UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
March 31,June 30, 2002OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
o 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(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)
OHIO
(State or other jurisdiction of
incorporation or organization)31-0258470
(I.R.S. Employer Identification No.)1065 Woodman Drive
Dayton, Ohio 45432--------------------------------------------------------------- (Address
(Address of principal executive offices)(937) 224-6000
--------------------------------------------------------------- (Registrant's
(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 ____ ---
Yes x No oIndicate the number of shares of the
issuer'sissuer’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 March 31, 2002)
Common Stock, $.01 par value
(Title of each class)41,172,173 Shares
(Outstanding at June 30, 2002)THE DAYTON POWER AND LIGHT COMPANY
INDEX
Page No. --------PartPART I. Financial InformationFINANCIAL 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'sManagement’s Discussion and Analysis of Financial Condition
and Results of Operations8 Operating Statistics 1112 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 PartPART II. OTHER INFORMATION Item 5. Other Information Item 5. Other Information 1213 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 1314
SIGNATURES 15 2 Part I. Financial Information
- -------------------------------------------------------------------------------- Item 1. Financial Statements --------------------
Item 1. Financial Statements THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS(Dollars
(Dollars in millions)
Three Months Ended March 31, ------------------------ 2002 2001 ---- ----Revenues Electric ............................................................................. $ 272.2 $ 294.7 Expenses Fuel ................................................................................. 47.5 59.1 Purchased power ...................................................................... 33.1 23.0 Operation and maintenance ............................................................ 37.3 33.1 Depreciation and amortization ........................................................ 29.6 28.7 Amortization of regulatory assets, net ............................................... 11.5 12.1 General taxes ........................................................................ 25.9 25.8 ------ ------ Total expenses .................................................................. 184.9 181.8 ------ ------ Operating Income ..................................................................... 87.3 112.9 Other income (deductions) ............................................................ 11.7 (2.5) Interest expense ..................................................................... (15.4) (15.9) ------ ------ Income Before Income Taxes and Cumulative Effect of Accounting Change ........................................................................... 83.6 94.5 Income taxes ......................................................................... 31.0 38.0 ------ ------ Income Before Cumulative Effect of Accounting Change ................................. 52.6 56.5 Cumulative effect of accounting change, net of tax ................................... -- 1.0 ------ ------ Net Income ........................................................................... 52.6 57.5 Preferred dividends .................................................................. 0.2 0.2 ------ ------ Earnings on Common Stock ............................................................. $ 52.4 $ 57.3 ====== ======
For the Three Months
Ended June 30,For the Six Months
Ended June 30,2002 2001 2002 2001 Revenues Electric $ 279.1 $ 287.2 $ 551.3 $ 581.9 Expenses Fuel 50.0 53.0 97.5 112.1 Purchased power 22.9 36.9 56.0 59.9 Operation and maintenance 35.2 48.5 72.5 81.6 Depreciation and amortization 29.5 28.5 59.1 57.2 Amortization of regulatory assets, net 11.3 11.3 22.8 23.4 General taxes 26.0 22.2 51.9 48.0 Total expenses 174.9 200.4 359.8 382.2 Operating Income 104.2 86.8 191.5 199.7 Other income (deductions) (0.7 ) 1.5 11.0 (1.0 ) Interest expense (15.1 ) (16.0 ) (30.5 ) (31.9 ) Income Before Income Taxes and Cumulative Effect of
Accounting Change88.4 72.3 172.0 166.8 Income taxes 32.5 26.8 63.5 64.8 Income Before Cumulative Effect of Accounting Change 55.9 45.5 108.5 102.0 Cumulative effect of accounting change, net of tax — — — 1.0 Net Income 55.9 45.5 108.5 103.0 Preferred dividends 0.2 0.2 0.4 0.4 Earnings on Common Stock $ 55.7 $ 45.3 $ 108.1 $ 102.6 See Notes to Consolidated Financial Statements.
