.6
22.4
0.7
0.3
321.5
4.3
–
154.0
$ 546.8
$ 175.0
163.4
45.5
1.3
0.2
507.5
10.5
65.3
56.1
$ 1,024.8
$
–
87.3
45.5
1.3
0.2
507.5
10.5
65.3
56.1
$ 773.7
$ 297.4
132.6
46.4
–
0.1
45.0
11.2
–
7.5
$ 540.2
$
–
87.3
46.4
–
0.1
45.0
11.2
–
7.5
$ 197.5
$ 1,069.4
762.6
120.4
–
–
–
31.0
–
2.4
$ 1,985.8
$ 874.4
466.8
120.4
–
–
–
31.0
–
2.4
$ 1,495.0
Long-term debt:
DPL’s long-term debt as of December 31, 2007,
consists of DP&L’s first mortgage bonds, tax-exempt
pollution control bonds, DPL unsecured notes and
includes current maturities and unamortized debt
discounts. During 2007, DP&L entered into $90 million
of tax-exempt pollution control bonds due in 2040.
DP&L’s long-term debt as of December 31, 2007,
consists of first mortgage bonds, tax-exempt
pollution control bonds and includes an unamortized
debt discount.
See Note 7 of Notes to Consolidated Financial
Statements.
Interest payments:
Interest payments associated with the long-term
debt described above.
Pension and postretirement payments:
As of December 31, 2007, DP&L had estimated future
benefit payments as outlined in Note 9 of Notes to
Consolidated Financial Statements. These estimated
future benefit payments are projected through 2017.
Capital leases:
As of December 31, 2007, DP&L had one capital lease
that expires in September 2010.
Operating leases:
As of December 31, 2007, DPL and DP&L had several
operating leases with various terms and expiration dates.
Coal contracts:
DP&L has entered into various long-term coal con-
tracts to supply portions of its coal requirements
for its generating plants. Contract prices are subject
90 DPL Inc.
to periodic adjustment and have features that limit
price escalation in any given year.
Limestone contracts:
DP&L has entered into various limestone contracts to
supply limestone for its generating facilities.
Reserve for uncertain tax positions
On January 1, 2007, we adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (FIN 48).
As of December 31, 2007, our total reserve for uncer-
tain tax positions is $65.3 million including interest
($42.5 million net of federal tax benefit). See Note 1 of
Notes to Consolidated Financial Statements.
Other contractual obligations:
As of December 31, 2007, DPL and DP&L had various
other contractual obligations including non-cancelable
contracts to purchase goods and services with various
terms and expiration dates.
We enter into various commercial commitments,
which may affect the liquidity of our operations.
At December 31, 2007, these include:
Credit facilities:
In November 2006, DP&L replaced its previous $100
million revolving credit agreement with a $220 million
five year facility that expires on November 21, 2011.
At December 31, 2007, there were no borrowings out-
standing under this credit agreement. DP&L has the
ability to increase the size of the facility by an addi-
tional $50 million at any time.
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
adequate in light of the probable and estimable contin-
gencies. 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 consoli-
dated financial statements. As such, costs, if
any, that may be incurred in excess of those amounts
provided as of December 31, 2007, cannot be
reasonably determined.
Environmental Matters
DPL, DP&L and our subsidiaries’ facilities and opera-
tions are subject to a wide range of environmental
regulations and law. In the normal course of business,
we have investigatory and remedial activities underway
at these facilities to comply, or to determine compli-
ance, with such regulations. We have been identified,
either by a government agency or by a private party
seeking contribution to site clean-up costs, as a
potentially responsible party (PRP) at two sites pursu-
ant to state and federal laws. We record liabilities for
probable estimated loss in accordance with Statement
of Financial Accounting Standards No. 5 (SFAS 5),
“Accounting for Contingencies” as discussed in Note 1
of Notes to Consolidated Financial Statements.
We evaluate the potential liability related to probable
losses quarterly and may revise our estimates. Such
revisions in the estimates of the potential liabilities
could have a material effect on our results of opera-
tions and financial position.
18 Legal Matters
Legal Matters
State Income Tax Audit
On February 13, 2006, we received correspondence
from the Ohio Department of Taxation (ODT) notify-
ing us that ODT had completed their examination
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
are vigorously contesting the ODT findings and notice
of assessment through all administrative and judicial
means available. On March 29, 2006, we filed peti-
tions for reassessment with the ODT to protest each
assessment as well as request corrected assessments
for each tax year. On October 12, 2006, we signed
a Memorandum of Understanding with the ODT that
stated if the ODT’s positions are ultimately sustained
in judicial proceedings, the total additional tax liability
that we would be subject to for tax years 2002 through
2004 would be no more than $50.7 million before inter-
est as opposed to the $90.8 million stated in the ODT’s
correspondence of February 13, 2006. We believe
we have recorded adequate tax reserves related to the
proposed adjustments; however, we cannot predict
DPL Inc.
91
the outcome, which could be material to our results
of operations and cash flows.
We are also under audit review by various state
agencies for tax years 2002 through 2006. 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.
