UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNESEPTEMBER 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-2385
------
THE DAYTON POWER AND LIGHT COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 31-0258470
- ---------------------------------- ------------------------------------------------------------------ --------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
COURTHOUSE PLAZA SOUTHWEST
DAYTON, OHIO 45402
---------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(937) 224-6000
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
Indicate the number of shares of the issuer's classes of common stock, as of the
latest practicable date.
Common Stock, $.01 par value 41,172,173 Shares
- ------------------------------------- ---------------------------------------------------------------------- -----------------------------------
(Title of each class) (Outstanding at JuneSeptember 30, 2001)
THE DAYTON POWER AND LIGHT COMPANY
INDEX
Page No.
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Results of Operations 3
Consolidated Statement of Cash Flows 4
Consolidated Balance Sheet 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Operating Statistics 13
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
PART I. FINANCIAL INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
---------------------------------------------------------------------------------------------------
2001 2000 2001 2000
---- ---- ---- ---------- ------ ------ ------
REVENUES
Utility Service Revenues --
Electric..................................................... $287.2 $262.8 $581.9 $522.3
Gas.......................................................... - 31.1 - 132.6Electric.................................................... $351.5 $303.9 $933.4 $826.2
Gas ........................................................ -- 33.3 -- 165.9
------ ------ ------ ------
Total utility service revenues........................... 287.2 293.9 581.9 654.9revenues.......................... 351.5 337.2 933.4 992.1
------ ------ ------ ------
EXPENSES
Fuel and purchased power....................................... 89.9 66.3 172.0 125.4power...................................... 108.7 75.5 280.7 201.0
Gas purchased for resale....................................... - 17.6 - 85.2resale ..................................... -- 19.5 -- 104.7
Operation and maintenance...................................... 48.5 49.8 81.6 96.3maintenance..................................... 32.8 47.2 114.4 143.4
Depreciation and amortization.................................. 28.5 34.4 57.2 67.9amortization................................. 29.4 32.8 86.6 100.7
Amortization of regulatory assets, net......................... 11.3 7.1 23.4 12.7net........................ 12.1 2.0 35.5 14.7
General taxes.................................................. 22.2 31.2 48.0 65.7taxes................................................. 26.1 31.1 74.1 96.8
------ ------ ------ ------
Total expenses............................................ 200.4 206.4 382.2 453.2expenses........................................... 209.1 208.1 591.3 661.3
------ ------ ------ ------
OPERATING INCOME............................................... 86.8 87.5 199.7 201.7INCOME.............................................. 142.4 129.1 342.1 330.8
Other income (deductions)...................................... 1.5 1.8 (1.0) (5.8)..................................... 9.7 (4.0) 8.7 (9.8)
Interest expense............................................... (16.0) (15.8) (31.9) (34.3)expense.............................................. (15.5) (20.7) (47.4) (55.0)
------ ------ ------ ------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM, AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE......................................... 72.3 73.5 166.8 161.6CHANGE.................... 136.6 104.4 303.4 266.0
Income taxes................................................... 26.8 26.4 64.8 58.4taxes.................................................. 51.1 37.3 115.9 95.7
------ ------ ------ ------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE....................................................... 45.5 47.1 102.0 103.2CHANGE............................... 85.5 67.1 187.5 170.3
Extraordinary item, net of tax ............................... -- (41.4) -- (41.4)
Cumulative effect of accounting change, net of tax............. - -tax............ -- -- 1.0 ---
------ ------ ------ ------
NET INCOME..................................................... 45.5 47.1 103.0 103.2INCOME.................................................... 85.5 25.7 188.5 128.9
Preferred dividends............................................ 0.2 0.2 0.4 0.4dividends........................................... 0.3 0.3 0.7 0.7
------ ------ ------ ------
EARNINGS ON COMMON STOCK.......................................STOCK...................................... $ 45.385.2 $ 46.9 $102.6 $102.825.4 $187.8 $128.2
