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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004~~September 30, 2003~~

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto.

Commission File Number1-2385

THE DAYTON POWER AND LIGHT COMPANY

(Exact name of registrant as specified in its charter)

OHIO		31-0258470
(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's telephone number, including area code)~~Zip Code)

Registrant’s telephone number, including area code: 937-224-6000

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.

YESo NO ý NOo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule ~~12b-2 of the Exchange Act)~~12b-2).

YESo NO ý NOo

~~Indicate the number~~

Number of shares of ~~the issuer's classes of~~registrant’s common stock outstanding as of ~~the latest practicable date.~~

~~Common Stock, $.01 par value~~
~~(Title of each class)~~

~~41,172,173 Shares~~
~~(Outstanding at September 30, 2003)~~

October 31, 2004, all of which were held by DPL Inc., was 41,172,173.

DOCUMENTS INCORPORATED BY REFERENCE

THE DAYTON POWER AND LIGHT COMPANY
INDEX

Page No.
Part I. Financial Information

Item 1.

Financial Statements

3

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~~
Management’s Discussion and Analysis of Financial Condition and Results of Operations

10
19

~~Operating Statistics~~

14

Operating Statistics
28
Item 3.

Quantitative and Qualitative Disclosures about Market Risk

14
28

Item 4.

Controls and Procedures

14
28

Part II. Other Information

Item 1.

~~Item 5.~~
Legal Proceedings

~~Other Information~~

16
31

Item 4.
Submission of Matters to a Vote of Security Holders
31
Item 5.
Other Information
31
Item 6.

Exhibits and Reports on Form 8-K

19
31

~~Other~~

Other

Signatures

~~Signatures~~
32

20
Certifications
Available Information:
The Dayton Power and Light Company ~~("DP&L"~~(DP&L or the ~~"Company")~~Company) files current, annual and quarterly reports and other information required by the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission ~~("SEC")~~(SEC). You may read and copy any document the Company files at the ~~SEC's~~SEC’s public reference room located at 450 Fifth Street, NW, Washington, DC 20549, USA. Please call the SEC at (800) SEC-0330 for further information on the public reference rooms. The ~~Company's~~Company’s SEC filings are also available to the public from the ~~SEC's~~SEC’s web site at http://www.sec.gov.
The Company’s public internet site is http://www.dplinc.com. The Company makes available through its ~~parent company's~~ internet site, ~~http://www.dplinc.com,~~ its annual reports on Form 10-K, quarterly reports on Form 10-Q, ~~and~~ current reports on Form 8-K, and Forms 3, 4 and 5 filed on behalf of directors and executive officers and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.
In addition, the Company’s public internet site includes other items related to corporate governance matters, including, among other things, the Company’s governance guidelines, charters of various committees of the Board of Directors and the Company’s code of business conduct and ethics applicable to all employees, officers and directors. You may obtain copies of these documents, free of charge, by sending a request, in writing, to DP&L Investor Relations, 1065 Woodman Drive, Dayton, Ohio 45432.
2

Part I. Financial Information
Item 1.Financial Statements

THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS
($ in millions)

Three Months Ended
September 30,
Nine Months Ended
September 30,

2003
2002
2003
2002

Revenues
Electric $ 323.2 $ 341.7 $ 890.3 $ 893.0

Expenses

Fuel 59.9 57.6 166.3 155.1
Purchased power 29.8 38.8 76.3 94.8
Operation and maintenance 42.5 35.3 127.8 107.8
Depreciation and amortization 30.1 29.6 88.5 88.7
Amortization of regulatory assets, net 12.5 13.6 35.3 36.4
General taxes 28.0 29.7 81.7 81.6

Total expenses $ 202.8 $ 204.6 $ 575.9 $ 564.4

Operating Income 120.4 137.1 314.4 328.6

Investment income

21.4

—

21.7

1.7

Other income (deductions) 0.7 0.2 5.3 6.2
Interest expense (13.7 ) (13.3 ) (38.9 ) (40.5 )

Income Before Income Taxes and Cumulative Effect of Accounting Change $ 128.8 $ 124.0 $ 302.5 $ 296.0

Income tax expense

48.8

49.5

114.2

113.0

Income Before Cumulative Effect of Accounting Change $ 80.0 $ 74.5 $ 188.3 $ 183.0

Cumulative effect of accounting change, net of tax

—

—

17.0

—

Net Income $ 80.0 $ 74.5 $ 205.3 $ 183.0

Preferred dividends

0.3

0.3

0.7

0.7

Earnings on Common Stock $ 79.7 $ 74.2 $ 204.6 $ 182.3

Three Months Ended
March 31,

2004

2003

(as restated)

Revenues

Electric revenues

$
300.4

$
295.7

Operating Expenses

Fuel

62.7

55.6

Purchased power

28.5

20.0

Operation and maintenance

46.8

35.8

Depreciation and amortization

28.3

29.1

Amortization of regulatory assets, net

0.1

12.1

General taxes

27.1

28.3

Total operating expenses

193.5

180.9

Operating Income

106.9

114.8

Interest expense

(11.8
)
(12.8
)
Other income

4.2

1.0

Income Before Income Taxes and Cumulative Effect of Accounting Change

99.3

103.0

Income tax expense

37.3

39.2

Income Before Cumulative Effect of Accounting Change

62.0

63.8

Cumulative effect of accounting change, net of tax

—

17.0

Net Income

62.0

80.8

Preferred dividends

0.2

0.2

Earnings on Common Stock

$
61.8

$
80.6

See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
3

THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in millions)

Nine Months Ended
September 30,

2003
2002

Operating Activities

Net income

$
205.3

$
183.0

Adjustments:
Depreciation and amortization 88.5 88.7
Amortization of regulatory assets, net 35.3 36.4
Deferred income taxes (1.8 ) (15.6 )
Income from interest rate hedges (21.2 ) —
Cumulative effect of accounting change, net of tax (17.0 ) —
Changes in working capital:
Accounts receivable 25.7 (9.2 )
Accounts payable (5.0 ) (11.5 )
Net intercompany receivables and payables 70.8 (52.9 )
Accrued taxes payable 29.3 14.3
Accrued interest payable (10.7 ) (10.8 )
Prepayments (12.8 ) (4.0 )
Inventories 0.5 6.8
Other (1.4 ) (5.0 )

Net cash provided by operating activities $ 385.5 $ 220.2

Investing Activities

Capital expenditures

(86.8
)

(102.1
)
Settlement of interest rate hedges 51.4 —

Net cash used for investing activities $ (35.4 ) $ (102.1 )

Financing Activities

Issuance of long-term debt, net of issue costs

465.1

—

Issuance of short-term debt, net — 45.0
Retirement of long-term debt (0.4 ) (0.4 )
Dividends paid on common stock (212.7 ) (150.0 )
Dividends paid on preferred stock (0.7 ) (0.7 )

Net cash provided by (used for) financing activities $ 251.3 $ (106.1 )

Cash and temporary cash investments

Net change

$
601.4

$
12.0

Balance at beginning of period 17.1 0.9

Balance at end of period $ 618.5 $ 12.9

Cash Paid During the Period for:
Interest $ 46.3 $ 48.0
Income taxes $ 81.9 $ 111.2

Three Months Ended
March 31,

2004

2003

(restated)

Operating Activities

Net income

$
62.0

$
80.8

Adjustments:

Depreciation and amortization

28.3

29.1

Amortization of regulatory assets, net

0.1

12.1

Deferred income taxes

12.4

23.6

Cumulative effect of accounting change, net of tax

—

(17.0
)
Changes in working capital:

Accounts receivable

10.0

11.8

Accounts payable

1.7

8.4

Accrued taxes payable

14.6

11.2

Accrued interest payable

4.3

(10.8
)
Prepayments

7.9

(2.6
)
Inventories

(7.7
)
2.2

Deferred compensation assets

8.8

30.5

Deferred compensation obligations

(6.7
)
(31.2
)
Other (Note 3)

(15.4
)
0.5

Net cash provided by operating activities

120.3

148.6

Investing Activities

Capital expenditures

(25.7
)
(35.0
)

Net cash used for investing activities

(25.7
)
(35.0
)

Financing Activities

Dividends paid on common stock

(75.0
)
(82.5
)
Dividends paid on preferred stock

(0.2
)
(0.2
)

Net cash used for financing activities

(75.2
)
(82.7
)

Cash and temporary cash investments

Net change

19.4

30.9

Balance at beginning of period

17.2

17.1

Balance at end of period

$
36.6

$
48.0

Cash Paid During the Period for:

Interest

$
6.0

$
22.6

Income taxes

$
0.4

$
(5.0
)
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
4

THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
($ in millions)

At
September 30,
2003
At
December 31,
2002

ASSETS

Property

Property

$
3,849.1

$
3,781.7

Less: Accumulated depreciation and amortization (1,817.0 ) (1,765.1 )

Net property $ 2,032.1 $ 2,016.6

Current Assets
Cash and temporary cash investments (Note 8) 618.5 17.1
Accounts receivable, less provision for uncollectible accounts of $5.0 and $10.9, respectively 133.7 159.4
Net intercompany receivables — 36.4
Inventories, at average cost 53.6 54.1
Prepaid taxes 11.7 46.9
Other 37.4 28.8

Total current assets $ 854.9 $ 342.7

Other Assets

Income taxes recoverable through future revenues

41.4

34.6

Other regulatory assets 35.9 71.1
Trust assets 92.8 115.6
Other 80.8 79.0

Total other assets $ 250.9 $ 300.3

Total Assets $ 3,137.9 $ 2,659.6

At
March 31,
2004

At
December 31,
2003

ASSETS

Property

Property, plant and equipment

$
3,899.7

$
3,875.4

Less: Accumulated depreciation and amortization

(1,795.9
)
(1,769.1
)
Net property

2,103.8

2,106.3

Current Assets

Cash and temporary cash investments (Note 3)

36.6

17.2

Accounts receivable, less provision for uncollectible accounts of $3.6 and $3.6, respectively

150.4

160.4

Inventories, at average cost (Note 3)

57.3

49.6

Prepaid taxes

34.8

46.4

Other (Note 3)

17.2

24.4

Total current assets

296.3

298.0

Other Assets

Income taxes recoverable through future revenues

41.9

43.3

Other regulatory assets

37.1

36.1

Other (Note 3)

159.5

176.4

Total other assets

238.5

255.8

Total Assets

$
2,638.6

$
2,660.1

See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
5

THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
($ in millions)
(continued)

At
September 30,
2003
At
December 31,
2002
CAPITALIZATION AND LIABILITIES

Capitalization

Common shareholder's equity

Common stock $ 0.4 $ 0.4
Other paid-in capital 771.8 771.7
Accumulated other comprehensive income 35.3 1.5
Earnings reinvested in the business 387.2 395.3

Total common shareholder's equity $ 1,194.7 $ 1,168.9
Preferred stock 22.9 22.9
Long-term debt 686.8 665.5

Total capitalization $ 1,904.4 $ 1,857.3

Current Liabilities

Current portion—long-term debt (Note 8)

447.1

1.1
Accounts payable 75.9 96.5
Net intercompany payables 34.4 —
Accrued taxes 90.5 100.5
Accrued interest 8.5 19.0
Other 16.3 17.8

Total current liabilities $ 672.7 $ 234.9

Deferred Credits and Other

Deferred taxes

388.8

370.9
Unamortized investment tax credit 52.9 55.1
Trust obligations 70.8 101.2
Other 48.3 40.2

Total deferred credits and other $ 560.8 $ 567.4

Contingencies (Note 9)
Total Capitalization and Liabilities $ 3,137.9 $ 2,659.6

At
March 31,
2004

At
December 31,
2003

CAPITALIZATION AND LIABILITIES

Capitalization

Common shareholders’ equity

Common stock

$
0.4

$
0.4

Other paid-in capital

781.1

780.5

Accumulated other comprehensive income

34.3

38.2

Earnings reinvested in the business

308.5

321.7

Total common shareholders’ equity

1,124.3

1,140.8

Preferred stock

22.9

22.9

Long-term debt (Note 6)

687.1

687.3

Total capitalization

1,834.3

1,851.0

Current Liabilities

Accounts payable

89.4

88.9

Accrued taxes

69.5

66.4

Accrued interest

14.6

10.2

Other (Note 3)

21.4

24.6

Total current liabilities

194.9

190.1

Deferred Credits and Other

Deferred taxes

379.9

381.7

Unamortized investment tax credit

51.5

52.2

Other (Note 3)

178.0

185.1

Total deferred credits and other

609.4

619.0

Contingencies (Note 8)

Total Capitalization and Liabilities

$
2,638.6

$
2,660.1

See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
6

Notes to Consolidated Financial Statements
1.Basis of Presentation
Basis of Consolidation
The Dayton Power and Light Company ~~("DP&L"~~(DP&L or the ~~"Company") is~~Company) prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of DP&L and its majority-owned subsidiaries. Investments that are not majority owned are accounted for using the equity method when DP&L’s investment allows it the ability to exert significant influence, as defined by GAAP. Undivided interests in jointly-owned generation facilities are consolidated on a ~~wholly owned subsidiary of DPL Inc. ("DPL").~~ pro rata basis. All material intercompany accounts and transactions are eliminated in consolidation.
DP&L has prepared the unaudited consolidated financial statements in this report, pursuant to the rules and regulations of the Securities and Exchange ~~Commission.~~Commission (SEC). 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 2002~~DP&L’s 2003 Annual Report on Form 10-K.
2.
Estimates, Judgments and Reclassifications
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the revenues and expenses of the period reported. Significant items subject to such estimates and judgments include the carrying value of property, plant and equipment; the valuation of derivative instruments; valuation allowances for receivables and deferred income taxes; and assets and liabilities related to employee benefits. Actual results may differ from those estimates. Reclassifications have been made in ~~the presentation of~~ certain prior ~~year~~years’ amounts to conform to the current reporting ~~presentation~~presentation.
Recently Issued Accounting Standards
Staff Position No. 106-1
In December 2003, the FASB issued Staff Position No. 106-1 (FSP 106-1), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the Act). The Act provides for drug benefits for retirees over the age of 65 under a new Medicare Part D program. For employers like DP&L, who currently provide retiree medical programs for certain former employees over the age of 65, there are subsidies available which are inherent in the Act. The Act entitles these employers to a direct tax-exempt federal subsidy. However, since the effective date of the ~~Company.~~Act was December 2003 and because most employers have not had time to consider the accounting considerations and there is no appropriate accounting guidance for the federal subsidy, the FASB issued this FSP 106-1 to allow employers a one-time election to defer recognition of the impact of the Act in the employer’s accounting until formal guidance is issued. DP&L elected to defer recognition of the provisions of this Act until further accounting guidance is issued.
Staff Position No. 106-2
In May 2004, the ~~opinion~~FASB issued FASB Staff Position No. 106-2 (FSP 106-2), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of ~~management,~~2003”, which supersedes FSP 106-1. FSP 106-2 provides guidance on the ~~information included in this Form 10-Q reflects all adjustments that are necessary~~accounting for ~~a fair statement~~the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) for employers that sponsor postretirement health care plans that provide prescription drug benefits. It also requires certain disclosures regarding the effect of the federal subsidy provided by the Act. FSP 106-2 is effective for the first interim or annual period beginning after June 15, 2004. The effect is not expected to be material to the Company’s results of operations, cash flow or financial position.
2. Restatement of Financial Statements
As part of DP&L’s Audit Committee’s response to a report prepared by Taft, Stettinius & Hollister LLP and during the 2003 year-end financial closing process, the Company identified certain adjustments to prior period financial statements. As a result, the Company has restated its consolidated financial statements for the ~~periods presented. Any adjustments are of a normal recurring nature.~~quarter ended
~~3. Comprehensive~~
7

March 31, 2003 and prior periods. This adjustment decreased net income by $0.2 million to $80.8 million for the ~~three and nine months ended September 30,~~first quarter of 2003. All applicable financial information contained in this Quarterly Report on Form 10-Q gives effect to these restatements. Accordingly, the financial statements for this fiscal period described above that have been in the Company’s prior SEC filings should not be relied upon.
Certain captions in the March 31, 2003 ~~and 2002 consisted~~Consolidated Balance Sheet were also adjusted due to the prior periods’ restatements. Please refer to the Company’s 2003 Annual Report on Form 10-K for a more complete description of the ~~following:~~prior period adjustments.

