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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2002
OR
For the quarterly period endedSeptember 30, 2002 | |
OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto |
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 (State or other jurisdiction of incorporation or organization) | 31-0258470 (I.R.S. Employer Identification No.) |
1065 Woodman Drive
Dayton, Ohio 45432
(Address of principal executive offices)
(937) 224-6000
(Registrant’sRegistrant'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 xý No o
Indicate the number of shares of the issuer’sissuer's classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value (Title of each class) | 41,172,173 Shares (Outstanding at |
THE DAYTON POWER AND LIGHT COMPANY
INDEX
Page No. | |||||||||
---|---|---|---|---|---|---|---|---|---|
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 | 8 | |||||||
Operating Statistics | 12 | ||||||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 12 | |||||||
Item 4. | Controls and Procedures | 12 | |||||||
Part II. Other Information | |||||||||
Item 5. | Other Information | 12 | |||||||
Item 6. | Exhibits and Reports on Form 8-K | 14 | |||||||
Signatures |
16 | |||
Certifications | |||
17 |
2
THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS
(Dollars in millions)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||
Revenues | Revenues | ||||||||||||||||||||||||||
Electric | $ | 279.1 | $ | 287.2 | $ | 551.3 | $ | 581.9 | Electric | $ | 341.7 | $ | 351.5 | $ | 893.0 | $ | 933.4 | ||||||||||
Expenses | Expenses | ||||||||||||||||||||||||||
Fuel | 50.0 | 53.0 | 97.5 | 112.1 | Fuel | 57.6 | 62.3 | 155.1 | 174.4 | ||||||||||||||||||
Purchased power | 22.9 | 36.9 | 56.0 | 59.9 | Purchased power | 38.8 | 46.4 | 94.8 | 106.3 | ||||||||||||||||||
Operation and maintenance | 35.2 | 48.5 | 72.5 | 81.6 | Operation and maintenance | 35.3 | 32.8 | 107.8 | 114.4 | ||||||||||||||||||
Depreciation and amortization | 29.5 | 28.5 | 59.1 | 57.2 | Depreciation and amortization | 29.6 | 29.4 | 88.7 | 86.6 | ||||||||||||||||||
Amortization of regulatory assets, net | 11.3 | 11.3 | 22.8 | 23.4 | Amortization of regulatory assets, net | 13.6 | 12.1 | 36.4 | 35.5 | ||||||||||||||||||
General taxes | 26.0 | 22.2 | 51.9 | 48.0 | General taxes | 29.7 | 26.1 | 81.6 | 74.1 | ||||||||||||||||||
Total expenses | 174.9 | 200.4 | 359.8 | 382.2 | |||||||||||||||||||||||
Total expenses | 204.6 | 209.1 | 564.4 | 591.3 | |||||||||||||||||||||||
Operating Income | 104.2 | 86.8 | 191.5 | 199.7 | Operating Income | 137.1 | 142.4 | 328.6 | 342.1 | ||||||||||||||||||
Other income (deductions) | (0.7 | ) | 1.5 | 11.0 | (1.0 | ) | Other income (deductions) | 2.8 | 9.7 | 13.8 | 8.7 | ||||||||||||||||
Interest expense | (15.1 | ) | (16.0 | ) | (30.5 | ) | (31.9 | ) | Interest expense | (15.9 | ) | (15.5 | ) | (46.4 | ) | (47.4 | ) | ||||||||||
Income Before Income Taxes and Cumulative Effect of Accounting Change | 88.4 | 72.3 | 172.0 | 166.8 | Income Before Income Taxes and Cumulative Effect of Accounting Change | 124.0 | 136.6 | 296.0 | 303.4 | ||||||||||||||||||
Income taxes | 32.5 | 26.8 | 63.5 | 64.8 | Income taxes | 49.5 | 51.1 | 113.0 | 115.9 | ||||||||||||||||||
Income Before Cumulative Effect of Accounting Change | 55.9 | 45.5 | 108.5 | 102.0 | Income Before Cumulative Effect of Accounting Change | 74.5 | 85.5 | 183.0 | 187.5 | ||||||||||||||||||
Cumulative effect of accounting change, net of tax | — | — | — | 1.0 | Cumulative effect of accounting change, net of tax | — | — | — | 1.0 | ||||||||||||||||||
Net Income | 55.9 | 45.5 | 108.5 | 103.0 | Net Income | 74.5 | 85.5 | 183.0 | 188.5 | ||||||||||||||||||