====== ====== ====== ======
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
3
THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
SIXNINE MONTHS ENDED
JUNESEPTEMBER 30,
----------------------------------
2001 2000
---- ----
OPERATING ACTIVITIES
OPERATING ACTIVITIES
Cash received from utility customers................................................. $ 566.7 $ 681.4905.8 $1,002.3
Other operating cash receipts........................................................ 47.6 10.857.6 16.8
Cash paid for:
Fuel and purchased power........................................................ (183.8) (116.5)(293.5) (197.2)
Purchased gas................................................................... - (74.2)(44.6) (123.8)
Operation and maintenance labor................................................. (36.5) (41.7)(52.2) (60.1)
Nonlabor operating expenditures................................................. (88.4) (108.9)(77.1) (122.8)
Interest........................................................................ (29.7) (32.1)(54.8) (63.0)
Income taxes.................................................................... (45.1) (63.7)(45.3) (88.8)
General taxes................................................................... (76.2) (83.0)
------- -------(119.7) (116.0)
------ ------
Net cash provided by operating activities............................................ 154.6 172.1
------- -------276.2 247.4
------ ------
INVESTING ACTIVITIES
Capital expenditures................................................................. (85.1) (50.7)(115.4) (77.2)
Income taxes on gain from sale of natural gas retail distribution operations......... (90.9) -
------- ---------
------ ------
Net cash used for investing activities............................................... (176.0) (50.7)
------- -------(206.3) (77.2)
------ ------
FINANCING ACTIVITIES
Dividends paid on common stock....................................................... (65.4) (102.5)(82.4) (189.6)
Dividends paid on preferred stock.................................................... (0.4) (0.4)(0.6) (0.7)
Retirement of long-term debt......................................................... (0.4) (0.4)
Issuance (retirement) of short-term debt, net........................................ 84.8 (111.1)
------- -------13.0 (73.3)
------ ------
Net cash provided by/(used for)for financing activities................................. 18.6 (214.4)
------- -------activities............................................... (70.4) (264.0)
------ ------
CASH AND TEMPORARY CASH INVESTMENTS--
Net change........................................................................... (2.8) (93.0)(0.5) (93.8)
Balance at beginning of period....................................................... 8.6 95.5
------- -------
Balance at end of period............................................................. $ 5.88.1 $ 2.51.7
======= =======
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
4
THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
AT At
JUNEAT
SEPTEMBER 30, DecemberDECEMBER 31,
2001 2000
--------------------- ------------
ASSETS
PROPERTY
ASSETS
PROPERTY
Property..................................................................... $ 3,592.2 $ 3,522.6Property $3,628.7 $3,522.6
Less: Accumulated depreciation and amortization.............................. (1,611.8)(1,642.2) (1,560.4)
--------- -----------------
Net property............................................................ 1,980.41,986.5 1,962.2
--------- -----------------
CURRENT ASSETS
Cash and temporary cash investments.......................................... 5.88.2 8.6
Accounts receivable, less provision for uncollectible accounts
of $9.8 and $6.8, respectively.......................................... 210.3195.2 189.7
Inventories, at average cost................................................. 60.059.6 45.7
Prepaid taxes................................................................ 66.043.9 65.4
Other........................................................................ 11.932.2 35.5
--------- -----------------
Total current assets.................................................... 354.0339.1 344.9
--------- -----------------
OTHER ASSETS
Deferred compensation plan................................................... 156.7 171.8
Income taxes recoverable through future revenues............................. 45.936.0 49.4
Other regulatory assets...................................................... 123.7111.2 146.4
Trust assets................................................................. 139.3 171.8
Other........................................................................ 73.473.9 76.4
--------- -----------------
Total other assets...................................................... 399.7360.4 444.0
--------- -----------------
TOTAL ASSETS................................................................. $ 2,734.1 $ 2,751.1