These interim statements are unaudited.3 THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS(Dollars
(Dollars in millions)
Three Months Ended March 31, -------------------------- 2002 2001 ---- ----Operating Activities Net income ...................................................................... $ 52.4 $ 57.3 Adjustments: Depreciation and amortization .............................................. 29.6 28.7 Amortization of regulatory assets, net ..................................... 11.5 12.1 Deferred income taxes ...................................................... 6.0 14.3 Changes in working capital: Accounts receivable ........................................................ (37.6) (4.6) Accounts payable ........................................................... -- (0.4) Inventories ................................................................ (3.0) (6.6) Accrued taxes payable ...................................................... (3.4) (5.3) Accrued interest payable ................................................... (10.8) (10.8) Other ........................................................................... (8.4) (0.3) ----- ------ Net cash provided by operating activities ....................................... 36.3 84.4 ----- ------ Investing Activities Capital expenditures ............................................................ (42.0) (46.6) Income taxes on gain from sale of natural gas retail distribution operations .... -- (90.9) ----- ------ Net cash used for investing activities .......................................... (42.0) (137.5) ----- ------ Financing Activities Issuance of short-term debt, net ................................................ 12.0 74.8 Dividends paid on common stock .................................................. -- (8.1) Dividends paid on preferred stock ............................................... (0.2) (0.2) ----- ------ Net cash provided by financing activities ....................................... 11.8 66.5 ----- ------ Cash and temporary cash investments-- Net change ...................................................................... 6.1 13.4 Balance at beginning of period .................................................. 5.7 8.6 ----- ------ Balance at end of period ........................................................ $ 11.8 $ 22.0 ===== ====== Cash Paid During the Period for: Interest ........................................................................ $ 23.8 $ 25.6 Income taxes .................................................................... $ 18.7 $ 93.3
Six Months Ended
June 30,2002 2001 Operating Activities Net income $ 108.5 $ 103.0 Adjustments: Depreciation and amortization 59.1 57.2 Amortization of regulatory assets, net 22.8 23.4 Deferred income taxes (6.2 ) 15.9 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 ) Other (8.5 ) 8.2 Net cash provided by operating activities 112.7 154.3 Investing Activities Capital expenditures (79.8 ) (85.1 ) Income taxes on gain from sale of natural gas retail distribution operations — (90.9 ) Net cash used for investing activities (79.8 ) (176.0 ) Financing Activities Issuance of short-term debt, net — 84.8 Retirement of long-term debt (0.4 ) (0.4 ) Dividends paid on common stock — (65.4 ) Dividends paid on preferred stock (0.4 ) (0.4 ) Net cash provided by (used for) financing activities (0.8 ) 18.6 Cash and temporary cash investments— Net change 32.1 (3.1 ) Balance at beginning of period 0.9 3.4 Balance at end of period $ 33.0 $ 0.3 Cash Paid During the Period for: Interest $ 25.0 $ 29.7 Income taxes $ 69.0 $ 136.0 See Notes to Consolidated Financial Statements.