Preferred dividends | 0.2 | 0.2 | 0.4 | 0.4 | Preferred dividends | 0.3 | 0.3 | 0.7 | 0.7 | ||||||||||||||||||
Earnings on Common Stock | $ | 55.7 | $ | 45.3 | $ | 108.1 | $ | 102.6 | Earnings on Common Stock | $ | 74.2 | $ | 85.2 | $ | 182.3 | $ | 187.8 | ||||||||||
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)
Six Months Ended June 30, | |||||||||||||||
2002 | 2001 | | Nine Months Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | |||||||||||||
Operating Activities | Operating Activities | ||||||||||||||
Net income | $ | 108.5 | $ | 103.0 | Net income | $ | 183.0 | $ | 188.5 | ||||||
Adjustments: | Adjustments: | ||||||||||||||
Depreciation and amortization | 59.1 | 57.2 | |||||||||||||
Amortization of regulatory assets, net | 22.8 | 23.4 | |||||||||||||
Deferred income taxes | (6.2 | ) | 15.9 | ||||||||||||
Depreciation and amortization | 88.7 | 86.6 | |||||||||||||
Amortization of regulatory assets, net | 36.4 | 35.5 | |||||||||||||
Deferred income taxes | (15.6 | ) | 14.5 | ||||||||||||
Changes in working capital: | Changes in working capital: | ||||||||||||||
Accounts receivable | (62.7 | ) | (23.5 | ) | |||||||||||
Accounts payable | (4.4 | ) | 7.8 | ||||||||||||
Inventories | 2.5 | (14.4 | ) | ||||||||||||
Accrued taxes payable | 1.6 | (23.3 | ) | ||||||||||||
Accounts receivable | (15.2 | ) | 9.1 | ||||||||||||
Accounts payable | (11.5 | ) | (10.3 | ) | |||||||||||
Net intercompany receivables from parent | (39.7 | ) | (5.4 | ) | |||||||||||
Inventories | 6.8 | (14.0 | ) | ||||||||||||
Accrued taxes payable | 14.3 | 11.5 | |||||||||||||
Accrued interest payable | (10.8 | ) | (10.8 | ) | |||||||||||
Other | (8.5 | ) | 8.2 | Other | (16.2 | ) | (29.3 | ) | |||||||
Net cash provided by operating activities | 112.7 | 154.3 | Net cash provided by operating activities | 220.2 | 275.9 | ||||||||||
Investing Activities | Investing Activities | ||||||||||||||
Capital expenditures | (79.8 | ) | (85.1 | ) | Capital expenditures | (102.1 | ) | (115.2 | ) | ||||||
Income taxes on gain from sale of natural gas retail distribution operations | — | (90.9 | ) | Income taxes on gain from sale of natural gas retail distribution operations | — | (90.9 | ) | ||||||||
Net cash used for investing activities | (79.8 | ) | (176.0 | ) | Net cash used for investing activities | (102.1 | ) | (206.1 | ) | ||||||
Financing Activities | Financing Activities | ||||||||||||||
Issuance of short-term debt, net | — | 84.8 | Issuance of short-term debt, net | 45.0 | 13.0 | ||||||||||
Retirement of long-term debt | (0.4 | ) | (0.4 | ) | Retirement of long-term debt | (0.4 | ) | (0.4 | ) | ||||||
Dividends paid on common stock | — | (65.4 | ) | Dividends paid on common stock | (150.0 | ) | (82.4 | ) | |||||||
Dividends paid on preferred stock | (0.4 | ) | (0.4 | ) | Dividends paid on preferred stock | (0.7 | ) | (0.7 | ) | ||||||
Net cash provided by (used for) financing activities | (0.8 | ) | 18.6 | ||||||||||||
Net cash used for financing activities | Net cash used for financing activities | (106.1 | ) | (70.5 | ) | ||||||||||
Cash and temporary cash investments— | Cash and temporary cash investments— | ||||||||||||||
Net change | 32.1 | (3.1 | ) | Net change | 12.0 | (0.7 | ) | ||||||||
Balance at beginning of period | 0.9 | 3.4 | Balance at beginning of period | 0.9 | 3.4 | ||||||||||
Balance at end of period | $ | 33.0 | $ | 0.3 | Balance at end of period | $ | 12.9 | $ | 2.7 | ||||||
Cash Paid During the Period for: | Cash Paid During the Period for: | ||||||||||||||
Interest | $ | 25.0 | $ | 29.7 | Interest | $ | 48.0 | $ | 54.8 | ||||||
Income taxes | $ | 69.0 | $ | 136.0 | Income taxes | $ | 111.2 | $ | 136.2 |
See Notes to Consolidated Financial Statements.TheseThe interim statements are unaudited.