========= =========$2,686.0 $2,751.1
======== ========
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
5
THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(CONTINUED)
AT At
JUNEAT
SEPTEMBER 30, DecemberDECEMBER 31,
2001 2000
--------------------- ------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity--
Common stock.............................................stock............................................................. $ 0.4 $ 0.4
Other paid-in capital.................................... 773.3capital.................................................... 770.1 769.8
Accumulated other comprehensive income................... 22.8income................................... 15.7 37.3
Earnings reinvested in the business...................... 242.5business...................................... 310.7 205.4
---------- -------------------- --------
Total common shareholders' equity.................... 1,039.0equity.................................... 1,096.9 1,012.9
Preferred stock...............................................stock............................................................... 22.9 22.9
Long-term debt................................................ 666.3debt................................................................ 666.9 666.5
---------- -------------------- --------
Total capitalization................................. 1,728.2capitalization................................................. 1,786.7 1,702.3
---------- -------------------- --------
CURRENT LIABILITIES
Accounts payable.............................................. 102.2payable.............................................................. 101.4 103.9
Accrued taxes................................................. 99.3taxes................................................................. 123.3 220.0
Accrued interest.............................................. 19.3interest.............................................................. 8.4 19.1
Short-term debt............................................... 84.8 -
Other......................................................... 25.5debt............................................................... 13.0 --
Other......................................................................... 24.9 14.3
---------- -------------------- --------
Total current liabilities............................ 331.1liabilities............................................ 271.0 357.3
---------- -------------------- --------
DEFERRED CREDITS AND OTHER
Deferred taxes................................................ 421.5taxes................................................................ 408.4 429.9
Unamortized investment tax credit............................. 59.1credit............................................. 58.6 60.2
Deferred compensation......................................... 106.9Trust obligations............................................................. 101.1 113.6
Other......................................................... 87.3Other......................................................................... 60.2 87.8
---------- -------------------- --------
Total deferred credits and other..................... 674.8other..................................... 628.3 691.5
---------- -------------------- --------
TOTAL CAPITALIZATION AND LIABILITIES.......................... $ 2,734.1 $ 2,751.1
========== ===========LIABILITIES.......................................... $2,686.0 $2,751.1
======== ========
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Dayton Power and Light Company ("DP&L" or "the Company") is a wholly
owned subsidiary of DPL Inc ("DPL"). DP&L has prepared the consolidated
financial statements in this report without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto in the Company's 2000 Annual Report on Form 10-K.
2. Reclassifications have been made in certain prior years' amounts to conform
to the current reporting presentation of the Company.
In the opinion of management, the information included in this Form 10-Q
reflects all adjustments that are necessary for a fair statement of the results
of operations for the periods presented. Any adjustments are of a normal
recurring nature.
3. The Company adopted the provisions of the Financial Accounting Standard
Board's ("FASB") Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended ("SFAS No. 133") as of January 1, 2001. SFAS No.
133 requires that all derivatives be recognized as either assets or liabilities
in the consolidated balance sheet and be measured at fair value, and changes in
the fair value be recorded in earnings, unless they are designated as a cash
flow hedge of a forecasted transaction. As a result of adopting this accounting
standard, the Company recorded a cumulative effect of accounting change of $1.0
million in income, net of tax. The implementation of this accounting standard
did not have a material impact on the Company's financial position or results of
operations.