Three Months Ended
September 30,
Nine Months Ended
September 30,

$ in millions

2003
2002
2003
2002

Net income $ 80.0 $ 74.5 $ 205.3 $ 183.0
Net change in unrealized gains (losses) on financial instruments 3.9 (28.2 ) 6.5 (22.3 )
Net change in deferred gains on cash flow hedges 28.9 — 30.2 —
Deferred income taxes related to unrealized gains (losses) (1.1 ) 12.2 (2.9 ) 9.7

Comprehensive income $ 111.7 $ 58.5 $ 239.1 $ 170.4

~~In May 2003,~~
The accompanying consolidated financial data set forth below presents the Company entered into 60 day interest rate swaps designed to capture existing favorable interest rates in anticipation of future financings of $750 million first mortgage bonds.    These hedges were settled on July 28, 2003, at a final market value of $51.4 million. At September 30, 2003, the ultimate effectiveness of the hedges was $30.2 million and is reflected in accumulated other comprehensive income on the Consolidated Balance Sheet. This amount will be amortized to reduce interest expense over the lives of the hedges, which are ten and fifteen years. The remaining market value of $21.2 million was recognized during the third quarter of 2003 as investment income on theCompany’s Consolidated Statement of Results of ~~Operations.~~
4. The Financial Accounting Standards Board ("FASB") issued the Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149") and Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150") during the second quarter of 2003. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including those embedded in other contracts, and for hedging activities and was effective for contracts entered into or modified after June 30, 2003. This standard did not have a material impact on the Company. SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with both liability and equity characteristics. This standard, which was effective at the beginning of the third quarter of 2003, did not affect DP&L.
5. The Company adopted the provisions of the FASB Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143") as of January 1, 2003. SFAS No. 143 requires legal obligations associated with the retirement of long-lived assets to be recognized at
7

their fair value at the time those obligations are incurred. Upon initial recognition of a legal liability, costs are capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. SFAS No. 143 also requires that components of previously recorded depreciation related to the cost of removal of assets upon retirement, whether legal asset retirement obligations or not, must be removed from a company's accumulated depreciation reserve. The Company's legal obligations associated with the retirements of its long-lived assets consist primarily of river intake and discharge structures, coal unloading facilities, loading docks, ice breakers, and ash disposal facilities. Application of SFAS No. 143 in 2003 resulted in an increase in net property, plant and equipment of $0.8 million, the recognition of an asset retirement obligation of $4.6 million and reduced the Company's accumulated depreciation reserve by $32.1 million. If the new accounting rule had been adopted on January 1, 2002, the asset retirement obligation would have approximated $4.3 million. Beginning in January 2003, depreciation rates were reduced to reflect the discontinuation of the cost of removal accrual for applicable non-regulated generation assets. This change will reduce annual depreciation and amortization expense by $1.9 million. On a pro forma basis, the impactOperations for the quarter ended March 31, 2003 and ~~nine-month period ended September 30, 2002 would have been $0.3 million~~Consolidated Balance Sheet as of March 31, 2003 on a comparative basis showing the amounts as originally reported and ~~$0.9 million, respectively, after tax. In addition, costs~~as restated.
Effects of Restatement on Net Income
The following table identifies the adjustments made to the consolidated financial statements for the ~~removal~~quarter ended March 31, 2003:
($ in millions)
Net Income
Increase
(Decrease)
2003
First
Description of Adjustment
Quarter
Supplemental Executive Retirement Plan (1)
(0.2
)
Stock incentive units (2)
(0.2
)
Sub-total pre-tax impact
(0.4
)
Income taxes (3)
0.2
Total Net Income Impact
(0.2
)
(1) Reflects adjustment to record a settlement of ~~retired~~the Company’s Supplemental Executive Retirement Plan for certain executives in 1997 and 2000 which had not been previously recorded, in addition to an adjustment to record the proper treatment for Company assets ~~are charged~~previously thought to ~~operation~~be segregated and ~~maintenance when incurred. Since the generation assets are not subject to Ohio regulation, the Company recorded the net effect~~restricted solely for purposes of ~~adopting~~funding this ~~standard in its~~ plan.
Consolidated Statement of Results of ~~Operations. The total cumulative effect~~Operations: For the first quarter of 2003, the adjustment increased Operation and Maintenance expense by approximately $0.2 million.
Consolidated Balance Sheet: At March 31, 2003, adjustment decreased Other Assets – Other by $0.2 million.
(2) Reflects adjustment to record outstanding stock incentive units at fair value following a change in the operation of the Management Stock Incentive Plan made as of January 1, 2002 that allowed certain retirees to diversify stock incentive awards to investments other than DPL common stock.
Consolidated Statement of Results of Operations: For the first quarter of 2003, the adjustment increased Operation and Maintenance expense by $0.2 million.
Consolidated Balance Sheet: At March 31, 2003, the adjustment increased Other Paid-in Capital, net of Treasury Stock by $0.2 million.
(3)          Reflects income taxes related to the above non-tax adjustments.
Consolidated Statement of Results of Operations: For the first quarter of 2003, the above adjustments decreased income tax expense by the amount set forth in this table.
Consolidated Balance Sheet: At March 31, 2003, the above adjustments decreased Accrued taxes payable by the amounts set forth in this table.
8

THE DAYTON POWER AND LIGHT COMPANY
Consolidated Statement of Results of Operations
(unaudited)
$ in millions except per share amounts

Three Months Ended
March 31, 2003

(as
previously
reported)

(as
restated)

Revenues

Electric revenues

$
295.7

$
295.7

Operating Expenses

Fuel

55.6

55.6

Purchased power

20.0

20.0

Operation and maintenance

35.4

35.8

Depreciation and amortization

29.1

29.1

Amortization of regulatory assets, net

12.1

12.1

General taxes

28.3

28.3

Total operating expenses

180.5

180.9

Operating income

115.2

114.8

Interest expense

(12.8
)
(12.8
)
Other income

1.0

1.0

Income Before Income Taxes and Cumulative Effect of Accounting Change

103.4

103.0

Income tax expense

39.4

39.2

Income Before Cumulative Effect of Accounting Change

64.0

63.8

Cumulative effect of accounting change, net of tax

17.0

17.0

Net Income

81.0

80.8

Preferred dividends

0.2

0.2

Earnings on Common Stock

$
80.8

$
80.6

9

THE DAYTON POWER AND LIGHT COMPANY
Consolidated Statement of Cash Flows
(unaudited)
$ in millions

Three Months Ended March 31,
2003

(as previously
reported)

(as restated)

Operating Activities

Net income

$
81.0

$
80.8

Adjustments:

Depreciation and amortization

29.1

29.1

Amortization of regulatory assets, net

12.1

12.1

Deferred income taxes

23.7

23.6

Cumulative effect of accounting change, net of tax

(17.0
)
(17.0
)
Changes in working capital:

Accounts receivable

11.8

11.8

Accounts payable

8.5

8.4

Accrued taxes payable

11.2

11.2

Accrued interest payable

(10.8
)
(10.8
)
Prepayments

(2.6
)
(2.6
)
Inventories

2.2

2.2

Deferred compensation assets

30.5

30.5

Deferred compensation obligations

(31.2
)
(31.2
)
Other

0.1

0.5

Net cash provided by operating activities

148.6

148.6

Investing Activities

Capital expenditures

(35.0
)
(35.0
)

Net cash used for investing activities

(35.0
)
(35.0
)

Financing Activities

Dividends paid on common stock

(82.5
)
(82.5
)
Dividends paid on preferred stock

(0.2
)
(0.2
)

Net cash used for financing activities

(82.7
)
(82.7
)

Cash and Temporary Cash Investments

Net change

30.9

30.9

Balance at beginning of period

17.1

17.1

Balance at end of period

$
48.0

$
48.0

Cash Paid During the Period For:

Interest

$
22.6

$
22.6

Income taxes

$
(5.0
)
$
(5.0
)
10

THE DAYTON POWER AND LIGHT COMPANY
Consolidated Balance Sheet
(unaudited)
$ in millions

At March 31, 2003

(as previously
reported)

(as restated)

ASSETS

Property

Property, plant and equipment

$
3,803.2

$
3,803.2

Less: Accumulated depreciation and amortization

(1,696.1
)
(1,696.1
)
Net property

2,107.1

2,107.1

Current Assets

Cash and temporary cash investments

48.0

48.0

Accounts receivable, less provision for uncollectible accounts of $5.0 as reported and restated

147.5

147.5

Intercompany receivables, net

36.3

36.3

Inventories, at average cost

51.9

51.9

Prepaid taxes

35.2

35.1

Other

16.8

16.6

Total current assets

335.7

335.4

Other Assets

Income taxes recoverable through future revenues

43.5

43.5

Other regulatory assets

68.8

68.8

Other

159.5

158.9

Total other assets

271.8

271.2

Total Assets

$
2,714.6

$
2,713.7

Note- Reflects adoption of ~~SFAS No.~~FAS 143 ~~increased earnings~~in 2003.
11

THE DAYTON POWER AND LIGHT COMPANY
Consolidated Balance Sheet
(unaudited)
$ in millions

At March 31, 2003

(as previously
reported)

(as restated)

CAPITALIZATION AND LIABILITIES

Capitalization

Common shareholders’ equity

Common stock

$
0.4

$
0.4

Other paid-in capital

771.8

780.4

Accumulated other comprehensive income

(3.3
)
(5.6
)
Earnings reinvested in the business

393.5

379.9

Total common shareholders’ equity

1,162.4

1,155.1

Preferred stock

22.9

22.9

Long-term debt

665.4

665.4

Total capitalization

1,850.7

1,843.4

Current Liabilities

Accounts payable

90.6

91.7

Accrued taxes

98.6

101.1

Accrued interest

8.2

8.3

Other

26.5

26.2

Total current liabilities

223.9

227.3

Deferred Credits and Other

Deferred taxes

400.5

392.8

Unamortized investment tax credit

54.7

54.7

Other

184.8

195.5

Total deferred credits and other

640.0

643.0

Contingencies

Total Capitalization and Liabilities

$
2,714.6

$
2,713.7

Note - Reflects adoption of FAS 143 in 2003.
12

3.              Supplemental Financial Information
$ in millions

At
March 31,
2004

At
December 31,
2003

Cash and temporary cash investments

Cash and cash equivalents

$
36.6

$
17.2

Short-term investments

—

—

Total cash and temporary cash investments

$
36.6

$
17.2

Inventories, at average cost

Plant materials and supplies

$
28.9

$
29.3

Fuel

25.8

19.5

Other

2.6

0.8

Total inventories, at average cost

$
57.3

$
49.6

Other current assets

Prepayments

$
4.1

$
10.8

Deposits and other advances

9.1

5.2

Current deferred income taxes

1.1

4.3

Miscellaneous work in progress

1.8

3.1

Other

1.1

1.0

Total other current assets

$
17.2

$
24.4

Other deferred assets

Trust assets

$
88.4

$
102.9

Prepaid pension

38.4

39.7

Unamortized loss on reacquired debt

25.4

26.6

Unamortized debt expense

5.9

5.9

Other

1.4

1.3

Total other deferred assets

$
159.5

$
176.4

Other current liabilities

Customer security deposits and other advances

$
11.9

$
10.6

Payroll taxes payable

—

10.1

Unearned revenues

0.7

1.2

Current deferred income taxes

7.6

—

Current portion - long-term debt

1.1

1.1

Other

0.1

1.6

Total other current liabilities

$
21.4

$
24.6

Other deferred credits

Asset retirement obligations – regulated property

$
73.3

$
72.0

Trust obligations

58.1

65.3

Retirees health and life benefits

32.7

33.7

Environmental reserves

0.1

0.2

Legal claims reserves

2.5

2.1

Asset retirement obligations-generation

5.0

4.9

Other

6.3

6.9

Total other deferred credits

$
178.0

$
185.1

13

Three Months Ended March 31,

Cash Flows

2004

2003

$ in millions

(as restated)

Cash flows – Other

Payroll taxes payable

$
(11.2
)
$
—

Deposits and other advances

(3.9
)
(0.7
)
Other

(0.3
)
1.2

Total cash flows – Other

$
(15.4
)
$
0.5

Three Months Ended March 31,

Results of Operations

2004

2003

$ in millions

(as restated)

Comprehensive income

Net income

$
62.0

$
80.8

Net change in unrealized gains (losses) on financial instruments, net of reclassification adjustments

(5.6
)
(8.1
)
Net change in deferred gains on cash flow hedges

(0.7
)
(0.3
)
Deferred income taxes related to unrealized gains (losses)

2.4

3.6

Comprehensive income

$
58.1

$
76.0

4.              Pension and Postretirement Benefits
DP&L sponsors a defined benefit plan for substantially all its employees. For collective bargaining employees, the defined benefits are based on ~~common~~a specific dollar amount per year of service. For all other employees, the defined benefit plan is based primarily on compensation and years of service. The Company funds pension plan benefits as accrued in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA).
Qualified employees who retired prior to 1987 and their dependents are eligible for health care and life insurance benefits. DP&L has funded the union-eligible health benefit using a Voluntary Employee Beneficiary Association Trust.
The net periodic benefit (income) cost of the pension and postretirement benefit plans for the three months ended March 31 were:

Pension

Postretirement

Net periodic benefit (income) cost

2004

2003

2004

2003

$ in millions

(as
restated)

Service cost

$
0.9

$
0.8

$
—

$
—

Interest cost

4.0

4.1

0.5

0.5

Expected return on assets

(5.4
)
(6.3
)
(0.2
)
(0.1
)
Amortization of unrecognized:

Actuarial (gain) loss

0.5

0.1

(0.2
)
(0.3
)
Prior service cost

0.6

0.7

—

—

Transition obligation

—

—

—

0.1

Net periodic benefit (income) cost

$
0.6

$
(0.6
)
$
0.1

$
0.2

5.              Stock-Based Compensation
DP&L accounts for DPL Inc. stock ~~and shareholder's equity by $28.3 million before tax.~~
~~6. On~~options granted on or after January 1, 2003 ~~the Company began accounting for DPL stock options~~ under the fair value method set forth in FASB Statement of Financial Accounting Standards No. 123, ~~"Accounting~~“Accounting for Stock-Based ~~Compensation" ("SFAS No. 123")~~Compensation” (SFAS 123). This standard requires the recognition of compensation expense for stock-based awards to reflect the fair value of the award on the date of grant. ~~The Company previously followed~~DP&L follows Accounting Principles Board Opinion No. 25, ~~"Accounting~~“Accounting for Stock Issued to ~~Employees" ("APB 25")~~Employees” (APB 25) and related Accounting Principles Board and FASB interpretations in accounting for ~~DPL stock options~~stock-based compensation granted ~~to its employees. The Company has adopted SFAS No. 123 on a prospective basis for all grants issued after~~before January 1, 2003. If ~~the Company~~DP&L had used ~~a fair-value~~the fair value method of accounting for ~~stock-based compensation cost related to DPL~~ stock options granted prior to 2003, earnings on common stock would have been reported as follows:
14

Three Months Ended
September 30,
Nine Months Ended
September 30,

$ in millions

2003
2002
2003
2002

Earnings on common stock, as reported $ 79.7 $ 74.2 $ 204.6 $ 182.3
Add: Total stock-based compensation expense determined under APB 25, net of related tax effects — 0.3 — 1.0
Deduct: Total stock-based compensation expense determined under FAS 123, net of related tax effects (0.8 ) (0.7 ) (2.1 ) (2.4 )

Pro forma earnings on common stock $ 78.9 $ 73.8 $ 202.5 $ 180.9

Three Months Ended March 31,

$ in millions

2004

2003

(as restated)

Earnings on common stock, as reported

$
61.8

$
80.6

Add: Total stock-based compensation expense determined under APB 25, net of related tax effects

—

—

Deduct: Total stock-based compensation expense determined under FAS 123, net of related tax effects

(0.7
)
(0.7
)
Pro-forma earnings on common stock

$
61.1

$
79.9

6.   Long-term Debt, Notes Payable and Compensating Balances
$ in millions

At
March 31,
2004

At
December 31,
2003

First mortgage bonds maturing:

2013 - 5.125%

$
470.0

$
470.0

Pollution control series maturing through 2027 - 6.43% (a)

104.8

104.8

574.8

574.8

Guarantee of Air Quality Development Obligations - 6.10% Series due 2030

110.0

110.0

Obligation for capital lease

4.1

4.3

Unamortized debt discount and premium (net)

(1.8
)
(1.8
)
Total

$
687.1

$
687.3

8
~~7. DP&L's transmission~~(a)       Weighted average interest rates for 2004 and ~~distribution and base-load and peaking generation operations are managed and evaluated as a single operating segment, "Electric."~~2003.