4
THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
At June 30, 2002 | At December 31, 2001 | ||||||||||||||
| At September 30, 2002 | At December 31, 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ASSETS | ||||||||||||||
Property | Property | ||||||||||||||
Property | $ | 3,745.5 | $ | 3,684.4 | Property | $ | 3,770.7 | $ | 3,684.4 | ||||||
Less: Accumulated depreciation and amortization | (1,723.3 | ) | (1,670.0 | ) | Less: Accumulated depreciation and amortization | (1,753.2 | ) | (1,670.0 | ) | ||||||
Net property | 2,022.2 | 2,014.4 | |||||||||||||
Net property | 2,017.5 | 2,014.4 | |||||||||||||
Current Assets | Current Assets | ||||||||||||||
Cash and temporary cash investments | 33.0 | 0.9 | Cash and temporary cash investments | 12.9 | 0.9 | ||||||||||
Trade Accounts receivable, less provision for uncollectible accounts of $12.0 and $12.4, respectively | 162.8 | 156.3 | |||||||||||||
Trade accounts receivable, less provision for uncollectible accounts of $11.9 and $12.4, respectively | Trade accounts receivable, less provision for uncollectible accounts of $11.9 and $12.4, respectively | 165.5 | 156.3 | ||||||||||||
Net intercompany receivables with parent company | 56.4 | - | Net intercompany receivables with parent company | 45.5 | — | ||||||||||
Inventories, at average cost | 58.9 | 61.3 | Inventories, at average cost | 54.5 | 61.3 | ||||||||||
Prepaid taxes | 20.1 | 54.8 | Prepaid taxes | 8.4 | 54.8 | ||||||||||
Other | 21.8 | 25.5 | Other | 26.4 | 25.5 | ||||||||||
Total current assets | 353.0 | 298.8 | |||||||||||||
Total current assets | 313.2 | 298.8 | |||||||||||||
Other Assets | Other Assets | ||||||||||||||
Income taxes recoverable through future revenues | 34.6 | 39.2 | Income taxes recoverable through future revenues | 34.6 | 39.2 | ||||||||||
Other regulatory assets | 77.6 | 99.7 | Other regulatory assets | 64.0 | 99.7 | ||||||||||
Trust assets | 146.6 | 141.1 | Trust assets | 117.7 | 141.1 | ||||||||||
Other | 113.5 | 104.9 | Other | 115.5 | 104.9 | ||||||||||
Total other assets | 372.3 | 384.9 | |||||||||||||
Total other assets | 331.8 | 384.9 | |||||||||||||
Total Assets | $ | 2,747.5 | $ | 2,698.1 | Total Assets | $ | 2,662.5 | $ | 2,698.1 | ||||||
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 June 30, 2002 | At December 31, 2001 | ||||||||||||||
| At September 30, 2002 | At December 31, 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
CAPITALIZATION AND LIABILITIES | CAPITALIZATION AND LIABILITIES | ||||||||||||||
Capitalization | Capitalization | ||||||||||||||
Common shareholder’s equity— | |||||||||||||||
Common stock | $ | 0.4 | $ | 0.4 | |||||||||||
Other paid-in capital | 771.7 | 771.6 | |||||||||||||
Accumulated other comprehensive income | 19.0 | 15.6 | |||||||||||||
Earnings reinvested in the business | 465.3 | 357.3 | |||||||||||||
Common shareholder's equity— | Common shareholder's equity— | ||||||||||||||
Common stock | $ | 0.4 | $ | 0.4 | |||||||||||
Total common shareholder’s equity | 1,256.4 | 1,144.9 | |||||||||||||
Other paid-in capital | 771.7 | 771.6 | |||||||||||||
Accumulated other comprehensive income | 3.0 | 15.6 | |||||||||||||
Earnings reinvested in the business | 389.5 | 357.3 | |||||||||||||
Total common shareholder's equity | 1,164.6 | 1,144.9 | |||||||||||||
Preferred stock | 22.9 | 22.9 | Preferred stock | 22.9 | 22.9 | ||||||||||
Long-term debt | 665.9 | 666.6 | Long-term debt | 665.7 | 666.6 | ||||||||||
Total capitalization | 1,945.2 | 1,834.4 | |||||||||||||
Total capitalization | 1,853.2 | 1,834.4 | |||||||||||||
Current Liabilities | Current Liabilities | ||||||||||||||
Accounts payable | 94.2 | 110.5 | Accounts payable | 89.0 | 110.5 | ||||||||||
Accrued taxes | 84.2 | 105.6 | Accrued taxes | 83.7 | 105.6 | ||||||||||
Accrued interest | 19.1 | 19.0 | Accrued interest | 8.4 | 19.0 | ||||||||||
Short-term debt | Short-term debt | 45.0 | — | ||||||||||||
Other | 19.7 | 21.8 | Other | 19.1 | 21.8 | ||||||||||
Total current liabilities | 217.2 | 256.9 | |||||||||||||
Total current liabilities | 245.2 | 256.9 | |||||||||||||
Deferred Credits and Other | Deferred Credits and Other | ||||||||||||||
Deferred taxes | 384.9 | 397.0 | Deferred taxes | 368.1 | 397.0 | ||||||||||
Unamortized investment tax credit | 56.5 | 58.0 | Unamortized investment tax credit | 55.8 | 58.0 | ||||||||||
Trust obligations | 102.3 | 102.7 | Trust obligations | 100.8 | 102.7 | ||||||||||
Other | 41.4 | 49.1 | Other | 39.4 | 49.1 | ||||||||||
Total deferred credits and other | 585.1 | 606.8 | |||||||||||||
Total deferred credits and other | 564.1 | 606.8 | |||||||||||||
Total Capitalization and Liabilities | $ | 2,747.5 | $ | 2,698.1 | Total Capitalization and Liabilities | $ | 2,662.5 | $ | 2,698.1 | ||||||
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”&L" or “the Company”"the Company") is a wholly owned subsidiary of DPL Inc (“DPL”("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’sCompany's 2001 Annual Report on Form 10-K.