The Company uses forward and option purchase
contracts as a hedge against the risk of changes in cash flows associated with
expected electricity purchases. These purchases are required to meet full load
requirements load during times of peak demand or during planned and unplanned
generation facility outages. The Company also holds forward sales contracts that
hedge against the risk of changes in cash flows associated with power sales
during periods of projected generation facility availability. ThePrior to July 1,
2001, the Company recordsrecorded the fair value of all these contracts as "Other
Assets" or "Other Liabilities" on the Consolidated Balance Sheet with an offset
to "Accumulated Other Comprehensive Income," which is reclassified into earnings
in the month of physical receipt or delivery of power. In June 2001, the FASB
concluded that electric utilities could apply the normal purchases and sales
exception for option-type contracts and forward contracts in electricity subject
to specific criteria for the power buyers and sellers. TheDuring the first half of
2001, the Company holdsheld contracts currently classified as cash flow hedges that will meetmet the
requirements for the normal purchases and sales exception to be excluded from
the scope of SFAS No. 133. These contracts remain recorded as hedges as the
scope exception is not effective until the third quarter of 2001. Beginning on
July 1, 2001,Accordingly, the Company intendsbegan to apply the normal
purchase and sales exception as defined in SFAS No. 133of July 1, 2001 and accordingly will accountcurrently accounts for these
contracts upon settlement. Therefore, theThe fair value of these contracts as of June 30, 2001
will becomebecame their net carrying amount beginning July 1, 2001 and, prospectively, the
carrying amounts of the contracts willare no longer be adjusted for changes in their
fair values. Similarly, the hedge accounting effects of these contracts recorded
in Accumulated Other Comprehensive Income on June 30, 2001 will be recorded in
earnings in the month of physical receipt or delivery of the power. This prospective
7
change
willdid not have a material impact on the Company's financial position or results of
operations.
7
The Company also holds emission allowance options through 2004 and purchased
gas contracts through November 2001 as well as
emission allowance options through 2004, that are classified as derivatives not
subject to hedge accounting. The fair value of these contracts is reflected
as "Other Assets" or "Other Liabilities" on the Consolidated Balance Sheet
and changes in fair value are recorded as "Other Income/Deductions" on the
Consolidated Statement of Results of Operations. The impact on net income was
immaterial during the secondthird quarter and the first sixnine months of 2001.
4. In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143") that
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets. SFAS No. 143 is effective for DP&L as
of January 1, 2003. DP&L has not yet determined the extent to which its
financial condition or results of operations may be affected by the
implementation of this accounting standard.
5. Comprehensive income for the three and nine months ended September 30, 2001
of $78.4 and $166.9 million and for the three and nine months ended September
30, 2000 of $38.6 and $148.5 million, respectively, includes reported net income
adjusted by the non-cash effect of unrealized gains on financial and derivative
assets after tax.
6. In prior years, the Company had two reportable operating segments: Electric
and Natural Gas. In October 2000, the Company completed the sale of
substantially all of its natural gas retail distribution assets and certain
liabilities. Accordingly, the Electric segment is the remaining reportable
operating segment. The Electric segment generates, markets, distributes, and
transmits electricity to retail and wholesale customers.
Prior year amounts
related to the Natural Gas segment are included in "Other."
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
----------------------------------- ---------------------------------------------------------- ------------------------
2001 2000 2001 2000
---- ---- ---- ---------- ------ ------ ------
NET REVENUES:
Electric................................. $197.3 $196.5 $409.9 $396.9
Other.................................... - 13.5 - 47.4Electric.................................... $242.8 $228.4 $652.7 $625.2
Natural Gas................................. -- 13.8 -- 61.2
------ ------ ------ ------
Total................................. $197.3 $210.0 $409.9 $444.3
====== ====== ======Total.................................... $242.8 $242.2 $652.7 $686.4
OPERATING INCOME:
Electric................................. $ 94.8 $ 90.9 $201.7 $189.3Electric.................................... $136.8 $131.9 $338.5 $321.2
Natural Gas................................. -- 1.7 -- 19.8
Other (a)................................ (8.0) (3.4) (2.0) 12.4................................... 5.6 (4.5) 3.6 (10.2)
------ ------ ------ ------
Total................................. $ 86.8 $ 87.5 $199.7 $201.7
====== ====== ======
RECONCILIATION:
Operating income......................... $ 86.8 $ 87.5 $199.7 $201.7Total.................................... 142.4 129.1 342.1 330.8
Other deductions......................... 4.9 12.7 2.4 (5.8)income (deductions)................... 9.7 (4.0) 8.7 (9.8)
Interest expense......................... (16.0) (26.7) (31.9) (34.3)expense............................ (15.5) (20.7) (47.4) (55.0)
------ ------ ------ ------
Income before income taxes,
extraordinary item, and cumulative
effect of accounting change................................ $ 75.7 $ 73.5 $170.2 $161.6change........... $136.6 $104.4 $303.4 $266.0
====== ====== ====== ======
(a) Includes unallocated corporate items. The second quarter and year-to-date
periods for 2000 also include operating income for the natural gas retail
distribution operations, the sale of which was completed in October 2000.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Dayton Power and Light Company ("DP&L" or "the Company") reported earnings
on common stock for the secondthird quarter of 2001 of $45.3$85.2 million, which was 3%
lower28%
higher than earnings on common stock of $46.9$66.8 million for the same quarter last
year. Earnings on common stock for the current year-to-date period of $190.0
million were $102.6
million compared to10% higher than earnings on common stock of $102.8$172.3 million for same
period last year. All earnings on common stock numbers are before non-recurring
items as discussed below.