Environmental
On April 2, 2007, the U.S. Supreme Court unani-
mously overturned the rulings of two lower courts and
concluded that the CAA’s New Source Review (NSR)
requirements are triggered when a major physical or
operational change at a facility results in an increase in
the facility’s annual emissions (Environmental Defense
et al. v. Duke Energy Corp. et al.). The outcome of this
case is significant to DP&L because it eliminates one
of DP&L’s major arguments in the lawsuit filed against
it by the Sierra Club. The Court decided that an annual
rate of emissions could be used to determine if major
modifications have been made to a plant as opposed
to an hourly emission rate as Duke had argued. Using
the annual rate makes it more likely that most plant
modifications will be found to be “major” modifications,
thus requiring EPA permits. DP&L can still defend
against the allegations of NSR violations if it can
establish that the activities at issue did not cause total
annual emissions to increase or that the projects that
resulted in increased emissions were undertaken for
routine maintenance, repair and replacement activities.
In September 2004, the Sierra Club filed a law-
suit 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 viola-
tions of the CAA, including issues similar to those pre-
sented in the Duke Energy case and other issues relat-
ing to alleged violations of opacity limitations. DP&L,
on behalf of all co-owners, is leading the defense of
this matter. A sizable amount of discovery has taken
place and expert reports were filed at various times
from May through September, 2007. On February 14,
2008, upon the request of the Sierra Club, DP&L and
the other owners of the Stuart generating station, the
Court approved another sixty day stay of proceedings
to permit the parties the opportunity to determine if a
settlement of the case could be reached. Settlement
negotiations are ongoing.
Governmental and Regulatory Inquiries
On May 28, 2004, the U.S. Attorney’s Office for the
Southern District of Ohio, assisted by the Federal
Bureau of Investigation, notified DPL and DP&L 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. DPL and DP&L are cooperating with
the investigation.
92 DPL Inc.
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, 2007 and 2006, 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, 2007. 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, 2007. We also have audited the Company’s internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consoli-
dated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial
statements and an opinion on the Company’s internal control over financial reporting 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 audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the consolidated financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
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 reason-
able 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
procedures may deteriorate.
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, 2007 and 2006, and the results of their operations and
their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with account-
ing principles generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) and the related financial statement schedule when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all material respects, the information
set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2007 the Company
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.
/s/ KPMG LLP
KPMG LLP
Kansas City, Missouri
February 22, 2008
DPL Inc.
93
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholder of
The Dayton Power and Light Company:
We have audited the accompanying consolidated balance sheets of The Dayton Power and Light Company (DP&L)
as of December 31, 2007 and 2006, and the related consolidated statements of results of operations, shareholder’s
equity and cash flows for each of the years in the three-year period ended December 31, 2007. 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, 2007. We also have audited DP&L’s internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). DP&L’s management is responsible for these consolidated
financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial
statements and an opinion on DP&L’s internal control over financial reporting 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 audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
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 reason-
able 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
procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of DP&L as of December 31, 2007 and 2006, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2007, in conformity with accounting prin-
ciples generally accepted in the United States of America. Also in our opinion, DP&L maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and the related financial statement schedule when considered in relation to the basic consoli-
dated financial statements taken as a whole, present fairly in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2007 the Company
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.
/s/ KPMG LLP
KPMG LLP
Kansas City, Missouri
February 22, 2008
94 DPL Inc.
DPL Inc. – Selected Quarterly Information (Unaudited)
$ in millions
Revenues
Operating Income
Earnings from
continuing operations
Earnings from discontinued
operations, net of taxes
Net income
Basic earnings per share of
common stock:
Continuing operations
Discontinued operations
Total basic earnings per
common share
Diluted earnings per share of
common stock:
Continuing operations
Discontinued operations
Total diluted earnings per
common share
For the three months ended
March 31,
June 30,
September 30,
2007
2006
2007
2006
2007
2006
$ 379.7 $ 341.1
103.2
103.5
$ 343.1 $ 309.0 $ 422.0 $ 392.4
98.5
110.8
69.4
55.9
December 31,
2007
2006 (a)
$ 370.9
86.4
$ 350.9
23.4
51.2
51.3
53.6
22.6
60.7
47.4
46.3
4.3
4.9
7.6
$ 56.1 $ 58.9
5.1
3.4
$ 58.7 $ 22.6 $ 60.7 $ 50.8
–
–
–
$ 46.3 $
3.0
7.3
$ 0.48 $ 0.43
0.06
0.04
$ 0.50 $ 0.20 $ 0.56
–
0.04
–
$ 0.44
0.03
$ 0.43 $ 0.04
0.03
–
$ 0.52 $ 0.49
$ 0.54 $ 0.20 $ 0.56
$ 0.47
$ 0.43 $ 0.07
$ 0.43 $ 0.40
0.06
0.04
$ 0.45 $ 0.18 $ 0.53
–
0.04
–
$ 0.40
0.03
$ 0.40 $ 0.04
0.02
–
$ 0.47 $ 0.46
$ 0.49 $ 0.18 $ 0.53
$ 0.43
$ 0.40 $ 0.06
Dividends paid per share
$ 0.26 $ 0.25
$ 0.26 $ 0.25 $ 0.26
$ 0.25
$ 0.26 $ 0.25
Common stock market price
- High
- Low
$ 31.44 $ 27.58
$ 27.56 $ 25.11
$ 31.91 $ 27.82 $ 29.36
$ 28.08 $ 26.25 $ 26.04
$ 27.93
$ 26.74
$ 30.83 $ 28.72
$ 26.05 $ 27.16
(a) Earnings from continuing operations in the fourth quarter of 2006 included a $44.2 million ($71 million pre-tax) impairment charge resulting
from DPL’s decision to sell two of its peaking stations. See Note 5 of Notes to Consolidated Financial Statements.