Three Months Ended
September 30,
Nine Months Ended
September 30,

$ in millions

2003
2002
2003
2002

Net revenues:
Electric $ 233.5 $ 245.3 $ 647.7 $ 643.1

Operating income:
Electric $ 128.2 $ 138.0 $ 336.4 $ 335.0
Other (a) (7.8 ) (0.9 ) (22.0 ) (6.4 )

Total 120.4 137.1 314.4 328.6
Investment income 21.4 — 21.7 1.7
Other income (deductions) 0.7 0.2 5.3 6.2
Interest expense (13.7 ) (13.3 ) (38.9 ) (40.5 )

Income before income taxes and cumulative effect of accounting change $ 128.8 $ 124.0 $ 302.5 $ 296.0

~~(a)~~
~~Includes unallocated corporate items.~~
~~8. In May 2003, DPL announced plans to refinance significant~~
The amounts of ~~its consolidated long-term debt~~maturities and mandatory redemptions for First Mortgage Bonds, notes, and the capital lease obligation are $0.9 million for the remainder of 2004, $1.1 million in 2005, $1.1 million in 2006, $9.3 million in 2007 and $0.7 million in 2008. Substantially all property of DP&L is subject to ~~take advantage of favorable interest rates and reduce long-term debt by $300 million over~~ the ~~next 30 months. On July 24, 2003,~~mortgage lien securing the Company received authorization from the Public Utilities Commission of Ohio ("PUCO") to issue up to $471 million of first mortgage bonds to refinance a portion of its outstanding first mortgage bonds.First Mortgage Bonds.
On September 29, 2003, DP&L issued ~~$470.0~~$470 million principal amount of First Mortgage Bonds, 5.125% Series due 2013. The net proceeds from the sale of the bonds, after expenses, ~~will be~~were used to (i) redeem ~~$226.0~~$226 million principal amount of DP~~&L's~~&L’s First Mortgage Bonds, 8.15% Series due 2026, at a redemption price of 104.075% of the principal amount plus accrued interest to the redemption date, and (ii) redeem ~~$220.0~~$220 million principal amount of DP~~&L's~~&L’s First Mortgage Bonds, 7.875% Series due 2024, at a redemption price of 103.765% of the principal amount plus accrued interest to the redemption date. The ~~$446.0~~$446 million of ~~first mortgage bonds~~First Mortgage Bonds were called by DP&L on September 30, 2003, for redemption on October 30, 2003. The 5.125% Series due 2013 have not been registered under the Securities Act of 1933, but were offered and sold through a private placement in compliance with Rule 144A under the Securities Act of 1933. The bonds include step-up interest provisions requiring DP&L ~~will seek~~ to ~~register~~pay additional interest if the securities remain unregistered after 180 days from issuance. The sale of the bonds was not registered and, as a result, the Company is required to pay additional interest of 0.50% until an exchange offer for these securities ~~during~~is registered with the ~~fourth quarter 2003.~~SEC.
Issuance of additional amounts of ~~first mortgage bonds~~First Mortgage Bonds by DP&L is limited by provisions of its mortgage; however, DP&L continues to have sufficient capacity to issue ~~first mortgage bonds~~First Mortgage Bonds to satisfy its requirements in connection with its refinancing and construction programs through 2008. The amounts and timing of future financings will depend upon market and other conditions, rate increases, levels of sales and construction plans.
~~9. On October 28, 2002,~~
In December 2003, DP&L had $150 million available through a revolving credit agreement with a consortium of banks. The agreement, which was scheduled to expire on December 10, 2004, was terminated on June 1, 2004. The facility was to be used to support the ~~Company~~Company’s business requirements and DP&L’s commercial paper program. The facility contained two financial covenants, including maximum debt to total capitalization and minimum earnings before interest and taxes (EBIT) to interest coverage. Fees associated with this credit facility
15

were approximately $0.8 million per year. DP&L had no outstanding borrowings under the revolving credit facility and no outstanding commercial paper balances at March 31, 2004 and 2003.
In February 2004, DP&L entered into a $20 million Master Letter of Credit Agreement with a financial lending institution. This agreement, which expires in February 2005, supports performance assurance needs in the ordinary course of business. DP&L had two outstanding letters of credit totaling $1.4 million as of March 31, 2004 and no outstanding letters of credit as of March 31, 2003.
In June 2004, DP&L obtained a $100 million unsecured revolving credit agreement that extended and replaced DP&L’s revolving credit agreement of $150 million. The new agreement, which expires on May 31, 2005, provides credit support for the Company’s business requirements and commercial paper program during this period and may be increased to up to $150 million. The facility contains two financial covenants including maximum debt to total capitalization, and minimum earnings before interest and taxes (EBIT) to total interest expense. These covenants are currently met. DP&L currently has no outstanding borrowings under this credit facility and no outstanding commercial paper balances. Fees associated with this credit facility are approximately $0.6 million per year. Changes in debt ratings, however, may affect the applicable interest rate for DP&L’s revolving credit agreement. DP&L’s ability to use this revolving credit agreement is subject to the PUCO’s annual approval which is set to expire on November 5, 2004. DP&L has filed ~~with~~an application to secure the ~~PUCO requesting an extension of its market development period from~~PUCO’s continued authorization and that application is pending.
The delay in filing audited financial statements for the year ending December 31, 2003, constituted an event of default with DP&L’s previous revolving credit facility; however, DP&L obtained waivers from its lenders regarding this event. The Company incurred fees of approximately $0.2 million to ~~December 31, 2005 that would continue~~obtain these waivers. The delay in audited certified financial statements also resulted in noncompliance under the ~~Company's current rate structure~~Company’s other debt agreements although the non-compliance did not result in an immediate event of default. The Company has not received any default notifications from any of its lenders. The Company’s debt agreements allow a grace period to cure a default after notification. Management, after consultation with legal counsel, believes all non-compliance conditions have been remedied.
There are no inter-company debt collateralizations or debt guarantees between DP&L and ~~provide~~ its parent or subsidiaries. None of the debt obligations of DP&L or DPL Inc. are guaranteed or secured by affiliates and no cross-collateralization exists between any subsidiaries.
7. Business Segment Reporting
DP&L is a regional energy company providing electric services to over 500,000 retail customers ~~with rate stability. On May 28, 2003, the Company~~in West Central Ohio. Assets and ~~five other parties filed with the PUCO a Stipulation and Recommendation~~ related to this request. The Stipulation provides the following: The Company's market development period will continue through December 31, 2005; retail generation rates will remain frozen at present levels; the credit issued to commercial and industrial customers who elect competitive retail generation service
9

during the market development period will increase over two years; and a rate stabilization period from January 1, 2006 through December 31, 2008, during which the Company's retail generation rates in effect on January 1, 2004 will serve as market-based rates. The Stipulation also provides that beginning January 1, 2006, rates may be modified by up to 11% of generation costs to reflect increased costs associated with ~~fuel,~~DP&L’s transmission and distribution and base load and peaking generation operations are managed and evaluated as a single operating segment captioned Electric.
$ in millions

At
March 31,
2004

At
March 31,
2003

(as restated)

Revenues:

Electric

$
300.4

$
295.7

Operating income:

Electric

$
112.6

$
119.3

Other (a)

(5.7
)
(4.5
)
Total operating income

$
106.9

$
114.8

Depreciation and amortization:

Electric

$
28.3

$
29.1

Expenditures - construction additions:

Electric

$
22.9

$
20.5

Assets:

Electric

$
2,535.9

$
2,575.5

Unallocated corporate assets

102.7

138.2

Total assets

$
2,638.6

$
2,713.7

16

(a) Includes unallocated corporate items.
8.     Commitments and Contingencies
Contingencies
In the normal course of business, DP&L is subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. DP&L believes the amounts provided in its consolidated financial statements, as prescribed by GAAP, are adequate in light of the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims, and other matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in DP&L’s Consolidated Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of March 31, 2004 cannot be reasonably determined.
Environmental Matters
DP&L’s facilities and operations are subject to a wide range of environmental ~~taxes, security measures,~~regulations and law. In the normal course of business, DP&L has investigatory and remedial activities underway at these facilities to comply, or to determine compliance, with such regulations. DP&L has been identified, either by a government agency or by a private party seeking contribution to site clean-up costs, ~~associated~~as a potentially responsible party (PRP) at a number of sites pursuant to state and federal laws. DP&L records liabilities for probable estimated loss in accordance with ~~joining~~Statement of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies.” To the extent a ~~Regional Transmission Organization ("RTO"). Further,~~probable loss can only be estimated by reference to a range of equally probable outcomes, and no amount within the ~~parties agreed~~range appears to ~~an increase~~be a better estimate than any other amount, DP&L accrues for the low end of the range. Because of uncertainties related to these matters, accruals are based on the ~~residential generation discount commencing January 1, 2006. As~~best information available at the ~~Stipulation was not endorsed by all intervening parties, hearings with non-settling parties took place on May 29, 2003~~time. DP&L evaluates the potential liability related to probable losses quarterly and ~~June 17, 2003. On September 2, 2003,~~may revise its estimates. Such revisions in the ~~PUCO issued an Opinion and Order adopting~~estimates of the ~~Stipulation with two modifications. These will not~~potential liabilities could have a material effect on the ~~Company.~~ Company’s results of operations and financial position.
Legal Matters
On ~~October 2, 2003, several parties~~July 9, 2004, Mr. Forster and Ms. Muhlenkamp filed ~~applications~~a lawsuit against the Company, DPL and MVE, Inc. (MVE) in the Circuit Court, Fourth Judicial Circuit, in and for ~~rehearing requesting~~Duval County, Florida. The complaint asserts that the ~~Commission consider modifications~~Company, DPL and MVE (i) wrongfully terminated Mr. Forster and Ms. Muhlenkamp by undermining their authority and responsibility to manage the companies and excluding them from discussions on corporate financial issues and strategic planning after the Thobe Memorandum was distributed and (ii) breached Mr. Forster’s consulting contract and Ms. Muhlenkamp’s employment agreement by denying them compensation and benefits allegedly provided by the terms of such contract and agreement upon their termination from the Company and DPL. Mr. Forster and Ms. Muhlenkamp seek damages of an undetermined amount. On August 9, 2004, the defendants removed the case to the U.S. District Court for the Middle District of Florida, Jacksonville Division. On August 16, 2004, the defendants moved to dismiss the litigation based on the Florida federal court’s lack of jurisdiction over the Company, DPL and MVE, all of whom are companies based in Dayton, Ohio. In the alternative, the defendants requested that the court transfer the case to the U.S. District Court for the Southern District of Ohio, which has jurisdiction in Dayton, Ohio. On September 17, 2004, Mr. Forster and Ms. Muhlenkamp opposed these motions. The court has not yet ruled on the defendants’ motions.
On August 24, 2004, the Company, DPL and MVE filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them relating to the termination of the Valley Partners Agreements, challenging the validity of the amendments and the propriety of the distributions and alleging that Messrs. Forster and Koziar and Ms. Muhlenkamp breached their fiduciary duties and breached their consulting and employment contracts. The Company, DPL and MVE seek, among other things, damages in excess of $25,000, disgorgement of all amounts improperly withdrawn by Messrs. Forster and Koziar and Ms. Muhlenkamp from the deferred compensation plans and a court order declaring that the Company, DPL and MVE have no further obligations under the consulting and employment contracts due to those breaches. At this time, defendants Forster, Koziar and Muhlenkamp have not yet responded to the Complaint. The Company continues to evaluate all of these matters and is considering other claims against Mr. Forster, Mr. Koziar and/or Ms. Muhlenkamp that include, but are not limited to, breach of fiduciary duty or other claims relating to personal and Company investments, the calculation of benefits under the SERP and financial reporting with respect to such benefits, and, with respect to Mr. Koziar, the fulfillment of duties owed to the Company as its ~~September 2, 2003 order.~~ legal counsel.
17

On ~~October 22,~~or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Thobe Memorandum. The Company is cooperating with the investigation.
On April 7, 2004, the Company received notice that the staff of the PUCO is conducting an investigation into the financial condition of DP&L as a result of the issues raised by the Thobe Memorandum. On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions DPL Inc. has taken or will take to insulate DP&L utility operations and customers from its unregulated activities. DP&L must file this plan within 120 days of the filing of its Form 10-K with the SEC. The Company intends to comply with this order and to cooperate with the PUCO’s continuing investigation.
On May 28, 2004, the U.S. Attorney’s Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified the Company and DPL that it has initiated an inquiry involving the subject matters covered by the Company’s and DPL’s internal investigation. The Company and DPL are cooperating with this investigation.
Commencing on or about June 24, 2004, the Internal Revenue Service (IRS) has issued a series of data requests to the Company and DPL regarding issues raised in the Thobe Memorandum. The staff of the IRS has requested that the Company and DPL provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements. The Company and DPL are cooperating with these requests.
On December 12, 2003, the ~~PUCO denied~~Office of Federal Contract Compliance Programs (OFCCP) notified DP&L by letter alleging it had discriminated in the ~~applications~~hiring of meter readers during 2000-2001 by utilizing credit checks to determine if applicants had paid their electric bills. On February 12, 2004, DP&L and the OFCCP entered into a Conciliation Agreement whereby DP&L agreed to distribute approximately $0.2 million in compensation to certain affected applicants. DP&L has completed these payments to the affected applicants.
In June 2002, a contractor’s employee received a verdict against DP&L for ~~rehearing.~~injuries he sustained while working at a DP&L power station. The Court awarded the contractor’s employee compensatory damages of approximately $0.8 million and prejudgment interest of approximately $0.6 million. On April 28, 2004, the appellate court upheld this verdict except the award for prejudgment interest. On September 1, 2004, the Ohio Supreme Court refused to hear the case, so the matter has been remanded to the trial court for a re-determination of whether prejudgment interest should be awarded. The trial court heard this matter on October 15, 2004 and the decision is pending.
Long-Term Obligations and Commercial Commitments
DP&L enters into various contractual and other long-term obligations that may affect the liquidity of its operations. The following table outlines DP&L’s obligations at March 31, 2004:

Payment Year

Long-term Obligations ($ in millions)

2004

2005 &
2006

2007 &
2008

Thereafter

Total

Long-term debt

$
0.4

$
0.8

$
8.6

$
673.6

$
683.4

Capital lease

0.5

1.4

1.4

1.5

4.8

Operating leases

0.8

0.4

—

—

1.2

Coal contracts

270.2

211.2

84.6

127.7

693.7

Other long-term obligations

9.9

14.8

1.0

—

25.7

Total long-term Obligations

$
281.8

$
228.6

$
95.6

$
802.8

$
1,408.8

Long-term debt:
Long-term debt as of March 31, 2004 consists of first mortgage bonds and guaranteed air quality development obligations, including current maturities.
Capital lease:
As of March 31, 2004, the Company had one capital lease that expires September 2010.
Operating leases:
As of March 31, 2004, the Company had several operating leases with various terms and expiration dates.
18

Coal contracts:
DP&L has entered into various long-term coal contracts to supply portions of its coal requirements for its generating plants. Contract prices are subject to adjustment in accordance with various indices, and have features that will limit price escalation in any given year.
Other long-term obligations:
As of March 31, 2004, DP&L had various other long-term obligations including non-cancelable contracts to purchase goods and services with various terms and expiration dates.
DP&L enters into various commercial commitments which may affect the liquidity of its operations.