2. Reclassifications have been made in the presentation of certain prior years’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. Comprehensive income for the three and sixnine months ended JuneSeptember 30, 2002 and 2001 consisted of the following:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||
Net income | $ | 55.9 | $ | 45.5 | $ | 108.5 | $ | 103.0 | $ | 74.5 | $ | 85.2 | $ | 183.0 | $ | 187.8 | ||||||||||
Unrealized gains (losses) on financial instruments, net of reclassifications, after tax | 0.8 | (2.9 | ) | 3.4 | (14.5 | ) | ||||||||||||||||||||
Unrealized gains (losses) on financial instruments, net of reclassification adjustments, after tax | (16.0 | ) | (7.1 | ) | (12.6 | ) | (21.6 | ) | ||||||||||||||||||
Comprehensive income | $ | 56.7 | $ | 42.6 | $ | 111.9 | $ | 88.5 | $ | 58.5 | $ | 78.1 | $ | 170.4 | $ | 166.2 | ||||||||||
4. DPL’sDPL's transmission and distribution and base load and peaking generation operations are managed and evaluated as a single operating segment, Electric.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||
Net revenues: | Net revenues: | ||||||||||||||||||||||||||
Electric | $ | 206.2 | $ | 197.3 | $ | 397.8 | $ | 409.9 | Electric | $ | 245.3 | $ | 242.8 | $ | 643.1 | $ | 652.7 | ||||||||||
Operating income: | Operating income: | ||||||||||||||||||||||||||
Electric | $ | 105.6 | $ | 94.8 | $ | 197.0 | $ | 201.7 | Electric | $ | 138.0 | $ | 136.8 | $ | 335.0 | $ | 338.5 | ||||||||||
Other (a) | (1.4 | ) | (8.0 | ) | (5.5 | ) | (2.0 | ) | Other (a) | (0.9 | ) | 5.6 | (6.4 | ) | 3.6 | ||||||||||||
Total | 104.2 | 86.8 | 191.5 | 199.7 | |||||||||||||||||||||||
Total | 137.1 | 142.4 | 328.6 | 342.1 | |||||||||||||||||||||||
Other income (deductions) | (0.7 | ) | 1.5 | 11.0 | (1.0 | ) | Other income (deductions) | 2.8 | 9.7 | 13.8 | 8.7 | ||||||||||||||||
Interest expense | (15.1 | ) | (16.0 | ) | (30.5 | ) | (31.9 | ) | Interest expense | (15.9 | ) | (15.5 | ) | (46.4 | ) | (47.4 | ) | ||||||||||
Income before income taxes and cumulative effect of accounting change | $ | 88.4 | $ | 72.3 | $ | 172.0 | $ | 166.8 | Income before income taxes and cumulative effect of accounting change | $ | 124.0 | $ | 136.6 | $ | 296.0 | $ | 303.4 | ||||||||||
7
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
The Dayton Power and Light Company (“("DP&L”&L" or “the Company”"the Company") reported earnings on common stock for the secondthird quarter of 2002 of $55.7$74.2 million, an increasea decrease of 23% over13% from earnings on common stock of $45.3$85.2 million for the same quarter last year. Earnings on common stock for the current year-to-date period were $108.1$182.3 million, an increasea decrease of 5% over the3% from earnings on common stock of $102.6$187.8 million for the same period last year. Operating income for the quarter and year-to-date periods were down 4% to $137.1 million and $328.6 million, respectively, primarily as a result of lower wholesale revenues and higher operating expenses as discussed below. Results for 2001 included an operation and maintenance charge of $4.9 million before taxes for a voluntary early retirement program and the accounting change for the adoption of the new accounting standard for derivatives. Before the effect of non-recurring items, earnings on common stock for the quarter and the year-to-date periods increased 15% and 3%, respectively, primarily as a result of lower operation and maintenance expense as discussed below.