DP&L – Selected Quarterly Information (Unaudited)
$ in millions
2007
2006
2007
2006
2007
2006
2007
2006
March 31,
June 30,
September 30,
December 31,
For the three months ended
Revenues
Operating Income
Income before income taxes
Net Income
Earnings on common stock
Cash dividends paid
$ 377.5 $ 339.1
115.5
114.7
111.6
110.2
66.9
69.8
66.7
69.6
$ 125.0
–
$
$ 342.1 $ 306.7 $ 419.6
113.2
112.7
70.6
70.4
–
59.7
94.7
59.1
58.9
–
72.7
69.5
44.0
43.8
–
$
$
$
$ 390.3
107.1
103.0
64.0
63.8
–
$
$ 368.2
87.5
95.7
72.1
71.8
$
–
$ 349.1
107.2
101.9
67.5
67.3
$ 100.0
DPL Inc.
95
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:
(i) to ensure that information required to be disclosed
by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in
the SEC’s rules and forms and (ii) to ensure that infor-
mation required to be disclosed by us in the reports
that we submit under the Exchange Act is accumulated
and communicated to our management, including our
principal executive and principal financial officers,
or persons performing similar functions, as appropriate,
to allow timely decisions regarding required disclosure.
financial reporting during the most recently completed
fiscal period that has materially affected, or is
reasonably likely to materially affect, internal control
over reporting.
The following report is our report on internal control
over financial reporting as of December 31, 2007.
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
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, 2007.
Our internal control over financial reporting as of
December 31, 2007, has been audited by KPMG LLP,
the independent registered public accounting firm that
audited the financial statements contained herein, as
stated in their report which is included herein.
Item 9b Other Information
There was no change in our internal control over
None.
96 DPL Inc.
Part III
Item 10 Directors and Executive Officers
of DPL Inc.
Item 13 Certain Relationships and
Related Transactions
The information required to be furnished pursuant to
this item with respect to Directors of DPL Inc. will be
set forth under captioned “Election of Directors” in DPL
Inc.’s proxy statement (the Proxy Statement) to be fur-
nished to shareholders in connection with the solicita-
tion of proxies by our Board of Directors for use at the
2008 Annual Meeting of Shareholders to be held on
April 23, 2008 and is incorporated herein by reference.
The information required to be furnished pursuant
to this item for DPL Inc. with respect to the identifi-
cation 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 for DPL Inc. will be set forth under the caption
“Executive Compensation” in the Proxy Statement and
is incorporated herein by reference.
Item 12 Security Ownership of Certain
Beneficial Owners and Management and
Related Shareholder Matters
The information required to be furnished pursuant
to this item for DPL Inc. 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 incorporated herein by reference.
The information required to be furnished pursuant to
this item for DPL Inc. 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 for DPL Inc. will be set forth under the caption
“Audit and Non-Audit Fees” in the Proxy Statement
and is incorporated herein by reference.
DP&L Accountant Fees and Services
The following table presents the aggregate fees billed
for professional services rendered to us by KPMG LLP
for 2007 and 2006. Other than as set forth below,
no professional services were rendered or fees billed
by KPMG LLP during 2007 and 2006.
KPMG LLP
Fees Invoiced 2007
Fees Invoiced 2006
Audit Fees (1)
Audit-Related Fees (2)
Tax Fees (3)
All Other Fees (4)
Total
$ 1,211,577
96,799
–
–
$ 1,308,376
$ 1,762,728
147,030
–
–
$ 1,909,758
(1) Audit fees relate to professional services rendered for the
audit of our annual financial statements and the reviews of our
quarterly financial statements.
(2) Audit-related fees relate to services rendered to us for assurance
and related services.
(3) Tax fees relate to services rendered to us for tax compliance,
tax planning and advice.
(4) Other services performed include certain advisory services in
connection with accounting research and do not include any fees
for financial information systems design and implementation.
DPL Inc.
97
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.
DPL Inc. – Consolidated Statements of Results of Operations
for each of the three years in the period ended December 31, 2007
DPL Inc. – Consolidated Statements of Cash Flows
for each of the three years in the period ended December 31, 2007
DPL Inc. – Consolidated Balance Sheets at December 31, 2007 and 2006
DPL Inc. – Consolidated Statements of Shareholders’ Equity
for each of the three years in the period ended December 31, 2007
DP&L – Consolidated Statements of Results of Operations
for each of the three years in the period ended December 31, 2007
DP&L – Consolidated Statements of Cash Flows
for each of the three years in the period ended December 31, 2007
DP&L – Consolidated Balance Sheets at December 31, 2007 and 2006
DP&L – Consolidated Statements of Shareholders’ Equity
for each of the three years in the period ended December 31, 2007
Notes to Consolidated Financial Statements
DPL Inc. – Report of Independent Registered Public Accounting Firm
DP&L – Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedule
For each of the three years in the period ended December 31, 2007:
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.