There were no non-recurring items in the third quarter of this year. The current
year-to-date period included a non-recurring charge from the second quarter of
$4.9 million before taxes for a voluntary early retirement program. The current
year-to-date period also included a gain of $1 million associated with the
adoption of the new accounting standard for derivatives.
During the third quarter of 2000, the Company recorded an extraordinary charge
of $41.4 million, net of tax, reflecting its final transition order and the
subsequent end of regulatory accounting methods. The prior year-to-date period
also included a non-recurring charge from the first quarter of $4.2 million
before taxes associated with the elimination of certain compensation programs.
FINANCIAL CONDITION
At JuneSeptember 30, 2001, the Company's cash and temporary cash investment balance
was $5.8$8.1 million.
During the first quarter of 2001, investing cash flows included a cash payment
of $90.9 million for income taxes associated the tax gain on the sale of the
natural gas retail distribution assets and certain liabilities that was reported
in October 2000.
DPL and its subsidiaries have $265 million available through Revolving Credit
Agreements ("Credit Agreements"). The primary purpose of the revolving credit
facilities is to provide back-up liquidity for the commercial paper program. The
Company had no borrowings outstanding under these Credit Agreements at JuneSeptember
30, 2001. The Company also has $75 million available in short-term informal
lines of credit. The Company had no borrowings outstanding under these informal
lines and $85$13 million in commercial paper outstanding at JuneSeptember 30, 2001.
The Company currently has sufficient capacity to issue First Mortgage Bonds to
satisfy its requirements in connection with the financing of its construction and
refinancing programs during the five-year period 2001-2005.
Construction plans are subject to continuing review and are expected to be
revised in light of changes in financial and economic conditions, load
forecasts, electricity and fuel price forecasts, legislative and regulatory
developments and changing environmental standards, among other factors.
9
As a result of DPL's December 2000 press release regarding its exploration of
strategic alternatives in JanuaryAugust 2001 refinancing, Standard & Poor's placed DPLand Moody's
reaffirmed DPL's and DP&L on&L's credit watch with developing implications. Also in January, Moody's placed the
ratings of DPL and its affiliates under review. On May 2, 2001, Standard &
Poor's affirmed its ratings on DPL and DP&L with a stable outlook, and removed
the credit watch with developing implications. On July 27, 2001, Moody's also
affirmed the ratings of DPL and DP&L with a stable outlook.ratings. The current credit ratings for DPL
and DP&L are investment grade.