These interim statements are unaudited.4 THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEET(Dollars
(Dollars in millions)
At At March 31, December 31, 2002 2001 ------------- -------------ASSETS Property Property ................................................................... $ 3,715.6 $ 3,684.4 Less: Accumulated depreciation and amortization ............................ (1,695.7) (1,670.0) ------------- ------------- Net property .......................................................... 2,019.9 2,014.4 ------------- ------------- Current Assets Cash and temporary cash investments ........................................ 11.8 5.7 Accounts receivable, less provision for uncollectible accounts of $12.1 and $12.4, respectively ...................................... 193.9 156.3 Inventories, at average cost ............................................... 64.3 61.3 Prepaid taxes .............................................................. 34.0 54.8 Other ...................................................................... 17.7 20.7 ------------- ------------- Total current assets .................................................. 321.7 298.8 ------------- ------------- Other Assets Income taxes recoverable through future revenues ........................... 37.9 39.2 Other regulatory assets .................................................... 88.9 99.7 Trust assets ............................................................... 142.7 141.1 Other ...................................................................... 113.4 104.9 ------------- ------------- Total other assets .................................................... 382.9 384.9 ------------- ------------- Total Assets ............................................................... $ 2,724.5 $ 2,698.1 ============= =============
At June 30,
2002At December 31,
2001
ASSETSProperty Property $ 3,745.5 $ 3,684.4 Less: Accumulated depreciation and amortization (1,723.3 ) (1,670.0 ) Net property 2,022.2 2,014.4 Current Assets Cash and temporary cash investments 33.0 0.9 Trade Accounts receivable, less provision for uncollectible accounts of $12.0 and
$12.4, respectively162.8 156.3 Net intercompany receivables with parent company 56.4 - Inventories, at average cost 58.9 61.3 Prepaid taxes 20.1 54.8 Other 21.8 25.5 Total current assets 353.0 298.8 Other Assets Income taxes recoverable through future revenues 34.6 39.2 Other regulatory assets 77.6 99.7 Trust assets 146.6 141.1 Other 113.5 104.9 Total other assets 372.3 384.9 Total Assets $ 2,747.5 $ 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
(Dollars in millions)
(continued)
At At March 31, December 31, 2002 2001 ------------ --------------CAPITALIZATION AND LIABILITIES Capitalization Common shareholder's equity-- Common stock ................................................. $ 0.4 $ 0.4 Other paid-in capital ........................................ 771.7 771.6 Accumulated other comprehensive income ....................... 18.2 15.6 Earnings reinvested in the business .......................... 409.6 357.3 ---------- ---------- Total common shareholder's equity ........................ 1,199.9 1,144.9 Preferred stock ................................................... 22.9 22.9 Long-term debt .................................................... 666.5 666.6 ---------- ---------- Total capitalization ..................................... 1,889.3 1,834.4 ---------- ---------- Current Liabilities Accounts payable .................................................. 102.6 110.5 Accrued taxes ..................................................... 90.9 105.6 Accrued interest .................................................. 8.3 19.0 Short-term debt ................................................... 12.0 - Other ............................................................. 27.3 21.8 ---------- ---------- Total current liabilities ................................ 241.1 256.9 ---------- ---------- Deferred Credits and Other Deferred taxes .................................................... 395.2 397.0 Unamortized investment tax credit ................................. 57.4 58.0 Trust obligations ................................................. 100.1 102.7 Other ............................................................. 41.4 49.1 ---------- ---------- Total deferred credits and other ......................... 594.1 606.8 ---------- ---------- Total Capitalization and Liabilities .............................. $ 2,724.5 $ 2,698.1 ========== ==========
At June 30,
2002At December 31,
2001CAPITALIZATION AND LIABILITIES 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 Total common shareholder’s equity 1,256.4 1,144.9 Preferred stock 22.9 22.9 Long-term debt 665.9 666.6 Total capitalization 1,945.2 1,834.4 Current Liabilities Accounts payable 94.2 110.5 Accrued taxes 84.2 105.6 Accrued interest 19.1 19.0 Other 19.7 21.8 Total current liabilities 217.2 256.9 Deferred Credits and Other Deferred taxes 384.9 397.0 Unamortized investment tax credit 56.5 58.0 Trust obligations 102.3 102.7 Other 41.4 49.1 Total deferred credits and other 585.1 606.8 Total Capitalization and Liabilities $ 2,747.5 $ 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 theCompany'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 six months ended