49
50
51
52
53
54
55
56
57
93
94
107
98 DPL Inc.
3. Exhibits
DPL and DP&L exhibits are incorporated by reference as described unless otherwise filed as set forth herein.
The exhibits filed as part of DPL’s and DP&L’s Annual Report on Form 10-K, respectively, are:
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
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
Location (1)
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)
✔
3(b)
Amended Regulations of DPL Inc. as of April 27, 2007
Filed herewith as Exhibit 3(b)
✔
3(c)
Copy of Amended Articles of Incorporation of
The Dayton Power and Light Company
dated January 4, 1991
✔
3(d)
Regulations of The Dayton Power and Light Company
✔
✔
4(a)
✔
✔
4(b)
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
Copy of Forty-First Supplemental Indenture dated
as of February 1, 1999, between DP&L and The Bank
of New York, Trustee
✔
✔
4(c)
Copy of Forty-Second Supplemental Indenture
dated as of September 1, 2003, between DP&L and
The Bank of New York, Trustee
✔
✔
4(d)
Copy of Forty-Third Supplemental Indenture dated
as of August 1, 2005, between DP&L and The Bank
of New York, Trustee
✔
✔
4(e)
Copy of Rights Agreement between DPL Inc. and
Equiserve Trust Company, N.A.
✔
4(f)
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 3(b) to Report on
Form 10-K/A for the year
ended December 31, 1991
(File No. 1-2385)
Exhibit 3(a) to Report on
Form 8-K filed on
April 30, 2004
(File No. 1-2385)
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)
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 filed on
August 24, 2005
(File No. 1-2385)
Exhibit 4 to Report on
Form 8-K dated
September 25, 2001
(File No. 1-9052)
Exhibit 99(b) to
Schedule TO-I dated
February 4, 2000
(File No. 1-9052)
DPL Inc.
99
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
4(g)
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.
✔
4(h)
Copy of Warrant Form initially issued as of
February 1, 2000
✔
4(i)
✔
4(j)
✔
4(k)
✔
4(l)
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.
Location (1)
Exhibit 4(g) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 4(h) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 4(i) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 4(j) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 4(k) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 4(j) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
✔
4(m)
Officer’s Certificate of DPL Inc. establishing $175 million Exhibit 4.1 to Form 8-K,
filed on March 29, 2004
Senior Note due 2009, dated March 25, 2004
(File No. 1-9052)
✔
4(n)
Exchange and Registration Rights Agreement dated
March 25, 2004 between DPL Inc. and the purchasers
Exhibit 4.2 to Form 8-K,
filed on March 29, 2004
(File No. 1-9052)
4(o)
4(p)
4(q)
4(r)
4(s)
4(t)
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
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 Statement No. 333-74630
between DPL Inc. and The Bank of New York
Exhibit 4(b) to Registration
✔
✔
✔
✔
✔
✔
100 DPL Inc.
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
4(u)
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
Location (1)
Exhibit 4(c) to Registration
Statement No. 333-74630
✔
4(v)
Forty Fourth Supplemental Indenture to the First
and Refunding Mortgage, dated as of
September 1, 2006 between the Bank of New York, as
trustee and The Dayton Power and Light Company
Exhibit 4.2 to Form 8-K
filed on September 19, 2006
(File No. 1-2385)
✔
4(w)
Exchange and Registration Rights Agreement dated
as of August 24, 2001 among DPL Inc., DPL Capital
Trust II and Morgan Stanley & Co., Incorporated
Exhibit 4(d) to Registration
Statement No. 333-74630
✔
4(x)
Forty Fifth Supplemental Indenture to the First
and Refunding Mortgage, dated as of November 1,
2007 between the Bank of New York, as trustee and
The Dayton Power & Light Company
✔
✔
10(a)*
Copy of Directors’ Deferred Stock Compensation Plan
amended December 31, 2000
✔
✔
10(b)*
Copy of 1991 Amended Directors’ Deferred
Compensation Plan as amended and restated
through December 31, 2007
Filed herewith as Exhibit 4(x)
Exhibit 10(a) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
Filed herewith as Exhibit 10(b)
✔
✔
10(c)*
Copy of Management Stock Incentive Plan as
amended and restated through December 31, 2007
Filed herewith as Exhibit 10(c)
✔
✔
10(d)*
Copy of Key Employees Deferred Compensation
Plan amended December 31, 2000
✔
✔
10(e)*
Amendment No. 1 to Key Employees Deferred
Compensation Plan amended December 31, 2000
and dated as of December 7, 2004
✔
✔
10(f)*
Copy of Supplemental Executive Retirement Plan
amended February 1, 2000
✔
✔
10(g)*
Amendment No. 1 to Supplemental Executive
Retirement Plan amended February 1, 2000 and
dated as of December 7, 2004
✔
✔
10(h)*
Copy of Stock Option Plan
Exhibit 10(d) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
Exhibit 10(g) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 10(e) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-2385)
Exhibit 10(i) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 10(f) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
DPL Inc. 101
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
10(i)*
2003 Long-Term Incentive Plan of DPL Inc. dated
as of January 20, 2003
✔
10(j)*
Summary of Executive Life Insurance Plan
✔
10(k)*