Expiring Year

Commercial Commitments ($ in millions)

2004

2005 &
2006

2007 &
2008

Thereafter

Total

Credit facilities

$
150.0

$
—

$
—

$
—

$
150.0

Guarantees

—

17.8

—

—

17.8

Total commercial commitments

$
150.0

$
17.8

$
—

$
—

$
167.8

Credit facilities:
DP&L had $150 million available through a revolving credit agreement with a consortium of banks that was scheduled to expire on December 10, 2004. At March 31, 2004, there were no borrowings outstanding under this credit agreement. In June 2004, the Company replaced this facility with a $100 million, 364 day unsecured credit facility that expires on May 31, 2005. The new facility may be increased to up to $150 million.
Guarantees:
DP&L owns a 4.9% equity ownership interest in an electric generation company. As of March 31, 2004, DP&L could be responsible for the repayment of 4.9%, or $14.9 million, of a $305 million debt obligation and also 4.9%, or $2.9 million, of a separate $60.0 million debt obligation. Both obligations mature in 2006.
Item 2.~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements contained in this discussion are ~~"forward-looking statements"~~“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Matters discussed in this report which relate to events or developments that are expected to occur in the future, including ~~management's~~management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters constitute forward-looking statements. Forward-looking statements are based on ~~management's~~management’s beliefs, assumptions and ~~expectation~~expectations of the ~~Company's~~Company’s future economic performance, taking into account the information currently available to management. These statements are not statements of historical fact. Such forward-looking statements are subject to risks and uncertainties and investors are cautioned that outcomes and results may vary materially from those projected due to various factors beyond the control of The Dayton Power and Light Company ~~("DP&L"~~(DP&L or the ~~"Company")~~Company), including but not limited to: abnormal or severe weather; unusual maintenance or repair requirements; changes in fuel ~~costs,~~costs; changes in electricity, coal, environmental emissions, gas and other commodity prices; increased competition; regulatory changes and decisions; changes in accounting rules; financial market conditions; and general economic conditions.
Forward-looking statements speak only as of the date of the document in which they are made. ~~We disclaim~~The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in ~~our~~its expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. (See FACTORS THAT MAY AFFECT FUTURE RESULTS.)
~~The Dayton Power~~
OVERVIEW AND FUTURE EXPECTATIONS
In the first quarter of 2004, DP&L’s operating income and ~~Light Company ("DP&L"~~cash flow from operations decreased $7.9 million and $28.3 million, respectively, from the first quarter of 2003. Total revenue of $300.4 million exceeded the prior year by $4.7 million resulting from an increase in wholesale revenue. Operating expenses of $193.5 million in the first quarter of 2004 increased by $12.6 million or 7% compared to the ~~"Company") reported~~same period in the prior year. This increase was the result of higher fuel and purchased power costs as well as higher
operation and maintenance expenses.
19

DP&L’s earnings on common stock of ~~$79.7~~$61.8 million ~~for~~in the ~~third~~first quarter of 2003 compared to $74.2 million for the third quarter of 2002. Investment income increased $21.4 million reflecting settlement of interest rate hedges related to a bond financing. Results for the current quarter included reduced operating income of $16.7 million compared to the third quarter of 2002, primarily from lower retail sales resulting from mild weather. The decline in retail sales was partially offset by an increase in wholesale sales for the quarter.
        For the nine months ended September 30, 2003, the Company reported earnings on common stock before the cumulative effect of an accounting change of $187.6 million compared to $182.3 million for the nine months ending September 30, 2002. Investment income increased by $20.0 million to $21.72004 decreased $18.8 million compared to the same period ~~a year ago, reflecting settlement~~in the prior year.
RESULTS OF OPERATIONS
Income Statement Highlights

Three Months Ended March 31,

$ in millions

2004

2003

(restated)

Electric revenues

$
300.4

$
295.7

Less:
Fuel

62.7

55.6

Purchased power

28.5

20.0

Net electric margin (a)

$
209.2

$
220.1

Operating income

$
106.9

$
114.8

(a) For purposes of ~~interest rate hedges related~~discussing operating results DPL presents and discusses net electric margin. This format is useful to ~~a bond financing. In~~investors because it allows analysis and comparability of operating trends and includes the same information that is used by management to make decisions regarding the Company’s financial performance.
Revenues
Electric revenues increased to $300.4 million in the first quarter of 2004 from $295.7 million in the first quarter of 2003 reflecting higher wholesale revenues offset by a decline in retail revenues. Wholesale revenues increased $18.3 million or 41% as a result of increased resale transactions and higher power sales. Retail revenues declined $13.6 million or 5% primarily reflecting industrial and commercial customers moving to a power supplier who is a subsidiary of DPL Inc. Retail sales were up slightly as a result of increased usage despite an 8% drop in heating degree-days to 2,949 for the ~~Company adopted~~first quarter of 2004 compared to 3,193 for the same period in 2003.
Operating Expenses
Net electric margin of $209.2 million in the first quarter of 2004 decreased by $10.9 million from $220.1 million in the first quarter of 2003. As a ~~new accounting standard~~percentage of total electric revenues, net electric margin decreased by 4.8 percentage points to 69.6% from 74.4%. This decline is primarily the result of increased fuel and purchased power costs. Fuel costs increased by $7.1 million or 13% for ~~asset retirement obligations,~~the three months ended March 31, 2004 compared to the same period in 2003 primarily resulting from higher average fuel costs relating to both retail and wholesale sales. Purchased power costs increased by $8.5 million or 43% in the first quarter of 2004 compared to the same period in 2003 primarily resulting from a higher volume of purchased power as retail and wholesale capacity needs were not entirely met by internal generation. Average market prices for purchased power decreased in the first quarter of 2004 compared to the first quarter of 2003, helping to buffer the impact of increased power purchases.
Operation and maintenance expense increased $11.0 million or 31% for the three months ended March 31, 2004 compared to the same period in 2003, primarily as a result of higher corporate costs and increased electric production expenses. Corporate costs increased primarily from higher premiums for Directors and Officers liability insurance of $3.5 million, the settlement of an outstanding jointly-held facility receivable in 2003 of $3.8 million and increased pension expense of $1.2 million offset by lower deferred compensation expense of $1.2 million. Electric production expenses increased $3.0 million over the prior year primarily related to maintenance and repair expenses incurred for scheduled outages and ash disposal.
Amortization of regulatory assets decreased $12.0 million in the first quarter of 2004 compared to the first quarter of 2003 reflecting the conclusion of the three-year regulatory transition cost recovery period granted by the Public Utilities Commission of Ohio in 2000 and ended December 31, 2003.
Interest Expense
Interest expense decreased by $1.0 million or 8% in the first quarter of 2004 compared to the first quarter of 2003. Lower bond interest expense of $3.3 million resulting from the issuance of the $470 million First Mortgage Bonds 5.125% Series due 2013 was partially offset by a $2.3 million decrease in capitalized interest reflecting the completion of pollution control construction projects. (See Note 6 of Notes to Consolidated Financial Statements.)
20

Other Income
Other income for the first three months ended March 31, 2004 increased $3.2 million compared to the first three months ended March 31, 2003 primarily resulting from $5.5 million realized from the sale of 2004 NOx pollution allowances, partially offset by miscellaneous deductions of $2.0 million for deferred compensation.
Income Tax Expense
Income tax expense decreased $1.9 million or 5% in the first quarter of 2004 compared to the first quarter of 2003 primarily resulting from lower income.
Cumulative Effect of Accounting Change
The cumulative effect of accounting change of $17.0 million after tax income. Combined retail and wholesale sales and revenues declined slightly over the same period last year. Results for the current nine months included reduced operating income of $14.2 million compared to the same period a year ago, primarily as a result of increased operating expenses.
10

~~Income Statement Highlights~~

Three Months Ended
September 30,
Nine Months Ended
September 30,
$ in millions
2003
2002
2003
2002
Electric revenues $ 323.2 $ 341.7 $ 890.3 $ 893.0
Less:
Fuel 59.9 57.6 166.3 155.1
Purchased power 29.8 38.8 76.3 94.8

Net electric revenues $ 233.5 $ 245.3 $ 647.7 $ 643.1
Operating income $ 120.4 $ 137.1 $ 314.4 $ 328.6
~~Retail electric revenues decreased $39.2 million or 14%~~ in the ~~third quarter compared to the third~~first quarter of 2002, as a consequence of reduced sales resulting from mild weather. This was partially offset by a $20.7 million increase in wholesale revenues resulting from the sale of available generating capacity into the wholesale market at favorable market rates. For the nine months ended September 2003 electric retail revenues decreased $63.5 million primarily because of mild summer temperatures. For the nine months ended September 2003, wholesale revenues increased $60.8 million from higher market rates and a 5% gain in wholesale sales.
Fuel costs increased $2.3 million or 4% in the third quarter and $11.2 million or 7% in the nine month period ended September 2003 primarily from increased generation output. Purchased power costs dropped $9.0 million or 23% in the third quarter and $18.5 million or 20% in the nine months ended September 30, 2003, reflecting the use of internal generation to support retail and wholesale sales.
Operation and maintenance expense increased $7.2 million in the third quarter and $20.0 million in the nine months ended September 30, 2003 compared to the prior year periods, primarily as a result of higher generating plant costs associated with the increase in production and the expensing of cost of removal for retired assets required by SFAS No. 143 effective January 1, 2003. Higher corporate costs, including increased insurance premiums, also contributed to the variation in both periods.
~~Depreciation and amortization expense increased $0.5 million or 2% in the quarter, reflecting the completion of selective catalytic reduction installations at certain facilities.~~
~~Amortization of regulatory assets declined $1.1 million or 8% because of lower retail sales which is the amortization basis.~~
Investment income increased for the current quarter and nine month periods primarily due to a $21.2 million gain from the settlement of interest rate hedges related to a bond financing (see "Market Risk").
~~The cumulative effect of an accounting change~~ reflects the ~~Company's~~ adoption of the provisions of FASB Statement of Financial Accounting ~~Standard~~Standards No. 143, ~~"Accounting~~“Accounting for Asset Retirement ~~Obligations" ("SFAS No. 143") as~~Obligations” (SFAS 143).
LIQUIDITY, CAPITAL RESOURCES AND REQUIREMENTS
DP&L’s cash and temporary cash investments totaled $36.6 million at March 31, 2004 compared to $48.0 million at March 31, 2003. This decrease was primarily attributed to lower profitability relating to higher fuel and purchased power costs. DP&L’s cash and temporary cash investments totaled $17.2 million at December 31, 2003.
The Company generated net cash from operating activities of ~~January 1,~~$120.3 million in the first quarter of 2004 compared to $148.6 million in the first quarter of 2003. The net cash from operating activities for the three months ended March 31, 2004 was primarily the result of operating profitability and working capital. Operating profitability primarily drove net cash provided from operating activities for the three months ended March 31, 2003. The decline in operating cash flow in the first quarter of 2004 compared to the first quarter of 2003 is primarily the result of lower operating profitability relating to higher fuel and purchased power costs. The tariff-based revenue from DP&L’s energy business continues to be the principal source of cash from operating activities. Management believes that the diversified retail customer mix of residential, commercial, and industrial classes provides DP&L with a reasonably predictable gross cash flow.
Net cash flows used for investing activities was $25.7 million in the first quarter of 2004 and $35.0 million in the first quarter of 2003 to provide funding for capital expenditures.
Net cash flows used for financing activities was $75.2 million in the first quarter of 2004 and $82.7 million in the first quarter of 2003. Net cash flows used for financing activities for each of these periods were to pay dividends on common stock to the parent and for dividends paid on preferred stock.
Capital ~~Resources and~~ Requirements
~~Capital expenditures~~
Construction additions were ~~$86.8~~$22.9 million for the first ~~nine~~three months of ~~2003~~2004 and are expected to approximate ~~$108~~$88 million for the ~~year. Current~~ year ~~expenditures~~ended 2004 compared to $20.5 million in the first three months of 2003 and $98 million for the year ended 2003. Planned construction additions for 2004 relate to DP~~&L's~~&L’s environmental compliance program, power plant equipment, and ~~the~~its transmission and distribution system.
~~The Company's scheduled maturities~~Capital projects are subject to continuing review and are revised in light of ~~long-term debt, including capital lease obligations, over~~changes in financial and economic conditions, load forecasts, legislative and regulatory developments and changing environmental standards, among other factors. Over the next ~~three~~four years, ~~are $0.2 million for the remainder of 2003 and $1.1~~DP&L is projecting to spend $800 million in ~~2004~~capital projects, approximately half of which is to meet changing environmental standards. DP&L’s ability to complete its capital projects and ~~2005. The~~
11