9
RESULTS OF OPERATIONS
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
--------------------------------- -------------------------------------------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ---------- ------ ------ ------
Electric revenues........................ $287.2 $262.8 $581.9 $522.3$351.5 $303.9 $933.4 $826.2
Fuel and purchased power................. 89.9 66.3 172.0 125.4
------108.7 75.5 280.7 201.0
----- ------ ----- -----
Net electric revenues............... 197.3 196.5 409.9 396.9$242.8 $228.4 $652.7 $625.2
Gas revenues............................. $ --- $ 31.133.3 $ - $132.6-- $165.9
Gas purchased for resale................. - 17.6 - 85.2
-------- 19.5 -- 104.7
----- ------ ----- -----
Net gas revenues.................... $ --- $ 13.513.8 $ --- $ 47.461.2
Operating income......................... $ 86.8 $ 87.5 $ 199.7 $201.7$142.4 $129.1 $342.1 $330.8
Net electric revenues increased by $0.8$14.4 million or 6% and by $13.0$27.5 million
or 3%4% compared to last year's secondthird quarter and year-to-date periods,
respectively. Wholesale revenues increased by 83%94% for the quarter and more
than doubled for the six-monthnine-month period as a result of increased sales volume
from existing generation units, higher wholesale market prices, and revenue
from additional generating facilities. Retail revenues were 2% and 3% higher for
both the quarter and year-to-date periods respectively, primarily as a result of increased
sales volume and a higher average rate based on tax law changes. Retail sales were down 1% for the quarter on account of lower
industrial sales resulting from sluggish economic conditions in DP&L's service
territory, which offset sales increases in residential (1%) and commercial (4%)
markets. Year-to-date retail sales were 1% higher than last year. Growth in
residential and commercial markets was partially offset by declines in
industrial sales, again reflecting economic conditions in DP&L's service
territory.conditions. Fuel costs increased for both comparison periods as a
result of higher spot-market prices for coal, higher prices on the wholesale
market for purchased power, and a greater volume of fuel usage and power
purchases resulting from increased wholesale sales.
The decline in net gas revenues for the quarter and year-to-date periods
resulted from the sale of the natural gas retail distribution assets and certain
liabilities which was completed in October 2000.
Operation and maintenance expense decreased by $1.3$14.3 or 3%30% for the quarter
and by $14.7$29.0 million or 15%20% for the six-monthnine-month period. The decreases for both comparison
periods were
primarily attributable to the sale of the natural gas retail distribution
operations, lower insurance and claims expense, lower pension
expense,employee benefits costs, and general cost containment
efforts. These favorableFavorable variances for the year-to-date period were partially
offset by voluntary early retirement costs.costs incurred during the second quarter
of 2001.
10
Depreciation and amortization expense decreased by $5.9$3.4 million or 17%10% for
the quarter and by $10.7$14.1 million or 16%14% for the six-monthnine-month period. The
decreases for
both comparison periods resulted from depreciation rate changes for certain generation
units and the sale of the natural gas retail distribution assets.
10
Beginning January 1, 2001, regulatory transition cost assets of $144.8 million
are being amortized over a three-year period based on transition revenues. As a
result, amortization expense increased by $4.2$10.1 million or 59% for the quarter and by
$10.7$20.8 million or 84% for the year-to-date period based on transition revenues
recognized in the respective periods.
General taxes decreased by $9.0$5.0 million or 29%16% for the quarter and by $17.7$22.7
million or 27%23% for the six-monthnine-month period. The decreases for both comparison
periods primarily resulted
from changes in tax laws associated with the Ohio deregulation order and the
sale of the natural gas retail distribution assets.
Other income (deductions) increased by $4.8$13.7 million for the six-monthquarter and by
$18.5 million for the nine-month period. ThisThe increases primarily resulted
from the recognition of a receivable for insurance claims under the Company's
business interruption policy. The increase for the year-to-date period was
primarilyfurther attributable to the elimination of certain compensation programs in
the prior year, partially offset by strategic consulting expenses and net
derivative losses and deferred compensation expense
all reported in the current year.
Interest expense was essentially flatdecreased by $5.2 million or 25% for the quarter and decreased by $2.4$7.6
million or 7%14% for the six-monthnine-month period. The decrease infor the year-to-date
period was primarily attributable to higher capitalized interest, partially offset by
higher long-term debt and higher long-term debt interest rates.