Summary of Executive Medical Insurance Plan
Location (1)
Exhibit 10(aa) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 10(l) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 10(m) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
✔
✔
10(l)*
DPL Inc. Executive Incentive Compensation Plan
as amended and restated through December 31, 2007
Filed herewith as Exhibit 10(l)
✔
✔
10(m)* DPL Inc. 2006 Equity and Performance Incentive Plan
as amended and restated through December 31, 2007
Filed herewith as Exhibit 10(m)
✔
✔
10(n)*
Form of the Long-Term Incentive Plan –
Performance Shares Agreement as amended
October 26, 2007
Filed herewith as Exhibit 10(n)
✔
✔
10(o)*
DPL Inc. Severance Pay and Change of Control Plan
as amended and restated through December 31, 2007
Filed herewith as Exhibit 10(o)
✔
✔
10(p)*
DPL Inc. Supplemental Executive Defined Contribution
Retirement Plan as amended and restated through
December 31, 2007
Filed herewith as Exhibit 10(p)
✔
10(q)*
DPL Inc. 2006 Deferred Compensation Plan
For Executives as amended and restated through
December 31, 2007
Filed herewith as Exhibit 10(q)
✔
10(r)*
DPL Inc. Pension Restoration Plan as amended
and restated through December 31, 2007
Filed herewith as Exhibit 10(r)
✔
✔
10(s)*
✔
✔
10(t)*
✔
✔
10(u)*
✔
✔
10(v)*
✔
✔
10(w)*
Participation Agreement dated August 2, 2007
among DPL Inc., The Dayton Power & Light
Company and Teresa F. Marrinan
Participation Agreement dated March 27, 2007
among DPL Inc., The Dayton Power & Light
Company and Scott J. Kelly
Participation Agreement and Waiver dated
February 27, 2007 among DPL Inc., The Dayton
Power & Light Company and Gary G. Stephenson
Participation Agreement and Waiver dated
February 23, 2006 among DPL Inc., The Dayton
Power & Light Company and Miggie E. Cramblit
Participation Agreement and Waiver dated
February 24, 2006 among DPL Inc., The Dayton
Power & Light Company and Joseph R. Boni III
Filed herewith as Exhibit 10(s)
Filed herewith as Exhibit 10(t)
Filed herewith as Exhibit 10(u)
Filed herewith as Exhibit 10(v)
Filed herewith as Exhibit 10(w)
102 DPL Inc.
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
10(x)*
Participation Agreement dated January 13, 2007
among DPL Inc., The Dayton Power & Light Company
and Daniel J. McCabe
Location (1)
Filed herewith as Exhibit 10(x)
✔
✔
10(y)*
Employment agreement dated as of
December 14, 2004 between DPL Inc., The Dayton
Power and Light Company and John J. Gillen
Exhibit 10.2 to Form 8-K
filed on December 28, 2004
(File No. 1-9052)
✔
✔
10(z)*
Management Stock Option Agreement dated
as of December 29, 2004 between DPL Inc. and
John J. Gillen
✔
✔
10(aa)* Participation Agreement and Waiver dated
June 29, 2006 between DPL Inc., The Dayton
Power and Light Company and John J. Gillen
✔
✔
10(bb)* Employment agreement dated as of
September 17, 2003, between DPL Inc. and
W. Steven Wolff
✔
✔
10(cc)* Change of Control Agreement dated as of
September 10, 2004, between DPL Inc., The Dayton
Power and Light Company and W. Steven Wolff
✔
✔
10(dd)* Participation Agreement and Waiver among
DPL Inc., The Dayton Power and Light Company
and W. Steven Wolff, dated February 24, 2006
✔
✔
10(ee)* Employment Agreement dated as of
December 17, 2003 between DPL Inc and
Patricia K. Swanke
✔
✔
10(ff)*
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
✔
✔
10(gg)* Participation Agreement and Waiver among
DPL Inc., The Dayton Power and Light Company and
Patricia K. Swanke, dated February 28, 2006
✔
✔
10(hh)* 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
Exhibit 10(u) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 10.2 to Form 8-K
filed on July 3, 2006
(File No. 1-9052)
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 10.7 to Form 8-K
filed on March 2, 2006
(File No. 1-9052)
Exhibit 10(l) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 10(s) to Report on
Form 10-K for the year
ended December 31, 2004
(File No. 1-9052)
Exhibit 10.6 to Form 8-K
filed on March 2, 2006
(File No. 1-9052)
Exhibit 10(ee) to Report on
Form 8-K filed on
September 23, 2004
(File No. 1-9052)
✔
✔
10(ii)*
Employment agreement dated as of June 9, 2003,
as amended by attached letter dated October 18, 2004, Form 10-K for the year
between DPL Inc., The Dayton Power and Light
Company and Miggie E. Cramblit
ended December 31, 2003
(File No. 1-9052)
Exhibit 10(gg) to Report on
DPL Inc. 103
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
10(jj)*
Change of Control Agreement dated as of
December 15, 2000 between DPL Inc., The Dayton
Power and Light Company and Arthur G. Meyer
✔
✔
10(kk)* Management Stock Option Agreement dated as of
January 1, 2001 between DPL Inc. and Arthur G. Meyer
Location (1)
Exhibit 10(bb) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 10(cc) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
✔
✔
10(ll)*
Participation Agreement and Waiver among
DPL Inc., The Dayton Power and Light Company and
Arthur G. Meyer, dated March 6, 2006
Exhibit 10.2 to Form 8-K
filed on March 10, 2006
(File No. 1-9052)
✔
✔
10(mm)* Participation Agreement dated September 8, 2006
between DPL Inc., The Dayton Power and Light
Company and Paul M. Barbas
✔
✔
10(nn)* Participation Agreement dated June 30, 2006
between DPL Inc., The Dayton Power and Light
Company and Frederick J. Boyle
✔
10(oo)* Letter Agreement between DPL Inc.