As a result of significant cost reductions, work elimination, and a stable economic environment, the second quarter and first six months of 2002 improved over prior year results. The third quarter is expected to be the strongest period of the year.decreased 19%.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||||||||
Electric revenues | $ | 279.1 | $ | 287.2 | $ | 551.3 | $ | 581.9 | Electric revenues | $ | 341.7 | $ | 351.5 | $ | 893.0 | $ | 933.4 | |||||||||
Fuel | 50.0 | 53.0 | 97.5 | 112.1 | Fuel | 57.6 | 62.3 | 155.1 | 174.7 | |||||||||||||||||
Purchased power | 22.9 | 36.9 | 56.0 | 59.9 | Purchased power | 38.8 | 46.4 | 94.8 | 106.3 | |||||||||||||||||
Net electric revenues | $ | 206.2 | $ | 197.3 | $ | 397.8 | $ | 409.9 | ||||||||||||||||||
Net electric revenues | $ | 245.3 | $ | 242.8 | $ | 643.1 | $ | 652.7 | ||||||||||||||||||
Operating income | $ | 104.2 | $ | 86.8 | $ | 191.5 | $ | 199.7 | Operating income | $ | 137.1 | $ | 142.4 | $ | 328.6 | $ | 342.1 |
The decrease in electric revenues in the secondthird quarter and year-to-date periods as compared to the prior year was primarily the result of lower wholesale revenues. Wholesale capacity and energy revenues decreased $14.7$34.4 million or 29%39% for the quarter and by $29.0$63.4 million or 32%35% for the sixnine months primarily as a result of lower wholesale electric commodity prices. The decreasedecreases in wholesale revenues during the second quarter waswere partially offset by a $6.5 million or 3% increaseincreases in retail residential and commercial revenues resulting from the morewarmer than normal weather in the current period. Retail residential and commercial revenues increased by $23.0 million or 13% for the quarter and by $23.4 million or 4% for the year-to-date period. Fuel and purchased power costs decreased as compared to the prior year by $17.0$12.3 million or 19%11% and $18.5$30.8 million or 11% for the quarter and year-to-date periods, respectively, as a result of lower purchased power volumes, and lower average gas and coal prices.
Operation and maintenance expense decreased $13.3increased $2.5 million or 27%8% and by $9.1decreased $6.6 million or 11%6% compared to last year’s secondyear's third quarter and year-to-date periods, respectively. The decreases in both comparisonBoth periods primarily resultedbenefited from lower planned outage costs and lower ash disposal costs, and lowerwhich were offset by higher employee benefits expense.
General taxes increased $3.8$3.6 million or 17%14% and by $3.9$7.5 million or 8%10% compared to last year’s secondyear's third quarter and year-to-date periods, respectively. The increases for both comparison periods were primarily attributable to the impact of the Ohio kWh excise tax that was first implemented in May 2001.
Other income (deductions) decreased $2.2$6.9 million or 71% for the quarter and increased $12.0$5.1 million or 59% for the year-to-date period. The decrease for the quarter resultedwas primarily fromattributable to a $0.5$14.5 million insurance claim recognized in the third quarter last year (see "Other Matters"), partially offset by a $4.4 decrease in benefits costs, a $2.3 million increase in interest income, and a $0.7 million increase in net derivative losses and two settlements totaling $0.9 million that were received in 2001.gains. The increase for the year-to-date period was primarily attributable to a $7.3$6.2 million insurance claim recognizedincrease in the first quarter of 2002 (see “Other Matters”) andinterest income, $4.2 million in strategic consulting expenses incurred in the first quarter of 2001.2001, and a $1.0 million decrease in net derivative losses. These
8
favorable variances were partially offset by a $7.2 million decrease in insurance claims ($7.3 million was recognized in the second quarter of 2002 as compared to $14.5 million that was recognized in the third quarter of 2001—see "Other Matters").
Interest expense decreased $0.9$1.0 million or 6% and by $1.4 million or 4%2% compared to last year’s second quarter and year-to-date periods, respectively,the first nine months of 2001 primarily as a result of lower average short-term debt levels.
The prior year cumulative effect of an accounting changereflected the Company’sCompany's adoption of the provisions of the Financial Accounting Standard Board’s (“FASB”Board's ("FASB") Statement No. 133, “Accounting"Accounting for Derivative Instruments and Hedging Activities,”" as amended (“("SFAS No. 133”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.
Capital Resources and Requirements
Construction additions were $62$88 million for the first sixnine months of 2002 and are expected to approximate $133$135 million for the year. Capital 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. The Company’sCompany's ability to complete its capital projects and the reliability of future service will be affected by its financial condition, the availability of external funds at reasonable cost and adequate and timely rate recovery. The Company expects to finance its capital program in 2002 and 2003 with internal funds.
During the first quarter of 2001, investing cash flows included a cash payment of $90.9 million for income taxes associated with 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 $200 million available through revolving credit agreements with a consortium of banks. Facility fees are approximately $0.3 million per year. 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, 2002. The Company also has $75 million available in short-term informal lines of credit. The commitment fees are not material. The Company had no borrowings outstanding under these informal lines and no$45 million in commercial paper outstanding at JuneSeptember 30, 2002.
Issuance of additional amounts of first mortgage bonds by the Company is limited by provision of its mortgage. The amounts and timing of future financings will depend upon market and other conditions, rate increases, levels of sales, and construction plans. The Company currently has sufficient capacity to issue first mortgage bonds to satisfy requirements in connection with the financing of its construction and refinancing programs during the five-year period 2002-2006.