March 31,June 30, 2002 and 2001 consisted of$55.2 and $45.9 million, respectively, includes reported net income adjusted bythenon-cash effect of unrealized gains on trust and derivative assets after tax.following:
Three Months Ended June 30, Six Months Ended June 30, 2002 2001 2002 2001 Net income $ 55.9 $ 45.5 $ 108.5 $ 103.0 Unrealized gains (losses) on
financial instruments, net of
reclassifications, after tax0.8 (2.9 ) 3.4 (14.5 ) Comprehensive income $ 56.7 $ 42.6 $ 111.9 $ 88.5 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 March 31, -------------------------- 2002 2001 ---- ---- Net revenues: Electric ................................... $ 191.6 $ 212.6 Operating income: Electric ................................... $ 91.4 $ 106.9 Other (a) .................................. (4.1) 6.0 -------- -------- Total ................................... 87.3 112.9 Other income (deductions) .................. 11.7 (2.5) Interest expense ........................... (15.4) (15.9) -------- -------- Income before income taxes, extraordinary item, and cumulative effect of accounting change ............. $ 83.6 $ 94.5 ======== ========
Three Months Ended
June 30,Six Months Ended
June 30,2002 2001 2002 2001 Net revenues: Electric $ 206.2 $ 197.3 $ 397.8 $ 409.9 Operating income: Electric $ 105.6 $ 94.8 $ 197.0 $ 201.7 Other (a) (1.4 ) (8.0 ) (5.5 ) (2.0 ) Total 104.2 86.8 191.5 199.7 Other income (deductions) (0.7 ) 1.5 11.0 (1.0 ) Interest expense (15.1 ) (16.0 ) (30.5 ) (31.9 ) Income before income taxes and cumulative effect of accounting
change$ 88.4 $ 72.3 $ 172.0 $ 166.8 (a) Includes unallocated corporate items.
7 Item 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations -------------
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 thefirstsecond quarter of 2002 of$52.4$55.7 million,compared to prior yearan increase of 23% over earnings on common stock of$56.3$45.3 million for the same quarter last year. Earnings on common stock for the current year-to-date period were $108.1 million, an increase of 5% over the earnings on common stock of $102.6 million for the same period last year. Results for 2001 included an operation and maintenance charge of $4.9 million before taxes for a voluntary early retirement program and thecumulative effect of an accounting change. Theaccounting changein the first quarter of 2001 resulted fromfor the adoption ofathe new accounting standard for derivatives.DespiteBefore 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
quartersix months of 2002fell slightly belowimproved over prior year results. Thecontinuation of record mild temperatures throughout the firstthird quartersignificantly impacted the retail sector and reduced earnings by $6 million. Industrial/commercial revenues remained constant quarter to quarter. Wholesale power prices are beginning to increase slightly, which provides opportunity for increased margins on sales from the Company's low cost coal units. With the increase in announced capacity addition cancellations, the region's generation reserves at time of peak demand, after factoring in planned outages, areis expected to beinthesingle digits this summer.strongest period of the year.Results of Operations
Three Months Ended March 31, --------------------------- 2002 2001 ---- ---- Electric revenues ...................... $ 272.2 $ 294.7 Fuel ................................... 47.5 59.1 Purchased power ........................ 33.1 23.0 -------- -------- Net
Three Months Ended
June 30,Six Months Ended
June 30,2002 2001 2002 2001 Electric revenues $ 279.1 $ 287.2 $ 551.3 $ 581.9 Fuel 50.0 53.0 97.5 112.1 Purchased power 22.9 36.9 56.0 59.9 Net electric revenues $ 206.2 $ 197.3 $ 397.8 $ 409.9 Operating income $ 104.2 $ 86.8 $ 191.5 $ 199.7 The decrease in electric revenues
............. $ 191.6 $ 212.6 Operating income ....................... $ 87.3 $ 112.9 Net electric revenues decreased by $21.0 million or 10%. Retail revenues decreased $8.2 million or 3%in the second quarter and year-to-date periods asacompared to the prior year was primarily the result ofthe warmest weather on record in the last 30 years.lower wholesale revenues. Wholesale capacity and energy revenues decreased$14.3$14.7 million or36% as a result of29% for theweatherquarter andlower commodity prices. Fuel costs decreased $11.6by $29.0 million or20%32% for the six months primarily as a result of lowerspot-market prices for coal andwholesale electric commodity prices. The decrease in wholesale revenues during thesales decline. Purchased power increased $10.1second quarter was partially offset by a $6.5 million or44%3% increase in retail residential revenues resulting from the more normal weather in the current period. Fuel and purchased power costs decreased as compared to the prior year by $17.0 million or 19% and $18.5 million or 11% for the quarter and year-to-date periods, respectively, as a result ofhigher outages.lower purchased power volumes, and lower average gas and coal prices.Operation and maintenance expense