The effective income tax rates for the second quarter of 2001 and 2000 were
37.1% and 35.9%, respectively, and the effective income tax rates for the first
six months of 2001 and 2000 were 38.8% and 36.1%, respectively. The increases
were primarily attributable to higher state income-based taxes resulting from
the implementation of the Ohio deregulation order.levels.
The cumulative effect of an accounting change reflects the Company's adoption of
the provisions of the Financial Accounting Standard Board's ("FASB") Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended ("SFAS No. 133"). SFAS No. 133 requires that all derivatives be
recognized as either assets or liabilities in the consolidated balance sheet and
be measured at fair value, and changes in the fair value be recorded in
earnings, unless they are designated as hedges of an underlying transaction.
11
OTHER MATTERS
A wholly-owned captive insurance subsidiary of DPL provides insurance
coverage solely to DPL including, among other coverages, business
interruption and specific risk coverage for DP&L with respect to the
impact of environmental law and
electric deregulation. "InsuranceInsurance Claims and Costs"Costs on DPL's Consolidated
Balance Sheet includes insurance reserves of the
captive subsidiary of approximately $87 million for
this coverage as well as
other coverages based on actuarial methods and loss experience data. Such
reserves are determined, in the aggregate, based on a reasonable estimation
of probable insured events occurring. There is uncertainty associated with
the loss estimates, and actual results could differ from the estimates.
Modification of these loss estimates based on experience and changed
circumstances are reflected in the period in which the estimate is
reevaluated. As the policy impactoutcome of electric deregulation becomes known during the
three-year regulatory transition period ending December 31, 2003, either policy
payments from the captive subsidiary to DP&L, receivables for insurance
claims for DP&L, or the release of the appropriate reserves will occur and be
reflected in income. 11
During the third quarter of 2001, a $14.5 million
receivable was recognized by DP&L for insurance claims under its business
interruption policy.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143") that addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets.
SFAS No. 143 is effective for DP&L as of January 1, 2003. DP&L has not yet
determined the extent to which its financial condition or results of operations
may be affected by the implementation of this accounting standard.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements regarding plans and
expectations for the future. Investors are cautioned that actual outcomes and
results may vary materially from those projected due to various factors beyond
the Company's control, including abnormal weather, unusual maintenance or repair
requirements, changes in fuel costs, increased competition, regulatory changes
and decisions, changes in accounting rules and adverse economic conditions.
12
THE DAYTON POWER AND LIGHT COMPANY
OPERATING STATISTICS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ---------- ------ ------- -------
ELECTRIC
ELECTRIC
Sales (millions of kWh)--
Residential.................................................. 1,017 1,008 2,497 2,3481,306 1,218 3,802 3,566
Commercial................................................... 916 881 1,795 1,706934 931 2,703 2,637
Industrial................................................... 1,148 1,265 2,242 2,423988 1,253 2,957 3,676
Other retail................................................. 357 336 671 658
--------- -------- -------- --------358 345 1,028 1,005
------ ------ ------- -------
Total retail 3,438 3,490 7,205 7,1353,586 3,747 10,490 10,884
Wholesale.................................................... 844 751 1,790 1,301
--------- -------- -------- --------1,385 963 3,477 2,263
----- ------ ------- -------
Total.................................................... 4,282 4,241 8,995 8,4364,971 4,710 13,967 13,147
Revenues (thousands of dollars)--
Residential.................................................. $ 93,240 $ 92,406 $213,600 $203,274$117,249 $110,412 $330,849 $313,686
Commercial................................................... 66,768 60,902 127,324 117,92965,843 62,451 192,502 180,380
Industrial................................................... 57,921 61,537 112,679 117,02455,644 60,885 160,110 177,910
Other retail................................................. 24,044 23,168 45,758 45,000
---------23,525 24,225 69,269 69,225
-------- -------- -------- --------
Total retail............................................. 241,973 238,013 499,361 483,227262,261 257,973 752,730 741,201
Wholesale.................................................... 45,275 24,793 82,582 39,082
---------89,188 45,954 180,662 85,036
-------- -------- ------- --------