~~Company~~the reliability of future service will be affected by its financial condition, the availability of internal and external funds at reasonable cost, and adequate and timely return on these capital investments. DP&L expects to finance its ~~2003~~ construction ~~program and scheduled debt maturities with internal funds. DP&L's 2004 construction program is also expected to be financed with internal funds.~~
~~In May 2003, DPL announced plans to refinance significant amounts of its consolidated long-term debt to take advantage of favorable interest rates and reduce long-term debt by $300 million~~additions over the next ~~30 months. On July 24, 2003,~~few years with internally-generated funds.
Debt Obligations and Maturities
The amounts of maturities and mandatory redemptions for First Mortgage Bonds, notes, and the ~~Company received authorization from~~capital lease obligation are $0.9 million remaining in 2004, $1.1 million in 2005, $1.1 million in 2006, $9.3 million in 2007 and $0.7 million in 2008. Substantially all property of DP&L is subject to the ~~Public Utilities Commission of Ohio ("PUCO") to issue up to $471 million of first~~ mortgage ~~bonds to refinance a portion of its outstanding first mortgage bonds.~~lien securing the First Mortgage Bonds.
On September 29, 2003, DP&L issued $470 million principal amount of First Mortgage Bonds, 5.125% Series due 2013. The net proceeds from the sale of the bonds, after expenses, ~~will be~~were used to (i) redeem $226 million principal amount of DP~~&L's~~&L’s First Mortgage Bonds, 8.15% Series due 2026, at a redemption price of 104.075% of the
21

principal amount plus accrued interest to the redemption date, and (ii) redeem $220 million principal amount of DP~~&L's~~&L’s First Mortgage Bonds, 7.875% Series due 2024, at a redemption price of 103.765% of the principal amount plus accrued interest to the redemption date. ~~These outstanding series~~The $446 million of First Mortgage Bonds were called by DP&L on September 30, 2003, for redemption on October 30, 2003. The ~~newly issued First Mortgage Bonds,~~ 5.125% Series due 2013 have not been registered under the Securities Act of 1933, but were offered and sold through a private placement in compliance with Rule 144A under the Securities Act of 1933. The bonds include step-up interest provisions requiring DP&L ~~will seek~~ to ~~register~~pay additional interest if the securities remain unregistered after 180 days from issuance. The sale of the bonds was not registered and, as a result, the Company is required to pay additional interest of 0.50% until an exchange offer for these securities ~~during~~is registered with the ~~fourth quarter 2003.~~SEC.
Issuance of additional amounts of ~~first mortgage bonds~~First Mortgage Bonds by DP&L is limited by the provisions of its mortgage; however, DP&L continues to have sufficient capacity to issue ~~first mortgage bonds~~First Mortgage Bonds to satisfy its requirements in connection with its current refinancing and construction ~~programs through 2008.~~programs. The amounts and timing of future financings will depend upon market and other conditions, rate increases, levels of sales and construction plans.
~~The Company has $105.0~~
In December 2003, DP&L had $150 million available through a ~~364-day~~ revolving credit agreement with a consortium of banks. The ~~primary purpose of~~agreement, which was scheduled to expire on December 10, 2004, was terminated on June 1, 2004. The facility was to be used to support the Company’s business requirements and DP&L’s commercial paper program. The facility contained two financial covenants, including maximum debt to total capitalization and minimum earnings before interest and taxes (EBIT) to interest coverage. Fees associated with this credit facility were approximately $0.8 million per year, but a two-step increase in DP&L’s credit rating would have reduced the facility’s interest rate by 0.38%. A lower credit rating would not have increased an applicable interest rate. DP&L had no outstanding borrowings under the revolving credit facility ~~is to provide back-up liquidity for the Company's~~and no outstanding commercial paper ~~program.~~balances at March 31, 2004 and 2003.
In February 2004, DP&L entered into a $20 million Master Letter of Credit Agreement with a financial lending institution. This agreement, which expires in ~~December 2003,~~February 2005, supports performance assurance needs in the ordinary course of business. DP&L has certain contractual agreements for the sale and purchase of power, fuel and related energy services that contain credit rating clauses allowing the counterparties to seek additional surety under certain conditions. DP&L had two outstanding letters of credit totaling $1.4 million as of March 31, 2004 and no outstanding letters of credit as of March 31, 2003.
In June 2004, DP&L obtained a $100 million unsecured revolving credit agreement that extended and replaced DP&L’s revolving credit agreement of $150 million. The new agreement, which expires on May 31, 2005, provides ~~an appropriate amount of~~ credit support for the ~~Company's~~Company’s business requirements ~~over the remainder of the year. At September 30, 2003, the Company had~~and commercial paper program during this period and may be increased to up to $150 million. The facility contains two financial covenants including maximum debt to total capitalization, and minimum earnings before interest and taxes (EBIT) to total interest expense. These covenants are currently met. DP&L currently has no outstanding borrowings under this credit facility and no outstanding commercial paper ~~balance.~~balances. Fees associated with this credit facility are approximately ~~$0.2~~$0.6 million per year.
~~On July 30, 2003, Fitch Ratings reaffirmed~~ Changes in debt ratings, however, may affect the ~~investment grade debt rating~~applicable interest rate for DP~~&L. Also~~&L’s revolving credit agreement. A one-step increase in DP&L’s credit rating reduces the facility’s interest rate by 0.38% and a one-step decrease in credit rating increases the facility’s interest rate by 0.38%. DP&L’s ability to use this revolving credit agreement is subject to the PUCO’s annual approval which is set to expire on ~~July 30,~~November 5, 2004. DP&L has filed an application to secure the PUCO’s continued authorization and that application is pending.
Subsequent to the December 31, 2003 ~~Moody's Investors Service lowered~~balance sheet, the ~~debt~~Company received multiple credit rating ofdowngrades. Currently, DP~~&L. As of September 30, 2003, DP&L's~~&L’s senior secured debt credit ratings ~~were~~are as follows:

~~DP&L~~Rating
Outlook
Effective
Fitch Ratings
BBB
Negative
April 2004
Moody’s Investors Service
Baa3
Negative
April 2004
Standard & ~~Poor's Corp~~Poor’s Corp.
~~BBB~~
BBB-
~~Stable~~
~~Fitch Ratings~~
Negative
A ~~Negative~~
~~Moody's Investors Service~~ ~~Baa1~~ ~~Stable~~
March 2004
~~Debt~~
As reflected above, DP&L’s secured debt credit ratings ~~from the three rating agencies remain~~are considered investment grade.
~~Market Risk~~
The ~~Company's~~delay in filing audited financial statements for the year ending December 31, 2003 constituted an event of default with DP&L’s previous revolving credit facility; however, DP&L obtained waivers from its lenders regarding this event. The Company incurred fees of approximately $0.2 million to obtain these waivers. The delay in audited certified financial statements also resulted in noncompliance under the Company’s other debt agreements although the non-compliance did not result in an immediate event of default. The Company has not received any default notifications
22

from any of its lenders. The Company’s debt agreements allow a grace period to cure a default after notification. Management, after consultation with legal counsel, believes all non-compliance conditions have been remedied.
There are no inter-company debt collateralizations or debt guarantees between DP&L and its subsidiaries or parent. None of the debt obligations of DP&L or DPL Inc. are guaranteed or secured by affiliates and no cross-collateralization exists between any subsidiaries.
Off-Balance Sheet Arrangements
DP&L does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on DP&L’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Long-Term Obligations and Commercial Commitments
DP&L enters into various contractual and other long-term obligations that may affect the liquidity of its operations. The following table outlines DP&L’s obligations at March 31, 2004:

Payment Year

Long-term Obligations ($ in millions)

2004

2005 &
2006

2007 &
2008

Thereafter

Total

Long-term debt

$
0.4

$
0.8

$
8.6

$
673.6

$
683.4

Capital lease

0.5

1.4

1.4

1.5

4.8

Operating leases

0.8

0.4

—

—

1.2

Coal contracts

270.2

211.2

84.6

127.7

693.7

Other long-term obligations

9.9

14.8

1.0

—

25.7

Total long-term Obligations

$
281.8

$
228.6

$
95.6

$
802.8

$
1,408.8

Long-term debt:
Long-term debt as of March 31, 2004 consists of first mortgage bonds and guaranteed air quality development obligations, including current maturities.
Capital lease:
As of March 31, 2004, the Company had one capital lease that expires September 2010.
Operating leases:
As of March 31, 2004, the Company had several operating leases with various terms and expiration dates.
Coal contracts:
DP&L has entered into various long-term coal contracts to supply portions of its coal requirements for its generating plants. Contract prices are subject to adjustment in accordance with various indices, and have features that will limit price escalation in any given year.
Other long-term obligations:
As of March 31, 2004, DP&L had various other long-term obligations including non-cancelable contracts to purchase goods and services with various terms and expiration dates.
DP&L enters into various commercial commitments which may affect the liquidity of its operations.

Expiring Year

Commercial Commitments ($ in millions)

2004

2005 &
2006

2007 &
2008

Thereafter

Total

Credit facilities

$
150.0

$
—

$
—

$
—

$
150.0

Guarantees

—

17.8

—

—

17.8

Total commercial commitments

$
150.0

$
17.8

$
—

$
—

$
167.8

Credit facilities:
DP&L had $150 million available through a revolving credit agreement with a consortium of banks that was scheduled to expire on December 10, 2004. At March 31, 2004, there were no borrowings outstanding under this credit agreement. In June 2004, the Company replaced this facility with a $100 million, 364 day unsecured credit facility that expires on May 31, 2005. The new facility may be increased to up to $150 million.
23

Guarantees:
DP&L owns a 4.9% equity ownership interest in an electric generation company. As of March 31, 2004, DP&L could be responsible for the repayment of 4.9%, or $14.9 million, of a $305 million debt obligation and also 4.9%, or $2.9 million, of a separate $60.0 million debt obligation. Both obligations mature in 2006.
MARKET RISK
DP&L’s financial results are subject to certain market risks, including changes in electricity, coal, environmental emissions, gas and other commodity prices; the effect of weather, increased competition and economic conditions in the sales area on retail sales volume; ~~financial market condition;~~ and adverse economic conditions. ~~Nineteen~~
Approximately 21 percent of ~~the Company's year-to-date~~DP&L’s first quarter 2004 revenues ~~are~~were from ~~spot energy~~ sales of ~~excess~~energy and capacity in the wholesale market. Energy and capacity in excess of the needs of existing retail customers is sold in the wholesale market when DP&L can identify opportunities with positive margins. In the first quarter of 2004, sales of
12excess wholesale energy and capacity contributed $5.8 million in net electric margins. This compares to net electric margins from wholesale energy and capacity sales of $10.2 million in 2003. This decrease in net electric margins resulted from lower average market prices for wholesale sales and increased average market prices for fuel and purchased power.   Wholesale sales per megawatt hour in the first quarter of 2004 and 2003 were $33.69 and $34.76, respectively. Wholesale fuel costs per megawatt hour for the first quarter of 2004 and 2003 were $15.07 and $12.30, respectively and wholesale purchased power costs per megawatt hour for the first quarter of 2004 and 2003 were $33.82 and $32.34, respectively.

Fuel and purchased power costs represented ~~approximately 43%~~47% of total operating costs in the first ~~nine months~~quarter of ~~2003 and for the year 2002. The Company~~2004. DP&L has contracted for ~~approximately 100%~~all of its projected coal needs for ~~2003.~~2004, at an estimated cost per Btu increase of approximately 15% over average 2003 levels. Purchased power costs depend, in part, upon the timing and extent of planned and unplanned outages of ~~the Company's~~its generating capacity. ~~The Company~~DP&L will purchase power on a discretionary basis when wholesale market conditions provide opportunities to obtain power at a cost below ~~its~~the Company’s internal production costs. ~~A 2% change in overall fuel and purchased power costs would result in a $3.5 million change in annual net income.~~
The carrying value of ~~the Company's~~DP&L’s debt was ~~$1,133.9~~$688.2 million at ~~September 30, 2003,~~March 31, 2004, consisting of ~~first mortgage bonds~~DP&L’s First Mortgage Bonds, DP&L’s Guaranteed Air Quality Development Obligations and ~~guaranteed air quality development obligations.~~Capital Lease. The fair value of this debt was ~~$1,166.7~~$619.1 million, ~~at September 30, 2003,~~ based on current market prices or discounted cash flows using current rates for similar issues with similar terms and remaining maturities. The principal cash repayments and related weighted average interest rates by maturity date for long-term, fixed rate debt at ~~September 30, 2003~~March 31, 2004 are as follows:

Long-term Debt

Expected
Maturity Date
Amount
($ in millions)
Average
Rate

2003 $ 446.2 8.0 %
2004 1.1 4.0 %
2005 1.1 4.0 %
2006 1.1 4.0 %
2007 9.3 6.1 %
Thereafter 675.1 5.5 %

Total $ 1,133.9 6.5 %

Fair Value

$
1,166.7

~~At September 30,~~
Expected Maturity

Long-term Debt

Date

Amount

Average Rate

($ in millions)

2004

$
0.9

4.2
%
2005

1.1

3.9
%
2006

1.1

3.9
%
2007

9.3

6.1
%
2008

0.7

2.6
%
Thereafter

675.1

5.5
%
Total

$
688.2

5.5
%

Fair Value

$
619.1

The fair value of financial instruments held was $89 million and $103.5 million at March 31, 2004 and December 31, 2003 respectively. The market risk related to these financial instruments were estimated as the potential increase/decrease in fair value of approximately $9 million at March 31, 2004, resulting from a hypothetical 10% increase/decrease in the value of the underlying securities.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This quarterly report and other documents that DP&L files with the Securities and Exchange Commission (SEC) and other regulatory agencies, as well as other oral or written statements the Company ~~had no short-term debt outstanding.~~may make from time to time,
~~In May 2003,~~
24

contain information based on management’s beliefs and include forward-looking statements (within the ~~Company entered into 60 day interest rate swaps designed to capture existing favorable interest rates in anticipation~~meaning of the Private Securities Litigation Reform Act of 1995) that involve a number of known and unknown risks, uncertainties and assumptions. These forward-looking statements are not guarantees of future ~~financings~~performance, and there are a number of ~~$750 million first mortgage bonds. These hedges were settled on July 28, 2003, at a final market value of $51.4 million. At September 30, 2003,~~factors including, but not limited to, those listed below, which could cause actual outcomes and results to differ materially from the ~~ultimate effectiveness of the hedges was $30.2 million and is reflected in accumulated other comprehensive income on the Consolidated Balance Sheet. This amount will be amortized~~results contemplated by such forward-looking statements. DP&L does not undertake any obligation to reduce interest expense over the lives of the hedges, which are ten and fifteen years. The remaining market value of $21.2 million was recognized during the third quarter of 2003 as investment income on the Consolidated Statement of Results of Operations.
~~Other Matters~~
A wholly owned captive insurance subsidiary of DPL provides insurance coverage solely to DPL and its subsidiaries including the Company. Premiums for coverage are determined by a third-party actuary and charged to expense by the insured over the term of the policy. The Company has, among other coverages, business interruption and specific risk coverage with respect to electric deregulation. In 2001 and 2002, the Company recognized income of $29 million and $7 million respectively relating to its claims under the business interruption policy. By agreement dated December 31, 2001, the insurance subsidiary agreed to pay the Company $29 million with respect to claims under the business interruption policy, and in June 2003 agreed to pay the Company an additional $7 million,publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements are identified by terms and phrases such as “anticipate”, “believe”, “intend”, “estimate”, “expect”, “continue”, “should”, “could”, “may”, “plan”, “project”, “predict”, “will”, and similar expressions.
Regulation/Competition
DP&L operates in a rapidly changing industry with evolving industry standards and regulations. In recent years, a number of federal and state developments aimed at promoting competition triggered industry restructuring. Regulatory factors, such as changes in the policies or procedures that set rates; changes in tax laws, tax rates, and environmental laws and regulations; changes in DP&L’s ability to recover expenditures for environmental compliance, fuel costs and purchased power costs and investments made under traditional regulation through rates; and changes to the frequency and timing of rate increases, can affect the Company’s results of operations and financial condition. Additionally, financial or regulatory accounting principles or policies imposed by governing bodies can increase DP&L’s operational and monitoring costs affecting its results of operations and financial condition.
Changes in DP&L’s customer base, including aggregation, could lead to the entrance of competitors in the Company’s marketplace affecting its results of operations and financial condition.
Economic Conditions
Economic pressures, as well as changing market conditions and other factors related to physical energy and financial trading activities, which include price, basis, credit, liquidity, volatility, capacity, transmission, and interest rates can have a significant effect on DP&L’s operations and the operations of its retail, industrial and commercial customers.
Reliance on Third Parties
DP&L relies on many suppliers for the purchase and delivery of inventory and components to operate its energy production and transmission functions. Unanticipated changes in DP&L’s purchase processes may affect the Company’s business and operating results. In addition, the Company relies on others to provide professional services, such as, but not limited to investment management, actuarial calculations, internal audit services, payroll processing and various consulting services.
Operating Results Fluctuations
Future operating results could be affected and are subject to fluctuations based on a variety of factors, including but not limited to: unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages; unusual maintenance or repairs; changes in coal costs, gas supply costs, or availability constraints; environmental compliance, including costs of compliance with existing and future environmental requirements; and electric transmission system constraints.
Employees
A majority of the Company’s employees are under a collective bargaining agreement. If the Company is unable to negotiate future collective bargaining agreements, the Company could experience work stoppages, which may affect its business and operating results.
Regulatory Uncertainties and Litigation
In the normal course of business, the Company is subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. Additionally, the Company is subject to diverse and complex laws and regulations, including those relating to corporate governance, public disclosure and reporting and taxation, which are rapidly changing and subject to changes in the future. As described under Item 3 – Legal Proceedings, in the Company’s Form 10-K for the year ended December 31, 2003, the Company is also currently involved in various litigation in which the outcome is uncertain. Compliance with these rapid changes may substantially increase costs to DP&L’s organizations and could affect its future operating results.
Internal Controls
As described under Item 1 – Business - Recent Developments, in the Company’s Form 10-K for the year ended December 31, 2003, a review by independent counsel to DP&L’s Audit Committee of the Board of Directors of the
25