increased $4.2decreased $13.3 million or13%27% and by $9.1 million or 11% compared to last year’s second quarter and year-to-date periods, respectively. The decreases in both comparison periods primarily resulted from lower planned outage costs, lower ash disposal costs, and lower employee benefits expense.8 General taxes increased $3.8 million or 17% and by $3.9 million or 8% compared to last year’s second 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 million for the quarter and increased $12.0 million for the year-to-date period. The decrease for the quarter resulted primarily from a $0.5 million increase in net derivative losses and two settlements totaling $0.9 million that were received in 2001. The increase for the year-to-date period was primarily attributable to a $7.3 million insurance claim recognized in the first quarter of 2002 (see “Other Matters”) and strategic consulting expenses incurred in the first quarter of 2001.
Interest expense decreased $0.9 million or 6% and by $1.4 million or 4% compared to last year’s second quarter and year-to-date periods, respectively, primarily as a result of
higher employee benefits expense, includinglowerpension credits and a $1.1 million current year union severance charge. Other income (deductions) increased $14.2 million primarily as a result of a current year insurance claim under the Company's business interruption policy (see "Other Matters"). Prior year results included strategic consulting expenses. 8average 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 StandardBoard'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
$32$62 million for thecurrent quarterfirst six months of 2002 and are expected to approximate $133 million for the year.ConstructionCapital 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. TheCompany'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 itsconstructioncapital 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
March 31,June 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$12 million inno commercial paper outstanding atMarch 31,June 30, 2002.9 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
March 31,June 30, 2002, theCompany'sCompany’s senior debt credit ratings were as follows:
Standard & Poor’s Corp BBB+ Moody’s Investors Service A2 On January 28, 2002, Standard &
Poor's Corp. ............... BBB+ Moody's InvestorsPoor’s changed the outlook on DPL’s credit rating from stable to negative and on July 30, 2002, Moody’s Investor Service............. A2 9placed DPL’s rating under review. Both rating agencies cited pressure from reduced wholesale energy prices and concerns regarding the impact of the global economic downturn on the liquidity of DPL’s financial asset portfolio as the reason for their actions. DPL is currently in discussions with the rating agencies regarding these matters. Market Risk
The carrying value of the
Company'sCompany’s debt was $668.1 million at December 31, 2001, consisting of theCompany'sCompany’s first mortgage bonds and guaranteed air quality development obligations. The fair value of this debt was $678.8 million on December 31, 2001, based on current market prices or discounted cash flows using current rates for similar issues with similar terms and remaining maturities. There have been no material changes in the carrying value or fair value of theCompany'sCompany’s long-term debt since December 31, 2001. The following table presents the principal cash repayments and related weighted average interest rates by maturity date for long-term, fixed-rate debt at December 31, 2001:
- --------------------------------------------------------------------------------------------------------------------------- Expected Maturity Date - ------------------------------ ---------- --------- ---------- ---------- ---------- ------------- ----------- ------------ 2002 2003 2004 2005 2006 Thereafter Total Fair Value - ------------------------------ ---------- --------- ---------- ---------- ---------- ------------- ----------- ------------Long-term Debt - ------------------------------ ---------- --------- ---------- ---------- ---------- ------------- ----------- ------------ Amount ($ 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
carrying value and fair value ofCompany had no short-term debtwas $12 million with a weighted-averageoutstanding at June 30, 2002, and therefore, no exposure to short-term interest rateof 2.1% at March 31, 2002.risk.The
interest expense risk resulting from a hypothetical 10% increase/decrease in the quarterly 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 theCompany'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 has sold forward approximately 80% of its available 1,100 megawatts of capacity. Fuel and purchased power costs represented 39% of total operating costs in 2001. The Company has contracted for approximately95%90% of its coal needs for 2002. A 2% change in overall fuel costs would result in a $3.5 million change in net income.Other Matters10 Critical Accounting Policies