At JuneSeptember 30, 2002, the Company’sCompany's senior debt credit ratings were as follows:
Rating | Outlook | ||||
---|---|---|---|---|---|
Standard & | Stable | ||||
A2 | Negative | ||||
Fitch | A | Negative |
On January 28, 2002, Standard & Poor’s changed These credit ratings, which were received in the outlook on DPL’sthird quarter as a result of annual credit rating from stable to negativereviews, are lower than prior ratings and on July 30, 2002, Moody’s Investor Service placed DPL’s rating under review. Bothremain investment grade. The rating agencies cited pressure from reduced wholesale energy prices and concerns regarding the impact of the global economic downturn on the liquidity of DPL’sDPL's financial asset portfolio as the reason for their actions. DPL is currently in discussions with the rating agencies regarding these matters.
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The carrying value of the Company’sCompany's debt was $668.1 million at December 31, 2001, consisting of the Company’sCompany's first mortgage bonds and guaranteed air quality development obligations. The fair value of this debt was $678.8 million on December 31, 2001, based on current market prices or discounted cash flows using current rates for similar issues with similar terms and remaining maturities. There have been no material changes in the carrying value or fair value of the Company’sCompany's long-term debt since December 31, 2001. The following table presents the principal cash repayments and related weighted average interest rates by maturity date for long-term, fixed-rate debt at December 31, 2001:
Expected Maturity Date | |||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | Thereafter | Total | Fair Value | ||||||||||||||||||
Long-term Debt | |||||||||||||||||||||||||
Amount ($ in millions) | $ | 1.1 | $ | 1.1 | $ | 1.1 | $ | 1.1 | $ | 1.1 | $ | 662.6 | $ | 668.1 | $ | 678.8 | |||||||||
Average rate | 7.4 | % | 7.4 | % | 7.4 | % | 7.4 | % | 7.4 | % | 7.5 | % | 7.5 | % |
| Expected Maturity Date | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2003 | 2004 | 2005 | 2006 | Thereafter | Total | Fair Value | |||||||||||||||||
Long-term Debt | |||||||||||||||||||||||||
Amount ($ in millions) | $ | 1.1 | $ | 1.1 | $ | 1.1 | $ | 1.1 | $ | 1.1 | $ | 662.6 | $ | 668.1 | $ | 678.8 | |||||||||
Average rate | 7.4 | % | 7.4 | % | 7.4 | % | 7.4 | % | 7.4 | % | 7.5 | % | 7.5 | % |
Because the long-term debt is at a fixed rate, the primary market risk to the Company is short-term interest rate risk. The Company had nocarrying value and fair value of short-term debt outstanding at June 30, 2002, and therefore, no exposure to short-termwas $45 million with a weighted-average interest rate risk.of 2.0% at September 30, 2002. The interest expense risk resulting from a hypothetical 10% increase/decrease in the quarterly weighted-average cost of this debt is negligible.
The Company’sCompany's financial results are impacted by changes in electricity, coal, and gas commodity prices. Ten percent of the Company’sCompany's expected 2002 revenues are from spot energy sales in the wholesale market and sales of peaking capacity. For the summer of 2002, the Company hashad sold forward approximately 80% of its available 1,100 megawatts of capacity. For the summer of 2003, the Company expects to have 1,100 megawatts of peaking capacity available for the wholesale market, none of which has been sold forward at this time. Fuel and purchased power costs represented 39% of total operating costs in 2001. The Company has fully contracted for approximately 90% of its coal needs for 2002.2002 and approximately 90% for 2003. A 2% change in overall fuel costs would result in a $3.5 million change in net income.
The accounting policies described below are viewed by management as critical because their application is the most relevant and material to the Company’'s results of operations and financial position and these policies require the use of material judgments and estimates.
Regulatory Assets: The Company capitalizes incurred costs as deferred regulatory assets when there is a probable expectation that the costs incurred will be recovered in future revenues as a result of the regulatory process. See Note 4 to the consolidated financial statements in the Company’sCompany's 2001 Annual Report on Form 10-K for further discussion of regulatory matters. The Company applied judgment in the use of this principle when it concluded, as of December 31, 2000, that as a result of deregulation $63.7 million of generation related regulatory assets were no longer probable of recovery, and wrote off these assets as an extraordinary charge. These estimates are based on expected usage by customer class over the designated recovery period. At JuneSeptember 30, 2002, $74.7$61.1 million of generation related regulatory assets remain on the balance sheet to be recovered over the remaining transition period ending December 31, 2003.
Unbilled Revenues: The Company records revenue for retail and other energy sales under the accrual method. For retail customers, revenues are recognized when the services are provided on the basis of periodic cycle meter readings and include an estimated accrual for the value of electricity provided from the meter reading date to the end of the reporting period. These estimates are based on the volume of energy delivered, historical usage and growth by customer class and the impact of
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weather variations on usage patterns. Unbilled revenues recognized at JuneSeptember 30, 2002 totaled $58.4$52.6 million.
Insurance and Claims: A wholly-owned captive insurance subsidiary of DPL provides insurance coverage solely to DPL and its subsidiaries including, among other coverages, business interruption and specific risk coverage with respect to electric deregulation. As the outcome of electric deregulation becomes known during the three-year regulatory transition period ending December 31, 2003, policy payments from the captive subsidiary to DP&L and receivables for insurance claims for DP&L will occur and be reflected in income. As of JuneSeptember 30, 2002, a $36 million receivable has been recognized by DP&L for insurance claims under its business interruption policy. Of this amount, $7.3 million was reported as other income forduring the six months ended June 30,first quarter of 2002.