and Glenn E. Harder dated June 20, 2006
Exhibit 10.2 to Form 8-K
filed on September 8, 2006
(File No. 1-9052)
Exhibit 10.1 to Form 8-K
filed on July 3, 2006
(File No. 1-9052)
Exhibit 10.1 to Form 8-K
filed on June 20, 2006
(File No. 1-9052)
✔
10(pp)
Purchase and Sale Agreement dated as of
February 13, 2005 between MVE, Inc., Miami Valley
Insurance Company and AlpInvest/Lexington 2005, LLC
Exhibit 10.1 to Form 8-K
filed on February 18, 2005
(File No. 1-9052)
✔
10(qq)
Asset Purchase Agreement dated as of
December 21, 2006 between DPL Energy, LLC and
Buckeye Power, Inc.
Exhibit 10(xx) to Form 10-K
filed on February 22, 2007
(File No. 1-9052)
✔
10(ss)
Asset Purchase Agreement dated as of
November 28, 2006 between DPL Energy, LLC and
Columbus Southern Power Company
Exhibit 10(yy) to Form 10-K
filed on February 22, 2007
(File No. 1-9052)
✔
10(tt)
Revolving Credit Agreement, dated as of
November 21, 2006 between KeyBank N.A., JPMorgan
Chase, N.A., Fifth Third Bank and The Dayton Power
and Light Company
Exhibit 10.1 to Form 8-K
filed on November 28, 2006
(File No. 1-2385)
✔
✔
10(uu)* Form of DPL Inc. Amended and Restated Non-
Employee Director Restricted Stock Units Agreement
10(vv)* DPL Inc. 2006 Deferred Compensation Plan for
Non-Employee Directors, as amended and restated
through December 31, 2007
Filed herewith as
Exhibit 10(uu)
Filed herewith as
Exhibit 10(vv)
✔
✔
18
Copy of preferability letter relating to change
in accounting for unbilled revenues from
Price Waterhouse LLP
✔
✔
21
List of Subsidiaries of DPL Inc. and of
The Dayton Power & Light Company
Exhibit 10.1 to Form 8-K
filed on February 18, 2005
(File No. 1-9052)
Filed herewith as Exhibit 21
104 DPL Inc.
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
✔
✔
✔
23(a)
Consent of KPMG LLP
31(a)
31(b)
Certifi cation of Chief Executive Offi cer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certifi cation of Chief Financial Offi cer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
✔
31(c)
Certifi cation of Chief Executive Offi cer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
✔
31(d)
Certifi cation of Chief Financial Offi cer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32(a)
32(b)
Certifi cation of Chief Executive Offi cer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certifi cation of Chief Financial Offi cer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
✔
32(c)
Certifi cation of Chief Executive Offi cer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
✔
32(d)
Certifi cation of Chief Financial Offi cer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Location (1)
Filed herewith as
Exhibit 23(a)
Filed herewith as
Exhibit 31(a)
Filed herewith as
Exhibit 31(b)
Filed herewith as
Exhibit 31(c)
Filed herewith as
Exhibit 31(d)
Filed herewith as
Exhibit 32(a)
Filed herewith as
Exhibit 32(b)
Filed herewith as
Exhibit 32(c)
Filed herewith as
Exhibit 32(d)
*Management contract or compensatory plan
(1) Exhibits referencing File No. 1-9052 have been filed by DPL Inc. and those referencing File No. 1-2385 have been
filed by The Dayton Power and Light Company
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.
DPL Inc. 105
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
DPL Inc. and The Dayton Power and Light Company has duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.
February 22, 2008
By:
/s/ Paul M. Barbas
DPL Inc.