Company has identified recommendations for improvement relating to some of the concerns raised by the Company’s Controller including, among other things, internal controls. In addition, as further described under Item 9A - Controls and Procedures, during their year-end review, the Company’s independent auditors identified and reported to management and the Audit Committee of the Board of Directors two material weaknesses and certain other matters involving internal control deficiencies considered to be reportable conditions under standards established by the Public Company Accounting Oversight Board (PCAOB). The material weaknesses include conditions related to (1) the Company’s process for recognizing an adjustment to the Company’s income tax provision to reflect a deductibility limitation under Section 162(m) with respect to executive deferred compensation distributions made during 2003 and (2) lack of effective communication in internal reporting of certain investment income that may lead to improper accounting of such transactions in accordance with generally accepted accounting principles.
The reportable conditions that are not believed to be a material weakness include conditions related to payroll processing, the quality and change control process for the preparation of SEC filings, management’s assessment of the Company’s internal controls, executive travel and entertainment expense reporting, the lack of a comprehensive controller function and segregation of duties for certain accounting transactions and activities.
The Company’s failure to timely improve any deficiencies in its internal controls and procedures could result in errors in its consolidated financial statements, adversely affect its ability to operate its business and hamper management’s ability to report on the effectiveness of its internal controls. The Company has taken steps to correct the internal control deficiencies identified and will further develop and enhance the Company’s internal control policies, procedures, systems and staff to allow it to mitigate the risk that material accounting errors might go undetected and be included in its consolidated financial statements. The Company cannot assure that any new policies or procedures that the Company implements to remedy the material weaknesses and/or reportable conditions will be successful in the near term.
The Company is currently undertaking a thorough review of its internal controls as part of the Company’s preparation for compliance with the requirements under Section 404 of the Sarbanes-Oxley Act of 2002 and the Company is using this review to further assist in identifying and correcting any control deficiencies. As expected, this review has revealed some control weaknesses, which the Company ~~released~~has reported to the ~~insurance subsidiary from future obligations under the business interruption policy. In September 2003, the Company received payment for the claims under the policy.~~
13

On January 1, 2003, the Company began accounting for stock options under the fair value method set forth in FASB Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). This standard requires the recognition of compensation expense for stock-based awards to reflect the fair value of the award on the date of grant. The Company previously followed Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Accounting Principles Board and FASB interpretations in accounting for its employee stock options.Audit Committee. The Company has since taken steps to strengthen its internal controls in these areas, including increasing segregation of duties, writing policies where necessary, adding checks at key decision points and increasing supervisor review of transactions. These actions have been successful in eliminating a large percentage of the deficiencies noted, but additional remediation activities continue. Corrected control deficiencies are being retested by management to assure that remediation efforts were successful, and the Company’s auditors will perform independent testing of the Company’s internal controls as part of their year-end review. At this time, the Company has not completed its review of the existing controls and their effectiveness. Unless the material weaknesses described above, or any identified during this review, are remedied, there can be no assurances that the Company will be able to assert that its internal control over financial reporting is effective, pursuant to the rules adopted ~~SFAS No. 123~~by the SEC under Section 404, when those rules take effect.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
DP&L’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (GAAP). In connection with the preparation of these financial statements, DP&L’s management is required to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosure of contingent liabilities. These assumptions, estimates and judgments are based on management’s historical experience and assumptions that are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. DP&L’s critical accounting policies are those which require assumptions to be made about matters that are highly uncertain.
Different estimates could have a ~~prospective basis for all grants issued after January 1, 2003. The~~material effect on ~~compensation expense, if any, will depend on~~its financial results. Judgments and uncertainties affecting the ~~timing, amount,~~application of these policies and ~~terms~~estimates may result in materially different amounts being reported under different conditions or circumstances. Significant items subject to such judgments include the carrying value of ~~future stock option awards. During~~property, plant and equipment; the ~~first nine months~~valuation of ~~2003, there was~~derivative instruments; valuation allowance for receivables and deferred income taxes; the valuation of reserves related to current litigation; and assets and liabilities related to employee benefits.
26

There have been no ~~material effect.~~significant changes to the critical accounting policies as disclosed in DP&L’s Form 10-K as of December 31, 2003.
Recently Issued Accounting Pronouncements
A discussion of recently issued accounting pronouncements is described in Note 1 of Notes to Consolidated Financial Statements and such discussion is incorporated by reference in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and make it a part hereof.
27

THE DAYTON POWER AND LIGHT COMPANY
OPERATING STATISTICS

For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,

2003
2002
2003
2002
Electric

Sales (millions of kWh)

Residential 1,356 1,543 3,851 4,024
Commercial 1,016 1,047 2,804 2,809
Industrial 1,140 1,214 3,281 3,416
Other retail 355 379 1,042 1,057

Total retail 3,867 4,183 10,978 11,306
Wholesale 1,390 1,357 3,400 3,249

Total 5,257 5,540 14,378 14,555

Revenues ($ in thousands)
Residential $ 120,972 $ 136,806 $ 335,192 $ 351,844
Commercial 62,721 69,270 182,912 194,893
Industrial 40,598 55,281 124,501 157,445
Other retail 23,455 25,578 69,638 71,573

Total retail 247,746 286,935 712,243 775,755
Wholesale 75,429 54,769 178,051 117,238

Total $ 323,175 $ 341,704 $ 890,294 $ 892,993

Electric customers at end of period 505,462 503,350 505,462 503,350

Three Months Ended
March 31,

2004

2003

Electric

Sales (millions of kWh)

Residential

1,531

1,546

Commercial

904

886

Industrial

1,038

1,023

Other retail

333

333

Total retail

3,806

3,788

Wholesale

982

832

Total

4,788

4,620

Revenues ($ in thousands)

Residential

$
125,992

$
126,193

Commercial

57,597

60,130

Industrial

30,830

41,619

Other retail

22,808

22,870

Total retail

237,227

250,812

Wholesale

63,174

44,853

Total

$
300,401

$
295,665

Electric customers at end of period

507,659

505,568

Item 3.Quantitative and Qualitative Disclosures about Market Risk
See the ~~"Market Risk"~~“Market Risk” section of Item 2.
Item 4.Controls and Procedures
~~As required~~
For the period covered by ~~Rule 13a-15(b) of~~this report, the ~~Securities Exchange Act of 1934 (the "Exchange Act")~~Company carried out an evaluation, under the ~~Company's management evaluated,~~supervision and with the participation of the ~~Company's~~Company’s management, including the Company’s Chief Executive Officer and ~~Interim~~interim Chief Financial Officer, of the effectiveness of the ~~Company's~~design and operation of the Company’s disclosure controls and ~~procedures, as of the end of the period covered by this report.~~procedures. Based on that evaluation, the Chief Executive Officer and ~~Interim~~the interim Chief Financial Officer concluded that the ~~Company's~~Company’s disclosure controls
14

and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as ~~defined by Rule 13a-15(e)~~amended, is recorded, processed, summarized and reported. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Attached as Exhibits 31.1 and 31.2 to this quarterly report are certifications of the ~~Exchange Act, were effective as of the end of the period covered by this report.~~
~~As required by Rule 13a-15(d) under the Exchange Act, the Company's management, including the Company's~~ Chief Executive Officer and ~~Interim~~the interim Chief Financial Officer ~~has evaluated~~required in accordance with Rule 13a-14 of the ~~Company's~~Exchange Act. This portion of the Company’s quarterly report includes the information concerning the controls evaluation referred to in the certifications and should be read in conjunction with the certifications for a more complete understanding of the topics presented.
There were no changes in the Company’s internal control over financial reporting ~~to determine whether any changes~~that occurred during the last quarter ~~covered by this report~~ that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. However, during their year-end review, KPMG LLP (KPMG), the Company’s independent accountants, identified and reported to management and the Audit Committee of DPL’s Board of Directors two material weaknesses and certain other matters involving internal control deficiencies considered to be reportable
28

conditions under standards established by the Public Company Accounting Oversight Board (PCAOB). Reportable conditions are matters coming to the attention of the auditors that, in their judgment, relate to significant deficiencies in the design or operation of internal control and could adversely affect the organization’s ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. A material weakness is a reportable condition in which the design or operation of one or more internal control components does not reduce to a relatively low level the risk that errors or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.
The two material weaknesses identified are:
(1)           An ineffective process for recognizing an adjustment to the Company’s income tax provision to reflect a deductibility limitation under Section 162(m) for executive deferred compensation distributions made during 2003, including, without limitation, insufficient supporting documentation submitted to the Company’s tax department for purposes of calculating the income tax provision and the lack of effective communication between and among senior management, counsel and the Company’s tax and compensation experts. Absent review of specific deferred compensation records by the Company’s outside auditors, income tax balances for 2003 may have been improperly stated at December 31, 2003. Management concurred with KPMG’s observations relating to income tax reporting of executive compensation. The Company further evaluated its internal processes relating to executive compensation and has implemented internal control improvements in this area; and
(2)           A complex and manual process for accounting and reporting transactions in DPL’s financial asset portfolio, including, (i) separate reporting structures for MVE accounting and corporate accounting that do not allow for a review of the entire process, (ii) the lack of a complete accounting manual for financial asset portfolio accounting that contemplates all investment transactions that occur on a regular basis and (iii) ineffective communication between the MVE and corporate accounting groups that does not ensure that all investment portfolio transactions are identified, accumulated and reported in accordance with generally accepted accounting principles. Specifically, in 2003 private equity fund distributions in the form of stock of underlying investments were initially accounted for by management entirely as return of capital transactions. A large element of each distribution should have been accounted for as income rather than a return of capital. As a result, results for the third quarter 2003 were required to be revised. Similar transactions in prior years were also accounted for inappropriately and were revised. Management concurred with KPMG’s observations relating to investment portfolio accounting and acknowledged the need for improvement. DPL further evaluated its accounting processes relating to its investment portfolio and has implemented internal control improvements in this area.
The reportable conditions that are not believed to be material weaknesses are conditions related to: (i) payroll processing and the fact that the Company has two separate payroll processes, one for the majority of personnel and one for the Company’s senior executives, (ii) the lack of a quality and change control process for the preparation and submission of SEC filings on Form 10-K and Form 10-Q, (iii) the lack of significant progress made by management in assessing the Company’s internal controls in preparation for Sarbanes-Oxley Section 404 implementation and KMPG’s belief that the Company will identify control weaknesses requiring remediation, (iv) the Company’s process for executive travel and entertainment expense reporting and reimbursement and the lack of sufficient supporting documentation for reported business expenses of certain executives to support deductibility for tax purposes, (v) the lack of a comprehensive controller function to monitor the accounting function in the Company and (vi) inadequate segregation of duties for certain accounting transactions and activities processed at the executive level, including payroll, benefit plans, other compensation plans, time and expense reporting by senior management and preparation and submission of SEC filings.
The material weaknesses and reportable conditions identified above, if unaddressed, could result in errors in the Company’s consolidated financial statements.
Management concurred with KPMG’s observations relating to payroll processing (particularly those relating to executive compensation), external reporting processes, and executive travel and entertainment expense reporting. The Company further evaluated these areas and implemented appropriate internal control improvements.
Management acknowledged KPMG’s observations relating to Sarbanes-Oxley Section 404 implementation and increased resources dedicated to this effort. Additionally, the Company has improved its communications both within the organization and with KPMG regarding the status of the implementation process, project scope, preliminary results and remediation efforts. Management also acknowledged the need for a more comprehensive
29

controller function. The Company reviewed the accounting processes performed outside the corporate controller’s area and reassigned responsibility for these processes as deemed appropriate for improved internal controls. Finally, management concurred with KPMG’s observations regarding segregation of duties related to specific activities performed by the prior interim chief financial officer and acknowledged that improvements were needed in this area. The Company plans to use the Sarbanes-Oxley Section 404 implementation process to further assist in identifying and reassigning responsibility for activities that require additional segregation of duties.
The Company will continue to evaluate the material weaknesses and reportable conditions and will take all necessary action to correct the internal control deficiencies identified. The Company will also further develop and enhance its internal control policies, procedures, systems and staff to allow it to mitigate the risk that material accounting errors might go undetected and be included in its consolidated financial statements. The Company is currently undertaking a thorough review of its internal controls as part of the Company’s preparation for compliance with the requirements under Section 404 of the Sarbanes-Oxley Act of 2002 and the Company is using this review to further assist in identifying and correcting any control deficiencies. As expected, this review has revealed control weaknesses, which the Company has reported to the Audit Committee. The Company has since taken steps to strengthen its internal controls in these areas, including increasing segregation of duties, writing policies where necessary, adding checks at key decision points and increasing supervisor review of transactions. These actions have been successful in eliminating a large percentage of the deficiencies noted, but additional remediation activities continue. Corrected control deficiencies are being retested by management to assure that remediation efforts were successful, and the Company’s auditors will perform independent testing of the Company’s internal controls as part of their year-end review. At this time, the Company has not completed its review of the existing controls and their effectiveness. Unless the material weaknesses described above, and any identified during this review, are remedied, there can be no assurances that the Company will be able to assert that its internal control over financial ~~reporting. Based on that evaluation, there has been no such change during~~reporting is effective in the ~~quarter covered~~management report to be included in the Annual Report for the year ended December 31, 2004, pursuant to the rules adopted by ~~this report.~~the SEC under Section 404.
15
30