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, “Accounting"Accounting for Asset Retirement Obligations” (“Obligations" ("SFAS No. 143”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.
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’sCompany'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.
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For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||
2002 | 2001 | 2002 | 2001 | ||||||||||
Sales (millions of kWh)— | |||||||||||||
Residential | 1,099 | 1,016 | 2,481 | 2,497 | |||||||||
Commercial | 919 | 916 | 1,761 | 1,795 | |||||||||
Industrial | 1,170 | 1,148 | 2,202 | 2,242 | |||||||||
Other retail | 354 | 358 | 678 | 672 | |||||||||
Total retail | 3,542 | 3,438 | 7,122 | 7,206 | |||||||||
Wholesale | 1,091 | 917 | 1,893 | 1,862 | |||||||||
Total | 4,633 | 4,355 | 9,015 | 9,068 | |||||||||
Revenues (thousands of dollars)— | |||||||||||||
Residential | $ | 99,683 | $ | 93,240 | $ | 215,038 | $ | 213,600 | |||||
Commercial | 65,457 | 66,237 | 125,623 | 126,658 | |||||||||
Industrial | 53,555 | 52,452 | 102,164 | 104,466 | |||||||||
Other retail | 23,811 | 24,035 | 45,995 | 45,745 | |||||||||
Total retail | 242,506 | 235,964 | 488,820 | 490,469 | |||||||||
Wholesale | 36,569 | 51,283 | 62,469 | 91,473 | |||||||||
Total | $ | 279,075 | $ | 287,247 | $ | 551,289 | $ | 581,942 | |||||
Electric customers at end of period | 503,058 | 500,800 | 503,058 | 500,800 |
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2002 | 2001 | ||||||||||
Sales (millions of kWh)— | ||||||||||||||
Residential | 1,543 | 1,306 | 4,024 | 3,802 | ||||||||||
Commercial | 1,047 | 966 | 2,809 | 2,762 | ||||||||||
Industrial | 1,214 | 1,233 | 3,416 | 3,476 | ||||||||||
Other retail | 379 | 358 | 1,057 | 1,029 | ||||||||||
Total retail | 4,183 | 3,863 | 11,306 | 11,069 | ||||||||||
Wholesale | 1,357 | 1,278 | 3,249 | 3,140 | ||||||||||
Total | 5,540 | 5,141 | 14,555 | 14,209 | ||||||||||
Revenues (thousands of dollars)— | ||||||||||||||
Residential | $ | 136,806 | $ | 117,249 | $ | 351,844 | $ | 330,849 | ||||||
Commercial | 69,270 | 65,844 | 194,893 | 192,502 | ||||||||||
Industrial | 55,281 | 55,644 | 157,445 | 160,110 | ||||||||||
Other retail | 25,578 | 23,523 | 71,573 | 69,269 | ||||||||||
Total retail | 286,935 | 262,260 | 775,755 | 752,730 | ||||||||||
Wholesale | 54,769 | 89,189 | 117,238 | 180,662 | ||||||||||
Total | $ | 341,704 | $ | 351,449 | $ | 892,993 | $ | 933,392 | ||||||
Electric customers at end of period | 503,350 | 500,271 | 503,350 | 500,271 |
Item 3.Quantitative and Qualitative Disclosures about Market Risk
See the “Market Risk”"Market Risk" section of Item 2.
There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.
Rate Regulation and Government Legislation
The Federal Energy Regulatory Commission (“FERC”("FERC") issued a final rule on December 20, 1999 specifying the minimum characteristics and functions for Regional Transmission Organizations (“RTO”("RTO"). The rule required that all public utilities that own, operate, or control interstate transmission
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file a proposal to join an RTO by October 15, 2000 or file a description of efforts taken to participate in an RTO, reasons for not participating in an RTO, any obstacles to participation in an RTO, and any plans for further work towards participation. The Company filed with the FERC on October 16, 2000 to join the Alliance RTO. On December 19, 2001, the FERC issued an Order that did not approve the Alliance RTO as a stand-alone RTO. However, on April 24, 2002, the FERC approved the Alliance Companies’Companies' proposal to form an independent transmission company that will operate under the umbrella of an existing RTO. On May 28, 2002, the Company filed with the FERC stating its intention to join the PJM Interconnection, L.L.C., an organization responsible for the operation and control of the bulk electric power system throughout major portions of five Mid-Atlantic states and the District of Columbia. On July 31, 2002, the FERC granted DP&L conditional approval to join PJM. On September 30, 2002, the Company signed an implementation agreement with PJM with the expectation that the Company will be fully integrated into the PJM market by May 1, 2003.
On July 22, 1998,31, 2002, the FERC issued a Standard Market Design Notice of Proposed Rulemaking ("SMD NOPR"). The SMD NOPR establishes a set of rules to standardize wholesale electric market design to create wholesale competition and efficient transmission systems. The impact on this rulemaking cannot be determined at this time.