Paul M. Barbas
President and Chief Executive Officer
(principal executive officer)
The Dayton Power and Light Company
February 22, 2008
By:
/s/ Paul M. Barbas
Paul M. Barbas
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 DPL Inc. and The Dayton Power and Light Company 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/ F. F. Gallaher
(F. F. Gallaher)
/s/ G. E. Harder
(G. E. Harder)
(W A. Hillenbrand)
/s/ L. L. Lyles
(L. L. Lyles)
/s/ P. M. Barbas
(P. M. Barbas)
/s/ N. J. Sifferlen
(N. J. Sifferlen)
/s/ J. J. Gillen
(J. J. Gillen)
/s/ F. J. Boyle
(F. J. Boyle)
106 DPL Inc.
Director
Director
Director
Director
February 22, 2008
February 22, 2008
February 22, 2008
February 22, 2008
Director and Non-Executive Chairman
February 22, 2008
Director and Vice-Chairman
February 22, 2008
Director
February 22, 2008
Director, President and Chief Executive Officer
February 22, 2008
(principal executive officer)
Director
February 22, 2008
Senior Vice President and Chief Financial Officer
February 22, 2008
(principal financial and principal accounting officer)
Vice President and Chief Accounting Officer
February 22, 2008
Schedule II Valuation and Qualifying Accounts
DPL Inc.
For the years ended December 31, 2005 -2007
$ in thousands
Description
2007:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
2006:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
2005:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
Balance at
Beginning of Period
Additions
Deductions (1)
Balance at
End of Period
$ 1,430
$ 5,678
$ 5,590
$ 1,518
$ 10,132
$ 2,676
$
379
$ 12,429
$ 1,044
$ 4,835
$ 4,449
$ 1,430
$ 6,776
$ 3,356
$
–
$ 10,132
$ 1,085
$ 3,582
$ 3,623
$ 1,044
$ 1,140
$ 5,636
$
–
$ 6,776
(1) Amounts written off, net of recoveries of accounts previously written off.
The Dayton Power and Light Company
For the years ended December 31, 2005 -2007
$ in thousands
Description
2007:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
2006:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
2005:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
Balance at
Beginning of Period
Additions
Deductions (1)
Balance at
End of Period
$ 1,430
$ 5,678
$ 5,590
$ 1,518
$
277
$
71
$
–
$
348
$ 1,044
$ 4,835
$ 4,449
$ 1,430
$
–
$
277
$
–
$
277
$ 1,085
$ 3,582
$ 3,623
$ 1,044
$
–
$
–
$
–
$
–
(1) Amounts written off, net of recoveries of accounts previously written off.
DPL Inc. 107
Exhibit 21 Subsidiaries of DPL Inc.
DPL Inc. had the following subsidiaries on December 31, 2007:
The Dayton Power and Light Company
Miami Valley Insurance Company
DPL Energy, LLC
DPL Finance Company, Inc.
DPL Energy Resources, Inc.
Subsidiaries of The Dayton Power and Light Company
The Dayton Power and Light Company had the following subsidiary on December 31, 2007:
DPL Finance Company, Inc.
State of Incorporation
Ohio
Vermont
Ohio
Delaware
Ohio
State of Incorporation
Delaware
108 DPL Inc.
Exhibit 23a 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
the registration statements (No. 333-39982) and (No. 333-139348) on Forms S-8 of DPL Inc. (the Company)
of our report dated February 22, 2008, with respect to the consolidated balance sheets of DPL Inc. and
subsidiaries as of December 31, 2007 and 2006, 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, 2007,
and the related financial statement schedules, and the effectiveness of internal control over financial reporting
as of December 31, 2007, which report appears in the December 31, 2007 annual report on Form 10-K of
DPL Inc. Our report refers to the Company’s adoption of FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, in 2007.
/s/ KPMG LLP
KPMG LLP
Kansas City, Missouri
February 22, 2008
DPL Inc. 109
Exhibit 31a Certifications
I, Paul M. Barbas, 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
reporting 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 22, 2008
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
110 DPL Inc.
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 caused such internal control over financial
reporting 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 22, 2008
/s/ John J. Gillen
John J. Gillen
Senior Vice President and Chief Financial Officer
DPL Inc. 111
Exhibit 31c Certifications
I, Paul M. Barbas, certify that:
1. I have reviewed this annual report on Form 10-K of The Dayton Power and Light Company;
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
reporting 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 22, 2008
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
112 DPL Inc.
Exhibit 31d Certifications
I, John J. Gillen, certify that:
1. I have reviewed this annual report on Form 10-K of The Dayton Power and Light Company;
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
reporting 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 22, 2008
/s/ John J. Gillen
John J. Gillen
Senior Vice President and Chief Financial Officer
DPL Inc. 113
Exhibit 32a Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
DPL Inc.
The undersigned officer 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, 2007, 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/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
Date: February 22, 2008
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.
Exhibit 32b Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
DPL Inc.
The undersigned officer 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, 2007, 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 22, 2008
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.
114 DPL Inc.
Exhibit 32c Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The Dayton Power and Light Company
The undersigned officer of The Dayton Power and Light Company (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, 2007, 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/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
Date: February 22, 2008
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.
Exhibit 32d Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The Dayton Power and Light Company
The undersigned officer of The Dayton Power and Light Company (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, 2007, 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 22, 2008
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. 115
Corporate Information
Shareholder Information – www.dplinc.com
Shareholder information is available at www.dplinc.com, including
access to fi nancial conference calls and presentations, Securities
and Exchange Commission (SEC) fi lings, and historical stock
and dividend data. Interested parties may also receive automated
e-mail alerts to DPL news releases and SEC fi lings.