Total.................................................... $ 287,248 $262,806 $581,943 $522,309$351,449 $303,927 $933,392 $826,237
Electric customers at end of period............................... 500,800 496,608 500,800 496,608500,271 497,000 500,271 497,000
GAS (a)
Sales (millions of MCF)--
Residential.................................................. - 3,035 - 14,669-- 2,401 -- 17,071
Commercial................................................... - 859 - 4,413-- 985 -- 5,398
Industrial................................................... - 534 - 1,600-- 250 -- 1,849
Other........................................................ - 141 - 611-- 125 -- 737
Transportation gas delivered................................. - 4,141 - 11,034
----------- 3,478 -- 14,511
-------- -------- ------- --------
Total.................................................... - 8,710 - 32,327-- 7,239 -- 39,566
Revenues (thousands of dollars)--
Residential.................................................. $ - $19,379-- $21,197 $ - $ 86,608-- $107,804
Commercial................................................... - 5,100 - 24,757-- 7,160 -- 31,917
Industrial................................................... - 2,503 - 8,158-- 1,693 -- 9,852
Other........................................................ - 4,161 - 13,101
----------- 3,188 -- 16,289
-------- -------- ------- --------
Total.................................................... $ - $31,143-- $33,238 $ - $132,623-- $165,862
Gas customers at end of period.................................... - 309,486 - 309,486-- 309,186 -- 309,186
(a) DP&L completed the sale of its natural gas retail distribution assets
and certain liabilities in October 2000.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The carrying value of the Company's debt was $667.3 million at December 31,
2000, consisting of the Company's first mortgage bonds and guaranteed air
quality development obligations, and notes.obligations. The fair value of this debt was $666.7 million,
based on current market prices or discounted cash flows using current rates for
similar issues with similar terms and remaining maturities. The following table
presents the principal cash repayments and related weighted average interest
rates by maturity date for long-term, fixed-rate debt at December 31, 2000:
- ---------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date
- ---------------------------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total Fair Value
- ------------------------------ --------- ---------- ---------- ---------- ---------- ------------- ----------- ---------------------------------------------------------------------------------------------------------------------------------------
Long-term Debt
- ---------------------------------------------------------------------------------------------------------------------------
Long-term Debt
- ------------------------------ --------- ---------- ---------- ---------- ---------- ------------- ----------- ------------
Amount ($ in millions) $1 $1 $1 $1 $1 $662.3 $667.3 $666.7
- ------------------------------ --------- ---------- ---------- ---------- ---------- ------------- ----------- ---------------------------------------------------------------------------------------------------------------------------------------
Average rate 6.4% 6.4% 6.4% 6.4% 6.4% 7.4% 7.4%
- ------------------------------ --------- ---------- ---------- ---------- ---------- ------------- ----------- ---------------------------------------------------------------------------------------------------------------------------------------
Because the long-term debt is at a fixed rate, the primary market risk to the
Company is short-term interest rate risk. The carrying value and fair value of
short-term debt was $85$13 million with a weighted-average interest rate of 4.0%3.9% at
JuneSeptember 30, 2001. The interest expense risk resulting from a hypothetical 10%
increase/decrease in the quarterly average cost of this debt is negligible.
PART II. OTHER INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits required by Item 601 of Regulation S-K for
the quarter ended JuneSeptember 30, 2001.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended JuneSeptember 30, 2001.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DAYTON POWER AND LIGHT COMPANY
----------------------------------------------------------------------------------
(Registrant)
Date: AugustNovember 14, 2001 /s/ Elizabeth M. McCarthy
--------------- ------------------------------------------------------------------------------- -----------------------------------
Elizabeth M. McCarthy
Group Vice President and
Chief Financial Officer
Date: AugustNovember 14, 2001 /s/ Stephen F. Koziar, Jr.
--------------- ------------------------------------------------------------------------------- -----------------------------------
Stephen F. Koziar, Jr.
Group Vice President and Secretary
15