The Company was granted market-base rate authority pursuant to an Order dated September 29, 1996. On September 27, 2002, the Company filed an updated market power analysis with the FERC in support of its authority to sell power at market-based rates.
On September 12, 2002, the Ohio Consumers' Counsel, Industrial Energy Users-Ohio and American Municipal Power-Ohio, Inc. filed a complaint with the Public Utilities Commission of Ohio (“PUCO”("PUCO"). The complaint alleges the Company has failed to join and transfer operational control to a FERC approved RTO. The Company filed a motion to dismiss the complaint on October 24, 2002. While the Company intends to vigorously defend this case, the impact of the complaint cannot be determined at this time.
On July 22, 1998, the PUCO approved the implementation of Minimum Electric Service Standards for all of Ohio’sOhio's investor-owned electric utilities. This Order details minimum standards of performance for a variety of service-related functions, effective July 1, 1999. On December 21, 1999 and again on March 21, 2002, the PUCO staff issued additional modifications to rules proposed by the PUCO staff, which are designed to guide the electric utility companies as they prepare to enter into deregulation. These rules include certification of providers of competitive retail electric services, minimum competitive retail electric service standards, monitoring the electric utility market, and establishing procedures for alternative dispute resolution. There were also rules issued to amend existing rules for noncompetitive electric service and safety standards and electric companies long-term forecast reporting.safety. The Company submitted comments on the proposed rule srules on January 31, 2000 and April 18, 2002. The current revisionsPUCO issued the final rules on September 26, 2002. The cost to the Company of compliance with these rules areas issued but not yet adopted by the Joint Committee on Agency Rule Review is not expected to be finalizedmaterial.
On October 10, 2002, the PUCO initiated a proceeding to review the financial condition of major public utilities in Ohio. The purpose of this review is to ensure that any adverse financial consequences of parent or affiliated companies unregulated operations do not impact the financial integrity of the regulated public utility. The PUCO is not requesting any financial information from the utilities at this time. The PUCO is accepting comments until November 11, 2002 on the scope of this review. The impact of this review cannot be determined at this time.
On October 28, 2002, the Company filed with the PUCO requesting to extend its market development period from December 31, 2003 to December 31, 2005. If approved by the PUCO, in the fallextension of 2002.the market development period will continue the Company's current rate structure and provide its retail customers with rate stability.
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Environmental Considerations
The Ohio Environmental Protection Agency adopted rules that will constitute Ohio’sOhio's State Implementation Plan (“SIP”("SIP") for nitrogen oxide (“NOx”("NOx") reductions. The state rules are substantially similar to the reductions required under the federal Clean Air Act Section 126 rulemaking and federal NOx SIP rule. The Company’sCompany's current NOx reduction strategy and associated expenditures to meet the federal reduction requirements should satisfy the state SIP reduction requirements.
In April 2002, the United States Environmental Protection Agency (“("US EPA”EPA") issued proposed rules governing existing facilities that have cooling water intake structures. Final rules are anticipated in August 2003. The impact of the final rules cannot be determined at this time.
In JulySeptember 2002, the Company and other parties received notification froma special notice that the US EPA that it considers them to be Potentially Responsible Parties for the clean up of hazardous substances at the South Dayton Landfill site in Dayton, Ohio. The US EPA seeks recovery of past costs and funding for a Remedial Investigation and Feasibility Study. The US EPA has not provided an estimated clean-up cost for this site. The information available does not demonstrate that the Company contributed hazardous substances to the site. The Company will challenge this action.
On July 29, 2002, the Bush Administration offered proposed legislation known as the "Clear Skies" initiative. The proposal calls for emissions reductions for sulfur dioxide, nitrogen oxides, and mercury commencing between 2008 and 2010. Senator Jeffords also offered a competing multi-pollutant proposal calling for reductions in sulfur dioxide, nitrogen oxides, mercury, and carbon dioxide emissions with earlier implementation dates. Neither proposal is expected to be passed in 2002. The impact of the potential legislation, if passed, cannot be determined at this time.
Item 6.Exhibits and Reports on Form 8-K
| |||
No reports on Form 8-K were filed by the Company during the quarter ended JuneSeptember 30, 2002.
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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: | |||
October 30, 2002 | /s/ | ||
MCCARTHY | |||
Elizabeth M. McCarthy Group Vice President and Chief Financial Officer (principal financial officer) |
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I, Elizabeth M. McCarthy, certify that:
Date: | October 30, 2002 | |||
Signature: | /s/ ELIZABETH M. MCCARTHY | |||
Print Name: | Elizabeth M. McCarthy | |||
Title: | Group Vice President and Chief Financial Officer |
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I, Allen M. Hill, certify that:
Date: | October 30, 2002 | |||
Signature: | /s/ ALLEN M. HILL | |||
Print Name: | Allen M. Hill | |||
Title: | Chief Executive Officer |