Online Shareholder Account Management –
www.computershare.com
Shareholders may manage their DPL Inc. common stock
account online at www.computershare.com. Computershare is
the transfer agent for DPL common stock. Services available
online include reinvesting dividends, enrolling in electronic
dividend deposit, changing an address, selling shares, and
downloading forms.
Transfer Agent Contact Information
By Mail:
Computershare
P.O. Box 43078
Providence, Rl 02940-3078
By Overnight Delivery:
Computershare
250 Royall Street
Canton, MA 02021
Phone: 800-736-3001
Fax:
781-575-3605
E-mail: shareholders@computershare.com
www.computershare.com
Trustee
DP&L First Mortgage Bonds
The Bank of New York
Corporate Trust Administration
101 Barclay Street
New York, New York 10286
Also interest paying agent
Securities Listing
The New York Stock Exchange is the only national
securities exchange on which DPL Inc. common stock
is listed. The trading symbol is DPL.
2007 Dividends
Ex-Dividend Date
2/12/07
5/11/07
8/15/07
11/13/07
Record Date
2/14/07
5/15/07
8/17/07
11/15/07
Payable Date
3/1/07
6/1/07
9/1/07
12/1/07
Amount
$ 0.26
$ 0.26
$ 0.26
$ 0.26
$ 1.04
Federal Income Tax Status of 2007 Dividend Payments
Dividends paid in 2007 on common and preferred stock are
fully taxable as dividend income.
Dividend Reinvestment
DPL offers shareholders a simple and cost-effective way
to invest in the company through its dividend reinvestment
program. Shareholders may elect to have their cash dividends
automatically reinvested in DPL common stock. In addition,
shareholders have the option of making cash contributions
of at least $25 and up to $1,000 each quarter. This program
is offered to existing shareholders only. To enroll, contact
Computershare at 800-736-3001, visit www.computershare.
com, or call DPL Shareholder Services at 800-322-9244.
Dividend Direct Deposit
Shareholders who are not reinvesting their dividends in
DPL may choose to have their dividend payments deposited
directly into a savings or checking account. This free service
ensures that payments will be available on the payment
date, eliminating potential for mail delays and lost checks.
To enroll, contact Computershare at 800-736-3001, visit
www.computershare.com, or call DPL Shareholder Services
at 800-322-9244.
Annual Meeting
The Annual Meeting of Shareholders will be held at
Sinclair Community College, The Ponitz Center – Building 12,
444 W. Third Street, Dayton, Ohio 45402, on Wednesday,
April 23, 2008 at 10:00 a.m. Eastern time.
Form 10-K Report
DPL Inc. reports details concerning its operations and other
matters annually to the Securities and Exchange Commission
on Form 10-K, which is available at www.dplinc.com
and will be supplied upon request. Please direct inquiries to
DPL Shareholder Services.
Certifi cations
DPL Inc. has fi led as exhibits to its annual report on
Form 10-K for the fi scal year ended December 31, 2007, the
certifi cations of its president and chief executive offi cer
and its senior vice president and chief fi nancial offi cer required
by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934. DPL submitted to the New York Stock Exchange
during 2007 the annual CEO certifi cation required by
Section 303A.12 of the New York Stock Exchange listed
company manual.
DPL Inc.
1065 Woodman Drive
Dayton, Ohio 45432
937-224-6000
www.dplinc.com
DPL Shareholder Services
937-259-7150
800-322-9244
Offi cers
Board of Directors
Paul M. Barbas
President and Chief Executive Offi cer
Frederick J. Boyle
Vice President and Chief Accounting Offi cer
John J. Gillen
Senior Vice President, Chief Financial Offi cer
and Treasurer
Glenn E. Harder
Non-Executive Chairman
DPL Inc. and DP&L
President
GEH Advisory Services
Former Executive Vice President and Chief Financial Offi cer
Carolina Power and Light
Raleigh, North Carolina
Scott J. Kelly
Senior Vice President
Service Operations
Teresa F. Marrinan
Vice President
Commercial Operations
Daniel J. McCabe
Senior Vice President
Human Resources
Arthur G. Meyer
Senior Vice President
Corporate and Regulatory Affairs
Timothy G. Rice
Vice President, Assistant General Counsel
and Corporate Secretary
Gary G. Stephenson
Senior Vice President
Generation and Marketing
Douglas C. Taylor
Senior Vice President and General Counsel
Paul M. Barbas
President and Chief Executive Offi cer
DPL Inc. and DP&L
Dayton, Ohio
Robert D. Biggs
Former 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
Frank F. Gallaher
Former President, Fossil Operations and Transmission
Entergy Corporation
New Orleans, Louisiana
Barbara S. Graham
Former Senior Vice President
Pepco Holdings
Washington, D.C.
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
Dr. Ned J. Sifferlen
President Emeritus
Sinclair Community College
Dayton, Ohio
A
S
U
n
i
d
e
t
n
i
r
P
i
n
g
s
e
d
n
e
s
e
R
DPL Inc.
1065 Woodman Drive
Dayton, Ohio 45432
www.dplinc.com