Part II. Other Information
Item 5.1.~~Other Information~~ Legal Proceedings
~~Rate Regulation~~
There were no significant changes to the Legal Proceedings reported in DP&L’s Form 10-K as of December 31, 2003. A discussion of legal proceedings is described in Item 3-Legal Proceedings and ~~Government Legislation~~
~~On October 28, 2002,~~Note 16 of Notes to Consolidated Financial Statements of DP&L’s Form 10-K for the ~~Company filed with the PUCO requesting an extension of its market development period as originally determined under Case No. 99-1687-EL-ETP from~~year ended December 31, 2003 and such discussions are incorporated by reference and made a part hereof.
Item 4. Submission of Matters to a Vote of Security Holders
There were no submissions to the security holders in the first quarter.
Item 5. Other Information
There were no significant changes to the Recent Developments reported in Item 1-Business or to the Subsequent Events discussed in Note 18 of Notes to Consolidated Financial Statements in DP&L’s Form 10-K as of December 31, 2005 that would continue the Company's current rate structure and provide its retail customers with rate stability. On March 31, 2003, the PUCO issued a staff recommendation that suggested the Company's request to extend its market development period through 2005 and maintain current rates would be adopted. On May 28, 2003, the Company filed with the PUCO a Stipulation and Recommendation entered into with five other parties (Ohio Consumers' Counsel, Industrial Energy Users-Ohio, PUCO Staff, Partners for Affordable Energy, and Community Action Partnership of the Greater Dayton Area). The Stipulation provides the following: the Company's market development period will continue through December 31, 2005; retail generation rates will remain frozen at present levels; the credit issued to commercial and industrial customers who elect competitive retail generation service during the market development period will increase over two years; and a rate stabilization period from January 1, 2006 through December 31, 2008, during which the Company's retail generation rates in effect on January 1, 2004 will serve as market-based rates. The Stipulation also provides that beginning January 1, 2006, rates may be modified by up to 11% of generation costs to reflect increased costs associated with fuel, environmental, taxes, security measures, and costs associated with joining a Regional Transmission Organization ("RTO"). Further, the parties agreed to an increase to the residential generation discount commencing January 1, 2006. As the Stipulation was not endorsed by all intervening parties, hearings with non-settling parties took place on May 29, 2003 and ~~June 17, 2003. On September 2, 2003, the PUCO issued an Opinion~~such discussions are incorporated by reference and ~~Order adopting the Stipulation with two modifications. These will not have~~made a material effect on the Company. On October 2, 2003, several parties filed applications for rehearing requesting that the Commission consider modifications to its September 2, 2003 order. On October 22, 2003, the PUCO denied the applications for rehearing.part hereof.
On May 28, 2002, the Company filed a notice with the Federal Energy Regulatory Commission ("FERC") stating its intention to join the PJM Interconnection, L.L.C. ("PJM"), 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 the Company conditional approval to join PJM. On August 20, 2003, PJM announced plans to review events surrounding the August 14, 2003, electricity outage experienced throughout the Eastern U.S. and parts of Canada and examine the reliability plans associated with the evolution of the energy market in the mid-west region. As the review proceeds, PJM will revise the market integration schedule of companies that have committed to join PJM. In September 2003, FERC inquired into Midwest Independent System Operator ("MISO")-PJM RTO issues. The outcome of this inquiry is unknown at this time.
The FERC's July 31, 2002 Order also established a case under Section 206 of the Federal Power Act to examine the justness and reasonableness of the PJM and MISO rates and related revenue distribution protocols. On March 31, 2003, an Initial Decision was issued finding that the PJM/MISO's rates had not been shown to be unjust and unreasonable. On July 23, 2003, the Commission issued an Order rejecting in part the March 31, 2003 Initial Decision finding that the rates of Midwest ISO and PJM are unjust and unreasonable. Similarly, the Commission's July 23 Order found that the rates for transmission service through and out of the service territories of seven former Alliance Companies, including the Company, may be unjust, unreasonable, or unduly discriminatory or preferential, and established a new Section 206 case to address this concern. On August 15, 2003, the Company filed a
16

~~submission stating that there is no basis for the elimination of the Company's through and out rates prior to the date that it joins an RTO. Action on this submission is pending.~~
On September 12, 2002, the Ohio Consumers' Counsel, Industrial Energy Users-Ohio and American Municipal Power-Ohio, Inc. filed a complaint with the PUCO alleging that the Company had 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. On February 20, 2003, the PUCO issued an Entry ordering this case to be stayed until otherwise ordered by the PUCO, stating there were too many unresolved issues relating to the RTO matters. The PUCO subsequently joined this case with the above-mentioned application regarding the extension of the Company's market development period. The Stipulation adopted in the joined proceedings resolves and dismisses the complaint.
On March 10, 2003, American Municipal Power of Ohio, Inc. on behalf of the Company's municipal customers ("Municipals") filed a complaint at the FERC alleging the Municipals will be faced with higher rates under the Power Services Agreement they entered into with the Company in 1994 once the Company is fully integrated into PJM. A settlement has been reached and was filed with FERC on October 14, 2003. The settlement provides that the generation supply agreements will continue to be effective. It also describes how transmission services will be provided when the Company joins PJM and preserves the transmission rates and most ancillary services.
On March 21, 2002, the PUCO staff proposed modifications to the Minimum Electric Service and Safety Standards, which establish performance standards for various service related functions of investor-owned electric utilities. The proposed modifications affect billing, collections, allocation of customer payments, meter reading, and distribution circuit performance. On September 26, 2002, the PUCO issued the final rules and an Entry on Rehearing on March 18, 2003. These rules were filed with the Joint Committee on Agency Rule Review on July 30, 2003 and will be effective November 1, 2003. The initial cost to the Company of compliance is less than $1 million with future costs of approximately $1.6 million per year.
On February 20, 2003, the PUCO issued an Entry requesting comments from interested stakeholders on the proposed rules for the conduct of a competitive bidding process that will take place at the end of the market development period. The Company submitted comments and reply comments on March 7 and March 21, 2003, respectively. The effect of the proposed rules cannot be determined at this time.
On March 20, 2003, the PUCO issued an Entry initiating a PUCO investigation regarding the desirability, feasibility, and timing of declaring that retail ancillary, metering, billing and/or collection services are competitive retail electric services that consumers may obtain from any supplier. The initiation of this investigation was based on a requirement in the 1999 Ohio deregulation legislation. The PUCO asked interested stakeholders to file comments by June 6, 2003 and reply comments by July 7, 2003. The Company filed comments and will actively participate in this case and will evaluate the potential outcome of this proceeding.
~~Competition~~
As of September 30, 2003, three marketers not affiliated with the Company are registered competitive retail generation service providers in the Company's service territory. The Company anticipates that these competitors will begin marketing campaigns to provide competitive retail generation service to the Company's residential customers.
17

~~Environmental Considerations~~
On November 22, 2002, the United States Environmental Protection Agency ("USEPA") announced its final rule package on New Source Review ("NSR") reform and its proposed rule on the definition of "routine maintenance, repair and replacement ("RMRR")." On December 31, 2002, the final and proposed NSR rules and the proposed RMRR rules were published in the Federal Register. Several northeast states have brought lawsuits challenging the final rule in the United States Court of Appeals for the District of Columbia. On March 6, 2003, the Court denied a petition for a stay that would have delayed implementation of the final rules. On July 30, 2003, USEPA published a Notice of Reconsideration of Final Rule, requesting public comment on six issues for which it is granting reconsideration. The Company reviewed the December 31, 2002 RMRR rules and does not expect the proposed rule changes to have a material effect on the Company. In August 2003, USEPA announced final rules regarding the equipment replacement provision of the routine maintenance, repair and replacement exclusion. These final rules have not yet been published in the Federal Register. The Company will review the rules when published but does not expect the final rules to have a material effect.
On July 18, 2002, the Ohio Environmental Protection Agency ("Ohio EPA") adopted rules that will constitute Ohio's NOx State Implementation Plan ("SIP"). The SIP rules are substantially similar to the reductions required under the federal CAA Section 126 rulemaking and federal NOx SIP rule. The USEPA has conditionally approved Ohio's NOx SIP. On January 16, 2003, the USEPA's direct final approval of Ohio's NOx SIP appeared in the Federal Register. The final approval was withdrawn on March 17, 2003 after USEPA received adverse comments. On August 5, 2003, USEPA published its conditional approval of Ohio's NOx SIP, with an effective date of September 4, 2003. The Company's current NOx reduction efforts comply with the SIP reduction requirements.
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. A competing legislation calling for reductions in sulfur dioxide, nitrogen oxides, mercury, and carbon dioxide emissions with earlier implementation dates has also been proposed by a state senator. Neither proposal was passed in 2002. Since the offering of the Clear Skies proposal, competing proposed legislation revising the air pollution laws has emerged in the 108^th~~session of Congress. In 2003, the Clear Skies and competing proposals were re-introduced in the second half of the 108~~^th session of Congress. The effect of any of the proposed legislation, if passed, cannot be determined at this time, but the compliance with new environmental regulation if passed may require additional capital expenditures and may increase operating costs.
On January 14, 2003, the USEPA issued proposed national emissions standards for hazardous air pollutants for stationary combustion turbines. Final rules were announced by USEPA in August 2003, but have not yet been published in the Federal Register. As announced, the final rules have no material effect.
During the first quarter of 2003, the Ohio EPA indicated that, as part of the regular permit renewal process for the National Pollutant Discharge Elimination System ("NPDES") permit for J.M. Stuart Station, it may not renew the thermal variance that was previously approved under Section 316(a) of the Clean Water Act. The Company is continuing discussions with the Ohio EPA and is assessing the effect of this on the Company's operations. The outcome of these discussions and the potential effect cannot be determined at this time.
On July 15, 2003, the Ohio EPA submitted to the USEPA its recommendations for eight-hour ozone nonattainment boundaries for the metropolitan areas within Ohio. These plans could include a number of measures to reduce ozone-forming emissions from vehicles and stationary sources such as power
18

~~plants. It is anticipated that the USEPA will issue final designations by April 15, 2004. The effect of these nonattainment designations cannot be determined at this time.~~
In July 1994, the Company and numerous other parties received notification from the Ohio EPA that it considers them Potentially Responsible Parties ("PRPs") for clean-up of hazardous substances at the North Sanitary Landfill site in Dayton, Ohio. In October 2000, the PRP group brought an action against the Company and numerous other parties alleging that the Company and the others are PRPs that should be liable for a portion of clean-up costs at the site. While the Company does not believe it disposed of any hazardous substances at this site, it has entered into an Agreement in Principle with the PRP group to settle any alleged liability for an immaterial amount. On August 6, 2003, the Company entered into a settlement agreement with PRPs for its alleged liability at the North Sanitary Landfill Superfund Site (a.k.a. Valleycrest) for the amount of $45,000.
Item 6.Exhibits and Reports on Form 8-K
(a)
~~(a)~~
The following ~~exhibits are~~exhibit is filed herewith:
~~Exhibit 31.1—Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant~~
Exhibits 31.1 and 31.2 – Officer’s Certifications pursuant to Section 302 of the ~~Sarbanes-Oxley~~Sarbanes Oxley Act of ~~2002.~~2002
Exhibit ~~31.2—~~32 – Certification ~~of Interim Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~Exhibit 32—Certification of Chief Executive Officer and Interim Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant~~pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
(b)
Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter ended ~~September 30, 2003.~~
19
March 31, 2004.
31

SIGNATURES
~~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)~~

(Registrant)
Date:
November ~~6, 2003~~5, 2004

/s/ James V. Mahoney

~~/s/~~  ~~STEPHEN F. KOZIAR~~
~~Stephen F. Koziar~~

James V. Mahoney
President and Chief Executive Officer
(principal executive officer)

November ~~6, 2003~~5, 2004

/s/ Pamela Holdren

~~/s/~~  ~~CAROLINE E. MUHLENKAMP~~
~~Caroline E. Muhlenkamp~~
~~Group Vice President~~
Pamela Holdren
Treasurer and Interim Chief Financial Officer (principal financial
and principal accounting officer)
November 5, 2004
/s/ Daniel L. Thobe
Daniel L. Thobe
Corporate Controller
32

~~QuickLinks~~
~~THE DAYTON POWER AND LIGHT COMPANY INDEX~~
~~Part I. Financial Information~~
~~THE DAYTON POWER AND LIGHT COMPANY CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS ($ in millions)~~
~~THE DAYTON POWER AND LIGHT COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS ($ in millions)~~
~~THE DAYTON POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEET ($ in millions)~~
~~THE DAYTON POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEET ($ in millions) (continued)~~
~~Notes to Consolidated Financial Statements~~
~~THE DAYTON POWER AND LIGHT COMPANY OPERATING STATISTICS~~
~~Part II. Other Information~~
~~SIGNATURES~~

							Page No.
Part I. Financial Information
		Item 1.		Financial Statements		3

		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~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations		10 19
				~~Operating Statistics~~		14
		Operating Statistics	28

	Item 3.		Quantitative and Qualitative Disclosures about Market Risk		14 28

	Item 4.		Controls and Procedures		14 28

Part II. Other Information
	Item 1.	~~Item 5.~~ Legal Proceedings		~~Other Information~~		16 31

	Item 4.	Submission of Matters to a Vote of Security Holders	31

	Item 5.	Other Information	31

	Item 6.		Exhibits and Reports on Form 8-K		19 31
~~Other~~
Other
	Signatures		~~Signatures~~ 32
		20
	Certifications

		Three Months Ended September 30,						Nine Months Ended September 30,
		2003			2002			2003			2002
Revenues
Electric		$	323.2		$	341.7		$	890.3		$	893.0
Expenses
Fuel			59.9			57.6			166.3			155.1
Purchased power			29.8			38.8			76.3			94.8
Operation and maintenance			42.5			35.3			127.8			107.8
Depreciation and amortization			30.1			29.6			88.5			88.7
Amortization of regulatory assets, net			12.5			13.6			35.3			36.4
General taxes			28.0			29.7			81.7			81.6

	Total expenses	$	202.8		$	204.6		$	575.9		$	564.4

Operating Income			120.4			137.1			314.4			328.6
Investment income			21.4			—			21.7			1.7
Other income (deductions)			0.7			0.2			5.3			6.2
Interest expense			(13.7	)		(13.3	)		(38.9	)		(40.5	)

Income Before Income Taxes and Cumulative Effect of Accounting Change		$	128.8		$	124.0		$	302.5		$	296.0
Income tax expense			48.8			49.5			114.2			113.0

Income Before Cumulative Effect of Accounting Change		$	80.0		$	74.5		$	188.3		$	183.0
Cumulative effect of accounting change, net of tax			—			—			17.0			—

Net Income		$	80.0		$	74.5		$	205.3		$	183.0
Preferred dividends			0.3			0.3			0.7			0.7

Earnings on Common Stock		$	79.7		$	74.2		$	204.6		$	182.3

	Three Months Ended March 31,
	2004			2003
				(as restated)
Revenues
Electric revenues	$	300.4		$	295.7

Operating Expenses
Fuel	62.7			55.6
Purchased power	28.5			20.0
Operation and maintenance	46.8			35.8
Depreciation and amortization	28.3			29.1
Amortization of regulatory assets, net	0.1			12.1
General taxes	27.1			28.3
Total operating expenses	193.5			180.9