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’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 June 30, 2002, $74.7 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 weather variations on usage patterns. Unbilled revenues recognized at June 30, 2002 totaled $58.4 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
environmental law andelectric deregulation."Insurance Claims and Costs" on DPL's Consolidated Balance Sheet includes insurance reserves of approximately $87 million for this coverage 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 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&Lor the release of the appropriate reserveswill occur and be reflected in income.Through the first quarterAs of June 30, 2002, a $36 million receivable has been recognized by DP&L for insurance claims under its business interruption policy.10Of this amount, $7.3 million was reported as other income for the six months ended June 30, 2002. 11 Other Matters
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143,
"Accounting“Accounting for Asset RetirementObligations" ("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.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'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.THE DAYTON POWER AND LIGHT COMPANYOPERATING STATISTICS
Three Months Ended March 31, ---------------------------- 2002 2001 ---- ----Electric Sales (millions of kWh)-- Residential ...................... 1,383 1,480 Commercial ....................... 843 879 Industrial ....................... 1,033 1,094 Other retail ..................... 324 314 ------- -------- Total retail ................. 3,583 3,767 Wholesale ........................ 736 946 ------- -------- Total ........................ 4,319 4,713 Revenues (thousands of dollars)-- Residential ...................... $115,355 $120,360 Commercial ....................... 60,166 60,421 Industrial ....................... 48,609 52,014 Other retail ..................... 22,184 21,710 -------- -------- Total retail ................. 246,314 254,505 Wholesale ........................ 25,900 40,190 -------- -------- Total ........................ $272,214 $294,695 Electric customers at end of period ... 501,971 500,74111
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 Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------See the
"Market Risk"“Market Risk” section of Item 2.12 Part II. Other Information
- --------------------------------------------------------------------------------Item 5. Other Information
-----------------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 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 AllianceCompanies'Companies’ proposal to form an independent transmission company that will operate under the umbrella of an existing RTO.TheOn May 28, 2002, the Companyis exploringfiled with the FERC stating itsoperational options as a resultintention 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 FERCOrder.granted DP&L conditional approval to join PJM.On July 22, 1998, the Public Utilities Commission of Ohio
("PUCO"(“PUCO”) approved the implementation of Minimum Electric Service Standards for all ofOhio'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 issued additional 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. The Company submitted comments on the proposedrulesrule s on January 31, 2000 and April 18, 2002. The current revisions to the rules are expected to be finalized by the PUCO in the fall of 2002.Environmental Considerations
The Ohio Environmental Protection Agency adopted rules that will constitute Ohio’s State Implementation Plan (“SIP”) for nitrogen oxide (“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’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”) 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.
13 In July 2002, the Company and other parties received notification from 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 has not provided an estimated 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.
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 March 31, 2002. (b) Reports on Form 8-K.
(a) There are no exhibits required by Item 601 of Regulation S-K for the quarter ended June 30, 2002. (b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter ended
March 31,June 30, 2002.1214 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: May
THE DAYTON POWER AND LIGHT COMPANY (Registrant)
Date: August 14, 2002 /s/ Elizabeth M. McCarthy Elizabeth M. McCarthy
Group Vice President and Chief Financial Officer
(principal financial officer)15 2002 /s/ Elizabeth M. McCarthy ---------------------------- ---------------------------------------- Elizabeth M. McCarthy Group Vice President and Chief Financial Officer (principal financial officer) 13