Operating Income	106.9			114.8

Interest expense	(11.8		)	(12.8		)
Other income	4.2			1.0

Income Before Income Taxes and Cumulative Effect of Accounting Change	99.3			103.0

Income tax expense	37.3			39.2

Income Before Cumulative Effect of Accounting Change	62.0			63.8

Cumulative effect of accounting change, net of tax	—			17.0

Net Income	62.0			80.8

Preferred dividends	0.2			0.2

Earnings on Common Stock	$	61.8		$	80.6

		Nine Months Ended September 30,
		2003			2002
Operating Activities
Net income		$	205.3		$	183.0
Adjustments:
	Depreciation and amortization		88.5			88.7
	Amortization of regulatory assets, net		35.3			36.4
	Deferred income taxes		(1.8	)		(15.6	)
	Income from interest rate hedges		(21.2	)		—
	Cumulative effect of accounting change, net of tax		(17.0	)		—
Changes in working capital:
	Accounts receivable		25.7			(9.2	)
	Accounts payable		(5.0	)		(11.5	)
	Net intercompany receivables and payables		70.8			(52.9	)
	Accrued taxes payable		29.3			14.3
	Accrued interest payable		(10.7	)		(10.8	)
	Prepayments		(12.8	)		(4.0	)
	Inventories		0.5			6.8
Other			(1.4	)		(5.0	)

Net cash provided by operating activities		$	385.5		$	220.2

Investing Activities
Capital expenditures			(86.8	)		(102.1	)
Settlement of interest rate hedges			51.4			—

Net cash used for investing activities		$	(35.4	)	$	(102.1	)

Financing Activities
Issuance of long-term debt, net of issue costs			465.1			—
Issuance of short-term debt, net			—			45.0
Retirement of long-term debt			(0.4	)		(0.4	)
Dividends paid on common stock			(212.7	)		(150.0	)
Dividends paid on preferred stock			(0.7	)		(0.7	)

Net cash provided by (used for) financing activities		$	251.3		$	(106.1	)

Cash and temporary cash investments
Net change		$	601.4		$	12.0
Balance at beginning of period			17.1			0.9

Balance at end of period		$	618.5		$	12.9

Cash Paid During the Period for:
Interest		$	46.3		$	48.0
Income taxes		$	81.9		$	111.2

		At September 30, 2003			At December 31, 2002
ASSETS
Property
Property		$	3,849.1		$	3,781.7
Less: Accumulated depreciation and amortization			(1,817.0	)		(1,765.1	)

	Net property	$	2,032.1		$	2,016.6

Current Assets
Cash and temporary cash investments (Note 8)			618.5			17.1
Accounts receivable, less provision for uncollectible accounts of $5.0 and $10.9, respectively			133.7			159.4
Net intercompany receivables			—			36.4
Inventories, at average cost			53.6			54.1
Prepaid taxes			11.7			46.9
Other			37.4			28.8

	Total current assets	$	854.9		$	342.7

Other Assets
Income taxes recoverable through future revenues			41.4			34.6
Other regulatory assets			35.9			71.1
Trust assets			92.8			115.6
Other			80.8			79.0

	Total other assets	$	250.9		$	300.3

Total Assets		$	3,137.9		$	2,659.6

	At March 31, 2004			At December 31, 2003

ASSETS

Property
Property, plant and equipment	$	3,899.7		$	3,875.4
Less: Accumulated depreciation and amortization	(1,795.9		)	(1,769.1		)
Net property	2,103.8			2,106.3

Current Assets
Cash and temporary cash investments (Note 3)	36.6			17.2
Accounts receivable, less provision for uncollectible accounts of $3.6 and $3.6, respectively	150.4			160.4
Inventories, at average cost (Note 3)	57.3			49.6
Prepaid taxes	34.8			46.4
Other (Note 3)	17.2			24.4
Total current assets	296.3			298.0

Other Assets
Income taxes recoverable through future revenues	41.9			43.3
Other regulatory assets	37.1			36.1
Other (Note 3)	159.5			176.4
Total other assets	238.5			255.8

Total Assets	$	2,638.6		$	2,660.1

			At September 30, 2003		At December 31, 2002
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholder's equity
	Common stock		$	0.4	$	0.4
	Other paid-in capital			771.8		771.7
	Accumulated other comprehensive income			35.3		1.5
	Earnings reinvested in the business			387.2		395.3

		Total common shareholder's equity	$	1,194.7	$	1,168.9
Preferred stock				22.9		22.9
Long-term debt				686.8		665.5

		Total capitalization	$	1,904.4	$	1,857.3

Current Liabilities
Current portion—long-term debt (Note 8)				447.1		1.1
Accounts payable				75.9		96.5
Net intercompany payables				34.4		—
Accrued taxes				90.5		100.5
Accrued interest				8.5		19.0
Other				16.3		17.8

		Total current liabilities	$	672.7	$	234.9

Deferred Credits and Other
Deferred taxes				388.8		370.9
Unamortized investment tax credit				52.9		55.1
Trust obligations				70.8		101.2
Other				48.3		40.2

		Total deferred credits and other	$	560.8	$	567.4

Contingencies (Note 9)
Total Capitalization and Liabilities			$	3,137.9	$	2,659.6

	At March 31, 2004		At December 31, 2003

CAPITALIZATION AND LIABILITIES

Capitalization
Common shareholders’ equity
Common stock	$	0.4	$	0.4
Other paid-in capital	781.1		780.5
Accumulated other comprehensive income	34.3		38.2
Earnings reinvested in the business	308.5		321.7
Total common shareholders’ equity	1,124.3		1,140.8

Preferred stock	22.9		22.9

Long-term debt (Note 6)	687.1		687.3
Total capitalization	1,834.3		1,851.0

Current Liabilities
Accounts payable	89.4		88.9
Accrued taxes	69.5		66.4
Accrued interest	14.6		10.2
Other (Note 3)	21.4		24.6
Total current liabilities	194.9		190.1

Deferred Credits and Other
Deferred taxes	379.9		381.7
Unamortized investment tax credit	51.5		52.2
Other (Note 3)	178.0		185.1
Total deferred credits and other	609.4		619.0

Contingencies (Note 8)

Total Capitalization and Liabilities	$	2,638.6	$	2,660.1

	Three Months Ended September 30,						Nine Months Ended September 30,
$ in millions	Three Months Ended September 30,						Nine Months Ended September 30,
$ in millions	2003			2002			2003			2002
Net income	$	80.0		$	74.5		$	205.3		$	183.0
Net change in unrealized gains (losses) on financial instruments		3.9			(28.2	)		6.5			(22.3	)
Net change in deferred gains on cash flow hedges		28.9			—			30.2			—
Deferred income taxes related to unrealized gains (losses)		(1.1	)		12.2			(2.9	)		9.7

Comprehensive income	$	111.7		$	58.5		$	239.1		$	170.4

($ in millions)	Net Income Increase (Decrease)

	2003
	First
Description of Adjustment	Quarter
Supplemental Executive Retirement Plan (1)	(0.2	)
Stock incentive units (2)	(0.2	)
Sub-total pre-tax impact	(0.4	)

Income taxes (3)	0.2
Total Net Income Impact	(0.2	)

$ in millions except per share amounts	Three Months Ended March 31, 2003
	(as previously reported)			(as restated)

Revenues
Electric revenues	$	295.7		$	295.7

Operating Expenses
Fuel	55.6			55.6
Purchased power	20.0			20.0
Operation and maintenance	35.4			35.8
Depreciation and amortization	29.1			29.1
Amortization of regulatory assets, net	12.1			12.1
General taxes	28.3			28.3
Total operating expenses	180.5			180.9

Operating income	115.2			114.8

Interest expense	(12.8		)	(12.8		)
Other income	1.0			1.0

Income Before Income Taxes and Cumulative Effect of Accounting Change	103.4			103.0

Income tax expense	39.4			39.2

Income Before Cumulative Effect of Accounting Change	64.0			63.8

Cumulative effect of accounting change, net of tax	17.0			17.0

Net Income	81.0			80.8

Preferred dividends	0.2			0.2

Earnings on Common Stock	$	80.8		$	80.6

$ in millions	Three Months Ended March 31, 2003
	(as previously reported)			(as restated)

Operating Activities
Net income	$	81.0		$	80.8
Adjustments:
Depreciation and amortization	29.1			29.1
Amortization of regulatory assets, net	12.1			12.1
Deferred income taxes	23.7			23.6
Cumulative effect of accounting change, net of tax	(17.0		)	(17.0		)
Changes in working capital:
Accounts receivable	11.8			11.8
Accounts payable	8.5			8.4
Accrued taxes payable	11.2			11.2
Accrued interest payable	(10.8		)	(10.8		)
Prepayments	(2.6		)	(2.6		)
Inventories	2.2			2.2
Deferred compensation assets	30.5			30.5
Deferred compensation obligations	(31.2		)	(31.2		)
Other	0.1			0.5
Net cash provided by operating activities	148.6			148.6

Investing Activities
Capital expenditures	(35.0		)	(35.0		)

Net cash used for investing activities	(35.0		)	(35.0		)

Financing Activities
Dividends paid on common stock	(82.5		)	(82.5		)
Dividends paid on preferred stock	(0.2		)	(0.2		)

Net cash used for financing activities	(82.7		)	(82.7		)

Cash and Temporary Cash Investments
Net change	30.9			30.9
Balance at beginning of period	17.1			17.1

Balance at end of period	$	48.0		$	48.0

Cash Paid During the Period For:
Interest	$	22.6		$	22.6
Income taxes	$	(5.0	)	$	(5.0	)

$ in millions	At March 31, 2003
	(as previously reported)			(as restated)

ASSETS

Property
Property, plant and equipment	$	3,803.2		$	3,803.2
Less: Accumulated depreciation and amortization	(1,696.1		)	(1,696.1		)
Net property	2,107.1			2,107.1

Current Assets
Cash and temporary cash investments	48.0			48.0
Accounts receivable, less provision for uncollectible accounts of $5.0 as reported and restated	147.5			147.5
Intercompany receivables, net	36.3			36.3
Inventories, at average cost	51.9			51.9
Prepaid taxes	35.2			35.1
Other	16.8			16.6
Total current assets	335.7			335.4

Other Assets
Income taxes recoverable through future revenues	43.5			43.5
Other regulatory assets	68.8			68.8
Other	159.5			158.9
Total other assets	271.8			271.2

Total Assets	$	2,714.6		$	2,713.7

	Three Months Ended March 31,
Cash Flows	2004			2003
$ in millions				(as restated)
Cash flows – Other
Payroll taxes payable	$	(11.2	)	$	—
Deposits and other advances	(3.9		)	(0.7		)
Other	(0.3		)	1.2
Total cash flows – Other	$	(15.4	)	$	0.5

	Three Months Ended March 31,
Results of Operations	2004			2003
$ in millions				(as restated)
Comprehensive income
Net income	$	62.0		$	80.8
Net change in unrealized gains (losses) on financial instruments, net of reclassification adjustments	(5.6		)	(8.1		)
Net change in deferred gains on cash flow hedges	(0.7		)	(0.3		)
Deferred income taxes related to unrealized gains (losses)	2.4			3.6
Comprehensive income	$	58.1		$	76.0

	Pension						Postretirement
Net periodic benefit (income) cost	2004			2003			2004			2003
$ in millions				(as restated)
Service cost	$	0.9		$	0.8		$	—		$	—
Interest cost	4.0			4.1			0.5			0.5
Expected return on assets	(5.4		)	(6.3		)	(0.2		)	(0.1		)
Amortization of unrecognized:
Actuarial (gain) loss	0.5			0.1			(0.2		)	(0.3		)
Prior service cost	0.6			0.7			—			—
Transition obligation	—			—			—			0.1
Net periodic benefit (income) cost	$	0.6		$	(0.6	)	$	0.1		$	0.2

$ in millions	At March 31, 2004			At March 31, 2003
				(as restated)
Revenues:
Electric	$	300.4		$	295.7

Operating income:
Electric	$	112.6		$	119.3
Other (a)	(5.7		)	(4.5		)
Total operating income	$	106.9		$	114.8

Depreciation and amortization:
Electric	$	28.3		$	29.1

Expenditures - construction additions:
Electric	$	22.9		$	20.5

Assets:
Electric	$	2,535.9		$	2,575.5
Unallocated corporate assets	102.7			138.2
Total assets	$	2,638.6		$	2,713.7

	Payment Year
Long-term Obligations ($ in millions)	2004		2005 & 2006		2007 & 2008		Thereafter		Total
Long-term debt	$	0.4	$	0.8	$	8.6	$	673.6	$	683.4
Capital lease	0.5		1.4		1.4		1.5		4.8
Operating leases	0.8		0.4		—		—		1.2
Coal contracts	270.2		211.2		84.6		127.7		693.7
Other long-term obligations	9.9		14.8		1.0		—		25.7
Total long-term Obligations	$	281.8	$	228.6	$	95.6	$	802.8	$	1,408.8

	Expiring Year
Commercial Commitments ($ in millions)	2004		2005 & 2006		2007 & 2008		Thereafter		Total
Credit facilities	$	150.0	$	—	$	—	$	—	$	150.0
Guarantees	—		17.8		—		—		17.8
Total commercial commitments	$	150.0	$	17.8	$	—	$	—	$	167.8

			~~DP&L~~Rating		Outlook	Effective
Fitch Ratings	BBB	Negative		April 2004
Moody’s Investors Service	Baa3	Negative		April 2004
Standard & ~~Poor's Corp~~Poor’s Corp.	~~BBB~~ BBB-	~~Stable~~
~~Fitch Ratings~~ Negative	A	~~Negative~~
~~Moody's Investors Service~~	~~Baa1~~	~~Stable~~ March 2004

Item 1.Financial Statements

Income Tax Expense

Cumulative Effect of Accounting Change

**Item 1.*Financial Statements***

	Long-term Debt
Expected Maturity Date	Amount ($ in millions)		Average Rate
2003	$	446.2	8.0	%
2004		1.1	4.0	%
2005		1.1	4.0	%
2006		1.1	4.0	%
2007		9.3	6.1	%
Thereafter		675.1	5.5	%

Total	$	1,133.9	6.5	%

Fair Value	$	1,166.7

Expected Maturity	Long-term Debt
Date	Amount		Average Rate
	($ in millions)
2004	$	0.9	4.2	%
2005	1.1		3.9	%
2006	1.1		3.9	%
2007	9.3		6.1	%
2008	0.7		2.6	%
Thereafter	675.1		5.5	%
Total	$	688.2	5.5	%

Fair Value	$	619.1

		THE DAYTON POWER AND LIGHT COMPANY ~~(Registrant)~~
		(Registrant)


Date:	November ~~6, 2003~~5, 2004	/s/ James V. Mahoney	~~/s/~~ ~~STEPHEN F. KOZIAR~~ ~~Stephen F. Koziar~~
		James V. Mahoney
		President and Chief Executive Officer (principal executive officer)


	November ~~6, 2003~~5, 2004	/s/ Pamela Holdren	~~/s/~~ ~~CAROLINE E. MUHLENKAMP~~ ~~Caroline E. Muhlenkamp~~ ~~Group Vice President~~
		Pamela Holdren
		Treasurer and Interim Chief Financial Officer (principal financial and principal accounting officer)

	November 5, 2004	/s/ Daniel L. Thobe
		Daniel L. Thobe
		Corporate Controller